Case Note & Summary
The dispute arose between a financial corporation and a company regarding a loan agreement and subsequent sale of mortgaged properties. The appellant, Bihar State Financial Corporation, had granted a loan of Rs. 3.36 lakhs to the respondent for setting up a factory in Ranchi, secured by a mortgage on specific properties. The factory commenced operations in November 1978 but was closed by March 1982 due to non-payment of the loan. The corporation initiated proceedings under Sections 29 and 30 of the State Financial Corporations Act, 1951, leading to the sale of the factory's assets without proper notification to the plaintiff. The plaintiff alleged that the sale was conducted improperly and sought damages. The trial court ruled in favor of the plaintiff, holding the corporation liable for damages due to the wrongful sale of non-mortgaged properties. The High Court upheld this decision, emphasizing that the corporation had acted illegally by selling properties not covered by the mortgage. The Supreme Court dismissed the appeal, affirming the lower courts' findings and directing the corporation to pay the decretal amount to the State Bank of India, which held a hypothecation over the movable properties. The court clarified that the corporation's powers under the Act must be exercised concerning mortgaged properties only, and any sale outside this scope is invalid.
Headnote
A) Financial Corporation Law - Rights of Financial Corporation - Sale of Non-Mortgaged Property - State Financial Corporations Act, 1951, Sections 29, 30 - The appellant lacked the authority to sell properties not covered by the mortgage deed, rendering the sale illegal and the appellant liable for damages. Held that the statutory powers must be exercised only concerning mortgaged properties (Paras 17-18).
Issue of Consideration
Whether the appellant had the right to sell properties not subject to mortgage and whether the sale was conducted legally.
Final Decision
The Supreme Court dismissed the appeal, affirming the lower courts' findings and directing the appellant to pay the decretal amount to the State Bank of India within six months.
Law Points
- Financial Corporation Act
- mortgage rights
- statutory powers
- sale of mortgaged property
- damages for wrongful sale
