Bangalore District Court
Karnataka State Financial Corporation vs ) M/S. Cosmos Audio & Video Pvt on 19 April, 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: 19th April 2021
Com.Misc.No.191/2000
PETITIONER : Karnataka State Financial Corporation
Corporate Office at No.1/1,
Thimmaiah Road, Bengaluru-560 052,
represented by its
Deputy General Manager -Recovery-II).
(By. Sri.Jagadish.D.Hiremath, Advocate)
-Vs-
RESPONDENTS : 1) M/s. Cosmos Audio & Video Pvt., Ltd.,
Regd. Office at No.81,
Sardar Pratap Road,
Bangalore-560 002.
(Exparte)
2) Sri.Mahesh.A.Pahilajani,
S/o Sri.Assandas,
Major,
R/at No.84, St.Michael,
Church Street,
Shanthinagar,
Bangalore.
(Dismissed)
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Com.Misc.191/2000
3) Sri.Raju.A.Pahilajani,
Major,
S/o Sri.Assandas,
R/at No.84, St.Michael Church Street,
Shanthinagar,
Bangalore.
(By Sri.K.Sundaram, Advocate)
4) Smt.Deepa Naresh,
W/o Naresh Assandas,
Major, R/at No.84,
St.Michael Church Street,
Shanthingar,
Bangalore.
(By Sri.K.Sundaram, Advocate)
Date of Institution of suit 25.02.2000
Nature of suit : Miscellaneous Petition us 31(1) and
(suit on pronote, suit for 32(1) of State Financial Corporation
declaration and possession Act, 1951
suit for injunction, etc.,)
Date of commencement of : 24.01.2006
recording of evidence
Date of judgment : 19.04.2021
Total duration : Year/s Month/s Days
21 01 24
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
/3/
Com.Misc.191/2000
JUDGMENT
The Petitioner Corporation has filed this petition under section 31(1) (aa) and 32 of State Financial Corporation Act, 1951 to determine that a sum of Rs.32,75,364/- is due as on 10.12.1999 from the 1st respondent payable with future interest @ 20% p.a. on the footing of compound interest at quarterly rest basis till the entire amount is realised; to pass an order directing the respondents No.2 to 4 to pay jointly and severally the said sum of Rs.32,75,364/- due as on 10.12.1999 from the 1st respondent payable with future interest @ 20% p.a. on the footing of compound interest at quarterly rest basis till the entire amount is realised and such other reliefs.
The summary of the case of petitioner is as under:
2. The Petitioner Corporation is a statutory public financial institution catering to financial needs of industrial concerns. The 1 st respondent is private limited company registered under the Companies Act, 1956 having its registered office at Bengaluru. The respondent No.2 to 4 are its directors.
3. The 1st respondent is registered as a small scale unit with the Director of Industries and Commerce, Government Of Karnataka vide Certificate No.23759 dated 19.05.1990.
/4/ Com.Misc.191/2000
4. The 1st respondent was an on going concern and was badly affected during Cauvery riots. In terms of the policy decisions taken by the Government Of Karnataka a term loan of Rs.28,00,000/- was sanctioned and the same was communicated to the 1st respondent by the petitioner vide Communication dated 15.09.1992 bearing No.GM/SUMC/R6144 for revival of unit on the basis of application submitted by the 1st respondent. The industry was located at B Type Shed, Peenya Industrial Estate, III Stage, Bengaluru-560 058 alloted by KSSIDC. The 1st respondent was engaged in the line of production of audio and video casettes.
5. In terms of the Sanction Communication, the loan was required to be repaired with interest @ 17.50% p.a. subject to prompt repayment. However the 1st respondent was required to pay enhanced interest @ 2.5% on the defaulted loan installments both principal and interest during the default period. The interest was required to be paid on 20 th March, June, September & December of each year on the footing of compound interest at quarterly rests.
6. The Petitioner Corporation has restricted the sanction loan of Rs.28,00,000/- to Rs.16,35,000/-. The 1st respondent has drawn and utilised said sum of Rs.16,35,000/-. The said respected loan amount was required to be repaid along with interest thereon in the manner indicated in the communication letter dated 05.01.19936 bg.No.SUMC/D1/10611.
/5/ Com.Misc.191/2000 The 1st respondent has executed a loan agreement incorporating various covenants stated in the communication letters dated 15.09.1992 and 05.01.1993 respectively.
7. As per the terms of loan, 1 st respondent was required to pay the installments as under:
1. First 2 quarterly installments of 0.60 lakhs each.
2. Next 21 quarterly installments of 0.65 lakhs each.
3. Last 3 quarterly installments of 0.50 laksh only.
8. To secure the loan, the 1st respondent has executed loan agreement dated 06.01.1993 and hypothecation deed dated 03.01.1993 hypothecating plant & machinery existing and to be acquired. The 1 st respondent has created an equitable mortgage, mortgaging leasehold rights of the industrial shed in which the factory was located and participated in recording a memo of entry. The 2 nd respondent in his capapcity as the Managing Director of the 1 st respondent have participated in the recording of Memorandum of Entry.
9. In addition to the above security the respondents No.2 to 4 have also executed a deed of guarantee dated 06.01.1993. The respondents 2 to 4 have agreed and undertaken to clear the liabilities of the 1 st respondent on its default, in terms of the security documents executed by the 1st respondent.
/6/ Com.Misc.191/2000
10. The 1st respondent committed default in payment of installments as such the unit was taken over by the Petitioner Corporation by exercising powers under Section 29 of State Financial Corporation Act. Subsequently, the entire loan was recalled under Section 30 of the SFC Act by issuing a registered legal notice dated 10.06.1995 incorporating the statement of account. The 1 st respondent was due in a sum of Rs.22,22,485/- as on 10.06.1995 payable with future interest @ 20% p.a. on the footing of compound interest at quarterly rests.
11. When the unit was notified for sale, the 1 st respondent represented by respondent No.2 to 4 requested the petitioner to release the unit. On the basis of two cheques given by the 1st respondent the petitioner released the unit and the respondent No.2 to 4 have acknowledged the same.
12. The 1st respondent approached the petitioner to reschedule the repayment. The petitioner has accepted the same and intimated the 1 st respondent through letter dated 20.04.1996. The petitioner has also indicated the loan installment repayable by the 1st respondent.
13. In spite of the said notice the 1 st respondent did not comply with reschedule. The petitioner sent a notice dated 17.07.1996 through registered post 1st respondent and the said notice returned unserved.
/7/ Com.Misc.191/2000
14. In the meanwhile KSSIDC repossessed the industrial shed allotted to the 1st respondent on 18.03.1997. Due to default committed by the 1st respondent the factory shed was repossessed by the KSSIDC the unit was taken over on 12.04.1997 under Section 29 of SFC Act after following due process of law. After giving wide publicity newspapers, the unit was sold for a sum of Rs.13,20,000/-. Before confirming the sale in favor of the purchaser an intimation was given to the 1st respondent to bring better offers. The 1st respondent did not respond to the said communication. The sale in favor of purchaser was confirmed and the assets have been handed over on 19.03.1999. The sale proceeds realised have been appropriated towards the account of 1 st respondent in terms of the covenants.
15. The petitioner has invoked the guarantee deed executed by respondents No.2, 3 & 4 by issuing a notice on 31.07.1999. The said notice issued to the respondent No.2 returned unserved as 'left' and the notices sent to respondent No.3 & 4 have not returned so far.
16. The respondents were due of Rs.29,70,077/- and account No.01271900 as on 10.06.1999. The respondent No.2 to 4 have not taken any steps to regularise the loan account. Hence, the petitioner corporation has filed the present petition to enforce the liability of the respondent No.2 to 4 to the tune of Rs.32,75,364/- as on 10.12.1999 with /8/ Com.Misc.191/2000 a future interest @ 20% p.a. on the footing of compound interest at quarterly rests.
17. The respondent No.2 to 4 being the guarantors are liable to clear the dues of respondent No.1. The guarantee offered by them is continuing guarantee and binding on them until repayment of all the monies due is realised. Hence, the petition.
18. After the service of summons, the respondent No.1 remained absent and was placed exparte. The petition against respondent No.2 was dismissed as his LR's were not brought on record. The respondent No.3 & 4 appeared through their advocate. The respondent No.3 has filed objections to the main petition.
The case of respondent No.3 is as under:
19. The petition is not maintainable either in law or on facts of the case. The respondent No.3 has denied the averments made in petition paragraphs No.1 to 5 for want of knowledge. The respondent No.1 company is now defunct and is not carrying on any activities. The respondent No.2 to 4 ceased to be Directors of 1 st respondent company in view of winding up of 1st respondent company. The respondent No.3 has admitted the averments made in petition paragraphs No.8, 10, 11 & denied all other averments made in the petition.
/9/ Com.Misc.191/2000
20. The respondent No.3 has stated that even though the State Government sanctioned a sum of Rs.28,00,000/- under the rehabilitation scheme for the Cauvery violence victims, the total amount released by KSFC was only Rs.15.35 lakhs for the purchase of machineries which was directly paid to the suppliers and none of the respondents received any amount from the petitioner. Out of the amount of Rs.15.35 lakhs the petitioner corporation retained a sum of Rs.1,00,000/- vide letter 04.02.1994 and informed the respondents that the said amount was adjusted towards interest. As on the date of release of loan amount, the petitioner received and adjusted a sum of Rs.1,00,000/- against the loan amount of the 1st respondent company. Thereafter the respondent company had repaid considerable amount to the petitioner but the petitioner had not furnished the true statement of accounts pertaining to the loan transaction.
21. The respondents never agreed to pay the interest @ 17.5% p.a. and also enhanced interest @ 2.5% p.a. on the defaulted payment. It is also incorrect that the interest was to be paid on 20 th March, June, September & December of each year on the footing of compound interest at quarterly rests. The respondent No.3 has also denied the execution of loan agreements and other documents.
22. The respondent No.3 has stated that the petitioner has admitted that the entire unit of 1st respondent company was ceased and taken over /10/ Com.Misc.191/2000 by it even before the respondents could establish and commence production. The whole action of the petitioner resulted in total loss to the respondents.
23. No cause of action accrued to the petitioner to file the petition and the respondents are not liable to pay any amount as claimed in the petition. This Court has no jurisdiction to try the matter. The petition is barred by time and no substantial explanation is given for the inordinate delay. Hence, the petition may be dismissed with exemplary cost.
24. The petitioner corporation has examined Smt.Iladevi as PW.1 She has exhibited Ex.P.1 to 13. The respondent No.3 has adduced his evidence as RW.1. He has exhibited Ex.R.1 to R.6.
25. After the conclusion of the trial, the learned counsel for the respondent No.3 & 4 submitted the arguments. The petitioner and his counsel remained absent. In spite of granting an opportunity to submit written arguments, the petitioner has not submitted any written arguments. I have gone through the materials available on record.
26. The following points arise for my determination:
(1). Whether the Petitioner Corporation proves that the respondent No.1 is due in a sum of Rs.32,75,364/- as on 10.12.1999 payable with /11/ Com.Misc.191/2000 interest @ 20% per annum compounded at quarterly rests?
2) Whether the Petitioner Corporation proves that the respondents No.2 to 4 are jointly and severally liable to clear/pay the amount of Rs.32,75,364/- due from the 1st respondent as on 10.12.1999 along with future interest at 20% p.a. compounding at quarterly rests?
3) Whether the Respondents No:3 & 4 prove that the petition filed by the Petitioner Corporation is barred by Limitation?
4) What Order?
27. 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 Negative Point No. 4 : - As per final orders for the following REAS O NS 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.
28. The Petitioner Corporation has filed this petition under section 31(1)(aa) and 32 of State Financial Corporation Act, 1951 to determine that a sum of Rs.32,75,364/- is due as on 10.12.1999 from the 1st respondent payable with future interest @ 20% p.a. on the footing of /12/ Com.Misc.191/2000 compound interest at quarterly rest basis till the entire amount is realised; to pass an order directing the respondents No.2 to 4 to pay jointly and severally the said sum of Rs.32,75,364/- due as on 10.12.1999 from the 1st respondent payable with future interest @ 20% p.a. on the footing of compound interest at quarterly rest basis till the entire amount is realised and such other reliefs.
29. The petitioner corporation has examined Smt.Iladevi as PW.1 She has exhibited Ex.P.1 to 13 as under:
Sl.
Description of Documents Ex.P
No.
01. Gazette Notification Ex.P.1
02. Loan Sanction Communication Letter Ex.P.2
03. Letter Dated 05.01.1993 Ex.P.3
04. Hypothecation Deed dated 06.01.1993 Ex.P.4
05. Deed of Guarantee dated 06.01.1993 Ex.P.5
06. Office Copy of Notice dated 31.07.1999 Ex.P.6
07. Ledger Extract Ex.P.7
08. Copy of leter dated 19.01.1999 Ex.P.8
09. Letter Ex.P.9
10. Plant & Machiner dated Ex.P.10
11. Memo dated 08.03.1999 Ex.P.11
12. Letter Ex.P.12
13. Loan balance extract Ex.P.13
/13/
Com.Misc.191/2000
30. The Respondent No:3 adduced his evidence as RW.1 and got exhibited Ex.R.1 to R.6 as under:
Sl.
Description of Documents Ex.R
No.
1. FIR dated 15.12.1991 Ex.R.1
2. Mahazar dated 15.12.1991 Ex.R.2
3. Letter issued to sub-inspector of police dated Ex.R.3 15.12.1991
4. Letter issued to sub-inspector of police dated Ex.R.4
30.12.1991
5. Proceedings of Government of Karnataka Ex.R.5
6. Government Order dated 13.01.1992 Ex.R.6
31. The PW.1 has reiterated the petition averments in his affidavit evidence. It is the case of petitioner corporation that the 1st respondent is registered as a small scale unit with the Director of Industries and Commerce, Government Of Karnataka vide Certificate No.23759 dated 19.05.1990.
32. The 1st respondent was an on going concern and was badly affected during Cauvery riots. In terms of the policy decisions taken by the Government Of Karnataka a term loan of Rs.28,00,000/- was sanctioned and the same was communicated to the 1st respondent by the petitioner vide Communication dated 15.09.1992 bearing No.GM/SUMC/R6144 for revival of unit on the basis of application submitted by the 1st respondent. The industry was located at B Type /14/ Com.Misc.191/2000 Shed, Peenya Industrial Estate, III Stage, Bengaluru-560 058 alloted by KSSIDC. The 1st respondent was engaged in the line of production of audio and video casettes.
33. In terms of the Sanction Communication, the loan was required to be repaired with interest @ 17.50% p.a. subject to prompt repayment. However the 1st respondent was required to pay enhanced interest @ 2.5% on the defaulted loan installments both principal and interest during the default period. The interest was required to be paid on 20 th March, June, September & December of each year on the footing of compound interest at quarterly rests.
34. The Petitioner Corporation has restricted the sanction loan of Rs.28,00,000/- to Rs.16,35,000/-. The 1st respondent has drawn and utilised said sum of Rs.16,35,000/-. The said respected loan amount was required to be repaid along with interest thereon in the manner indicated in the communication letter dated 05.01.19936 bg.No.SUMC/D1/10611. The 1st respondent has executed a loan agreement incorporating various covenants stated in the communication letters dated 15.09.1992 and 05.01.1993 respectively.
35. As per the terms of loan, 1 st respondent was required to pay the installments as under:
/15/ Com.Misc.191/2000
1. First 2 quarterly installments of 0.60 lakhs each.
2. Next 21 quarterly installments of 0.65 lakhs each.
3. Last 3 quarterly installments of 0.50 laksh only.
36. To secure the loan, the 1st respondent has executed loan agreement dated 06.01.1993 and hypothecation deed dated 03.01.1993 hypothecating plant & machinery existing and to be acquired. The 1 st respondent has created an equitable mortgage, mortgaging leasehold rights of the industrial shed in which the factory was located and participated in recording a memo of entry. The 2 nd respondent in his capacity as the Managing Director of the 1st respondent have participated in the recording of Memorandum of Entry.
37. In addition to the above security the respondents No.2 to 4 have also executed a deed of guarantee dated 06.01.1993. The respondents 2 to 4 have agreed and undertaken to clear the liabilities of the 1 st respondent on its default, in terms of the security documents executed by the 1st respondent.
38. The 1st respondent committed default in payment of installments as such the unit was taken over by the Petitioner Corporation by exercising powers under Section 29 of State Financial Corporation Act. Subsequently, the entire loan was recalled under Section 30 of the SFC Act by issuing a registered legal notice dated 10.06.1995 incorporating the statement of account. The 1 st respondent was due in a /16/ Com.Misc.191/2000 sum of Rs.22,22,485/- as on 10.06.1995 payable with future interest @ 20% p.a. on the footing of compound interest at quarterly rests.
39. When the unit was notified for sale, the 1 st respondent represented by respondent No.2 to 4 requested the petitioner to release the unit. On the basis of two cheques given by the 1st respondent the petitioner released the unit and the respondent No.2 to 4 have acknowledged the same.
40. The 1st respondent approached the petitioner to reschedule the repayment. The petitioner has accepted the same and intimated the 1 st respondent through letter dated 20.04.1996. The petitioner has also indicated the loan installment repayable by the 1st respondent.
41. In spite of the said notice the 1 st respondent did not comply with reschedule. The petitioner sent a notice dated 17.07.1996 through registered post 1st respondent and the said notice returned unserved.
42. In the meanwhile KSSIDC repossessed the industrial shed allotted to the 1st respondent on 18.03.1997. Due to default committed by the 1st respondent the factory shed was repossessed by the KSSIDC the unit was taken over on 12.04.1997 under Section 29 of SFC Act after following due process of law. After giving wide publicity newspapers, the unit was sold for a sum of Rs.13,20,000/-. Before confirming the sale in /17/ Com.Misc.191/2000 favor of the purchaser an intimation was given to the 1st respondent to bring better offers. The 1st respondent did not respond to the said communication. The sale in faovr of purchaser was confirmed and the assets have been handed over on 19.03.1999. The sale proceeds realised have been appropriated towards the account of 1 st respondent in terms of the covenants.
43. The petitioner has invoked the guarantee deed executed by respondents No.2, 3 & 4 by issuing a notice on 31.07.1999. The said notice issued to the respondent No.2 returned unserved as 'left' and the notices sent to respondent No.3 & 4 have not returned so far.
44. The respondents were due of Rs.29,70,077/- and account No.01271900 as on 10.06.1999. The respondent No.2 to 4 have not taken any steps to regularise the loan account. Hence, the petitioner corporation has filed the present petition to enforce the liability of the respondent No.2 to 4 to the tune of Rs.32,75,364/- as on 10.12.1999 with a future interest @ 20% p.a. on the footing of compound interest at quarterly rests.
45. The respondent No.2 to 4 being the guarantors are liable to clear the dues of respondent No.1. The guarantee offered by them is continuing guarantee and binding on them until repayment of all the monies due is realised.
/18/ Com.Misc.191/2000
46. The PW.1 in her cross-examination deposed that she has no personal knowledge about the petition loan transaction. She is deposing on the basis of records available in her office. She denied that the petitioner corporation has not followed the procedure while auctioning the assets of 1st respondent.
47. The RW.1 has retirated the averments made in his objection statement in the affidavit evidence. The RW.1 has denied the entire case of the petitiner corporation. It is the case of the respondent No.3 that the respondent No.1 company is now defunct and is not carrying on any activities. The respondent No.2 to 4 ceased to be Directors of 1st respondent company in view of winding up of 1st respondent company. The respondent No.3 has admitted the averments made in petition paragraphs No.8, 10, 11 & denied all other averments made in the petition.
48. The respondent No.3 has stated that even though the State Government sanctioned a sum of Rs.28,00,000/- under the rehabilitation scheme for the Cauvery violence victims, the total amount released by KSFC was only Rs.15.35 lakhs for the purchase of machineries which was directly paid to the suppliers and none of the respondents received any amount from the petitioner. Out of the amount of Rs.15.35 lakhs the petitioner corporation retained a sum of Rs.1,00,000/- vide letter 04.02.1994 and informed the respondents that the said amount was /19/ Com.Misc.191/2000 adjusted towards interest. As on the date of release of loan amount, the petitioner received and adjusted a sum of Rs.1,00,000/- against the loan amount of the 1st respondent company. Thereafter the respondent company had repaid considerable amount to the petitioner but the petiitoner had not furnished the true statement of accounts pertaining to the loan transaction.
49. The respondents never agreed to pay the interest @ 17.5% p.a. and also enhanced interest @ 2.5% p.a. on the defaulted payment. It is also incorrect that the interest was to be paid on 20 th March, June, September & December of each year on the footing of compound interest at quarterly rests. The respondent No.3 has also denied the execution of loan agreements and other documents.
50. The respondent No.3 has stated that the petitioner has admitted that the entire unit of 1st respondent company was ceased and taken over by it even before the respondents could establish and commence production. The whole action of the petitioner resulted in total loss to the respondents.
51. No cause of action accrued to the petitioner to file the petition and the respondents are not liable to pay any amount as claimed in the petition. This Court has no jurisdiction to try the matter. The petition is barred by time and no substantial explanation is given for the inordinate /20/ Com.Misc.191/2000 delay.
52. The ocular evidence of PW.1 and RW.2 coupled with Ex.P.1 to 13 corroborates the case of petitioner corporation that the respondent No.1 has availed financial assistance to the tune of Rs.16,35,000/- and agreed to repay the said loan with interest at 17.5% p.a. in default to pay the installments agreed to pay enhanced interest @ 2.5% p.a. Ex.P.7 the statement of accounts clearly show that the 1st respondent has committed default in repayment of loan amount. The 1 st respondent is liable to pay Rs.32,75,364/- as on 10.12.199. As per the terms of loan sanction communication/Ex.P.3, the 1st respondent was liable to pay interest @ 17.5% p.a. and enhanced interest @ 2.5% p.a. on the outstanding dues.
53. As per the evidence available on record it is evident that the petitioner Corporation had invoked section 30 of SFC Act and recalled the loan by issuing notice dated:10.06.1995. The Petitioner Corporation had rescheduled the repayment. The RW1 in his cross examination has admitted that the Respondent No:2 to 4 have executed guarantee deeds as per Ex.P5 and further admitted that petitioner Corporation had initiated recovery proceedings under Section 29 of SFC Act. Hence, it is clear that the respondent No:3 is not disputing the petition loan transaction. It is the contention of Respondent No:3 that the petitioner Corporation has accepted the lowest bid for sale of assets of first respondent Company. The PW1 in her cross examination admitted that there were three bidders /21/ Com.Misc.191/2000 to purchase the assets of first respondent Company viz., Velumurugan Industries for Rs.13.20 Lakhs; Sathyanarayan for Rs.5.00 Lakhs and Maruthi Metals for Rs.4.67 Lakhs. The PW1 further deposed that she do not the reason why the bid of Velumurugan was not accepted by the petitioner corporation. She denied that the assets of first respondent Company was sold to Maruthi Metals and Plastics Pvt., Ltd., with a malafide intention. The Respondent No:3 is contending that the petitioner corporation by accepting the lowest bid has caused loss to first respondent Company.
54. It is evident from the materials available on record that the petitioner corporation has taken over the unit of first respondent under section 29 of SFC Act on 16.04.97. It is clear from Ex.P8 that the petitioner corporation has issued sale advertisement in news paper Times of India on 15.01.1999. The petitioner Corporation had informed the first respondent that it has received 4 tenders for purchase of entire assets of first respondent company and after negotiations the highest offer received for the entire assets is Rs.13.20 lakhs on cash down payment basis. It has also informed the first respondent that the said offer was accepted tentatively, however the first respondent is at liberty to get better offers and bring to the notice of Corporation. The contents of Ex.P10 show that the petitioner corporation has accepted the bid made by Maruthi Metals & Plastics Pvt., Ltd., for Rs.6.70 Lakhs, However, Ex.P13 and Ex.P7 show that the Corporation has received Rs.13.20 lakhs and credited the /22/ Com.Misc.191/2000 same towards the principal outstanding amount of first respondent's loan account on 27.03.1999 leaving the principal balance at Rs.3,15,000/-. The petitioner corporation has credited the sale proceeds of the assets of the first respondent company towards the outstanding principal amount. The petitioner corporation has not furnished any documents regarding the aforesaid 4 bids and procedure followed in accepting the bid of Maruthi Metals & Plastics Pvt., Ltd., However, the petitioner corporation has credited highest bid amount of Rs.13.20 lakhs towards the outstanding principal amount in the loan account of first respondent. Thus, the objections of the respondent No:2 that the petitioner corporation has caused loss to the first respondent by accepting lowest bid holds no water.
55. The loan ledger extracts i.e. Ex.P7 and Ex.P13 show that the first respondent was due in a sum of Rs.3,15,000/-towards principal amount as on 27.03.1999; Rs. 28,32,173/-towards interest as on 10.12.1999 and Rs.1,28,191 towards other debits as on 27.03.1999. The petitioner corporation has not charged other debits till 10.06.2000. The respondent No:2 has not elicited any materials contrary to the claim of petitioner corporation in the cross examination of PW1 except making bald denials. Thus the first respondent was due in a sum of Rs. 32,75,264/- as on 10.12.1999.
/23/ Com.Misc.191/2000
56. The respondents No.2 is contending that the Respondent No:2 to 4 have not executed any loan documents/deeds of guarantee as claimed by the petitioner corporation. The PW1 has exhibited deed of guarantee/Ex.P5/06.01.1993 executed by Respondent No;2 to 4. The RW1 in his cross examination has admitted that the Respondent No2 to 4 have executed Ex.P5/deed of guarantee and subscribed their signatures. Thus, the petitioner corporation has succeeded in establishing the execution of deed of guarantee/Ex.P5 by respondent No:2 to 4.
57. The petitioner corporation is contending that the respondent No:2 to 4 being the guarantors are liable to clear the dues of first respondent notwithstanding the sale of assets of first respondent. The respondent No;2 is contending that since the first respondent company has become defunct after its winding up, they are not liable to pay the dues of first respondent Company. Clause 11 of deed of guarantee/Ex.P5 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. 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.
/24/ Com.Misc.191/2000 Clause 13 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. Clause 14 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. Clause 15 provides that the Guarantee contained in this deed shall in all respects and for all purpose be continuing guarantee and shall not be considered as wholly or partially satisfied or exhausted by any payments made or to settle with the corporation by the company 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 company or nationalization or taking over of the management of the company by the Central/State Government or by any authority pursuant to the operation of any law for the time being in force.
58. 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 /25/ Com.Misc.191/2000 directors of first respondent company have also executed Ex.P5 in their personal capacity agreeing to clear the dues of first respondent company. The covenants enshrined in Ex.P5 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. However, the corporation is required to enforce its right of recovery against the guarantors within the period of Limitation.
59. The respondents No.3 is contending that the petition is barred by limitation as such the petition is liable to be dismissed. The respondent No:3 has not elaborated how the petition is barred by Limitation. It is useful to refer to the following decision of Hon'ble High Court of Karnataka reported in 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 13.01.1999, the balance of sanctioned loan amount was not disbursed and the same was recalled on account of the principal borrower not /26/ Com.Misc.191/2000 discharging the loan.
b) It is also an admitted fact that the primary assets were sold by the appellant on 15.03.2002. 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 23.02.2006. The period of limitation is only 3 years for recovery of money from 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 14.03.2005 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".
60. The petitioner has filed this petition against respondents to enforce its right against respondent No2 to4 who had executed deed of guarantee after conclusion of Section 29 of SFC Proceedings. 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 by them continues till all the dues of the Corporation are cleared. In this regard I rely upon a decision of Hon'ble Supreme Court of India reported in /27/ Com.Misc.191/2000 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 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.
61. I have carefully gone through the ratio of the above decisions. The petitioner Corporation has sanctioned financial facility of Rs.28,00,000/- to the respondent No:1 vide sanction communication dated:15.09.1992 as per Ex.P2. The Corporation has restricted loan to Rs.16.35 Lakhs through communication dated:06.01.1993 as per Ex.P3.
/28/ Com.Misc.191/2000 The Corporation has rescheduled the repayment on 20.04.1996. The Petitioner Corporation had taken over assets of first respondent Company under Section 29 SFC Act on 16.04.1997. The Corporation has sold the assets of first respondent company and credited sale proceeds of Rs.13,20,000/- towards the outstanding principal amount in the loan account of the first respondent on 27.03.1999. The petitioner Corporation had issued legal notice dated:31.07.1999 as per Ex.P6 calling upon the Respondent No:2 to 4 to pay the dues of first respondent company 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 seeking enforcement of personal guarantee against respondents No.2 to 4 on 25.02.2000.
62. The petitioner corporation is enforcing the deeds of guarantee and personal guarantee executed by respondents No.2 to 4 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 the Three When the contract is broken or 55 breach of any contract, years (where there are successive express or implied not breaches) when the breach in herein specially provided respect of which the suit is for instituted occurs or (where the breach is continuing) when it ceases.
/29/ Com.Misc.191/2000 In view of Article 55 of the Limitation Act, the petition is filed well within the period of limitation.
63. In view of the decision of Hon'ble High Court of Karnataka, 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 Rs.13,20,000/- to the loan account as date of cause of action to file petition against Respondent No:2 to 4. The petitioner corporation has filed the petition on 25.02.2000 after the expiry of 10 months 28 days from 27.03.1999 (the date on which Rs.13,20,000/-was credited to the loan account of first respondent). The petition filed by the Petitioner Corporation is well within the period of limitation provided under Article 137 of Limitation Act.
64. The petitioner corporation has established the liability of the 1 st respondent company as on 10.12.1999 and the execution of deed of guarantee by Respondents No.2 to 4 and also proved that the petition is filed well within the period of limitation. The respondents No.3 has failed to prove that the petition is barred by limitation. Hence, the petitioner corporation is entitled to recover the petition claim from the respondent No:3 and 4. Accordingly, I answer POINT No.1 and 2 in the AFFIRMATIVE and POINT No.3 in the NEGATIVE.
/30/ Com.Misc.191/2000
65. 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 allowed with costs.
The Petitioner Corporation is entitled to recover from Respondent No:3 and 4 a sum of Rs.32,75,364/- (Rupees Thirty two lakhs seventy five thousand three hundred sixty four only) as on 10.12.1999 being the dues of the first respondent company with future interest @ 20% p.a. on the footing of compound interest at quarterly rest basis till the entire amount is realized.
Draw decree accordingly.
The office is hereby directed to send a copy of the judgment to the petitioner and Respondents No:3 & 4 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 19th day of April, 2021) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) /31/ Com.Misc.191/2000 ANNEXURES List of witnesses examined for the petitioner:
P.W.1 Iladevi 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. Letter Dated 05.01.1993 Ex.P.3
04. Hypothecation Deed dated 06.01.1993 Ex.P.4
05. Deed of Guarantee dated 06.01.1993 Ex.P.5
06. Office Copy of Notice dated 31.07.1999 Ex.P.6
07. Ledger Extract Ex.P.7
08. Copy of letter dated 19.01.1999 Ex.P.8
09. Letter Ex.P.9
10. Plant & Machinery Ex.P.10
11. Memo dated 08.03.1999 Ex.P.11
12. Letter Ex.P.12
13. Loan balance extract Ex.P.13
[
List of witnesses examined for the respondents:
R.W.1 Sri.Raju.A.Pahilajani, List of documents marked for the respondents:
Sl. No. Description of Documents Ex.R
1. FIR dated 15.12.1991 Ex.R.1
/32/
Com.Misc.191/2000
2. Mahazar dated 15.12.1991 Ex.R.2
3. Letter issued to sub-inspector of police dated Ex.R.3 15.12.1991
4. Letter issued to sub-inspector of police dated Ex.R.4 30.12.1991
5. Proceedings of Government of Karnataka Ex.R.5
6. Government Order dated 13.01.1992 Ex.R.6 (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ****