A.P. State Financial Corporation Vs. Gar Re-Rolling Mills

The doctrine of election  does not apply when proceedings differ in ambit and scope

Introduction:The doctrine of election is a fundamental principle in law that typically prevents a party from pursuing two inconsistent remedies for the same relief. However, its applicability becomes nuanced when statutory provisions explicitly provide for multiple remedies with differing scopes and objectives. The case of A.P. State Financial Corporation v. Gar Re-Rolling Mills & Another [(1994) 2 SCC 647] is a landmark judgment by the Supreme Court of India that addresses the interplay between the doctrine of election and the remedies available under Sections 29 and 31 of the State Financial Corporations Act, 1951 (the Act). The Court examined whether a State Financial Corporation (SFC), after initiating proceedings under Section 31 and obtaining an order, could abandon those proceedings and invoke Section 29 to recover its dues without being barred by the doctrine of election. This case study explores the factual and procedural background, the issues involved, the submissions of the parties, the judicial reasoning, and the law settled, with a specific focus on the doctrine of election.

Detailed Factual Background:The case involves two consolidated civil appeals: Civil Appeal No. 3689 of 1987 (A.P. State Financial Corporation v. Kota Subba Reddy and Others) and Civil Appeal No. 3216 of 1988 (A.P. State Financial Corporation v. Gar Re-Rolling Mills and Another). Both appeals arose from disputes between the Andhra Pradesh State Financial Corporation (the Corporation) and defaulting industrial concerns that had borrowed loans and failed to repay them.

In Civil Appeal No. 3689 of 1987, the respondent, Kota Subba Reddy, borrowed Rs 99,500 from the Corporation on December 27, 1966, to manufacture agricultural implements, securing the loan with a mortgage deed. The respondent defaulted on repayments, prompting the Corporation to file an application (O.P. No. 211 of 1969) under Section 31 of the Act before the District Judge, Guntur, seeking recovery of Rs 1,09,020.19 with interest. On September 7, 1971, the District Judge allowed the petition but reduced the future interest rate from 8.5% to 6%. The respondent appealed to the Andhra Pradesh High Court, which stayed execution on March 1, 1973, contingent on the respondent depositing one-fourth of the amount due and furnishing security. The respondent failed to comply, and on March 5, 1975, the High Court dismissed the appeal and allowed the Corporation’s cross-objections, restoring the 8.5% interest rate. The Corporation also filed a suit (O.S. No. 13 of 1974) to enforce the personal liability of the respondent and his guarantor, which was decreed. However, the respondent evaded enforcement by relocating the business, rendering it untraceable. Consequently, the Corporation invoked Section 29, issuing a newspaper advertisement for the sale of the respondent’s concern and accepting a tender of Rs 2,05,000. The respondent challenged this action through Writ Petition No. 235 of 1982, alleging that the Corporation, having pursued Section 31, could not invoke Section 29.

In Civil Appeal No. 3216 of 1988, M/s Gar Re-Rolling Mills borrowed Rs 2,94,000 on November 10, 1970, for its re-rolling mills business, executing a mortgage deed. The respondent defaulted on repayments, leading the Corporation to issue a sale advertisement under Section 29. The respondent filed Writ Petition No. 4187 of 1980, challenging the Section 29 action, and obtained a stay. The High Court dismissed the petition on December 14, 1981, upholding the Corporation’s action. The Corporation accepted a tender from M/s Bhagchandka Brothers, who took possession of the property. The respondent appealed to a Division Bench, which, relying on the Full Bench decision in the Kota Subba Reddy case, held that the Corporation could not invoke Section 29 after pursuing Section 31.

Detailed Procedural Background:In Civil Appeal No. 3689 of 1987, the Corporation’s application under Section 31 resulted in an order on September 7, 1971, which the respondent challenged in the High Court. The High Court’s dismissal of the appeal and the respondent’s failure to comply with conditional stay orders led the Corporation to pursue alternative recovery measures. After failing to enforce the decree against the respondent’s personal liability due to the respondent’s relocation, the Corporation invoked Section 29. The respondent’s writ petition (No. 235 of 1982) was referred to a Full Bench of the Andhra Pradesh High Court due to conflicting bench decisions on Section 29’s vires. The Full Bench, without addressing the vires, held that the Corporation could not invoke Section 29 after obtaining relief under Section 31, allowing the writ petition.

In Civil Appeal No. 3216 of 1988, the Corporation’s attempt to sell the respondent’s property under Section 29 was challenged in Writ Petition No. 4187 of 1980. The Single Judge dismissed the petition, affirming the Corporation’s right to proceed under Section 29. However, the Division Bench, following the Full Bench decision in the Kota Subba Reddy case, reversed the Single Judge’s order, prompting the Corporation to appeal to the Supreme Court.

