Karnataka State Financial ... vs Jayashree R Manoli
2023 Latest Caselaw 2296 Kant

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                                                       RSA No. 3112 of 2007




                      IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                          DATED THIS THE 20TH DAY OF APRIL, 2023

                                           BEFORE
                          THE HON'BLE MR JUSTICE G BASAVARAJA
                      REGULAR SECOND APPEAL NO. 3112 OF 2007 (DEC)
                 BETWEEN:
                 1.    KARNATAKA STATE FINANCIAL CORPORATION,
                       REPRESENTED BY ITS MANAGING DIRECTOR,
                       HEAD OFFICE NO 1/1, THIMMAIAH ROAD,
                       CANTONMENT RAILWAY STATION,
                       BANGALORE - 560 052.
                 2.    THE DEPUTY GENERAL MANAGER,
                       KARNATAKA STATE FINANCIAL CORPORATION
                       DIVISIONAL OFFICE, NEAR NAVANAGAR
                       HUBLI - 580 020
                 3.    THE BRANCH MANAGER,
                       KARNATAKA STATE FINANCIAL CORPORATION,
                       BRANCH OFFICE NO 2253, 2 FLOOR,
                       APARNA COMPLEX, 2ND MAIN, VINOBA NAGAR
                       OPPOSITE RAMAKRISHNASHRAMA
                       DAVANGERE - 577006
                                                                ...APPELLANTS
                 (BY SRI. L. GOVINDRAJ.,ADVOCATE)
                 AND:
Digitally
signed by              JAYASHREE R. MANOLI,
HARSHITHA B
                       W/O RAMESH S MANOLIAGED
Location: High
Court of               ABOUT 42 YEARS,
Karnataka              RESIDENTIAL ADDRESS:
                       DOOR NO 2001/1, MCC A BLOCK
                       DAVANGERE - 577006
                                                                ...RESPONDENT
                 (BY SRI. UDAYKUMAR SINGH.,ADVOCATE)

                       THIS RSA IS FILED U/S. 100 OF CPC AGAINST THE
                 JUDGEMENT AND DECREE DTD 31.10.07 PASSED IN R.A.NO 106/02
                 ON THE FILE OF THE ADDL. SESSIONS JUDGE AND PRESIDING
                 OFFICER, FAST TRACK COURT-II, DAVANAGERE, ALLOWING THE
                 APPEAL AND SETTING ASIDE    THE JUDGEMENT AND DECREE DTD
                 20.2.02 PASSED IN OS 493/98 ON THE FILE OF THE PRL. CIVIL
                 JUDGE, (JR.DN), DAVANAGERE.
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                                           RSA No. 3112 of 2007




     THE ABOVE APPEAL HAVING BEEN HEARD ON 23.02.2023 AND
RESERVED FOR JUDGMENT, COMING ON FOR "PRONOUNCEMENT
OF JUDGMENT" THIS DAY, THE COURT DELIVERED THE
FOLLOWING:



                          JUDGMENT

The present appeal is filed by the defendants

aggrieved by the judgment and decreed dated 31.10.2007

passed in R.A.No.106/2002 on the file of the Addl.

Sessions Judge, Fast Track Court-II, Davangere, by which

the First Appellate Court allowed the appeal filed by the

plaintiff and set aside the judgment and decree passed by

the Prl. Civil Judge (Jr.Dn.) in O.S.No.493/1998 dated

20.02.2002.

2. The parties are referred to by their rank before

the Trial Court for the sake of convenience.

