Bangalore District Court
Karnataka State Industrial vs ) M/S.Vintage Foods & Industries Ltd on 28 February, 2022
IN THE COURT OF LXXXIX ADDL.CITY CIVIL & SESSIONS
JUDGE, BENGALURU. (CCH-90)
Present: Sri.S.J.Krishna, B.Sc., LL.B.,
LXXXIX Addl.City Civil &
Sessions Judge, Bengaluru.
Dated: 28th February 2022
Com.Misc.No.47/2008
PETITIONER : Karnataka State Industrial
Investment & Development
Corporation, Ltd.,
No.49, 'KHANIJA BHAVANA',
4th Floor, East Wing,
Devaraj Urs Road,
Bengaluru-560 001.
Represented by its Manager,
Sri.H.Venkatesh Moorthy.
(By Mohammed Arif Khan, Adovate )
-Vs-
RESPONDENTS : 1) M/s.Vintage Foods & Industries Ltd.,
No.273, Mysore Road,
Bengaluru-560 026 and its Head
Office,
At No.222/14, 15th Main,
Sadashivanagar, Bellary Road,
Bengaluru-560 080.
Also at Plot No.21/B,
Kumbalgodu Industrial Area,
Phase-II, Kengeri Hobli,
Mysore Road, Bengaluru.
/2/
Com.Misc.No.47/2008
2) Sri.N.K.Mohta,
S/o Ram Ratan Mohta,
R/at No.377, 13th Main,
Rajmahal Vilas Extension,
Bengaluru-560 080.
3) Mrs.Sarita Mohta,
W/o N.K.Mohta,
R/at No.377, 13th Main,
Rajmahal Vilas Extension,
Bengaluru-560 080.
Both 2 and 3 are residing at H-2,
New Rahul Terrace,
North Main Road, Koregaon Park,
Pune-411 001.
4) M/s.Insotex (India) Ltd.,
No.273, Mysore Road,
Bengaluru-560 026 and
its Head Office
At No.222/14, 15th Main,
Sadashivangar, Bellary Road,
Bengaluru-560 080.
Represented by its
Chairman and Managing Director,
Sri.N.K.Mohta.
(By Sri.Milind Dange, Advocate)
Date of Institution of 16.01.2008
petition
Nature of suit : Miscellaneous Petition us 31(1)
(suit on pronote, suit for (a) & (aa) of State Financial
declaration and Corporation Act, 1951
possession suit for
injunction, etc.,)
/3/
Com.Misc.No.47/2008
Date of commencement : 07.11.2012
of recording of evidence
Date of judgment : 28.02.2022
Total duration : Year/s Month/s Days
14 01 12
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
JUDGMENT
The Petitioner Corporation has filed this petition under section 31(1)(a) & (aa) and Section 32 of State Financial Corporation Act, 1951 praying the Court to grant following reliefs:
(a) to determine that, the petitioner is entitled to enforce the liability of the respondents as per Sec.31(1)
(a) & (aa) of SFC's Act that they are liable to pay a sum of ₹.5,87,22,964/- due as on 03.09.2007. Further, liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/-, at 16.5% p.a. on ₹.1,74,91,422/- and at 18.5% p.a. on ₹.3,01,34,653/- on footing compound interest at quarterly rest basis from 04.09.2007 till the date of realization. Further in the event of default at 20% p.a., 19% p.a. and 21% p.a. respectively on the above said amounts compounded at quarterly rests;
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(b) to issue certificate to enforce the liability of the respondents 2 to 4 as per Section 31(1)(a) & (aa) of the State Financial Corporations Act, holding them that they are liable to pay the dues determined as per prayer column No.(a) as they being the personal guarantors and principal borrowers jointly, severally and personally liable to pay the sum of ₹.5,87,22,964/- due as on 03.09.2007. Further liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/- at 16.5% p.a, on ₹.1,74,91,422/- and at 18.5% p.a. on ₹.3,01,34,653/- on footing compound interest at quarterly rest basis from 04.09.2007 to till the date of realization. Further, in the event of default at 20% p.a, 19% p.a. and 21% p.a. respectively on the above said amounts compounds at quarterly rests;
(c) to pass an order to proceed against the personal properties of respondent No.2 and 3 herein both movable and immovable for realization of the dues of the Petitioner Corporation; to pass any other order/s that this Hon'ble Court deems fit to grant in the circumstances of the case with costs, in the interest of justice and equity.
/5/ Com.Misc.No.47/2008 The summary of the case of the petitioner is as under:
02. The petitioner is a Public Limited Company incorporated under the Indian Companies Act, 1956. The petitioner has its registered office at No.49, 'KHANIJA BHAVANA', 4th Floor, East Wing, Devaraj Urs Road, Bengaluru- 560 001. The Manger, who has been authorized to sign, verify and to prosecute the case on behalf of the Corporation, is representing the Petitioner Corporation, in pursuance of the resolution passed by the Board of Directors of the Petitioner Corporation dated 28.11.1997.
03. The Petitioner Corporation is an institution established by the state Government, which has for its object financing of industrial concern. The Central Government by virtue of the powers conferred by Sub-Sec.(1) of Section 46 of the State Financial Corporations Act, had made applicable, the provisions contained in Section 29, 30, 31 and 32 of the State Financial Corporations Act, 1951, to the Petitioner Company by publishing in the gazette of India on 27 th December 1986 Bg.No.PAUSA-6 1908. Thus, by virtue of the said gazette notification, Section 29 to 32 of the State Financial Corporations Act, 1951 have been made applicable to the Petitioner Company and the Petitioner Company is empowered /6/ Com.Misc.No.47/2008 to exercise the powers conferred under the aforesaid provisions of the State Financial Corporations Act, 1951.
04. That the first respondent M/s.Vintage Foods & Industries Ltd., (for short hereinafter referred to as 'Company') approached the Corporation for financial assistance. After considering the application, the Corporation sanctioned a Term Loan of ₹.76.00 Lakhs subject to the terms and conditions mentioned in the sanction communication letter dated 17.09.1993. The first respondent accepted the same.
05. As per the terms and conditions of the sanction communication letter, the first respondent represented by Sri.N.K.Mohta, being the Managing Director executed and delivered the Loan Agreement on 17.01.1994, agreeing and undertaking to repay the loan amount in installments in the manner indicated therein.
06. That in addition to the execution of the loan agreement the first respondent represented by the second respondent has executed further hypothecation deed on 17.01.1994, further hypothecating plant and machinery in favor of the corporation.
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07. That in addition to the execution of Loan agreement, the second and third respondents have executed personal guarantee deed on 17.01.1994, agreeing and undertaking to repay the loan amount in their personal capacity, in the event the first respondent company, fails to pay the loan amount to the Corporation.
08. The first Respondent again approached the Corporation for financial assistance. After considering the application the Corporation sanctioned an additional Term Loan of ₹.258 lakhs (Comprising Refinance able portion of Term Loan of ₹.150 Lakhs and Non-Refinanceable portion of Terms Loan of ₹.108 Lakhs) under Equipment Finance Scheme to acquire certain balancing equipments, subject to the terms and conditions mentioned in the sanction communication letter dated:31.01.1998. The first respondent accepted the same.
