Holding

Section 31(1) of the State Financial Corporations Act, 1951, mandates that applications for enforcement of claims be filed before the district judge within whose jurisdiction the industrial concern carries on business, rendering the Bangalore court without jurisdiction.

Summary

The Karnataka State Industrial Investment & Development Corporation Ltd. (the appellant) sought enforcement of a surety under Section 31(1) of the State Financial Corporations Act, 1951, filing the application before the VI Additional City Civil Judge, Bangalore. The industrial concern whose assets were pledged was located in Belgaum, and the corporation had earlier exercised its power under Section 29 to sell the pledged property. The High Court held that the Bangalore court lacked territorial jurisdiction because Section 31(1) requires the application to be made to the district judge within whose jurisdiction the industrial concern carries on business. The Supreme Court affirmed this view, interpreting Section 31(1) as a special provision that mandates filing before the appropriate district judge, and clarified that the right under Section 31 is distinct from that under Section 29 and can be invoked even before exercising Section 29. Consequently, the appeal was dismissed.

Issues considered

Whether Section 31(1) of the State Financial Corporations Act, 1951, confines applications to the district judge having jurisdiction over the industrial concern's place of business.
Whether an application under Section 31(1) may be filed before the corporation exercises its power under Section 29 of the Act.
Whether Section 468 of the Act controls the territorial jurisdiction prescribed under Section 31(1).

Legislation cited

Code of Civil Procedure, 1908
State Financial Corporations Act, 1951s. 29, s. 31(1), s. 32, s. 468
Transfer of Property Act, 1882s. 69

Subjects

State Financial CorporationSection 31(1)Territorial jurisdictionIndustrial concernEnforcement of suretySpecial statute interpretationKarnataka

Judgment

[2008] 17 S.C.R. 339

KARNATAKA STATE INDUSTRIAL INVESTMENT & A
DEVELOPMENT CORPORATION LTD.
v.
S.K.K. KULKARNI & ORS.
(Civil Appeal No. 7288 of 2008)

DECEMBER 11, 2008 B
[S.H. KAPADIA AND AFTAB ALAM, JJ.]

STATE FINANCIAL CORPORATION ACT, 1951:
ss. 31 (1 )(aa) and 32 - Special provisions for enforcement C
of claims of Financial Corporation - Territorial jurisdiction -
Industrial concern located within jurisdiction of District Judge,
Belgaum - Property of the concern sold in exercise of power
uls 29 - Sale proceeds being less than the amount due,
Corporation filing application u/s 31(1) before Civil Judge, o
Bangalore for enforcement of surety- High Court holding that
Bangalore Court had no territorial jurisdiction to entertain the
application - HELD: Right of a State Financial Corporation
uls 29 is different from the right which it can enforce uls 31 -
Application uls 31(1) can be filed even before exercise of E
power uls 29 of the Act or s.69 of Transfer of Property Act-
The Act is a special statute and its provisions have to be
strictly construed - Once SFC invokes s.31(1), it has to
proceed in accordance with the procedure prescribed in s.32
- Section 31(1) is a special provision - It mandates that all
applications thereunder shall be made to the District Judge F .
within the limit of whose jurisdiction the industrial concern
carries on its business - High Court was right in holding that
Bangalore Court had flO territorial jurisdiction to hear the
application and the Corporation ought to have instituted the
case before District Judge, Belgaum within whose jurisdiction G
the .industrial concern was located - Jurisdiction.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7288 of 2008.

