GAJRAJ JAIN versus STATE OF BIHAR AND ORS.

Citation: [2004] SUPP. 2 S.C.R. 677 · Decided: 07-05-2004 · Supreme Court of India · Bench: RUMA PAL · Disposal: Leave Granted & Allowed
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Judgment (excerpt)

GAJRAJ JAIN 
A 
v. 
STATE OF BIHAR AND ORS. 
MAY 7, 2004 
B 
[RUMA PAL AND S.H. KAPADIA, JJ.] 
State Financial Corporation Act, 1951; Section 29 : 
Recovery of loan/advance taken by a company from State Financial 
Corporation and a Bank-Default in repayment-Petition for recovery of C 
dues filed by the Bank-Issuance of notice by the Corporation for sale of 
assets by auction to realize its dues-Payment of dues lo the Corporation 
by a Director of the company-Corporation did not return the assets and 
misappropriated the amount-However, it entered into an agreement of 
sale of the assets with a financier on payment of its dues and on making D 
promise to pay dues of the Bank-Challenge to-Dismissed by the High 
Court-On appeal, Held: Corporation had entered into an agreement for 
sale without ascertaining the market value of the assets-It failed to take 
proper steps to secure best price of the assets-Since sale consideration 
was not realized in full, the Corporation neither complied with the E 
provisions of the Act nor has it protected the interest of the Bank-Since 
the Corporation did not return the assets to the Company even after 
liquidation of the dues and returned the tender money, the Corporation 
intended to sell the assets to the financier for extraneous considerations 
and thus acted arbitrarily-Hence, the agreement for transferring assets F 
to the financier set aside-Amount paid by the Company which was 
appropriated by the Corporation has to be taken to the account of the 
Company-Dues of the Corporation shall stand repaid-District Judge 
directed to restore possession of the assets to the Company and suggest 
recovery in case of short fall, if any-Corporation directed to return back 
the amount received from the financier-Directions issued-Transfer of G 
Property Act, 1882; Sections 69-100. 
'Charge' and 'mortgage '-Distinction between-Discussed. 
Words and Phrases : 
H 
677 
678 
SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R. 
A 
'Best possible price '-Meaning of in the context of State Financial 
B 
Corporation Act, 1951. 
'Equity of redemption '-Meaning of in the context of Section 69 of 
the Transfer of Property Act. 
A Flour Mill promoted by a Group of promoters took a term loan 
from Bihar State Credit and Investment Corporation Limited (BICICO). 
Central Bank of India also advanced certain amount to the Company, 
Later, an agreement was approved by shareholders of the Company 
C whereby 50% of the paid up capital was transferred to another Groups 
of promoters. Appellant became a shareholder/Director of the Company. 
The Company defaulted in re-payment of the dues. The Bank instituted 
a case against the company for recovery of its dues and BICICO-
respondent No. 2 served a notice under Sections 29 and 30 of the State 
Financial Corporation Act, 1951 for recovery of its dues by way of sale 
D by auction and issued a sale notice for auction of the Flour Mill thereto. 
First group of promoter had introduced a financier-respondent No. 4, 
to respondent No. 2. Respondent No. 2 took possession of the assets of 
the Company and transferred them to respondent No. 4 on payment 
of its dues and on promising to pay dues of the Bank. In the meanwhile, 
E one of the Directors of the Company made payment of entire dues of 
respondent No. 2. Howe,·er, responuent No. 2 had entered into an 
agreement with respondent No. 4 for sale of the assets. Aggrieved, 
appellant-Director of the company challenged the validity of the 
agreement on the ground of collusion between respondent Nos. 2, 3 and 
F 4, which was dismissed and thereafter the appeal was also dismissed 
by the High Court. 
G 
Hence the Present appeal. 
Allowing the appeal, the Court 
HELD: 1.1. There is a difference between a charge and mortgage. 
In the case of a charge under Section I 00 of the Transfer of Property 
Act, there is no transfer of interest in the property. A charge is not a 
jus in rem. It is jus ad rem. It creates a right of payment out of the 
H property/fund charged with the debt or out of proceeds of the 
., 
( 
G. JAIN v. STATE 
679 
realization of such property, a phrase used in Section 29(1) of the State A 
Financial Corporation Act. A charge as defined under Section 100 of 
T.P. Act may be enforced by sale. A charge consists in the right of a 
creditor to receive the payment out of the proceeds of the realization 
of property or fund charged with the debt. [690-G-H; 691-A, DJ 
B 
CPC by Mu/la (15th Edition) page 2420, referred to.
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