The Supreme Court granted special leave in both cases to resolve the common legal question: whether the Corporation could invoke Section 29 after obtaining an order under Section 31 without executing it, particularly in the context of the doctrine of election.

Issues Involved in the Case: The primary issue was whether the doctrine of election barred the Corporation from invoking Section 29 of the Act to recover dues after initiating proceedings and obtaining an order under Section 31, which it subsequently abandoned.? 

Appellant (A.P. State Financial Corporation):The Corporation argued that the remedies under Sections 29 and 31 are distinct in scope and purpose, and the doctrine of election does not apply when remedies differ in ambit. Section 29 provides a self-contained mechanism for the Corporation to take over management or possession of a defaulting concern and sell its property without court intervention, making it a broader and more expeditious remedy. In contrast, Section 31 involves court-supervised reliefs, such as property attachment or management transfer, akin to execution proceedings. The phrase “without prejudice to the provisions of Section 29” in Section 31 explicitly preserves the Corporation’s right to invoke Section 29, even after pursuing Section 31, unless the Section 31 order is fully executed or the claim is rejected on merits. The Corporation contended that it could abandon Section 31 proceedings at any stage, including execution, if recovery seemed unlikely, and resort to Section 29 to protect its financial interests. It emphasized that simultaneous pursuit of both remedies was impermissible, but sequential pursuit was lawful, especially given the respondents’ dilatory tactics and failure to honor Section 31 orders. The Corporation cited Gujarat State Financial Corporation v. Natson Mfg. Co. (P) Ltd. [(1979) 1 SCC 193] to argue that Section 31 proceedings are not monetary claims but akin to attachment in execution, supporting its position that Section 29 remains available.

Respondents submission: The respondents argued that the doctrine of election applied, barring the Corporation from invoking Section 29 after choosing Section 31 and obtaining an order. They contended that both sections aim to recover dues, making them alternative remedies for the same relief. Once the Corporation elected to proceed under Section 31 and secured a court order, it was estopped from abandoning that remedy and invoking Section 29, as this would allow forum shopping and prejudice the respondents. The respondents relied on the Andhra Pradesh High Court’s Full Bench decision in the Kota Subba Reddy case, which held that pursuing Section 31 exhausted the Corporation’s right to invoke Section 29. They argued that the Corporation’s actions violated principles of fairness and equity, as it sought to bypass court orders under Section 31 to pursue a more aggressive remedy under Section 29. The respondents also challenged the Corporation’s abandonment of Section 31 proceedings as arbitrary, claiming it deprived them of the opportunity to contest the claims in a judicial forum.

Detailed Discussion on Judgments and Citations: The Supreme Court, in its judgment delivered by Dr. A.S. Anand J. (with Kuldip Singh J. concurring), extensively analyzed the interplay between Sections 29 and 31, the doctrine of election, and the cited precedent.

Gujarat State Financial Corporation v. Natson Mfg. Co. (P) Ltd., (1979) 1 SCC 193; AIR 1978 SC 1765: This case was relied upon by the Corporation and extensively discussed by the Court (Paras 10 and 14). In Natson, the Supreme Court held that an application under Section 31 is not a monetary claim but akin to an application for attachment of property in execution of a decree. The Court in the present case reaffirmed this, noting that Section 31 proceedings involve court-supervised reliefs like property attachment or management transfer, which differ fundamentally from the self-executing, broad remedy under Section 29. The Natson ruling supported the Corporation’s argument that Section 31 does not exhaust its remedies, as it is not a substantive monetary claim, and Section 29 remains available.

Eastern Book Company v. D.B. Modak, (2008) 1 SCC 1:This case was referenced in the document’s metadata (Pages 1–18) to affirm the copyright protection of the judgment’s text as published by the Eastern Book Company. It was not substantively discussed in the judgment but underscores the legal protection of the source material used in the SCC publication. The Court’s reliance on Natson was pivotal, as it clarified the distinct nature of Section 31 proceedings, undermining the respondents’ claim that Sections 29 and 31 are alternative remedies for the same relief, thus negating the doctrine of election’s applicability. Detailed Reasoning and Analysis of Judge: Dr. A.S. Anand J. delivered a comprehensive judgment, analyzing the statutory provisions, the doctrine of election, and equitable principles under Article 226. The Court’s reasoning can be distilled into the following key points: Distinct Scope of Sections 29 and 31: The Court meticulously examined Sections 29 and 31, concluding that they serve different purposes. Section 29 is a self-contained code, granting the Corporation expansive rights to take over management or possession of a defaulting concern and sell its property without court intervention. It is a broader remedy, encompassing both rights and enforcement procedures. Section 31, however, involves court-supervised reliefs, such as property attachment or management transfer, and is akin to execution proceedings rather than a monetary claim. The Court relied on Natson to affirm that Section 31 applications are not substantive monetary claims, reinforcing the distinction in scope (Paras 9–10, 14).  Interpretation of “Without Prejudice” Clause: The phrase “without prejudice to the provisions of Section 29” in Section 31 was central to the Court’s analysis. The Court interpreted this as a legislative intent to preserve the Corporation’s right to invoke Section 29, even after initiating Section 31 proceedings. This clause indicates that Section 31 is not intended to limit the Corporation’s remedies but to provide an additional, court-based option without extinguishing Section 29’s broader remedy. The Court held that the Corporation could abandon Section 31 proceedings at any stage, including execution, and resort to Section 29 if recovery under Section 31 proved impractical (Paras 12–13, 17).

Inapplicability of Doctrine of Election: The Court explicitly addressed the doctrine of election, holding that it does not apply when the remedies differ in ambit and scope. The doctrine typically applies when two remedies seek the same relief, allowing the party to elect one. However, since Sections 29 and 31 have distinct objectives—Section 29 being a direct, self-executing remedy and Section 31 involving court-supervised enforcement—the doctrine is inapplicable. The Court noted that applying the doctrine would lead to injustice, as it would bind the Corporation to a potentially ineffective remedy under Section 31, frustrating its ability to recover dues (Para 15).

Equitable Jurisdiction under Article 226:  The Court emphasized that equitable jurisdiction under Article 226 should promote honesty and good faith, not assist defaulting parties in evading legitimate claims. It held that there is no equity in favor of defaulting parties who fail to honor Section 31 orders, and courts should not interfere under Article 226 to frustrate the Corporation’s recovery efforts. The Court underscored that equity defends the law against crafty evasions, aligning with the Act’s purpose of enabling SFCs to recover dues efficiently to support industrialization (Para 18).

Limits on Simultaneous Pursuit:While affirming the Corporation’s right to switch remedies, the Court clarified that simultaneous pursuit of Sections 29 and 31 for the same relief is impermissible, as it would lead to inconsistent outcomes. Additionally, if a Section 31 claim is rejected on merits, the Corporation may be barred from invoking Section 29, depending on the case’s facts, to ensure fairness (Para 19).

Application to Facts: In Civil Appeal No. 3689 of 1987, the Court found that the respondent’s relocation frustrated the Corporation’s efforts to enforce the Section 31 order. The Corporation’s implicit abandonment of Section 31 proceedings and invocation of Section 29 were justified, as the respondent’s actions could not extinguish the Corporation’s recovery rights (Para 20). In Civil Appeal No. 3216 of 1988, the Court noted the respondent’s persistent delaying tactics and lack of intent to repay, upholding the Corporation’s Section 29 action as a legitimate response to the respondent’s non-compliance with Section 31 orders (Para 21).

Final Decision:The Supreme Court allowed both appeals, setting aside the Andhra Pradesh High Court’s judgments. In Civil Appeal No. 3689 of 1987, the Court overturned the Full Bench’s ruling, holding that the Corporation could invoke Section 29 after abandoning Section 31 proceedings. In Civil Appeal No. 3216 of 1988, the Court reversed the Division Bench’s decision, affirming the Single Judge’s dismissal of the writ petition and upholding the Corporation’s Section 29 action. The Court awarded costs of Rs 5,000 in each appeal, emphasizing the respondents’ dilatory conduct.

Law Settled in the Case: The judgment settled several key legal principles in the context of the doctrine of election and the State Financial Corporations Act:

Non-Applicability of Doctrine of Election: The doctrine of election does not apply when remedies under a statute, such as Sections 29 and 31 of the Act, differ in scope and purpose. The Corporation can choose between these remedies or switch from Section 31 to Section 29 without being barred by election, provided it abandons the earlier proceedings.

Preservation of Section 29 Rights: The phrase “without prejudice to the provisions of Section 29” in Section 31 preserves the Corporation’s right to invoke Section 29, even after obtaining a Section 31 order, unless the order is fully executed or the claim is rejected on merits.

Sequential but Not Simultaneous Remedies: The Corporation cannot pursue Sections 29 and 31 simultaneously for the same relief, but it can abandon Section 31 proceedings at any stage and resort to Section 29 if recovery under Section 31 is impractical.

Equitable Principles: Courts exercising jurisdiction under Article 226 should not assist defaulting parties in evading legitimate claims, as equity promotes honesty and prevents legal fraud. The Act’s purpose of enabling SFCs to recover dues for industrial financing must be upheld.

Limits on Remedy Switching: If a Section 31 claim is rejected on factual grounds, the Corporation’s ability to invoke Section 29 may be restricted, subject to the case’s specific circumstances.

Case Title: A.P. State Financial Corporation Vs. Gar Re-Rolling Mills and Another:Date of Order: February 10, 1994:Case No.: Civil Appeal No. 3216 of 1988:Citation: (1994) 2 SCC 647:Name of Court: Supreme Court of India:Name of Hon'ble Judges: Kuldip Singh and Dr. A.S. Anand, JJ.

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Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi