TaxTMI 
TaxTMI 
2003 (3) TMI 605
X X X X Extracts X X X X
X X X X Extracts X X X X
....o. 49, House list khata No. 100A, Mannarayana Palya, Chalanayakanahalli village, Kasaba Hobli, Bangalore North Taluk, as collateral security in favour of KSFC, as Guarantors for repayment of the amounts advanced to A.P. Rocks Private Ltd. As the borrower committed default, KSFC passed an order dated 20‑11-2000 under section 29 of the State Financial Corporations Act, 1951 (for short 'SFC Act') directing that possession of the said two properties belonging to the petitioners be taken over. Feeling aggrieved, the Petitioners have filed these petitions praying that the said order dated 20-11-2000 be quashed and seeking a direction to KSFC (first Respondent in WP 37209/2000 and sole Respondent in WP 37907/2000) not to take possession of the said properties. Re: W.P. No. 24452/2001: 1.2 M/s. Rockwave Exports (P.) Ltd. the second Respondent in the petition, secured Financial Assistance from KSFC (first Respondent) in the form of subscription to non-convertible privately placed debentures issued by second respondent. The petitioner Veeraswamy was one of the sureties for repayment and he mortgaged his property bearing No. 288/38, Khata No. 312/273, Malavagappa village, Nidige H....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... further action. Contentions of Petitioners. 2. The petitioners have raised the following three contentions, to challenge the action of KSFC:- (i)Section 29 of the SFC Act gives the right to a State Financial Corporation (a) to take over management and/or possession of the borrower industrial concern, and (b) to transfer by way of lease or sale and realize the property pledged, hypothecated or assigned to it section 29 does not empower a State Financial Corporation ('SFC' for short) to take possession or management of the property of the surety. Therefore, a State Financial Corporation has no power to take possession of a mortgaged by the surety in its favour. (ii)In respect of a loan advanced to an Industrial concern, repayment of which has been guaranteed by a surety, the State Financial Corporation should first proceed against the borrower (Industrial concern) and only when it is unable to recover the dues from the industrial concern, it can enforce the liability of the surety. (iii)The power given to a State Financial Corporation to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothe-cated or assigned is only with reference to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to provide medium and long term credit to industrial concerns (which may fall outside the normal activities of commercial Banks). The Act also confers special privileges on the SFCs in the matter of enforcement of claims against borrower. Sections 29 to 32G relate to recovery of the amounts due to a Financial Corporation. 4.2 Section 29 enables to recover the amounts by direct action without intervention of Courts under sub-sections (1) and (4) of section 29 of the SFC Act, which are relevant are exhausted below : "Rights of Financial Corporation in case of default.-(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....permission of the Board, where such removal is apprehended. (2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed." Section 32 of the Act prescribes the procedure of the District Judge in respect of Applications under section 31 sub-section (1A) of section 32 provides that when the application is for the relief mentioned in clause (aa) of section 31(1), the District Judge shall issue a notice calling upon the surety to show cause on a date to be specified in the notice why his liability should not be enforced. Sub-section (4A) provides if no cause is shown by the surety, on or before the date specified in the notice under sub-section (1A), the District Judge shall forthwith order the enforcement of the liability of the surety. 4.4 The term 'industrial concern' used in Sections 29 and 31 refers to an industrial concern which is a 'borrower' from SFC, or 'principal-debtor' of a SFC. Having regard to the provisions of section 25, read with section (2)(c), an 'Industrial concern' may become a debtor of a SF....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mething in the context, or in the objects of the statute, to suggest to the contrary (vide Glaxo Laboratories (I) Ltd. v. Presiding Officer, Labour Court AIR 1984 SC 505. It is impermissible to add or subtract words from any provision of the statute in the garb of finding out the intention of the Legislature. A statutory provision should be construed in a manner which will subserve and advance the purpose of the enactment and does not defeat the purpose, nor in a manner so as to render any part of it surplus or otiose (vide Maharastra State Financial Corpn. v. Jayacee Drugs & Pharmaceuticals (P.) Ltd. [1991] 2 SCC 637. 7. In P.K. Unni v. Nirmala Industries [1990] 2 SCC 378, the Supreme Court cautioned that the courts must, while interpreting a statutory provision, proceed on the assumption that the Legislature did not make a mistake and that it intended to say what it said; that even assuming that there is a defect or omission in the words used by the Legislature, the court would not go to its aid to correct or make up the deficiency, and that the courts cannot add words to a statute or read words into it, which are not there, especially when the literal meaning of the words use....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ative process. Language of section 6(1) is plain and unambiguous. There is no scope for reading something into it." 9. We will now apply the aforesaid principles of interpretation to section 29 of the SFC Act. The section specifically provides that the financial corporation shall have right to take over the management or possession or both of the industrial concern. The words are clear and unambiguous. If they are read literally or normally, they do not lead to any absurd result nor contradict the object of the Act. There is no defect in Legislative drafting. There is no reference to surety's properties. The right to take over the management or possession or both is conferred only in regard to the industrial concern and not conferred in respect of the security offered by the surety. Therefore, it is not permissible to add words to section 29 and read the section as authorising the Financial Corporation to take over the management or possession of the property of the sureties also. The first contention of petitioners is therefore upheld. 