Judgment reserved on 16-02-2026 Judgment pronounced on 27-02-2026 Judgment uploaded on 27-02-2026 HONOURABLE SRI JUSTICE V.GOPALA KRISHNA RAO A.S.No. 267 OF 2008 JUDGMENT: The appeal suit is filed against the decree and judgment dated 14-03-2005 in O.S.No. 69 of 2005 passed by learned II Additional Senior Civil Judge, Nellore (for short, 'the trial Court'). The suit was filed by the plaintiffs for recovery of Rs.5,04,000/- from the defendants with subsequent interest @ 18% p.a. from the date of suit till the date of realization with costs. 2. The case of the plaintiffs as narrated in the plaint, in brief, is as follows: The plaintiff is a registered firm, carrying on business in manufacturing polythene bags, situated in Autonagar at Nellore. The plaintiff made an application with the defendants for sanction of a loan of Rs.7,55,000/- for purchase of five items of machinery from different suppliers. On seeing the application, the defendants have sanctioned only Rs.4,90,000/- being 65% of Rs.7,55,000/- and communicated the same vide letter dated 18-12-1998. The plaintiff took the plaint schedule property on lease for ten years from Messrs S.F.K. Packaging Industry under a registered lease deed dated 15-06-1999 as required by the 2 defendants and as per their norms and furnished the same to defendant No. 2. The plaintiff initially placed an order for purchase of an extruder with Messrs Eswaran Industries, Chennai, and got the same on 12-07-1999 and installed it in the leasehold premises and submitted bill for Rs.5,61,000/- with defendant No. 2 who released on 03-08-1999 an amount of Rs.2,05,000/- out of Rs.3,82,000/- being 65% of Rs.5,89,000/- i.e. being the cost of extruder @ Rs.5,61,000/- + Rs.8,000/- for cost of packing and forwarding + Rs.10,000/- for the cost of preliminary and preparative expenses + Rs.10,000/- for deposits. Defendant No. 2 inspected the running of the extruder after its installation and agreed to release the balance of Rs.1,77,000/- which includes 25% of the withheld amount of the supplier. All of a sudden, defendant No. 2 not only stopped the above payment but also stopped the plaintiff to place order for other items of the machinery. Therefore, the plaintiff was forced to pay 2.5% of the withheld amount to the supplier and to incur the other expenditure, thereby the plaintiff spent Rs.3,82,000/- towards installation of the extruder. The plaintiff has started running the unit on 01-08-1999 with one extruder. Defendant No. 2 sent a letter on 15-10-1999 to the plaintiff demanding Rs.7,960/- towards interest for the quarter ending October, 1999, as against the terms of sanction letter because the repayment of loan shall commence one year from the date of disbursement. The plaintiff, being unable to 3 pay the same on 10-11-1999 as the unit just commenced the production, requested for some time. However, the defendants on 16-11-1999 abruptly and illegally seized the machinery extruder alleging that the plaintiff shifted the machinery but, in fact, it was not shifted. Due to seizure of the unit, the plaintiff suffered lot of mental agony and unable to discharge the debts contracted for the purchase of the machinery. The plaintiff sent a letter on 20-11-1999 to the defendants explaining the facts and difficulties but no reply was given by the defendants for the same. The defendants have also seized raw- material worth of Rs.70,000/- and due to their illegal seizure, the plaintiff sustained a loss of Rs.50,000/-. The defendants are liable to pay the amounts including cost of the extruder minus the amount advanced by them and therefore the plaintiff was constrained to file the suit. 3. Brief averments in the written statement filed by defendant No. 2 are as follows: Defendant No. 2 released Rs.2,10,600/- but not Rs.2,05,000/- only as contended by the plaintiffs and it consists of Rs.1,71,200/- to the supplier of extruder, Rs.2,500/- was adjusted towards upfront fee, Rs.2,457/- towards insurance premium and Rs.34,488/- was paid to the plaintiffs directly. A sum of Rs.1,40,00/- was retained towards satisfactory performance of the machinery. The defendants agreed to release Rs.1,40,400/- but not Rs.1,77,000/- after inspection of the 4 extruder. When the said amount was about to be released, telegram dated 11-08-1999 was received from Sri P.Nageswara Rao, Advocate, stating that one Soudagar Ferozkhan, Proprietor of Messrs S.F.T. Packaging Industry, and a partner in the plaintiff