Karnataka High Court
Sri H I Shamshuddin vs Karnataka State Financial Corporation on 17 June, 2010
Equivalent citations: AIR 2010 KARNATAKA 187, 2010 (4) AIR KANT HCR 64, (2010) ILR (KANT) 3578, (2010) 5 KANT LJ 650, (2011) 1 ICC 570
Author: Ram Mohan Reddy
Bench: Ram Mohan Reddy
IN THE HIGH COURT OF KARNATAKA, DATED THIS THE 17"?" DAY OF.' 5JIT«JNEC:2VC()'._1_(V): BEI?ORI:':__ A A A A 2 THE HONBLE MR.JUST}'u'?;.1FT;'*IRAl\/"I IsIOII.ANCA'}:aEI§ODY \NI>..NO.3"397;/'2 O08 BETWEEN: SRI:H.I SHAMSHUDDIN A S/O AGE: 65 YI3A;R€3 4' A R/O 629,_BANGA.I.IORE._1VIYSQRE ROAD H I S:,COMPIg1?X, <HAI,AO'UR A MALAVALLI 'I'ALIjK A MANDYA ... PETITIONER [E'I'§'«:SRiYTJ'I'HSEV.E\T...MADHAVA REDDY & J 'S SHETTY, ADVS) 1 ::ARNA'I'AKA STATE) FINANCIAL CORPORATION 0. BRANCH OFFICE I I NiO.I53/A, K R ROAD SUBHASH NAGAR, MANDYA A 571. 401 * BY ITS CHIEF' MANAGER " KARNATAKA STATE FINANCIAL CORPORATION BRANCH OFFICE NO. 1 53/A, K R ROAD SUBHASH NAGAR, MANDYA -- 571 401 "AA g.!#W"" BY ITS ASST. GENERAL MANAGER 3. KARNATAKA STATE FINANCIAL CQREQRATTXONA " No.1/1,T1-uMMA1AH ROAD~~._' W 2 NEAR CANTONMENT RAILWAY tj~T.TATI_ON' 5 BANGALOREMSGO 002 " . * BY ITS MANAGING O1RE(:TOR - .4. SRIBASAVEGOWDA M S/O GOOLIGOWDA A. R/O HALAGUR.__f;- _ " MALAVALLITALUK ' V DIST: MA.NDYA.5:?1ON4OA1A ' 5. sR1_¢1AYA1'RAJLI'. 'V CASEEWORKER'--[ff--_ _ KAR1'NEATA_;KA STA'1"-E" .. _INANCIAL CORPORATION :'"BRAN(f3H c:;is"*;«'1OE--= A O.1 53'/Aj,-. RROAO * s1,JBHAsH' NAGAR MANDYA 571 401 ism H SMOHAMMAD JAFRULLA ""S,'O*~SHAMSUDDiN _ A A*(3-15:; 45 YEARS A-R*,<O BANGALORE MYSORE ROAD H. 'I OOMPLEX. HALAGUR .-1\/IALLAVMJLITALUK ~ MANOYA DISTRICT RESPONDENTS
(B? SR}YU'1"I--IS:RU3§)RAGOW'DA, ADV FOR R1 TO :3. GURURAJ JOSHI & C0,, FOR R1 TO 3 8: 5, SHIVASWAMY. ADV FOR R4) THIS VVP FILED UNDER ARTICLES 226 82. 227 OF THE CONSTITUTION OF' INDIA PRAYING TO QUASH '3 __'?A THE ORDER DATED 25.02.2008 VIDE«......ANNP1EX.A;A QUASH THE COMMUNICATION DATED:é02."I-1j;~200.7 ISSUED BY R1 VIDE ANNEXB IINDATED NOTIFICATION IssUED BY R]_.....E'_OR_--'SALF;.()F'pTHE". PROPERTY OP THE PETITIONER As PER: 'ANI"€.EX;C IN so As THE PROPERTY OF PETI'I'1'®N';E3_R MENTIONED AT sL.NO.3 *,AND COMMUNICATION OP FIRS'1'. REE3_'PONDENT-' DATED 09.01.2008 IN s"o..._ePAR "As'-P*IX;.NG THE UNREASONABLE TIME OF-----1.0'-_D'AYS IS--.CONCERNED VIDE ANNEXD AND__E".FC..'_ T 1.