3. The plaintiff/Jayashree R. Manoli, has filed a

suit before the Trial Court against the defendants for

following reliefs.

a) For declaration that the act of the defendants to proceed against the plaintiff and the properties offered as security by the plaintiff is highly illegal;

RSA No. 3112 of 2007

b) Consequently for permanent injunction to restrain the defendants, their agents, their subordinates, their officials, their attorneys or any other persons claiming under the defendants from calling upon the plaintiff to pay the loan installments and interest, as the same is prejudicial to the right and interest of the plaintiff.

c) For permanent injunction restraining the defendants, their agents, their subordinates, their officials, their attorneys or any other person or persons claiming under the defendants from proceeding against the plaintiff in any manner to recover the loan installments and interest in respect of Modi Xerox Machine, as the same is prejudicial to the right and interest of the plaintiff;

d) For mandatory injunction directing the defendants to return all the title deeds furnished by the plaintiff as security at the time of availing the security at the time of availing the financial assistance for the purpose of purchasing Modi Xerox Machine,

e) For court costs and to grant such other reliefs as the Hon'ble court deems fit to grant under the circumstances of the case.

4. The case of the plaintiff is that, she is an

engineering graduate. She thought of involving herself in

an avocation and with that intention she decided to have

zerox machine, for the purpose of purchasing zerox

machine, she approached the 3rd defendant for financial

assistance in the month of January 1998. Her application

RSA No. 3112 of 2007

was considered by the first Defendant and a sum of

Rs.75,000/- was sanctioned for the purpose of purchasing

Modi Zerox Machine. She has invested nearly Re.25,000/-.

The loan was sanctioned to install zerox Machine in the

premises bearing D.No.2667/301, Dental college road

Davangere. The 3rd defendant informed her about the

sanction of the loan and the various terms and conditions

of the loan. According to the terms and conditions of the

sanction letter she availed financial assistance to the tune

of Rs.75,000/- in the month of January 1998 and she

purchased Modi Zerox Machine in the month of January

1998. The said fact is well within the knowledge of the

defendants. After purchasing the zerox machine she

started carrying on business in the premises. Her unit is a

small scale industrial unit. According to the terms and

conditions of loan, Insurance of the article is compulsory.

According to condition 4(a) where the sanction loan

amount is less than Rs.5,00,000/- the same is to be

insured in consultation with the borrower with any national

insurance company for fire, strike or any other causes

RSA No. 3112 of 2007

within the knowledge of the borrower, on account of

which, there is likelihood of loss that may be caused to the

article. Since all these terms and conditions are imposed

by the defendants the same are binding on them.

5. The defendants have no right to act contrary to

the terms and condition in view of the specific terms and

conditions incorporated in the sanction letter the

defendants had no right to take out any insurance

company policy in respect of the article i.e., Modi Zerox

Machine purchased by her raising loan from the

defendants without her knowledge concurrence and

consent. While she was carrying on the business, on 29-

07-1998. Some miscreants broke upon the lock of the

premises and committed theft of the said modi zerox

machine. Immediately the plaintiff lodged complaint with

the Extension Police Davangere through her husband, the

case is registered in crime No.307/1998. The matter is still

under investigation. After lodging the complaint with the

police she wrote a letter to the 3rd defendant on

RSA No. 3112 of 2007

01.08.1998 in the said letter she had intimated the 3rd

defendant about the theft of Zerox Machine and requested

the 3rd defendant to lodge a claim with concerned

insurance company and further requested to adjust the

amount to be paid by insurance company to her loan

account. This letter is received by the 3rd defendant on

1.8.1998 itself. Even though the defendants received letter

on 01.08.1998 failed to respond to the letter. As she did

not hear anything from the defendants there was no other

way except to issue notice to the defendants. Whom she

was contemplating to issue notice, she received the reply

from the 3rd defendant dated 31.08.1998 to the effect

that they have taken out only fire policy and therefore, it

is not possible to get any compensation from the

insurance company.