10. Section 31 was amended by the Amendment Act No. 43 of 1985, by including in the list of reliefs that could be sought in an application be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Punjab & Haryana High Court in Jasbir Kaur v. Punjab State Industrial Development Corpn. Ltd. AIR 2002 Punj. & Har. 74, wherein while repelling a contention that section 29 cannot be invoked against the Guarantor, it was held as follows : "14. The basic purpose of section 29 is to ensure a speedy recovery of the public dues. In order to achieve this objective the Corporation has been given the power to take over the industrial unit as also the property which is pledged/mortgaged or hypothecated etc., The provision is not restricted to the property belonging to the industrial concern. Any property which has been mortgaged or pledged can also be taken over. Keeping in view of the plain language and the dominant purpose of the provision, we find no reason to give it a restricted meaning. An interpretation which may defeat the object has to be avoided." [Emphasis supplied] (p. 77) 11.3 It is no doubt true that the said two decisions have held that the power to take possession under section 29 is not restricted to the property belong to the Industrial concern, but also extends to the property mortgaged by surety. But, both the decisions have ignored the specific wording of secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the second contention of the petitioners that the State Financial Corporation should first proceed against the industrial concern [borrower] and only if it is not able to recover the amount from the principal debtor, the creditor can proceed against the sureties has no merit, and is liable to be rejected. Re. Contention No. (iii) 16. Learned counsel for the KSFC submitted that applying the very principles of interpretation which were applied while dealing with contention (i), the latter part of section 29 should also be interpreted literally, without reading any restrictions in to it. It is pointed out that section 29 gives the right to the financial corporation to transfer by way of lease or sale and realize the property pledged, hypothecated or assigned to the Financial Corporation, without restricting such right only in respect of the property of the industrial concern/borrower. In the absence of any restrictive words, it is contended that the words "right to transfer by way of lease or sale and realize the property pledged, hypothecated or assigned to the financial corporation" would apply not only to the properties of the industrial concern/borrower, but any property ple....
X X X X Extracts X X X X
X X X X Extracts X X X X
....All ER 1061 that if the language used, "has a natural meaning we cannot depart from that meaning unless, reading the statute as a whole, the content directs us to do so". 18. It is well settled that every clause of a statute should be construed with reference to the context and other provisions of the Act, so as to make a consistent enactment of the whole statute relating to the subject matter. To ascertain the meaning of a clause in a statute, the Court must look at the whole statute, at what precedes and at what succeeds and not merely at the clause itself. The interpretation of the words will be by looking at the context, the collocation of the words and the objects of the words relating to the matter. The words are to be viewed in relation to the whole context, (vide the decision of the Constitution Bench in Gammon India Ltd. v. Union of India AIR 1974 SC 960). In State of West Bengal v. Union of India AIR 1963 SC 1241 the Supreme Court observed: "...The Court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law, and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operty leased to the transferee to enable the transferee to enjoy the property. It is not in dispute that the Financial Corporations do not take physical possession of the security while sanctioning or disbursing the loan. Therefore, the power of sale or lease will necessarily be in the context of the assets of the Industrial concern, possession of which the Financial Corporation is entitled to take under section 29(1). 21. Another indication in sub-section (1) of section 29 that the right of sale and lease conferred under that sub-section relates only to the properties of the industrial concern and not that of the surety, is the use of words 'as well as' between the first part, which enables the Financial Corporation to take over the management or possession or both of the industrial concern, and the second part which enables the Financial Corporation to transfer by way of lease or sale and realise the property that is secured in its favour. The use of the term 'as well as' would indicate that the right conferred by the words succeeding it, is in regard to the subject-matter of the words preceding it. To put it differently, the use of the term 'as well as' would show that the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the defaulting industrial concern with or without possession as well as the right to transfer by way of lease or sale of the hypothecated property to realise its dues. Since section 29 of the Act provides both the rights and the remedies as also the procedure for enforcement of the rights and is a complete code in itself, it is open to the Corporation to act under section 29 of the Act to realise the dues from the defaulting concern by following the procedure prescribed under section 29 of the Act. The Corporation does not require the assistance of the Court to enforce its rights while invoking the provisions of section 29 of the Act to recover its dues from the defaulting concern." [Emphasis supplied] (P. 658) The decision makes it clear that the rights exercisable by the Corporation under section 29 is only against the defaulting industrial concern and not any one else. 23. We should, however, at this stage refer to two decisions relied on by the learned counsel for KSFC which according to him, take a view contrary to what we have just now concluded. 23.1 The first is the decision in Thressiamma Varghese v. Kerala State Financial Corpn. AIR 1986 Kar. 222 (sic). The obser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....surety) in an application presented under section 31. The appellant before the Kerala High Court did not raise any contention in regard to section 29. Further, the petitioners before us do not dispute the position that KSFC can proceed against the sureties and their properties under section 31, particularly in view of the amendment inserting clause (aa) in section 31(1) by Amendment Act 43 of 1985. Therefore, the said decision is of no assistance. 23.2 The next decision is the Full Bench decision of the Allahabad High Court in Munnalal Gupta v. Uttar Pradesh Financial Corpn. AIR 1975 All. 416, wherein it is held that : "...Section 29, no doubt, defines the rights of the financial corporation to take over the management of the industrial concern or realise the mortgaged property by way of lease or sale. As we have already mentioned, the right given to the corporation under section 29 will extend to the property of surety also. . . ." (p. 419) Here again, the effect and purport of section 29 did not arise for consid-eration and the above observation is purely an obiter. In that case, the Corporation filed a petition under section 31 of the Act before the District Court seeki....