firm executed an agreement of sale dated 27-07-1997 in favour of his client Syed Khader Basha agreeing to sell the plaint schedule property for Rs.15,25,000/-. Defendant No. 2 also received a registered notice in the same lines from the said advocate further giving details that as the property was not registered in pursuance of the above said agreement of sale, a suit in O.S.No. 225 of 1997 was filed on the file of the Court of learned Senior Civil Judge, Nellore, for specific performance of agreement of sale. If the plaintiffs informed the said facts to defendant No. 2, the loan would not have been sanctioned and the plaintiffs obtained the loan by suppressing the facts, thereby committed fraud. Defendant No. 2 is no way concerned or responsible for the alleged expenditure of Rs.3,82,000/- incurred by the plaintiffs for the installation of the extruder. Defendant No. 2 is perfectly entitled to make a demand for the payment of Rs.7,960/- for the quarter ending of October, 1999, on or before 10-11-1999. By invoking the powers under Section 29 of the Andhra Pradesh State Financial Corporation Act, 1951 (for short, 'the Act'), the unit was seized including the extruder in the interest of the Corporation but not with any malice. Since defendant No. 2 addressed letters dated 5 16-11-1999 and 23-11-1999, it thought that it was unnecessary to give reply for the notice of the plaintiff dated 20-11-1999. The averments of the reply notice sent by defendant No. 2 dated 17-02-2000 are full of true facts. The plaint schedule property was mortgaged in favour of defendant No. 2 by deposit of title deeds. Defendant No. 2 is not aware about the truth or otherwise of the plaintiffs' claim in respect of the alleged cancellation of agreement of sale dated 27-07-1997. 4. Based upon the pleadings of both the parties, the trial Court framed the following issues for trial: (1) Whether the second defendant released an amount of Rs.2,10,000/- only to the plaintiff and the balance to be released is only Rs.1,40,000/- under the suit transaction? (2) Whether the shift of the extruder was proper? (3) Whether the plaintiff is entitled to the amount of Rs.5,04,000/- towards compensation with future interest @ 18% p.a.? (4) To what relief the plaintiff is entitled to? 5. During the course of trial, on behalf of the plaintiffs, P.W.1 was examined and Exs.A1 to A14 were marked. On behalf of the defendants, D.W.1 was examined and Exs.B1 to B5 were marked. 6 6. After completion of the trial and hearing the arguments of both sides, the trial Court dismissed the suit with costs. 7. Aggrieved by the decree and judgment of the trial Court in dismissing the suit, the plaintiffs have preferred the present appeal suit. 8. Heard Sri Mohammed Gayasuddin, learned counsel appearing for the appellants-plaintiffs, and Sri G.R.Sudhakar, learned counsel appearing for the respondents-defendants. 9. The appellants-plaintiffs raised as many as 24 grounds in the memorandum of grounds of appeal. Learned counsel appearing for the appellants would contend that the decree and judgment passed by the trial Court is illegal, against the weight of evidence and probabilities of the case. He would further contend that the finding of the Court below that the plaint schedule property was mortgaged in favour of defendant No. 2 and that Sri Soudagar Feroz Khan created equitable mortgage by depositing original sale deeds in connection with the loan sanctioned to the partnership firm is totally misconceived. He would further contend that the finding of the trial Court in its judgment that the plaintiff firm failed to inform the defendants about the agreement of sale dated 27-07-1997 created by Sri Soudagar Feroz Khan with a third party and the pendency of O.S.No. 225 of 1997 amounts to suppression of facts is contrary to the evidence on record. He would further contend that the trial Court came to wrong conclusions and dismissed the suit filed by the 7 plaintiffs and therefore the appeal may be allowed by setting aside the decree and judgment passed by the trial Court. 10. Per contra, Sri G.R.Sudhakar, learned counsel appearing for the respondents-defendants, would contend that on appreciation of the entire evidence on record, the trial Court has given a reasoned judgment and therefore the appeal suit may be dismissed. 