THIS WP COMING 'PRELIMINARY HEARING EgoRO_0Pf,' ',TIsI'EVeY1__CO{.IRT MADE THE FOI.LOwINc_3: ;
'h for the loan transaction between'eii..he.fiI;s.t,2IespO:1deI1t Karnaiaka State Financial Co§=.po_If'at'.i__or1'{AIOr.,_sh0I'f, 'KSFC'} and the sixth respondent Vvloanee."fnortgaged the petition schedule immovable 'hpTOf3eIfTyIxfbee§Onging to him, by way Of memorandum of deposit. of title deeds w1'_t.h the first respondent. As a »COI';.seq_I.IeI1ee of the sixth respondent failing to repay amounts due under the loan and having Committed breach of {terms of the loan agreement, the first respondent, in exercise of power Imcler Seeition 29 of the -4- State Firiancial Corporation Act. 1951 (fort short 'SFC' Act) opted to realise the amount due by way of-sale of mortgaged property and in that regard, letter dated 02.11.2007 AnneXure--'B' to extending an opportunity to pay:rnent_V.of'V"the amount due on or before 1 1 failing. mortgaged property would for indicated in the sale notification the said letter. According toAVV_t_he_,V respondent beinginone 'son was issued with a letter dated 03.01.2'O.Qf8'--:.Anri--eiiure--'D' of the first respondent, andfia c()py_f'mar--ked. to the petitioner, expressing its wi._l:li'ngriVess one time settlement, provided » is deposited Within ten days therefrom, petition schedule property would be pot._to ,;_s'a1:=§§The petitioner having not repaid the amount pursuant' to the letter AnneXurew'B' and the failure on » th'e'vpart of the sixth respondent to take advantage of the en'¢":,:m settlement offer in the letter AnneXu1'ew'I)'. led -5- to the sale of the mortgaged property and execution of the sale deed dated 12.02.2008 AnneXurew'E",_i.n0"fsVour of the fourth respondent as comrnunica_t:e:d":b§z1'pf--1.etteri.,p dated 25.02.2008 AnneXure~A_,of._the firsttfesipoiide-nti'~ informing that in the auction of schedule property Rs. 'divhen sale' consideration was.' approp'rié;ted 'towards the outstandings in theV1oan~.,éLmonnt;._Hence, this Writ petition for V. 0 »writ"of' certiorari or any other writ or 'dir'eeti.on.it in the nature of writ to E ' ~ qpueisih _ V * order' No.Ka Ra Ha ,sa,rMJ/3025*/8266/07-08. dated the copy of which has been at AnnexureAA to quash the ..co1niTiL1x1icai.io11 dated 02.11.2007 No.Ka. Ra " Sa/MJ/3023/1881/07308, issued by the first respondent as per Annexure--B and undated notification issued by the first respondent. for sale of the property of the petitioner as per Am1eXure--C in so as the property of the petitiorier mentioned at _;x -6- Sl.No.3 and also the communication first respondent dated 09.01.2008, N"ao_p{iKa;§{a Ha Sa/MJ/3023/5080/50'8O,/A07}08',"'in for as fixing the 1,11'1I"(3E1'$i£)1'li5::bI11€lV tirr_1e~ of "l:O.__ days is concerned,.7th._e copydof wl'1icuh__has; been produced herewithrat. Ann"ex1§1'1'e?D;7_
b) decl-are_ 'that deed dated 1202,2008, retgifsm-re'd bt:»r¢:e;%:pp.t the Sub- Registrtiigppiolls/lalavalliQVo1j;«. executed byin favour of the _..fo1.1_rth_ihrespcirident, i1i--._re_s.§)e(:t. of the property of -rnorefully described in under the alleged power _ underlSe'et,iA(;1'1_V*'i9 of the State Financial ECorporat2io.n__A(:t2, the copy of which has been ..Vp-rodt~tc__ed at Anr1exure--E, is null and void and same may kindly be aside;
(3) A direction may kindly be issued Vvlto the first. respondent to settle the loan account of the petitioner and the sixth respondent by accepting the amount. of Rsl5,69,256/-- and to release all the properties 2 £2?
