Statutory recovery against surety's property must follow the specific remedy under the Act, not section 29 direct action.

Section 29 of the State Financial Corporations Act, 1951 was held to be confined to the industrial concern and its secured property, so it cannot be used to take possession of, sell, or lease a surety's mortgaged property; enforcement against a surety must instead follow the separate statutory route under section 31 or civil proceedings. The Court also reaffirmed that a creditor need not first exhaust remedies against the principal debtor before proceeding against the surety, because the surety's liability is co-extensive under section 128 of the Indian Contract Act, 1872. The impugned action under section 29 against sureties' properties was therefore unsustainable.

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Issues: (i) Whether section 29 of the State Financial Corporations Act, 1951 authorises a State Financial Corporation to take possession of, or sell or lease, the property mortgaged by a surety. (ii) Whether the Corporation must first exhaust remedies against the principal debtor before proceeding against the surety. (iii) Whether the statutory remedy against the surety's property lies under section 29 or under section 31 of the State Financial Corporations Act, 1951.

Issue (i): Whether section 29 of the State Financial Corporations Act, 1951 authorises a State Financial Corporation to take possession of, or sell or lease, the property mortgaged by a surety.

Analysis: Section 29 confers the right to take over the management or possession of the industrial concern and, in the same setting, to transfer by lease or sale the secured property. The language was held to be clear and unambiguous and confined to the industrial concern. The provision does not refer to the surety's property, and no words can be added to enlarge a statutory power that authorises direct action without court intervention. The Court also noted that such an expansion would trench upon Article 300A of the Constitution of India. Decisions taking the contrary view were treated as not laying down the correct interpretation.

Conclusion: Section 29 does not empower the Corporation to take possession of, or sell or lease, the surety's property. The issue is decided in favour of the assessee.

Issue (ii): Whether the Corporation must first exhaust remedies against the principal debtor before proceeding against the surety.

Analysis: The liability of the surety is co-extensive with that of the principal debtor under section 128 of the Indian Contract Act, 1872. On settled principle, the creditor is not required to first proceed against the principal debtor or exhaust remedies against him before enforcing the surety's liability. The Court followed the established rule that the surety may be proceeded against immediately upon default.

Conclusion: The Corporation is not required to first proceed against the principal debtor before enforcing the surety's liability. This issue is against the assessee.

Issue (iii): Whether the statutory remedy against the surety's property lies under section 29 or under section 31 of the State Financial Corporations Act, 1951.

Analysis: Reading sections 29, 31 and 32 together, the Court held that section 29 is a direct remedy confined to the industrial concern, whereas section 31 expressly provides a remedy before the District Judge for enforcing the liability of any surety and for sale of property secured as security. The amended scheme showed that proceedings against sureties are intended to be pursued through section 31 or civil court, not through section 29. The statutory arrangement was treated as a consistent code distinguishing recovery against the borrower from enforcement against the surety.

Conclusion: The remedy against the surety's property lies under section 31, or by civil court proceedings, and not under section 29. This issue is decided in favour of the assessee.

Final Conclusion: The impugned action under section 29 against the sureties' properties could not be sustained, and the Corporation must proceed against such properties only through the remedy specifically provided for enforcement against sureties.

Ratio Decidendi: A statutory power permitting direct recovery without court intervention must be strictly confined to the persons and properties expressly covered by the provision, and where the Act separately provides a remedy for sureties, that remedy alone governs enforcement against a surety's mortgaged property.

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