11. Now, the points that arise for determination in the present appeal are: (i) Whether the appellants-plaintiffs made an application to the respondents-defendants for sanction of loan of Rs.7,55,000/- and whether the respondents-defendants sanctioned a loan of Rs.4,90,000/- and whether the defendants released an amount of Rs.2,10,600/- to the plaintiffs but not Rs.2,05,000/- as contended by the appellants-plaintiffs? (ii) Whether the appellants-plaintiffs executed an agreement of sale dated 27-07-1997 in favour of a third party by name. Syed Khader Basha agreeing to sell the plaint schedule property for Rs.15,25,000/- and whether the appellants- plaintiffs suppressed the execution of agreement of sale and also pendency of suit in O.S.No. 225 of 1997 and made 8 an application to the respondents-defendants for sanction of loan? (iii) Whether the appellants-plaintiffs are entitled for an amount of Rs.5,04,000/- from the respondents-defendants towards damages as sought for in the plaint? and (iv) Whether the trial Court is justified in dismissing the suit? 12. Point No. (i): The appellants are the plaintiffs in the suit. The appellants admitted that they made an application for sanction of loan of Rs.7,55,000/- for the purpose of purchase of machinery for running an industry in the plaint schedule site and they have submitted the same to the defendant corporation along with quotation forms from different suppliers. It is also undisputed that the defendants sanctioned an amount of Rs.4,90,000/- being 65% of Rs.7,55,000/- and communicated the same vide its letter dated 18-12-1998. It is also admitted by the plaintiffs in the plaint itself that the plaintiffs took the plaint schedule property on lease for ten years from Messrs S.F.K. Packaging Industry under a registered lease deed dated 15-06-1999 as demanded by the defendants and as per the norms and furnished the same to defendant No. 2. It is also admitted by the plaintiffs that the plaintiffs initially placed an order for purchase of extruder with Messrs Eswaran Industries, Chennai, got the same on 12-07-1999, installed it on the leasehold 9 premises and submitted the bill for Rs.5,61,000/- to defendant No. 2 who released an amount of Rs.2,05,000/- on 03-08-1999 to the plaintiffs. Learned counsel for respondents-defendants contended that the defendants released an amount of Rs.2,10,600/- but not Rs.2,05,000/- as contended by the appellants-plaintiffs and it consists of Rs.1,71,200/- to the supplier of extruder, Rs.2,500/- was adjusted towards upfront fee, Rs.2,457/- towards insurance premium and Rs.34,488/- was directly paid to the plaintiffs. Learned counsel for the appellants-plaintiffs conceded that they are admitting the liability of Rs.2,10,600/- as contended by the respondents-defendants as narrated supra. Therefore, it is evident that the appellants-plaintiffs have to clear the amount of Rs.2,10,600/- with interest to the defendant corporation since they availed the same by way of loan with interest. Accordingly, point No. (i) is answered. 13. Point No. (ii): The case of the respondents-defendants is that for obtaining loan, a registered lease deed vide document No. 3608 of 1999 for total extent of 1,502 square yards and memorandum of deposit of title deeds dated 07-07-1999 for total extent of 1,502 square yards were deposited by the appellants-plaintiffs. The respondents further contended that for the loan account of Messrs S.F.K. Packaging Industry, memorandum of deposit of title deeds dated 03-06-1999 for total extent of 1,502 square 10 yards of site was deposited by the appellants. It is admitted by the plaintiff-P.W.1 in his evidence in cross-examination that the lease deed executed by Messrs S.F.K. Packaging Industry in favour of Messrs Anfa Plastics i.e. the plaintiff firm was deposited with the defendant corporation for securing loan and the title deed of the site standing in the name of Messrs S.F.K. Packaging Industry was also deposited. He further admits that the defendant corporation asked them to deposit the said deeds with them and accordingly, they did so. He further admits that he and his son are partners of the plaintiff partnership firm. He further admits that they have taken the site on lease belongs to Messrs S.F.K. Packaging Industry for ten years and it is also covered by a registered lease deed and one S.Feroz Khan, S/o S.Ghouse Khan, is the proprietor of the said firm. Both father and son filed the present suit before civil Court seeking an amount of Rs.5,04,000/- from the respondents towards damages along with subsequent interest. 