Holding

The right to sell under Section 29 of the State Financial Corporations Act, 1951 is limited to the mortgaged property and cannot be exercised over any other property.

Summary

M/S Ormi Textiles, a partnership, obtained loans from the State Financial Corporation (SFC) secured by a mortgage on 800 sq. yards of its 1100 sq. yards industrial land. After the industrial unit became sick and defaulted, the SFC issued a notice under Section 29 of the State Financial Corporations Act, 1951, seeking to take over management and sell the property. The appellants challenged the notice in writ petitions, but the Allahabad High Court dismissed the petitions. On appeal, the Supreme Court examined whether the power to sell under Section 29 is limited to the mortgaged property or extends to the entire industrial concern. The Court held that the statutory power to sell under Section 29 is confined to the mortgaged property described in the mortgage deed and that any sale of non‑mortgaged land would be void, while Section 31 provides a separate, court‑supervised remedy for broader recovery. Consequently, the High Court’s decision was set aside in part and the appeal was partly allowed with costs.

Issues considered

The scope of the power to sell property conferred by Section 29 of the State Financial Corporations Act, 1951 – whether it is limited to mortgaged property only.
Whether the SFC could sell the entire industrial unit, including non‑mortgaged land, under Section 29.
The relationship between the remedies under Sections 29 and 31 of the Act.

Legislation cited

State Financial Corporations Act, 1951s. 29, s. 31, s. 32
Transfer of Property Act, 1882

Subjects

State Financial Corporations ActSection 29mortgagesale of mortgaged propertydefaultindustrial unitstatutory interpretationproperty lawremedies

Judgment

[2008] 7 S.C.R. 152

A M/S. ORMI TEXTILES & ANR. f l

v.
STATE OF U.P. & ORS.
(Civil Appeal No. 3054 of 2008)
APRIL 2H, 2008
B
[S.B SINHA AND LOKESHWAR SINGH PANTA, JJ.] )..

State Financial Corporation Act, 1951:

s.29 - Scope of- Held: It has limited scope.
c
s.29 - Mortgaged property and other properties - Right
of Corporation to sell - Held : The right to sell the property by
Corporation must be exercised only in respect of mortgaged
property and not the one which is not the subject matter thereof.
D Appellant was in possession of 1100 sq. yards of
land. The factory was situated on land measuring 800 sq.
yards which was mortgaged with the Corporation against
loan obtained by appellant. The industrial unit of the
appellant became sick and efforts to revive it also failed.
E A notice was issued under s.29 of the State Financial
Corporation Act by the respondent-Corporation.
A writ petition was file,d questioning the legality
thereof. Pursuant to an interim order passed by the High
Court in the said writ petition, the appellant deposited an
F amount of Rs. 2 lakhs. In th1~ meantime, another unit of
the appellant became sick and subjected to a notice under
s.29 of the Act wherefor also a writ petition was filed before
the High Court. An advertisement was issued in a
newspaper for sale of the appellant's unit covering the
G land area of 951.25 sq. mtr. Hiigh Court dismissed the writ
petitions.
In appeal to this court, appellant contended that on
a pl~in reading of s.29 of the Act, it would appear that the
H 152
M/S. ORMI TEXTILES & ANR. v. STATE OF U.P. & 153
\ ORS.

mortgaged property only can be the subject matter of sale. A
Partly allowing the appeal, the Court
HELD : 1. The State .Financial Corporation Act, 1951
was enacted to provide for the establishment of the State
.,( Financial Corporations. Various statutory powers have B
been conferred upon the Corporation. It has power to take
recourse to various remedies provided under the Act,
apart from the terms of the contract entered into by and
between it and the borrower as also the provisions of the
Transfer of Property Act. It is a 'State' within the meaning c
of Article 12 of the Constitution of India. Its power is, thus,
required to be exercised reasonably and fairly. The right
of the Corporation in the case of a default on the part of
the borrower is a statutory power. The provisions of the
Act conferring such a power require to undergo a
>..
D
pu.rposive construction. [Para 10] [158-H; 159-A, B]
2. For the purpose of invoking s.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 situation E
shall 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 right to transfer by way
of lease or sale and realize the property pledged,
-' ~ mortgaged, hypothecated or assigned to the Corporation. F
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. The powers contained in two parts
of s. 29 of the Act are separate and distinct. The power to
take over the management is ordinarily exercised when
G
-.: ,;
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
sell cannot be read in isolation. It can also realize the
mortgaged property which would mean that when a
H
154 SUPREME COURT REPORTS [2008] 7 S.C.R.

A property had been sold, only the mortgaged property can
be realized 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
B 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 realized, the Corporation
would be bound to handover the management or
possession of the property, as the case may be, back to
c the. industrial establishment. [Para 1O] [159-C-H; 160-A]
3. A mortgagee can havE! a right to sell a property ev2n
under the contract. The samie 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
D· nullity. [Para 11] [160-A, B]
4. S.31 provides for an additional remedy. Whereas
s.29 confers a power to sale the property unilaterally, s.31
provides for the same power only through the
intervention of the court. [Para 12] [160-B, C]
E
5. The High Court committed a serious illegality
insofar as it failed to take iinto consideration the limited
scope and effect of s.29 of the Act. It wrongly proceeded
on the basis as if the contention of the appellants stood
F covered by the earlier round of litigation. Interpretation of •
s.29 of the Act did not fall for consideration in the earlier
writ petition. [Para 13] [161-F, G]
Karnataka State Financial Corporation v. N.
Narasimahaiah and Ors. 2008 (4) SCALE 473 - relied on.
G
6. The right to sell the property by the Corporation
must be exercised only in respect of the mortgaged
property and not the one which is not the subject matter
the~eof. Keeping in view the fact that the extent of property
H mortgaged has been described in the deed of mortgage,
M/S. ORMI TEXTILES & ANR. v. STATE OF U.P & 155
ORS. [S.B. SINHA, J.]
~ '"
it will be open to the respondents to get the area of the A
said property duly demarcated. However, for realization
of the balance amount respondents would be entitled to
take recourse to such remedies for realization of their
balance due to which they are otherwise entitled to in law.
..,/ [Para 14-16] [161-G; 162-A, B] B
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3054 of 2008.

From the final Judgment and Order dated 2.6.2006 of the
High Court of Judicature at Allahabad in C.M.W.P. No. 31343 c
of 2006.

Tripathi Raj, Ravi Shankar Kumar and Prakash Kumar
Singh for the Appellants.
Shrish Kumar Misra, Ajay Kr. Singh and Subrata Gautam
.... D
for the Respondents .
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
2. Interpretation and application of Section 29 of the State E
Financial Corporations Act, 1951 (for short "the Act") is the core
question involved herein.

3. Before, however, adverting to the said question, we may
~
notice the basic factual matrix of the matter.
F
Appellant No. 1 is a partnership firm. It was constituted in
the year 1973. It established a factory at Kadrabad in the town
of Modi Nagar, U.P. A loan of Rs. 3.96 lakhs was applied for but
a sum of Rs. 3.14 lakhs was sanctioned in 1974. Appellant No.
1 was in possession of 1100 sq. yards in Khasra Plot No. 397M,
G
,.. Khata No. 80 situated in Village Kadrabad Pargana Jalalabad.
The factory is situated on a land measuring 800 sq. yards. The
schedule of the land which was the subject matter of mortgage
in favour of the respondent - Corporation reads as under:
"All that piece or parcel of land measuring 800 sq. yards H
156 SUPREME COURT REPORTS [2008] 7 S.C.R.
.,,
A out of Seven Biswas and Five Bigamain, bearing Khasra
plot number 397 M Khata No. 80, situate in village
Eadarkad, Pargana, Jalalabad, tehsil Ghaziabad district
Meerut and bounded:
· On the North by: remaining land of Khasra No. 397 F,
B
On the South by: remaining land of owned by Gur Charan
Jit Kaur of Khasra No. 397 M

On the east by: D.K. F~oad

c On the west by: Land belonging to other persons."

Appellant was furthermore granted loan for a sum of
Rs.1.51 lakhs as also for a sum of Rs.3, 19,800/- during the
period 1977-79. According to the appellant, although a
substantial part of the loan had been repaid, a sum of
D Rs.3, 19,800/- is still owing and due to the respondent. It has .J.
been contemded that the mortgaged land admeasuring 800 sq.
yards continued to be the security for the said loans.
The industrial unit of the appellant, however, became sick.
Efforts to revive the said unit failed. It was contended that the
E
respondent - Corporation acknowledged that out of an area of
1350 sq. yards which was in possession of the appellant, only
800 sq. yards was mortgaged in its favour, wherefor a demand
for demarcation was madle by it in terms of a letter dated
17.07.1990, stating: ~

F
"The actual area of land belonging to your unit.at present
is around 1350 sq. yards approx. So, therefore, it could
not be indentified which portion of land has been
mortgaged to the Corporation. In the absence of the
demarcating of land mortgaged to the Corporation, we
G
may not be in a position to evaluate the assets mortgaged ...
at site. Keeping in view of this, you are hereby advised to
submit the following papers for clarification/ indentification
for the plot mortgaged to the Corporation so that we may
take action at our end ... "
H
-,

M/S. ORMI TEXTILES & ANR. v. STATE OF U.P. & 157
ORS. [S.B. SINHA, J.]
I r
4. A notice dated 28.12.2005 under Section 29 of the Act A
was issued by the respondent - Corporation.
A writ petition was filed questioning the legality thereof.
I
Pursuant to an interim order passed by the High Court in the
J said writ petition, the appellant deposited a further amount of
-J
... Rs. 2 lakhs. In the meantime, another unit bf the appellant B
J became sick and subjected to a notice under Section 29 of the
~ Act wherefor also a writ petition was filed before the High Court
which was marked as Civil Misc. Petition No. 7219 of 2006.

5. An advertisement was issued for sale of the appellant's c
unit covering the land area 7 Siswa, 5 Biswansi (951.25 sq.
mtr.) in a newspaper known as 'Amar Ujala' on or about
~
6.06.2006.
6. The High Court by reason of the impugned judgment
dismissed the writ petition filed by the appellants questioning D
-<.
the validity of the said notice, stating:

I "Admittedly, the Petitioner approached earlier also this
i Court against the proceeding initiated under Section 29,
of the State Financial Corporations Act, 1951 in Writ
Petition No. 6703 of 2006 wherein this Court granted E
indulgence permitting the Petitioner to pay certain amount
within a prescribed time and in the meantime interim order
was passed. Thereafter, again the said order was modified
and further opportunity was granted to the Petitioner but
I ... the Petitioner failed to comply both the said order though F
undertaking has been given before this Court in the
aforesaid Writ Petition in order to obtain the interim order.
In the circumstances, the Respondent Nos. 2 and 3
proceed to take over possession under Section 29 of the
'• State Financial Corporations Act, 1951 and hence the G
..l
present Writ Petition is filed .
~ In my view, against the same cause of action the present
Writ Petition is filed which is not maintainable. Further, the
~
Petitioner has also approached this Court with unclean
H
158 SUPREME COURT REPORTS [2008] 7 S.C.R.

A hands inasmuch as he has already got interim orders from
this Court by giving certain undertakings but failed to honour
the same and, thus, is not entitled for any equitable relief
under Article 226 of the Constitution of India.
In view of the aforesaid facts and circumstances, the Writ ·
B Petition is dismissed in limine."
7. Mr. Tripurari Ray, learned counsel appearing on behalf
of the appellants, would submit that on a plain reading of Section
29 of the Act, it would appear that the mortgaged property only
c can be the subject matter of :sale.
8. Mr. Shrish Kumar Misra, learned counsel appearing on
behalf of the respondents, on the other hand, would contend:
(i) Section 29 of the Act although is in two parts, each
part thereof is separate and distinct.
D
(ii) Power of the Corporation to sell the property is not
confined only to the mortgaged property but the entire
industrial unit as the power to redeem the mortgage
provides for an additional remedy.
E 9. Section 29(1) of the 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
F 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 tile terms of its agreement with the
Financial Corporation, the Financial Corporation shall have
G 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 realize the property
pledged, mortgaged, hypothecated or assigned to the
Financial Corporation."
H. 10. The Act was enacted to provide for the establishment
M/S. ORMI TEXTILES & ANR. v. STATE OF U.P & 159
,' r ORS. [S.B. SINHA, J.]

