Tara Granires Pvt.Ltd vs Karnataka State Industrial
2021 Latest Caselaw 2296 Kant

                                1



            IN THE HIGH COURT OF KARNATAKA
                   KALABURAGI BENCH

         DATED THIS THE 21ST DAY OF JUNE 2021

                           PRESENT
           THE HON'BLE MR.JUSTICE S.G.PANDIT
                              AND
           THE HON'BLE MR.JUSTICE M.G.S.KAMAL

                MFA NO.201920/2014 (KSFC)

Between:

1.     Tara Granites Private Limited
       Registered Office at Paidoddi
       Gurugunta - 584 139
       Taluka Lingasugur, District Raichur
       Unit at Sy.No.82, Golapalli Village
       Gurugunta village, Taluka Lingasugur
       District Raichur
       Represented by its Managing Director/ Director
       Sri B.R. Patil S/o Ranoji Patil

2.     Basavant S/o Ranoji Patil
       Age: 65 Years, Occ: Nil
       R/o Village Paidoddi
       Post: Gurgunta-584 139
       Tq. Lingasugur, Dist. Raichur

                                                    ... Appellants

(By Sri Amresh S. Roja, Advocate)

And:

1.     Karnataka State Industrial Investment
       & Infrastructure Development Corporation Limited (KSIIDC)
       Khanij Bhavan, 49, 4th Floor, East Wing
       Race Course Road, Bangalore- 560 001
       Having its Branch Office at 2nd Floor
                                 2



      G.K.Complex, Opp: Mohan Lodge
      MSK Mill Road, Station Area
      Gulbarga -585 102
      Represented by its Manager

2.    Sri M.R. Patil S/o Ranoji Patil
      Age: 66 years, Occ: R/o H.No.L-146
      Nijalingappa Nagar, Raichur

3.    Sri Amarappagouda S/o Amarappagouda
      Age: 46 Years, R/o Paidoddi Village
      Gurugunta- 584 139
      Taluka Lingasuguru, District Raichur
                                                   ... Respondents

(By Sri R.V. Nadagouda, Advocate for R1;
 Notice to R2 and R3 D/w V.O.D. 04.01.2017)

       This Miscellaneous First Appeal is filed under Section 32(9)
of the State Financial Corporation Act, 1951, praying to set aside
the judgment and award passed in Civil Misc.No.23/2009 dated
26.09.2014 passed by the Prl. District & Sessions Judge at
Raichur.

       This appeal having been heard and reserved for
judgment on 11.06.2021, coming on for pronouncement of
Judgment this day, M.G.S.KAMAL, J., delivered the
following:-

                            JUDGMENT

This appeal under Section 32(9) of the State

Financial Corporation Act, 1951 (for short, 'the Act')

filed against the judgment and order dated 26.09.2014

passed in Civil Miscellaneous No.23/2009 by the

Principal District & Sessions Judge at Raichur

determining the liability of the appellants towards the

respondent No.1 - Karnataka State Industrial

Investment & Infrastructure Development Corporation

Limited (for short, 'Corporation') under Section

31(1)(a)(aa) and Section 32 of the Act for a sum of

Rs.5,24,21,409/- and Rs.1,10,48,116/- and to direct

the respondents to pay the said sum together with

interest at 20% per annum and 20.5% per annum,

respectively.

2. For the sake of convenience and to avoid

overlapping, the parties are referred to as per their rank

before the trial court.

3. The facts leading to filing of the present

appeal briefly stated are that, the respondent No.1, a

private limited company represented by its Managing

Director, respondent No.2 had approached the

petitioner - Corporation for financial assistance by way

of term loan of Rs.101 lakh for the purpose of

establishing unit for cutting, polishing of various types

granites blocks and to manufacture granites slabs and

tiles. The petitioner - Corporation advanced the said

loan amount to the respondent Nos.1 to 3 in terms of

letter of sanction dated 24.05.1996. The respondents

had executed the following documents:

  Sl.           Nature of Documents                Dated
  No
  1       Mortgage deed executed by             20.10.1997

  2       Loan agreement executed by            20.10.1997

  3       Hypothecation deed executed by        20.10.1997

  4       Irrevocable personal guarantee        20.10.1997
          executed by respondent Nos.2
          and 3
  5       Surety agreement by respondent        20.10.1997

4. After execution of the aforesaid documents,

the petitioner - Corporation had released an amount of

Rs.1,00,19,000/- as against Rs.101 lakh. The

respondent No.1 thereafter again approached the

petitioner - Corporation for further financial assistance

in the form of Bridge loan of Rs.25 lakh and the same

was sanctioned on the terms and conditions mentioned

in letter of sanction dated 20.07.2000. Respondent

Nos.2 and 3 had executed the following documents.

  Sl.            Nature of Documents                   Dated
  No
  1          Loan agreement executed by           28.08.2000

  2          Hypothecation deed executed by       28.08.2000

  3          Irrevocable personal guarantee       28.08.2000
             executed by respondent Nos.2
             and 3
  4          Agreement offering security in       28.08.2000
             the form free hold rights over
             immovable       property    by

  5          Agreement offering security in       28.08.2000
             the form free hold rights over
             immovable       property    by
             respondent No.2

        5.      On   execution       of   aforesaid    necessary

documents, the petitioner - Corporation had released

Bridge loan of Rs.14,76,000/- on 25.10.2000 and

Rs.10,00,000/- on 31.03.2001. The respondent Nos.1

to 4 have failed and neglected to repay the installments

resulting in the petitioner - Corporation issuing a

demand notice to them. Since the demand was not met,

the petitioner - Corporation in exercise of its power

under Section 29 of the Act taken over the mortgaged

assets of the respondent No.1. The petitioner -

Corporation made efforts to sell the assets and issued

several advertisements from 01.08.2005 to 18.03.2009.

The petitioner - Corporation auctioned the property of

the respondent No.1 on different dates for an aggregate

sum of Rs.30 lakh which was deposited on 26.11.2010.

Since the appellant was liable to pay term loan of

Rs.4,13,73,293/- and Bridge loan of Rs.1,10,48,116/-,

in all a sum of Rs.5,24,21,409/- as on 05.12.2008 and

the respondents were liable to pay future interest at

20% and 20.5%, respectively compounded quarterly

rests, the petitioner - Corporation invoked the personal

guarantee executed by respondent Nos.2 to 4 by issuing

notice dated 26.02.2009 and in view of non-compliance

with the demand made in the said notice, the petitioner

- Corporation proceeded to invoke the personal

guarantee and collateral securities provided by

respondent Nos.2 to 4 as the respondents were jointly

and severally liable to pay the aforesaid sum together

with future interest. In pursuance thereof, a petition

under Section 31(1)(a)(aa) and Section 32 of the Act

seeking determination of liability of the respondents at

Rs.5,24,21,409/- and future interest thereon was filed.

6. The respondent Nos.1 to 3 appeared through

their counsel. Respondent No.4 remained absent and

was placed ex parte. Respondent Nos.1 to 3 filed their

written statement contending inter alia that the petition

was misconceived and was not maintainable in law as

the same was barred by law of limitation under Article

137 of the Limitation Act being beyond the period of 3

yeas from the date of actual cause of action. However,

they have admitted the transaction and execution of the

loan documents, guarantee and personal guarantee

agreements. They, however denied the liability to pay

the overdue interest and penal interest. It is contended

that the respondents could not pay the loan in view of

the non-availability of working capital from the Bank

and lack of power supply required for level of production

due to which they suffered heavy loss. The cause of

action in the matter arouse in the year 2005 when the

petitioner - Corporation initiated action under Section

29 of the Act. Therefore, the petition had to be filed

within 3 years thereof which according to the

respondents is clearly barred by the law of limitation.

7. On behalf of the petitioner - Corporation, its

Assistant General Manager is examined as P.W.1 and

got marked documents at Exs.P.1 to 24. On the other

hand, respondent No.3 got himself examined as R.W.1

and got marked two documents at Exs.R.1 and 2.

8. The trial court based on rival pleadings,

framed the following points for its consideration.

1. Whether petitioner proves the petition claim against respondents?

2. Whether petition claim is barred by limitation as contended by respondents?

3. What order?.

9. Inasmuch as the respondents had admitted

the loan transaction, disbursement of the loan amount,

its default, execution of loan documents and guarantee

documents and also the statement of account

furnished and issuance of notices, upon scrutiny of the

evidence made available, the trial court determined the

liability as claimed by the Corporation and held that the

respondents were due and liable to pay the same.

10. As regards the issue of limitation, the trial

court applying the law laid down in:

a) Gulhati & Anr. vs. Karnataka State Financial Corporation and Ors., reported in ILR 2007 KAR 44

b) Karnataka State Financial Corporation vs. Smt. Jaya Menon & Anr., reported AIR 2004 KAR 370

c) Syndicate Bank vs. Channaveerappa Beleri & Ors., reported in AIR 2006 SC 1874,

into the facts and circumstances of the case

wherein it has been held that the right to apply accrues

only after service of notice to the surety and that the

guarantor's liability would depend upon the terms of a

contract determined the liability and respondent Nos.1

to 4 jointly and severally liable to pay the amount

claimed by the petitioner - Corporation by its judgment

and award dated 26.09.2014. Aggrieved by the aforesaid

judgment, the respondent Nos.1 and 2 are before this

court.

11. The learned counsel for the appellants-

respondent Nos.1 and 2 submitted that the court below

grossly erred in not considering the factual aspect of the

matter in that the petition under Section 31(1)(a)(aa)

and Section 32 of the Act was barred by limitation in

view of the initiation of the proceedings under Section

29 of the Act even as in the year 2005. It is further

contended that the provisions of Article 137 of the

Limitation Act applies when no period of limitation is

provided elsewhere and that even according to the

petitioner - Corporation the respondents defaulted in

the year 2005 and that the period of limitation of 03

years ought to have been construed to have commenced

when the proceedings under Section 29 of the Act had

been initiated. As such, the filing of petition under

Section 31(1)(a)(aa) and Section 32 of the Act in the year

2009 was beyond the period of limitation. It is further

contended that the said petition under Section

31(1)(a)(aa) and Section 32 of the Act was not

maintainable since even during the pendency of the said

petition the petitioner - Corporation had not recovered

the value of the mortgaged property furnished by the

respondent No.1 and that the relief sought are beyond

the purview of Section 31 of the Act.

12. On the other hand, learned counsel for the

petitioner - Corporation submitted that the petition filed

before the trial court was well within limitation

reckoned from the date of issuing of demand notice

invoking the personal guarantee and collateral security

offered by respondent Nos.1 to 4. He relied upon the

judgment of the Apex Court in the case of Deepak

Bhandari vs. Himachal Pradesh State Industrial

Development Corporation Limited, reported in (2015)

5 SCC 518.

13. Heard the learned counsel for the appellants

and the learned counsel for the contesting respondent

No.1 - Corporation and perused the records.

14. In view of categorical admissions by the

respondents with regard to availing of term loan and

Bridge loan, execution of loan documents, personal

guarantee, security documents, statement of account

and issuance of notices the only question in this appeal,

requires consideration is with regard to period of

limitation in filing the petition under Section 31(1)(a)(aa)

and Section 32 of the Act.

15. The Apex Court in the case of Deepak

Bhandari (supra) at paras-28 and 29 held as under:

"Merely because SFC 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 SFC to take possession and sell the assets for recovery of the dues under the main contract. It may be that on SFC taking action under Section 29 and on their taking possession they become 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. 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."

16. In the instant case, admittedly the petitioner

- Corporation invoked its power under Section 29 of the

Act and issued advertisements from 01.08.2005 to

18.03.2009. Possession of the assets of the

respondents were taken on 15.03.2005 and same were

auctioned same for an aggregate of sum of Rs.30 lakh

which were recovered over a period of time. Even after

adjustment of Rs.30 lakh realized from the sale of

mortgaged assest under Section 29 of the Act.

Respondent No.1 was due in a sum of Rs.5,24,21,409/-

as on 15.12.2008 with future interest thereon to the

petitioner - Corporation, and in view of the default

committed by the respondents, the Corporation issued

notice to the respondent Nos.2 to 4 on 26.02.2009

invoking the personal guarantee and collateral security

provided by respondent Nos.2 to 4, calling upon them to

jointly and severally pay the aforesaid sum. As the

respondents had not complied the demand made

therein, the petition under Section 31(1)(a)(aa) and

Section 32 of the Act was filed on 06.11.2009. Thus,

from the date of issuance of said notice, the filing of the

petition is well within the limitation.

17. It is also necessary to note that it is not the

case of the respondents that the invocation of the

guarantee was against the terms and conditions.

Admittedly, the personal guarantee and the security

offered by the respondents is a continuing guarantee.

The contract of gurantee and surety was invoked for the

first time under the aforesaid notice dated 26.02.2009.

Therefore, the cause of action to file the petition under

Section 31(1)(a)(aa) and Section 32 of the Act arose

when the respondent Nos.1 to 4 remained defiant even

after receipt of aforesaid notice dated 26.02.2009. As

noted above, the petition was filed on 06.11.2009 which

is well within period of 3 years from the date of accrual

of cause of action for the purpose of determination of

the liability of respondent Nos.2 to 4 in terms of the

provisions of the Act.

18. In view of the law laid down by the Apex

Court and under the facts and circumstances of the

case, we are of the considered view that the trial court

has evaluated the facts and circumstances of the matter

in right perspective and has arrived at just conclusion

holding that the petition filed by the petitioner -

Corporation was well within time.

19. It is made clear that any amount

received/recovered by the Corporation in exercise of its

power under Section 29 of the Act needs to be adjusted

against the total outstanding. Further it is made clear

that the impugned judgment and order is only

determination of liability of respondent Nos.2 to 4

towards the Corporation.

In that view of the matter, no grounds are made

out by the respondents warranting interference in the

matter. Therefore, we hold that the appeal is devoid of

merits and same is therefore liable to dismissed.

Accordingly, it is dismissed.

Sd/-

JUDGE

Sd/-

JUDGE BL