Karnataka High Court
Sri Murali Panchapakesan vs Karnataka State Financial Corporation on 23 December, 2020
Bench: Alok Aradhe, H T Narendra Prasad
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 23RD DAY OF DECEMBER 2020
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE H.T.NARENDRA PRASAD
M.F.A. NO.1103 OF 2013 (SFC)
BETWEEN:
1. SRI. MURALI PANCHAPAKESAN
S/O LATE PANCHAPAKESAN KRISHNA MURTHY
AGED ABOUT 54 YEARS
NO.37/A, GOKULAM MAIN ROAD
GOKULAM, 1ST STAGE, MYSORE-02
NOW AT F1, RAHUL AISHWARYA
LAKSHMI APARTMENTS, 32B AND 33
VARADAMBAL STREET, VIVEK NAGAR
AMBATUR, CHENNAI 600 035.
2. DR. V. KALYANARAMAN
S/O DR VAITHESWARAN
AGED ABOUT 80 YEARS
G 5, SRIVARAKARISHNA APARTMENT
3RD MAIN ROAD, V V MOHALLA
MYSORE 570 002.
... APPELLANTS
(BY SMT. ARCHANA K.M. ADV., FOR
SRI. H.S. DWARAKANATH, ADV.,)
AND:
1. KARNATAKA STATE FINANCIAL CORPORATION
A BODY CORPORATE ESTABLISHED UNDER
THE STATE FINANCIAL CORPORATION
ACT, 1951, HEAD OFFICE AT NO 1/1
THIMMAIAH ROAD
2
NEAR CONTONMENT RAILWAY STATION
BANGALORE 560 002
REP. BY ITS MANAGER.
2. M/S. CHAMUNDI CERAMICS PVT LTD.,
A PRIVATE LIMITED COMPANY INCORPORATED
UNDER THE COMPANIES ACT, 1956
HAVING ITS OFFICE AT NO 91
9TH CROSS, GOKULAM I STAGE
MYSORE 570 002
REP. BY ITS MANAGING DIRECTOR.
3. SRI. RAMANATHAN PANCHAPAKESAN
S/O LATE PANCHAPAKESAN KRISHNA MURTHY
MAJOR, NO.2715/1A, 2ND MAIN
V V MOHALLA, MYSORE 570 002.
4. M/S ARIAN FARM ORGANICS (P) LTD.,
COMPANY REGISTERED UNDER THE
COMPANIES ACT 1956, HAVING ITS
HEAD OFFICE AT NO 1234, C AND D BLOCK
KUVEMPUNAGAR, MYSORE 570 023
REPRESENTED BY ITS MANAGING DIRECTOR.
... RESPONDENTS
(BY SRI. BIPIN HEGDE, ADV., FOR R1
VIDE COURT ORDER DATED 06-02-2014
R2 TO R4 ARE NOTICE DISPENSED WITH)
---
THIS M.F.A. IS FILED UNDER SECTION 32(9) OF
KARNATAKA STATE FINANCIAL CORPORATION ACT, AGAINST THE
ORDER DATED 13.3.2012 PASSED IN MIS. PETITION NO.11/2010
ON THE FILE OF THE I ADDITIONAL DISTRICT JUDGE, MYSORE,
ALLOWING THE PETITION FILED U/SEC 31(1)(aa) AND 32 OF THE
STATE FINANCIAL CORPORATIONS ACT, 1951.
THIS M.F.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
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JUDGMENT
This appeal under Section 32(9) of the State Financial Corporation Act, 1951 (hereinafter referred to as 'the Act' for short) against the order dated 13.03.2012 passed by Trial Court in the petition filed under Section 31(1)(aa) and Section 32 of the Act by respondent No.1 viz., Karnataka State Financial Corporation (hereinafter referred to as 'the Corporation' for short).
2. Facts leading to filing of this appeal briefly stated are that respondent No.2 viz., M/s Chamundi Ceramics Private Ltd. (Hereinafter referred to as 'the Company' for short) Was sanctioned a sum of Rs.90,00,000/- as term loan and Rs.4,00,000/- as soft loan on 24.09.1992 for establishment of a small scale industry, which was to be engaged in the extraction of oleoresins. An agreement of loan as well as deed of hypothecation dated 30.12.1992 was executed by the Company. Appellants as well as respondent Nos.3 and 4 4 are guarantors to the aforesaid loan. The Company did not repay the amount of loan and therefore, action was initiated under Section 29 of the Act and the possession of the primary assets of the company was taken on 22.04.1998 and a sum of Rs.1 Crores was realized by sale of assets and same was adjusted to the loan account of the company. For the remaining amount, the personal guarantee furnished by the appellants as well as respondent Nos.3 and 4 was invoked by a notice dated 18.05.2004. However, despite service of notice, neither the appellants nor respondent Nos.3 and 4 paid the amount due to the Corporation. It is the case of the Corporation that as per the books of accounts maintained by it a sum of Rs.3,30,91,009/- was due from the company as well as the appellants and respondent Nos.3 and 4 as on 10.06.2004. The Corporation thereupon filed a petition under Section 31(1)(aa) and Section 32 of the Act seeking a direction to appellants and respondent Nos.3 and 4 to repay the 5 amount of Rs.3,30,77,654/- along with interest at the rate of 22% as well as a sum of Rs.13,355/- along with interest at the rate of 3.5%.
3. The Company as well as the respondent Nos.3 and 4 remained exparte. The appellants filed objection statements, in which inter alia it was denied that they are guarantors for the loan in question. It was also pleaded that the loan was sanctioned on 24.04.1992, whereas, the deed of guarantee was executed on 26.08.1993 and the deed of guarantee was not supported with consideration as contemplated under Section 127 of the Indian Contract Act, 1872 (hereinafter referred to as 'the 1872 Act' for short). It was also pleaded that before the deed of guarantee was signed, the respondent No.1 had already become a defaulter and the aforesaid fact was suppressed from the appellants. Therefore, the deed of guarantee is void under Sections 142 and 143 of the 1872 Act. It is also pleaded that the Corporation permitted the security, 6 which was offered by the Company to lapse, the appellants stand discharged in the light of Section 139 and 141 of the 1872 Act. It was also pleaded that the petition filed by the Corporation is barred by limitation and an order of payment of amount cannot be passed in a proceeding under Section 31(1)(aa) and Section 32 of the Act.
4. The Corporation during the course of the proceeding, examined one of its officer's as PW1 and got exhibited 17 documents viz., Ex.P1 to Ex.P17. The appellant No.1 examined for himself as well as Power of Attorney holder of appellant No.2 as RW1 and one document viz., Ex.R1 was marked. The Trial Court vide order dated 13.03.2012 inter alia held that appellants were guarantors to the loan in question, which was advanced to the company. It was further held that Ex.P3 and Ex.P4 are continuing guarantees and therefore, the question of proceeding initiated by Corporation being barred by limitation does not arise and the contention of 7 the appellants that they are not liable to satisfy the claim made in the petition by the Corporation does not deserve acceptance. It was also held that in view of amendment made to the Act by Act No.43/1985, the relief as prayed for by the Corporation against the guarantors can be granted. Accordingly, the Trial Court directed the appellants as well as respondent No.3 to 4 to pay a sum of Rs.3,30,91,009/- along with costs and interest at the rate of 22% per annum effect from 10.06.2004 till the date of payment with compound interest at quarterly rest and a sum of Rs.13,355/- along with interest at the rate of 3.5% with compound interest at quarterly rest. In the aforesaid factual background, this appeal has been filed by the appellants.
5. Learned counsel for the appellant submitted that the deed of guarantee furnished by the appellants is without consideration and therefore, illustration (c) to Section 127 of the 1872 Act applies and the deed of 8 guarantee is void. It is also submitted that there has been misappropriation and concealment of facts and therefore, under Sections 142 and 143 of the 1872 Act, the deed of guarantee is invalid. It is also submitted that even assuming that the contract is valid, then also, since, there has been variance of contract, therefore, the surety stands discharged under Section 123 of the 1872 Act. It is also contended that the possession of the property in question was taken by the Corporation on 22.04.1998 and the proceeding under Section 31(1)(aa) and Section 32 of the Act were initiated in the year 2002 and therefore, the same is barred by limitation. It is also submitted that in proceeding under 31(1)(aa) and Section 32 of the Act, the Trial Court could not have passed a money decree and at the utmost could have directed attachment of the property in question. Attention has been invited to the evidence of PW1 as well as the notice sent by the appellants. It is also pointed out that since, the Corporation in pursuance 9 to the notice, did not supply the requisite documents / information therefore and advert inference has to be drawn against it. In support of aforesaid submissions, reliance has been placed on the decisions of the Supreme Court in 'ANDHRA PRADESH STATE FINANCIAL CORPORATION VS. GAR RE-ROLLING MILLS AND ORS,', AIR 1994 SC 2151, 'GUJARAT STATE FINANCIAL CORPORATION VS. NATSON MANUFACTURING CO. PVT. LTD AND ORS.', AIR 1978 SC 1765, 'PRAKASH PLAYING CARDS MANUFACTURING CO., DELHI AND ORS. VS. DELHI FINANCIAL CORPORATION , NEW DELHI', AIR 1980 DEL 48, 'THE MAHARASHTRA STATE FINANCIAL CORPORATION VS. JAYCEE DRUGS & PHARMACEUTICALS PVT. LTD. AND ORS.', AIR 1991 BOM 96, 'O.K. GAUR & COMPANY AND ORS. VS. RAJSTHAN FINANCE CORPORATION', AIR 2001 RAJ 4, 'KIRIL FINE ART AND ORS. VS. THE MAHARASHTRA STATE FINANCIAL CORPORATION', 10 AIR 1998 BOM 207, 'MELA RAM VS. SHIROMANI GURUDWARA PARBANDHAK COMMITTEE, ARITSAR', AIR 1992 P & H 252.
6. On the other hand, learned counsel for the respondents submitted that the appellants are the Directors of the company and were fully aware about the nature of transaction between the company and the Corporation. It is further submitted that the guarantee furnished by the appellants as well as respondent Nos.3 and 4 is a continuing guarantee and therefore, the question of limitation in the fact situation of the case in initiating the proceeding under 31(1)(aa) and Section 32 of the Act does not arise. It is also submitted that there is neither any variance of the contract nor any suppression nor misrepresentation of facts. It is also submitted that seeking the relief of recovery of money from the appellants as well as respondent Nos.3 and 4 was ancillary relief and the same could have been granted by the Trial Court. It is further submitted that 11 the Trial Court has passed the impugned order on the basis of meticulous appreciation of evidence on record, which does not call for any interference in this appeal.
7. We have considered the submissions made by learned counsel for the parties and have perused the record. The Act is an act to provide for an establishment of State Financial Corporation Act. Before proceeding further, it is apposite to take note of relevant statutory provisions. Clause (aa) in Section 31(1) was inserted in the Section by Act No.43/1985 with effect from 21.08.1985. The relevant extract of Section 31(1) and Section 32 of the Act, read as under:
31. Special provisions for enforcement of claims by Financial Corporation.--
(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with 12 the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882 (4 of 1882) any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:--
(a) xxxxx (aa) for enforcing the liability of any surety; or
32. Procedure of district judge in respect of applications under section 31.--
Xxxxxx (7) After making an investigation under sub-section (6), the district judge may--
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(a) confirm the order of attachment and direct the sale of the attached property;
(b) vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property;
(c) release the property from
attachment;
(d) confirm or dissolve the injunction;
(da) direct the enforcement of the liability of the surety or reject the claim made in this behalf; or
(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf:
Provided that when making an order under clause (c) making an order rejecting the claim to enforce the liability of the surety under clause (da) or making an order rejecting the claim to transfer the management of the industrial concern to the Financial Corporation under clause (e), the 14 district judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit:
8. From perusal of aforesaid provisions, it is evident that Section 31(1) provides for special provisions for enforcement of claims by Financial Corporation. The Corporation can make an application for the reliefs set out in Section 31(1) of the Act. The reliefs that the court can grant under Section 31(1) are sale of property mortgaged to the Corporation, enforcing the liability of any surety, transfer of the management of the industry concern to Corporation, or restraining the Corporation from transferring or removing its machinery, plant or equipment from the premises of industrial concern without permission of the board or Corporation. The provisions of the Act were amended by an amending Act No.43 of 1985 with a view to providing 15 more operation flexibility to the financial corporations for functioning as developmental agencies.
9. In the instant case, the appellants have executed a deed of guarantee on 26.08.1993 under which they have agreed that on demand, they shall pay to the Corporation whole of the principal sum, interest / other monies, which shall be due to the Corporation and will indemnify and keep indemnified the Corporation against all loss of principal sum. From perusal of clause (2) of the deed of guarantee, it is evident that the guarantee shall be enforceable against the guarantors for due repayment of the loan to the Corporation by the company. From perusal of clauses (14) as well as (15), it is evident that the guarantee furnished by the appellants is a continuing guarantee. Thus, in substance, the appellants have furnished the guarantee in the nature of a personal guarantee.16
10. The issue whether the Corporation is entitled under Section 31(1)(aa) of the Act to obtain any relief personally against a surety is no longer res integra. The Supreme Court in Maharashtra State Financial Corporation vs. Jaycee Drugs and Pharmaceutics Pvt.
Ltd. and Ors has held that clause (aa) inserted in sub- Section (1) of Section 31 by Act No.43/1985 uses the word 'any surety' and on its plain grammatical meaning, there can be no doubt that the term 'any surety' will include not only a surety who has given some security but who has given some personal guarantee. Therefore, an application under Section 31(1) shall lie for enforcing the liability for such surety who has given personal guarantee as is contemplated by clause (aa). In view of aforesaid enunciation of law by the Supreme Court, the decision relied upon by the learned counsel for the appellants in the case of 'ANDHRA PRADESH STATE FINANCIAL CORPORATION VS. GAR RE-ROLLING MILLS AND ORS,', AIR 1994 SC 2151, is of no 17 assistance to he appellants as appellants in the fact situation of the case as in the aforesaid decision the Supreme Court was dealing with the issue of doctrine of election of remedies.
11. Similarly, the decision relied upon by 'GUJARAT STATE FINANCIAL CORPORATION VS. NATSON MANUFACTURING CO. PVT. LTD AND ORS.', AIR 1978 SC 1765, 'PRAKASH PLAYING CARDS MANUFACTURING CO., DELHI AND ORS. VS. DELHI FINANCIAL CORPORATION , NEW DELHI', AIR 1980 DEL 48, supra have no application to the fact situation of the case, as in the aforesaid decisions, amended provisions of section 31(1) of the Act have not been noticed. Similarly, the decision rendered by High court of Bombay as well as High court of Rajasthan and High court of Punjab and Haryana in 'THE MAHARASHTRA STATE FINANCIAL CORPORATION VS. JAYCEE DRUGS & PHARMACEUTICALS PVT. LTD. AND ORS.', AIR 1991 BOM 96, 'O.K. GAUR & 18 COMPANY AND ORS. VS. RAJSTHAN FINANCE CORPORATION', AIR 2001 RAJ 4, 'KIRIL FINE ART AND ORS. VS. THE MAHARASHTRA STATE FINANCIAL CORPORATION', AIR 1998 BOM 207, 'MELA RAM VS. SHIROMANI GURUDWARA PARBANDHAK COMMITTEE, ARITSAR', AIR 1992 P & H 252, supra are per incuriam as in the aforesaid decision, the decision of the Supreme Court in Maharashtra State Financial Corporation supra has not been noticed. Therefore, the contention of the appellants that in proceedings under Section 31(1) of the Act, the Trial Court could not have passed a money decree does not deserve acceptance.
13. Appellant No.1 who has been examined as PW1 before the Trial Court has admitted the signature in the deed of guarantee. It is pertinent to mention here that as per Section 127 of the Act, any promise made for the benefit of principal debtor may be a sufficient consideration to the surety for giving the guarantee. 19 Admittedly, the appellants who are sureties have given the promise as contained in the deed of guarantee in favour of the principal debtor viz., the company, therefore, the deed of guarantee cannot be said to be void and illustration (c) appended to Section 127 of the 1872 Act has no application to the fact situation of the case. From perusal of clauses 14 and 15 of the deed of guarantee, it is evident that the same is continuing guarantee and therefore, the proceeding initiated by the Corporation under Section 31(1)(aa) and Section 32 are within limitation. The guarantee also cannot be said to be invalid in view of Sections 142 and 143 of the 1872 Act, as the appellants were Directors of the Company and all the facts were within their knowledge and for similar reason, it cannot be said that there was any variance in the terms and conditions of the contract. The order passed by the Trial Court is based on meticulous appreciation of evidence on record, which does not call for any interference in this appeal.
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In the result, we do not find any merit in the appeal, the same fails and is hereby dismissed.
Sd/-
JUDGE Sd/-
JUDGE ss