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Thressiamma Varghese v. Kerala State Financial Corporation And Others

Kerala High Court

Apr 3, 1986

Judgment

Subsequent
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Structured Summary of the Opinion (Bhat, J.)

Factual and Procedural Background

The Kerala State Financial Corporation (the Corporation) advanced a loan of Rs. 9,01,667 to the second respondent (an industrial concern). A mortgage deed dated 1-1-1972 was executed by respondents 2 to 4 and by the appellant, who was described as a co-mortgagor. After default in repayment, the Corporation filed a petition under Section 31 of the State Financial Corporations Act, 1951 seeking realisation of Rs. 14,40,376.20 from the properties of all four mortgagors and from them personally. The petition was resisted principally on the ground that proceedings under Section 31/32 could only be taken against the industrial concern (borrower) and not against co-mortgagors or guarantors, who should be proceeded against in a civil suit under the Transfer of Property Act. The District Judge, Ernakulam overruled the defence and allowed the petition, confirmed interim attachment and injunction, and directed sale of mortgaged properties. The appellant challenged that order on appeal.

Legal Issues Presented

Whether a co-mortgagor or third-party surety (who has mortgaged property as security) can be proceeded against in proceedings initiated by a Financial Corporation under Section 31 of the State Financial Corporations Act, 1951 and by orders passed under Section 32.
Whether the special remedial machinery in Sections 29–32 of the Act was intended to be available only against the industrial concern (borrower), thereby excluding co-mortgagors/guarantors and requiring recovery from them to be pursued in a civil suit under the Transfer of Property Act.
Whether the procedure in Section 32 requires express statutory notice to be issued to a third-party surety or whether the duty to give notice (audi alteram) can be implied into Section 32.

Arguments of the Parties

Appellant's Arguments

The appellant (co-mortgagor) contended that neither she nor her properties could be proceeded against in an application under Section 31 and that no order could be made against her under Section 32 of the Act.
It was argued that Sections 31 and 32 create a special, summary machinery for recovery only against the industrial concern (borrower), and there is no express provision enabling the Corporation to proceed against co-mortgagors or guarantors under that machinery.
The appellant asserted that remedies against co-mortgagors/guarantors are to be pursued in an ordinary civil suit under the Transfer of Property Act, not under the special procedures of the State Financial Corporations Act.
Reliance was placed on a Full Bench decision of the Allahabad High Court in Munnalal Gupta v. Uttar Pradesh Financial Corporation (AIR 1975 All 416) (which, according to the opinion, had overruled a contrary Division Bench decision), as supporting the restriction of the remedy to the industrial concern.

The opinion does not contain a detailed, separate presentation of the respondent Corporation's arguable submissions; the court's reasons address those issues in the course of statutory interpretation and policy analysis.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Munnalal Gupta v. Uttar Pradesh Financial Corporation, AIR 1975 All 416	Full Bench view (as relied on by appellant) that the special remedy should be limited to the "borrower" (industrial concern) and not extend to third-party sureties/co-mortgagors.	The court explained that, with respect, it could not follow the Full Bench view; it rejected the restrictive reading of "borrower" advanced by that Full Bench and did not adopt its conclusion.
U.R.F. Corporation v. D.I. (P) Ltd. (Division Bench), 1971 All LJ 756	Division Bench approach contrary to the Full Bench in Munnalal Gupta (interpreting the remedial scheme more broadly).	The court stated respectful agreement with the Division Bench decision and adopted its approach in preferring a broader interpretation permitting proceedings against mortgaged property of third-party sureties under Sections 31–32.
Maneka Gandhi v. Union of India, AIR 1978 SC 597	Principle that the audi alteram partem (right to be heard) is a fundamental rule of fairness that may be implied into statutory schemes unless clearly excluded.	The court read the audi alteram rule into Section 32, holding that a District Judge can and ordinarily should issue notice to a surety whose property is to be proceeded against, thereby protecting natural justice.
Director of Industries, U.P. v. Deep Chand, AIR 1980 SC 801	General proposition that recovery statutes enacted to protect public funds and enable expeditious recovery of state advances may justify summary procedures; classification for expedited remedies can be constitutionally reasonable.	The court relied on the Supreme Court's observations to reinforce the legislative objective of expeditious recovery and to justify interpreting the Financial Corporations Act as enabling summary remedies against mortgaged property (including third-party security) to protect public interest.
State Financial Corpn. Ltd. v. Satpathy Brothers and Nanda Co. (P) Ltd., AIR 1975 Orissa 132	Orissa High Court Full Bench interpretation emphasising the progressive and practical nature of the special procedure in Sections 31–32 and Section 46B's overriding effect.	The court cited this authority as supportive of the view that the special procedure under the Act is intended to be efficient and not disadvantageous compared to civil suits; used to bolster the court's conclusion favouring summary remedies under the Act.