339 H
340 SUPREME COURT REPORTS (2008] 17 S.C.R.

A From the final Judgment and Ord,er dated 5.8.2006 of the
High Court of Karnataka at Bangalore, in Misc.First Appeal No.
1441 of 2001 (SFC). .
Parag P.Tripathi, A.S.G., Moh ini Bhatt, Varun Sarin,
1

Naveen R. Nath and Hetu Arora for the Appellant.
-
B S.K. Kulkarni, M. Gireesh Kumar and Vijay Kumar for the
Respondents.
The following Order of the Court was delivered:
ORDER ~-
c 1. Leave granted.
2. The short question which aris~s for determination in this
Civil Appeal is: Whether the High Court erred in law in holding,
by the impugned judgment, that the Bangalore court has no
territorial jurisdiction to hear the matter in view of the provisions
D of Section 31 ( 1) of the State Finandal Corporation Act, 1951?
3. M/s. Mullur Cylinders Pvt. L:.td., defendant No.6, is a
company registered under the Companies Act. Defendants
No.1 to 5 are its Promoters/Directors. For the manufacture of y
....j

gas cylinders, defendant No.6 approached appellant-
E Corporation for loan of Rs.37 .50 lakhs. The loan was
sanctioned vide letter dated 1st September, 1984. Defendants
also executed a Deed of Hypothecation whereby the assets of
defendant No.6 Company stood mortgaged in favour of the
appellant-Corporation. The loan amount was released. It was
F fully utilized by the borrowers. However, when it came to the
question of repayment, defaults occurred. Ultimately, a legal
notice came to be is~ued on 8th August, 1988 calling upon
defendants to pay the entire lo,an with interest. Dispute
consequently resulted.
4. Appellant exercised its power under Section 29 of the
G State Financial Corporations Act, ,1951 (for short "1951 Act").
Consequently, the unit was sold for Rs.33 lakhs. However, the
full outstanding' amount could not be recovered and, in the
circumstances, for enforcement of surety, Misc. Case No.109/
1993 came to be filed in the court of VI Additional City Civil
H Judge, Bangalore City. The Suit was ultimately decreed in
...
,
)
KARNATAKA STATE INDUSTRIAL INVESTMENT & 341
DEVELOPMENT CORPN. LTD. v. S.K.K. KULKARNI & ORS.

...'-
1'
favour of the Corporation. Aggrieved by the said decision, the A
matter was carried in Agpeal (Misc. Appeal No.1441/2001) in

- the Karnataka High Court.
5. We are not concerned with the merits of the claim.
Suffice it to state that the question which arose for
determination, as reproduced hereinabove, requires us to B
interpret the provisions of Section 31(1) of the 1951 Act.
6. We quote hereinbelow Section 31(1) as also Section
.,., ).. 32 and Section 468 of the 1951 Act.
"31. Special provisions for enforcement of claims
by Financial Corporation.---(1) Where an industrial c
concern, in breach of any agreement, makes any default
""'(
in repayment of any loan or advance or any instalment
thereof or in meeting its obligations in relation to any
guarantee given by the Corporation or otherwise fails to
comply with the terms of its agreement with the Financial D

.. ¥
Corporation or where the Financial Corporation requires
an industrial concern to make immediate repayment of any
loan or advance under section 30 and the industrial
concern fails to make such repayment, then, without
prejudice to the provisions of section 29 of this Act and of E
section 69 of the Transfer of Property Act, 1882 (4of1882)
any officer of the Financial 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 following reliefs, F
namely:-
(a) for an order for the sale of the property pledged,
mortgaged, hypothecated or assigned to the Financial
Corporation as security for the loan or advance; or
G
(aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial
~
concern to the Financial Corporation; or

• (c) for an ad interim injunction restraining the industrial
concern from transferring or removing its machinery or H

"
342 SUPREME COURT REPORTS [2008] 17 S.C.R.

A plant or equipment from the premises of the industrial
concern without the permission of the Board, where such
removal is apprehended.
(2) An application under sub-section (1) shall state the
nature and extent of the liability of the industrial concern
-
B to the Financial Corporation, the ground on which it is
made and such other particulars as may be prescribed.
32. Procedure of district judge in respect of applications
under section 31.---(1) When the app~ication is for the
reliefs mentioned in clauses (a) and (c) of sub-section (1)
c of section 31, 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
1

liability of the industrial concern to the Financial
D Corporation, together with the costs of the proceedings
taken under section 31, with o'r without an ad interim
injunction restraining the industrial concern from
transferring or removing its machi,nery, plant or equipment.
(1A) When the application is for the relief mentioned in
E clause (aa) of sub-section (1} of section 31, the district
judge shall issue a notice calling upon the surety to show
cause on a date to be specified in'the notice why his liability
should not be enforced.
I

(2) When the application is for the lelief mentioned in clause
F (b) of sub-section (1) of section ~1. the district judge shall
grant an ad interim injunction restraining the industrial
concern from transferring or removing its machinery, plant
or equipment and issue a notice calling upon the industrial
concern to show cause, on a date to be specified in the
notice, why the management of the industrial concern
G should not be transferred to the rFinancial Corporation.
(3) Before passing any order under sub-section (1) or sub-
section (2} for issuing a notice under sub-section (1A), the
district judge may, if he think~ fit, examine the officer
making the application.
H
KARNATAKA STATE INDUSTRIAL INVESTMENT & 343
DEVELOPMENT CORPN. LTD. v. S.K.K. KULKARNI & ORS.
(4) At the same time as he passes an order under sub- A
.... "i' section (1 ), the district judge shall is~ue to the industrial
concern or to the owner of the security attached a notice
.- accompanied by copies of the order; the application and
the evidence, if any, recorded by himicalling upon it or him
to show cause on a date to be specified in the notice why 8
the ad interim order of attachment should not be made

... \..
absolute or the injunction confirmed.
(4A) If no cause is shown on or before the date specified
in the notice under sub-section (1A) the district judge shall
forthwith order the enforcement of the liability of the surety.
~
(5) 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 Financial 0
Corporation or confirm the injunction.
... }/
(6) If cause is shown, the district judge shall proceed to
investigate the claim of the Financial Corporation in
accordance with the provisions contained in the Code of
Civil Procedure, 1908 (5 of 1908) insofar as such E
provisions may be applied thereto.
(7) After making an investigation under sub-section (6), the
district judge may__

-
--+
-
(a) confirm the order of attachment and direct the sale of
the attached property;
(b) vary the order of attachment so as to release a portion
F
=-- • of the property from attachment and direct the sale of the
remainder of the attached property;
(c) release the property from attachment;
G
(d) confirm or dissolve the injunction;
(da) direct the enforcement of the liability of the surety or
4 reject the claim made in this behalf; or
'
f
(e) transfer the management of the industrial concern to
the Financial Corporation or reject the claim made in this H ..

~I
I
,
I

344 SUPREME COURT REPORTS [2008] 17 S.C.R.

A behalf:
Provided that when making an order under clause (c) or
making an order rejecting the claim to enforce the liability ·
of.the surety under clause (da) or' making an order rejecting
the claim to transfer the management of the industrial
B concern to the Financial Corporation under clause (e), the·
district judge may make such further orders as he thinks
necessary to protect the interests of the Financial
Corporation .and may appo_rtion the costs of the
proceedings in such manner as he thinks fit:
c Provided further that unless the Financial Corporation
intimates to the district judge that it will not appeal against
any order releasing any property from attachment or
rejecfu!_g the claim to enforce the liability of the surety or
rejecting the claim to transfer the industrial concern to the
Financial Corporation, such ord~r shall not be given· effect '
y-
D
to, until the expiry of the period fixed under sub-section (9)
within which an appeal may be preferred or, if an appeal
is preferred, unless the High Cburt otherwise directs until
the appeal is disposed of.
(~) An order of attachment or sale of property under this
E
section shall be carried into effect as far as practicable in
the manner provided in the Code of Civil Procedure 1908
(5 of 1908) for the attachment or sale of property in
execution of a decree as if the Financial Corporation were
the decree-holder.
F
(BA) An order under this ~ection transferring the
management of an industrial concern to the Financial
Corporation shall be carried i~to effect, as far as may be
practicable, in the manner prbvided in the Code of Civil
Procedure, 1908 (5 of 190:8) for the possession of
G immovable property or the delivery of movable property in
execution of a decree, as if the Financial Corporation were
the decree-holder.
(9) Any party aggrieved by an Ci>rder under sub-section (4A),
/ sub-section (5) or sub-section (7) may, within thirty days
• H
,.
KARNATAKA STATE INDUSTRIAL INVESTMENT & 345
DEVELOPMENT CORPN. LTD. v. S.K.K. KULKARNI & ORS.

from the.date of the order, appeal to the High Court, and A
upon such appeal the High Court may, after hearing the
parties, pass such orders thereon as it thinks proper.
(10) Where proceedings for liquidation in respect of an
industrial concern have commenced before an application
is made under sub-section (1) of section 31, nothing in this B
section shall be construed as giving to the Financial '
Corporation any preference over the other creditors of the
industrial concern not conferred on it by any other law.
( 11) The functions of a district judge under this section shall
be exercisable__ C
(a) in a presidency town, where there is a city civil court
having jurisdiction, ·by a judge of that court and in the
absence of such court, by the High Court; and
(b) elsewhere, also by an additional district judge or by any
judge of the principal court of civil jurisdiction. 0
(12) For the removal of doubts it is hereby declared that
any court competent to grant an ad interim injunction under
this section shall also have the power to appoint a Receiver
and to exercise all the other powers incidental thereto."
E
"468. Effect of Act qn other laws. --The provision of this Act
and of any rule or .6rders 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 F
,,
of any law other than this Act, but save as aforesaid, the
provisions of this Act shall. be in addition to, and not in
derogation of, any other law for the time being applicable
to an industrial concern."
7. The right of a State Financial Corporation ("SFC" for G
short) recognized under Section 29 of the 1951 Act is different
from the right which the SFC can enforce under Section 31.
Section 31 enables SFC, without having recourse to the
provisions of Section 29 of the 1951 Act or Section 69 of the
Transfer of Property Act, to have its right emanating from the H
346 SUPREME COURT REPORTS [2008] 17 S.C.R.

A agreement, enforced by initiating prbceedings contemplated
thereunder, namely, applying to the :rnstrict Judge within the
limits of whose jurisdiction the industrial concern carries on its
business. Sectio'~ .31 is one mode of; recovery. Therefore, the
power l:Jnder Section 31 and Sectiori 32 are in addition to the
8 power of realization of money under: the Transfer of Property
Act or any other law. It is within the discretion of SFC to choose
the forum under a particular Act. Once there is a default in the·
payment of loan, it is for the Corporation to decide as to
whether it shall proceed under Section 29 for sale of the
C property mortgaged or whether it shall take any recourse under
Section 31 of the 1951 Act. Sectioo 31 of the Act had been
•
enacted to enable the corporation to obtain quicker remedies 1--

from the highest Court of Original Civil Jurisdiction in the locality.
Where the SFC takes recourse to th~ provisions of Section 31
of the Act and obtains an order from the Court, it shall ordinarily
D seek its enforcement in the manner provided for by Section 32
of the 1951 Act;which section is aimed to act in aid of the
orders passed under Section 31 of the Act. Where the SFC
takes recourse to Section 31 and obtains an order from the
Court, it shall seek its enforcement in the manner provided for
·E by Section 32 of the Act, therefore, Section 31 makes a
provision for enforcement of claims. It is primarily procedural
in nature. The remedy provided for' under Section 31 is not in
derogation of any other mode of recovery which is available to
the SFC under any other law for the enforcement of its claims.
The remedy under Section 31 is 'not the sole or exclusive
F remedy available to the SFC. It is :only an additional remedy _... .:
which is conferred upon the SFC. The substantive relief in an
application under Section 31 (t) is not a plaint. This is clear from
the form of the application, the: nature of the relief, the
compulsion to make interim order, the limited enquiry I
G contemplated by Section 32(6), the nature of the relief that can f
;
be granted and the method of execution. The proceedings i
under Section 32 of the 1951 Actr are, therefore, nothing but ,...
execution proceedings. A combined reading of Section 31 and
·~
Section 32 of the 1951 Act indicates that an investigation has ,.__
H to be made to find out the terms and conditions on which loan
r
KARNATAKA STATE INDUSTRIAL INVESTMENT & 347
DEVELOPMENT CORPN. LTD. v. S.K.K. KULKARNI &ORS.

was given by SFC to the industrial concern and whether SFC A
~ was entitled to the relief under Section 31 (1) on account of the
breech of the terms of agreement.
8. Having discussed the nature of the proceedings under
Section 31 ( 1) of the 1951 Act we are of the view that Section
31 read with Section 32 constitutes a Code by itself. It is a B
special provision. It is a mode of recovery. It does not prevent
or exclude the SFC from invoking any other remedy open to it
m.v-~'
in law. However, once the SFC invokes Section 31(1), it has to
proceed in accordance with the procedure prescribed in
Section 32. Under Section 31(1), which is invoked by the SFC c
in this case, an application to obtain quicker remedy has to be
made to the District Judge within whose jurisdiction the
industrial concern is located. This is the mandate of Section
31(1). It is so mandated because wide powers are given to the
District Judge under Sections 31 and 32 to attach, sell and
recover outstanding dues of SFCs in the shortest possible time. D
In fact, sub-section (aa) stood inserted in Section 31(1) for
enforcing the liability of any surety. This sub-section is in addition
to the power given to the District Judge to order sale of the
property pledged, mortgaged, hypothecated or assigned to the
SFC as security for loan or advance. An application under E,
Section 31 can be filed even before the exercise of power under
Section 29 of the 1951 Act or Section 69 of the Transfer of
Property Act.
9. Under the circumstances, the High Court was right in
coming to the conclusion that the VI Additional City Civil Judge, F
Bangalore, had no territorial jurisdiction to hear Misc. Case No.
109/1993 in view of Section 31 of the 1951 Act. The High Court
was right in observing that the Corporation ought to have
instituted the said case before the District Judge, Belgaum,
within whose jurisdiction the industrial, concern is located. G
10. Before concluding, we may indicate the scope of
Section 468. That section mandates that if any other law or
4
memorandum or articles of association or any instrument

- deriving force from any other enactment is inconsistent with any
provisions of the 1951 Act or Rules or orders made thereunder, H
348 SUPREME COURT REPORTS [2008) 17 S.C.R.

A the latter will prevail and the inconsistency will have no effect
but if the provisions of the 1951 Act or Rules made thereunder
are not inconsistent, they will be deemed to be in addition to
the existing laws and memorandum or articles of association.
Thus, the provisions of the 1951 Act and the Rules made
8 thereunder shall have an overriding effect over the existing law
and memorandum or articles of association or any other
instrument made under the existing law if they are inconsistent
but otherwise if not inconsistent they will be deemed to be in
addition to and not derogating to any existing law, rules and
orders. The 1951 Act is a special statute. Therefore, the
C provisions of the 1951 Act have to be strictly construed. In our
, view, reliance on Section 468 of,the 1951 Act is misplaced.
Section 468 will not control the parameters of territorial
jurisdiction of the District Judge pr~scribed under Section 31 ( 1)
of the 1951 Act. Section 31(1) is a special provision. It
D mandates that all applications Ul'.lder Section 31(1) shall be
made to the District Judge within the limits of whose jurisdiction
the industrial concern carries on its business. The word "may"
in Section 31(1) only indicates a mode of recovery in addition
to any other modes available to the I
SFC in law.
E 11. For the aforestated reasons, we do not find any
infirmity in the impugned judgmeht. Accordingly, Civil Appeal
filed by Karnataka State Industrial ,Investment & Development
Corporation Ltd. stands dismissed with no order as to costs.
R.P. Appeal dismissed.