09. As per the terms and conditions of the said sanction communication letter, the first respondent represented by Sri.N.K.Mohta, being the Managing Director executed and delivered the loan agreement on 17.02.1998, agreeing and undertaking to repay the loan amount in installments in the manner indicated therein with interest at 16.5% p.a. on the amount of ₹.150 lakhs and in the event of default at 19% p.a. /8/ Com.Misc.No.47/2008 and at 18.5% p.a. on ₹.108 lakhs and in the event of default of 21% p.a.
10. In addition to the execution of the loan agreement the first Respondent represented by the second Respondent has executed further hypothecation deed on 17.02.1998, further hypothecating plant and machinery in favor of the Corporation.
11. In addition to the execution of Loan agreement, the second and third respondents have executed personal guarantee deed on 17.02.1998, agreeing and undertaking to repay the loan amount in their personal capacity, in the event of first respondent company, fails to pay the loan amount to the corporation.
12. That after executing all necessary documents, the Corporation has released the loan amount in favor of the first Respondent as under:
I). ₹.76.00 lakhs ₹. 40,00,000 - on 15-03-1994 ₹.30,00,000 - on 06.02.1995 ₹. 6,00,000 - on 18.04.1995 /9/ Com.Misc.No.47/2008
a). Refinanceable portion:
₹.150-00 Lakhs ₹.55,00,000 - on 26.03.1998 ₹.70,00,000 - on 02.05.1998 ₹.25,00,000 - on 20.05.1998
b). Non-Refinanceable Portion:
₹.108-00 Lakhs ₹.55,00,000 - on 20.05.1998 ₹.35,00,000 - on 12.10.1999 Thus, the Petitioner Corporation released the entire amount in favor of the first respondent.
13. The Petitioner Corporation has issued pre-installment demands and post installment due notices to the Company to repay the loan installments. But the company failed to pay the further installments of interest as and when they fell due in spite of the repeated requests and demands made by the Petitioner Corporation. Further, the first respondent has failed and neglected pay all the installments of the principal as and when they fell due in spite of pre-installment due notices and post-installment demand made by the Petitioner Corporation.
14. In spite of the demand notices of the loan dues, the first respondent having committed default in making repayment of the loan installments as per the agreed terms and conditions. Therefore, the Petitioner Corporation issued a /10/ Com.Misc.No.47/2008 notice through its advocate on 15.12.2007 demanding that, the first respondent is liable to pay a sum of ₹.5,87,22,964/- due as on 03.09.2007. Further, the first respondent is liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/- at 16.5% p.a. on 1,74,91,422/- and at 18.5% p.a. on ₹.3,01,34,653/- on footing of compound interest at quarterly rest basis from 04.09.2007 to fill the date of realization. Further, in the event of default to pay the amount they are liable to pay the interest at 20% p.a. 19% and 21% p.a. respectively on the above said amounts compounded at quarterly rests.
15. The Petitioner Corporation invoked the personal guarantee of the respondent No.2 and 3 and the corporate guarantee of respondent No.4. The notices sent to respondent 1 to 4 returned un-served with postal shara "Addressee left".
16. Thus, as the first respondent company defaulted to pay the amount and the personal guarantee of respondent No.2 to 4 are invoked and thus, the respondent 2 to 4 are liable to pay a sum of ₹.5,87,22,964/- due as on 03.09.2007. Further, they are liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/- at 16.5% p.a. on ₹.1,74,91,422/- and at 18.50% p.a. on ₹.3,01,34,653/- on footing compound interest at quarterly rest basis from 04.09.2007 to till the date of /11/ Com.Misc.No.47/2008 realization. Further, in the event of default to pay interest at 20% p.a, 19% and 21% p.a. respectively on the above said amounts compounded at quarterly rests.
17. The respondents No.2 to 4 are liable to pay the agreed rate of interest as the loans are availed by the first respondent company for commercial purposes.
18. The Respondent No.2 to 4 in their capacity as guarantors/sureties failed to discharge their obligation and clear the liabilities and as such the petitioner is fling this application under Section 31(1)(a) & (aa) of the State Financial Corporations Act, 1951 for enforcement of the liability of the guarantors/sureties in accordance with the procedure laid down in Sub-Sec.(1-A), (4-A) & 7 (d) (a) of Section 32 of the State Financial Corporations Act.
19. The transaction has taken place at Bengaluru and registered office of the first respondent is situated at Bengaluru. Further, as per clause mentioned in the Personal Guarantee, all disputes are subject to the Bengaluru Court jurisdiction. Hence, this Hon'ble Court has got jurisdiction to entertain the petition.
/12/ Com.Misc.No.47/2008
20. The cause of action for the petition arose on 17.09.1993, date on which the loan was sanctioned, on 17.01.1994, the date on which the respondents have executed loan agreement, personal guarantee deeds and other security documents and created on equitable mortgage by depositing the title deeds, and on 31.01.1998, the date on which the additional loan was sanctioned, on 17.02.1998, the date on which the respondents have executed loan agreement, personal guarantee deeds and other security documents and created an equitable mortgage by depositing the title deeds and on 15.12.2007, the date on which the legal notice was issued to the respondents and intimated the respondents that the petitioner Corporation invoked the powers conferred under the provisions of State Financial Corporations Act to recover the amount on personal guarantees and on the properties and on subsequent dates.
21. The petitioner valued the relief claimed in the petition at ₹.5,87,22,964/- due as on 03.09.2007 and fixed court fee of ₹.2/- is paid on the petition as per Clause (m) of Article I Schedule II of the Karnataka Court Fees and Suits Valuation Act, 1958. Hence, the petition.
/13/ Com.Misc.No.47/2008
22. After the service of summons the respondent No. 1 to 4 appeared through their advocate and they have filed objections to the petition.
The case of Respondent No:1 to 4 is as under:
23. The petition as brought by the petitioner is not at all maintainable either in law or on facts and hence the same is liable to be dismissed in limine.
24. The averments contained in para 1 to 4 of the petition are the self explanation of the petitioner which does not require any comment.
25. The respondents deny the averments contained in para 5 and 6 of the petition and the petitioner is put to strict proof of the same.
26. The averments contained in para 7 to 9 of the petition are also false and baseless. At no point of time, the respondents No.2 to 4 have executed personal guarantee deed in favor of the petitioner.
27. It is further denied that the petitioner has sanctioned additional term loan of ₹.258 lakhs as mentioned in para 10 of /14/ Com.Misc.No.47/2008 the petition. The respondents are not aware of this fact and the petitioner is put to strict proof of the same with documentary evidence.
28. The rate of interest calculated by the petitioner was not at all in existence, as contended in para 11 and the petitioner is bound to prove the same with R.B.I, guidelines.
So the entire claim of the petitioner itself is illegal and fictitious. The petitioner has acted arbitrarily without following the principles of natural justice and without following the mandatory procedures prescribed by the Hon'ble Supreme Court of India in such cases.
29. The petitioner has failed to hear the respondents and to give an opportunity before initiating legal action. The petitioner has failed to follow the statutory provisions, which is violation of natural justice. Though the petitioner had taken over the possession of the respondent's factory, machineries and the office premises during August 2002, the petitioner is claiming illegal amount from the respondents. After the possession of the respondent's property were taken over by the Petitioner Corporation, it has become difficult to the respondents to generate the funds to settle the dues of the petitioner. The Act of Petitioner Corporation, it has become difficult to the respondents to generate the funds to settle the /15/ Com.Misc.No.47/2008 dues of the petitioner. The Act of Petitioner caused a total collapse and closer of the business, thereby making it very difficult, if not, impossible to service the debt. So, the petitioner is solely responsible for the further consequences.
30. The claim of the petitioner is totally beyond the period of limitation from the date of the alleged cause of action and the same is wholly barred by time. The claim of the petitioner is not at all justified. Several times the respondents have approached the petitioner to negotiate regarding one time settlement, by waiving of interest. But, the petitioner has failed to follow the guidelines of the Reserve Bank of India in this regard. So, the dues of the respondents got accumulated. The Hon'ble HighCourt has observed in W.P.No.15649/05 that, the collateral property was sold for less than the market value and petitioner have failed in exercising it statutory duties, which is known to the petitioner. Even then the petitioner refused the proposal of one time settlement on reasonable grounds.
31. The first respondent company was amongst the first Cheese manufactures, which developed Mozerella Cheese for Pizzerias and were successful in bringing it out in local markets in consumer packs. The products of the respondents were available in various retail outlets at Bengaluru, Mumbai, /16/ Com.Misc.No.47/2008 Chennai, Calcutta, and Hyderabad, Pune, Goa and other parts of India. Looking at the positive market response and number of multinational pizzerias entering the Indian market, the 1 st respondent Company had undertaken massive expansion program and tied up the technical collaboration with Golden Foods, UK, now Glanbia Cheese, part of Avonmore Plc etc., To achieve the International standard of product, as advised by their Collaborator, the 1st respondent had also imported the equipment from Denmark, Italy, Germany and Ireland. But, due to the coercive steps taken by the Petitioner Corporation, the respondent went in to liquidation.
32. In spite of its critical situation, the respondents have shown their interest in settling the matter through their letters dated 07.06.2006 and 29.12.2008, but the petitioner has failed to take any positive steps in this regard. On the other hand, the petitioner has responded in a hasty manner, as they are in possession of the valuable property of the respondents. Day by day the property of the respondents is losing its value, as the petitioner has failed to protect the same.
33. The petitioner has seized and took over the possession of the factory, machinery and the office premises U/sec.29 of the State Financial Corporations Act, 1951, vide their order dated 02.01.2002. In view of the closure of the /17/ Com.Misc.No.47/2008 plant, the respondents were not in a position to make the payments and the company was under tremendous mental pressure. The respondents were forced to vacate the place due to threat of physical assault under the circumstances, for which the petitioner is solely responsible. So, the respondents were unable to repay the dues of the petitioner.
34. At the same time, the 1st respondent company had obtained an export order worth US $ 2.92 million from Ransat Plc, London, which was backed by interest free advance payment also. The Exim bank has issued Advance-cum- Performance Bank Guarantee on 08.09.1997 up to the amount of US $ 2.92 million in favor of the buyer guaranteeing refund of the interest free advance of US $2.92 million made by the buyer to the company. The 1st respondent company had placed order for import of equipment from Denmark, but due to strike at the Port in Denmark, the import and installation of equipment got substantially delayed and as a consequence the respondents were not able to execute the Export Order in accordance with the time scheduled as agreed with the buyer. Further, to the set back of the respondents, the Export Order was canceled by the buyer and the Advance-cum-Performance Bank Guarantee was devolved on Exim Bank, which they had met by paying to the buyer amounting to ₹.12.43 Crores.
/18/ Com.Misc.No.47/2008
35. Due to the above unfortunate developments and after a lot of persuasion, the Exim Bank has agreed to convert the devolved liability to a Term Loan, subject to clearance of ECGC. But, the Petitioner Corporation has failed to consider this aspect and their only intention was to auction the property of the respondents for lesser amount, with ulterior motive, which has been seriously condemned by the Hon'ble High court of Karnataka. The petitioner is not at all interested in setting the matter amicably.
36. During the same period the 1st respondent Company was able to procure an order to supply 518 metric tons of cheese to the Indian Army. This was a time-bound order and the delivery had to be effected at 24 centers. The 1 st respondent Company completed half of the supplies. However, there was an inordinate delay in obtaining payment from the Indian Army as the payment procedure was involved at various pre-inspections and post-delivery checks. After these procedures were completed, the payment had to be obtained from a centralized source after submission of delivery notes, which took long time and affected the working cycle of the company. The company had hitherto been supplying mozzarella cheese in bulk form to various prestigious clients such as Pizza Hut, Domino's etc., Unfortunately, the /19/ Com.Misc.No.47/2008 manufacturing units were possessed by the Petitioner Corporation. Thus, the 1st respondent Company could not be rectified its order, which were exhausted under the threat of the Petitioner Corporation.
37. The respondents further submit that, due to all these adverse circumstances one by one occurred beyond its control, the 1st respondent Company again suffered a major set-back, when the KSIIDC taken over the unit in August 2002. Factually the product unit was locked-out and seized by the petitioner, in spite of repeated requests not to close the unit as it will be against the interest not only of the promoters but of employees of the company and their families and also to other creditors. This step of KSIIDC has closed all the options available with the respondents for its revival as well as for clearing the dues to all its employees and creditors.
38. On account of such a hasty / arbitrary decision taken by the Petitioner Corporation, the respondent's businesses have completely vanished and they could not run their units. Under these circumstances, the respondents have requested the petitioner at least to release their records to meet all their statutory obligations of various departments. Since there was no response from the petitioner, the respondents have prepared financial result for the year ended on 31.03.2007.
/20/ Com.Misc.No.47/2008
39. In spite of such a critical situation, the respondents have negotiated with IDBI for settlement of their dues and the institution have considered the request of the respondents and responded positively. The IDBI has got the valuation of the plant, machinery, factory, land and building situated at Kumbalgod, through their approved valuator. Ultimately, the IDBI Bank has accepted the settlement in very reasonable grounds. But, the KSIIDC is still bargaining the dues of the respondents on penal interest, though they are in possession of the properties of the respondents. It is very funny to say that, the interest is more than 9 times higher than the principal amount as could be seen from the Reply Letter dated 04.03.2009, issued by the Petitioner Corporation. As per their own calculation in the said letter, the principal due is ₹.401.74 lakhs and ₹.3656.32 lakhs is the interest due, totally the outstanding due is ₹.4058.06 lakhs. Viewed from any angle, the act of the petitioner is illegal, arbitrary and capricious. The attempt of the respondents in repayment of their dues is genuine and honest. But the petitioner is not at all ready to co- operate with the respondents in settling the matter.
40. Meanwhile, the Exim Bank has filed a case before the Debts Recovery Tribunal, Bengaluru against the 1st respondent company for recovery of its dues. The IDBI and KSIIDC were /21/ Com.Misc.No.47/2008 also being made as parties as defendants in the said case. The Exim Bank has sought various reliefs including appointment of Receiver to sell the Corporate Office of the respondents situated at Sadashivanagar. The KSIIDC also appeared before DRT and thereafter they have not filed any submission before Debts Recovery Tribunal. However, the KSIIDC filed an application seeking release of property situated at Sadashivanagar since they had already auctioned the said property. After hearing the merits of the case, the Debts Recovery Tribunal was pleased to reject the application of the KSIIDC on 16.12.2004. Even then the KSIIDC went to the extent of executing sale deed dated 25.01.2005, which is totally against to the settled principles of law. This matter is purely a sub-judice and now pending before the Hon'ble High Court of Karnataka. Since the manufacturing unit is closed from last 45 months, the machinery has become unusable and the value of the same gets depreciates, due to the hasty action taken by the Petitioner Corporation, for which the respondents are not liable.
41. There is no cause of action for the petition and the alleged cause of action is invented for the sake of this case. All other averments which are contrary to and inconsistent with this objection statement are hereby denied as false and the petitioner is put to strict proof of the same. The documents /22/ Com.Misc.No.47/2008 produced in support of their claim are all false, bogus and fictitious. Absolutely the petitioner has no legitimate right to claim such a huge amount from the respondents under the guise of this petition. Hence, the petition is to be dismissed.
42. The Petitioner Corporation has examined Sri.N.Manjunath as PW1. The Petitioner Corporation has exhibited Ex.P1 to Ex.P.15. The Petitioner Corporation has exhibited loan ledger extracts as Ex.P16, P17 and Ex.P18 by confronting the same to RW1 in his cross examination. The Respondent No:2 to 4 have examined Sri.Narendra Kumar Mohta/Respondent No:2 as RW1 and have exhibited Ex.R1 to Ex.R8.
43. The Petitioner Corporation has filed Com.Mis No:33/2008, Com.Mis.No:839/2005 and Com.Mis.No:47/2008 against the Respondent No:1 and others. After the establishment of dedicated Commercial Courts, all the three cases were made over to this Court. On a perusal of records, it is noticed that on 29.10.2013, the Cross examination of PW1 by respondents was taken as NIL. Subsequently, on 24.02.2014 PW1 was recalled for the purpose of cross examination by allowing the application filed by Respondents by imposing cost of ₹.500.
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44. On 24.02.21, Sri.Manjunath AGM of the Petitioner Corporation submitted that this case is consolidated with Mis.No:33/08 & Mis No:839/2005 and would lead evidence in all the three cases. After receipt of records, on 09.08.2021 this Court has passed an order to facilitate the parties to continue recording of evidence in Com.Mis.No:33/2008 common to other two cases. Then the case was posted for further cross examination of PW1 to 23.08.2021(as he was recalled for the purpose of cross examination vide order dated:24.02.14). In spite of sufficient opportunities the Petitioner has not offered for further cross examination. On 18.10.2021 this Court passed an order that 'In spite of granting sufficient opportunities the petitioner has not offered PW1 for further cross examination. Hence, the respondents are discharged of the burden of further Cross examination of PW1. The Evidence of Petitioner is closed. The case is posted for respondent's evidence'.
45. It is noticed that that the application filed by the respondents to consolidate all the three cases was dismissed vide orders dated:01.07.16. Hence, the Respondents adduced their evidence separately in all the three cases.
46. After of the conclusion of trial, I have heard the arguments of learned advocate for Petitioner Corporation and /24/ Com.Misc.No.47/2008 Respondents. The Learned Counsel for Respondents No:2 to 4 has also filed written Arguments and relied on the following citations in support of his case.
Sl.No. Names of parties Citation 01. Kalpanaben M.Shah Vs. AIR 1995 GUJ 176 Navinchandra Jeevanlal Acharya 02. T.Radhakrishna Chettiar & (1970)AIR Another Vs. K.V.Muthukrishnan (Madras)337 Chettiar & Others 03. R.N.Shetty & Another Vs. (2005)3 Karnataka Industrial Karnt.L.J.177 investment & Development Corporation Ltd., 04. SICOM Ltd., Vs.PARCA PAPER (1009) 1 MhLJ 921 INDUSTRIES LIMITED & OTHERS 05. G.Sudhaker Reddy Docid3India Law Vs.M.Pullaiah Lib/964451 06. Annamma Jose Vs. Kerala (2002)AIR(Kerala) Financial Corporation 396 07. Subhransu Sekhar Padhi V (2015) AIR (SC) 542 Gunamani Swain
47. I have gone through the materials available on record and the ratio of above precedents. The following points arise for my determination:
(1) Whether the Petitioner Corporation proves that the respondents No.2 to 4 being guarantors/sureties are personally, jointly and severally liable to pay a sum of ₹.5,87,22,964 as on 03.09.2007?
/25/ Com.Misc.No.47/2008 (2) Whether the Petitioner Corporation proves that the respondents No.2 to 4 are personally, jointly and severally liable to pay a sum interest at 17.5% on ₹.1,10,96,889; 16.5% p.a. on 1,74,91,422;18.50% on 3,01,34,653 from 04.09.2007 till the date of filing of Petition compounded at quarterly rests?
(3) Whether the Petitioner Corporation proves that the respondents No.2 to 4 are personally, jointly and severally liable to pay a sum interest at 20% on ₹.1,10,96,889;
19% p.a. on 1,74,91,422;21 on 3,01,34,653 from the date of filing of Petition till the date of realization compounded at quarterly rests?
(4) Whether Respondent No:2 to 4 prove that the petition is barred by Limitation?
(5) What Order?
48. My findings on the above points are as follows:-
Point No. 1, 2 : - In the AFFIRMATIVE and 3 against R2 & 3 Point No. 4 : - In the AFFIRMATIVE Point No. 5 : - As per final orders for the following REASONS
49. Point No.1 to 3 : The Petitioner Corporation has filed this petition under section 31(1)(a) & (aa) and Section 32 of State Financial Corporation Act, 1951 praying the Court to /26/ Com.Misc.No.47/2008 grant following reliefs:
(a) to determine that, the petitioner is entitled to enforce the liability of the respondents as per Sec.31(1)(a) & (aa) of SFC's Act that they are liable to pay a sum of ₹.5,87,22,964/- due as on 03.09.2007. Further, liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/- at 16.5% p.a. on ₹.1,74,91,422/- and at 18.5% p.a. on ₹.3,01,34,653/- on footing compound interest at quarterly rest basis from 04.09.2007 to till the date of realization.
Further in the event of default at 20% p.a., 19% and 21% p.a. respectively on the above said amounts compounded at quarterly rests;
(b) to issue certificate to enforce the liability of the respondents 2 to 4 as per Section 31(1)(a) & (aa) of the State Financial Corporations Act, holding them that they are liable to pay the dues determined as per prayer column No.(a) as they being the personal guarantors and principal borrowers jointly, severally and personally liable to pay the sum of ₹.5,87,22,964/- due as on 03.09.2007. Further liable to pay the future interest at 17.5% p.a. on ₹.1,10,96,889/- at 16.5% p.a. on ₹.1,74,91,422/- and at 18.5% p.a. on ₹.3,01,34,653/- on footing compound interest at quarterly rest basis from 04.09.2007 to till the date of realization. Further, in the event of default at 20% p.a, 19% and 21% p.a. respectively on the above said /27/ Com.Misc.No.47/2008 amounts compounds at quarterly rests;
(c) to pass an order to proceed against the personal properties of respondent No.2 and 3 herein both movable and immovable for realization of the dues of the Petitioner Corporation; to pass any other order/s that this Hon'ble Court deems fit to grant in the circumstances of the case with costs, in the interest of justice and equity.
50. The Petitioner Corporation has examined Sri.N.Manjunath as PW1. The PW1 has reiterated the Petition averments in his affidavit evidence. The Petitioner Corporation has exhibited Ex.P1 to Ex.P.15.
Exhibit
Sl.No. Description of Documents
No.
01. Board Resolution P.1
02. Sanction letter dated 17.09.1993 P.2
03. Deed pf Guarantee P.3
04 Loan Agreement P.4
05. Sanction another loan P.5
06. Loan Agreement P.6
07. Guarantee dated 17.02.1998 P.7
08. Office copy of Legal Notice P.8
5 Sealed Covers along with postal
09. acknowledgments containing P.9 to 13
thenotice
P.14 &
10. Two Loan Ledger Extracts
P.15
Ex.P16,
11. Statement of accounts (3 nos.)
17 & 18
/28/
Com.Misc.No.47/2008
51. The Respondent No:2 has examined Sri.Narendra Kumar Mohta as RW1 and has exhibited Ex.R1 to Ex.R8.
Exhibit Sl.No. Description of Documents No.
01. Certified copy of the order dated R.1 15.06.2020 passed by NCLT Bengaluru in C.P.(IB) No.64/BB/2019
02. Certified copy of deposition of R.2 Sri.N.Manjunath, Manager of the petitioner Corporation recorded in Com.Misc.839/2005
03. Certified copy of Ex.P.17 marked in R.3 Com.Misc.839/2005 by petitioner 04 Certified copy of Ex.P.12 marked in R.4 Com.Misc.33/2008 by petitioner
05. Copy of Sale deed dated R.5 25.01.2005
06. Proceedings of the petitioner R.6 Corporation dated 02.01.2002 regarding acquiring of plant and machinery and building of respondent No.1 and the land and building of respondent No.2 and 3.
07. Copy of Sale Certificate dated R.7 04.10.2019
08. Copy of order dated 24.09.2019 R.8 passed by the Hon'ble High Court of Karnataka in W.P.No.45847- 45851/2019 (GM-RES)
52. The PW1 has reiterated the petition averments in his affidavit evidence. It is the case of the petitioner that the first respondent was sanctioned term loan of ₹.76.00 lakhs vide /29/ Com.Misc.No.47/2008 sanction letter dated:17.01.1993 as per Ex.P2. The second respondent being the Chairman and Managing Director of first respondent has hypothecated the plant and machinery and executed loan agreement dated:17.01.1998 as per Ex.P4. The Respondent No:2 and 3 have executed deed of guarantee dated:17.01.1998 in respect of loan of ₹.76.00 lakhs as per Ex.P3.
53. The Petitioner has sanctioned additional term loan of ₹.258.00 lakhs vide sanction letter dated:31.01.1998 as per Ex.P5/31.01.1998. The Respondent No:2 and 3 have executed Deed of guarantee dated:17.02.1998 as per Ex.P7.
54. The Petitioner is contending that the Respondent No:4 has offered Corporate Guarantee agreeing to repay the loan amount in the event of first respondent committing default in the repayment of loan amount along with agreed rate of interest.
55. The Petitioner Corporation has stated that in spite of issuance of pre-installment and post Installment demands and even after issuance of legal notice the respondents have failed to clear the dues of the Corporation.
/30/ Com.Misc.No.47/2008
56. On a perusal of records, it is noticed that on 29.10.2013, the Cross examination of PW1 by respondents was taken as NIL. Subsequently, on 24.02.2014 PW1 was recalled for the purpose of cross examination by allowing the application filed by Respondents by imposing cost of ₹.500.
57. The Case Bg.No: Com.Mis.No:33/2008, Com.Mis.No:47/2008 and Com.Mis.No:839/2005 are transferred to this Court, after the establishment of Commercial Courts. On 24.02.21, Sri.Manjunath AGM of the Petitioner Corporation submitted that this case is consolidated with Mis.No:33/08 & Mis No:839/2005 and would lead evidence in all the three cases. After receipt of records, on 09.08.2021 this Court has passed an order to facilitate the parties to continue recording of evidence in Com.Mis.No:33/2008 common to other two cases. Then the case was posted for further cross examination of PW1 to 23.08.2021(as he was recalled for the purpose of cross examination vide order dated:24.02.14). In spite of sufficient opportunities the Petitioner has not offered for further cross examination. On 18.10.2021 this Court passed an order that 'In spite of granting sufficient opportunities the petitioner has not offered PW1 for further cross examination. Hence, the respondents are discharged of the burden of further Cross examination of PW1.' /31/ Com.Misc.No.47/2008
58. The Respondents are contending that since the PW1 was not offered for Cross examination, the petition is liable to be dismissed in limine.
59. The RW1 has reiterated the averments made in the Statement of Objections in his affidavit evidence. The RW1 in his cross examination has deposed that he was the Chairman of M/S.Vintage Foods and Industries Limited. Now, he is a suspended Director of said Company. During the time of availing loan from the Petitioner Corporation he was the Chairman of M/S.Vintage Foods and industries limited. He was the Director of Insotex (India) Ltd., (Respondent No:4 in Com.Mis.No:47/2008 and Respondent No:1 in Com.Mis.No:33/2008) and M/S.Narendra Company Pvt., Ltd., (Respondent No:1 in Com.Mis.No:839/2005). His wife Smt.Saritha Mohta was a signatory to the loan documents. All the above 3 companies have availed loan from the petitioner Corporation. He had offered some collateral security in respect of loan advanced to M/S.Vintage Foods and Industries Limited. He had offered industrial plot at KIADB as primary security for loan advanced to M/S.Vintage Foods and Industries Limited. The same collateral securities were extended in respect of the loans advanced to Insotex (India) Ltd., (Respondent No:4 in Com.Mis.No:47/2008 and Respondent No:1 in /32/ Com.Misc.No.47/2008 Com.Mis.No:33/2008) and M/S.Narendra Company Pvt., Ltd., (Respondent No:1 in Com.Mis.No:839/2005).
60. The RW1 has further deposed that the Petitioner Corporation has sold property at Sadashivanagar which was offered as collateral security (The Sale deed dated:25.01.2005 is exhibited as Ex.R5) He do not know whether the sale proceeds generated out of said sale was applied towards loan advanced to M/S.Vintage Foods and Industries Limited. The sale consideration was ₹.237 lakhs under the sale deed dated:25.01.2005.
61. The RW1 further deposed that the loan ledger extracts pertaining to all the above 3 loans reflects overdue interests and he has exhibited the loan ledger extracts of Petitioner Corporation after obtaining certified copies.
62. The Petitioner Corporation has exhibited loan ledger extracts as Ex.P16, P17 and Ex.P18 by confronting the same to RW1. The objections raised by the learned Counsel for the Respondents to exhibit these documents are dealt little later separately.
63. The RW1 has deposed that no additional securities were offered in respect of Insotex (India) Ltd., and /33/ Com.Misc.No.47/2008 M/S.Narendra Company Pvt., Ltd., He denied that the petitioner Corporation has not sold any other property belonging to him. He denied that the loan amount have not been repaid by Insotex (India) Ltd., and M/S.Narendra Company Pvt., Ltd., He has voluntarily deposed that the loan amounts were partly paid by these two companies. He does not know whether the Petitioner Corporation has invoked personal guarantees in all the three cases. He has to look in to accounts to say whether the loan amounts of all the three companies were due.
64. The materials available on record show that the Respondents have admitted the loan transaction and execution of loan documents. The Respondents are contending that though the Corporation has sanctioned loan of ₹.1,08,00,000/- of the Corporate loan, under common sanction letter dated:31.01.1998 but has released only a sum of ₹.90,00,000/-to the loan account of first respondent. The first respondent has repaid ₹.75,25,609/- as against loan amount of ₹.90,00,000/-, the balance loan amount due was only ₹.14,74,391/- as on 20.04.2004. The amount claimed by the Corporation amounting to ₹.3,01,34,653/- is imaginary figure. They are disputing the rate of interest charged by the Petitioner Corporation. They have not placed any materials to show that they have repaid the entire loan/s amount to the /34/ Com.Misc.No.47/2008 petitioner Corporation. When the Respondents have clearly admitted the loan transaction and loan documents, the contention of the respondents that the petition is liable to be dismissed for not offering the PW1 for cross examination is not acceptable.
65. The Respondents are contending that in view of Order dated:15.06.2020 passed by the Hon'ble NCLT, Bangalore on I.A.No;174 of 2020 filed under Section 33(2) of IBC in C.P.(IB) No:64/BB/2019 as per Ex.R1, the petition shall not be proceeded with.
66. The Respondents are contending that the Petitioner Corporation after taking possession of the Cheese Manufacturing Factory locked the same on 02.1.2002 and kept under lock and key till 2019 without making any attempt to sell it and recover its debt which has resulted in huge irretrievable financial loss to the respondents.
67. The Respondent are contending that the property offered as collateral security i.e. Sadashivanagar property belongs to HUF and the Corporation has illegally sold the said property for a lesser price and the sale proceeds of ₹.237 lakhs has not been credited to the loan account of the respondents.
/35/ Com.Misc.No.47/2008
68. It is significant to note that the Petitioner Corporation has filed the present petition to enforce the personal guarantee offered by the Respondent No:2 and 3 and the Corporate Guarantee offered by Respondent No:4. The Petitioner Corporation has not exhibited the Deed of Guarantee executed by the Respondent No:4 offering Corporate Guarantee.
69. The Respondents have admitted the execution of deed of guarantee and loan agreements in favor of Petitioner Corporation. In the absence of proper evidence to show that they have discharged their entire liability towards the Petitioner Corporation, they are liable to pay the dues with agreed rate of interest.
70. The recitals of deed of guarantee shows that the Guarantee offered by the Respondent No:2 and 3 is a continuing one for all amounts lent and advanced and/or to be lent and advanced by the Corporation the company under the said security documents as also for all interest, costs charges and expenses and all other moneys which may from time to become due and payable and remain unpaid for the time being to the Corporation under the Security documents and shall remain in force until the said loan shall be paid off in full with interest and all costs, charges and expenses and other moneys /36/ Com.Misc.No.47/2008 as aforesaid. In view of the recitals of deed/s of guarantee and the loan agreements the Respondent No:2 and 3 are liable to clear the dues.
71. The Petitioner Corporation got exhibited Ex.P16 to Ex.P18 during the course of cross examination of RW1. The RW1 on looking to these statement of accounts has admitted that these documents are pertaining to three loans viz., ₹.76,00,000/-, ₹.1,50,00,000/- and ₹.1,08,00,000/- but denied the authenticity of the loan ledger extracts. The Learned Counsel for the Respondents objected for marking of these documents. The Court has noted that 'Sri.M.D., advocate has objected marking of these documents. These documents are marked since, the witness has admitted the loans sanctioned by the Corporation with a rider that the authenticity of the loan ledger extract shall be dealt after during the course of hearing.'
72. The learned Counsel for the Respondents is contending that the Ex.P16 to Ex.P18 are nothing but the continuation of the statement of account of the above referred loan transaction from the date of suit till 27.09.2021. The calculation of interest as per these documents is opposed to Section 34 of CPC. He has relied on the decision of Hon'ble High Court of State of Telangana and Andhra Pradesh in /37/ Com.Misc.No.47/2008 G.Sudhaker Reddy Vs.M.Pullaiah (Docid#IndiaLawLib/964451 to contend that these documents could not have been marked even with a rider and should have been marked in a separate series as disputed documents.
73. The Petitioner Corporation has confronted statement of accounts to the RW1 in his cross examination and the same are marked as Ex.P16 to Ex.P18. The said statement of accounts reflects the continuation of accounts maintained by the petitioner Corporation in the regular course of its day today business. The Hon'ble High Court in the above cited decision, at para 26 has observed that 'The parties may however produce a document for the limited purpose of confronting it to a Witness during his cross- examination to contradict him or to refresh the memory of a witness. It is clear from Order 13, Rule 2 of the CPC read with section 145 of evidence Act, 1872 that what can be produced during the cross-examination, to confront a witness to contradict him only his previous statement in writing or reduced into writing. A witness cannot therefore be confronted in cross examination (without previous production as per law) a document executed by someone else.' /38/ Com.Misc.No.47/2008
74. The Hon'ble High Court was pleased make an observation at para 49 as under:
"49. On the survey of the above decisions, the following points are deduced:
i) A list of documents should be filed along with the plaint or written statement and if the parties want to file document subsequently, they have to take leave of the Court.
ii) The documents, which are marked, does not dispense with their proof.
iii) There is a difference between marking of a document and admitting the same in evidence.
iv) As held by the Supreme Court in R.V.E. Venkatachala Gounder (Supra), the objection that the document which is sought to be proved is itself inadmissible in evidence can be raised even at a later stage or even in appeal or revision. When the objection relates to mode of proof alleging the same to be irregular or insufficient, the objection should be taken before the evidence is tendered and cannot be allowed to be raised at any stage subsequent to the marking of the document as an exhibit. This later objection is an objection relating to the irregularity or insufficiency.
v) In order to avoid delay in the trial of the suit, the Court can tentatively mark a document and examine its admissibility and the objection raised to it along with the pronouncement of judgment."
/39/ Com.Misc.No.47/2008
75. In this case Ex.P16 to Ex.P18 are the continuation of Ex.P14 and Ex.P15 pertaining to the transaction between the Petitioner and Respondents, as such the mode adopted by the Petitioner Corporation to exhibit the same by confronting the documents to RW1 cannot be found fault with. The marking of Ex.P16 to Ex.P18 showing the outstanding liability of respondents as on 27.09.2021 is of no consequence to the case on hand, since the burden is on the Petitioner Corporation to establish the liability of the respondents as on the date of presentation of the petition. The statement of accounts pertaining to period subsequent filing of the petition may be considered only in a circumstance where the borrower has made certain payments in full or partial discharge of his liability. It is not the case of petitioner or respondents that the Respondents have made payments subsequent to the filing of petition. The Petitioner Corporation has to calculate the interest from the date of petition only at the rate of interest determined by the Court. Hence, marking of Ex.P16 to Ex.P18 showing the liability of Respondents as on 27.09.2021 will not enure to the benefit of the Petitioner Corporation or dent the defense put forth by the Respondents.
76. The Respondents except denying the authenticity of the accounts maintained by the Petitioner Corporation have not placed any other materials to reject the claim put forth by /40/ Com.Misc.No.47/2008 the Petitioner Corporation. Ex.P14 and Ex.P15 reflects the amount of loan/s sanctioned to the respondents and the payments credited to the loan/s account and the outstanding amount as on the date of petition.
77. The Respondents are contending that the rate of interest charged by the petitioner corporation is exorbitant and against the principles of Section 34 CPC. The transaction between the petitioner Corporation and the Respondents is a commercial loan transaction and is not an agricultural loan as such the parties are bound by the rate of interest agreed by them under the contract.
78. In the absence of materials placed by the petitioner Corporation to saddle the liability against Respondent No:4, the Respondent No:2 and 3 in their capacity as personal guarantors are liable to pay the dues of the corporation at the agreed rate of interest. The Petitioner Corporation has failed to prove the liability of Respondent No:4.
79. The Respondents are contending that the Court Fee paid on the petition is insufficient and the petitioner is required to pay ad-valorem Court fee as per Article (1) of Schedule-I r/ w/s 16 of the KCF & SV Act, 1958. They have relied on the decision of Hon'ble High Court of Bombay reported in (2009)1 /41/ Com.Misc.No.47/2008 MhLJ 921 between SICOM Ltd., Vs.PARCA PAPER INDUSTRIES LIMITED & OTHERS.
80. The Petitioner has paid Court fee of ₹.2/- on the petition as per Article 11(m) Schedule II of KCF & SV Act, 1958, which provides Court fee of ₹.2/- payable on original petitions not otherwise provided when the petition is field in any Court subordinate to the High Court. The petition is filed under the provisions of SFC Act, which is an original petition filed before the District Court. The Court fee paid by the Petitioner is proper and correct. The ratio of the decision is not applicable to the facts of the case.
81. The Respondents are emphasizing that the petitioner corporation has sold the property offered as Collateral security i.e. property Bg.No:222, Sadashiva Nagar, Bengaluru for 1/10 th of the price of the property and have failed to apply sale proceeds towards the loan payable by the first respondent. The RW1 in his cross examination (in Com.Mis.No:839/2005) has admitted that W.P.No:15649/2005 filed by the respondents challenging the auction process is dismissed on 29.10.2007. However, he volunteered that the said W.P. is still pending. The Respondents have not furnished the copy of order passed by the Hon'ble High Court. The respondents are trying to make out a ground in their defense to resist the claim of the Petitioner. The present case is filed under section 31(1) &(aa) /42/ Com.Misc.No.47/2008 of SFC Act. This Court cannot go in to the merits of the auction sale conducted by the Petitioner in exercise of powers conferred on it under Section 29 of SFC Act. It is evident from the evidence available on record that the Petitioner Corporation has applied the sale proceeds of ₹.237 Lakhs realized out of auction of collateral security property. In such circumstances, the question rose by the respondents regarding the validity or otherwise of the auction sale of collateral security cannot be dealt with in present proceedings. Accordingly, Point No.1 to 3 are answered in the AFFIRMATIVE against Respondent No:2 and 3.
82. POINT No.4:The Respondents are contending that the Petition is barred by Limitation. As per the petition averments and Sanction Memorandum dated:17.09.1993 the Term Loan amount of ₹.76,00,000/- was sanctioned to Respondent No:1 on 17.09.1993; the period of repayment was 8 years 9 months which came to an end on 15.12.2002; the loan amount was released first on 15.03.1994 as per Ex.P14 and the last payment was made on 15.04.2004. The period of 3 years ends either under Article 55 or 137 of Limitation Act on 15.04.2007. The petition is filed on 16.01.2008 beyond the period of Limitation.
/43/ Com.Misc.No.47/2008
83. As per averments made in petition paragraphs 10 and 14 the Petition Corporation has sanctioned term loan of ₹.2,58,00,000/- vide Sanction letter dated:31.01.1998/ Ex.P5 under two Categories. Re-financeable portion of ₹.1,50,00,000/- was repayable in 17 Quarters with first installment falling due after an initial moratorium period of six months, which shall commence from the date of First Release of loan as per Ex.P5 i.e.26.03.1998. The total period for repayment was 4 years 7 months ends on 26.10.2002. The last payment was made on 28.04.2004 as per Ex.P15 and the petition ought to have been filed within three years either under Article 55 or 137 of Limitation Act which ends on 28.04.2007. The Petition is filed on 16.01.2008 beyond the period of Limitation.
84. As per averments made in petition paragraphs 10 and 14 the Petition Corporation has sanctioned term loan of ₹.2,58,00,000/- vide Sanction letter dated:31.01.1998/ Ex.P5 under two Categories. Non-Re-financeable portion of ₹.1,08,00,000/- was repayable in 17 Quarters with first installment falling due after an initial moratorium period of six months, which shall commence from the date of First Release of loan as per Ex.P5 i.e.20.05.1998. The total period for repayment was 4 years 7 months ends on 20.12.2002. The last payment was made on 28.04.2004 as per Ex.P15 and the /44/ Com.Misc.No.47/2008 petition ought to have been filed within three years either under Article 55 or 137 of Limitation Act which ends on 28.04.2007. The Petition is filed on 16.01.2008 beyond the period of Limitation.
85. The Learned Counsel for the Respondents by relying on the following decisions submitted that the petition is barred by Limitation either under Article 55 or 137 of Limitation Act and is liable to be dismissed.
T.Radhakrishna Chettiar & (1970)AIR
Another Vs. (Madras)337
K.V.Muthukrishnan Chettiar &
Others
R.N.Shetty & Another Vs. (2005)3
Karnataka Industrial Karnt.L.J.177
investment & Development
Corporation Ltd.,
Annamma Jose Vs. Kerala (2002)AIR(Kerala)
Financial Corporation 396
86. The learned counsel for the petitioner is contending that the petition is filed well within the period of limitation. He is contending that the Respondent No:2 and 3 have executed deed of guarantee on 17.01.1994 as per Ex.P3; and guarantee deed dated:17.02.1998 as per Ex.P7 in favor of the petitioner Corporation. The Guarantee offered by the respondents No:2 and 3 are continuing guarantee and they are bound to indemnify the petitioner corporation and the guarantee offered /45/ Com.Misc.No.47/2008 by them continues till all the dues of the Corporation are cleared.
87. In this regard it is useful to refer to the following decisions of Hon'ble Supreme Court of India and the Hon'ble High Court of Karnataka.
1) 2014 AIR SCW 865 DEEPAK BHANDARI Vs. HIMACHAL PRADESH STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED "15. IT is thus clear that merely because the Corporation acted under Section 29 of the State Financial Corporation Act did not mean that the contract of indemnity came to an end. Section 29 merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main contract. It may be that only the Corporation taking action under Section 29 and on their taking possession they became deemed owners. The mortgage may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. The right to sue on the contract of indemnity arose after the assets were sold. The present case would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old Limitation Act, 1908. The right to sue on a contract of indemnity/ guarantee would arise when the contract is broken.
16. THEREFORE , the period of limitation is to be counted from the date when the assets of the Company were sold and not when the recall notice /46/ Com.Misc.No.47/2008 was given. The up-shot of the aforesaid discussion is to hold that the present appeal is bereft of any merits. Upholding the judgment of the High Court, we dismiss the instant appeal, with costs".
2. LAWS(KAR) 2014 2 228, Karnataka State Financial Corporation Represented by its Branch Manager Vs. Smt. Vimala Kedia and Ors.
