Bangalore District Court
) Karnataka State Financial ... vs ) M/S Glitco Granite Limited on 17 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: 17th APRIL 2021
Com.Misc.No.802/2005
PETITIONERS : 1) Karnataka State Financial Corporation,
No.1/1, Thimmaiah Road, Bangalore-560 052.
Rep.by its Deputy General Manager,
(H.P.&F.S.)
2) The Debentures Trustee,
Rep.by its Manager (DTC),
Karnataka State Financial Corporation,
(By Sri.Dr.T.Somashekar, Advocate)
-Vs-
RESPONDENTS : 1) M/s Glitco Granite Limited,
by its Managing Director,
No.179/12-1, II Cross, Wilson Garden,
Bangalore-560 027.
2) Sri.Rajendrakumar Mittal,
Aged about 53 years,
S/o Sri.Maujiram Mittal,
No.185, Block-J, New Alopore,
Kolkata-700 053.
3) Sri.Sathyapal Mittal,
Aged about 62 years,
S/o Maujiram Mittal,
/2/
Com.Misc.No.802/2005
Dhankauda-Post,
Sambalpur-768 101,
Orissa-State.
(R-1 to 3 by Sri.K.Suman, Advocate)
4) Sri.Ganashyamdas Mittal,
Aged about 56 years,
No.623, 11th Main, HAL II Stage,
Banglore-560 008.
(Dead)
5) Smt.Santhosh Mittal,
Aged about 54 years,
W/o Sri.Ganashyamadas Mittal,
No.623, 11th Main, HAL II Stage,
Banglore-560 008.
(Exparte)
6) M/s Dooars Transport Ltd.,
by its Director, Sri.Ganashaymadas Mittal,
No.134/1, M.G.Road, Kolkata-700 007.
(Exparte)
7) Sri.Amit Mittal,
Age about 47 years,
S/o Sri. Maujiram Mittal,
No.185, Block-J,
New Alopore,
Kolkata-700 053.
(Exparte)
Date of Institution of 23.11.2005
petition
Nature of suit : Miscellaneous Petition us 31(1)(aa)
(suit on pronote, suit for and 32 of State Financial
declaration and possession Corporation Act, 1951
/3/
Com.Misc.No.802/2005
suit for injunction, etc.,)
Date of commencement of : 21.08.2013
recording of evidence
Date of judgment : 17.04.2021
Total duration : Year/s Month/s Days
15 4 24
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
JUDGMENT
The Petitioner Corporation has filed this petition under section 31(1) (aa) and 32 of State Financial Corporation Act, 1951 for the following reliefs:
(a) To determine that a sum of Rs.1,55,70,000/- is due from the 1st respondent as on 30.06.2005 payable with a future interest at 21% p.a. on the footing of compound interest at half yearly rests.
(b) To enforce the liability of respondent No.2 to 7 jointly and severally pay a sum of Rs.1,55,70,000/- dues as on 30.06.2005 payable with future interest at 21% p.a. on footing of compound interest at half yearly rests.
(c) for cost and such other relief.
/4/ Com.Misc.No.802/2005 The summary of the case of the petitioner is as under:
2. The Petitioner Corporation is a Statutory financial Corporation established under the provisions of State Financial Corporation Act. The Petitioner Corporation is rendering financial assistance to the small and medium scale industries.
3. The 1st respondent company is a private limited company incorporated under the provisions of Companies Act 1956 having its registered office at cause title mentioned address. The respondents No.2 to 7 are the guarantors to the financial assistance given to the 1 st respondent.
4. At the request of 1st respondent company, the Petitioner Corporation has structured and subscribed to the privately placed fully secured redeemable non convertible debentures to the extent of Rs.70,00,000/- (70,000 debentures of face value of Rs.100/- each) of 1 st respondent to meet 1st respondent's long term working capital requirements subject to the terms and conditions set out in the communication of sanction letter dated 31.01.1998 and accepted by the 1st respondent company.