6. After receiving the reply she came to know that

the defendant unilaterally acted and that too in

contravention of the terms and conditions of their own

sanction letter. Even though it was mandatory for the

RSA No. 3112 of 2007

defendants to consult her about the nature of the policy to

be taken in respect of the goods hypothecated in favour of

the defendants, The defendants for the reasons best

known to them have not consulted her, that apart, even

though the zerox machine was installed in the month of

January 1998, as learnt by the plaintiff, the defendants

have not taken out the policy immediately. On the other

hand, policy is taken in the month March 1998. Thus there

is not only negligence on the part of the defendants but

also there is dereliction of duty on the part of the

defendants, Now the defendants cannot take undue

advantage of fastening their own negligence on fastening

the liability on the plaintiffs. It is further contended that

she got issued a notice to the defendants on 02.09.1998

calling upon them to indemnify her for lapse and

negligence on their part in not obtaining insurance policy

to cover the risk of burglury. This notice is served on the

defendants. Till filing of the suit, defendants have not

taken any pains to respond to the notice. Inspite of service

of notice, the defendants have neither comply with the

RSA No. 3112 of 2007

terms made in the notice nor they have sent any reply.

Therefore defendants have no right to call upon her to pay

the loan installments or interest, similar the defendants

have no right to proceed against her or the property

offered as security by her. Inspite of having the knowledge

the defendants have issued the notice calling upon her to

pay loan installments as well as interest. This demand

made by the defendants is highly illegal. The defendants

should not be permitted to perpetuate illegal acts. The

same is to be prevented by proper mandate of Hon'ble

court. If not prevented in view of what is stated about she

will be put to irreparable and legal injury which can be

never compensated at all. Hence, this suit.

7. Defendant No.3 filed written statement. It is

admitted that the plaintiff has intimated about theft of

zerox machine and also sought for lodging the claim with

insurance company and for appropriation of the insurance

amount to the loan amount. It is not admitted that the

said letter was delivered on 01.08.1998 as alleged by the

RSA No. 3112 of 2007

plaintiff. It is denied that only after reply dated

31.08.1998 the plaintiff came to know that there is

insurance to cover only risk of fire and securing such

policy was unilateral act and was in contravention of the

terms and conditions of the sanction letter and it was

mandatory on their part to consult the plaintiff about the

nature of the policy to be taken in respect of the

hypothecated goods and that they have not consulted the

plaintiff in this regard and the plaintiff started her business

in the month of January 1998 and that defendants have

not secured the policy immediately to obtain the policy in

the month of March 1998. Further it is contended that, the

unit of the plaintiff is covered under small scale industry.

It is a fact that if the unit is other than the small scale

industry, defendants would have insisted for

comprehensive policy covering all type of risk under shop

keepers categorical (commercial) fire policy was secured

with the concurrence and knowledge of the plaintiff and

she was aware of the nature of the policy secured as on

02.03.1998. According to them, the plaintiff is attempting

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RSA No. 3112 of 2007

to make out wrongful gain for herself. The plaintiff cannot

deprive the right of the defendants to recover the loan

subsisting on her unit and proceed against the collateral

security. The plaintiff is liable to pay the loan advanced

together with interest. The claim of the plaintiff does not

overlap the recovery proceedings to be initiated. The

liability to repay the term loan begins from the first

December 1998 in view of loosing the machinery

Hypothecated by the plaintiff in favour of the defendants,

the defendants are constrained to recall the entire loan

due from the plaintiff. The plaintiff has not complied with

the terms of the reply notice dated 06.11.1998.

Consequently 3rd defendant constrained to initiate

recovery proceedings by recalling the entire loan due from

the plaintiff. In case, recovery proceedings are obstructed

by the plaintiff/defendants will be put to irreparable loss

and legal injury. There is no cause of action to file this

suit. The plaintiff is not entitled to the reliefs prayed for.

The plaintiffs has not approached the court with clean

hands. The suit filed by the plaintiff is frivolous, fictitious

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RSA No. 3112 of 2007

and vexatious. Therefore, they are entitled to exemplary

costs of Rs.2,000/-.

8. On the basis of pleadings of both the parties,

the Trial Court framed the following issues:

1) Whether plaintiff proves that as per condition No.4(a) the defendant has to insure the xerox machine and risk of theft is to be covered?

2) Whether plaintiff prove that he is not liable to pay the installments of the loan taken by the third defendant?

3) Whether plaintiff is entitle for the reliefs as sought for?

4) What order or degree?