Having heard the learned counsel for the appellant we do not see any merit in this appeal for the following reasons: -
a) Admittedly the loan was granted on 17 -3 -
1997. On account of non -payment of the amount by the principal borrower a demand notice for repayment was got issued by the appellant on 15 -10
-1998. When there is failure on the part of the principal borrower in not paying the dues as per the terms & conditions of the agreement the cause of action for the appellant would accrue to proceed against the principal borrower on 15 -10 -1998 when a demand notice was issued and thereafter on 13 -1 - 1999, the balance of sanctioned loan amount was not disbursed and the same was recalled on account of the principal borrower not discharging the loan.
b) It is also an admitted fact that the primary assets were sold by the appellant on 15 -3 -2002. At least when the primary assets were sold the appellant was required to consider it as a cause of action to proceed against the principal borrower or against the guarantor. It is also admitted that for the reasons best known to the appellant, the appellant has not proceeded to recover any money from the principal borrower. It is no doubt true that the appellant KSFC is entitled to proceed either against the principal borrower or against the surety. The date of filing the petition is 23 -2 -2006. The period of limitation is only 3 years for recovery of money from /47/ Com.Misc.No.47/2008 the date of cause of action. According to us the date of selling the primary assets has to be considered as the date of cause of action in the absence of any acknowledgement of debt by the respondents on subsequent dates. Therefore the appellant could not have proceeded against the principal borrower after 14 -3 -2005 onwards. Therefore we are of the view that when the appellant cannot proceed against the principal borrower, the appellant could not have filed the petition for recovery of dues from the guarantors beyond 3 years from the date of cause of action. In the circumstances we are of the view that no error is committed by the trial Judge in dismissing the petition. In the result, the petition is dismissed.
88. I have carefully gone through the ratio of the above decisions. The petitioner Corporation has sanctioned financial facility to the respondent No:1 vide sanction communication dated:17.09.1993/Ex.P2 in respect of Term Loan of ₹.76,00,000-00; term loan of ₹.2,58,00,000-00 (Re-financeable portion of ₹.1,50,00,000-00 and Non-refinaceable Portion of ₹.1,08,00,000-00) on 31.01.1998. On 02.01.2002, the Corporation has conducted proceeding under Section 29 SFC Act and taken over the collateral security properties offered by M/S.Vintage Foods & Industries Ltd., viz., Plot No:21/B, Kumbalgod Industrial Area, II Phase, Kengeri Hobli, Bengaluru South Tq., Bengaluru and Property No:222/14, (CITB No.222 and Municipal No:14), Bellary Road, 5 th Main, Sadashivanagar, Bengaluru-560 080 on 20.12.2000. The Corporation has accepted the offer of ₹.237 Lakhs offered by M/S.Salarpuria /48/ Com.Misc.No.47/2008 Exports and traders Private Limited in pursuance of Sale publication dated:23.05.2003 published in Times of India in respect of Sadashivanagar Property. The Purchaser has paid ₹.1,00,000 vide DD No:450660 dated:05.03.2004; ₹.59,25,000/-vide DD No:412010 dated:15.04.2004; ₹.1,76,75,000/- vide DD No:452252 dated:28.04.2004.
89. The petitioner corporation has filed the present petition seeking enforcement of personal guarantee against respondents No.2 to 4 on 16.01.2008. The corporation has sold the property offered as collateral security and realized the sale proceeds of ₹.2,37,00,000/-on 28.04.2004. The Corporation has issued notice to Respondent No;1 to 4 as per Ex.P8 dated:15.12.2007. Wherein, it is notified that the Corporation had taken over the assets of the company on 02.08.2002. The said notice dated:15.12.2007 was issued by the Corporation after execution of Sale Deed dated:
25.01.2005.
90. The petitioner corporation is enforcing the deeds of guarantee and personal guarantee executed by respondents No.2 and 3 alleging that they have breached the terms and conditions enshrined in these instruments. In such circumstances Article 55 of the Limitation Act 1963 is attracted to the case on hand, which reads as under:
/49/ Com.Misc.No.47/2008 Article For compensation for Three When the 55 the breach of any years contract is broken or contract, express or (where there are implied not herein successive breaches) specially provided for when the breach in respect of which the suit is instituted occurs or (where the breach is continuing) when it ceases.
91. In view of Article 55 of the Limitation Act, the petition is barred by limitation.
92. The Petitioner Corporation is required to consider the date on which it sold the collateral security or at least the date on which it credited sale proceeds to the loan account as date of cause of action to file petition against Respondent No:2 and
3.
93. The materials available on record show that the Petitioner Corporation has received last payment on 15.04.2004 as per Ex.P14 in respect of Term loan of ₹.76,00,000/- and on 28.04.2004 in respect of Term loan of ₹.2,58,00,000/-.
/50/ Com.Misc.No.47/2008
94. The Petitioner Corporation has filed the petition on 16.01.2008 after the expiry of 3 years 8 months 18 days from 28.04.2004 (the date on which last payment was made in respect of Term loan of ₹.2,58,00,000/-). The petition was filed on 16.01.2008 after the lapse of 3 years 8 months 28 days from the date of realization of sale proceeds from the sale of collateral security property i.e. 28.04.2004 The petition filed by the Petitioner Corporation is barred even under Article 137 of Limitation Act. Though the petitioner corporation has established the liability of the Respondent No:1 Company, as on the date of petition and the execution of deeds of guarantee and personal guarantee by Respondent No.2 and 3, the Respondents have established that the petition is filed beyond the period of limitation. Accordingly, Point No.4 is answered in the AFFIRMATIVE.
95. Point No.4: In view of findings on the above points, I pass the following:
ORDER The Petition filed by the Petitioner Corporation under Section 31(1)(a) & (aa) and Section 32 of State Financial Corporation Act, 1951 is hereby dismissed with costs.
The office is hereby directed to send a copy of the judgment to the petitioner/ /51/ Com.Misc.No.47/2008 respondents through email as per Order XX Rule 1 CPC as amended by Section 16 of Commercial Courts Act, 2015.
(Dictated to the Stenographer, corrected, signed and then pronounced by me in the open court on 28 th day of February 2022) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ANNEXURES List of witnesses examined for the petitioner:
P.W.1 Sri.N.Manjunath List of documents exhibited on behalf of the petitioner:
Sl.No Description of Documents Exhibit No. .
01. Board Resolution P.1
02. Sanction letter dated 17.09.1993 P.2
03. Deed of Guarantee P.3 04 Loan Agreement P.4
05. Sanction another loan P.5
06. Loan Agreement P.6
07. Guarantee dated 17.02.1998 P.7
08. Office copy of Legal Notice P.8 5 Sealed Covers along with postal
09. acknowledgments containing P.9 to 13 thenotice
10. Two Loan Ledger Extracts P.14 & P.15 Ex.P16, 17
11. Loan ledger extracts & P18 /52/ Com.Misc.No.47/2008 List of witnesses examined for the respondents:
RW1 : Narendra Kumar Mohta Exhibit Sl.No. Description of Documents No.
01. Certified copy of the order dated R.1 15.06.2020 passed by NCLT Bengaluru in C.P.(IB) No.64/BB/2019
02. Certified copy of deposition of R.2 Sri.N.Manjunath, Manager of the petitioner Corporation recorded in Com.Misc.839/2005
03. Certified copy of Ex.P.17 marked in R.3 Com.Misc.839/2005 by petitioner 04 Certified copy of Ex.P.12 marked in R.4 Com.Misc.33/2008 by petitioner
05. Copy of Sale deed dated 25.01.2005 R.5
06. Proceedings of the petitioner R.6 Corporation dated 02.01.2002 regarding acquiring of plant and machinery and building of respondent No.1 and the land and building of respondent No.2 and 3.
07. Copy of Sale Certificate dated R.7 04.10.2019
08. Copy of order dated 24.09.2019 R.8 passed by the Hon'ble High Court of Karnataka in W.P.No.45847-
45851/2019 (GM-RES) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ****