IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 13 TH DAY OF MARCH, 2013 PRESENT THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.MANOHAR WA No.2263/2007 c/w. WA Nos.1077/2008, 1078/2008 & 479/2006 [GM KSFC] In WA No.2263/2007: BETWEEN: SARASAMMA W/o P.NAGARAJ HINDU, AGED ABOUT 42 YEARS RESIDING AT NO.20/1 DODDABANASWADI MAIN ROAD NEAR BUS STAND BANGALORE–560 043 ... APPELLANT (By Sri PRAMOD M.KATHAVI, Adv.,) AND: 1. KARNATAKA STATE FINANCE CORPORATION No.1/1, THIMMAYYA ROAD
Transcript
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 13TH DAY OF MARCH, 2013
PRESENT
THE HON’BLE MR. JUSTICE N.KUMAR
AND
THE HON’BLE MR. JUSTICE B.MANOHAR
WA No.2263/2007
c/w.
WA Nos.1077/2008, 1078/2008 &
479/2006 [GM KSFC]
In WA No.2263/2007:
BETWEEN: SARASAMMA W/o P.NAGARAJ HINDU, AGED ABOUT 42 YEARS RESIDING AT NO.20/1 DODDABANASWADI MAIN ROAD NEAR BUS STAND BANGALORE–560 043 ... APPELLANT
(By Sri PRAMOD M.KATHAVI, Adv.,)
AND: 1. KARNATAKA STATE FINANCE CORPORATION
No.1/1, THIMMAYYA ROAD
2
NEAR CANTONMENT RAILWAY STATION BANGALORE-560 052 REPRESENTED BY ITS
MANAGING DIRECTOR 2. M/s. ETHNIC INFORMATICS PRIVATE LTD.,
FLAT No.A-2, KRISHNALEELA APARTMENTS 8TH MAIN ROAD, MALLESWARAM BANGALORE-560 003 NOW AT No.17/1, CUNNINGHAM ROAD BANGALORE–560 052 REPRESENTED BY ITS DIRECTOR Sri S.BADARINARAYAN
3. S. BADARINARAYAN S/o K.SRINIVASA MURTHY HINDU, AGED ABOUT 52 YEARS R/AT FLAT A-2, KRISHNALEELA APARTMENTS 8TH MAIN ROAD, MALLESWARAM BANGALORE-560 003
4. Smt. ROOPA JAGANATH D/o. Mr. JAGANATH HINDU, MAJOR R/AT No.58, RANGANATH NILAYA 3RD STAGE, VINAYAKA LAYOUT BANGALORE-560 040 NOW AT No.363, 9TH MAIN DOLLARS COLONY, SARAKKI 4TH PHASE J.P.NAGAR, BANGALORE
5. M/s. TAMARIND 113/2B, HORAMAVU VILLAGE K.R.PURAM HOBLI, BANGALORE SOUTH TALUK REPRESENTED BY ITS PARTNER Sri G.N.SRINIVASALU
6. KUMARASWAMY HINDU, AGED ABOUT 45 YEARS
3
PROPRIETOR, MAYA HOTELS PVT. LTD., NO.52/1, CHURCH STREET BANGALORE-560 001
7. Sri G.B.LOKESH DEPUTY MANAGER (LEGAL) KARNATAKA STATE FINANCIAL CORPORATION NO.1/1, THIMMAYYA ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE-560 052
8. Sri MAHTRE RAJENDRA KUMAR MANAGER (TECHNICAL) K.S.F.C.,No.1/1, THIMMAYYA ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE-560 052
9. Sri R.J.FERNANDEZ D.G.M. (CREDIT II)
K.S.F.CORPORATION NO.1/1, THIMMAYYA ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE-560 052 ... RESPONDENTS
(By Sri GURURAJ JOSHI, ADV., FOR R1
M/s K.NARAYANA FOR R2-4 Sri UDAYA HOLLA, SR. COUNSEL FOR R5; R6 SERVED
Sri T.NARAYANA SWAMY, ADV., FOR R7 Sri BIPIN HEGDE, ADV., FOR R8 & 9)
THIS WRIT APPEAL FILED U/S 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE
THE ORDER PASSED IN WRIT PETITION NO.1348/2006
DATED 21/09/2007.
4
In W.A.No.1077/2008:
BETWEEN: Smt C. SARASAMMA W/o P. NAGARAJ AGED ABOUT 45 YEARS R/AT NO.20/1, MAIN ROAD BANASWADI, BANGALORE ... APPELLANT
(By Sri PRAMOD M. KATHAVI, ADV.,)
AND: 1. THE KARNATAKA STATE
FINANCIAL CORPORATION No.1/1, THIMMAIAH ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE-560 052 REPRESENTED BY MANAGING DIRECTOR
2. M/s. TAMARIND A REGISTERED FIRM OF PARTNERS No.113/2B, HORAMAVU VILLAGE K.R. PURAM HOBLI, BANGALORE SOUTH TALUK REPRESENTED BY ITS PARTNER Sri G.N.SRINIVASALU
3. Sri KUMARASWAMY AGED 48 YEARS PROPRIETOR: MAYA HOTELS PVT. LTD., NO.52/1, CHURCH STREET BANGALORE-560 001 ... RESPONDENTS
(By Sri GURURAJ JOSHI, ADV., FOR R1
Sri RAMESH BABU, ADV., FOR R2; R3 SERVED)
5
THIS WRIT APPEAL FILED U/S 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE
THE ORDER PASSED IN WRIT PETITION No.22389/05
DATED 13/12/06. In W.A.No.1078/2008:
BETWEEN: Smt C. SARASAMMA W/o. P. NAGARAJ AGED ABOUT 45 YEARS RESIDING AT No.20/1, MAIN ROAD DODDABANASWADI, BANGALORE ... APPELLANT
(By Sri PRAMOD M. KATHAVI, ADV.,)
AND: 1. THE KARNATAKA STATE FINANCIAL CORPORATION
No.1/1, THIMMAIAH ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE–560 052 REPRESENTED BY ASSISTANT GENERAL MANAGER R-II
2. S. BADARINARAYAN S/o K.SRINIVASA MURTHY AGED ABOUT 55 YEARS RESIDING AT FLAT NO.A-2 KRISHNA LEELA APARTMENTS 8TH MAIN ROAD, MALLESHWARAM BANGALORE–560 003
3. Smt. ROOPA JAGANATH D/o. JAGANATH, AGED MAJOR RESIDING AT NO.58, RANGANATH NILAYA 3RD STAGE, VINAYAKA LAYOUT
6
VIJAYANAGAR, BANGALORE–560 040
4. Sri O.N.RAMESH BABU S/o. O.V.NARSHIMA SHETTY AGED ABOUT 57 YEARS RESIDING AT SITE NO.89 CORPORATION DIVISION NO.5 WARD No.7, 11TH CROSS, 2ND MAIN ROAD, MALLESHWARAM BANGALORE–560 003
5. M/s. ETHNIC INFORMATICS (P) LTD., FLAT NO.A-2, KRISHNALEELA APARTMENTS 8TH MAIN ROAD, MALLESHWARAM BANGALORE–560 003 REPRESENTED BY ITS DIRECTOR Mr. S.BADARINARAYAN ... RESPONDENTS
(By Sri GURURAJ JOSHI, ADV., FOR R1
M/s K.NARAYANA FOR R2, R3 & R5; R4 SERVED)
THIS WRIT APPEAL FILED U/S 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE
THE ORDER PASSED IN THE WRIT PETITION NO.21589/05
DATED 13/12/06. In W.A.No.479/2006:
BETWEEN: Smt SARASAMMA W/o P.NAGARAJ HINDU, AGED ABOUT 42 YEARS RESIDING AT No.20/1 DODDABANASWADI MAIN ROAD NEAR BUS STAND BANGALORE–560 043 ... APPELLANT
7
(By Sri PRAMOD M.KATHAVI, Adv.,) AND: 1. M/s. TAMARIND A. MULTICUSINE
FAMILY RESTAURANT AND BAR NOW AT RING ROAD
RAMAMURTHY NAGAR MAIN ROAD, BANASWADI POST BANGALORE–560 043, A PARTNERSHIP FIRM REPRESENTED BY ITS MANAGING PARTNER Sri G.N. SRINIVASULU
2. KARNATAKA STATE FINANCIAL CORPORATION No.1/1 THIMMIAH ROAD NEAR CANTONMENT RAILWAY STATION BANGALORE–560 052 NOW REPRESENTED BY ASSISTANT GENERAL MANAGER R-II
3. Sri KUMARASWAMY AGED ABOUT 46 YEARS PROPRIETOR, MAYA HOTELS PVT. LTD., NO.52/1, CHURCH STREET BANGALORE–560 001 ... RESPONDENTS
THIS WRIT APPEAL FILED U/S 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE
THE ORDER PASSED IN WRIT PETITION NO.22389/2005
DATED 24/02/2006.