9. To prove the case of the plaintiff one witness

examined as PW.1 and got marked 18 documents at

Exs.P1 to P18. On behalf of defendants, DW.1 was

examined and got marked 5 documents as Exs.D1 to 5.

On hearing the arguments on both sides, the Trial Court

has given finding on issue Nos.1 to 3 in the Negative and

dismissed the suit of the plaintiff.

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RSA No. 3112 of 2007

10. Being aggrieved by this judgment and decree,

the plaintiff has preferred appeal before the First Appellate

Court in R.A.No.106/2002.

11. On hearing the arguments on both sides, the

First Appellate Court has framed the following points for

consideration:

(i) Whether the appellant/plaintiff has proved that the respondents/defendants without consulting her and without her knowledge, unilaterally had insured Modi zerox Machine only to cover risk of fire?

(ii) Whether the appellant/plaintiff, has proved that the respondents have acted negligently in getting the Modi Zerox Machine insured only to cover fire risk. Therefore, they cannot take advantage of their own wrong?

(iii) Whether the judgment and decree passed by the Trial Court calls for interference?

(iv) What order?

12. The First Appellate Court has given the findings

as under:

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RSA No. 3112 of 2007

Point No.1 : In the Affirmative Point No.2 : In the Affirmative Point No.3 : In the Affirmative Point No.4 : As per final order

13. In view of the above findings, the First

Appellate Court has allowed the appeal filed by the

appellant/plaintiff and decreed the suit of the plaintiff and

passed the judgment and decree in favour of the plaintiff.

The operative portion of the judgment of the First

Appellate Court is as under:

"The appeal is allowed. In the facts and circumstances, parties are directed to bear their own costs throughout.

The judgment and decree dated 20th February 2002 passed in 0.S.No.493/1998 is hereby set aside and suit of the plaintiff is decreed in part as under:

It is hereby ordered and decreed that, the act of the defendants/respondents to proceed against the plaintiff and the properties offered as security is illegal and arbitrary. The defendants/respondents are hereby directed to refund Rs.1,22,864/- paid by the plaintiff/appellant by means of Demand Draft of the State Bank of Mysore, P.J.Extn., Brach dated 28.03.2 and to return all the title deeds furnished by the plaintiff as security at the time of availing the financial assistance for the purpose of purchasing Modi Zerox Machine within one month from the date of this order.

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RSA No. 3112 of 2007

Draw decree accordingly.

Send a copy of this judgment to the Trial Court along with Trial Court records."

14. Being aggrieved by this judgment and decree

passed by the First Appellate Court, defendant Nos.1 to 3

have preferred this regular second appeal.

15. This Court vide order dated 07.12.2011 while

admitting the appeal formulated the substantial question

of law as under:

1. Whether the lower appellate court justified in directing the appellant to refund sum of Rs.1,22,864/- recovered from the respondent though there is no prayer made in the suit?

2. Whether interpretation of clause 4, of the agreement extend into between the parties, by the lower appellate court is in accordance with law?

16. The learned counsel for the appellants

submitted that, the judgment and decree passed by the

First Appellate Court is erroneous both in law and facts.

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RSA No. 3112 of 2007

The First Appellate Court has not properly appreciated the

evidence on record. The First Appellate Court erred in

considering the judgment of the Trial Court. The First

Appellate Court has also proceeded to grant relief without

there being any prayer/relief claimed by the respondent.

The First Appellate Court has failed to see that clause 4(a)

of the terms and agreement, it clearly indicated that it was

the responsibility of respondent to seek insurance on any

other ground apart from regular fire and riot insurance

policy which was taken by the Corporation by was of

abundant caution. The First Appellate Court also failed to

see that the respondent was a consenting party to the

insurance taken out by the Corporation. The First

Appellate Court has gone about adjudging the case

tangentially. The First Appellate Court has based its

judgment on issues which have no bearing on the

questions involved in the case. Further it is submitted that

the First Appellate Court has failed to see that the relief of

declaration restraining the appellants, a statutory body

from recovering its dues could be brought and that a suit

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RSA No. 3112 of 2007

for declaration could only lie in a matter relating to a legal

character or to any right as to any property or denial of

title. Further submitted that the First Appellate Court has

erred in restraining a statutory authority from exercising

the powers under the Karnataka State Financial

Corporation's Act. Thus, preventing realization of public

funds. On all these grounds sought for allow this appeal.

