M/S. ORMI TEXTILES & ANR. versus STATE OF U.P. & ORS.

Citation: [2008] 7 S.C.R. 152 · Decided: 29-04-2008 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Case Partly allowed

Judgment (excerpt)

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B 
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[2008] 7 S.C.R. 152 
M/S. ORMI TEXTILES & ANR. 
v. 
STATE OF U.P. & ORS. 
(Civil Appeal No. 3054 of 2008) 
APRIL 2H, 2008 
[S.B SINHA AND LOKESHWAR SINGH PANTA, JJ.] 
State Financial Corporation Act, 1951: 
s.29 - Scope of- Held: It has limited scope. 
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. 
H 
In appeal to this court, appellant contended that on 
a pl~in reading of s.29 of the Act, it would appear that the 
152 
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M/S. ORMI TEXTILES & ANR. v. STATE OF U.P. & 
153 
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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 
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Financial Corporations. Various statutory powers have 
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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, 
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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 
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,; 
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 
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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 1 O] [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

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