THESE APPEALS ARE COMING ON FOR FINAL
HEARING THIS DAY, N. KUMAR J., DELIVERED THE FOLLOWING:-
8
J U D G M E N T
The subject matter of these appeals and the parties are
one and the same. Therefore, they are taken up for
consideration together and disposed of by this common
order.
2. W.P.No.21589/2005 is filed by S.Badarinarayan;
Smt.Roopa Jagannath and O.N.Mahesh Babu [for short
hereinafter referred to as the “Principal Debtors”];
Smt.C.Sarasamma [for short hereinafter referred to as the
“Guarantor”] and M/s.Ethnic Informatics (P) Limited [for
short hereinafter referred to as the “Company”] against the
Karnataka State Financial Corporation [for short hereinafter
referred to as the “Corporation”]. The subject matter of these
proceedings is all that piece and parcel of the
commercial property bearing No.113/2, New No. 113/2B,
Outer Ring Road, Horamavu, K.R.Puram Hobli, Near
Ramamurthy Nagar Railway Bridge, standing in the name of
Smt.C.Sarasamma/guarantor/4th petitioner to the writ
9
petition, measuring 14 guntas (15,000 sq.ft) and consisting
of building [for short hereinafter referred to as the “Schedule
Property”]. The relief sought in the said writ petition is to
declare the action of the Corporation in bringing the said
Schedule Property as illegal, arbitrary and to declare that
they have no power to sell the schedule property and
restrain them from interfering with the possession of
petitioners No.3 and 4 and for other consequential reliefs.
3. W.P.No.22389/2005 is filed by M/s.Tamarind, a
Registered Firm of Partners against the Corporation,
guarantor and one Kumaraswamy for quashing all sale
proceedings in respect to the schedule property pursuant to
the public notice dated 29.7.2005 and in the alternative
declare the sale of the schedule property held by the
Corporation pursuant to the public notice dated 29.7.2005 is
illegal, invalid and without jurisdiction. Petitioner-
M/s.Tamarind, is a tenant of the schedule property [for short
hereinafter referred to as the “Tenant”] under the guarantor.
10
Third respondent-Sri Kumaraswamy is the purchaser in the
public auction held in pursuance of the public notice dated
29.7.2005 [for short hereinafter referred to as the
“Purchaser”].
4. In the writ petition filed by the Principal Debtor,
Guarantor and the Company, it was contended that the
Corporation is a statutory public financial institution as
defined in Section 4A of the Companies Act, 1956. It has
been established with the object of rendering financial
assistance to industrial concerns and is wholly owned by the
State Government. The monies advanced and lent by it to
the industrial concerns are in the nature of public monies
collected by way of refinance loans from SIDBI and other
Central Public Financial Institutions in addition to the public
monies made available by the State Government and also
raised by way of debentures. Hence, they qualify as “State”
under Article 12 of the Constitution of India.
11
5. The petitioners 1 to 3 in the said writ petition
had borrowed money from the financial corporation.
Petitioners No.1 to 3 are the Directors of the 5th Respondent-
Company. The Corporation had sanctioned the term loan on
13.1.2001, an amount of `240 lakhs to the Company for the
purpose of setting up Developing Software solutions
educational institutions. Subsequently, a sum of
`1,25,00,000/- was sanctioned as additional loan. Petitioners
No.1 and 2 offered personal guarantee for repayment of the
said loan. They also offered the property belonging to the
guarantor as collateral security. They committed default. The
Corporation initiated proceedings under Section 29 of the
State Financial Corporations Act, 1951, [for short hereinafter
referred to as the “Act”]. When proceedings were initiated
under Section 29 of recovery of the amount outstanding in a
sum of Rs.366.92 lakhs, the guarantor did not receive any
notice. The Company wrote a letter seeking for one time
settlement. However, the said one time settlement did not
come through. The schedule property was sought to be
auctioned by way of public sale in pursuance of the
12
proceedings issued under Section 29 of the Act. Infact, they
were not successful earlier on three occasions. However, on
the 4th occasion, when the sale of the property was duly
notified in pursuance of the public notice dated 29.7.2005,
the purchaser offer to purchase the said property for a sum
of Rs.2,90,00,000/-. They made efforts to take over
possession of the primary assets of the Company, which was
offered as collateral security by petitioners No.3 and 4. It is
at that stage, the writ petition came to be filed challenging
the entire proceedings on the ground that the property
belonging to a guarantor, which is offered as a collateral
security cannot be sold under Section 29 of the Act. The
schedule property was in the occupation of the tenant.
Therefore, tenant also preferred the other writ petition
challenging the sale of the schedule property on identical
grounds.
On second day of December 2005, a common order
came to be passed in the aforesaid two writ petitions to the
effect, if the Principal Debtor and the Guarantor deposit 20%
13
of the total liability within 10 days from the date of the order,
the KSFC., shall consider their case for one time settlement
and thereafter they are at liberty to discharge the entire
liability in terms of one time settlement [OTS] Scheme. In the
event, they failed to deposit 20% of the total liability within
10 days, the schedule property shall be auctioned and the
purchaser was also given an opportunity to participate in the
auction and it was made clear whoever pays the highest bid
shall be considered as the auction purchaser. It was made
clear that auction shall be confined to the Site alone since
the tenant has constructed the building at his cost and the
sale shall be subject to its leasehold rights. After the said
order on 21.12.2005, the guarantor filed a memo stating that
she is shown in the cause-title of the WP No.29585/2005 as
having filed the same against the Corporation along with
others. She had not given instruction to any one to file the
above writ petition, her name is misused and forced by some
one to create evidence as administered against her.