14. It is contended by learned counsel for the respondents that after release of an amount of Rs.2,10,600/- to the appellants on 03-08-1999 and when they were about to release the remaining balance of loan amount, they have received a telegraphic notice on 11-08-1999 from Sri P.Nageswara Rao, Advocate, stating that one Soudagar Ferozkhan, Proprietor of Messrs S.F.K. Packaging Industry, and a partner in the plaintiff firm and his father i.e. appellant No. 1 herein executed an 11 agreement of sale dated 27-07-1997 in favour of Syed Khader Basha, agreeing to sell the plaint schedule property for Rs.15,25,000/- and a suit in O.S.No. 225 of 1997 was also filed. Immediately, the defendant corporation addressed a letter to the plaintiffs on the same day. On the very next day itself, the plaintiffs sent reply letter dated 12-08-1999 to the defendant corporation for giving clarification to the letter dated 11-08-1999 addressed by the defendants. In their letter dated 12-08-1999 under Ex.B1, the plaintiffs admitted the execution of sale agreement on 27-07-1997 on hundred rupees stamp paper in favour of one Syed Khader Basha to sell the plaint schedule land for a sum of Rs.15,25,000/- and both the parties in the agreement admitted that they have to perform their obligation within three months. It was further admitted by the plaintiffs in Ex.B1 that they received Rs.10,00,000/- from the said Syed Khader Basha from out of Rs.15,25,000/-. Therefore, it is evident that the plaintiffs executed an agreement of sale on 27-07-1997 itself agreeing to sell the plaint schedule land later which was mortgaged with the defendants in the year 1998 by suppressing the earlier agreement with third party. The plaintiffs made an application for sanction of loan on 18-12-1998 to the defendant corporation. Therefore, execution of the aforesaid agreement dated 27-07-1997 and receipt of Rs.10,00,000/- under the agreement from a third party in the year 1997 is evidently suppressed by the plaintiffs and also suppressed the 12 pendency of civil litigation vide O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, in respect of the plaint schedule land. 15. Learned counsel appearing for the appellants-plaintiffs contended that they have applied for loan to the defendants on 15-06-1999 and availed an amount of Rs.2,10,600/-. Learned counsel appearing for the respondents contended that for obtaining loan, the plaintiffs executed a registered lease deed vide document No. 3608 of 1999 for total extent of 1,502 square yards and memorandum of deposit of title deeds dated 07-071999 was also filed and for loan account of Messrs S.F.K. Packaging Industry, the plaintiffs also deposited memorandum of deposit of title deeds dated 03-06-1999 for total extent of 1,502 square yards. The plaintiff-P.W.1 admits in his evidence in cross-examination itself that the lease deed executed by Messrs S.F.K. Packaging Industry in favour of the plaintiff firm was deposited with the defendant corporation and title deeds of the site standing in the name of Messrs S.F.K. Packaging Industry was also deposited with the defendant corporation for securing loan and the title deeds relating to Messrs S.F.K. Packaging Industry were also deposited with the defendant corporation and they themselves allowed the defendant corporation to continue to have with them. Therefore, it is evident that the plaintiffs suppressed the earlier agreement transaction and receipt of 13 considerable amount of Rs.10,00,000/- from out of Rs.15,25,000/- from third party in respect of plaint schedule land and also suppressed the pendency of the suit in O.S.No. 225 of 1997 and mortgaged the same property to the plaintiff in the year 1999 and executed a registered lease deed vide document No. 3608 of 1999 for total extent of 1,520 square yards and also execution of memorandum of deposit of title deeds dated 07-07-1999 for the loan availed by the plaintiffs from the defendants. Point No. (ii) is answered accordingly. 