Court's Reasoning and Analysis

The court's analysis proceeds by close textual interpretation of the Act's relevant provisions (primarily Sections 24, 25, 29, 30, 31, 32 and 46-B), together with reference to the statute's objects and legislative history:

Purpose and context: The Act is intended to enable State Financial Corporations to provide medium and long-term credit to industrial undertakings and to ensure loans are recovered expeditiously so that funds remain available for further industrial assistance. The Statement of Objects and Reasons and the Select Committee's remarks indicate a deliberate legislative aim to provide special, expedited remedies for enforcement of claims.
Statutory scheme and text: Sections 29–32 form a coherent remedial scheme. Section 29 confers broad rights on the Corporation on default (takeover of management/possession; transfer/realisation of property pledged, mortgaged, hypothecated or assigned). Section 31 authorises application to the District Judge for reliefs including sale of property pledged or mortgaged as security for the loan; Section 32 prescribes the District Judge's procedure for interim attachment, notice and confirmation or investigation of claims.
No textual limitation to assets of the industrial concern: The court emphasises that neither Section 29 nor Section 31 contains words that confine the remedy to property owned by the industrial concern. Section 25(2) requires accommodation to be sufficiently secured but does not require that the security belong to the borrower. The court reasons that the statutory language contemplates security provided by third parties (e.g., well-wishers), and so the rights to realise such security must be within the scope of Sections 29–32.
Interpretation of Section 32(1): The court notes that subsection (1) requires attachment of "the security, or so much of the property of the industrial concern" as would realise the outstanding liability — hence the distinction in phrasing supports treating "the security" (which may be third-party property) as a category that can be attached without the same numerical limitation applicable to the industrial concern's property.
On notice and natural justice: Although Section 32(4) explicitly requires notice to the industrial concern, the text does not mention notice to third-party sureties. The court holds that the absence of express provision for notice to sureties does not demonstrate legislative intent to exclude them; instead, the court will imply the duty to give notice to protect the audi alteram rule. The court cites Maneka Gandhi to justify reading the audi alteram rule into the scheme where appropriate.
Policy reasoning: The court underscores the policy underpinning the statute — that resort to ordinary civil suits would be dilatory and inimical to the public interest of keeping funds available for further industrial credit. Hence, the court is unwilling to read in restrictions that would force the Corporation to pursue slower remedies against sureties.
Precedential evaluation: The court considered precedents from the Allahabad High Court. It respectfully agreed with the Division Bench view (U.R.F. Corporation v. D.I. (P) Ltd.) that allowed a broader remedial scope, but rejected the contrary Full Bench in Munnalal Gupta, which took a narrower view. The court found no rationale for treating third-party sureties as excluded from the Act's special remedies.
Application to facts: Applying the foregoing interpretation to the case, the court concluded that the Corporation could proceed against the appellant's mortgaged property under Sections 31–32. The court also noted that, in the present case, the District Judge had issued notice to the appellant and heard her, so principles of natural justice had not been violated.

Holding and Implications

Holding: The appeal is dismissed.

The court's operative legal conclusions and immediate consequences (as stated in the opinion) are:

The Corporation may proceed in an application under Section 31 and follow the procedure in Section 32 against property mortgaged to it even if that property does not belong to the industrial concern but to a third-party surety or co-mortgagor.
The duty to issue notice (audi alteram) to a surety whose property is to be proceeded against can be implied into Section 32; ordinarily the District Judge should issue such notice. In the instant case, notice was issued and the appellant was heard, so there was no violation of natural justice.
The District Judge's order allowing the petition, confirming interim attachment and injunction and directing sale of mortgaged properties was affirmed; the appellant's challenge failed and costs were awarded to the respondent Corporation.
The court expressly declined to follow the Full Bench decision of the Allahabad High Court in Munnalal Gupta v. Uttar Pradesh Financial Corporation (AIR 1975 All 416) and instead followed the Division Bench approach permitting proceedings against third-party mortgaged property under the Act.

Broader implications discussed in the opinion focus on statutory interpretation and policy: the decision endorses an interpretation of the State Financial Corporations Act that permits summary, expeditious recovery by the Corporation against mortgaged security (including third-party security) to protect public interest in preserving funds for industrial credit. The direct legal effect in this case is dismissal of the appeal and affirmation of the District Judge's orders.

Appeal dismissed.

Show all summary ...

Bhat, J.:— First respondent herein is the Kerala State Financial Corporation (for short ‘the Corporation’) constituted under the provisions of the State Financial Corporations Act, 1951 (for short ‘the Act’). The Corporation advanced loan of Rs. 9,01,667/- to the second respondent herein, an industrial concern as defined in the Act, for which a mortgage deed dated 1-1-1972 was executed by respondents 2 to 4 herein and the appellant, the latter being described as co-mortgagor. Since default was committed in the matter of repayment, the Corporation filed a petition before the District Judge, Ernakulam under Sec. 31 of the Act for realisation of Rs. 14,40,376.20, praying that the sum may be realised from the properties of all the four mortgagors and also from them personally. Petition was resisted mainly on the ground that in a petition under Sec. 31 of the Act properties of the appellant herein viz., co-mortgagor or guarantor cannot be proceeded against and the District Judge has jurisdiction to proceed only against the assets of the industrial concern. It was further contended that remedy, if any against the mortgagors other than the industrial concern has to be worked out under the provisions of the Transfer of Property Act in a competent civil Court. Learned District Judge overruled these contentions and allowed the petition with costs holding that the Corporation is entitled to recover the entire amount claimed in the petition with future interest and confirming the interim order of attachment and injunction and directing all the properties mortgaged to be sold for realisation of the amount due to the Corporation. This order is challenged by the appellant.

2. The only contention urged before us on behalf of the appellant is that the appellant or her properties cannot be proceeded against in proceedings initiated under Sec. 31 of the Act and no such order could have been passed against them under Sec. 32 of the Act. Learned counsel for the appellant would have it that Sections 31 and 32 create a special machinery, procedure and jurisdiction for realisation of the money due only from the industrial concern, that there is no express provision in the Act whereby co-mortgagors or guarantors (other than the industrial concern which borrowed the money) could be proceeded against under this special jurisdiction and the remedy against them would lie only in proceedings in a suit in a civil Court under the provisions of-the Transfer of Property Act. According to learned counsel, the scheme of the Act, the purpose of the Act, absence of express provision in the Act enabling the Corporation to proceed against persons other than the industrial concern before the District Judge and the absence of provision for issue of notice in Section 32 of the Act to such persons other than the industrial concern would clearly indicate that the legislative intention was that the special remedy is to be invoked only against the industrial concern and not others. Learned counsel also relied on a decision of Full Bench of the Allahabad High Court in Munnalal Gupta v. Uttar Pradesh Financial Corporation, AIR 1975 All 416 which incidentally overruled a contrary decision of a Division Bench of that Court in Uttar Pradesh Financial Corporation v. Deekay Industries (Pvt.) Ltd., 1971 All LJ 756.

3. Sec. 3 of the Act enables the State Government by notification in the Official Gazette to establish a Financial Corporation for the State under such name as may be specified in the notification. The Corporation shall be a body corporate by the name notified having perpetual succession and a common seal, with power, subject to the provisions of the Act, to acquire, hold and dispose of property. Chapter II deals with incorporation of the Corporations, their capital and management.

