Karnataka High Court
Sri Hari Ram K Cham vs Karnataka State Industrial ... on 23 July, 2021
Author: Krishna S. Yerur
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 23RD DAY OF JULY 2021
PRESENT
THE HON'BLE MR. JUSTICE KRISHNA S.DIXIT
AND
THE HON'BLE MR.JUSTICE PRADEEP SINGH YERUR
MFA No.23064/2013 (SFC)
C/w. MFA No.22866/2013 (SFC)
& MFA No.101186/2020 (SFC)
MFA No.23064/2013 & C/w. Matters
In MFA No.23064/2013:
Between:
Shri Munivenkata Swamy @ M.V. Swamy,
S/o. Muniswamy, Age major,
R/at Doddakurubara Halli,
Via Dalsanur Holur Post,
Kolar Taluk & District.
... Appellant
(By Shri A.S. Ponnanna, Sr. Adv.
For Shri Y.V. Raviraj & Shri R.M. Kulkarni, Advocates)
And:
1. M/s. Cham Lukking Pvt. Ltd.,
Having its registered office at
P.O. Box No.47, Bokhira,
Porbandar, Gujarat-360595.
:2:
1.b. And having its Head office at
No.19/20, Mafco Yard, Vashi,
Navi Mumbai-400705.
1.c. And its factory at Sy.No.1744,
Hissa-1, Majali Village, Karwar Taluka,
Goa-Karwar Highway, Uttara Kannada.
2. Hariram K. Cham S/o. Kanji Devji Cham,
Age major, R/o.: Kodiyarkrupa,
Wageshwari Plot, Porabandar,
Gujarat-360595.
3. Ramesh K. Cham S/o. Kunji Devji Cham,
Age major, R/o.: Kodiyarkrupa,
Wageshwari Plot, Porabandar,
Gujarat-360595.
4. Ramachandra Panchaksharam Naidu
@ R.P. Kumar, S/o. Ramachandran Naidu,
Age major, R/o.: Raj Palace Road,
Porabandar, Gujarat-360595.
5. Karnataka State Industrial Investment
& Development Corporation Ltd.,
Having its registered office at No.49,
Khanija Bhavan, 4th Floor, East Wing,
Race Course Road, Bengaluru-560001.
Also having Zonal Office at
No.407, 408 III Floor, Mahendra Arcade,
Kudmul Range Rao Road, Karanga Pody,
Mangalore-560068,
Rep. by its Manager (Legal)
Shri H. Venkatesh Moorthy.
... Respondents
(By Shri M.V.V. Ramana, Adv. for R1 to R3;
Shri G.S. Kannur, Sr. Adv. for Shri A.S. Patil, Adv. for R5)
This Writ Appeal is filed u/s 32(9) of the State Financial
Corporation Act, against the order dated 20.03.2013 in Misc.
:3:
No.5/2008 on the file of the District & Sessions Judge, Uttara
Kannada, Karwar, allowing the petition filed u/s 31(1)(a)(aa)
and u/s 32 of the State Financial Corporation Act.
In MFA No.22866/2013:
Between:
1. Shri Rahi Ram K. Cham
S/o. Kanji Devji Cham,
'Kodiyar Krupa', Wageswari Plot,
Porbandar-360595, Gujarat,
Rep. by P.A. Holder,
Shri Mohan K. Somaiah,
2. Shri Ramesh K. Cham,
S/o. Kanji Devji Cham,
'Kodiyar Krupa', Wageswari Plot,
Porbandar-360595, Gujarat,
Rep. by P.A. Holder,
Shri Mohan K. Somaiah,
... Appellants
(By Shri M.V.V. Ramana, Advocate)
And:
Karnataka State Industrial Investment
& Development Corporation Ltd.,
With its registered office at 4th Floor
Khanija Bhavan, No.49, Race Course Road,
Bengaluru-560001,
Also having Zonal Office at
No.407, 408 III Floor, Mahendra Arcade,
Kudmul Range Rao Road, Karanga Pody,
Mangalore-560068,
Rep. by its Manager (Legal)
... Respondent
(By Shri G.S. Kannur, Sr. Adv. for Shri A.S. Patil, Adv.)
:4:
This Writ Appeal is filed u/s 32(9) of the State Financial
Corporation Act, 1951 against the order dated 20.03.2013 in
Misc. No.5/2008 on the file of the District & Sessions Judge,
Uttara Kannada, Karwar, allowing the petition filed u/s
31(1)(a)(aa) and u/s 32 of the State Financial Corporation
Act.
In MFA No.101186/2020:
Between:
Ramachandra Panchakasharam Naidu,
Alias R.P. Naidu, S/o. Ramachandran Naidu,
Age 72 years, R/o.: No.515, CMH Road,
Binnamangala, 1st Stage, Indiranagar,
Bengaluru-560038.
... Appellant
(By Shri Vivek Holla, Sr. Adv. for Shri Aravind D.Kulkarni,
Adv.)
And:
1. Karnataka State Industrial Investment
& Development Corporation Ltd.,
Having its registered office at
No.49, Khanija Bhavan, 4th Floor,
East Wing, Race Course Road,
Bengaluru-560001.
Also having its Zonal Office at
No.407, 408 III Floor, Mahendra Arcade,
Kudmul Range Rao Road, Karanga Pody,
Mangalore-560068,
Rep. by its Manager (Legal)
Shri H. Venkatesh Moorthy.
2. M/s. Cham Lukking Pvt. Ltd.,
Having its registered office at
:5:
P.O. Box No.47, Bokhira,
Porbandar, Gujarat-360595.
And having its Head office at
No.19/20, Mafco Yard, Vashi,
Navi Mumbai-400705.
3. Hariram K. Cham S/o. Kanji Devji Cham,
Age major, R/o.: Kodiyarkrupa,
Wageshwari Plot, Porabandar,
Gujarat-360595.
4. Ramesh K. Cham S/o. Kanji Devji Cham,
Age major, R/o.: Kodiyarkrupa,
Wageshwari Plot, Porabandar,
Gujarat-360595.
5. Shri Munivenkata Swamy,
Alias M.V. Swamy, S/o. Muniswamy,
Age major, R/at Doddakurubara Halli,
Via Dalasanur Holur Post,
Kolar Taluka & District.
... Respondents
(By Shri G.S. Kannur, Sr.Adv. for Shri A.S. Patil, Adv. for R1;
Shri M.V.V. Ramana, Advocate for R3 & R4;
Shri A.S. Ponnanna, Sr.Adv. for Shri R.M. Kulkarni, Adv. for R5)
This Writ Appeal is filed u/s 32(9) of the State Financial
Corporation Act, 1951 against the order dated 20.03.2013 in
Misc. No.5/2008 on the file of the District & Sessions Judge,
Uttara Kannada, Karwar, allowing the petition filed u/s
31(1)(a)(aa) and u/s 32 of the State Financial Corporation
Act.
These MFAs coming on for further hearing, having
been heard and reserved on 20.07.2021, this day, the Court
pronounced the following:
:6:
JUDGMENT
These appeals by the borrower and the guarantors seek
to lay a challenge to the Judgment & Order dated 20.03.2013,
whereby the learned District Judge, Uttara Kannada, Karwar
having favoured lenders Miscellaneous Case No.5/2008 filed
under Sections 31(1) & 32 of the State Financial Corporation
Act, 1951, has held them liable to pay a sum of
Rs.8,75,63,691/- with current interest at the rate of
18.5% p.a. and another sum of Rs.1,85,74,890/- with interest
at the rate of 21% from the date of petition, with post
judgment interest at the reduced rate of 15% p.a.
2. After service of notice, the respondent lender i.e.,
Karnataka State Industrial Investment and Development
Corporation Ltd., (hereafter 'KSIIDC') having entered
appearance through its counsel resisted these appeals making
submission in justification of the impugned Judgment & Order
and the reasons on which they have been constructed.
Learned Sr. Adv. Shri G.S. Khannur taking the Court through
the LCR contends that, though the challenge lies both in law
and facts, the Court below having considered the pleadings of
the parties and the evidentiary material borne out from the
records has entered the subject Judgment & Order and
therefore, interference at the hands of this Court is not
warranted, the arguable insignificant lacunae therein,
notwithstanding.
3. Brief facts:
(a) The KSIIDC is a lending agency which answers the
description of State Financial Corporation under the provisions
of SFC Act; it is a State Government Agency; the appellant
No.1(a) namely M/s. Cham Lukkung Pvt. Ltd., is a company
(hereafter 'the borrower') incorporated under the provisions of
the erstwhile Companies Act, 1956; the other respondents
happen to be the guarantors; in April 1996, the KSIIDC had
advanced a Term Loan of Rs.1 crore with 21% interest p.a.
to be charged on quarterly rests; subsequently a Bridge
Loan of Rs.25 lakh with compound interest at the rate of 25%
p.a. to be levied on quarterly rests came to be advanced in
May 1996.
(b) These loans were secured by the mortgage of certain
properties in addition to the personal guarantee of other
respondents; the above loans having remained over due and
no repayment having been made despite demand, the KSIIDC
had taken over the plant and machinery by invoking Section
29 of the Act; the Miscellaneous case came to be filed against
the borrower and the guarantors; the same was resisted by
filing objections, inter alia contending that the claim was not
maintainable in law and that the guarantors have not put their
signatures to the loan papers at all.
(c) From the side of KSIIDC, its official Shri G.C.
Kempahonnaiah got examined as PW1 and in his deposition,
12 documents came to be marked as per Exs.P1 to P12 which
inter alia comprised of loan documents, loan sanction letter,
guarantee agreement, demand notice & legal notice and the
account extract. From the side of the guarantors one Mr. Hari
Ram Cham i.e., one of the guarantor for the Term Loan was
examined as RW1; the learned Judge of the Court below
having adverted to pleadings of the parties and having
weighed the evidentiary material on record has made the
subject Judgment & Order that are put in challenge both by
the borrower and the guarantors before us.
4. We have heard the learned counsel for the
parties, perused the appeal papers and the original TCR; we
have adverted to the rulings cited at the Bar; we are inclined
to grant a marginal indulgence in the matter as under and for
the following reasons:
(i) A 'Term Loan' of Rs.100 lakh was sanctioned vide
letter dated 18.03.1995, the loan documents have been
signed by the Directors of the borrower company on duly
stamped papers; by way of security of repayment mortgage
has been created of the plant & machinery and the land on
which they are founded; this Term Loan has been
guaranteed by the sureties namely the respondent Nos.2 & 3;
however, the respondent No.4-Ramachandra Panchaksharam
Naidu and respondent No.5-Mr. Munivenkataswamy has
nothing do with this loan, he being one of the five personal
guarantors to the Bridge Loan of Rs.25 lakh; fairly enough,
this is, not much disputed by the Sr. Adv. Mr. Kannur
appearing for KSIIDC that being the position, the liability for
the repayment of this Term Loan is confined to the borrower
company and two guarantors namely Hari Ram K.Cham &
Ramesh K. Cham; there is wealth of evidentiary material
placed on record i.e., TCR which proves this loan transaction
and the suretiship, beyond any pale of doubt; the contra
contention taken up in the objection statement therefore are
rightly rejected by the learned Judge of the Court below.
(ii) The borrower company had availed the 'Bridge
Loan' of Rs.25 lakh only subsequent to availing the Term
Loan and that the appellant Mr. Munivenkataswamy &
Ramachandra Panchaksharam Naidu happen to be two of the
five personal guarantors is again established by the loan
documents and the individual guarantee agreements which
are part of the records; after seeing all this, findings are
recorded by the learned trial Judge; these guarantors had
unconscionably and fraudulently taken a false plea in the
objection statement that he has not signed the guarantee
documents; however cogent evidence having been placed on
record by the lender, it was open to produce the rebuttal
evidence which has not been done by him; there is no
explanation offered by him for not doing this, either; that
being the position, he cannot escape liability at all for the
repayment of loan in question.
(iii) The contention of the guarantors that other four
similar guarantors have not been made parties to the
recovery proceedings and therefore, the KSIIDC could not
have maintained the miscellaneous case is liable to be
rejected; it is always open to the lender to choose any one
from amongst the debtors and sureties for recovering the
common/joint debt; the surety who has repaid the loan
arguably may have right to contribution from the borrower
and other sureties, of course subject to all just exceptions is
beside the point; no law or ruling is brought to our notice that
a recovery proceedings to which only a debtor and few of the
sureties are arraigned as parties, others having been left out
is not maintainable.
(iv) The vehement contention of learned advocates
appearing for the guarantors that the liability of the surety is
coextensive with that of the borrower needs no elaboration,
law being as clear as the Gangetic waters; a guarantor of one
loan cannot be saddled with the liability of another to which
he is not the guarantor, the borrower being the same again
does not need any argument; in the case at hands the
appellants Ramachandra Panchaksharam Naidu &
Munivenkataswamy are the guarantors only for the Bridge
Loan of Rs.25 lakh and therefore, his liability is confined to
this loan and to the exclusion of the aforesaid Term Loan;
the other appellants being the guarantors, are saddled with
the liability in respect of both the loans and in our considered
opinion the same cannot be faltered.
(v) The vehement contention of learned Sr. Adv. A.S.
Ponnanna and learned advocates Mr. Holla & Ramanna that
there being no demand notice, recovery of loans could not
have been ordered by the Court below cannot be
countenanced; firstly, the demand notices are part of the
record; regardless of this factual aspect, law is well settled
since centuries that it is the duty of debtors which necessarily
include the sureties as well, to find the creditor and put into
his pocket the loan amount with all the interest that has
accrued due thereon as per the agreed terms; as already
mentioned above, the guarantors have tried to play fraud on
the Court below and on the lender KSIIDC as well by taking
up a false contention as to they being not the signatories to
the respective guarantee agreements; such of the guarantors
who have taken such a blatantly false plea are liable to be
prosecuted for the offence of perjury; however, it is for the
lender to take appropriate proceedings in this regard.
(vi) The vehement contention of learned Sr. Adv. and other
counsel appearing for the appellants that the loan itself is
time barred the impugned recovery order could not have been
made is difficult to agree with; the terms of guarantee
agreements make it abundantly clear that they comprise not
only a personal guarantee but the continuing ones as well; the
guarantee agreements in the original have been marked in
the evidence of respondent lender; learned Sr. Adv. Mr. G.S.
Kannur is more than justified in drawing our attention to one
of the terms in the guarantee agreement which characterizes
the guarantors as the borrower too; it reads as under:
"14. The Guarantor further declare that as
between the Corporation and the Guarantor, the
Guarantor will be treated as principal debtors
jointly with the company and accordingly the
Guarantor shall not be entitled to and the
Guarantor hereby waives all the rights conferred
on the Guarantor by Sections 133, 134, 135, 139
and 141 of the Indian Contract Act."
(vii) The above apart, there are other terms too in the said
guarantee agreements which repel the contention of Mr. Holla
and Ramana that the enforcement of liability as against the
guarantors had become time-barred; they fervently invoke
the Apex Court decision in Maharashtra State Financial
Corpn. V. Ashok K. Agarwal (2006) 9 SCC 617, in support of
their contention; however, it did not involve a case of
personal-cum-continuous guarantee; it hardly needs to be
mentioned that a decision is an authority for the proposition
that it actually lays down in a given fact matrix and not for all
that, that logically follows from what has been so laid down:
Lord Halsbury in the celebrated case of Quinn V. Leathem,
1901 AC 495.
(viii) The Vehement contention of Mr. Ramana and Mr.
Holla that the proceedings against the guarantors were time
barred does not impress us even otherwise; they cannot
support this contention by placing reliance on the decision of
Apex Court in Deepak Bandari V. Himachala Pradesh State
Industrial Development Corporation Ltd., 2015(5) SCC 518;
Mr. Kannur points out from the very decision that the
limitation of three years under Article 55 of Schedule to the
Limitation Act, 1963 avails in the case at hands inasmuch as
the limitation for instituting the recovery proceedings need to
be reckoned from the date when the amounts received from
the auction of mortgaged/hypothecated properties were
appropriated to the loan and the residue thereby was
ascertained; he thus contends and in our opinion rightly, that
the limitation period begins not from the date when notice
recalling the loan amount was issued; admittedly, the
mortgaged properties were auctioned for a sum of
Rs.15,50,000/- on 29.01.2008; this was pursuant to action
taken u/s 29 of the SFC Act; the Miscellaneous Case has been
presented on 15.04.2008; the proceeds of auction were
received by the lender KSIIDC from the auction buyers in only
June 2008; this aspect has been duly considered by the
learned Judge of the Court below at paragraphs 11, 12 & 13
of the impugned order.
(ix) Learned advocates appearing for the appellants
passionately contended that for computing the limitation
period, we have to bank upon the residuary Article 137 of the
Limitation Act, 1963; in support of this they banked upon a
Full Bench decision of this Court in Karnataka State Financial
Corporation V. Smt. Jaya Menon, ILR 2004 KAR 2735,
wherein arguably it has been held that the limitation for the
proceedings instituted u/s 31 of SFC Act are governed by
Article 137 of the Limitation Act; however, what the Apex
Court observed at paragraph 28 in Deepak Bhandari case
(supra) as under, is in variance with the view of the Full
Bench:
"28. 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 on 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."
(x) To put the above succinctly where the lender in exercise
of power u/s 29 of the SFC Act has taken over the possession
of the mortgaged property and has realized the auction/sale
proceeds thereof, the same have to be appropriated to the
repayment of the loan; thereafter what amount still remains
as due, has to be ascertained; from the date of such
ascertainment the limitation period of three years as provided
under Article 55 has to be reckoned; thus in the fact matrix of
this case there is no scope for invoking residuary Article 137
as rightly contended by learned Sr. Adv. Mr. Kannur; even
otherwise where two decisions of precedential value broadly
covering similar facts are cited at the Bar, the one whose fact
matrix matches more, becomes the guiding star.
(xi) Lastly we will be failing in our duty if we do not
refer to unethical act of the officials of the lender KSIIDC;
admittedly, the mortgaged properties were sold in January
2008; the recovery proceedings have been instituted
subsequent thereto i.e., in April 2008; not even a whisper was
made about the KSIIDC invoking Section 29 of the SFC Act
and auctioning of the mortgaged property for a consideration
of Rs.15,50,000/-; this amount reached hands of the SFC in
August 2008 as admitted by PW1; but nothing prevented it
from amending the pleadings; this it did not do, unfairly to
say the least; strangely the guarantors too did not seek
amendment of their pleadings, either; all this came to light
only in the cross-examination of PW1 done on 19.06.2012;
there is unfairness on the part of the guarantors as well who
had taken up a false plea of not being the signatories to the
guarantee agreements in question; this is a case of unfairness
of the lender qua the unfairness of the sureties; thus far and
not further, we delebrate in the matter.
In the above circumstances and with the above
observations, these appeals are disposed off; the impugned
Judgment & Order are modified holding the guarantors
Mr. Ramachandra Panchaksharam Naidu and
Mr. Munivenkataswamy i.e., the appellants in MFA
No.23064/2013 and MFA No.101186/2020 liable only in
respect of the Bridge Loan of Rs.25 lakh and the interest
that has accrued due thereon and not in respect of Term
Loan, rest of the impugned order is left intact.
Costs made easy.
Sd/-
JUDGE
Sd/-
JUDGE
Vnp*