16. Point Nos. (iii) & (iv): The case of the appellants-plaintiffs is that the respondents- defendants abruptly and illegally seized the machinery "extruder" of the plaintiff firm alleging that the plaintiffs shifted the machinery unauthorizedly whereas the contention of the respondents-defendants is that the appellants-plaintiffs shifted the machinery without obtaining any permission from the defendant corporation and the plaintiffs also committed default of payment of interest of one instalment and by invoking the provisions under Section 29 of the Act, the unit was seized including the extruder after following the due procedure prescribed under the Act by issuing notice and by giving reasonable opportunity but not with any malice. The plaintiff-P.W.1 admitted in his evidence in cross-examination that on the date of inspection by the officials of the defendant corporation, all the accessories of extruder were available on 14 16-11-1999 in the place of business except four accessories. P.W.1 further admits that on 10-01-2000, they brought four accessories and handed them over to the defendant corporation and the letter dated 10-01-2000 contains his signature and the same relates to handing over four accessories to the defendant corporation. Therefore, it is quite evident that on the date of inspection i.e. on 16-11-1999 by the officials of the defendant corporation, four accessories in the machinery were not there in the plaintiff company. Furthermore, P.W.1 admits that they are liable to pay back the loan advanced by the corporation. 17. The appellants-plaintiffs are claiming an amount of Rs.5,04,000/- towards damages from the respondents-defendants. The plaintiffs in the plaint or in the evidence have not explained what is the basis for claiming the quantum of Rs.5,04,000/- towards damages from the defendant corporation. In the case at hand, the plaintiffs admitted about submission of application to the defendant corporation for sanction of Rs.7,55,000/- for the purpose of machinery for running industry in the plaint schedule premises. It is also undisputed that on verification of quotations from different suppliers submitted by the plaintiffs, the defendant corporation sanctioned a loan of Rs.4,90,000/- being 65% of Rs.7,55,000/- and communicated the same to the plaintiffs vide letter dated 18-12-1998 and the same is not disputed by the plaintiffs. The plaintiff is a firm represented by its managing partner-plaintiff No. 1 and 15 another partner-plaintiff No. 2 who is none other than the son of plaintiff No. 1. Therefore, it is clear that the plaintiff is a partnership concern and father is managing partner and son is partner. 18. The respondents-defendants contended that after obtaining loan by the plaintiff firm, the plaintiffs executed a registered lease deed under document No. 3608 of 1999 for total extent of 1,502 square yards and they also executed memorandum of deposit of title deeds under Exs.B2 and B3 for total extent of 1,502 square yards. The plaintiff-P.W.1 admits in his evidence in cross-examination itself that the lease deed executed by Messrs S.F.K. Packaging Industry in favour of the plaintiffs was deposited with the defendant corporation. He further admits that the title deeds of the site standing in the name of Messrs S.F.K. Packaging Industry were also deposited with the defendant corporation. P.W.1 further stated that since the corporation asked them to deposit the said documents with them, they accordingly deposited with the defendants. Another crucial admission made by P.W.1 is that the title deed relating to Messrs S.F.K. Packaging Industry was already with the corporation and they allowed the corporation to continue to have with them. P.W.1 admits that Ex.B3 contains his signature and his son and it relates to deposit of title deed dated 15-06-1999 in respect of the site in question and Ex.B2 relates to deposit of original sale deed in respect of plaint schedule site in question. P.W.1 also admits that by the date of seizure 16 of machinery on 16-11-1999, he committed default of payment of one instalment of interest to the defendant corporation. 19. Learned counsel for the appellants-plaintiffs would contend that for committing default of one instalment of interest on loan, the machinery was seized abruptly by the defendant corporation. The evidence of P.W.1 goes to show that after issuance of notice by the defendant corporation, they have seized the machinery by following the procedure prescribed under the Act. The plaintiffs relied on Ex.A2 leased deed which goes to show that for securing loan, the proprietor of Messrs S.F.K. Packaging Industry, who is none other than the son of P.W.1, executed a registered lease deed in favour of the plaintiff firm in respect of total area of 1,502 square yards. Ex.A8 goes to show that the officials of the defendant corporation conducted inspection on 16-11-1999 and they found four items of the machinery were missing and panchanama was conducted by the defendant corporation. P.W.1 also categorically admits in his evidence in cross-examination itself that by the time of inspection on 16-11-1999, all the accessories of the extruder were available in the place of business except four accessories. There is no explanation on the part of the plaintiffs except saying that it was sent for repair and the plaintiffs failed to prove the same. The appellants did not choose to examine any other person to prove that they sent the machinery for repairs. 