Therefore, she prayed for deletion of her name from the
petition and requested for the action may kindly be initiated
14
against the concerned person for indulging activities
amounting to criminal contempt of Court. On the next day
i.e., on 22.12.2005 she filed an application under Section
151 of Cr.P.C., elaborating what she has stated in the memo
and prayed for deletion of her name from the cause-title of
the writ petition and for taking appropriate proceedings
against the concerned. The application was supported by an
affidavit. On 23.12.2005, after recording the order dated
2.12.2005, it was observed that the amount of 20% as
ordered by the order dated 2.12.2005 is not deposited before
the Court. The tenant offered to pay a sum of Rs.24.92
lakhs as against Rs.2.90 lakhs offered by the auction
purchaser. The Court accepted the offer of the tenant and he
was permitted to deposit the amount within 45 days from
the date of the order. If the amount is not paid or deposited
within 45 days, then, the request of the auction purchaser
would be considered. Thereafter it also recorded the
aforesaid application filed by the guarantor. It also observed
that the first petitioner in WP No.21589/2005 has also filed
an affidavit making allegations against the guarantor.
15
Therefore, time was granted for the parties to file objections
to the application filed by the guarantor and similarly the
guarantor to file objections to the affidavit filed by the first
petitioner. Thereafter, the tenant filed an application i.e., IA-
I/2006 seeking clarification of the order dated 23.12.2005.
The Corporation also filed a memo seeking permission of the
Court to execute the sale deed in favour of the tenant. After
noticing what has transpired earlier, the Court observed that
in view of the fact that the auction purchaser has already
deposited the amount, the auction has to be confirmed in
favour of the petitioner in WP No.22389/2005 and similarly
KSFC., has to execute the sale deed in favour of the auction
purchaser. As a matter of fact, no clarification is required as
the auction was conducted in the presence of all the parties
and their respective counsels. Accordingly, IA-I/2006 was
disposed of. The said order dated 24.12.2005 was
challenged by the guarantor in W.A.No.479/2006. The
Division Bench has passed an order on 30.5.2006 declining
to entertain the appeal observing that the legal issues raised
in the Writ Petitions as well as in this Writ Appeal should be
16
decided by the learned single Judge in the Writ Petitions at
the first instance. It is open to the petitioners in the writ
petitions to canvas the legal position urged in the Writ
Petitions. It was made clear that the impugned orders as well
as all the actions taken pursuant to the said orders are
subject to the final decision in the Writ Petitions.
Subsequently, on 13.12.2006 when those two writ petitions
were listed for preliminary hearing in ‘B’ group, a submission
was made on behalf of the learned Counsel for the
petitioners that he does not press the petition since it has
become infructuous having regard to the subsequent events.
Accordingly, both the writ petition came to be dismissed as
having become infructuous on 13.12.2006.
6. In fact, the guarantor had also filed one more
writ petition in W.P.No.1348/06 challenging the sale
notification dated 06.03.2005 on identical grounds. On the
day the writ petition had been filed, no sale had taken place
in pursuance to the said notice. The said writ petition came
to be dismissed on 21.09.2007. The reason for dismissal of
17
the writ petition is that the guarantor had participated in the
earlier proceedings and having been a consenting party to all
the orders passed by the Court in the aforesaid writ petition,
it is not open to her now to contend that the property could
not have been possessed by the Corporation under Section
29 of the Act. Therefore it dismissed the writ petition.
Aggrieved by the said order, Writ Appeal 2263/07 is
preferred. In W.A.No.1077-78/08, the guarantor has
challenged the order dated 02.12.2005, the order dated
13.12.2005 and the final order on 13.12.2006. In Writ
Appeal No.479/06, now an application is filed to recall the
order dated 30.05.2006 and because there was delay, an
application is filed to condone the delay in filing the said
application. That is how, all these matters are before this
Court by a special order of the Hon’ble Chief Justice.
7. Sri. Pramod M Khatavi, learned Counsel
appearing for the guarantor, contend that the proceedings
initiated under Section 29 of the Act in pursuance of which
the schedule property was brought to sale by the
18
Corporation is one without jurisdiction as held by this Court
in the case of N. NARASIMHAIAH & ORS Vs. KARNATAKA
STATE FINANCIAL CORPORATION & OTHERS reported in
AIR 2004 KAR 46, which has been affirmed by the Apex
Court in the case of KARNATAKA STATE FINANCIAL
CORPORATION Vs. N. NARASIMHAIAH & ORS reported in
(2008) 5 SCC 176. Therefore the entire proceedings
culminating in the sale of the property and confirmation of
the sale is void ab initio and accordingly, a declaration is to
be granted to that effect and the property should be restored
back to the guarantor. Secondly he contended that it is the
specific case of the guarantor that she is not a party to the
writ petition but her name is included, her signature is
forged and the principal borrowers have made it appear that
she is also filing the writ petition by engaging the same
Counsel and any submission made by that Counsel on
behalf of her is not binding her to any extent whatsoever.
Moreover, when the said facts were brought to the
notice of the Court by way of a memo and an affidavit filed
which finds a place in the order of the Court
19
dated 23.12.2005, without deciding the said issue, the Court
could not have confirmed the sale in favour of the tenant. At
any rate, the property was brought to sale in pursuance of
the interim order passed in the said writ petition. When
once the writ petition is dismissed as withdrawn, these
interim orders merges with the final order and when the writ
petition itself came to be dismissed, the sale conducted in
the said proceedings would be void ab initio and the property
should be restored back to the guarantor. Therefore he
submits that as the guarantor’s interest has been affected by
the orders of this Court as aforesaid, it is settled law that no
action of the Court can affect the interest of the litigant and
if it so affects, the Court has the ample power to set aside
those orders and restore back the property to the guarantor.
8. Per contra, the learned Counsel for the
Corporation submitted that he do not dispute the aforesaid
legal position. But against the order passed by the Division
Bench of this Court on 26.03.2003, the Corporation
preferred an appeal to the Apex Court, where, on 02.12.2003
20
an interim order of stay had been granted in so far as the
parties to the said proceedings are concerned. However, on
27.01.2004 the stay order was made absolute. But on
19.07.2004 this benefit of the said order was extended to all
the persons who were not parties to the proceedings. On
13.03.2008, the Apex Court up held the order. It is during
this interregnum, the property was sold, it was confirmed,
sale deed was executed and possession was delivered. As
such, the action of the Corporation cannot be found fault
with. The sale conducted by them is legal and valid and the
sale deed executed by them is also legal and valid.
9. Sri. Uday Holla, learned Senior Counsel
appearing for the tenant, adopting the aforesaid submission,
contended that it is not a sale under Section 29 of the Act,
as sought to be made out. It is a sale conducted in
pursuance of the direction issued by the High Court under
Article 226 of the Constitution and by consent of the parties,
the sale was conducted and therefore the said judgment has
no application. The sale has been confirmed by the Court.
21
It has permitted the Corporation to execute the sale deed.
The sale deed is executed and now the tenant is put in
vacant possession of the land also and therefore he has
become the absolute owner in possession of the entire
property and he has parted with a consideration of
Rs.2,92,00,000-00 nearly about seven years back and at this
point of time, at the instance of the guarantor, the said sale
cannot be set aside.
10. In the light of what is stated above and the rival
contentions, the point that arise for our consideration in this
proceedings are:
(1) Whether the sale conducted is void ab initio, as
contended by the guarantor?
(2) Is it a sale by consent or is it a sale conducted
under Article 226 of the Constitution?
(3) Is the guarantor entitled to the relief at the hands
of this Court?
22
11. Dealing with the right of the State Financial
Corporation under Section 29 of the Act, the Division Bench
of this Court in the case of N. NARASIMHAIAH & ORS Vs.
KARNATAKA STATE FINANCIAL CORPORATION &
OTHERS reported in AIR 2004 KAR 46, held as under:
“……Section 29 clearly states that the
Financial Corporation shall have the right to
take over the management or possession or
both of the industrial concern. It does not refer
to taking over the management or possession of
the property belonging to the surety, which has
been secured in favour of financial Corporation.
The Legislature has been careful in conferring
such power, only against the industrial concern
and not against the surety. In the absence of an
express statutory provision, the power to take
over the property of another, without
intervention of Court, cannot be a matter of
inference. Any attempt by a SFC to take
possession of a surety’s property, even if
mortgaged, in the absence of a specific
authority by law, will fall foul of Article 300-A of
the Constitution of India.”
23
Further it held as under:
“It, therefore, follows that insofar as the
property of the surety which is secured in
favour of the State Financial Corporation, the
remedy of the Corporation lies either under
Section 31 of the Act or by having recourse to
Civil Court and not by recourse to Section 29
of the Act. The remedy available to Financial
Corporations against sureties under Section
31 of the SFC Act is also speedy and
efficacious remedy. Therefore, non-application
of Section 29 to the properties of surety will in
no way prejudice the rights of the Financial
Corporation against sureties. The Corporation
an neither take over possession and/or
management of the property of the surety
mortgaged/hypothecated to the Corporation
by exercising the power under Section 29.”
Ultimately in the end, allowing the writ petitions, the
following order is passed:
“ (i) The impugned orders passed by
the Karnataka State Financial Corporation
under Section 29 of the State Financial
Corporations Act authorizing its officers to
24
take possession of the properties of
petitioners are quashed.
(ii) The Karnataka State Financial
Corporation is directed not to proceed against
the property of the surety,
mortgaged/hypothecated in its favour, under
Section 29 of the State Financial Corporations
Act.”
12. Aggrieved by this order, the Corporation
preferred an appeal in the Supreme Court.
13. The Supreme Court in the case of KARNATAKA
STATE FINANCIAL CORPORATION Vs. N. NARASIMHAIAH
& ORS, reported in 2008(5) SCC 176 held as under:
“20. Section 29 of the Act nowhere states
that the corporation can proceed against the
surety even if some properties are mortgaged or
hypothecated by it. The right of the financial
corporation in terms of Section 29 of the Act must
be exercised only on a defaulting party. There
cannot be any default as is envisaged in Section
29 by a surety or a guarantor. The liabilities of a
25
surety or the guarantor to repay the loan of the
principal debtor arises only when a default is
made by the latter.
21. The words "as well as" in our
opinion play a significant role. It confers two
different rights but such rights are to be enforced
against the same person, viz., the industrial
concern. Submission of the learned senior
counsel that the second part of Section 29
having not referred to 'industrial concern', any
property pledged, mortgaged, hypothecated or
assigned to the financial corporation can be sold,
in our opinion cannot be accepted. It is true that
sub-section (1) of Section 29 speaks of
guarantee. But such a guarantee is meant to be
furnished by the Corporation in favour of a third
party for the benefit of the industrial concern. It
does not speak about a surety or guarantee
given in favour of the corporation for the benefit
of the industrial concern.
22. The legislative object and intent
becomes furthermore clear as in terms of Sub-
section (4) of Section 29 of the Act only when a
property is sold, the manner in which the sale
proceeds is to be appropriated has categorically
26
been provided therein. It is significant to notice
that sub-section (4) of Section 29 of the Act
which lays down appropriation of the sale
proceeds only refers to 'industrial concern' and
not a 'surety' or 'guarantor'.
37. The legislative intent, in our opinion,
is manifest. The intention of the Parliament in
enacting Sections 29 and 31 of the Act was not
similar. Whereas Section 29 of the Act consists of
the property of the industrial concern, Section 31
takes within its sweep both the property of the
industrial concern and as that of the surety.
None of the provisions control each other. The
Parliament intended to provide an additional
remedy for recovery of the amount in favour of
the Corporation by proceeding against a surety
only in terms of Section 31 of the Act and not
under Section 29 thereof.
40. Right of property, although no longer
a fundamental right, is still a constitutional right.
It is also human right. In absence of any
provision either expressly or by necessary
implication, depriving a person therefrom, the
27
court shall not construe a provision leaning in
favour of such deprivation.
Recently, this Court in P.T. Munichikkanna
Reddy v. Revamma dealing with adverse
possession opined: (SCC p 77, para 43)
"43. Human rights have been
historically considered in the realm
of individual rights such as, right to
health, right to livelihood, right to
shelter and employment etc. but now
human rights are gaining a
multifaceted dimension. Right to
property is also considered very
much a part of the new dimension.
Therefore, even claim of adverse
possession has to be read in that
context. The activist approach of the
English Courts is quite visible from
the judgement of Beaulane
Properties Ltd. v. Palmer and JA Pye
(Oxford Ltd., v. United Kingdowm.
The court herein tried to read the
Human Rights position in the context
of adverse possession. But what is
commendable is that the dimension
of human rights has widened so
28
much that now property dispute
issues are also being raised within
the contours of human rights."
41. A surety may be a Director of the
Company. He also may not be. Even if he is a
close relative of the Director or the Managing
Director of the Company, the same is not
relevant. A Director of the Company is not an
industrial concern. He in his capacity as a
surety would certainly not be. A juristic person
is a separate legal entity. Its veil can be lifted
or pierced only in certain situations. [See
Salomon v. Salomon and Co. Ltd., Dal Chand
and Sons v. CIT, Juggilal Kamlapat v. CIT and
Kapila Hingorani vs. State of Bihar.)
42. Interpretation of a statute would not
depend upon a contingency. It has to be
interpreted on its own. It is a trite law that the
court would ordinarily take recourse to the
golden rule of literal interpretation. It is not a
case where we are dealing with a defect in the
legislative drafting. We cannot presume any. In a
case where a court has to weigh between a right
of recovery and protection of a right, it would
also lean in favour of the person who is going to
29
be deprived therefrom. It would not be the other
way round. Only because a speedy remedy is
provided for that would itself lead to the
conclusion that the provisions of the Act have to
be extended although the statute does not say
so. The object of the Act would be a relevant
factor for interpretation only when the language
is not clear and when two meanings are possible
and not in a case where the plain language
leads to only one conclusion.
43. Even if the legislation is beneficient,
the same by itself would not be held to be
extendable to a situation which the statute does
not contemplate. [S. Sundaram Pillai, etc. v. V.R.
Pattabiraman]
14. From the aforesaid judgment, now it is well
settled that the State Financial Corporation has no right to
bring the property offered as security by way of mortgage by
the surety for sale in pursuance of the power conferred on
them under Section 29 of the Act. If the Corporation sells
the property by invoking Section 29 of the Act, it would be
an act without authority of law and it would be void ab initio
30
and non-est. If in the statute, the authority which is vested
with the power to bring the property to sale is not authorized
to bring the property of the surety for sale in a proceedings
initiated in the High Court under Article 226 of the
Constitution, challenging the procedure initiated under
Section 29, of the Act whether the High Court can order for
sale of such property either by consent or otherwise?
15. The Apex Court in the case of KIRAN SINGH &
ORS Vs. CHAMAN PASWAN & ORS reported in AIR 1954
SC 340, dealing with decree passed by the Court without
jurisdiction, has held as under:
“…It is a fundamental principle well-
established that a decree passed by a
Court without jurisdiction is a nullity and
that its invalidity could be set up whenever
and wherever it is sought to be enforced or
relied upon, even at the stage of execution
and even in collateral proceedings. A
defect of jurisdiction, whether it is
pecuniary or territorial or whether, it is in
respect of the subject-matter of the action,
31
strikes at the very authority of the Court to
pose any decree, and such a defect cannot
be cured even by consent of parties……..”
16. In A.R. Anthulay’s case, interpreting Article 32 of
the Constitution of India and the powers which are vested
with the Apex Court under the said provisions, it was held
that the powers of the Apex Court no doubt are very wide
and they are intended and will always be exercised in the
interest of justice. But that is not to say that an order can be
made by the Apex Court which is inconsistent with the
fundamental rights guaranteed by Part III of the
Constitution. It was emphasized that the order which the
Apex Court could make in order to do complete justice
between the parties must not only be consistent with the
fundamental rights guaranteed by the Constitution, but it
cannot even be inconsistent with the substantive provision of
the relevant statutory laws.
17. Therefore, exercising power under Article 226 of
the Constitution in the light of the aforesaid statutory
32
provisions, the High Court cannot bring the property of the
surety for sale in contravention of Section 31 of the Act. Not
only the said act would be inconsistent with the
constitutional right guaranteed to a citizen of this country
under Article 300-A of the Constitution, but it would be
inconsistent with the substantive provision namely Section
31 of the Act.
18. In the instant case, it is admitted that the
schedule property was brought to sale in pursuance of the
public notice issued on 29.07.2005 under Section 29 of the
Act. The auction purchaser Kumaraswamy was the highest
bidder. He offered Rs.2,90,00,000-00 as the bid amount. It
is that notice/auction/sale which was assailed before this
Court under Article 226 of the Constitution. As is clear from
the order, an interim order was passed giving an opportunity
to the principal debtor to deposit 20% of the amount within
10 days and then to apply for one time settlement and
thereafter to pay the balance amount in terms of the one
time settlement. It was made clear that if the amount is not
33
deposited within 10 days, then the property shall be brought
to sale. When the 20% amount was not deposited, when the
matter was listed before the Court, again in the open Court,
the tenant offered two lakhs more than what the auction
purchaser had offered. Treating him as the highest bidder,
his bid was accepted. He was given 45 days time to deposit
the said amount. After he deposited the amount and filed an
application for clarification of the earlier order, having
observed that no clarification is required, the sale in his
favour was confirmed. Therefore, it is not the sale conducted
by this Court under Article 226 of the Constitution for the
first time. It is in continuation of the sale proceedings
initiated by the Corporation under Section 29 of the Act.
The Corporation had no authority to bring the property of
the surety for sale under Section 29 of the Act, and the sale
which is now confirmed by this Court also could not have
the effect of conferring title on the auction purchaser, i.e.,
the tenant in this case, as the very sale proceedings is void
ab initio. The proceeding which was void ab initio at the
initiation, would not become valid merely because of the
34
intervention of the High Court by its order. What is void at
the inception could not be validated by a subsequent order.
Therefore the impugned sale is one without the authority of
law, void ab initio and it is non est in the eye of law.
19. What is the effect of consent and what is the
effect of the High Court order?
The argument was, even though Section 29 of the Act
is not attracted, the High Court proceeded to pass orders to
sell the property by consent of parties. In support of that
contention, the order passed on 02.12.2005 is relied on. It
reads as under:
“The learned Counsel for the parties
submit that if the Petitioners in W.P. 21589/05
deposit 20% of the total liability payable by the
Petitioner’s therein to KSFC within ten days from
today, the KSFC shall consider the case of the
Petitioners in W.P.21589/05 under One Time
Settlement Scheme and thereafter the Petitioners
therein are at liberty to discharge the entire
liability in terms of OTS scheme. In the event,
35
the Petitioners either fail to deposit 20% of the
total liability within ten days or thereafter fail to
discharge the entire liability in terms of OTS
scheme, then, the Petitioner in W.P.22389/05
and the third respondent in W.P. 22389/05 are
entitled to participate in the auction and whoever
pays the highest bid shall be considered as the
auction purchaser.
It is also made clear that auction shall be
confined to the site alone since the petitioner in
WP 22389/05 has constructed the building as
its costs and the sale shall be subject to lease
hold rights of the petitioner in W.P.22389/05.”
20. After the said order, the guarantor filed a memo
into the Court on 21.12.2005, which reads as under:
“MEMO
“The undersigned humbly submits that she is
shown in the cause title of the Petition as having
filed the same against Respondent along with
others. She submits that while she has a
grievance against the Respondent, she had not
given instructions to any one to file the above
36
petition. Her name is misuses and forged by
some one to create evidence of admission
against her. Hence, she prays that her name be
deleted from the petition and action may kindly
be initiated against concerned persons for
indulging activities amounting to criminal
contempt of court, in the interest of justice.
Bangalore Sd/-
Date: 21-12-2005 (Sarasamma)
Shown as petitioner
No.4”
21. On the next day, i.e., on 22.12.2005 he also filed
an application under Section 151 of CPC supported by an
affidavit which reads as under:
“Application under Section 151 of the code of
Civil Procedure, 1908 It is respectfully submitted as follows:-
1. It is submitted that the 4th petitioner is
described in the Petition as a party to the
petition along with other Petitioners against
Respondent KSFC. As a matter of fact, the 4th
37
respondent has not given any instruction to any
body for preparing or prosecuting the writ
petition as presented above. At no point of time
has she approached any body or agency for
getting the writ petition drafted or presented.
The Signature in vakalath filed in the above writ
petition is not of the 4th petitioner, and the same
has been done with ulterior motive creating
document against this petitioner and to put her
interest in jeopardy.
2. This petitioner has been tricked by the 1st
petitioner in officering security to KSFC, and her
signature has been manufactured by fraud. A
complaint has been lodged against 1st petitioner
and others for the offence of cheating. A copy of
the complaint is produced herewith as Document
No.1. The matter is seized by the officers of the
Central Crime Branch (CCB) of Bangalore City
Police and is being investigated.
3. Even the 1st Petitioner has been preventing
this petitioner in prosecuting the complaint by
repeatedly promising to settle the liability to
KSFC. An undertaking given by him to this
petitioner is produced herewith as Document
No.11.
38
4. Thus while this Petitioner is prosecuting
Criminal charges against 1st petitioner. It is not
possible to imagine that she would have joined
the 1st Petitioner in filing a writ petition. This it
is submitted that, the signature on Vakalat is not
done by this petitioner and some body has
forged the same. As a result she is made to
appear as having accepted the liability. Hence
serious misrepresentation has been resorted by
other petitioners.
Wherefore it is humbly prayed that this Hon’ble
Court may be pleased to
i) Delete the name of the 4th petitioner from
the above petition, and
ii) Draw appropriate proceedings against the
other Petitioners and also all responsible
for the deception under appropriate laws
including section 191 of Indian Penal Code
and Section 12 of Contempt of Court Act,
1971, in the interest of justice.
Bangalore
Sd/- Dated: 22-12-2005 4th petitioner
39
“Affidavit verifying the application
I, C, Sarasamma wife of P. Nagaraj,
Hindu, aged about 42 years, residing at
No.20/1, near Banaswadi Bus Stand,
Doddabanasavadi, Bangalore – 560 043, do
hereby solemnly affirm and state on oath as
follows:
1. I state that my name is shown as forth
petitioner in the above matter.
2. I state that the averments made in para 1
to 4 of the application are true to the best
of my knowledge, information and belief.
3. I state that the documents produced at
Documents No.I and II are copies of the
original.
Bangalore Sd/- Dated: 22-12-2005 Deponent
Identified by me Sworn to before me
Sd/- Advocate
No. of corrections:”
40
Thereafter the order dated 23.12.2005 on which reliance is
placed came to be passed.
“KLMJ: 23-12-05 WP No.21589/05 c/w
WP 22389/05
Respondent-KSFC has advanced loan to
petitioner No.5 M/s. Ethnic Informatics (P) Ltd.,
For the loan advanced in favour of petitioner
No.5 company, petitioner No.3 O..N.Ramesh
Babu and petitioner No.4 C. Sarasamma have
offered their properties as security. Respondent-
KSFC exercising its power under Section 29 of
the State Financial Corporation Act, 4th
petitioner’s property has been sold in public
action. Challenging the same, petitioners have
filed W.P 21589/05. 4th petitioner Sarasamma
has leased out her property to a tenant who is
the petitioner in W.P.22389/05. According to the
petitioner in W.P.22389/05 only vacant site was
leased in its favor and the tenant has
constructed the buildings and running a hotel
therein.
41
On 2.12.2005 in the presence of
Sarasamma and other petitioners including the
partners of the petitioner in WP 22389/05 and
the auction purchaser of the property along with
their respective counsel. This court permitted the
petitioners in WP 21589/05 to avail the benefit
under one time settlement scheme offered by the
KSFC. Accordingly, 10 days time was granted
for the petitioners in WP 21589/05 to deposit
20% of the total liability of them and further
directed the KSFC to consider the request to
settle the matter under One Time Settlement
Scheme subject to the condition that petitioners
in W.P.21589/05 shall pay the balance amount
as per the directions of the KSFC. This order
was passed by this Court with the consent of all
the parties to save the property of Sarasamma
as she is only a guarantor. On that day, it was
further ordered that if the petitioners fall to
deposit 20% of the total liability within 10 days
and further fails to pay the remaining amount
within the stipulated time granted by the KSFC,
then the property has to be auctioned between
the petitioner in W.P.22389/05 and the auction
purchaser excluding the lease-hold rights of the
petitioner in W.P.22389/05. It was ordered that
42
between the two, whoever offers to pay better
offer, sale has to be confirmed in favour of such
person.
The case was listed on 14-12-05. On 14-
12-05 at the request of the counsel for the
petitioners in W.P.No.21589/05, case was
further adjourned to 21-12-05 to enable the
petitioners therein to deposit 20% of the total
liability payable by them. Again the matter was
adjourned from 21-12-05 to 22-12-05. Since the
amount was not deposited by the petitioners, the
case is adjourned to this day.
Till today petitioners in WP 21589/05
have not deposited the amount of 20% as
ordered by this Court on 2-12-05 to enable the
KSFC to consider the case of the petitioners to be
settled under One Time Settlement Scheme.
Therefore, learned counsel appearing for the
KSFC and the counsel appearing for the
petitioner in W.P.22389/05 and the learned
counsel for the auction purchaser submit that as
per the orders of this Court dated 2-12-2005
KSFC may be proceeded to confirm the sale in
43
favour of the person who is willing to purchase
for a better price.
Learned counsel for the auction purchaser
submits that his client is willing to purchase the
property for Rs.2,90,00,000/- (Rupees Two
Crores Ninety Lakhs) provided vacant
possession of the property is delivered to him
and therefore he requests this court to direct the
KSFC to put his client in possession of the
property. Learned counsel appearing for the
tenant who is the petitioner in W.P.22389/05
submits that on 2-12-05 this Court has
specifically passed an order to allow the auction
purchaser and the tenant to give their better
offer excluding the lease-hold rights of the tenant
and therefore he submits that KSFC cannot be
directed to call upon his client to vacate the
premises and he further submits that the tenant
is willing to purchase the property for a sum of
Rs.2,92,00,000/- (Rupees Two Crores Ninety
Two Lakhs). Counsel for the auction purchaser
and the KSFC have no objection to confirm the
sale in favour of M/s. Tamarind, petitioner in
W.P. 22389/05 provided an amount of
Rs.2,92,00,000/- (Rupees Two Crores Ninety
44
Two Lakhs) is deposited within 45 days from
today. Counsel for the auction purchaser
submits that if the tenant M/s. Tamarind fails to
deposit the amount, auction purchaser may be
permitted to purchase the property for
Rs.2.90,00,000/- (Rupees Two Crores Ninety
Lakhs). In the circumstances, M/s. Tamarind
petitioner in W.P.22389/05 is permitted to
deposit Rs.2,92,00,000/- (Rupees two Crores
Ninety Two Lakhs) within 45 days from today
and thereafter sale shall be confirmed by this
Court after hearing all the parties. Request of the
auction purchaser can be considered by this
Court. Provided M/s. Tamarind Fails to deposit
the amount within the stipulated time.
At this stage, Smt. Sarasamma, 4th
petitioner in WP 21589/05 through her Advocate
Sri A.V. Srinivasan, learned counsel, has failed
an application under Section 151 of CPC to
delete her from the proceedings on the ground
that she has not authorized the learned
Advocate who represents her in WP
No.21589/05 either to file the present petition or
the previous petition in W.P.18965/05. She
further contends that her signature has been
45
forged and that she was not aware of the filing
of the present petition. But it is to be noted at
this stage that on 2-12-2005 she was present
along with her husband before the court. She
has also requested this Court to initiate action
against the remaining petitioners under Section
191 of IPC R/w Section 12 of Contempt of Courts
Act, 1971.
1st petitioner in WP 21589/05 has also
filed an affidavit making allegations against the
4th petitioner. Time if granted for the parties to
file objections to the application filed by Smt.
Sarasamma and similarly Sarasamma is also
permitted to file her objections to the affidavit
filed by the 1st petitioner in W.P.21589/05.
Call on 12-1-2006.”
22. In the aforesaid order, the affidavit of the
guarantor is noted. An opportunity was given to the
opposite party to file objections. Reading of that portion of
the order makes it clear that the guarantor was requesting
the Court to delete her from the proceedings on the ground
46
that she has not authorized the learned Advocate to
represent her in W.P.No.21589/05 either to file the present
petition or the previous petition in W.P.No.18965/05. She
further contended that her signature has been forged and
that she is not aware of the present petition. This statement
makes it clear that she is not a party to the proceedings, she
has not given any consent. After recording the aforesaid
statement, the learned Single Judge has categorically
observed as under:
“But it is to be noted at this stage that on
2-12-2005 she was present along with her
husband before the court. She has also
requested this Court to initiate action against the
remaining petitioners under Section 191 of IPC
R/w Section 12 of Contempt of Courts Act,
1971.”
23. This observation in the said order makes it very
clear that on 02.12.2005 when the Court was passing the
order which is now sought to be projected as consent order,
she was present with her husband and not with her
47
Advocate. But that day, she requested the Court to initiate
action against the remaining petitioners under Section 191
of IPC, read with Section 12 of the Contempt of Courts Act,
1971. Therefore it cannot be said that she gave consent for
the order dated 02.12.2005. On the contrary, she had
grievance. She was not represented by an Advocate and she
made a request to the Court to initiate proceedings under
Section 191 of IPC and Section 12 of the Contempt of Courts
Act, against the remaining respondents. If this had been
considered first, probably the order which is passed on
23.12.2005 accepting the highest bid of the tenant and
confirming the sale in his favour would not have been passed
by this Court. Therefore it cannot be said that the guarantor
gave her consent for the sale of the property either on
02.12.2005 or on 23.12.2005. It is her property which is
auctioned and which is confirmed in the name of the tenant.