of the State Financial Corporations. Various statutory powers A
have been conferred upon the Corporation. It has power to take
recourse to various remedies provided under the Act, apart from
the terms of the contract entered into by and between it and the
borrower as also the provisions of the Transfer of Property Act.
It is a 'State' within the meaning of Article 12 of the Constitution B
of India. Its power is, thus, required to be exercised reasonably
and fairly. The right of the Corporation in the case of a default
on the part of the borrower is a statutory power. The provisions
of the Act conferring such a power require to undergo a
purposive construction. c
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 situation shall inter alia
have the right to take over the management or possession or D
both of the industrial concerns. This power is in addition to the
power of the right to transfer by way of lease or sale and realize
the property pledged, mortgaged, 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, E
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 F
same must have a nexus with the mortgaged property. The
power to sale cannot be read in isolation. It can also realize the
mortgaged property which would mean that when a property
had been sold, only the mortgaged property can be realized
and not any other property which was not the subject matter of G
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 realized, the
H
160 SUPREME COURT REPORTS [2008] 7 S.C.R

A Corporation would be bound to handover the management or
possession of the property, as the case may be, back to the
industrial establishment.

11. A mortgagee can have a right to sell a property even
under the contract. The same must necessarily mean that the
B 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.

12. For proper construction of the provisions of the Act,
we may notice the provisions of Section 31 thereof. It provides
c for an additional remedy. Whereas Section 29 confers a power
to sale the property unilaterally, Section 31 provides inter alia
for the same power only through the intervention of the court.

Clause (a) of Sub-section (1) of Section 31 of the Act
categorically states that the jurisdiction of the District Judge can
D be invoked for order of sale of the mortgaged or assigned
property in favour of the Corporation. Clause (b) thereof provides
for transferring the management of the industrial concern.
Clauses (aa) and (c) of Sub-section (1) of Section 31 of the Act
provide for additional remedies. When an application is filed in
E terms of Section 31 of the Act, the procedures laid down in Sub-
section (1A) of Section 32 of the Act are required to be followed.
A further additional remedy has been provided to a Financial
Corporation in terms of Section 32G of the Act.

13. We need not dilate on the interpretation of the
F aforementioned provision as the same is now covered by a
decision of this Court in Karnataka State Financial Corporation
v. N. Narasimahaiah and Ors. [2008 (4) SCALE 473] wherein
it was held:

G "26. While interpreting the provisions of a statute, the court
employs different principles or canons. To interpret a
statute in a reasonable manner, the court must place itself
in the chair of a reasonable legislator/ author. [See New
India Assurance Company Ltd. v. Nusli Neville Wadia
and Anr [JT 2008 (1) SC 31] Attempt on the part of the
H
M/S. ORMI TEXTILES & ANR. v. STATE OF U.P. & 161
ORS. [S.B. SINHA, J.]
)

court while interpreting the provisions of a statute should, A
therefore, be to pose a question as to why one provision
has been amended and the other was not? Why one
terminology has been used while inserting a statutory
provision and a different clause in another? It is well-known
that casus omissus cannot be supplied. (See Ashok Lanka B
v. Rishi Dixit (2005) 5 SCC 598 and J. Srinivasa Rao v.
Govt. of A.P & Anr 2006 (13) SCALE 27 and Southern
Petrochemical Industries Co. Ltd. v. Electricity Inspector
and E. Tl.O. and Ors. (2007) 5 sec 447)
27. The legislative intent, in our opinion, is manifest. The c
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 D
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." · E
This Court therein has also taken into consideration the
interpretative process required to be undertaken for construing
the Act keeping in view the fact that right to property is also a
human right.
F
The High Court, in our opinion, committed a serious
illegality insofar as it failed to take into consideration the limited
scope and effect of Section 29 of the Act. It wrongly proceeded
on the basis as if the contention of the appellants stood covered
by the earlier round of litigation. Interpretation of Section 29 of
G
the Act did not fall for consideration in the earlier writ petition.
~
14. We, therefore, are of the opinion that the right to sell
the property by the Corporation must be exercised only in
respect of the mortgaged property and not the one which is not
the subject matter thereof. H
162 SUPREME COURT REPORTS [2008] 7 S.C.R.

A 15. Keeping in view the fact that the extent of property
mortgaged has been described in the deed of mortgage, it will
be open to the respondents herein to get the area of the said
property duly demarcated.
16. In the event, the sale is complete, the auction purchaser
B may be handed over only so much property which was the subject
matter of mortgage. This, however, would not mean that for
realization of the balance amount, if any, the respondents would
be without any remedy. They will be entitled to take recourse to
such remedies for realization of their balance due to which they
C are otherwise entitled to in law.
17. The appeal is allowed to the aforementioned extent
with costs. Counsel's fee assessed at Rs. 25,000/-.
D.G. Appeal partly allowed.