Equivalent Citation: 2004(3)AWC2720(SC), IV(2004)BC141, (2007)3CompLJ533(SC), 2004(6)SCALE560, (2004)6SCC758, 2004(2)UJ1369(SC), (2004)3UPLBEC2366

IN THE SUPREME COURT OF INDIA Civil Appeal Nos. 3636-3637 of 1998 Decided On: 11.08.2004 Appellants: Pawan Kumar Jain Vs. espondent: The Pradeshi a Indus!ria" and In#es!men! C$r%$ra!i$n $& U.P. '!d. and Ors. H$n()"e Jud*es+ S.N. Variava and Arijit Pasayat! "". C$unse"s+ #o$ Appellant%&etitione$%&laintiff: V.A. Mohta! '$. Adv.! Rakesh K. Khanna! Neeraj Sharma! Shashank Shekhar and Surya Kant! Advs #o$ espondents%Defendant: Aarohi Bhalla and Sujata Kurdukar! Advs. fo$ t(e espondent No. 1 and Shobha Dixit! '$. Adv.! Rajeev Kumar Dubey and Kamlendra Mishra! Advs. fo$ t(e espondent Nos. 2 and 3 Su),e-!+ Ci#i" A-!s.Ru"es.Orders+ ecove$) of De*ts D+e to ,an-s and #inancial .nstit+tions Act! 1993 - 'ections 2 and 31/ 0tta$ &$ades( &+*lic 1one)s 2 ecove$) of D+es3 Act! 1972 - 'ections 3! 3213 and 4/ 'tate #inancial Co$po$ation Act! 1941 - 'ection 29 Cases Re&erred+ 0ni5+e ,+t)le 6+*e .nd+st$ies 2&3 7td. v. 0.&. #inancial Co$po$ation and O$s.! MAN !S"!#$#%!$&&$ Pri$r His!$r + #$o8 t(e "+d98ent and O$de$ dated 1.9.97 and 6.11.97 of t(e Alla(a*ad :i9( Co+$t in C.1.;.&. No. 28391 and C.1. Application No. 69441 of 1997 Ci!in* Re&eren-e+ 0ni5+e ,+t)le 6+*e .nd+st$ies 2&3 7td. v. 0.&. #inancial Co$po$ation and O$s. MAN !S"!#$#%!$&&$ 1entioned Case N$!e+ Ci#i" / Re-$#er $& De)!s Due !$ 0an1s and Finan-ia" Ins!i!u!i$ns A-!2 3445 / Se-!i$ns 6 and 53 / U!!ar Pradesh Pu)"i- M$ne s 7Re-$#er $& Dues8 A-!2 3496 / Se-!i$ns 52 5738 and : / Res%$nden! 3 ad#an-ed m$nies !$ res%$nden! : -$m%an ; A%%e""an! dire-!$r $& Res%$nden! : -$m%an s!$$d *uaran!$r in res%e-! $& "$an ; Issue $& re-$#er n$!i-e a*ains! a%%e""an! ; Cha""en*ed ) wri! %e!i!i$n ; Dismissed ) Hi*h C$ur! ; C$n!en!i$n $& a%%e""an! !ha! a &inan-ia" ins!i!u!i$n wi!hin meanin* !erm in De)! re-$#er A-! -$u"d n$! )e %r$-eeded under U.P. A-! ; A%%ea" !$ Su%reme C$ur! ; As a-!i$n )ein* ini!ia!ed %ri$r !$ n$!i&i-a!i$n issued ) Cen!ra" <$#ernmen! s%e-i& in* Res%$nden! 3 C$r%$ra!i$n as a &inan-ia" ins!i!u!i$n under Se-!i$n 67h82 a-!i$n he"d n$! )arred and n$! "ia)"e !$ )e !rans&erred !$ !ri)una" / A-!i$n a*ains! *uaran!$r -$u"d n$! )e !a1en un!i" %r$%er! $& %rin-i%"e de)!$r is &irs! s$"d $&&

; As a%%e""an! ha#in* n$! s$"d %r$%er! $& %rin-i%"e de)!$r2 a-!i$n a*ains! a%%e""an! he"d unsus!aina)"e ; Re-$#er n$!i-e a*ains! a%%e""an! se! aside

JUD<MENT S.N. Varia#a2 J. 1. 6(ese Appeals a$e a9ainst t(e O$de$ of t(e Alla(a*ad :i9( Co+$t dated 01.09.1997 *) <(ic( Appellant=s ;$it &etition (as *een dis8issed and t(e O$de$ dated 06.11.1997 *) <(ic( t(e evie< &etition (as *een dis8issed. 2. ,$iefl) stated t(e facts a$e as follo<s. 6(e 1st espondent (ad advanced 8onies to t(e 4t( espondent. 6(e Appellant stood 9+a$anto$ in $espect of t(e said loan as at t(at ti8e (e <as a Di$ecto$ of t(e 4 t( espondent-Co8pan). ,) t(e ;$it &etition! t(e Appellant c(allen9ed t(e ecove$) Notice iss+ed a9ainst (i8 +nde$ t(e 0tta$ &$ades( &+*lic 1one)s 2 ecove$) of D+es3 Act! 1972. 6(e :i9( Co+$t (as dis8issed t(e ;$it &etition and t(e evie< &etition. 3. 1$. 1o(ta s+*8itted t(at t(e Cent$al >ove$n8ent (as iss+ed a Notification specif)in9 1st espondentCo$po$ation as a #inancial .nstit+tion <it(in t(e 8eanin9 of t(e te$8 as defined in 'ection $'h( of t(e ecove$) of De*ts D+e to ,an-s and #inancial .nstit+tions Act! 1993 2(e$einafte$ $efe$$ed to as t(e ?De*t ecove$) Act?3. :e s+*8itted t(at s+c( an .nstit+tion can onl) p$oceed in t(e 8anne$ laid do<n in t(e De*t ecove$) Act. :e s+*8itted t(at it is not open to 9ive a 9o-*) to t(e p$ovision of t(e De*t ecove$) Act and +se t(e 8ac(ine$) +nde$ t(e 0.&. &+*lic 1one)s 2 ecove$) of D+es3 Act! 1972 2(e$einafte$ called t(e ?0.&. Act?3. #o$ t(is $eason t(e Notice is *ad and $e5+i$es to *e 5+as(ed. .n s+ppo$t of (is s+*8ission! (e $elied +pon t(e case in Unique Butyle Tube Industries (P) Ltd. v. U. P. Financial Corporation and Ors. MAN !S"!#$#%!$&&$ : @2002A'0&&4'C 666 . .n t(is case! it (as *een (eld t(at a #inancial .nstit+tion <it(in t(e 8eanin9 of t(at te$8 in t(e De*t ecove$) Act cannot p$oceed +nde$ t(e 0. &. Act. 4. 6(is a+t(o$it) <o+ld (ave *een *indin9 +pon +s. :o<eve$! in $epl) 1$. ,(alla pointed o+t t(at in $espect of t(e 1st espondent- .nstit+tion t(e Notification *) t(e Cent$al >ove$n8ent (as onl) *een iss+ed on 24.01.2004! <(e$eas t(e ecove$) Ce$tificate is of a 8+c( ea$lie$ date. :e s+*8itted t(at! t(e$efo$e! in t(is case t(e p$oceedin9s +nde$ t(e 0. &. Act a$e not *a$$ed. :e pointed o+t t(at +nde$ 'ection )# of t(e De*t ecove$) Act! it is onl) s+it o$ p$oceedin9 pendin9 *efo$e an) Co+$t! <(ic( stand t$ansfe$$ed to t(e 6$i*+nal esta*lis(ed +nde$ t(at Act. .n o+$ vie<! 1$. ,(alla is $i9(t. As t(e action <as initiated p$io$ to t(e Notification *ein9 iss+ed *) t(e Cent$al >ove$n8ent! t(e action <o+ld not *e *a$$ed and <o+ld not stand t$ansfe$$ed to t(e 6$i*+nal. 4. 1$. 1o(ta t(en $elied +pon 'ections 3 and 4 of t(e 0. &. Act! <(ic( $ead as follo<s:=5. Re-$#er $& -er!ain dues as arrears $& "and re#enue.--213 ;(e$e an) pe$son is pa$t)-2a3 to an) a9$ee8ent $elatin9 to a loan! advance o$ 9$ant 9iven to (i8 o$ $elatin9 to c$edit in $espect of! o$ $elatin9 to (i$e- p+$c(ase of 9oods sold to (i8 *) t(e 'tate >ove$n8ent o$ t(e Co$po$ation! *) <a) of financial assistance/ o$ 2*3 to an) a9$ee8ent $elatin9 to a loan! advance o$ 9$ant 9iven to (i8 o$ $elatin9 to c$edit in $espect of! o$ $elatin9 to (i$e- p+$c(ase of 9oods sold to (i8! *) a *an-in9 co8pan) o$ a >ove$n8ent co8pan)! as t(e case 8a) *e! +nde$ a 'tate-sponso$ed sc(e8e/ o$ 2c3 to an) a9$ee8ent $elatin9 to a 9+a$antee 9iven *) t(e 'tate >ove$n8ent o$ t(e Co$po$ation in $espect of a loan $aised *) an ind+st$ial conce$n/ o$

2d3 to an) a9$ee8ent p$ovidin9 t(at an) 8one) pa)a*le t(e$e+nde$ to t(e 'tate >ove$n8ent s(all *e $ecove$a*le as a$$ea$s of land $even+e/ and s+c( pe$son2i3 8a-es an) defa+lt in $epa)8ent of t(e loan o$ advance o$ an) instal8ent t(e$eof/ o$ 2ii3 (avin9 *eco8e lia*le +nde$ t(e conditions of t(e 9$ant to $ef+nd t(e 9$ant o$ an) po$tion t(e$eof! 8a-es an) defa+lt in t(e $ef+nd of s+c( 9$ant o$ po$tion o$ an) instal8ent t(e$eof/ o$ 2iii3 ot(e$<ise fails to co8pl) <it( t(e te$8s of t(e a9$ee8ent!-- t(en! in t(e case of 'tate >ove$n8ent! s+c( office$ as 8a) *e a+t(o$iBed in t(at *e(alf *) t(e 'tate >ove$n8ent *) notification in t(e official >aBette! and in t(e case of t(e Co$po$ation o$ a >ove$n8ent co8pan) t(e 1ana9in9 Di$ecto$ t(e$eof! and in t(e case of a *an-in9 co8pan)! t(e local a9ent t(e$eof! *) <(ateve$ na8e called! 8a) send a ce$tificate to t(e Collecto$! 8entionin9 t(e s+8 d+e f$o8 s+c( pe$son and $e5+estin9 t(at s+c( s+8 to9et(e$ <it( costs of t(e p$oceedin9s *e $ecove$ed as if it <e$e an a$$ea$ of land $even+e. 223 6(e Collecto$ on $eceivin9 t(e ce$tificate s(all p$oceed to $ecove$ t(e a8o+nt stated t(e$ein as an a$$ea$ of land $even+e. 233 No s+it fo$ t(e $ecove$) of an) s+8 d+e as afo$esaid s(all lie in t(e civil co+$t a9ainst an) pe$son $efe$$ed to in s+*-section 213. 4. Sa#in*s. -- 213 Not(in9 in section 3! s(all 2a3 affect an) inte$est of t(e 'tate >ove$n8ent! t(e Co$po$ation! a >ove$n8ent co8pan) o$ an) *an-in9 co8pan)! in an) p$ope$t) c$eated *) an) 8o$t9a9e! c(a$9e! pled9e o$ ot(e$ enc+8*$ance/ o$ 2*3 *a$ a s+it o$ affect an) ot(e$ $i9(t o$ $e8ed) a9ainst an) pe$son ot(e$ t(an a pe$son $efe$$ed to in t(at section! in $espect of a cont$act of inde8nit) o$ 9+a$antee ente$ed into a $elation to an a9$ee8ent $efe$$ed to in t(at section o$ in $espect of an) inte$est $efe$$ed to in cla+se 2a3. 223 ;(e$e t(e p$ope$t) of an) pe$son $efe$$ed to in 'ection 3 is s+*Cect to an) 8o$t9a9e! c(a$9e! pled9e o$ ot(e$ enc+8*$ance in favo+$ of t(e 'tate >ove$n8ent! t(e Co$po$ation! a >ove$n8ent co8pan) o$ *an-in9 co8pan)! t(en -2a3 in eve$) case of a pled9e of 9oods! p$oceedin9s s(all fi$st *e ta-en fo$ sale of t(e t(in9 pled9ed! and if t(e p$oceeds of s+c( sale a$e less t(an t(e s+8 d+e! t(en p$oceedin9s s(all *e ta-en fo$ $ecove$) of t(e *alance as if it <e$e an a$$ea$ of land $even+e : &$ovided t(at <(e$e t(e 'tate >ove$n8ent is of opinion t(at it is necessa$) so to do fo$ safe9+a$din9 t(e $ecove$) of t(e s+8 d+e to it o$ to t(e Co$po$ation! >ove$n8ent co8pan) o$ *an-in9 co8pan)! as t(e case 8a) *e! it 8a) fo$ $easons to *e $eco$ded! di$ect p$oceedin9s to *e ta-en fo$ $ecove$) of t(e s+8 d+e! as if it <e$e an a$$ea$ of land $even+e *efo$e o$ at t(e sa8e ti8e as p$oceedin9s a$e ta-en fo$ sale of t(e t(in9 pled9ed/ 2*3 in eve$) case of a 8o$t9a9e! c(a$9e o$ ot(e$ enc+8*$ance on i88ova*le p$ope$t)! s+c( p$ope$t) o$! as t(e case 8a) *e! t(e inte$est of t(e defa+lte$ t(e$ein! s(all fi$st *e sold in p$oceedin9s fo$ $ecove$) of t(e s+8 d+e f$o8 t(at pe$son as if it <e$e an a$$ea$ of land $even+e! and an) ot(e$ p$oceedin9 8a) *e ta-en t(e$eafte$ onl) if t(e Collecto$ ce$tifies t(at t(e$e is no p$ospect of $ealiBation of t(e enti$e s+8 d+e t($o+9( t(e fi$st 8entioned p$ocess <it(in a $easona*le ti8e.? 6. :e s+*8itted t(at *) vi$t+e of t(ese p$ovisions! t(e 1 st espondent cannot p$oceed a9ainst t(e Appellant%9+a$anto$ +ntil t(e 1st espondent (as fi$st sold t(e p$ope$t) of t(e p$incipal-de*to$ <(ic( (ad *een 8o$t9a9ed in t(ei$ favo+$. :e points o+t t(at on 22nd "+l)! 1996 action +nde$ 'ection $* of t(e 'tate #inancial Co$po$ation Act! 1941 (ad *een initiated and p()sical possession ta-en. :e points o+t t(at t(e$eafte$ on 12.02.1996 a One 6i8e 'ettle8ent <as a$$ived at *) t(e 1st espondent <it( t(e 4t( espondent. :e points
3

o+t t(at t(e$eafte$ t(e p$ope$t) <as (anded *ac- to t(e 1st espondent is not entitled to p$oceed a9ainst t(e Appellant.

espondent. :e s+*8its t(at! t(e$efo$e! t(e 1st

7. 1$. ,(alla ad8its t(e a*ove 8entioned facts. :e! (o<eve$! s+*8its t(at t(e co8pan) co88itted defa+lts and! t(e$efo$e! t(e One 6i8e 'ettle8ent failed. :e s+*8itted t(at ea$lie$ atte8pts to sell t(e p$ope$ties of t(e 4t( espondent Co8pan) )ielded no $es+lt as no offe$s <e$e $eceived. :e s+*8itted t(at action +nde$ 'ection $* (as a9ain *een initiated a9ainst t(e 4t( espondent Co8pan). :e s+*8itted t(at as t(e 4t( espondent Co8pan) (as co88itted defa+lts and it (as not *een possi*le to $ecove$) *) sale of p$ope$t)! action (as *een ta-en a9ainst t(e 9+a$anto$ fo$ $ecove$) of t(e a8o+nt. 8. .n o+$ vie<! t(e a*ove set o+t p$ovisions of t(e 0. &. Act a$e ve$) clea$. Action a9ainst t(e 9+a$anto$ cannot *e ta-en +ntil t(e p$ope$t) of t(e p$incipal-de*to$ is fi$st sold off. As t(e Appellant (as not sold t(e p$ope$t) of t(e p$incipal-de*to$! t(e action a9ainst t(e Appellant cannot *e s+stained. ;e! t(e$efo$e! set aside t(e ecove$) Notice. 9. ;e! (o<eve$! cla$if) t(at it <ill *e open to t(e 1st espondent to p$oceed a9ainst t(e Appellant *efo$e t(e De*t ecove$) 6$i*+nal in acco$dance <it( p$inciples laid do<n in 0ni5+e ,+t)le 6+*e=s case 2s+p$a3. 10. 6(e Appeals stand disposed of acco$din9l). 6(e$e <ill *e no o$de$ as to costs.