17 20. As noticed supra, the defendants released an amount of Rs.2,10,600/- from out of the total sanctioned loan. The contention of the defendants is that when they were about to release the remaining part of the loan amount, they received a telegram on 11-08-1999 from Sri P.Nageswara Rao, Advocate, stating that one Soudagar Ferozkhan, Proprietor of Messrs S.F.K. Packaging Industry, and a partner in the plaintiff firm and his father executed an agreement of sale dated 27-07-1997 in favour of Syed Khader Basha agreeing to sell the plaint schedule property for Rs.15,25,000/- and defendant No. 2 also received a registered notice in the same lines from the said advocate and a suit in O.S.No. 225 of 1997 was also filed on the file of the Court of learned Senior Civil Judge, Nellore, in connection with the said agreement of sale. The plaintiffs also admitted in Ex.A13 that they offered to sell the land and building belong to Messrs S.F.K. Packaging Industry, owned by S.Ferozkhan, to one Syed Khader Basha for a sum of Rs.15,25,000/- and entered into an agreement of sale on 27-07-1997 and the balance of sale consideration of Rs.5,25,000/- has to be paid by the purchaser Syed Khader Basha. The plaintiffs also admit that the said Syed Khader Basha also filed a suit in O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, against the plaintiffs, in connection with the said agreement of sale, for specific performance of agreement of sale. Therefore, it is evident that the plaintiffs suppressed the fact of 18 execution of agreement of sale dated 27-07-1997 in favour of Shaik Khader Basha in respect of the plaint schedule property and in the year 1999, the same property was to the defendant corporation through memorandum of deposit of title deed documents and further, in connection with the said agreement, a suit in O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, was filed by the said Shaik Khader Basha against the plaintiffs seeking the relief of specific performance of agreement of sale. The appellants suppressed the same and availed the loan from the defendant corporation. As noticed supra, at the time of inspection by the officials of the defendant corporation, it is evident that four accessories of the machinery were not found in the business premises and the same is undisputed by the plaintiffs. It is also evident that the plaintiffs committed default of payment of interest of Rs.7,960/- for the ending quarter of October, 1999, and thereby, the defendant corporation initiated recovery action under Section 29 of the Act. Under Section 29 of the Act, the defendants can straightaway take over the management of the defaulting industrial concern as well as the right to transfer by way of lease or sale with the necessary incidental and consequential rights of liabilities. 21. The documentary evidence produced by the plaintiffs reveals that the defendant corporation followed the due process of law as per the 19 Act and seized the machinery. When the defendant corporation seized the machinery in violation of Section 29 (1) of the Act, the plaintiffs cannot contend that the defendant corporation seized the machinery illegally and abruptly without following any procedure. 22. There is evidence on record that the plaintiffs committed default of payment of interest of one instalment and the plaintiffs also suppressed the execution of agreement of sale in the year 1997 in favour of third party and also receipt of Rs.10,00,000/- from out of Rs.15,25,000/ and execution of agreement in respect of the plaint schedule site in an extent of 1,502 square yards in the year 1997 which was mortgaged by the plaintiffs for securing loan from the defendant corporation in the year 1999 and they also deposited memorandum of deposit of title deeds. As stated supra, the plaintiffs suppressed the fact of execution of agreement of sale dated 27-07-1997 in favour of Shaik Khader Basha in respect of the plaint schedule site and also about pendency of the suit proceedings in O.S.No. 225 of 1997 initiated by the said Shaik Khader Basha seeking the relief of specific performance of agreement of sale and also made an application with the defendant corporation in the month of October, 1998, and they also executed memorandum of deposit of title deeds dated 03-06-1999 for total extent of 1,502 square yards which is the subject property in O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore. It is also evident that 20 the plaintiffs suppressed the earlier litigation before obtaining loan and also committed default of one instalment of interest. As noted supra, as per Section 29 (1) of the Act, the defendant corporation has got right to seize machinery for committing default of any instalment of interest in terms of agreement with the defendant corporation. 23. Section 29 (1) of the Act deals with the rights of the Financial Corporation in case of default. Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance, any instalment thereof, or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management of the industrial concern as well as the right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. Under this Section, the Financial Corporation can take over the management of the defaulting industrial concern as well as the right to transfer by way of lease or sale with the necessary incidental and consequential rights and liabilities. 24. Learned counsel for the appellants-plaintiffs has placed reliance on the judgment of erstwhile High Court of Andhra Pradesh at Hyderabad rendered in V.Gopal Reddy Vs. Andhra Pradesh State 21 Financial Corporation1 and also on the judgment of High Court of Gujarat rendered in Neetaben U Chokshi, Thro' Poa Falgunabahi Patel Vs. Gujarat State Financial Corporation and others2. The facts in the aforesaid case laws are quite different from the facts in the present case. As stated supra, the plaintiffs suppressed the earlier agreement transaction in favour of third party in respect of the plaint schedule site of 1,502 square yards and also suppressed the earlier civil litigation vide O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, and made an application in the year 1998 with the defendant corporation. Learned counsel for the appellants- plaintiffs has also placed reliance on the judgment of the Hon'ble Apex Court rendered in Mahesh Chandra Vs. Regional Manager, U.P. Financial Corporation and others3. 25. As noticed supra, the facts of the present case are quite different to the facts in the case laws relied upon by learned counsel appearing for the appellants-plaintiffs. 26. While dealing with a similar type of case, a Full Bench of the Hon'ble Supreme Court in Haryana Financial Corporation and others Vs. Jagdamba Oil Mills and others4 held that the guidelines issued in 1 AIR 1996 AP 280 2(2021) 04 GUJ CK 0051 3 1993 AIR 935 4 AIR 2002 SC 834 22 Mahesh Chandra's case (3rd supra) place unnecessary restrictions on the exercise of power by the Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit holder to be associated or consulted at every stage in the sale of the property. In the aforesaid case, the Full Bench of the Hon'ble Apex Court held at para No. 16 as follows: "16. Section 29 gives a right to the Financial Corporation inter alia to sell the assets of the industrial concern and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. This right accrues when the industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations as envisaged in Section 29 of the Act. Section 29 (1) gives the Financial Corporation in the event of default the right to take over the management or possession or both and thereafter deal with the property." The Full Bench of the Hon'ble Apex Court further held at para Nos. 17 and 18 as under: "17. The guidelines issued in Mahesh Chandra's case place unnecessary restrictions on the exercise of power by the Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit holder to be associated or consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra's case will only lead to further delay in realization of the dues by the 23 Corporation by sale of assets. It is always expected that the Corporation will try and realize the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible. 18. The subsequent decisions of this Court in U.P. Financial Corporation Vs. Gem Cap (India) Private Limited and others5; U.P. Financial Corporation and others Vs. Naini Oxygen and Acetylene Gas Limited and another6; and Karnataka State Financial Corporation Vs. Micro Cast Rubber & Allied Products (P) Limited and others7 run counter to the view expressed in Mahesh Chandra's case. In our opinion, the issuance of the said guidelines in Mahesh Chandra's case is contrary to the letter and the intent of Section 29. In our view, the said observations in Mahesh Chandra's case do no lay down the correct law and the said decision is overruled." 27. In the case at hand, both the appellants executed an agreement of sale in favour of Shaik Khader Basha by agreeing to sell the plaint schedule site for Rs.15,25,000/-, wherein the appellants received considerable amount of Rs.10,00,000/- as advance sale consideration, and the said Shaik Khader Basha initiated proceedings against the appellants in O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, for specific performance of agreement of sale and by suppressing the same, the appellants herein approached 5 MANU/SC/0481/1993 6 MANU/SC/0638/1995 7MANU/SC/1221/1996 24 the defendant corporation in the year 1998 and submitted an application in the month of December, 1998, for sanction of loan of Rs.7,55,000/- for purchase of five items of machinery and on seeing the quotations from various suppliers submitted by the appellants, the defendant corporation sanctioned an amount of Rs.4,90,000/-. It is undisputed by both sides that the defendant corporation released part of the loan sanctioned amount of Rs.2,10,600/- to the plaintiffs and subsequently, the plaintiffs failed to pay the instalment of interest to the defendant corporation. Another contention raised by the defendant corporation is that the machinery was shifted to other premises and it was noticed on the date of inspection which is also violation of the terms and conditions in the agreement between both the parties. 28. For the aforesaid reasons, it is evident that the property that was mortgaged to the defendant corporation by the plaintiffs was also involved in a dispute of civil suit in O.S.No. 225 of 1997 on the file of the Court of learned Senior Civil Judge, Nellore, and the plaintiffs suppressed the facts of earlier agreement of sale and the suit proceedings in O.S.No. 225 of 1997 and mortgaged the property to the defendant corporation and availed part of the loan amount of Rs.2,10,600/- and also failed to pay one instalment of interest amount to the defendant corporation. It is not the case of the appellants that they repaid the amount of Rs.2,10.600/- with interest subsequently to the 25 defendant corporation. Furthermore, the appellants-plaintiffs did not challenge the sale notification issued by the defendant corporation. It is also noticed that on the date of inspection, even as per the own admitted case of the plaintiffs, four items of the machinery were not available in the business premises of the plaint schedule and that in violation of the provisions of Section 29 (1) of the Act, the defendant corporation seized the machinery after issuing notice to the plaintiffs. Therefore, it cannot be said that the defendant corporation acted abruptly and illegally in seizing the machinery. The State Financial Corporation Act, 1951, is enacted in order to provide immediate and long term credit to industrial undertakings which fall outside the normal activities of commercial bank. As such, from the statement of objects and reasons, the intention is that the State Corporations will finance medium and small scale industries. The appellants also failed to prove what is the basis for claiming quantum of damages of Rs.5,04,000/-. By following the due procedure, the defendants seized the machinery from the premises of the plaintiffs. By giving cogent reasons, the trial Court rightly dismissed the suit. There are no merits in the present appeal and therefore there is no need to interfere with the findings arrived at by the trial Court in its judgment dated 14-03-2005. Accordingly, point Nos. (iii) and (iv) are answered. 26 29. In the result, the appeal suit is dismissed. Considering the facts and circumstances of the case, each party do bear their own costs in the appeal. Pending miscellaneous applications, if any, shall stand dismissed in consequence. _________________________ V.GOPALA KRISHNA RAO, J. Date: 27-02-2026, JSK 27 HONOURABLE SRI JUSTICE V.GOPALA KRISHNA RAO APPEAL SUIT No. 267 OF 2008 DATE: 27-02-2026 JSK