Bangalore District Court
Karnataka State Financial Corporation vs ) M/S.Miami on 25 October, 2021
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: 25th October 2021
Com.Misc.No.785/2008
PETITIONER : Karnataka State Financial Corporation
a body corporate established under
the State Financial Corporations Act,
1951, (Central Act, No.LXIII of 1951)
having its M.G.Road Branch Office at:
No.48, I Floor, Church Street,
Bengaluru-560 001, Represented by
its, Manager (Recovery).
(By. Dr.T.Somashekar, Advocate)
-Vs-
RESPONDENTS : 1) M/s.Miami,
a Partnership firm, registered under
the, Indian Partnership Act, 1932,
No.23, Kumara Krupa, Annexe.II,
Behind Hotel Ashok,
Bengaluru-560 001.
Represented by its, Managing Partner.
(Exparte)
2) Sri.Vijaya Kumar Kaladgi,
S/o Shekarappa, Major,
No.23, Kumara Krupa, Annexe.II,
Behind Hotel Ashok,
Bengaluru-560 001.
(By Sri.K.Mallanna,Advocate)
3) Sri.Chidanand.G.Kulkarni,
S/o G.B.Kulkarni, Major,
R/at No.5, First Floor,
Bloc-2, Kumara Park West,Bengaluru-
/2/
Com.Misc.785/2008
560 020.
(By Sri.Vishwanath Sabarad,Advocate)
4) Sri.Manohar.K.Onkar,
S/o K.N.Onkar, Major,
R/at No.18, Radhakrishna Kunj,
Cholanaykanahalli,
Bengaluru-560 032.
(By Sri.K.Mallanna,Advocate)
5) Smt.N.Kempanarasamma,
W/o Late Gangamayanna, Major,
Saneguruvanahalli,
Yeshwanthpur Hobli,
Bengaluru.
(By Sri.Vishwanath Sabarad,Advocate)
Date of Institution of 11.09.2008
suit/
Petition
Nature of suit : Miscellaneous Petition us 31(1)
(suit on pronote, suit for (a), 31(1)(aa) and 32 of State
declaration and Financial Corporation Act, 1951
possession suit for
injunction, etc.,)
Date of commencement : 20.07.2012
of recording of evidence
Date of judgment : 25.10.2021
Total duration : Year/s Month/s Days
13 01 14
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
/3/
Com.Misc.785/2008
JUDGMENT
The Petitioner Corporation has filed this petition under section 31(1)(a) (b), 31(1) (aa) and 32 of State Financial Corporation Act, 1951 to pass an order directing respondent No.2, 3, 4 & 5 to jointly and severally pay to the petitioner a sum of ₹.1,45,69,665/- due as on 10.06.2008 with future interest thereon at the rate of 21.50% p.a., on ₹.5,92,224/- at the rate of 20.50% p.a. on ₹.1,05,61,812.57 and at the rate of 21.50% p.a. on ₹.34,15,628/- on the footing of compound interest on quarterly rest basis with effect from 10.06.2008 till payment.
02. The petitioner is a statutory public financial institution as defined in Section 4A of the Companies Act 1956. The petitioner has been established with the object of rendering financial assistance to industrial concerns and is wholly owned by the State Government. The monies advanced and lent by it to the industrial concerns are in the nature of public monies collected by way of financial Institutions in addition to the public monies made available by the State Government and also raised by way of debentures.
03. The Petitioner has to deal with these funds on business principles due regard being had to interest of industry, commerce and the general public as recognized by /4/ Com.Misc.785/2008 Section 24 of the Act and for this purpose in accordance with the required financial discipline.
04. The petitioner submits that the first respondent is a partnership firm, registered under the Indian Partnership Act, 1932. Respondent No.2, 3 and 4 are the partners of the first respondent partnership firm. Further respondent No.2, 3, 4 and 5 are the guarantors/surety for the loan amount sanctioned and released to the first respondent.
05. The Petitioner at the request of the first respondent sanctioned a term loan of ₹.10.25 lakhs and working capital loan of ₹.50,000/- to the first respondent for establishment of a restaurant, subject to the terms and conditions of the Corporations loan sanction letter dated 16.11.1994 and accepted by the partnership firm. Again at the request of the first respondent the corporation sanctioned additional term loan of ₹.3.75 lakhs subject to the terms and conditions of the Corporation loan sanction letter dated 12.05.1995.
06. The petitioner further submits that by incorporating the agreed terms and conditions, the first respondent represented by its partners have executed hypothecation deed and hypothecated the primary assets of the partnership firm in favor of the petitioner as security for the aforesaid loans.
/5/ Com.Misc.785/2008
07. The Petitioner further submits that respondent No.2, 3, 4 and 5 have personally guaranteed the repayment of the aforesaid loans due from the first respondent by executing the deed of guarantee, hypothecation deed and surety agreement in favor of the corporation. Respondent No.2, 3 and 4 have executed a deed of guarantee dated 24.12.1994 and respondent No.5 has executed surety agreement dated 24.05.1995 in respect of the additional term loan of ₹.3.75 lakhs in favor of the corporation and gave their personal guarantee for the repayment of the loan amount due from the first respondent.
08. The Petitioner further submits that the guarantee/surety given respondent No.2, 3, 4 and 5 is continuing in nature, wherein among other terms it was agreed and undertaken in particular as follows:
The guarantee herein contained shall be enforceable against the guarantors. Intimation in writing sent to the company (first respondent) by the corporation that a default has occurred shall be treated as final and conclusive proof as to the facts stated therein. The guarantee herein contained shall be continuing one for all amounts that may from time to time become due and payable and remain unpaid.
The guarantee shall be continuing guarantee and shall be binding and operative until repayment in full of all the monies due.
/6/ Com.Misc.785/2008
09. The Petitioner further submits that the entire term loan amount of ₹.10.25 lakhs and working capital loan of ₹.50,000/- and additional term loan of ₹.3,75,000/- was released to the first respondent.
10. The Petitioner submits that in spite of agreed terms and conditions as well as pre-installment notice issued and post installment demands made, the first respondent committed default in repayment of the aforesaid loans.
11. The Petitioner submits that in view of the default committed by the first respondent the corporation initiated recovery action under Section 29 of the Act to take possession of the primary assets of the firm. The primary assets of the partnership firm was sold for ₹.36,000/- and the sale proceeds were adjusted towards the loan dues of the first respondent.
12. The petitioner further submits that even after adjusting the sale proceeds the first respondent was due to the corporation in respect of the above loans. Since the loan dues of the first respondent was mounting, the corporation invoked the personal guarantee/surety of respondent No.2, 3, 4 & 5 by issuing a notice dated 06.08.2008 calling upon them to pay to the corporation ₹.1,45,69,665/- due as on 10.06.2008. The notice issued to respondent No.1, 2 and 4 is /7/ Com.Misc.785/2008 served. The notice issued to respondent No.3 and 5 is returned un-served. In spite of notice dated 06.08.2008 the respondents failed to comply with the demand made in the notice. On the other hand respondent No.2 has sent a reply dated 08.08.2008 taking all untenable pleas. The corporation has got issued a reply dated 21.08.2008 to the letter dated 08.08.2008.
13. The Petitioner submits that respondent No.2, 3, 4 and 5 are jointly and severally liable to pay to the corporation a sum of ₹.1,45,69,665/- in respect of the aforesaid loans due as on 10.06.2008 and they are liable to pay future interest thereon on quarterly rest basis with effect from 10.06.2008.
14. The liability of respondent No.2, 3, 4 & 5 is joint and several in view of the terms and conditions, the deed of guarantee, hypothecation deed and surety agreement.
15. The cause of action for the petition arose on the dates when the Corporation sanctioned and released the loans to the first respondent, when the respondents executed a hypothecation deed, when respondent No.2, 3 and 4 executed deed of guarantee, and respondent No.5 executed surety agreement, when the first respondent committed default in the repayment of the loan dues, on 06.08.2008 when the /8/ Com.Misc.785/2008 personal guarantee/surety of respondent No.2, 3, 4 and 5 was invoked within the jurisdiction of this Hon'ble Court. Hence, the petition.
16. After the service of summons the respondent No:1 and 5 remained absent and are placed exparte. The respondent No:2, 3 and 4 entered their appearance through their advocates.
17. The Respondent No:2 has filed the objections and Respondent No:4 has adopted the same. The Respondent No:3 has filed separate objections.
The Case of Respondent No:2 and 4 is as under:
18. The application purported to have been made and filed under the provisions of Section 31(1) (a)(b), 31(aa) and Section 32 of SFC Act is neither tenable in law nor sustainable on facts. The petitioner is not justified in invoking the provisions of Section 31 (aa) of the Act without exhausting the remedies available under the SFC Act and the Karnataka Public Monies (Recovery of Dues) Act and consequently the same is liable to be rejected. Furthermore, the conduct of the petitioner in approaching the Hon'ble Court is not clean and consequently is not entitled to seek any indulgence at the /9/ Com.Misc.785/2008 hands of this Hon'ble Court. The petition is hopelessly barred by law of limitation and as such even on this score also the petition deserves to be rejected. The petitioner has acted in a total negligent and callous manner while disposing the property. Similarly, even though more than 15-16 years have lapsed, no concrete steps even as on today have been taken by the corporation for the disposal and sale and apply the sale proceeds towards the realization of the alleged dues with regard to the disposal of the immovable property belonging to the fifth respondent and which has been offered as collateral security on due performance of the agreed terms and conditions imposed while sanctioning the loan.
19. The Respondent No:2 was a partner of Respondent No:1 firm for a limited period at a later stage he retired as a partner. The Respondent No:2 has also informed the Registrar of Firms in the prescribed form and taken necessary acknowledgment. He has also informed the officials of the Petitioner Corporation and they have accepted the same. In view of the acceptance, there is no relationship of creditor and borrower and the personal guarantee deed automatically extinguished. The respondent No:2 is neither a necessary nor a proper party and as such the claim made against the Respondent No:2 is liable to be rejected under Order II Rule 2 CPC.
/10/ Com.Misc.785/2008
20. The Respondent No:2 has admitted the sanction and release of loan and stated that he is not aware about exact details, as all the benefits arising have been enjoyed by the promoter. He has admitted that the parties have executed hypothecation deed but consequent upon his retirement as a partner his liability gets fully absolved and extinguished.
21. The personal guarantee offered by the respondent No:2 is not in existence consequent upon his retirement from the firm. The guarantee deed, surety deed are all not in existence upon his retirement. The Corporation cannot proceed to realize the decreetal amount for which they have sought for a decree. The guarantee deed dated:24.12.1994 is no more in existence and the Corporation is estopped in law from invoking said documents and taking advantage of hypothecation and surety agreements.
22. The Respondent No:2 has denied the averments made in para 11 and 12 . He is not aware whether the respondent No:1 is a defaulter or not. The costly imported machineries engaged in manufacture of ice-cream and other beverages costing several lakhs, due to defaults made, came to be seized and after seizure the officials of the Corporation have slept over the issue for several years and consequently the inordinate delay caused, the machineries were liable for being /11/ Com.Misc.785/2008 rusted and ultimately came to be sold for a song. The petitioner has to explain why the machineries were sold for a paltry sum of Rs.36,000/- while disposing off the assets. It was incumbent upon the Petitioner Corporation to call upon the borrower to get a better offer. In the absence of being called upon to give a better offer, for the lapses caused by the officials of the Corporation, the loan is deemed to have been repaid in full.
23. The Respondent No:2 has admitted the averments made in para 14 of the petition. He has replied the legal notice issued by the Petitioner Corporation and also called upon the Corporation to furnish better particulars. Since the Petitioner has not complied with the said demand, the respondent No:2 could not answer other allegations, which are far from truth.
24. The respondent No:2 is not liable either severally or otherwise to pay a sum of ₹.1,45,69,665/- as claimed in para 15 of the petition. The claim made by the Petitioner Corporation is hopelessly barred by time. There being no cause of action subsisting, the petition is liable to be dismissed.
/12/ Com.Misc.785/2008
25. The Respondent No:2 has denied the averments made in para 18 of the petition. The unit was seized some time in 1997. The Petition ought to have been filed within a period of three years from 03.12.1997. The present petition filed on 11.09.2008 is time barred.
26. The averments made in para 20 of the petition is false. The proceedings initiated by the Corporation under the provisions of KPMRD Act by the Special Tahasildar attached to KSFC by the State of Karnataka remain unconcluded and the Petitioner has to explain why no further steps have been initiated for the disposal of schedule property belonging to Respondent No:5 and if the timely action has been taken, the entire liability would have been wiped off.
27. The Petitioner Corporation for the first time contends that the property of fifth respondent is beyond recognition and not traceable. The officials of the Corporation are periodically prevailing upon the respondents to come to their office for amicable settlement of the dispute. The Respondent No:2, time and again informed the officials of the Corporation that he has been retired as a partner of respondent No:1and he is not liable to pay any dues.
/13/ Com.Misc.785/2008
28. The Petitioner issued a registered notice trying to publish the names and photos of the respondents. Mr.Kaladgi and Omkar have filed a suit on the file of City Civil Judge, Mayo Hall and the Hon'ble Court was pleased to issue an ad interim order of injunction restraining the KSFC from either publishing or printing the names and photos in the Newspapers. However, at the same time liberty has been given to the Corporation to initiate action in accordance with law. Hence, the petition may be dismissed with exemplary costs of Rs.10,00,000/-
The Case of Respondent No:3 is as under:
29. The petition is not maintainable in law. The averments made in petition para 3 to 5 are not within the knowledge of Respondent No:3. The averments made in petition paragraphs 6 to 9 are false and concocted.
30. The first respondent had availed loan as claimed by the Petitioner, however, Respondent No:3 has not offered surety or guarantee for the repayment of loan availed by the respondent No:1. The Respondent No:1 has availed the term loan and working capital loan and another term loan as stated and claimed in the petition. The respondent No:3 had not signed the deed of guarantee dated:24.12.1995 as claimed in /14/ Com.Misc.785/2008 the petition and deed of surety. The Petitioner has created the said document. The petitioner had got signatures of Respondent No:3 on unfilled blank printed formats and later converted the same for its convenience. The petitioner has not approached the Court with clean hands.
31. The averments made in petition paragraphs 10, 11, 12, 13, 14 are all denied as false and concocted. The petitioner has not released the entire loan amount sanctioned by it and has withheld the amounts as interest payable. The petitioner has not followed the procedures contemplated under the rules and Act after taking over the Respondent No:1 firm under Section 29 of SFC Act. The petitioner has not made efforts to sell the plant and machineries for the correct and right price by giving publicity to auction. It has colluded with others and sold for a meager sum of ₹.36,000/-which is much below the market price of the same. The petitioner has not issued the notices, as claimed by it and the respondent No:3 is not aware of the same and the claim of the petitioner that it has issued notice dated:06.08.2009 is created and made to overcome its lapses. The Respondent No:3 is not liable to pay any dues since the respondent No:3 has not stood as guarantor/surety for the loan availed by the Respondent No:1.
/15/ Com.Misc.785/2008
32. The averments made in para 15, 16 of the Petition are denied as false and incorrect. The petitioner has claimed compound interest for which it is not entitled under Law. It was also not agreed by Respondent No:1. The Respondent No:3 is not liable to pay any amount to the Petitioner, as he has not executed any guarantee or surety deed.
33. The averments made in para 17, 18 and 19 are incorrect and created by the petitioner. There is no cause accrued to the petitioner to file this case. The petition is barred by limitation. The petition is filed after 15 years from the date of loan. The petition be dismissed with cost payable to Respondent No:3.
34. The Petitioner Corporation has examined Sri.G.Krishnaiah as PW.1 He has exhibited Ex.P.1 to 16. The respondent No.3 has adduced his evidence as RW.1. He has not exhibited any documents.
35. After the conclusion of the trial, the learned counsel for the Petitioner Corporation and Respondent No:3 have addressed their respective arguments. They have also filed written arguments.
/16/ Com.Misc.785/2008
36. The Learned Counsel for the Petitioner Corporation has relied on the following decisions in support of his case:
Sl.No Names of Parties Citation
.
01. U.P.Financial Corporation AIR 1993 SC 1435
Vs.M/S.Gem Cap(India) Pvt.Ltd.,
and others
02. Deepak Bhandari V. Himachal 2014 AIR SCW 865
Pradesh State Industrial
Development Corporation Ltd.,
03. Mrs.Margaret Lalita Samuel AIR 1979 SC 102
Vs.Indo Commercial Bank Ltd.,
04. Syndicate Bank Appeal(Civil) 6894
Vs.Channaveerappa Beleri & Ors of 1997
05. B.S.Varadaraj Vs.Karnataka State MFA No.7994 of
Financial Corporation 2015(SFC)
37. The Learned Counsel for Respondent No:3 has relied on the following decisions in support of his case:
Sl.No. Names of Parties Citation 01. Maharastra State Financial 2006(9) SCC 617 Corporation Vs. Asho K.Agarwal & others 02. Deepak Bhandari V. Himachal 2014 AIR SCW 865 Pradesh State Industrial Development Corporation Ltd., 03. Hari Narain Vs.Badri Das AIR 1963 SC 1558 04. G.Narayanaswamy Reddy Vs. AIR 1991 SC 1726 Government of Karanataka & Anr. /17/ Com.Misc.785/2008
38. I have carefully gone through the ratio of the above precedents and applied to the facts of the case. I have gone through the materials available on record.
39. The following points arise for my determination:
1) Whether the Petitioner Corporation proves that the respondent No.1 is due in a sum of ₹.1,45,69,665/- due as on 10.06.2008 and is liable to pay future interest at the rate of 21.50% p.a., on ₹.5,92,224/-; at the rate of 20.50% p.a. on ₹.1,05,61,812.57; and at the rate of 21.50% p.a. on ₹34,15,628/- on the footing of compound interest on quarterly rest basis with effect from 10.06.2008 till payment?
2) Whether the Petitioner Corporation proves that the respondents No.2 to 5 are jointly and severally liable to clear/pay the amount of ₹.1,45,69,665/- due from the 1st respondent as on 10.12.1999 along with future interest at the rate of 21.50% p.a., on ₹.5,92,224/-; at the rate of 20.50% p.a. on ₹.1,05,61,812.57; and at the rate of 21.50% p.a. on ₹34,15,628/-
on the footing of compound interest on quarterly rest basis with effect from 10.06.2008 till payment compounding at quarterly rests?
3) Whether the Respondents No:2 to 4 prove that the petition filed by the Petitioner Corporation is barred by Limitation?
4) What Order?
/18/ Com.Misc.785/2008
40. My findings on the above points are as follows:-
Point No. 1 : - In the Affirmative Point No. 2 : - In the Affirmative Point No. 3 : - In the Affirmative Point No. 4 : - As per final orders for the following REASONS
41. Point No.1 to 3: These three points are interconnected with each other and to avoid repetition of facts they are taken together for discussion. The Petitioner Corporation has filed this petition under section 31(1)(a)(b), 31(1) (aa) and 32 of State Financial Corporation Act, 1951 to pass an order directing respondent No.2, 3, 4 & 5 to jointly and severally pay to the petitioner a sum of ₹.1,45,69,665/- due as on 10.06.2008 with future interest at the rate of 21.50% p.a., on ₹.5,92,224/-; at the rate of 20.50% p.a. on ₹.1,05,61,812.57; and at the rate of 21.50% p.a. on ₹34,15,628/- on the footing of compound interest on quarterly rest basis with effect from 10.06.2008 till payment.
43. The Petitioner Corporation has examined Sri.G.Krishnaiah as PW.1. The PW1 has exhibited the following documents:
Sl. Description of Documents Ex.P
No.
01. Gazette Notification Ex.P.1
/19/
Com.Misc.785/2008
02. Loan Sanction Communication Letter Ex.P.2
03. Loan Sanction Communication Ex.P.3
04. Deed of Guarantee dated 24.12.1994 Ex.P.4
05. Agreement dated 24.12.1994 Ex.P.5
06. Hypothecation Deed dated:24.05.1994 Ex.P.6
07. Agreement dated:24.05.1995 Ex.P.7
08. Office Copy of legal notice dated Ex.P.8
06.08.2008
09. Postal Acknowledgment Ex.P.9
10. Postal Acknowledgment Ex.P.10
11. Undelivered Postal Covers Ex.P.11
&12
12. Reply Notice dated: 08.08.08. issued by Ex.P.13 Respondent No:2
13. Rejoinder Notice dated:21.08.2008 Ex.P.14 issued by Petitioner to the Respondent No:2
14. Ledger Extract Ex.P15
15. Statement of account Ex.P16
44. The Respondent No:3 adduced his evidence as RW.1 and has not exhibited any documents.
45. The PW.1 has reiterated the petition averments in his affidavit evidence. It is the case of Petitioner Corporation that the first respondent is a partnership firm, registered under the Indian Partnership Act, 1932. Respondent No.2, 3 and 4 are the partners of the first respondent partnership firm. Further respondent No.2, 3, 4 and 5 are the guarantors/surety for the loan amount sanctioned and released to the first respondent.
/20/ Com.Misc.785/2008
46. The Petitioner at the request of the first respondent sanctioned a term loan of ₹.10.25 lakhs and working capital loan of ₹.50,000/- to the first respondent for establishment of a restaurant, subject to the terms and conditions of the Corporation's loan sanction letter dated 16.11.1994 and accepted by the partnership firm. Again at the request of the first respondent the corporation sanctioned additional term loan of ₹.3.75 lakhs subject to the terms and conditions of the Corporation's loan sanction letter dated 12.05.1995.
47. The petitioner further submits that by incorporating the agreed terms and conditions, the first respondent represented by its partners have executed hypothecation deed and hypothecated the primary assets of the partnership firm in favor of the petitioner as security for the aforesaid loans.
48. The Petitioner further submits that respondent No.2, 3, 4 and 5 have personally guaranteed the repayment of the aforesaid loans due from the first respondent by executing the deed of guarantee, hypothecation deed and surety agreement in favor of the corporation. Respondent No.2, 3 and 4 have executed a deed of guarantee dated 24.12.1994 and respondent No.5 has executed surety agreement dated 24.05.1995 in respect of the additional term loan of ₹.3.75 lakhs in favor of the corporation and gave their personal /21/ Com.Misc.785/2008 guarantee for the repayment of the loan amount due from the first respondent.
49. The Petitioner further submits that the guarantee/surety given respondent No.2, 3, 4 and 5 is continuing in nature, wherein among other terms it was agreed and undertaken in particular as follows:
The guarantee herein contained shall be enforceable against the guarantors.
Intimation in writing sent to the company (first respondent) by the corporation that a default has occurred shall be treated as final and conclusive proof as to the facts stated therein.
The guarantee herein contained shall be continuing one for all amounts that may from time to time become due and payable and remain unpaid.
The guarantee shall be continuing guarantee and shall be binding and operative until repayment in full of all the monies due.
50. The Petitioner further submits that the entire term loan amount of ₹.10.25 lakhs and working capital loan of ₹.50,000/- and additional term loan of ₹.3,75,000/- was released to the first respondent.
51. The Petitioner submits that in spite of agreed terms and conditions as well as pre-installment notice issued and post installment demands made the first respondent committed default in repayment of the aforesaid loans.
/22/ Com.Misc.785/2008
52. The Petitioner submits that in view of the default committed by the first respondent the corporation initiated recovery action under Section 29 of the Act to take possession of the primary assets of the firm. The primary assets of the partnership firm was sold for ₹.36,000/- and the sale proceeds were adjusted towards the loan dues of the first respondent.
53. The petitioner further submits that even after adjusting the sale proceeds the first respondent was due to the corporation in respect of the above loans. Since the loan dues of the first respondent No.2, 3, 4 and 5 by issuing a notice dated 06.08.2008 called upon them to pay to the corporation ₹.1,45,69,665/- due as on 10.06.2008. The notice issued to respondent No.1, 2 and 4 is served. The notice issued to respondent No.3 and 5 is returned un-served. In spite of notice dated 06.08.2008 the respondents failed to comply with the demand made in the notice. On the other hand the respondent No.2 has sent a reply dated 08.08.2008 taking all untenable pleas. The corporation has got issued a reply dated 21.08.2008 to the letter dated 08.08.2008.
54. The Petitioner submits that respondent No.2, 3, 4 and 5 are jointly and severally liable to pay to the corporation a sum of ₹.1,45,69,665/- in respect of the aforesaid loans due as on 10.06.2008 and they are liable to pay future interest thereon on quarterly rest basis with effect from 10.06.2008.
/23/ Com.Misc.785/2008
55. The liability of respondent No.2, 3, 4 & 5 is joint and several in view of the terms and conditions, the deed of guarantee, hypothecation deed and surety agreement.
56. The cause of action for the petition arose on the dates when the Corporation sanctioned and released the loans to the first respondent, when the respondents executed a hypothecation deed, when respondent No.2, 3 and 4 executed deed of guarantee, and respondent No.5 executed surety agreement, when the first respondent committed default in the repayment of the loan dues, on 06.08.2008 when the personal guarantee/surety of respondent No.2, 3, 4 and 5 was invoked within the jurisdiction of this Hon'ble Court.
57. The RW.1 has reiterated the averments made in his objection statement in the affidavit evidence. The RW.1 has denied the entire case of the petitioner Corporation. It is the case of the respondent No.3 that the petition is not maintainable in law. The averments made in petition para 3 to 5 are not within the knowledge of Respondent No:3. The averments made in petition paragraphs 6 to 9 are false and concocted.
58. The first respondent had availed loan as claimed by the Petitioner, however, Respondent No:3 has not offered /24/ Com.Misc.785/2008 surety or guarantee for the repayment of loan availed by the respondent No:1. The Respondent No:1 has availed the term loan and working capital loan and another term loan as stated and claimed in the petition. The respondent No:3 had not signed the deed of guarantee dated:24.12.1995 as claimed in the petition and deed of surety. The Petitioner has created the said document. The petitioner had got signatures of Respondent No:3 on unfilled blank printed formats and later converted the same for its convenience. The petitioner has not approached the Court with clean hands.
59. The averments made in petition paragraphs 10, 11, 12, 13, 14 are all denied as false and concocted. The petitioner has not released the entire loan amount sanctioned by it and has withheld the amounts as interest payable. The petitioner has not followed the procedures contemplated under the rules and Act after taking over the Respondent No:1 firm under Section 29 of SFC Act. The petitioner has not made efforts to sell the plant and machineries for the correct and right price by giving publicity to auction. It has colluded with others and sold for a meager sum of ₹.36,000/- which is much below the market price of the same. The petitioner has not issued the notices, as claimed by it and the respondent No:3 is not aware of the same and the claim of the petitioner that it has issued notice dated:06.08.2009 is created and made to /25/ Com.Misc.785/2008 overcome its lapses. The Respondent No:3 is not liable to pay any dues since the respondent No:3 has not stood as guarantor/surety for the loan availed by the Respondent No:1.
60. The respondent No.3 further submits that the petitioner has claimed compound interest for which is not entitled under Law. It was also not agreed by Respondent No:1. The Respondent No:3 is not liable to pay any amount to the Petitioner, as he has not executed any guarantee or surety deed.
61. The respondent No.3 further submits that no cause of action accrued to the petitioner to file this case. The petition is barred by limitation. The petition is filed after 15 years from the date of loan. The petition be dismissed with cost payable to Respondent No:4.
62. From the evidence of PW.1, RW1 and exhibits Ex.P.1 to Ex.P.16 it is evident that the Petitioner Corporation has sanctioned loan of ₹.10.75 lakhs including working capital of ₹.50,000/- as per Ex.P.2 and ₹.3.75 lakhs as per Ex.P.3 the respondents have agreed to repay the said loans with interest at 17.5% p.a. in case of default to pay additional penal interest of 2.5% p.a. The respondents have admitted the sanction and disbursement of loan by the Petitioner Corporation in favor of /26/ Com.Misc.785/2008 respondent No.1. The respondent No.2 to 4 are the partners of respondent No.1 firm. The petitioner has exhibited Ex.P.4 Deed of Guarantee dated 24.12.1994 executed by respondent No.2 to 4 in respect of loan of ₹.10,75,000/-.
63. The PW.1 in his cross-examination deposed that the Corporation has invoked Section 29 of SFC Act and seized the hypothecated goods in the year 2003 and sold the same in public auction and recovered ₹.36000/- in the said sale. He has admitted that once the properties are attached to conclude the sale proceedings it takes minimum 3½ to 4 years depending on the machinery. He denied that the Corporation has failed to take proper care of the seized goods. He denied that due to negligence of the Corporation, the Corporation was unable to secure proper price. The RW.1 in his cross- examination deposed that the Corporation has sold the plant and machinery for ₹.36,000/- though it was worth ₹.14,00,000/-. He denied that even after adjusting the sale proceeds of primary assets the respondents still owe the Corporation a sum of ₹.1,45,69,000/-. The Petitioner Corporation has not furnished the details regarding the public auction conducted by it. Ex.P.16 evidences that the respondents are liable to pay ₹.13,52,608/- towards principal, ₹.1,31,23,359/- towards interest, ₹.93,697.57 towards other debits in all ₹.1,45,69,664.57 as on 10.06.2008 in respect of loan account bg.No.211201-17, 211201-30 and 211201-31 /27/ Com.Misc.785/2008 respectively. The respondents have not placed any materials contrary to the claim of Petitioner Corporation in the cross- examination of PW.1 except making bald denials. Hence, the respondent No.1 was due in a sum of ₹.1,45,69,664-57 as on 10.06.2008.
64. The Petitioner Corporation has exhibited Ex.P.5 Surety Agreement dated 24.12.1994 executed by respondent No.5 in respect of ₹.10.75 lakhs loan. Ex.P.6 is the Hypothecation Deed dated 24.05.1995. Ex.P.7 is the Agreement dated 24.05.1995 executed by respondent No.5 in respect of loan of ₹.3.75 lakhs. The respondents are denying the execution of Deed of Guarantee and surety agreements in their statement of objections. The RW.1 has admitted in his cross-examination that the partners of the firm have executed Deed of Guarantee as per Ex.P.4, Loan Agreement Ex.P.7. The respondent No.2 in his statement of objections has admitted the execution of the documents in favor of the Petitioner Corporation but denied his liability to repay the dues as he has been retired from the partnership firm. The evidence available on record show that the respondent No.2 to 5 have executed the Deed of Guarantee and Surety Agreements in favor of the Petitioner Corporation for repayment of loan advanced to respondent No.1 firm. The respondents are denying the liability to repay the loan amount to the Petitioner Corporation.
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65. Clause 3 of deed of guarantee/Ex.P4 provides that in order to give effect to the guarantee herein contained the corporation shall be entitled to act as if the Guarantors were the Principal Debtors to the Corporation for all payments and covenants guaranteed by them as aforesaid to the corporation.
66. Clause 5.i) provides that the Guarantee herein contained shall be continuing one for all amounts advanced including the interim payments or the amounts to be advanced hereinafter by the corporation by way of further interim payment or payments or otherwise out of the said principal sum as also for all the interests, costs, and other charges or expenses that may from time to time become due and payable and remain unpaid to the corporation.
67. Clause 5.ii) provides that the Guarantee contained in this deed shall in all respects and for all purpose be considered as wholly or partially satisfied or exhausted by any payments made or to settle with the corporation by the borrower and shall be binding and operative until repayment in full of all the moneys dues to the corporation as aforesaid. This guarantee shall also continue to be in force notwithstanding the changes in the management of the borrower or nationalization or taking over of the management of the company by the Central/State /29/ Com.Misc.785/2008 Government or by any authority pursuant to the operation of any law for the time being in force.
68. Clause 11 of deed of guarantee/Ex.P4 provides that the Guarantee herein contained shall be enforceable against the guarantors notwithstanding that the securities specified in the security documents as any of them shall at the time when proceedings are taken against Guarantors hereunder be outstanding or unrealsised.
69. Clause 12 provides that the Guarantee herein contained shall be enforceable against the Guarantors notwithstanding that no action of any kind has been taken by the Corporation against the company and an intimation in writing sent to the company by the corporation that a default or breach occurred shall be treated as final and conclusive proof as to the facts stated therein.
70. It is settled law that the liability of a guarantor/surety is coextensive with the liability of the principal debtor. The Creditor has a right to choose his debtor. In this case the respondent No: 2 to 4 being the partners of first respondent firm have also executed Ex.P4 in their personal capacity agreeing to clear the dues of first respondent firm. The respondent No.5 has executed Surety Agreement as per Ex.P.5 /30/ Com.Misc.785/2008 and P.7 in favor of the Petitioner Corporation agreeing to repay the dues of the first respondent firm. The covenants enshrined in Ex.P4, P.5 and P.7 makes it very clear that the guarantee offered by respondent No:2 to 4 is a continuing guarantee continues till all the dues of the corporation are cleared. Likewise the surety offered by respondent No.5 continues till such time all the dues of the Corporation are cleared. The retirement of a partner from the partnership firm will not absolve his liability as a guarantor to repay the dues of the corporation unless a specific contract is entered into between such retiring partner and the Corporation. However, the corporation is required to enforce its rights of recovery against the guarantors within the period of Limitation. Hence, the respondent No.2 to 5 are liable to pay the dues of the respondent No.1 Firm.
71. The respondents No.2 to 4 are contending that the petition is barred by limitation as such the petition is liable to be dismissed. The petitioner has filed this petition against respondents to enforce its right against respondent No.2 to 5 who had executed deed of guarantee and surety agreements for repayment of dues of respondent No.1 Firm. It is the case of petitioner that the guarantee offered by the respondents No:2 to 4 is continuing guarantee and they are bound to indemnify the petitioner corporation and the guarantee offered /31/ Com.Misc.785/2008 by them continues till all the dues of the Corporation are cleared. Likewise the Petitioner Corporation is contending that the liability of respondent No.5 as a surety continues till all the dues of Corporation are cleared. The learned Counsel for petitioner and learned counsel for respondent No.3 have relied on the following decision of Hon'ble Supreme Court of India reported in 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 /32/ Com.Misc.785/2008 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 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.
72. I have carefully gone through the ratio of the above decision. The petitioner Corporation has sanctioned financial facility of ₹.10,75,00,000/- vide Ex.P.2 dated 16.11.1994 and ₹.3.75 lakhs vide Ex.P.3 dated 12.05.1995. The Petitioner Corporation had taken over assets of first respondent firm under Section 29 SFC Act. The Petitioner Corporation has not furnished the date on which it has taken over the primary assets of the first respondent firm either in its petition or in the evidence of PW.1. The Petitioner Corporation has also failed to furnish the information sought by respondent No.2 vide his notice dated 08.08.08 as per Ex.P.13. In Ex.P.14, the Petitioner Corporation has issued an evasive reply notifying the respondent No.2 to approach the office of the corporation for details. The PW.1 in his cross-examination deposed that the Corporation has initiated proceedings under Section 29 of SFC Act in the month of December 1998 and the public auction was conducted in the year 1999. He has further deposed that /33/ Com.Misc.785/2008 at the time of first advertisement the Corporation has received only one offer in the month of November 1999. They have received 7 offers for the second advertisement in the month of December 1999 and one offer in the month of March 2000. As the Corporation could not trace a better buyer during the said three notifications, the corporation decided to go for public auction. The public auction was conducted in the month of July 2003. The Corporation has realised a sum of ₹.36,000/- in that auction. In the first advertisement offer was for ₹.45000/- and in the second advertisement offer was for ₹.1,55,000/- and in the third advertisement offer was for ₹.75,000/-. The previous better offer during the above said notification was for ₹.1,55,000/-. The Corporation has not explained why the better offer among the above offers was not accepted by it. Ex.P.16 shows that the Petitioner Corporation has credited the sale proceeds of ₹.36,000/- to the loan account on 24.12.2003. The Petitioner Corporation has issued legal notice dated 06.08.2008 as per Ex.P. 8 calling upon the respondents No.2 to 5 to pay the dues of first respondent firm failing which the corporation would initiate proceedings under Section 31(1)(aa) of SFC Act against them. The Petitioner Corporation has filed the present petition against the respondents on 11.09.2008 seeking enforcement of guarantee and surety offered by respondent No.2 to 4 and 5.
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73. The petitioner corporation is enforcing the deed of guarantee and personal guarantee/surety executed by respondents No.2 to 4 and 5 respectively 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:
Article For compensation for Three When the contract is 55 the breach of any years broken or (where there are contract, express or successive breaches) when implied not herein the breach in respect of specially provided which the suit is instituted for occurs or (where the breach is continuing) when it ceases.
74. In view of Article 55 of the Limitation Act, the petition is not filed well within the period of limitation.
75. In view of the decision of Hon'ble Supreme Court of India, 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 ₹.36,000/- to the loan account as date of cause of action to file petition against Respondent No:2 to 4 and 5. The petitioner corporation has filed the petition on 11.09.2008 after the expiry of 4 years 8 months 27 days from 24.12.2003 (the date on which ₹.36,000/-was credited to the /35/ Com.Misc.785/2008 loan account of first respondent). The petition filed by the Petitioner Corporation is barred by limitation provided under Article 55 of Limitation Act.
76. The petitioner corporation has established the liability of the first respondent firm as on 10.06.2008 and the execution of deed of guarantee by Respondents No.2 to 4 and surety agreements by respondent No.5 but has failed to prove that the petition is filed well within the period of limitation. The respondents No.2 to 4 have proved that the petition is barred by limitation. Hence, the petitioner corporation is not entitled to recover the petition claim from the respondent No:2 to 5. Accordingly, I answer POINT No.1 to 3 in the AFFIRMATIVE.
77. Point No.4: In view of my findings on the above points, I pass the following:
ORDER The petition filed by the petitioner Corporation is hereby dismissed with costs.
Draw decree accordingly.
The office is hereby directed to send a copy of the judgment to the petitioner and Respondents No:2 to 4 through email as per Order XX Rule 1 CPC as /36/ Com.Misc.785/2008 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 25 th day of October, 2021) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ANNEXURES List of witnesses examined for the petitioner:
P.W.1 Sri.G.Krishnaiah List of documents exhibited on behalf of the petitioner: Sl.
Description of Documents Ex.P
No.
01. Gazette Notification Ex.P.1
02. Loan Sanction Communication Letter Ex.P.2
03. Loan Sanction Communication Ex.P.3
04. Deed of Guarantee dated 24.12.1994 Ex.P.4
05. Agreement dated 24.12.1994 Ex.P.5
06. Hypothecation Deed dated:24.05.1994 Ex.P.6
07. Agreement dated:24.05.1995 Ex.P.7
08. Office Copy of legal notice dated Ex.P.8
06.08.2008
09. Postal Acknowledgement Ex.P.9
10. Postal Acknowledgement Ex.P.10
11. Undelivered Postal Covers Ex.P.11
&12
/37/
Com.Misc.785/2008
12. Reply Notice dated: 08.08.08. issued by Ex.P.13 Respondent No:2
13. Rejoinder Notice dated:21.08.2008 Ex.P.14 issued by Petitioner to the Respondent No:2
14. Ledger Extract Ex.P15
15. Statement of account Ex.P16 List of witnesses examined for the respondents:
R.W.1 Sri.Chidananda G. Kulakarni List of documents marked for the respondents:
-Nil-
(S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90)
****
Digitally signed
by S J KRISHNA
SJ Date:
KRISHNA 2021.10.28
22:08:05 +0530