Sri Satya Kumar Tibarewalla vs Karnataka State Industrial ...
2021 Latest Caselaw 2803 Kant

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 15TH DAY OF JULY, 2021

                        PRESENT

          THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

         THE HON'BLE MR. JUSTICE E.S.INDIRESH

                M.F.A.No.7512/2016 (SFC)

BETWEEN :

1.      SRI SATYA KUMAR TIBAREWALLA
        S/O LATE MOHANLAL TIBAREWALLA,
        AGED ABOUT 70 YEARS,
        EARLIER R/AT NO.204, CHALET,
        30, AGA ABBAS ALI ROAD, ULSOOR,
        BENGALURU-560042
        NOW AT 12A, NETAJI SUBHASH ROAD,
        KOLKATA-700001,
        REP BY HIS POWER OF ATTORNEY HOLDER,
        SRI SUDHIR TIBAREWALLA.

2.      SRI SUDHIR TIBAREWALLA
        S/O SATYA KUMAR TIBAREWALLA,
        AGED ABOUT 45 YEARS,
        EARLIER R/AT NO.204, CHALET,
        30, AGA ABBAS ALI ROAD,
        ULSOOR, BENGALURU-560042,
        NOW AT 12A, NETAJI SUBHASH ROAD,
        KOLKATA-700001.                      ...APPELLANTS

                 (BY SRI S.SRIRANGA, ADV.)

AND :

1.      KARNATAKA STATE INDUSTRIAL
        INVESTMENT & DEVELOPMENT
        CORPORATION LTD.,
                              -2-

        HAVING ITS REGISTERED OFFICE AT
        NO.49, 'KHANIJA BHAVANA',
        4TH FLOOR, EAST WING,
        RACE COURSE ROAD,
        BENGALURU-560001.
        REP BY ITS MANAGER,
        SRI M.MALLESHAPPA,

2.      M/s BEE JAY PEE SACKS PVT. LTD.,
        UNDER LIQUIDATION,
        REP BY ITS OFFICIAL LIQUIDATOR,
        HIGH COURT OF KARNATAKA,
        NO.26 & 27, 12TH FLOOR,
        'RAHEJA TOWERS', M.G.ROAD,
        BENGALURU-560001.                         ...RESPONDENTS

        (BY SRI V.F.KUMBAR, ADV. FOR R-1; R-2 SERVED.)

        THIS M.F.A. IS FILED UNDER SECTION 32(9) OF STATE
FINANCIAL     CORPORATIONS         ACT,   1951,    AGAINST   THE
JUDGMENT DATED 21.9.2016 PASSED IN MISC.NO.123/2010
ON THE FILE OF THE 4TH ADDITIONAL DISTRICT JUDGE,
MYSURU, ALLOWING THE PETITION FILED UNDER SECTION
31(1)(a)(aa) OF THE STATE FINANCIAL CORPORATION ACT,
1951.

        THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:


                      JUDGMENT

This appeal is directed against the judgment and

order dated 21.09.2016 passed in Mics.No.123/2010 on

the file of the IV Additional District Judge, Mysuru

('Trial Court' for short).

2. For the sake of convenience, the parties are

referred to as per their status before the Trial Court.

3. The petitioner - Corporation has filed the

petition under Section 31(1)(a)(aa) of the State Financial

Corporation Act, 1951 ('SFC Act' for short) against the

respondents seeking to pass an order to determine that

a sum of Rs.20,55,85,719/- with interest is due from

respondent No.1 and direct the respondent Nos.2 and 3

to pay the said amount with interest from 21.12.2009

till realization and also to pass an order to proceed

against the personal properties of respondent Nos.2 and

3 in respect of both moveable and immovable properties

for the realization of dues of the petitioner -

Corporation.

4. It is the case of the petitioner - Corporation

that it is a financial institution established under the

Companies Act, 1956. The Central Government by

issuing the notification, made Sections 29, 30, 31 and

32 of the SFC Act applicable to the petitioner -

Corporation. The respondent No.1 - company

incorporated under the Companies Act, 1956

represented by its directors, approached the petitioner -

Corporation for financial assistance for setting up a unit

for the manufacture of HDPE woven sacks with circular

looms at Madargally village, Mysuru - Nanjangud Road,

Mysuru Taluk. The petitioner - Corporation has

sanctioned term loan of Rs.38,00,000/- on 11.02.1986.

The loan agreement dated 17.03.1986 was executed by

the respondent - company along with the other loan

documents. It transpires that another term loan of

Rs.2,00,000/- was sanctioned on 04.11.1986 at the

request of the respondent No.1 - company and

thereafter the necessary loan documents were executed.

Similarly, another sum of Rs.24,00,000/- (Rupees

Twenty Four Lakhs) on 11.11.1998, Rs.400,000/-

(Rupees Four Lakhs) on 27.04.1989, Rs.1,91,000/-

(Rupees One lakhs Ninety One thousand) on

25.04.1990, Rs.13,24,000/- (Rupees Thirteen Lakhs

Twenty Four Thousand) on 20.02.1991, Rs.39,67,000/-

(Rupees Thirty Nine Lakhs Sixty Seven Thousand) on

22.08.1994 and Rs.10,00,000/- (Rupees Ten Lakhs) on

08.05.1996 was sanctioned by the petitioner -

Corporation on the request of the respondent No.1 -

company. The loan documents were executed by the

respondent No.1 - Company accordingly. Further, on

the request of the respondent No.1 - Company, the

petitioner - Corporation rescheduled the loans and

executed the necessary modification deeds. In the

meantime, on the reference made by the company

before BIFR under Section 15(1) of the Sick Industrial

Companies Act (SICA) for declaration of sickness and

determination of measures for its rehabilitation, the

respondent No.1 - company was declared as a sick

industrial unit on 21.06.1996 and the State Bank of

India was appointed as Operating Agency (OA).

5. The BIFR in its hearing held on 21.06.1996

had sanctioned the rehabilitation scheme for revive of

the company. As per the scheme of the BIFR, the

personal guarantees of the existing promoters were

released after obtaining the personal guarantees of new

promoters. Pursuant to the rehabilitation scheme, the

petitioner - Corporation has sanctioned additional term

loan of Rs.39,00,000/- (Rupees Thirty Nine lakhs) by

way of rehabilitation assistance for revival of the unit

subject to certain terms and conditions. Respondent

Nos.2 and 3 - the promoters have executed the

necessary documents to reschedule the loans. However,

BIFR ordered for the issuance of show-cause notice to

the Managing Director of the respondent No.1 -

company under Section 33 of the SICA for failing to

comply with the provisions of the sanctioned scheme.

On 13.02.2004, the KSFC was permitted to take over

the assets of the company under Section 20(4) of SICA

which included a nominee of the respondent No.1 -

company. The KSFC took over the assets of the

company on 12.04.2004. The High Court of Karnataka

in COP No.60/2004 accepting the recommendation of

BIFR, ordered for winding up of the company as per the

order dated 01.04.2005 and directed the SBI (OA) to

take possession of the assets of the respondent No.1 -

company.

6. The petitioner - Corporation filed the Misc.

Petition before the Trial Court alleging default on the

part of the respondents in not clearing the dues

amounting to total sum of Rs.20,55,85,719/- with

interest from 21.12.2009 till realization.

7. On service of notice, Respondent No.1 -

company remained absent. Respondent Nos.2 and 3

appeared. Respondent No.3 filed objection statement

denying the liability to pay total sum of

Rs.20,55,85,719/- inter alia contending that the

petitioner - Corporation has failed to release the

additional term loan of Rs.49,00,000/- to revive the sick

industry. The SBI (OA) without assigning any reason

had returned the cheque of Rs.2,00,000/- issued by the

respondent - company despite sufficient funds with the

Company's bank account. However, as per the scheme,

respondent Nos.2 and 3 advanced their contribution

and signed all the modification deeds and guarantee

deeds without any fail and fulfilled their obligations.

Accordingly, sought for dismissal of the petition.

8. On basis of the pleadings, the following

points were formulated by the Trial Court:-

1. Whether the petitioner proves that respondent No.1 company is liable to pay total sum of Rs.20,55,85,719/- with interest as prayed for in this petition?

2. Whether the respondents 2 and 3 being Guarantors are personally liable to pay the said amount?

3. Whether the respondents prove that because of non-disbursement of

rehabilitation assistance by this petitioner as directed by the BIFR, the company was not able to revive, accordingly the respondents are not liable to pay any amount?

4. What order?

9. The petitioner - Corporation got examined its

Assistant General Manager as PW.1 and marked 44

documents at Exs.P1 to P44. On the contrary,

respondent No.3 got examined himself as RW1 and

marked documents at Exs.R1 to R10.

10. On analyzing the evidence on record, the

Trial Court allowed the petition determining that the

respondent No.1 - company is due to pay a total sum of

Rs.20,55,85,719/- with interest from 21.12.2009 till the

date of realization and directing the respondent Nos.2

and 3 to pay the same, failing which the petitioner -

Corporation can proceed against the personal properties

of respondent Nos.2 and 3 both moveable and

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immovable properties for realization of the dues in

accordance with law.

11. Being aggrieved, the respondent Nos.2 and 3

have preferred the present appeal.

12. Learned counsel for the appellants

(respondent Nos.2 and 3 before Trial Court) would

submit that the petition filed by the petitioner -

Corporation was barred by the law of limitation. The

respondent No.1 - company having been ordered to be

wound up by this Court in COP No.60/2004 on

01.04.2005, Section 446 of the Companies Act, 1956

places an embargo on the continuation of any

proceedings against the company in liquidation after

passing of the order without obtaining leave from this

Hon'ble Court. The appellants have contributed the

promoters' contribution in order to revive the sick

company. But the Trial Judge erroneously held that

they have not contributed any amount. The KSFC

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having taken possession of the assets of the company as

far back as on 12.04.2004, no attempts were made to

sell the assets of the company to clear the term loans

said to have been raised by the respondent No.1 -

company. The liability, if any, would arise only on

appropriating the value of the assets and as such the

petition filed by the petitioner - Corporation under

Section 31(1)(a)(aa) of the SFC Act is wholly

misconstrued. Wrongful dishonor of the cheque by SBI

has resulted in serious consequences. The respondent

No.2 had filed its complaint before the Bank

Ombudsman as they have wrongfully dishonored the

cheque of Rs.2,00,000/- despite the sufficient funds in

its bank account. The conduct of the petitioner was

vindictive and smacks of mala fides. The Trial Court

brushed aside these aspects. In support of his

arguments, the learned counsel has placed reliance on

the judgment of the Hon'ble Apex Court in Deepak

Bhandari vs. Himachal Pradesh State Industrial

- 12 -

Development Corporation Limited reported in (2015)

5 SCC 518.

13. Learned counsel for petitioner - corporation

submitted that the KSFC has sold the assets of the

Company in auction sale on 29.01.2021 and Rs.635.61

lakhs has been received by the KSFC towards the said

auction sale. It is after appropriating the money as per

the Companies Act, the petitioner - Corporation would

be entitled to the claim. Learned counsel further argued

that provisions of the Limitation Act would not be

applicable to the facts of the present case.

14. We have carefully considered the arguments

advanced by the learned counsel appearing for the

parties and perused the records.

15. The Hon'ble Apex Court in the case of

Deepak Bhandari, supra, in para 21, 22, 23 has held

thus:-

- 13 -

"21. We thus, hold that when the Corporation takes steps for recovery of the amount by resorting to the provisions of Section 29 of the Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the industrial concern. As the Corporation would be in a position to know as to whether there is a shortfall or there is excess amount realized, only after the sale of the mortgage/hypothecated assets.

This is clear from the language of sub-section (1) of Section 29 which makes the position abundantly clear and is quoted below:

"Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over

- 14 -

the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation."

22. It is thus clear that merely because the Corporation acted under Section 29 of the State Financial Corporations 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

- 15 -

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.

23. 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.

24. 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."

Thus, in order to determine from which date the

period of limitation has to be counted, it is relevant to

ascertain the date on which the assets taken over under

Section 29 of the SFC Act were sold.

16. As per the judgment of the Hon'ble Apex

Court in Deepak Bhandari, supra, the right to sue on

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the contract of indemnity would arise after the assets

were sold. The period of limitation is to be counted from

the date of assets of the company were sold and not

when the recall notice was given. As per the submission

of the learned counsel for the petitioner - Corporation,

the assets of the company were sold on 29.01.2021. The

actual limitation would be computed after appropriating

the sale proceeds received from the auction sale of the

assets by the KSFC. Moreover, the approach of the Trial

Judge that the respondent Nos.2 and 3, new promoters

have not made their contribution as per the revival

scheme is admitted by the respondent Nos.2 and 3 is

wholly erroneous and the same indeed was disputed as

such this aspect requires to be re-considered. Number

of documents are produced before this Court by the

respondent Nos.2 and 3 to contend that the new

promoters - respondent Nos.2 and 3 have made their

contribution, having done so, now they are penalized

with the liability of Rs.20,55,85,719/- for no fault of

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them. The finding of the Trial Judge on this aspect of

default said to have been committed by respondent

Nos.2 and 3 in not contributing for the revival of the

scheme requires re-consideration apart from the

subsequent developments of the sale of the assets of the

company as aforesaid. Thus, the matter certainly

requires a remand keeping open all the rights and

contentions of the parties.

17. For the reasons aforesaid, we deem it

appropriate to set aside the impugned judgment and

order and remand the matter to the Trial Court for re-

consideration.

     18.    Hence, the following

                         ORDER

     i)     The appeal is allowed.
     ii)    The impugned judgment and order dated

21.09.2016 passed in Misc. No.123/2010 on the file of the IV Additional District Judge, Mysuru is set aside.

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iii) The matter is remanded to the Trial Court for reconsideration in accordance with law.

iv) All the rights and contentions of the parties are left open.

v) The Trial Court shall reconsider the matter and take appropriate decision in accordance with law in an expedite manner keeping in mind the observations made hereinabove.

      vi)    Since the parties are represented by their
             respective       learned     counsel,       the

parties/learned counsel for the parties are directed to appear before Trial Court on 16.08.2021, without waiting for any notice and shall take further orders.

vii) The Registry is directed to transfer the original records to the Trial Court, forthwith.

Sd/-

JUDGE

Sd/-

JUDGE

PMR