Karnataka High Court
Karnataka State Financial Corporation vs M/S Alois Security Printers (P) Ltd on 3 July, 2024
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NC: 2024:KHC:24967-DB
MFA No.3024/2016
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF JULY, 2024
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL
MISCELLANEOUS FIRST APPEAL No.3024/2016 (SFC)
BETWEEN:
KARNATAKA STATE FINANCIAL CORPORATION
HAVING ITS CORPORATE OFFICE AT NO.1/1
THIMMAIAH ROAD, BENGALURU - 560 052
AND BRANCH OFFICE AT S.L.N. COMPLEX
M B ROAD, NEAR K.S.R.T.C. BUS STAND
KOLAR-563 101
REP. BY ITS ASSISTANT GENERAL MANAGER ...APPELLANT
(BY SRI BIPIN HEGDE., ADVOCATE)
AND:
Digitally 1. M/S. ALOIS SECURITY PRINTERS (P) LTD.
signed by K S HAVING ITS REGISTERED OFFICE AT NO.9
RENUKAMBA
3RD CROSS, SRIPURAM
Location:
High Court of SESHADRIPURAM
Karnataka BENGALURU - 560 020
2. H.S.SRIKANTH
S/O H.D.SATHYAN
R/AT NO.9, 3RD CROSS, SRIPURAM
SESHADRIPURAM
BENGALURU - 560 020
3. B.K.SHESHADRI
LEGAL HEIR OF LATE JYOTHI SESHADRI
NO.160, EAST PARK ROAD
15TH CROSS, MALLESHWARAM
BENGALURU - 560 003
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MFA No.3024/2016
4. B.K.SHESHADRI
S/O B.KRISHNASWAMY IYER
NO.160, EAST PARK ROAD
15TH CROSS, MALLESHWARAM
BENGALURU - 560 003
5. B.S.KIRAN KUMAR
S/O B.K.SAMPATH KUMAR
PRAKASH APARTMENTS
SULTANPALYA MAIN ROAD
BENGALURU
6. G.P.NARAHARI
S/O LATE G.N.PARTHASARATHY
NO.1220, 4TH MAIN
E BLOCK, 2ND STAGE
RAJAJINAGAR
BENGALURU - 560 010
7. M.V.SRIDHAR
S/O M.R.VENKATANARASIMHAN
NO.6, 1ST CROSS
CHAKRAVARTHY IYENGAR LAYOUT
SHESHADRIPURAM
BENGALURU - 560 020
8. A.K.CHATTERJI
S/O ATAL BEHAR CHATTERJI
PLOT NO.41, CHITRAKUT APARTMENTS
18TH CROSS, MALLESHWARAM
BENGALURU - 560 003 ...RESPONDENTS
(BY SRI.G.S.VENKAT SUBBARAO, ADVOCATE FOR R1 & R2;
SRI.K.V.SATISH, ADVOCATE FOR R5, R6 & R8;
SRI.A SRIKANTH, ADVOCATE FOR R7; R3 & R4 ARE SERVED)
THIS MISCELLANEOUS FIRST APPEAL IS FILED UNDER
SECTION 32(9) OF THE STATE FINANCIAL CORPORATIONS ACT,
1951 PRAYING TO SET ASIDE THE ORDER DATED 21.01.2016
PASSED BY THE PRINCIPAL DISTRICT JUDGE, KOLAR IN
MIS.NO.8/2010 DISMISSING THE PETITION FILED UNDER SECTION
31(1)(aa) AND 32 OF STATE FINANCIAL CORPORATION ACT.
THIS MISCELLANEOUS FIRST APPEAL COMING ON FOR
FURTHER HEARING, THIS DAY, K.S.MUDAGAL J., DELIVERED THE
FOLLOWING:
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MFA No.3024/2016
JUDGMENT
Challenging the dismissal of its petition under Sections 31(1)(aa) and 32 of the State Financial Corporations Act, 1951 ('the Act' for short), the Karnataka State Financial Corporation which was the petitioner in Misc.No.8/2010 on the file of the Principal District Judge, Kolar has preferred this appeal.
2. The appellant was the petitioner and respondent Nos.1 to 8 were respondent Nos.1 to 8 before the Trial Court. For the purpose of convenience, the parties are referred to henceforth according to their ranks before the Trial Court.
3. The petitioner is a Corporation owned by the Government and established under the Act for the purpose of lending financial assistance to industrial concerns. Respondent No.1 is the Private Limited Company. Respondent No.2 was the Managing Director and respondent Nos.3 to 8 were the Directors.
4. Respondent No.1 availed term loan of Rs.62,50,000/- from the petitioner agreeing to repay the same with interest at 19.5% per annum. On 10.11.1992 -4- NC: 2024:KHC:24967-DB MFA No.3024/2016 respondent No.1 further availed soft loan of Rs.4,00,000/- with interest at 3.5% per annum. Respondent Nos.2 to 8 executed guarantee deed dated 28.05.1993 for repayment of loan granted to respondent No.1. The properties were mortgaged to the petitioner as security for payment of money. Respondent No.1 committed default in payment of loan. Therefore the petitioner issued notice dated 08.01.2001 to respondent No.1 for initiation of the proceedings under Section 29 of the Act. Requisition of respondent No.1 under its letter dated 14.12.2001 to reschedule of the loan was rejected and respondent No.1 was called upon to pay overdue amount of Rs.28,82,000/- with interest.
5. Petitioner issued notice dated 30.03.2002 invoking guarantee and called upon the respondents to pay the overdue amount with interest. On 14.06.2002 petitioner filed Misc.No.456/2002 before the City Civil Court, Bangalore against the respondents under Sections 31(1)(aa) and 32 of the Act for recovery of Rs.82,89,680/- on the term loan account and Rs.4,31,890/- on the soft loan. The City Civil Court by order dated 11.09.2009 ordered to return the said petition to the petitioner for presentation before the -5- NC: 2024:KHC:24967-DB MFA No.3024/2016 appropriate Court on the ground that the said Court lacked jurisdiction as mortgaged properties situated within the jurisdiction of Kolar Court. Petitioner presented the same on 03.02.2010 before the Principal District Judge, Kolar which was registered in Misc.No.8/2010 out of which the proceedings of this appeal arise.
6. Respondent Nos.3, 4 and 7 did not contest the petition. Respondent Nos.1, 2, 5, 6 and 8 contested the petition by filing their statement of objections. They admitted availment of loan and execution of the guarantee deed by respondent No.1 for business purpose. They contended that their signatures were taken on the guarantee deed in blank forms. They denied service of notice, their request to reschedule the loan and the claim made in the petition. They contended that respondent No.1 suffered loss in the business due to burglary in their premises and theft of computer stationery and other material instruments. They contended that though the petitioner took possession of the mortgaged and hypothecated properties, did not sell and realize the same for longtime due to which those properties lost their value and ultimately sold to one Devi Industries. Even the said sale -6- NC: 2024:KHC:24967-DB MFA No.3024/2016 proceeds were not adjusted for the dues. They claimed that the petition was barred by time and their liability was disputed.
7. In support of its claim, the petitioner got examined one T.Z.Baba Sab, Manager (Recovery) in the petitioner/Corporation as PW.1 and got marked Exs.P1 to P24. Respondent Nos.5, 8 and 6 were examined as RWs.1 to 3 respectively and on their behalf, Exs.R1 to R8 were marked.
8. The Trial Court on hearing the parties, by the impugned judgment and order dismissed the petition on the following grounds:
(i) PW.1 had no authority to tender evidence on behalf of the petitioner;
(ii) The petition was barred by time;
(iii) The guarantees were discharged due to negligence of the creditors in protecting the mortgaged assets;
(iv) The statement of accounts Exs.P8 and P24 were not proved and they were not admissible for want of certification under Section 65B of the Indian Evidence Act, 1872 ('the Evidence Act' for short); & -7- NC: 2024:KHC:24967-DB MFA No.3024/2016
(v) The petition was filed belatedly and lacks bonafides.
9. We heard both sides.
Submissions of Sri Bipin Hegde, learned Counsel for the appellant/petitioner:
10. The findings of the trial Court that the petition is barred by limitation is erroneous as the deed of guarantee was continuing one and the petition was filed within three years from the date of invocation of the guarantee. More over PW.1 has given evidence before the City Civil Court and he has produced authorization letter in that proceedings. The statement of accounts Exs.P8 and P24 have presumptive value under Section 4 of the Bankers' Books Evidence Act, 1891 ('the Bankers Act' for short) read with Section 44 of the Act. The said presumption was not rebutted. The finding that the petitioner was negligent in protecting the mortgaged properties or taking timely action to auction them is unsustainable. Even on adjusting the proceeds of sale of mortgaged properties, the respondents were due to pay the amount claimed in the petition. Hence, the impugned judgment and order is liable to be set aside. -8-
NC: 2024:KHC:24967-DB MFA No.3024/2016 Submissions of Sri G.S.Venkat Subba Rao, learned Counsel for respondent Nos.1 and 2, Sri K.V.Satish, learned Counsel for respondent Nos.5, 6 and 8 and Sri A.Srikanth, learned Counsel for respondent No.7:
11. The authority of PW.1 to depose on behalf of the petitioner was not proved. His evidence shows that he was totally ignorant of the transaction of this case or entries in the alleged statement of accounts. Exs.P8 and P24 were not proved as per the provisions of the Bankers Act. Therefore they cannot claim presumption under Section 4 of the said Act. Absolutely there was no explanation for not proceeding against respondent No.1 and its assets in time. Therefore the claim against respondent No.1 was time barred and consequently the claim against the guarantors was also time barred. There was no evidence to show that the proceeds recovered from the sale of the mortgaged properties were adjusted to the loan account. Therefore the Trial Court was justified in holding that the liability was not proved. The appeal has no merits and shall be dismissed.
12. On considering the submissions of the parties and on perusal of the records, the point that arises for -9- NC: 2024:KHC:24967-DB MFA No.3024/2016 determination of the Court is "whether rejection of the petition by the Trial Court is sustainable in law?"
Analysis
13. The respondents though in their statement of objections denied availment of the loan and execution of the guarantee deed as per Ex.P3, during the course of evidence, they did not dispute availment of the term loan of Rs.62,50,000/- and soft loan of Rs.4,00,000/- for their industrial purpose. Though they contended that their signatures were taken on Ex.P3 the deed of guarantee on blank form, the said contention was not established. In para 26 of the petition itself it was contended that respondent No.1 committed default in payment of overdue amount. It was further contended that cause of action arose on the date of invocation of the guarantee deed under the notice Ex.P9 dated 30.03.2002.
14. The Hon'ble Supreme Court in the judgment in Syndicate Bank v. Channaveerappa Beleri1 held that notice invoking guarantee shall be issued before the claim against principal borrower gets barred by time. It was held that, if by 1 AIR 2006 SC 1874
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NC: 2024:KHC:24967-DB MFA No.3024/2016 the time the notice invoking guarantee was issued and liability of principal borrower suppose was not live, then issuance of notice does not revive the limitation. Therefore in the present case, the petitioner was required to prove that as on the date of issuance of notice, the loan account of respondent No.1 was live and that was not barred by time. To establish that the petitioner was required to prove its statements of accounts and should have shown that the notice Ex.P8 was issued within three years from the date of last transaction of the said account. To prove that the petitioner relied on the evidence of PW.1 who claimed to be Manager (Recovery) in the petitioner Corporation at Kolar. But no documents were produced or admitted in the evidence to show that he was authorized to give evidence.
15. Learned Counsel for the appellant/petitioner submits that before return of petition by City Civil Court, Bangalore, evidence was adduced before the said Court and in the said case, authorization letter was marked as Ex.P1. The Hon'ble Supreme Court in para 17 of the judgment in ONGC
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NC: 2024:KHC:24967-DB MFA No.3024/2016 Ltd. v. Modern Construction & Co.2 in that regard held as follows:
"17. Thus, in view of the above, the law on the issue can be summarized to the effect that if the court where the suit is instituted, is of the view that it has no jurisdiction, the plaint is to be returned in view of the provisions of Order VII Rule 10 CPC and the plaintiff can present it before the court having competent jurisdiction. In such a factual matrix, the plaintiff is entitled to exclude the period during which he prosecuted the case before the court having no jurisdiction in view of the provisions of Section 14 of the Limitation Act, and may also seek adjustment of court fee paid in that court. However, after presentation before the court of competent jurisdiction, the plaint is to be considered as a fresh plaint and the trial is to be conducted de novo even if it stood concluded before the court having no competence to try the same."
(Emphasis supplied)
16. Reading of the above judgment shows that in case of return of the plaint for want of jurisdiction after presentation before the Court of competent jurisdiction, the plaint has to be considered afresh. De-novo evidence has to be adduced and the evidence adduced before the Court which has no jurisdiction, carries no evidentiary value. 2 (2014) 1 SCC 648
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17. First of all the documents produced before the Principal City Civil Judge, Bengaluru had no evidentiary value. The petitioner itself did not make any attempt to get the documents marked which was already on record and admitted in the proceedings before the Trial Court. Therefore the Trial Court was justified on holding that PW1's authorization was not proved.
18. Further PW.1 was not the author of Exs.P8 and P24. Section 4 of the Bankers Act was sought to be pressed into service to claim that they carry presumptive value. To claim benefit of Section 4 of the Bankers Act, the documents should be certified copy in conformity with Section 2(8) of the Bankers Act. The provision reads as follows:
"2. Definitions.-- In this Act, unless there is something repugnant in the subject or context,-- ...................................................................................................... (8) "certified copy" means when the books of a bank,--
(a) are maintained in written form, a copy of any entry in such books together with a certificate written at the foot of such copy that it is a true copy of such entry, that such entry is contained in one of the ordinary books of the bank and was made in the usual and ordinary course of
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NC: 2024:KHC:24967-DB MFA No.3024/2016 business and that such books is still in the custody of the bank, and where the copy was obtained by mechanical or other process which in itself ensured the accuracy of the copy, a further certificate to that effect, but where the book from which such copy was prepared has been destroyed in the usual course of the bank's business after the date on which the copy had been so prepared, a further certificate to that effect, each such certificate being dated and subscribed by the principal accountant or manager of the bank with his name and official title; and
(b) consists of printouts of data stored in a floppy, disc, tape or any other electro- magnetic data storage device, a printout of such entry or a copy of such printout together with such statements certified in accordance with the provisions of section 2A;
(c) a printout of any entry in the books of a bank stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism obtained by a mechanical or other process which in itself ensures the accuracy of such printout as a copy of such entry and such printout contains the certificate in accordance with the provisions of section 2A. ..................................................................."
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19. Reading of the above provision shows that, it should be proved that the document produced is certified copy and bears certification that the entries shown in the said documents are in accordance with the entries in the books of accounts which was maintained in the ordinary course of business and still in the custody of the petitioner. It should also be shown that document is the printout of the data, floppy disk or any other electronic device. Ex.P24 does not bear such certification at all.
20. Ex.P8 is purportedly certified by Deputy General Manager, but the author of that certification was not examined. PW.1 does not say that he had certified that document or he had seen or compared the same with original account book. In the cross-examination he expressed his total ignorance about the entries in Exs.P8 and P24. He was not the person working in Deputy General Manager's office at the relevant time. Absolutely nothing was produced to show that account of respondent No.1 was live as on the date of issuance of notice Ex.P9 invoking guarantee.
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21. The loan was sanctioned as long back as 10.11.1992. Absolutely there was no material to show when claim of Rs.28,82,000/- became due. The burden was on the petitioner to prove that claim was in time. But no evidence was adduced to establish that account was live as on the date of issuance of notice dated 08.01.2001 under Section 29 of the Act. Even otherwise, the petitioner was bound to establish the petition claim of Rs.82,89,680/- + 4,31,890/-.
22. As already noted, statement of accounts produced by the petitioner was not proved. Admittedly pending the proceedings before the City Civil Court in Misc.No.456/2002 mortgaged assets were auctioned in the year 2005. Nothing was produced to show how much was realized from the said sale and how that was adjusted to the loan account. Under the aforesaid facts and circumstances, the Trial Court was justified in holding that the petition claim was not proved and the claim was time barred and stale. For the aforesaid reasons, we do not find any illegality or impropriety in the order of the Trial Court in rejecting the petition. Hence, the following:
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NC: 2024:KHC:24967-DB MFA No.3024/2016 ORDER The appeal is dismissed.
Sd/-
JUDGE Sd/-
JUDGE KSR List No.: 1 Sl No.: 9