5. In respect of the above financial assistance, the 1 st respondent has executed a debenture agreement dated 03.02.1998 agreeing to the /5/ Com.Misc.No.802/2005 terms and conditions set out therein. As per the agreed terms and conditions, the 1st respondent until the debentures are redeemed ought to have paid the interest on the said debentures at the rate of 19% p.a. in the event of any default in payment of interest within the stipulated period the 1st respondent was liable to pay penal interest @ 2% p.a. over and above the agreed rate of interest by way of liquidated damages for the period of default. The first respondent redeemed the debentures on the expiry of financial year from the date of allotment as under:
1. 20% at the end of second year from the date of allotment.
2. 20% at the end of third year from the date of allotment.
3. 20% at the end of fourth year from the date of allotment.
4. 40% at the end of fifth year from the date of allotment of debentures.
6. The 1st respondent company has appointed the second petitioner as trustee for the above subscription and the 1 st respondent has executed a trustee agreement dated 26.06.1998. As per the trustee agreement, the 1 st respondent has agreed to pay a sum of Rs.20,000/- every year as trustee fee. As security to the said financial assistance, the 1st respondent has also executed a deed of hypothecation hypothecating the current assets in favor of the petitioners. M/s MMV Products had offered property sy.no.24/2, 24/3A of Chikkabidarakallu Village, Dasanapura Hobli, Nelamangala Taluk, Bengaluru District as collateral security to the above financial assistance.
/6/ Com.Misc.No.802/2005
7. In addition to the above security, the second respondent has executed a deed of guarantee dated 03.02.1998 and personal guarantee deed dated 29.06.1998; the third respondent has executed a deed of guarantee dated 09.02.1998 and personal guarantee dated 02.07.1998. The respondent No.4 & 5 have executed a deed of guarantee dated 03.02.1998 and personal guarantee dated 26.06.1998. The respondent No.6 has executed a corporate guarantee deed dated 03.02.1998, personal guarantee deed dated 26.06.1998. The seventh respondent has executed a deed of guarantee dated 03.02.1998 and a personal guarantee dated 27.06.1998 in favor of the petitioners. Under the deeds of guarantee, the guarantors/respondents undertook to pay all the above financial assistance, interest, commitment charges and other monies due from the 1st respondent company in the event of default at any time. The guarantee enjoins the guarantors to discharge their liabilities due from the 1st respondent to the petitioner corporation the moment the 1 st respondent commits default in repayment of loan installments.
8. Under the deeds of guarantee the respondent No.2 to 7 have agreed and undertook that the guarantee contain shall be enforceable against them; an intimation in writing sent to the company by the Petitioner Corporation that a default or breach has occurred shall be treated as final and conclusive proof as to the facts stated therein; the guarantee shall be continuing one for all amount that may from time to time become due and payable and remain unpaid; the guarantee shall be /7/ Com.Misc.No.802/2005 continuing guarantee and shall be binding and operative till repayment in full of the monies due.
9. In spite of agreed terms and conditions as well as pre- installments notices issued and post-installments demands made by the Petitioner Corporation, the 1st respondent committed default in repayment. The corporation has issued show cause notice to the 1 st respondent. The 1st respondent did not give any reply. The 1 st respondent has committed default in repayment of loan and left with no other alternate, the Petitioner Corporation has issued notice dated 27.04.2000 recalling the entire financial assistance under Section 30 of SFC Act r/w Clause 6.1 of Article 6 of the Trustee Agreement dated 26.06.1998. Even after the above said recall notice, the 1st respondent has failed to redeem the debentures and pay the recalled amount along with the interest.
10. After issuing notice and giving sufficient opportunities to 1st respondent, the Petitioner Corporation has taken over the collateral security property under section 29 of SFC Act on 20.12.2000. Even after taking over of secured property, the respondents did not come forward to take back the assets. Both M/s.MMV Products and the 1 st respondent gave concern for the sale of collateral security property during the year 2002. Subsequently, the Corporation has sold the security property for a sum of Rs.50,00,000/- and adjusted the sale proceeds towards the loan account of 1st respondent.
/8/ Com.Misc.No.802/2005
11. Even after the adjustment of sale proceeds, the 1 st respondent is still liable to pay huge amount to the corporation. The respondents have been giving false assurance to close the loan account. However, they have not cleared the outstanding dues. The Petitioner Corporation has invoked the personal guarantee of guarantors in terms of guarantee deeds executed by him in terms of guarantee deeds by issuing a notice dated 28.05.2005. The Petitioner Corporation has demanded the respondents to pay Rs.1,41,01,938/- as on 31.12.2004 with future interest @ 21% p.a.
12. The 1st respondent has failed to honor its commitments. The respondent No.2 to 7 being guarantors are liable to pay a sum of Rs.1,55,70,000/- as on 30.06.2005 with interest @ 21% till the date of realization. The respondents No.2 to 7 are jointly and severally liable to pay the outstanding dues to the corporation.
13. After the service of summons the respondent No.1 to 3 appeared through their advocate. The respondent No.1 & 3 have adopted the objections filed by the respondent No.2. The respondent No.5 to 7 remained absent and are placed exparte. The Respondent No:4 reported dead. The learned counsel for the petitioner has submitted that except R.5 there are no other LR's to respondent No.4.
/9/ Com.Misc.No.802/2005 The case of respondents No.1 to 3 is as under:
14. The petition is not maintainable either in law or on facts of the case. The petition is barred by limitation. The petitioner are put to strict proof of the averments made in paragraphs 3, 4, 5 & 6 and are denied.
15. It is true that the 1st respondent is limited company. It is false to allege that the respondents No.2 to 7 are the guarantors to the financial assistance given to the 1st respondent company. The averments made in para 8 are denied. The alleged transaction relates to the year 1998 as such the petition filed in the year 2005 is barred by limitation. The averments made in para 9, 10, 11 & 12 are denied except the initiation of action under Section 29 of SFC Act on 20.12.2001. It is false to allege that M/s.MMV Products and the 1st respondents gave consent for the sale of collateral property during the year 2002 and that the Corporation sold the property for Rs.50,00,000/- and adjusted the sale proceeds towards the loan account of 1st respondent. No such alleged consent was given. As on this day no amounts are due by the 1st respondent to the Petitioner Corporation.
16. The averments made in petition para 13 are all false. No notice dated 28.05.2005 invoking personal guarantee has been issued by the petitioner and the respondents have not received any such notice. The petitioner had issued a notice dated 31.10.2001 making similar false /10/ Com.Misc.No.802/2005 allegations as if the respondents No.2 to 7 are personal guarantors and alleging that they are due in a sum of Rs.1,13,26,958/- as on 30.06.2001 and the respondent No.2 to 7 are liable to pay the said amount along with interest or otherwise. The Corporation would proceed against them under Section 31(1)(aa) of SFC Act and also under Karnataka Public Money Recovery Dues Act 1979. In this view of the matter it is evident that the alleged personal guarantee said to have been given by the respondents 2 to 7 has already been invoked by the petitioners as on 31.10.2001. Till this date the petitioners have not proceeded in that direction. Consequently, the claim now put forth by the petitioners that they have invoked the personal guarantee by issuing notice dated 28.05.2005 is false, baseless and meaningless when once the alleged personal guarantee has already been invoked in the year 2001, the question invoking the same on 28.05.2005 does not arise. The petitioners are aware that their claim against the respondents are barred by limitation and as such they have set up an untenable plea alleging that they have invoked personal guarantee of the respondents No.2 to 7 on 28.05.2005.
17. The averments made in petition para 14 to 17 are all false and baseless. There is no cause of action for the present petition.
18. The petitioners are guilty of gross 'supressio veri suggestio falsi' and that they have deliberate the suppressed the issuance of notice invoking the personal guarantee as on 31.01.2001.
/11/ Com.Misc.No.802/2005
19. The petitioners are not entitled for any of relief and 2 nd petitioner has no locus standi to file petition. The petition is illegal and devoid of merits. Hence, the petition may be dismissed with cost.
20. The petitioners have examined Sri.S.S.Parappanavar as PW.1. He has exhibited Ex.P.1 to 12.
21. Smt.Malathi, Manager (F & A) of Petitioner Corporation has adduced her evidence as PW.2. She has exhibited Ex.P.13 to 15. The Respondent No:2 got exhibited Ex.R.1 in the Cross-examination of PW.1. The respondents have not adduced any evidence.
22. The learned counsel for the petitioner Corporation and respondents 1 to 3 have addressed their respective arguments. The petitioners have also submitted written arguments. I have gone through the materials available on record.
23. 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.1,55,70,000/- as on 30.06.2005 with interest @ 21% per annum compounded at half yearly rests?
2) Whether the Petitioner Corporation proves that the respondents No.2 to 7 are jointly and /12/ Com.Misc.No.802/2005 severally liable to clear/pay the amount of Rs.1,55,70,000/- due from the 1st respondent as on 30.06.2005 along with future interest at 21% p.a. compounding at half yearly rests?
3) Whether the Respondents No:1 to 3 proves that the petition filed by the Petitioner Corporation is barred by Limitation?
4) What Order?
24. 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 REAS O NS
25. 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) (aa) and 32 of State Financial Corporation Act, 1951 for the following reliefs:
(a) To determine that a sum of Rs.1,55,70,000/- is due from the 1st respondent as on 30.06.2005 payable with a future interest at /13/ Com.Misc.No.802/2005 21% p.a. on the footing of compound interest at half yearly rests.
(b) To enforce the liability of respondent No.2 to 7 jointly and severally pay a sum of Rs.1,55,70,000/- dues as on 30.06.2005 payable with future interest at 21% p.a. on footing of compound interest at half yearly rests.
(c) for cost and such other relief.
26. The petitioners have examined Sri.S.S.Parappanavar as PW.1. He has exhibited Ex.P.1 to 12. Smt.Malathi, Manager (F & A) of Petitioner Corporation has adduced her evidence as PW.2. She has exhibited Ex.P.13 to 15. The details of Ex.P1 to P15 are as under:
Sl.
Description of Documents Ex.P
No.
01. Original Sanction Letter 31.01.1998 Ex.P1
02. Original Debenture Agreement dated Ex.P2
03.02.1998
03. Four original guarantee deeds dated 03.02.1998 Ex.P3 to Ex.P6
04. Original guarantee deed dated 09.02.1998 Ex.P7
05. Two original personal guarantee deeds dated Ex.P8 & 26.06.1998 Ex.P9
06. Original personal guarantee deeds dated Ex.P.10
27.06.1998
07. Original personal guarantee deeds dated Ex.P.11 29.06.1998
08. Original personal guarantee deeds dated Ex.P.12 02.07.1998 /14/ Com.Misc.No.802/2005
09. Statement of accounts Ex.P.13 to Ex.P.15
27. The Respondent No:2 got exhibited Ex.R.1 in the Cross- examination of PW.1. The respondents have not adduced any evidence.
Sl.
Description of Documents Ex.R No.
1. Notice dated 31.10.2001 issued by the Ex.R.1 Petitioner Corporation
28. The PW1-Sri.S.S.Prappanavar and PW2-Smt.Malathi have reiterated the averments made in the petition in their respective affidavit evidence. It is the case of Petitioner Corporation that at the request of 1st respondent company, the Petitioner Corporation has structured and subscribed to the privately placed fully secured redeemable non convertible debentures to the extent of Rs.70,00,000/- (70,000 debentures of face value of Rs.100/- each) of 1st respondent to meet 1st respondent's long term working capital requirements subject to the terms and conditions set out in the communication of sanction letter dated 31.01.1998/Ex.P1 and accepted by the 1st respondent company.
29. In respect of the above financial assistance, the 1st respondent has executed a debenture agreement dated 03.02.1998/Ex.P2 agreeing to the terms and conditions set out therein. As per the agreed terms and conditions, the 1st respondent until the debentures are redeemed ought to have paid the interest on the said debentures at the rate of 19% p.a. in the /15/ Com.Misc.No.802/2005 event of any default in payment of interest within the stipulated period the 1st respondent was liable to pay penal interest @ 2% p.a. over and above the agreed rate of interest by way of liquidated damages for the period of default. The first respondent redeemed the debentures on the expiry of financial year from the date of allotment as under:
1. 20% at the end of second year from the date of allotment.
2. 20% at the end of third year from the date of allotment.
3. 20% at the end of fourth year from the date of allotment.
4. 40% at the end of fifth year from the date of allotment of debentures.
30. The 1st respondent company has appointed the second petitioner as trustee for the above subscription and the 1 st respondent has executed a trustee agreement dated 26.06.1998. As per the trustee agreement, the 1st respondent has agreed to pay a sum of Rs.20,000/- every year as trustee fee. As security to the said financial assistance, the 1st respondent has also executed a deed of hypothecation hypothecating the current assets in favor of the petitioners. M/s MMV Products had offered property sy.no.24/2, 24/3A of Chikkabidarakallu Village, Dasanapura Hobli, Nelamangala Taluk, Bengaluru District as collateral security to the above financial assistance.
31. In addition to the above security, the second respondent has executed a deed of guarantee dated 03.02.1998/Ex.P3 and personal /16/ Com.Misc.No.802/2005 guarantee deed dated 29.06.1998/Ex.P11; the third respondent has executed a deed of guarantee dated 09.02.1998/Ex.P7 and personal guarantee dated 02.07.1998/EX.P12. The respondents No.4 & 5 have executed a deed of guarantee dated 03.02.1998/Ex.P4 and personal guarantee dated 26.06.1998/Ex.P9. The respondent No.6 has executed a corporate guarantee deed dated 03.02.1998/Ex.P5 and personal guarantee deed dated 26.06.1998/Ex.P.8. The seventh respondent has executed a deed of guarantee dated 03.02.1998/Ex.P.6 and a personal guarantee dated 27.06.1998/Ex.P.10 in favor of the petitioner corporation. Under the deeds of guarantee, the guarantors/respondents undertook to pay all the above financial assistance, interest, commitment charges and other monies due from the 1st respondent company in the event of default at any time. The guarantee enjoins the guarantors to discharge their liabilities due from the 1st respondent to the petitioner corporation the moment the 1st respondent commits default in repayment of loan installments.
32. Under the deeds of guarantee the respondent No.2 to 7 have agreed and undertook that the guarantee contain shall be enforceable against them; an intimation in writing sent to the company by the Petitioner Corporation that a default or breach has occurred shall be treated as final and conclusive proof as to the facts stated therein; the guarantee shall be continuing one for all amount that may from time to time become due and payable and remain unpaid; the guarantee shall be /17/ Com.Misc.No.802/2005 continuing guarantee and shall be binding and operative till repayment in full of the monies due.
33. In spite of agreed terms and conditions as well as pre- installments notices issued and post-installments demands made by the Petitioner Corporation, the 1st respondent committed default in repayment. The corporation has issued show cause notice to the 1 st respondent. The 1st respondent did not give any reply. The 1 st respondent has committed default in repayment of loan and left with no other alternate, the Petitioner Corporation has issued notice dated 27.04.2000 recalling the entire financial assistance under Section 30 of SFC Act r/w Clause 6.1 of Article 6 of the Trustee Agreement dated 26.06.1998. Even after the above said recall notice, the 1st respondent has failed to redeem the debentures and pay the recalled amount along with the interest.
34. After issuing notice and giving sufficient opportunities to 1 st respondent, the Petitioner Corporation has taken over the collateral security property under section 29 of SFC Act on 20.12.2000. Even after taking over of secured property, the respondents did not come forward to take back the assets. Both M/s.MMV Products and the 1 st respondent gave concern for the sale of collateral security property during the year 2002. Subsequently, the Corporation has sold the security property for a sum of Rs.50,00,000/- and adjusted the sale proceeds towards the loan account of 1st respondent.
/18/ Com.Misc.No.802/2005
35. Even after the adjustment of sale proceeds, the 1 st respondent is still liable to pay huge amount to the corporation. The respondents have been giving false assurance to close the loan account. However, they have not cleared the outstanding dues. The Petitioner Corporation has invoked the personal guarantee of guarantors in terms of guarantee deeds executed by him in terms of guarantee deeds by issuing a notice dated 28.05.2005. The Petitioner Corporation has demanded the respondents to pay Rs.1,41,01,938/- as on 31.12.2004 with future interest @ 21% p.a.
36. The 1st respondent has failed to honor its commitments. The respondents No.2 to 7 being guarantors are liable to pay a sum of Rs.1,55,70,000/- as on 30.06.2005 with interest @ 21% till the date of realization. The respondents No.2 to 7 are jointly and severally liable to pay the outstanding dues to the corporation.
37. The PW.1 in his cross-examination deposed that he has no personal knowledge about the loan transaction and he is deposing based on the official documents. He has admitted that the corporation has issued legal notice dated 31.12.2001 to the respondents as per Ex.R.1. He has denied the suggestion that Ex.P.2 to 12 are concocted for the purpose of filing this suit. He denied that without invoking the personal guarantee, the corporation was not supposed to invoke personal guarantee. He denied that M/s.MMV Products has not executed mortgage /19/ Com.Misc.No.802/2005 deed in favor of the corporation.
38. The PW.2 in her cross-examination deposed that she has no personal knowledge about the present loan transaction. Ex.P.13 to 15 are obtained recently. The installment paid by the respondent No.1 on 23.02.1999 was last installment received by the Corporation. The date of demand is not entered in the column. She denied that the respondents are not liable to pay anything to the corporation. She denied that she has concocted Ex.P.13 to 15 for the purpose of this suit.
39. The respondents No.1 to 3 have denied the entire case of the petitioner corporation. They are contending that the petition is barred by limitation. They are contending that the corporation ought to have filed the petition within 3 years from the date of issuance of notice as per Ex.R.1 dated 31.10.2001. The corporation has filed the petition on 23.11.2005 as such the petition is liable to be dismissed.
40. The ocular evidence of PW.1 and PW.2 coupled with Ex.P.1 to 15 corroborates the case of petitioner corporation that the respondent No.1 has availed financial assistance to the tune of Rs.70,00,000/- and agreed to repay the said loan with interest at 19% p.a. in default to pay the installments agreed to pay interest @ 21% p.a. Ex.P.13 to 15, the statement of accounts clearly show that the 1st respondent has committed default in repayment of loan amount. The 1st respondent is liable to pay Rs.1,55,70,000/- as on 30.06.2005. As per the terms of loan sanction /20/ Com.Misc.No.802/2005 communication, the 1st respondent is liable to pay interest @ 21% p.a. on the outstanding principal amount.
50. The respondents No.1 to 3 are contending that respondents No.2 to 7 have not executed Ex.P.2 to 12. They have not led any evidence to show that Ex.P.2 to 12 are concocted for the purpose of filing the present petition except making a bald denial. They have not even denied the signatures of the executants on Ex.P.2 to 12. In the absence of proper materials to reject the deeds of guarantee/deeds of personal guarantee/corporate guarantee/debenture agreement, Ex.P.2 to 12 are accepted. The respondents No.2 to 7 are bound by the covenants enshrined in these documents. They are estopped from denying the contents of these documents.
51. The respondents No.1 to 3 are contending that the petition is barred by limitation and the petitioner corporation has issued notice as per Ex.R.1 dated 31.10.2001 recalling the loan and cautioning them that the corporation would invoke Section 31(1)(aa) of SFC Act. The respondents No.1 to 3 are relying on 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) /21/ Com.Misc.No.802/2005 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 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 /22/ Com.Misc.No.802/2005 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".
52. The learned counsel for the petitioner is contending that the petition is filed well within the period of limitation after ascertaining the dues of 1st respondent after conclusion of Section 29 of SFC Proceedings. He is contending that the guarantee offered by the respondents No:2 to 7 are 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. He is relying 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 /23/ Com.Misc.No.802/2005 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.
53. I have carefully gone through the ratio of the above decisions. The petitioner Corporation has sanctioned financial facility to the respondent No:1 vide sanction communication dated:31.01.1998. The Corporation has initiated Section 29 SFC Proceedings and taken over the collateral security property on 20.12.2000. The corporation has credited sale proceeds of Rs.50,00,000/- to the loan account of the 1 st respondent on 31.03.2002. The petitioner corporation has filed the present petition seeking enforcement of personal guarantee against respondents No.2 to 7 on 23.11.2005.
54. The corporation has sold the properties of the 1 st respondent and realized Rs.50,00,000/- as sale proceeds and credited to the loan account of the 1st respondent on 31.03.2002. The Corporation has issued notice to /24/ Com.Misc.No.802/2005 Respondent No;2 to 7 as per Ex.R1 dated:31.10.2001 after taking over the collateral security property but before crediting the sale proceeds on 31.03.2002. It is not the case of the petitioner corporation that it is enforcing the mortgage deed executed by the respondents No.2 to 7.
55. The petitioner corporation is enforcing the deeds of guarantee and personal guarantee executed by respondents No.2 to 7 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 55 breach of any contract, years or (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.
In view of Article 55 of the Limitation Act, the petition is barred by limitation.
56. 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 /25/ Com.Misc.No.802/2005 the collateral security or at least the date on which it credited Rs.50,00,000/- to the loan account as date of cause of action to file petition against Respondent No:2 to 7. The petitioner corporation has filed the petition on 23.11.2005 after the expiry of 3 years 7 months 22 days from 31.03.2002 (the date on which Rs.50,00,000/-was credited to the loan account of first respondent). The petitioner corporation has filed the present petition after the expiry of 4 years 22 days from 31.10.2001 the date of issuance of notice as per Ex.R1. The petition filed by the Petitioner Corporation is barred even under Article 137 of Limitation Act. Though the petitioner corporation has established the liability of the 1 st respondent company as on 30.06.2005 and the execution of deeds of guarantee and personal guarantee by Respondents no.2 to 7 has failed to prove that the petition is filed well within the period of limitation. The respondents No.1 to 3 have proved that the petition is barred by limitation. Hence, the petitioner corporation is not entitled to recover any amount from the respondents. Accordingly, I answer POINT No.1 to 3 in the AFFIRMATIVE.
57. 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.
/26/ Com.Misc.No.802/2005 The parties are directed to bear their respective costs.
Draw decree accordingly.
The office is hereby directed to send a copy of the judgment to the petitioner and Respondents No:1, to 3 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 17th day of April, 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.S.S.Parappanavar PW.2 Smt.Malathi
List of documents exhibited on behalf of the petitioner:
Sl.
Description of Documents Ex.P
No.
01. Original Sanction Letter 31.01.1998 Ex.P1
02. Original Debenture Agreement dated Ex.P2
03.02.1998
/27/
Com.Misc.No.802/2005
03. Four original guarantee deeds dated Ex.P3 to
03.02.1998 Ex.P6
04. Original guarantee deed dated 09.02.1998 Ex.P7
05. Two original personal guarantee deeds dated Ex.P8 &
26.06.1998 Ex.P9
06. Original personal guarantee deeds dated Ex.P.10
27.06.1998
07. Original personal guarantee deeds dated Ex.P.11
29.06.1998
08. Original personal guarantee deeds dated Ex.P.12
02.07.1998
09. Statement of accounts Ex.P.13 to
Ex.P.15
List of witnesses examined for the respondents:
NIL List of documents marked for the respondents:
Sl. Description of Documents Ex.R No.
1. Notice dated 31.10.2001 issued by the Ex.R.1 Petitioner Corporation (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90) ***