S.31 State Financial Corporation Act Only Provides Procedure For Enforcement Of Claims Against Debtor, Surety; No Decree Can Be Passed: Rajasthan HC

Rajasthan High Court has held that no independent execution petition is maintainable regarding a successful application under Section 31 of the State Financial Corporations Act 1951 (“the Act”) since the application under Section 31 cannot be termed as plaint in a suit in which a money decree could be passed by the court.

Section 31 of the Act provides for special provisions for enforcement of claims by financial corporation.

Rajasthan Financial Corporation (“RFC”) had granted a loan which the loanee failed to repay. To recover the amount, RFC had filed an application under Section 31(1)(aa) to the district judge for enforcing the liability of the guarantors. This application was decided in favour of RFC making them entitled to recover the amount from the guarantors.

Pursuant to this, an execution petition was preferred by RFC for the recovery against which objections were raised by the guarantors. These objections were dismissed and aggrieved by this, the petition was filed before the Court.

The counsel for the petitioners argued that the execution petition was not maintainable because no decree in terms of Section 31 could have been passed by the court. It was contended that Section 31 was in itself an enabling provision which gave jurisdiction to the court to get the liability of the principal debtor and surety enforced but in no way could the court pass any decree in terms of the provision. Since no decree could be passed on the application under the provision, any execution petition in relation to such decree was also not maintainable, it was argued.

Agreeing with the arguments put forth by the counsel for the petitioner, the Court referred to a coordinate bench decision in N.L.P. Organics Pvt. Ltd. & Ors. vs. Rajasthan Financial Corporation where it was held that while deciding an application under Section 31, the court could only grant the reliefs mentioned in the Section. Further it was held that the application under the Section could not be termed as a plaint in a suit and the corporation could not pray for a decree for its outstanding dues. Such a direction could be passed only in a money recovery suit and not in an application under Section 31 (1).

In this background, the Court allowed the petition to the extent that the execution petition preferred by RFC was not maintainable and should not have been entertained.

"This Court is of the clear opinion that the execution petition as preferred by RFC could not have been maintained as no decree on an application under Section 31(1) of the Act of 1951 could have been passed. Section 31 of the Act of 1951 does not contemplate of any decree/money decree. Section 31 of the Act of 1951 itself is an enabling provision which provides for the complete procedure for enforcement of liability of the principal debtor as well as the surety," Court held.

Title: Balvir Singh v R.F.C.Sriganganagar and Ors.

Citation: 2024 LiveLaw (Raj) 150

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