Smt Padmini Jagannath vs Karantaka State Industrial ...
2022 Latest Caselaw 1737 Kant

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 4TH DAY OF FEBRUARY, 2022

                        PRESENT

          THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

        THE HON'BLE MR. JUSTICE RAVI V. HOSMANI

                M.F.A.No.3627/2016 (SFC)

BETWEEN :

SMT.PADMINI JAGANNATH
W/O SRI H.JAGANNATH
SINCE DEAD REP. BY HER LRs.

1.      Mr. DEEPAK JAGANNATH
        S/O LATE H.JAGANNATH
        AGED ABOUT 38 YEARS

2.      Mr. VARUN JAGANNATH
        S/O LATE H.JAGANNATH
        AGED ABOUT 34 YEARS

        R/AT NO.255, 15TH MAIN,
        RMV EXTENSION, SADASHIVANAGAR,
        BENGALURU - 560 080                ...APPELLANTS

         (BY SRI C.R.GOPALASWAMY, SENIOR ADV. A/W
                 SRI K.M.SOMASHEKARA, ADV.)

AND :

1.      KARNATAKA STATE INDUSTRIAL
        INVESTMENT & DEVELOPMENT
        CORPORATION LIMITED
        HAVING ITS REGISTERED OFFICE
        AT 'MSIL HOUSE', NO.36,
        CUNNINGHAM ROAD,
                       -2-

     BENGALURU - 560 052
     REP BY ITS ASSISTANT
     GENERAL MANAGER (LEGAL)

2.   M/s SANSUI GARMENTS PVT. LTD.,
     NO.102, III MAIN, III CROSS,
     II STAGE, INDUSTRIAL SUBURF
     YESWANTHAPURA, BENGALURU - 560 022
     REP BY ITS MANAGING DIRECTOR.

3.   SRI M.R.PATEL
     S/O LATE J.MAHADEVANA GOUDA,
     MAJOR, R/AT NO.132, 3RD MAIN,
     8TH CROSS, S.F.H.S. B.D.A.,
     RMV II STAGE, NEW BEL ROAD,
     BENGALURU - 560 094.

4.   KUSUMA PATEL
     W/O SRI M.R.PATEL, MAJOR,
     R/AT NO.132, 3RD MAIN,
     8TH CROSS, S.F.H.S. B.D.A.,
     RMV II STAGE, NEW BEL ROAD,
     BENGALURU - 560 094.

5.   SRI R.M.SURESH CHANDRA
     S/O LATE R.MARISWAMY, MAJOR,
     R/AT NO.164, AGS LAYOUT
     NEW BEL ROAD, BENGALURU - 560 094.

6.   SMT.PARVATHISURESH CHANDRA
     W/O SRI R.M.SURESH CHANDRA
     MAJOR, R/AT NO.164, AGS LAYOUT,
     NEW BEL ROAD, BENGALURU - 560 094.

7.   SRI R.M.SUNDERESH
     S/O LATE R.MARISWAMY, MAJOR
     R/AT NO.164, AGS LAYOUT
     NEW BEL ROAD,
     BENGALURU - 560 094.              ...RESPONDENTS

           (BY SRI V.K.KUMBAR, ADV. FOR R-1;
VIDE COURT ORDER DATED 16.11.2021 NOTICE TO R-2 TO R-7
                  IS DISPENSED WITH.)
                        -3-

     THIS M.F.A. IS FILED UNDER SECTION 32(9) OF THE
STATE FINANCIAL CORPORTION ACT, AGAINST THE ORDER
DATED 09.03.2016 PASSED IN MISC.NO.906/1998 ON THE FILE
OF 37TH ADDITIONAL CITY CIVIL AND SESSIONS JUDGE
(CCH-38), BENGALURU, ALLOWING THE PETTION FILED UNDER
SECTIONS 31(1)(1)(aa) AND 32(1) OF THE STATE FINANCIAL
CORPORATION ACT.

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



                    JUDGMENT

This appeal is filed by the legal heirs of Smt

Padmini Jagannath challenging the order dated

9.3.2016 passed in Misc.No.906/1998 on the file of the

XXXVII Additional City Civil and Sessions Judge (CCH-

38), Bengaluru, ('Trial Court' for short) along with an

application (IA.2/2016) seeking leave of the Court to

prosecute the appeal as legal heirs of deceased Smt

Padmini Jagannath, who was respondent No.7 in the

proceedings before the Trial Court, which is allowed by

a separate order.

2. For the sake of convenience, the parties

herein are referred to as per their ranking before the

Trial Court.

3. Succinctly stated the facts are that the

petitioner has initiated recovery proceedings under

Section 31(1)(aa) and 32(1) of the State Financial

Corporations Act, 1951 ('Act' for short) against

respondent Nos.1 to 7 for recovery of a total sum of

Rs.1,33,17,882.98 with cost and interest. In the said

proceedings, respondent No.7 had entered appearance

and filed a detailed statement of objections contending

that she never offered any guarantee, the respondent

Nos.1 to 6 had fabricated and forged the documents and

pledged with the petitioner. Accordingly, the petitioner

has verified the documents and having found that

respondent Nos.1 to 6 have played fraud while obtaining

the loan, initiated criminal proceedings against them.

4. In the meanwhile, Smt Padmini Jagannath-

respondent No.7 died on 5.8.2012 and the same was

brought to the notice of the Trial Court. The petitioner

has not taken any steps to bring the legal

representatives of deceased Padmini

Jagannath/respondent No.7 on record and as such, the

proceedings got abated against respondent No.7, by

order dated 13.7.2015. Thereafter, the learned Trial

judge after considering the matter on merits passed the

order holding that the petitioner - Corporation is

entitled to recover the petition claim amount of

(respondent No.7 is abated) with future interest at the

rate of 26% p.a., on the footing of compound interest on

quarterly rest basis till realization. However, further

proceeded to observe that in default to comply with the

said order, the petitioner is at liberty to recover the dues

through the sale proceeds of the petition schedule

property. Being aggrieved by the portion of the

aforesaid order insofar as it relates to "in default to

comply with this order, the petitioner is at liberty to

recover through proceeds the sale of the petition

schedule property", the legal representatives of

respondent No.7 have preferred this appeal.

5. The learned counsel for the appellants/legal

representatives of respondent No.7 submitted that

respondent No.7 has categorically contended in her

statement of objections that she never offered any

collateral security to the petitioner - financial

corporation on behalf of respondent No.1-company or

any other respondents. She had contended that the

respondent Nos.1 to 6 were strangers to her and at no

point of time, she executed any such documents. No

documents were produced by the petitioner to establish

that the subject property was mortgaged in it's favour.

The so-called title deeds deposited with the petitioner -

financial corporation were not produced before the Trial

Court and without production and ascertaining the

genuineness of the same, ordering the sale of the

subject property to recover the loan amount, is totally

illegal and erroneous. The petitioner, after verifying the

documents, indeed had initiated criminal proceedings

by filing a private complaint against respondent Nos.1

to 6.

6. Nextly, it was argued that the Miscellaneous

Petition having been dismissed against respondent

No.7, the Trial Court reserving liberty to the petitioner

to recover the dues through the sale proceeds of the

subject property, is wholly untenable. On these

grounds, the learned counsel sought for interference of

this Court.

7. Learned counsel Sri V.F.Kumbar appearing

for the petitioner- financial corporation though made an

endeavor to justify the impugned order, but fairly

admitted that criminal proceedings were initiated

against respondent Nos.1 to 6 for the alleged fabrication

of the documents relating to the subject property of

respondent No.7. Further, the learned counsel was not

able to substantiate his support to the impugned order

inasmuch as Misc.No.906/1998 having been dismissed

against respondent No.7 as abated.

8. We have carefully considered the

submissions made by the learned counsel appearing for

the parties and perused the material on record.

     9.      The    core   point   that   arises   for   our

consideration is,

Whether the Trial Court was justified in reserving liberty to petitioner to recover the dues through sale proceeds of the petition schedule property in default of compliance of the order by respondent Nos.1 to 6?

10. The respondent No.1 - company had sought

for financial assistance for manufacture of readymade

garments. As per the petition averments, the petitioner

- financial corporation has sanctioned Rs.100 lakhs and

respondent Nos.1 to 7 were required to pay the loan of

Rs.1,33,17,882.98, the respondents Nos.1 to 6 being

the executors of the guarantee deeds and respondent

No.7 as a surety for depositing the title deeds. On

service of notice, except respondent No.6 objections

were filed by the other respondents. Since no steps

were taken by the petitioner to bring the legal

representatives of deceased respondent No.7

subsequent to her death during the pendency of the

petition proceedings on record, the Miscellaneous

Petition came to be dismissed against respondent No.7

as abated and objections filed by respondent No.7 were

not taken into consideration. The petitioner got

examined one witness Sri M.Manjunath, the Manager of

- 10 -

the Corporation and marked documents Exs.P1 to P10.

No evidence was led in by the respondents.

11. After considering the evidence available on

record, the following points were framed and answered

in affirmative by the Trial Court;

"1) Whether the Petitioner - Corporation is entitled for the relief as sought in the petition?

2) What order?"

12. Section 31 deals with the Special Provisions

for enforcement of claims by Financial Corporation.

Section 31(1)(aa) provides for enforcing the liability of

any surety where an industrial concern, in breach of

any 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 agreements with the Financial Corporation or

- 11 -

where the Financial Corporation requires an industrial

concern to make immediate payment of any loan or

advance under Section 30 and the industrial concern

fails to make such repayment.

13. In terms of sub-section (1) of Section 32,

when the application is filed under clause (a) and (c) of

sub-section (1) of Section 31, the District Judge shall

pass an ad interim order attaching the security, or so

much of the property of the industrial concern as would

on being sold realize in his estimate an amount

equivalent in value to the outstanding liability of the

industrial concern to the Financial Corporation,

together with costs of the proceedings taken under

Section 31, with or without an ad interim injunction

restraining the industrial concern from transferring or

removing its machinery, plant or equipment.

14. It is well settled legal principle that in order

to prove the existence of an equitable mortgage, the

- 12 -

following requisites are necessary: (1) a debt; (2) a

deposit of title deeds, and (3) an intention that the

deeds shall be security for the debt. Unless an intention

that the deeds shall be security for the debt is

established, on a mere presumption of deposit of title

deeds, no mortgage could be said to have been created.

The key factor, whether parties had agreed to treat the

documents in the possession of the creditor or his agent

as delivery to him for the purpose of transaction plays

an important role. In view of the dismissal of petition as

abated against respondent No.7, no efforts are made by

the Corporation to prove these necessary aspects which

goes fatal to the case. In such circumstances, the Trial

Court putting a condition with respect to the subject

property of the respondent No.7 in case of default by

Respondent Nos.1 to 6 to comply the judgment and

order is wholly untenable.

- 13 -

15. The relevant paragraphs of the private

complaint (Annexure-F) filed by the petitioner - financial

corporation before the jurisdictional criminal court read

thus;

"22. That Smt.Padmini Jagannath, whose property was attached as aforesaid put in appearance through her counsel in the pending Misc. Petition. In the Objection Statement filed by Smt.Padmini Jagannath, it is averred that she has never offered the said property as a Collateral Security to the loan raised by the accused and all the title deeds of the property, which is in her occupation, are in her possession and custody.

23. That feeling something fishy, the Complainant took up investigation to find out genuineness of the Documents produced as Document No.06 to Document - 12, which are the alleged title deeds of the said property.

24. That on enquiry, the Sub-Registrar, Gandhinagar, Bangalore, in whose Office, the Sale deed dt. 6.10.82 purposed to have been

- 14 -

registered, gave an endorsement to the Complainant indicating that no document bearing Registration No.2114/82-83 dt. 30.10.1982, has been registered in his Office. A copy of the endorsement is produced as Document - 16."

16. The aforesaid contentions raised by the

petitioner - financial corporation before the

jurisdictional court in the private complaint made

against respondent Nos.1 to 6 would clearly raise a

doubt about the title deeds said to have been deposited

by respondent No.7. Be that as it may, for the reasons

best known to the petitioner - financial corporation no

steps were taken to bring the legal representatives of

respondent No.7 on record.

17. The Trial Court having dismissed the

petition against respondent No.7 as abated not even

taking the objections filed by respondent No.7 for

consideration, ought not to have passed the order

- 15 -

against respondent No.7. Dismissal of the petition

against respondent No.7 would not further give rise to

any such relief to the petitioner - financial corporation

inasmuch as recovering dues through the sale proceeds

of the petition schedule property standing in the name

of respondent No.7 in default of compliance by

respondent Nos.1 to 6.

18. It is settled legal principle that on dismissal

of the petition against the surety, the so-called

attachment of the property pursuant to the interim

order would not subsist. In other words, all actions

against respondent No.7 initiated have to be negated by

virtue of the dismissal order. Hence, the order of the

Trial Court to the extent of challenge made herein is

wholly unsustainable and deserves to be set aside.

19. Accordingly, the following;

ORDER

I. Appeal is allowed.

- 16 -

II. The impugned order dated 9.3.2016 passed

by the XXXVII Additional City Civil and

Sessions Judge (CCH-38), Bengaluru, in

Misc. No.906/1998 and the impugned

certificate for recovery of amount dated

15.3.2016 issued by the XXXVII City Civil

and Sessions Judge (CCH-38), Bengaluru,

are set aside insofar as it relates to "In

default of comply with this order, the

petitioner is at liberty to recover the dues

through the proceeds after sale of the

petition schedule property".

III. Consequential attachment order passed

relating to the petition schedule property,

stands removed.

- 17 -

IV. In all other respects, the order and the

certificate dated 09.03.2016 passed by the

trial Court in Misc.No.906/1998 remain

intact.

No order as to costs.

Sd/-

JUDGE

Sd/-

JUDGE

nd