4. Chapter III of the Act deals with powers and duties of the Board. Sec. 24 states that the Board in discharging its functions under the Act shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public. Sec. 25 lays down the business which Financial Corporation may transact, subject to the provisions of the Act. Clause (g) of sub-sec. (1) enables the Corporation, inter alia to grant loans or advances to an industrial concern. Sub-sec. (2) of Sec. 25 states that “no accommodation shall be given under clauses (a), (b) and (g) of sub-section (1) unless it is sufficiently secured by a pledge, mortgage, hypothecation, or assignment of Government or other securities, stock, shares, or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations “or unless it is guaranteed otherwise as indicated therein. Sec. 26 lays down the limit of accommodation. Sec. 27 confers on the Corporation power to impose conditions for accommodation, for protecting the interests of the Corporation and securing that the accommodation granted is put to the best use by the industrial concern.

5. Section 29 lays down the rights of the Corporation in case of default. Sub-sec. (1) states that “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 tails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, gs 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.” The other sub-sections contain elucidations. Sec. 30 deals with power to call for repayment before the agreed period. The Corporation will have the power, by appropriate notice, to require the industrial concern, inter aha, to discharge forthwith in full its liabilities to the Corporation, in cases contemplated in clauses (a) to (f). Clause (d) deals with a case where the property pledged, mortgaged, hypothecated or assigned to the Corporation as security for the loan or advance is not insured and kept insured by the industrial concern to the satisfaction of the Corporation or depreciates in value to such an extent that, in the opinion of the Board, further security to the satisfaction of the Board should be given and such security is not given.

6. Section 31 contains special provisions for enforcement of claims by the Financial Corporation. In the case of default of payment or compliance with the terms of agreement or demand under Sec. 30, without prejudice to the provisions of Sec. 29 of the Act and Sec. 69 of the Transfer of Property Act, any officer of the Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the reliefs contemplated in clauses (a) to (c). Relief contemplated in clause (a) is for an order for the sale of property pledged, mortgaged, hypothecated or assigned to the Corporation as security for the loan or advance. Relief in clause (b) is for transferring the management of the industrial concern to the Corporation. Relief in clause (c) is for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended. Sub-sec. (2) states that “an application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed”.

7. Sec. 32 deals with the procedure to be followed by the District Judge in respect of applications under Sec. 31. Sub-sec (1) deals with application for reliefs mentioned in clauses (a) and (c) of Sec. 31(1). The District Judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Corporation, together with costs of the proceedings taken under Sec. 31, with or without an interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment Sub-sec (2) of Sec. 32 deals with cases of application for relief mentioned in Sec. 31(1)(b). Sub-sec. (3) enables the District Judge, before passing any order under sub-sec. (1) or sub-sec (2), to examine the officer making the application. Sub-sec (4) reads thus:

“(4) At the same time as he passes an order under sub-section (1), the District Judge shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.”

Sub-sec (5) states that “if no cause is shown on or before the date specified in the notice under sub-sections (2) and (4), the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Corporation or confirm the injunction”. Sub-sec (6) states “if cause is shown, the District Judge shall, proceed to investigate the claim of the Financial Corporation accordance with the provisions contained in the Code of Civil Procedure, 1908, in so far as such provisions may be applied thereto”. Sub-sec (7) deals with the final order to be passed by the District Judge after investigation. He may confirm the order of attachment and direct sale of the property attached, vary the order of attachment so as to release a portion of the property from attachment and direct sale of the remainder of the attached property, release the property from attachment, confirm or dissolve the injunction or transfer management of the industrial concern to the Corporation or reject the claim made in this behalf. Sub-sec (8) states that an order of attachment or sale of property under the Section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908 for the attachment or sale of property in execution of a decree as if the Corporation were the decree-holder. Sub-sec (9) confers right of appeal to the High Court on “any party aggrieved by an order under sub-sec. (5) or sub-section (7)” and empowers the High Court, after hearing the parties, to pass such orders thereon as it thinks, proper.

8. Sec. 46-B states that the provisions of the Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than the Act, but save as aforesaid, the provisions of the Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern. Sec. 47 confers on the State Government power to make rules. Sec. 48 confers on the Board power to make regulations.

9. The Industrial Finance Corporation Act, 1948 is the precursor of the State Financial Corporations Act, 1951. The necessity for the former Act was explained in the statement of Objects and Reasons thus:

“The provision of credit for medium and long term capital requirements of industry falls outside the normal activities of commercial banks and in certain cases the usual methods of capital issued are not wholly practicable or suitable. In order to fill this lacuna. Industrial Finance Corporations to provide medium and long term credit for facilitating post-war rehabilitation and development have been established in several countries This Bill seeks to establish a similar Corporation in India for the same purpose…………”

The State Financial Corporations Act is modelled on the provisions of the Industrial Finance Corporation Act and the latter has provisions similar to those in Sections 29, 30 and 31 of the former.

10. Statement of Objects and Reasons of the State Financial Corporations Act explains the need for the statute thus:

“In order to provide medium and long-term credit to industrial undertakings, which falls outside the normal activities of commercial banks, a Central Industrial Finance Corporation was set up under the Industrial Finance Corporation Act, 1948 (XV of 1948). The State Governments wish that similar Corporations should also be set up in the States to supplement the work of the Industrial Finance Corporation. The intention is that the State Corporations will confine their activities to financing medium and small scale industries and will, as far as possible, consider only such cases as are outside the scope of the Industrial Finance Corporation. The State Governments also consider that the State Corporations should be established under a special Statute in order to make it possible to incorporate in the constitution necessary provisions in regard to majority control by Government, guarantee by the State Government in regard to repayment of principal, and payment of a minimum rate of dividend on the shares, restriction on distribution of profits and special powers far the enforcement of its claims and recovery of dues.”

In describing the main features of the Bill, the statement says that the Corporation will have special privileges in the matter of enforcement of its claims against borrowers. The select committee of Parliament which considered the Bill said, with reference to clause 31, that “We are of opinion that the rights which accrued to the Financial Corporation under clause 29 or clause 30 should be enforced through the intervention of a court. We have accordingly amended this clause to make it clear that the Financial Corporation shall have to apply to the District Judge to enforce its claim”.

11. The Act was enacted with a view to enable the Corporation to provide medium and long-term credit to industrial undertakings. In providing such help, the Corporation certainly does not act as a commercial banker with a view to earn profit The Corporation is to advance loans in order to render financial assistance to people in establishing industries or for other allied purposes. This is to ensure the well-being of the people. In order that the Corporation should be enabled to do so continuously and without any break, it is necessary that the loans advanced should be enabled to be recovered with reasonable interest. Continuance, of assistance depends on the extent of recovery of loans, duly and expeditiously. If the Corporation is to be compelled to resort to recovery through the instrumentality of suits in civil courts, the process of recovery will naturally be delayed; this will limit the availability of funds with the Corporation and hamper further assistance to more and more people. Therefore, the Act contains provisions which enable the Corporation to avoid dilatory process, which, to a great extent, is unavoidable in civil suits and provides for an expeditious remedy for recovery.

12. It is in this background that we have to consider the relevant provisions of the Act Provisions of the Act override any inconsistent provisions in other laws. At the same time, they are in addition to and not in derogation of any other law applicable to an industrial concern. In other words, in the area of remedies and reliefs, this would mean that the provisions of the Act would apply even though they are inconsistent with the provisions of the Transfer of Property Act or the Code of Civil Procedure at the same time, they provide additional remedies and reliefs, in addition to those provided in the Transfer of Property Act or the Code of Civil Procedure.

13. Great care has been taken in drafting the provisions of the Act for example, Sec. 24 maintains that the Board or the Corporation should act on business principles having regard to the interests of industry, commerce and the general public. These interests do require that loans are made available to set up industries and loans are recovered to enable more and more industries to be set up. The parameters in regard to the grant of loans are laid down in Sec. 25. It bars loan being given under some of the provisions of sub-sec. (1), unless it is sufficiently secured by a pledge, mortgage, hypothecation, or assignment of Government or other securities, stock, shares or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations or unless guaranteed otherwise as indicated therein. Limit of accommodation is laid down in Sec. 26. Power to impose conditions for accommodation is conferred, by Sec. 27. That is to protect the interests of the Corporation and to enable that accommodation granted is put to the best possible use.

14. The Legislature has taken great care to ensure speedy recovery of the loans. The scheme is provided in Sections 29 to 32 of the Act Operation of Sec. 29 is attracted whenever there is default by a borrowing industrial concern. The Corporation shall have the right (a) to take over management or possession or both of the industrial concern and (b) to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Corporation. Sec. 30 empowers the Corporation to call for repayment before the agreed period. Power conferred under Sec. 29 is of widest possible amplitude and has dual aspects. There is the power to take over management or possession of the industrial concern; there is also the power to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Corporation. There is nothing in any of the provisions of the Act indicating that only property or assets of the industrial concern can be mortgaged or hypothecated Absence of such a provision is understandable and welt advised. To insist that every industrial concern must have sufficient, assets of its own before it can approach the Corporation for accommodation is to stifle entrepreneural enthusiasm and that would adversely affect public interest Sub-sec (2) of Sec. 25 only prohibits accommodation being granted unless it is sufficiently secured, inter alia, by mortgage, hypothecation, movable or immovable property or other tangible assets. The provision does not indicate that the property or the assets must belong to the industrial concern. It should be possible for the industrial concern to arrange to secure hypothecation or mortgage of assets belonging to well-wishers who are prepared to assist the concern. That is why the provision does not indicate that assets mortgaged or hypothecated must belong to the industrial concern. Sec. 29 does not make any distinction between assets of the industrial concern and assets not belonging to the industrial concern but nevertheless mortgaged to the Corporation Both kinds of assets can be proceeded against under Sec. 29. It is not possible for us to redd into Sec. 29 a restriction to the effect that the right conferred on the Corporation thereunder is restricted to the right to proceed only against property belonging to the industrial concern and mortgaged to the Corporation. The provision would apply to property not belonging to the industrial concern but nevertheless mortgaged by the owners of the assets to the Corporation, as guarantee of security.

15. Sec. 31 contains special provisions for enforcement of claims by Financial Corporation. It enables the Corporation, without prejudice to the provisions of Sec. 29 of the Act or Sec. 69 of the Transfer of Property Act to apply to the District Judge concerned, that is the District Judge within the limits of whose jurisdiction the industrial concern carries on whole or substantial part of its business, to apply for reliefs mentioned therein viz., (a) for an order for sale of property pledged, mortgaged or assigned as security for the loan or advance, (b) for transferring the management of the industrial concern to the Corporation and (c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended. Sub-sec. (2) requires the application to state the nature and extent of the liability of the industrial concern to the Corporation, the ground on which it is made and such other particulars as may be prescribed

16. In conferring jurisdiction on District Judges, naturally, the provision points to the District Judge within the limits of whose jurisdiction the concern carries oft business. It is not appropriate to confer jurisdiction on the District Judge within the limits of whose jurisdiction the surety resides or carries on business or the property secured is situated. After all, it is to the industrial concern that accommodation is granted. The Corporation is entitled to seek from the District Judge an order for sale of the property mortgaged as security for the loan. It is significant to note that the provision makes no distinction between the property belonging to the industrial concern and property not belonging to the industrial concern but nevertheless mortgaged by a surety or guarantor. It is true that sub-sec. (2) requires the nature and extent of the liability of the industrial Concern to the Corporation to be stated in the application. That is because, nature and extent of liability of surety is only co-extensive with that of the industrial concern and heed not be separately stated. There is nothing in Sec. 31 to indicate that the Legislature did not envisage power in the Corporation to seek an order for sale of the mortgaged property not belonging to the industrial concern but belonging to a third party surety. We are unable to read any such restriction into Sec. 31.

17. Sec. 32 deals with the procedure to be followed by the District Judge in respect of applications under Sec. 31. As the Select Committee of the Parliament indicated, Sec. 31 is to provide for enforcement of the rights conferred on the Corporation under Sec. 29. Sec. 32 only prescribes the procedure of the District Judge in respect of applications under Sec. 31. It confers no new rights and casts no new obligations on the Corporation. Where the application is for reliefs mentioned in clauses (a) and (c) of sub-sec (1) of Sec. 31, the District Judge has to pass an ad interim order “attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation, together with costs of the proceedings taken under Sec. 31……” The above quoted provision indicates two things. In the case of property of the industrial concern, the Dist Judge can pass an order of interim attachment only regarding so much of the property as would on being sold realise in his estimate the amount due including costs. Regarding the property secured, the provision does not contemplate any such limitation. The reason is obvious and understandable Even in the case of default, the Legislature was careful in seeking to ensure that there should be least disturbance to the working of the industrial concern. That is why only so much of the property of the concern as would on being sold realise the necessary amount is to be attached. But regarding property secured, there is no reason to incorporate such, a limitation and no such limitation has been incorporated There is nothing in sub-sec. (1) of Sec. 32 to indicate that only secured property belonging to the industrial concern could be attached under this provision. Sub-sec.(2) of Sec. 32 deals with the manner in which relief contemplated in Sec. 31(1)(b) is to be worked out. Sub-sec. (3) enables the District Judge to examine the officer making the application before passing an order under sub-sec. (1) or sub-sec. (2). Sub-sec (4) requires the District Judge at the same time as he passes the order under sub-sec. (1) to issue to the industrial concern notice accompanied by copies of the order, application and the evidence, calling upon it to show cause why the ad interim order should not be made absolute or the injunction confirmed. Under sub-sec. (5), if no cause is shown, the District Judge shall forthwith make the ad interim order absolute and direct sale of the attached property or transfer management of the industrial concern to the Corporation or confirm the injunction. This provision is again significant inasmuch as it contemplates confirmation of the order of attachment and thereupon for sale of the attached property. Under sub-sec. (1) the property secured is to be attached. This would indicate that the property secured is to be directed to be sold.

18. Sub-sec. (6) of Sec. 32 indicates that if cause is shown the District Judge shall proceed to investigate the claim of the Corporation in accordance with the provisions contained in the Code of Civil Procedure in so far as such provisions may be applied thereto. Final order is to be passed as contemplated in sub-sec. (7). District Judge may confirm the order of attachment, direct sale of the attached property or he may pass orders of other kinds mentioned therein. This provision also would indicate that what is to be sold is property attached. We have already indicated that what is to be attached is the security and of course so much of the property of the industrial concern as would on being sold realise the necessary amount. Sub-sec. (8) indicates that an order of attachment or sale shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure for attachment or sale of property in execution of a decree, as if the Corporation is the decree-holder.

19. Reading Sections 29, 31 and 32 together, we have no doubt in bur mind that the property secured and not belonging to the industrial concern but belonging to a third party surety or guarantor also could be proceeded against thereunder. Contention of the learned counsel for the appellant is that if that be the legislative intent, the Legislature would have specifically contemplated issue of notice to the third party surety while providing for such notice under sub-sec. (4) of Sec. 32. We have referred to the purpose of the statute and the scheme in Sections 29, 30, 31 and 32. There is nothing therein to indicate that while the Legislature wanted to enable the Corporation to have summary and expeditious remedy (of applying before the District Judge) against the industrial concern, the Legislature, intended that in order to recover the amount due from the surety or the property mortgaged, the Corporation should be driven to the dilatory process of a civil suit Condition on accommodation contained in Sec. 25(2) is to protect the Corporation and thereby to protect public interest Unless there be express provision preventing the Corporation from, proceeding against the mortgaged property or surety in an application before the District, Judge, we are not prepared to read such a restriction on the power of the Corporation. There is no such express provision we find nothing in the provisions of the Act from which such a restriction could be implied either. It is true that the section does not specifically lay down that notice should be issued to the guarantor or the surety. But that does not mean that the District Judge cannot, issue notice. Ordinarily, District Judge will issue notice and where property not belonging to the industrial concern is to be proceeded against necessarily notice has to be issued to the person concerned, as otherwise there would be infringement of the audi alteram rule. As observed in Maneka Gandhi v. Union of India, AIR 1978 SC 597, the audi alteram rule is a highly effective rule devised by court to enable the statutory authority to arrive at a just decision and is calculated to act as a healthy check on abuse or misuse of power and it implies the duty to act fairly, though it can be excluded in appropriate cases. The audi alteram rule should be read by implication in the provision

20. We are fortified in this conclusion by the observations made by the Supreme Court in Director of Industries, U.P v. Deep Chand, AIR 1980 SC 801 while repelling the challenge) based on Article 14 of the Constitution against Sec. 3 of the U.P Public Moneys (Recovery of Dues) Act, 1965. That provision enabled the State Government or the Corporation to recover the amount due as arrears of land revenue. The Supreme Court observed:

“The loans are advanced from out of the, funds of the State in which all the people of the State are vitally interested Moneys advanced by the State Government have got to be recovered expeditiously so that fresh advances may be made to others who have, not yet received financial assistance from the State Government. If the State Government should resort to a remedy by way of a suit on the mortgage deeds or bonds executed in its favour, the realization of the amounts due to the Government is bound to be delayed resulting in non-availability of sufficient funds in the hands of the State Government for advancing fresh loans. It is with the object of avoiding the usual delay involved in the disposal of suits in civil courts and providing for an expeditious remedy, the Act has been enacted.”

On this basis, the Supreme Court held that there was a reasonable basis for the classification made by the statute and the classification has a reasonable relation to the object of the statute.

21. The same idea is reiterated by a Full Bench of the Orissa High Court in State Financial Corpn. Ltd. v. Satpathy Brothers and Nanda Co. (P) Ltd., AIR 1975 Orissa 132. The Orissa High Court took note of the scheme of Sections 31, 32 and 46B and observed:

“If recourse is taken to a civil suit it would be filed in a competent court of lowest jurisdiction. A Subordinate Judge has unlimited pecuniary jurisdiction. Under the Act without filing an application before a Subordinate Judge it would be filed before the District Judge. If the valuation of the application is less than Rs. 5,000 an appeal would lie to the District Judge with a second appeal to the High Court, if recourse had been taken to Civil Court while under the Act the appeal would always lie to the High Court. …………… Considering the object with which these special procedures were enacted by the Legislature we are rather inclined to hold that the provisions are more progressive and the parties would get much better justice than what they would obtain if a civil suit is filed. At any rate, it is not more disadvantageous or unconscion-able.”

22. In the light of the above discussion, we hold that the Corporation could proceed against the mortgaged property (that is, property not belonging to the industrial concern but belonging to a third party surety) in an application presented before the District Judge under Sec. 31 and that application also has to be disposed of in accordance with the procedure contemplated in Sec. 32, We, however, indicate that the duty to issue notice to the surety also can safely be implied.

23. We have been taken through the Division Bench decision of the Allahabad High Court in U.R.F Corporation v. D.I (P) Ltd., 1971 All LJ 756 and the Full Bench decision of the Allahabad High Court in Munnalal v. U.P Financial Corporation, AIR 1975 All 416. We are in respectful agreement, with the view taken by the Division Bench. With great respect, we are unable to follow the view taken by the Full Bench Statement of Objects and Reasons of the Act states that the Corporation will have special privileges in the matter of enforcement of its claims against borrowers. The Full Bench appears to have taken the view that the expression “borrower” is significant and limited to the industrial concern. With respect, we do not think that the expression used in the Statement of Objects and Reasons should be viewed in such a strict light. We have no doubt that the expression “borrower” has been used compendiously to take in all persons who render themselves liable under the loan transaction. We are also unable to agree that the absence of specific provision in Sec. 32 to issue notice to a third party surety is an indication of the legislative intention that such a surety cannot be proceeded against thereunder. The scheme of provisions of Sections 29, 31 and 32 would clearly indicate that the remedy under Sec. 32 is available against a third party surety who has mortgaged his property also and the audi alteram rule could be read into Sec. 32. We are unable to find any rationale in the view that while the Legislature wanted the money to be recovered from the industrial concern by making available expeditious remedy under Sec. 32, Legislature was satisfied with the delay-prone remedy by way of civil suit against a third party surety. For these reasons, with great respect we are unable to follow the view taken in the latter decision of the Allahabad High Court.

In the above circumstances, we repel the contentions of the appellant that the appellant who joined the mortgage deed as co-mortgagor and mortgaged her own immovable property to the Corporation cannot be proceeded against in an application before the District Judge. We have already indicated that the audi alteram rule has to be read into the scheme of Sec. 32, even in regard to such surety. As a matter of fact the District Judge issued notice to the appellant and the appellant was heard. There has been no violation of principles of natural justice in the instant case. Since the only contention urged on behalf of the appellant fails, the appeal is dismissed with costs of the contesting respondent.