-7-
d) Any other writ or order or direction which this Horfble Court deems fit to grant in the c1'rcumstances of the case, may granted in favour of the petitiéonetrsoonépar1yA.'_j_ with the cost. of this wirjt pet.ition; interest; of justice and equity'..'_'
2. Petition . opposhedsi / " - filing' statement of objection dated 02. I to 3 inter aha Vve'o'r1i:en:tjina§?-3 "th'a=:;'theuhslfigth respondent having defauvI"£;ed._ Vin': of dues, despite acknowiedgingathe Show cause notice and even after re~ scheduiinggp. the'HIo'anVtransaction as on 31.03.2061, the tivrdsht on 13.01.2001 took possession of the purchased from the loan extended to the smith" v.V__A'respondent and thereafter though sixth ,,,d_;'"€Spondent4 on 1030.200} undertook to pay ,_.E%{s.'75,000/~ and Rs.40,00O/M per month, the vehicle when reieased, the sixth respo11d.er1t. made over two post dated. cheques for Rs.20,000/-- each, which on 4.4' ;
\.-' -8- presentation were dishonoured. The loanee having failed to ciischarge the liability. the first respontient exercised power under Section 29 of take possession of the vehicle. b.'Jf:'CQt11C}i do s§c,g,;;nc¢ V the Vehicle was under 1'epairs_ icheques-.i'3y_ the sixth respondent at thVat._:ti~:<1f>1e, izirheri-presientedsjwerei"
dishonoured. V A __ _
3. The petitione1"i1.e:t'Lcr dt. 22.1.2004 seeking property which wiiien respontied' to 131- respondent, stating that the 5propertyV.\iVCi'uvid hereleased subject to the petitioner 1.5.60 there being no response, action Section 29 of the 'SFC Act' on 20';"8.2.{}04iA«:'Wthence the mortgaged property was brought to sale on four occasions. According to the 15% ireisptondent though several correspondence were " '"'excha.nged between the 61*'? respondentwloanee the petitioner and itseii". there is no appreciabie change in M9, the conduct of either the petitioner or the 6*" respondent to ensure repayment of the monies due to the KSFC under the Loan account. It is lastly stated that thepsale of the mortgaged property, in exercise of Section 29 of the 'SFC Act' is just.
on realizing Rs.19 iakhs was dues in the account of Gib' respon«;ie'nt. Responde;nts to 3 by a memo dt. 2.6.20ll"O.l;produce--du:sh: documents relating to the col1a't~efr:al'secsgrity.agreement; deposit of title 'V.de'eds;l Vuiidertaking; the affidavit of petitionler._pandlthei.nierr1be1's of his family; the power of a_V_'{.4i':l'.I:)I'1:"1_E_'y'VV()f t.he.pei'i;ti()r1er and his family members and ' sthe guarantee deed of the petitioner. Contention advanced by the learned counsel for the petitioner is that the petitioner being a V.sa'i§et.y had collaterally secured the loan extended to the _?6""* respondent by n1c)rt;gaging the petition schedule immovable property and as the KSFC had no power N rm! 3 J (1 under Section 29 to sell the mortgaged invoking Section 31 of the 'SFC Act'. the mortgaged property culrninating 'dee:d"uan=:l appropriation of Rs.19.lal__<hs l'a_re' r1or3.cst'- 'Le'arr:eda counsel places reliance upoirthe decision. of; the Apex Court in. Karnataka-_lStat_e ;Fifiafi»¢iB1 Corporation -v~ N.Narasimhaiah o1:hers}.=.__ 5,' for the 1st respondent conatlendsl' 29\.Wolflthe 'SFC Act' empowers by enforcing the security ofgferepcl in the form of mortgage of the schedtllelproperty. by way of deposit of title At:clordi1i.g to the learned counsel the second iii'-art.--__'ol'-gection 29 of the 'SFC Act' having not referred to A. fjind'ustrial concern", any property pledged, mortgaged. '"113/'pothe(tated or assigned to the Financial Corporation can be sold. In support of the said contentiori. learned counsel places reliance upon the decision of the larger ____ _W"_W_W_ms_i__.w-,l___m_,eM ll * (2<me;» S('.(',.f ma 'N/'
-1 L Bench of the Apex Court in Haryana'V...._l?'in'anVeial Corporation -- vs- Jagadamba Oil Mills? State Financial Corporatio1:g';iiiil--»x:r:As'- (suprai) ; Ormi Textiles -V-v_-'_ State of Uttara v'Pi'a(ieshi3';--..pp Bihar State Financial v(._iorporation--'-I .Lgrs- M / s Chhotanagpur afndi. KSIlI5C Limited ~--v- S.K.K..Kulk_arni az1rl._ot}lVeris5;".iand5 Ptinjab Financial Corporation p'L1rCl1.:1ser (::c)_riie'nds-.o__l"fiiat. 41-" respondent having paripi-eippe1t.ecEv-.i:n'pL1b'}ioauction and offered the highest being a purchaser for value. his d ._rwiglitgitmiprotected.