17. To substantiate his arguments he relied

following decisions:

i) ILR 1994 Kar 540: Karnataka State Financial Corporation vs. M/s Associated Engineers;

ii) ILR 1974 Kar 1275: Dr.Narayan vs. Dr.R.Vaidyanath & Ors.

iii) ILR 1985 Kar 2460: State of Karnataka vs. Vishwanatha Rao.

18. The plaintiff has filed a suit for declaration and

consequential relief for permanent injunction and

mandatory injunction and also to grant other reliefs as

court deem fit to grant under circumstances of this case.

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RSA No. 3112 of 2007

19. It is the case of the plaintiff that the plaintiff

has obtained a loan of Rs.75,000/- in the month of

January 1998 from defendant No.3 for purchase of Modi

xerox machine. The unit of the plaintiff is a small scale

industrial unit. According to the terms and conditions of

which the loan was sanctioned to the plaintiff. Insurance

of the article is compulsory. According to Condition

No.4(a) where the sanctioned loan amount of less than

Rs.5 lakhs, the same is to be insured in consultation with

the borrower with any national insurance company for fire

strike or any other purpose within the knowledge of the

borrower. Further it is the case of the plaintiff that

defendant No.3 had inspected the premises where the

Xerox machine after installing the Xerox machine the

defendants were collecting the loan installment as well as

interest from the plaintiff. While plaintiff was carrying on

the business that on 29.07.1998 same miscreants broke

open the lock of the premises and committed theft of the

Modi Xerox machine. Immediately the plaintiff lodged

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RSA No. 3112 of 2007

complaint with the police through her husband and case

was registered in Crime No.307/1998. After lodging

complaint the plaintiff wrote a letter to the defendants and

though defendants received letter on 01.08.1998, they

failed to respond to the letter of the plaintiff. Even

plaintiff waited nearly a month. As the plaintiff did not

hear from the defendants, there was no other way to

plaintiff to issue notice to defendants. Later it is alleged

that plaintiff received the reply notice from the defendant

No.3, which is dated 31.08.1998 to the effect that

defendant No.3 has taken out only Fire policy. Therefore

it is not possible to get any compensation from the

insurance company. After receiving the said reply, plaintiff

came to know that defendants unilaterally acted and that

too in contravention of the terms and conditions of their

own sanction letter. Thereafter plaintiff got issued notice

to the defendants on 02.09.1998 calling upon the them to

indemnify her for the lapse and negligence on the part of

the defendants that notice was duly served on the

defendants. Inspite of service of notice, defendants have

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RSA No. 3112 of 2007

neither complied with the demand made in the notice nor

they have sent any reply. Hence, plaintiff has filed this

suit.

20. To substantiate the case of the plaintiff, she has

examined herself as PW1. 18 documents got marked as

Ex.P-1 to P-18. Defendants have denied liability of the

Karnataka State Financial Corporation and to substantiate

their defence, one Kulkarni D.S. was examined as DW1

and 5 documents were marked as Ex.D-1 to D-5.

21. Trial court has dismissed the suit of the

plaintiff. Ex.D-3 issued by KSFC at Clause 4(a) it is stated

as under:

"C) ªÀÄAdÆgÁzÀ ¸Á®zÀ ªÉƧ®UÀÄ 5.00 ®PÀë gÀÆ UÀ¼ÀÄ CxÀªÁ CzÀQÌAvÀ PÀrªÉÄ EzÀÝ°è ¸ÀA¸ÉÜUÉ ¨sÀzÀævÉAiÀiÁV ¤ÃqÀĪÀ ¸ÀévÀÄÛUÀ½UÉ ¨ÉAQ, ZÀ¼ÀĪÀ½ ªÀÄvÀÄÛ ¤ªÀÄUÉ w½¢gÀĪÀ EvÀgÉ AiÀiÁªÀÅzÁzÀgÀÆ PÁgÀt¢AzÀ ºÁ¤- £ÀµÀÖ DUÀĪÀ ¸ÀA¨sÀªÀ«gÀĪÀÅzÀjAzÀ ¸ÀA¸ÉÜAiÉÄà ¤ªÀÄä Rað£À°è D ¸ÀévÀÄÛUÀ¼À ¥ÀÆtð ªÀiË®PÉÌ ¤ªÀÄä ªÀÄvÀÄÛ ¸ÀA¸ÉÜAiÀÄ dAn ºÉ¸Àj£À°è AiÀiÁªÀÅzÁzÀ gÉÆAzÀÄ gÁ¶ÖçPÀÈvÀ «ªÀiÁ PÀA¥À¤AiÀÄ°è PÀqÁØAiÀĪÁV «ªÉÄ ªÀiÁr¸ÀÄvÀÛzÉ. C®èzÉà EzÀÀ£ÀÄß ¸ÀA¸ÉÜAiÀÄ ¸Á® ZÁ°ÛAiÀÄ°ègÀĪÀ ¸ÀªÀÄAiÀÄzÀ°è PÀqÁØAiÀĪÁV £À«PÀj¸ÀÄvÀÛzÉ. ¸ÀA¸ÉÜAiÀÄÄ ¤ªÀÄä ¥ÀgÀªÁV «ªÉÄAiÀÄ PÀAvÀÄ ªÀÄwÛvÀgÀ ªÉZÀѪÀ£ÀÄß ¨sÀwð ªÀiÁrzÀÝgÉ. CªÀÅUÀ¼À£ÀÄß ¤ÃªÀÅ ¸ÀA¸ÉÜUÉ §rØAiÉÆA¢UÉ vÀÄA§ ¨ÉÃPÁUÀĪÀÅzÀÄ."

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RSA No. 3112 of 2007

22. This is an undisputed document produced b the

defendants. This condition No.4(a) reveals that if the loan

amount is less than Rs.5 lakhs. It is the duty of the KSFC

to get the articles/property given as security for

repayment of loan insured to cover the risk of fire, strike

and any other cause on account of which there is

likelihood of loss of damage to the property given as

security or hypothecated goods and getting property

insured and KSFC shall go on renewing the insurance till

payment of the entire loan at the cost of the loanee.

23. Though it is the duty of the KSFC for getting the

property insured, the KSFC has failed to comply this

Clause '4(a)' of the terms and conditions of the sanction of

loan. A perusal of the judgment and decree passed by the

first appellate court, the first appellate court has

elaborately discussed as to the oral and documentary

evidence placed by the both parties in accordance with law

and facts. I do not find any legal infirmities in the

impugned judgment and decree passed by the first

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RSA No. 3112 of 2007

appellate court. The first appellate court has properly

interpreted the Clause 4 of the agreement entered into

between the parties and the first appellate court has

justified in directing the respondents to refund

Rs.1,22,864/- recovered from the appellant. The first

appellate court has assigned proper reasons with decision

of Hon'ble Apex Court and also provision of Order VII Rule

7 of CPC and passed the impugned judgment and decree

in favour of the plaintiff, which is in accordance with law

and facts. Hence, I answer substantial question of law in

favour of the plaintiff and against defendants.

24. I have carefully gone through the decisions

relied on by the learned counsel for the appellant. The

fact and circumstances of this case are entirely different

from the decisions relied by the learned counsel for the

appellant. Hence, on the basis of this judgment, appeal

cannot be allowed.

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RSA No. 3112 of 2007

25. For the aforestated reasons and discussion, I

proceed to pass the following:

ORDER

(1) Appeal is dismissed with costs.

(2) Registry to send back the records along

with the copy of the judgment to the trial

court.

Sd/-

JUDGE

sdu/DR