Geetha Surendran and Surendran Nair v. The Kerala Financial Corporation

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ## **`THE HONOURABLE MR. JUSTICE AMIT RAWAL`** ## **`MONDAY, THE 20[TH] DAY OF MARCH 2023 / 29TH PHALGUNA, 1944`** ## **`WP(C) NO. 7614 OF 2009`** ## **`PETITIONERS:`** ``` 1GEETHA SURENDRAN W/O SURENDRAN NAIR, PROPRIETRIX, SREELAKSHMI KALYANAMANDAPAM, SAROJ,TEMPLE ROAD,PARASSALA, THIRUVANANTHAPURAM. ``` ``` 2SURENDRAN NAIR SAROJ,TEMPLE ROAD, PARASSALA, THIRUVANANTHAPURAM. ``` ``` BY ADVS. SRI.G.S.REGHUNATH SRI.R.MANOJ ``` ## **`RESPONDENTS:`** - `1 THE KERALA FINANCIAL CORPORATION REPRESENTED BY ITS MANAGING DIRECTOR, KERALA STATE FINANCIAL CORPORATION, VELLAYAMBALAM, THIRUVANANTHAPURAM.` - `2 THE CHIEF MANAGER KERALA STATE FINANCIAL CORPORATION, VELLAYAMBALAM, THIRUVANANTHAPURAM.` ``` 3K.P.SURESH BABU CHERUMKUZHI HOUSE, VELLARADA VILLAGE, NEYYATTINKARA. ``` ``` BY ADVS. ADV. VENUGOPAL.M.R SRI.A.ABDUL KHARIM SRI.P.GOPALAKRISHNAN NAIR SMT.DHANYA P.ASHOKAN(K/001671/2000) ``` ``` THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON ``` ``` 20.03.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ``` WP(C) NO. 7614 OF 2009 ``` ``` 2 ``` ## **JUDGMENT** Notice of sale dated 03.03.2009 Ext.P3 of the Kerala Financial Corporation, sale deed dated 25.03.2009 Ext.R3(a) and sale notice dated 27.03.2009 in favour of the respondent No.3 Ext.R3(b), as per the amendment caused in the writ petition, are under challenge on behalf of the petitioners. 2. Petitioners Smt.Geetha Surendran and Sri.Surendran Nair are wife and husband. Facility of loan was taken by the 1[st] petitioner from the kerala Financial Corporation and in lieu thereof property measuring 32.38 Ares of property situated in Survey Nos.187/6, 187/6-1, 187/6-4-1 & 187/6-3 of Vellarada Village was mortgaged and 2[nd] petitioner owner of 12.14 Ares in Survey No.187/6-1 stood as guarantor for the 1[st] petitioner. Though substantial payments were made, with passage of time, owing to acute financial constraints, payments became erratic and was served with a notice dated 05.11.2008, Ext.P1, reflecting an amount of Rs.2,00,94,900/- was outstanding. Corporation came out with a one-time settlement scheme to close the account in case ``` WP(C) NO. 7614 OF 2009 ``` ``` 3 ``` an amount Rs.73.75 lakhs was remitted. Though it was opted for but settlement could not be reached by the petitioners. 3. Learned counsel representing the petitioners submitted that corporation cannot put the property of the guarantor ie., 2[nd] petitioner measuring 12.14 Ares by invoking the provisions of Section 29 of the State Financial Corporations Act, which is totally illegal and void as per the judgment of Supreme Court in _**Ormi Textiles and Another**_ v. _**State of Uttarpradesh and Others**_ [2008 (5) SCC 194]. In the aforementioned judgment, while noticing the provisions of section 29, it has been held that corporation does not have any power in respect of the property which is not the subject matter of the mortgage, thus the property belonging to the guarantor could not have been attached or attempted to be sold against the dues. 4. On the other hand, learned counsel for the respondents raised the objection of non-maintainability of the writ petition as petitioners have not come to the court with clean hands in not placing on record the copy of the mortgage deed. Both the petitioners stood as mortgagors by mortgaging the property of 31 ``` WP(C) NO. 7614 OF 2009 ``` ``` 4 ``` cents in Re-Survey No.187/1-6, therefore, the benefit of the judgment referring to the provisions of section cannot be availed. 5. I have heard the learned counsel for the parties and appraised the paper book. 6. Section 29 of the State Financial Corporations Act reads as under: ## — **29. 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 concerns, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. (2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property. (3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original ``` WP(C) NO. 7614 OF 2009 ``` ``` 5 ``` goods. (4) Where any action has been taken against an industrial concern under the provisions of sub-section (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto. (5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern. ## 7. In the judgment cited above, Supreme Court in paragraph 15,16 and 17 held as under: **15.** For the purpose of invoking Section 29 of the Act, the borrower must have a liability to the corporation under an agreement. It must make a default in repayment of any loan or advance, etc. The corporation in such a situationshall inter alia have the right to take over the management or possession or both of the industrial concerns. This power is in addition to the power of the a right to transfer by way of lease or sale and realise the property pledged. mortgaged, ``` WP(C) NO. 7614 OF 2009 ``` ``` 6 ``` hypothecated or assigned to the corporation. The right to transfer by way of lease or sale, however, is not an independent right. Only in case of default, such a right can be exercised. We must keep in mind that the powers contained in two parts of Section 29 of the Act are separate and distinct. The power to take over the management is ordinarily exercised when the concern is an ongoing one. But, when a power is conferred to sell the property unilaterally, the same must have a nexus with the mortgaged property. The power to sale cannot be read in isolation. It can also realise the mortgaged property which would mean that when a property had been sold, only the mortgaged property can be realised and not any other property which was not the subject-matter of mortgage. What can be transferred by the mortgagee. even in terms of the provisions of the Transfer of Property Act is the property which was the subject-matter of mortgage and not any other. A power to take over the management or possession is a statutory power. As and when the debt is realised, the corporation would be bound to hand over the management or possession of the property, as the case may be, back to the industrial establishment. **16.** A mortgagee can have a right to sell a property even under the contract. The same must necessarily mean that the property to be sold is the one over which he has the right, title and interest. A sale without any right would be a nullity. **17.** For proper construction of the provisions of the Act, we may notice the provisions of Section 31 thereof. It provides for an additional remedy. Whereas Section 29 ``` WP(C) NO. 7614 OF 2009 ``` ``` 7 ``` confers a power to sell the property unilaterally, Section 31 provides inter alia for the same power only through the intervention of the court. 8. There would have been force in the argument of the petitioners, had there been an evidence by way of document on record to establish that the property of the petitioner No.2 (guarantor) which was not mortgaged or given in guarantee can be taken into possession and put to sale under Section 29. During the course of hearing, respondents have placed on record the copy of agreement of loan dated 24.04.1996 executed by both the petitioners in respect of 31 cents in Re-Survey No.187/6. The Schedule of the property and name of the parties to the agreement reads as under: “This AGREEMENT made on this the 24[th] day of April One Thousand Nine Hundred and Ninety Six BETWEEN Smt.GEETHA SREEDHARAN, Business woman, aged 34, D/o,Smt.Jagadamma, residing at ‘Saroj’ Temple Road, Parassala, Parassala, P.O., Parassala Village, Neyyattinkara Taluk, Thiruvananthapuram District (hereinafter called ‘the Borrower’ which expression shall include her heirs, executors, administrators, legal representatives and assigns wherever the context or meaning thereof shall so require or ``` WP(C) NO. 7614 OF 2009 ``` ``` 8 ``` permit) AND Shri.K.SURENDRAN NAIR, Businessman, aged 42, S/o.Krishna Pillai, residing at ‘Saroj’, Temple Road, Parassala, Thiruvananthapuram (hereinafter called ‘the Comortgagor’ which expression shall include her heirs, executors, administrators, legal representatives and assigns wherever the context or meaning thereof shall so require or permit) of the first part. The Borrower and the Co-mortgagor are hereinafter collectively referred to as ‘the Borrower’. THE SECOND SCHEDULE REFERRED TO ABOVE (The details of Land and Building) Registration District Thiruvananthapuram Registration Sub District Vellarada Taluk Neyyattinkara Firka Parassala Village Vellanadu Desom “ Vattom “ Panchayat “ Sy.No. Re-Sy.No.187/6 (OldSy.634/10) Tenure Pandarapattom Extent 31 Cents Together with the Industrial Building, trees and all other things contained therein. ``` 9 ``` ## **`WP(C) NO. 7614 OF 2009`** BOUNDARIES: East Property of Raghuveeran South Property of Robinson West Road & Property of Geetha North Property of Surendran The Borrower Smt.Geetha Sreedharan obtained the property by sale deed No.472 of 1993 of Vellarada S.R.O.” In this view of the matter, the ratio decidendi culled out in the judgment would not be applicable. Writ petition is bereft of the merits, accordingly dismissed. **Sd/AMIT RAWAL JUDGE** nak ``` WP(C) NO. 7614 OF 2009 ``` ``` 10 ``` ## **`APPENDIX OF WP(C) 7614/2009`** ``` PETITIONER EXHIBITS ``` ``` EXHIBIT P1TRUE COPY OF THE REVENUE RECOVERY NOTICE ISSUED TO THE PETITIONER BY THE 2ND RESPONDENT DATED 05.11.2008. ``` ``` EXHIBIT P2TRUE COPY OF THE COMMUNICATION ISSUED TO THE PETITIONER BY THE 2ND RESPONDENT DATED 15.02.2008. ``` ``` EXHIBIT P3TRUE COPY OF THE NOTICE ISSUED TO THE PETITIONERS DATED 03.03.2009. ``` ``` EXHIBIT P4TRUE COY OF THE REPRESENTATION SUBMITTED BY THE PETITIONER BEFORE THE 2ND RESPONDENT DATED 07.03.2009. ``` ``` EXHIBIT R3(A)TRUE COPY OF THE SALE DEED NO.342/09 OF SRO, VELLARADA DATED 25.3.2009 ``` ``` EXHIBIT R3(B)TRUE COPY OF THE SALE NOTE DATED 27.3.09 ```