p-gflliaving heard the learned counsel for the parties ».ant;} perused the pleadings, the question for decision finakjng is. whether Section 29 of the "SFC Act' invests a
-T 12902 ; 3 sc:c:_' 495 E '{2()()%5}S sec 194 X " (20093 3 SC('.' 471 13 jurisdiction in the KSFC to sell any property'_;pl_e:d;ge'dp. mortgaged, hypothecated or assigned that of the industrial Concern '.??'_ a,'l'he answer to the qu'est:ion.V.1ieed..A:nof"./detain thg court for long as itis-..V_no rzi'o1'er_:'reséntegrdin Vthe light of the authoritative Apex Court in Narasimhaial'i'«s:p1'case Court having regard and 32[G} interpreted made in derogation to the and hence should receive a strict construction. it Having regard to the definition of concern' under the SFC Act, the State ._ 'Fina'11c'ial Corporation, for the purpose of enforcing its the industrial concern. it is held, could take it " srecotilrse both under Section 29 and 31 of the SFC Act. default conternplaied under Section 29 is said t.o be that. of the 'industrial concerri'. and the creation of a
-"' a_2()()%%') 2 s<:'c 23¢ " tzmoi 1 S(i'C'.' 297 _§3.
liability of the 'industrial concer1'1' which may arise due to default. in repayment of any loan or advance instalment under an agreement or failingtoirmeelt obligation in relation to any Zgiiarantee giyeiri the Corporation or complying with 'the = agreement with the fiiiaiacial Co'rpo'raitior"I..p Their' lordships interpretiri'g..;_he p.-Lislel' th'eepwords" well as"
in the second part of Sectior,1'_ Act held that the said Se_ct.io:n"' Iiowhere .i:_hat the Corporation can proceed even if some properties are mortgagedll or'A._hyp.othecated by the surety. The obs'e'ry_at.ioi1s of «threir lordships. in the circumstances, is t:app¢sfie:»i Section 29 of the Act nowhere states corporation can proceed against the _ surety even if some properties are mortgaged or hypothecated by it. The right of the financial corporation in terms of Section 29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Section 29 by a surety or a lit ,l4L guarantor. The liabilities of a s1,iret.y;~o~r_j'the;' guarantor to repay the loan of the debtor arises only when a-idefaultiin the latter. V ' __ d if
21. The words "as7w_ell at-;?'v_ 'inoVot.1r'd' if play a significant _They._ {mare}-, two different rights'"~but rights are be enforced against 'A the viz. The iI1dustria_l*concern";» -- the learned Senior of Section 29 Vito' V'v'.3ir'1'dustrial concern", "pledged, 'mm tgaged, hypothecated »ttvhe::fi--nai'1cial corporation can be solder' in our cannot be accepted. It is ' -true that subse:e.1".ion {1} of Section 29 speaks of V gu.a1'vanteeV.f""B'ui. such a guarantee is meant to _ be'*fu«rnis_hed by the corporation in favour of a A for the benefit of the industrial It is does not speaks about a surety "or3gt1arant,ee given in favour of the corporation for the benefit of the industrial concern." sgéklthongh Sri.Joshi, learned counsel for KSFC points out to the other reported opinion on which reliance placed. E find no necessity to advert to all M x...
3::
those judgments since the decision in Narasimhaiaha's ease (supral), is neither modified, reeo_r'isid.ei"ed. distinguished, nor S€t"E1SiC1€, but infaet is f:)'1low.ede- in _.t_he"r4 subsequent judgments and hevnCe»--hold'_s H0.AI1u' date. The contention advancedabyl'-the I1e'a3_;r1ed for the respondent KSF C rehlvjeelleds ggffhe petitioner-su'retysa'hdn._:ino"I'tga.gof' of the petition schedule immovable '.~.'{C).AA"".f5;E,'iCUI'€ the loan exterided :n3Ei%'h-.ji*espo_I1dent, cannot be said to be aggrieved._by the.'t:om.m'u,rl1eatioI1 dt. 9.1.2008 Annexure-- D addreuss_edd.to'the.6'1?w1,fespondeI1t. fixing 10 days time to make paymeritflluliider the OTS scheme. In that View of the reliefs to quash Anr1exure~'D' and t.o ul{f*~',vliresporident to settle the loan account by ae_eepti.ni§fi{11s:.1369.256/-- and release the property, too. must stand rejected.
)-11h.
In the result, the writ petition is allowed in part. The communications dt. 2.11.2007 and Annexures--B and A respectively and notification An'nexure--'C' consequence the sale deed executed by the 2"" respoVn'€l_eni'.l'in_ fayour"':.._o;f'~t1ie 4115' respondent ctonveying the petihtion-»..schedu~le property is declared as null andllvoidl' is_l'unn(:Cessary to state that respondents 1 refund the sum of Rs}./1 Qllalihls' at the rate of 6% pa. from the date' the date of payment, including ~ and.....registration charges paid by the 41-":
Respondent KSFC is at liberty to lrecloverlpthfeslrlrnoney due to it by enforcing the security offeredlby way of mortgage of the petitioner's property in '<1_1h'a11ner known to law. Sd/~ EUDGE ln.