It also demonstrates that she had grievance against her
Advocate. It was her grievance that she had not signed the
papers, she had not authorized him to file writ petitions nor
she had authorized him to do anything on her behalf.
48
WHAT IS THE EFFECT OF DISMISSAL OF THE WRIT PETITION VIS-À-VIS THE INTERIM ORDERS PASSED IN THE SAID WRIT PETITION: 24. In pursuance to the interim order passed by this
court on 2-12-2005, 23-12-2005 and 24-02-2006, the
property of the Guarantor is sold and the tenant has
purchased the property for a sum of Rs.2,92,00,000/-. The
sale has been confirmed by this court. However, after such
sale, when the writ petitions were listed for hearing on 13-
12-2006, the statement was made by the learned counsel for
the petitioners that the writ petitions have become
infructuous in view of the subsequent events. Therefore,
both the writ petitions came to be dismissed as infructuous
on 13-12-2006 as the property was brought to sale by virtue
of the interim orders passed in the writ petitions and
ultimately, the writ petitions came to be dismissed. What
would be the effect of such dismissal on sale of the property?
25. The Apex Court in the case of SOUTH EASTERN
COAL FIELDS LTD. v/s STATE OF M.P. & OTHERS
49
reported in AIR 2003 SC 4482 paragraph 26 has held that
the interim passed by the court merges into the final
decision. The validity of interim order, passed in favour of a
party, stands reversed in the event of final decision going
against the party successful at interim stage. Unless
otherwise ordered by the court, the successful party at the
end would be justified with all expediency in demanding
compensation and being placed in the same situation in
which it would have been if the interim order would not have
been passed against it. In the instant case, the petitioners
came to court challenging the sale of the schedule property
in favour of the purchaser Sri.Kumara Swamy contending
that the KSFC had no authority to bring the property to sale
under Section 29 of the Act. Any such proceedings initiated
both by the Principal Debtor/the Guarantor as well as the
tenant in the connected writ petition, the property was sold
in the court. After the sale of the property, the writ petition
came to be dismissed as having become infructuous because
of such sale. The Guarantor has been contending that she is
not a party to the writ petition, she has not given her
50
consent for the sale and she has also filed an affidavit and a
memo contending that she has been defrauded. Without
going into the said allegations, in her presence, the property
was sold and the tenant has purchased the property. Now
that the writ petition filed by both the tenant as well as the
principal debtor are dismissed. The interim order passed in
such writ petitions merges with the final order. The effect
would be that the order selling the property cease to exist
and consequently the sale and purchase is vitiated. In
which event, the property which is sold in terms of the
interim order passed in favour of the tenant should revert
back to the person who was entitled to the property prior to
the sale i.e. to the Guarantor. In this regard, the law on the
point is well settled. In the aforesaid judgment of the Apex
Court at paragraph 26, it has been held as under:
“That no one shall suffer by an act of the
Court is not a rule confined to an erroneous act of
the court; the ‘act of the court’ embraces within its
sweep all such acts as to which the court may
form an opinion in any legal proceedings that the
Court would not have so acted had it been
51
correctly appraised of the facts and the law. The
factor attracting applicability of restitution is not
the act of the Court being wrongful or a mistake
or error committed by the court; the test is
whether on account of an act of the party
persuading the court to pass an order held at the
end as not sustainable, has resulted in party
gaining an advantage which it would not have
otherwise earned, or the other party has suffered
an impoverishment which it would not have
suffered but for the order of the court and the act
of such party. The quantum of restitution,
depending on facts and circumstances of a given
case, may take into consideration not only what
the party excluded, would have made but also
what the party under obligation has or might
reasonable have made. There is nothing wrong in
the parties demanding being placed in the same
position in which they would have been had the
court not intervened by its interim order when at
the end of proceedings the court pronounces its
judicial verdict which does not match with an
countenance its won interim verdict. Whenever
called upon to adjudicate, the court would act in
conjunction with what is the real and substantial
justice. The injury, if any, caused by the act of
52
the court shall be undone and the gain which the
party would have earned unless it was
interdicted by the order of the court would be
restored to or conferred on the party by suitably
commanding the party liable to do so. Any
opinion to the contrary would lead to unjust if not
disastrous consequences. Litigation may turn
into a fruitful industry. Though litigation is not
gambling yet there is an element of chance in
every litigation. Unscrupulous litigant may feel
encouraged to approach the court, persuading the
court to pass interlocutory orders favourable to
them by making out a prima facie case when the
issues are yet to be heard and determined on
merits and if the concept of resolution is excluded
from application to interim orders, then the
litigant would stand to gain by swallowing the
benefits yielding out of the interim order even
though the battle has been lost at the end. This
cannot be countenanced We are, therefore, of the
opinion that the successful party finally held
entitled to a relief assessable in terms of money
at the end of the litigation, is entitled to be
compensated by award of interest at a suitable,
reasonable rate for the period for which the
53
interim order of the court withholding the release
of money had remained in operation.”
26. In the instant case, not only the Principal
Debtors approached this court, but also alleging want of
authority in the Corporation to bring the property to sale
under Section 29 of the Act, the tenant who was in
occupation of the schedule property also preferred the writ
petition on identical grounds. Therefore, the petitioners in
both the writ petitions were clear in their minds insofar as
the authority of the Corporation to sell the property is
concerned. The sale which has been conducted by the
Corporation was without authority was their understanding.
However, in the writ petitions before this court, they
persuaded the court to pass interim orders for the sale of
property in the event of principal debtor committing default
in payment of 20% of the liability due to the Corporation.
When the default was committed, the tenant who was the
petitioner in one of these petitions participated in the
auction with the other auction purchasers and offered higher
54
price and then persuaded this court to accept his bid which
was done by this court. Thereafter, the court directed him to
deposit the amount within 45 days which he did and thus,
he purchased the property in the court auction in terms of
the interim order notwithstanding the fact that throughout it
was his contention that the authority had no jurisdiction to
bring the schedule property to sale under Section 29 of the
Act. After sale, he got his writ petition dismissed as
infructuous. The resultant position is interim order, in
pursuance of which he purchased the property stood merged
with the final order and as the writ petition came to be
dismissed, the parties are relegated back to the position in
which they stood either on the date of filing of the writ
petition or passing of the interim orders. Therefore, the
sale which was conducted in the meanwhile stood wiped out.
It is in this background, the question for consideration is
whether it is open to him to contend before the court that he
has purchased the property by virtue of interim order passed
by this court by paying a sum of Rs.2,92,00,000/-. When
the said amount was deposited with the Corporation, the
55
liability of the Guarantor is wiped out and he should be
permitted to hold such property which is the subject matter
of sale.
27. The High Court of Delhi in RFS No.36/1991
decided on 29th July 1992 in the case of MRS.KAVITA
TREHAN AND ANOTHER v/s BALSARA HYGIENE
PRODUCTS LTD., held as under:
“It is well settled that a party who has
received benefit under erroneous order of the
court must restore to the other party what the
latter lost as a result of the said order on the
same being reversed or set aside. Here in the
present case, how far this principle applies is to
be determined”
“…… Dismissal of the suit has the effect of
automatic dissolution of the interim order. But
what is the use of setting aside or reversing a
wrong order of the court if a party who has
suffered as a consequence thereof remains
seething with pain of injustice even when the
order is knocked down? Healing touch in such a
case is a must. The stain of injustice must be
56
removed, at least bleached if it is not possible to
totally eradicate it. In the present case, at least
the money value of the goods which have been
sold by the plaintiffs should be secured and
available in the event of plaintiffs failure to
establish their lien in a suit which Mr.Sahai,
learned counsel for the plaintiffs says has been
instituted by them in a Court at Chandigarh or in
any other appropriate proceedings which the
parties may institute within the time imperative
prescribed by law. There is no higher principle
for the guidance of the court than the one that no
act of Courts should harm a litigant and it is
bounden duty of the Courts to see that if a person
is harmed by a mistake of the Court he should be
restored to the position he would have occupied
but for that mistake……”.
“……….. But in a case where a party was
not in possession but nevertheless has suffered
the injury and the same would be in fact get
aggravated, if no remedial measures is taken to
set right the wrong after setting aside the
offending order of the Court, the aforesaid
principles would also operate in such a case, with
innovations depending upon the circumstances of
57
the case as otherwise the Court will be a mute
helpless spectator after causing injustice and
prejudice to a party. It will not be justified to say
that though the interests of a litigant have been
harmed by its act, it cannot undo the wrong as
the sufferer did not have possession of the
property over which, he had undoubted title. May
be possession cannot be restored but any other
prejudice, harm and suffering caused to him
which is capable of being removed or at least
mitigated could be directed to be so removed or
mitigated.”
“…. In any event horizons of the law are
even expanding for law does not remain static.
Precedents are not halting place, if justice
demands that a party to the litigation should be
put in the possession which he would have
occupied but for the wrong order of the court, an
obligation is cast on the court to repair the wrong
to the extent possible”.
28. In this context, the Apex Court in the case of
SARDAR GOVINDRAO MAHADIK AND ANOTHER v/s DEVI
58
SAHAI AND OTHERS reported in AIR 1982 SC 989 at
paragraph 60 held as under:
“60. Ordinarily if the auction purchaser is
an outsider or a stranger and if the execution of
the decree was not stayed of which he may have
assured himself by appropriate enquiry, the court
auction held and sale confirmed and resultant
sale certificate having been issued would protect
him even if the decree in execution of which the
auction sale has been held is set aside. This
proceeds on the footing that the equity in favour
of the stranger should be protected and the
situation is occasionally reached on account of
default on the part of the judgment debtor not
obtaining stay of the execution of the decree
during the pendency of the appeal.
61. But, what happens if the auction-purchaser
is the decree holder himself? In our opinion, the
situation would materially alter and this decree
holder --- auction purchaser should not be entitled
to any protection. At any rate, when he proceeds
with the execution he is aware of the fact that an
appeal against the original decree is pending. He
is aware of the fact that the resultant situation
59
may emerge where the appeal may be allowed
and the decree which he seeks to execute may be
set aside. He cannot force the pace by executing
the decree taking advantage of the economic
disability of a judgment debtor in a money decree
and make the situation irreversible to the utter
disadvantage of the judgment debtor who wins
the battle and loses the war. Therefore, where
the auction purchaser is none other than the
decree holder, who by pointing out that there is
no bidder at the auction, for a nominal sum
purchases the property, to wit, in this case for a
final decree for Rs.500/- Motilal purchased the
property for Rs.300/-, an atrocious situation, and
yet by a technicality he wants to protect himself.
To such an auction purchaser who is not a
stranger and who is none other than the decree
holder, the Court should not lend its assistance.
The view which we are taking is not unknown
and to some extent it will be borne out by the
observations of this Court in Janak Raj v. Guzdial
Singh, (1967)2 SCR 77 at p.86: (AIR 1967 SC 608
at p.618). This Court made a pertinent
observation which may be extracted:
“ The policy of the legislature seems to be
that unless a stranger auction purchaser is
60
protected against the vicissitudes of the fortunes
of the suit, sales in execution would not attract
customers and it would be to the deteriment of
the interest of the borrower and the creditor alike
if sales were allowed to be impugned merely
because the decree was ultimately set aside or
modified.”
29. Following the aforesaid judgments of the Apex
Court, in CHINNAMMAL AND OTHERS v/s P.ARUMUGHAM
AND ANOTHER reported in AIR 1990 SC 1828 at paragraph
10 has held as under:
“10. There is thus a distinction maintain between
the decree holder who purchases the property in
execution of his own decree which is afterwards
modified or reversed, and an auction purchaser
who is not party to the decree. Where the
purchaser is the decree holder, he is bound to
restore the property to the judgment debtor by
way of restitution but not a stranger auction
purchaser. The latter remains unaffected and
does not lose title to the property by subsequent
reversal or modification of the decree. The courts
have held that he could retain the property since
61
he is a bona fide purchaser. This principle is
also based on the premise that he is not bound to
enquire into correctness of the judgment or decree
sought to be executed. He is thus distinguished
from an eo nomine party to the litigation.
11. There cannot be any dispute on this
proposition and indeed based on a fair and
proper classification. The innocent purchaser
whether in voluntary transfer or judicial sale by
or in execution of a decree or order would not be
penalized. The property bona fide purchased
ignorant of the litigation should be protected. The
judicial sales in particular would not be robbed of
all their sanctity. It is a sound rule based on
legal and equitable consideration. But, it is
difficult to appreciate why such protection should
be extended to a purchaser who knows about the
pending litigation relating to the decree. If a
person ventures to purchase the property being
fully aware of the controversy between the decree
holder and judgment debtor, it is difficult to
regard him as a bona fide purchaser. The true
question in each case, therefore, is whether the
stranger auction purchaser had knowledge of the
pending litigation about the decree under
execution. If the evidence indicates that he had
62
no such knowledge he would be entitled to retain
the property purchased being a bona fide
purchaser and his title to the property remains
unaffected by subsequent reversal of the decree.
The court by all means should protect his
purchase. But if it shown by evidence that he
was aware of the pending appeal against the
decree when he also cannot assume that he was
a bona fide or innocent purchaser for giving him
protection against restitution. No assumption
could be made contrary to the facts and
circumstances of the case and any such
assumption would be wrong and uncalled for.”
30. The Apex Court in the case of KAVITHA
TREHAN’s case in an appeal against the judgment of the
Division Bench of the Delhi High Court reported in AIR
1995 SC 441 held as under:
“The law of restitution encompasses all
claims founded upon the principle of unjust
enrichment. ‘Restitutionary claims are to be
found in equity as well as at law’. Restitutionary
law has many branches. The law of quasi-
contract is “that part of restitution which stems
63
from the common indebitatus counts for money
had and received and for money paid, and from
quantum meruyt and quantum valebat claims.”
So also following the passage from Common law.
Any civilized system of law is bound to provide
remedies for cases of what has been called
unjust enrichment or unjust benefit, that is, to
prevent a man from retaining the money of, or
some benefit derived from, another which it is
against conscience that he should keep. Such
remedies in English law generically different from
remedies in contract or tort, and are now
recognized to fall within a third category of the
common law which has been called quasi
contract or restitution.
For historical reasons, quasi contract has
traditionally been treated as part of, or together
