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V. Govindappa Since Deceased by L.Rs. and Others Vs. Karnataka State Financial Corporation and Others - Court Judgment

LegalCrystal Citation
CourtKarnataka High Court
Decided On
Case NumberMiscellaneous First Appeal No. 2146 of 2008 (SFC)
Judge
AppellantV. Govindappa Since Deceased by L.Rs. and Others
RespondentKarnataka State Financial Corporation and Others
Advocates:For the Appellants: S.P. Kulkarni, Advocate. For the Respondents: R1, S.G. Pandit, Advocate.
Excerpt:
.....made, unit was sold in public auction for bid amount - sale proceeds realized was adjusted to the loan account of the industrial establishment - loanee having failed to repay balance amount, after issue of notice demanding payment of the arrears of the amount , an application filed respondent contended that, the assistant general manager of the corporation has no authority to file the petition - that there is no relationship of creditor and debtors between the parties - that the court has no jurisdiction to entertain the petition - that they have not obtained any loan from the corporation and that the liability arises out of the alleged sale agreement which is a contractual liability and as to the nature of dispute between the parties, the provisions cannot be invoked - further..........auction for the bid amount of rs.3,10,000/- and the sale proceeds realized was adjusted to the loan account of the industrial establishment. the loanee having failed to repay the balance amount, after issue of notice demanding payment of the arrears of rs.13,64,223.85 as on 10.12.1995, the amount having not been paid and the loan having not been discharged, an application under sections 31(1)(a)(a) and 32 of the act was filed on 26.3.1996. 4. the respondents having been served with notice of the petition, entered appearance through their learned counsel respondents 2 to 6 filed written statement and the other respondents adopted the same. it was interalia contended that, the assistant general manager of the corporation has no authority to file the petition; that there is no.....
Judgment:

A.N. VENUGOPALA GOWDA, J.

1. A petition filed by the 1st respondent under Sections 31(1)(aa) and 32 of the Karnataka State Financial Corporation Act, 1951 (‘the Act’ for short) against the appellants and other respondents having been allowed, the appellants who were respondents 2 and 3 in the Court below have filed this appeal under Section 32(9) of the Act.

2. For convenience, the parties would be referred to with reference to their rank in the petition filed before the Learned District Judge at Kolar.

3. Material facts of the case are:

The petitioner is a Financial Corporation established under Section 3 of the Act. The 1st respondent is a private Limited Company, Respondents 2 to 7 are its directors. The 1st respondent through its direction, respondents 2 and 3/appellants, came forward to purchase the assets including the land and building with plant and machinery of M/s. Hanuman Enterprises. The Corporation agreed to sell the assets of M/s. Hanuman Enterprises for Rs.7,50,000/- and M/s. Maruthi Minerals and Silicates Private Limited the 1st respondent through its directors/respondents 2 and 3/appellants, agreed to purchase the same. The sale agreement was executed by making down payment of Rs.1,00,000/-. The Corporation was requested for financial assistance for the balance amount of Rs.6,50,000/- which was agreed to be paid in 16 monthly instalments along with interest. The appellants furnished personal guarantee. The 1st respondent M/s. Maruthi Minerals and Silicates Private Limited availed the loan facility by executing the loan documents on 16.10.1986 and took possession of the assets of M/s. Hanuman Enterprises. Instalments/loan amount was not paid and there was default, on account of which, the unit was seized more than one occasion in exercise of power under Section 29 of the Act and was released on making some payment. There was subsequent default. The unit was seized for the third time and since no payment was made, unit was sold in public auction for the bid amount of Rs.3,10,000/- and the sale proceeds realized was adjusted to the loan account of the industrial establishment. The loanee having failed to repay the balance amount, after issue of notice demanding payment of the arrears of Rs.13,64,223.85 as on 10.12.1995, the amount having not been paid and the loan having not been discharged, an application under Sections 31(1)(a)(a) and 32 of the Act was filed on 26.3.1996.

4. The respondents having been served with notice of the petition, entered appearance through their Learned Counsel Respondents 2 to 6 filed written statement and the other respondents adopted the same. It was interalia contended that, the Assistant General Manager of the Corporation has no Authority to file the petition; that there is no relationship of creditor and debtors between the parties; that the Corporation cannot invoke the provisions of the Act; that the Court has no jurisdiction to entertain the petition; that they have not obtained any loan from the Corporation and that the liability arises out of the alleged sale agreement which is a contractual liability and as to the nature of dispute between the parties, the provisions under Section 31 and 32 of the Act cannot be invoked. It was further contended that, the statutory notice having not been issued prior to the filing of the petition, the petition is not maintainable and even otherwise the petition is barred by limitation.

5. Based on the pleadings of the parties, the following points were raised for determination:

i) Whether the present petition is filed by a competent person and with due authority?

ii) Whether the claim made in the petition is barred by time?

iii) Whether the transaction in question alleged in the petition does not fall under the provisions of the State Financial Corporation Act 1951, thereby the present petition under Section 31 of the said Act is not maintainable?

OR

Whether it is necessary to file a original suit before ‘the Civil Court for the recovery of the amount in question?

iv) Whether the petitioner proves that the respondent Nos.2 and 6 have executed the security documents alleged in the petition?

v) Whether the respondent Nos.2 and 6 are liable for the claim made in the petition?

vi) What is the amount due to the petitioner from the respondents?

vii) What order?

6. For the Corporation, PWs.1 and 2 were examined through whom Exs.P1 to P36 were marked. For the respondents, the 2nd respondent V.Govindappa deposed as RW.1 through whom Exs.R1 to R12 were marked. Considering the rival contentions and the record of the case, the Learned District Judge, while dismissing the petition against respondents 4 and 6 as abated for not taking steps to bring their LRs on the record, has allowed the petition against other respondents. The Corporation was enabled to realize from respondents 1 to 3, 5 and 7, Rs.13,64,223.85 with interest and costs.

7. Sri S.P.Kulkarni, Learned Counsel for the appellants firstly contended that, the petition filed by a Assistant General Manager of the Corporation is not maintainable since he had no Authority to file and prosecute the petition. Secondly, respondents 4 and 6 having died during the pendency of the petition and their LRs, having not been brought on record, the cause of action for the petition filed against the respondents being common and joint, on account of the L.Rs., of the deceased respondents 4 and 6 having not been brought on record, there is abatement of the entire petition. Thirdly, notice of the petition under Section 30 of the Act was not issued to the appellants and hence, the petition is not maintainable. Fourthly, the petition filed on 25.6.1996was barred by limitation in the absence of any acknowledgment of debt on and after 16.3.1989, since the loan was borrowed on 16.10.1986 and the last payment was made on 16.3.1989. Lastly, the appreciation of evidence by the Learned District Judge is perverse and hence, the impugned order being unsustainable, may be set aside and the petition filed before the Learned District Judge be dismissed.

8. Sri S.G.Pandit, Learned Counsel for the respondent Corporation on the other hand, firstly contended that, the petition was signed, verified and filed by PW.1, an officer in the rank of Assistant General Manager the Corporation having Authorised its Officers in the rank of Assistant General Manger, to institute petitions and prosecute the same, which Authorisation has been published in the Gazette. Secondly, on account of death of respondents 4 and 6, who had only given personal guarantee to the loan transaction, the cause of action to recover the outstanding amount from the industrial concern, its directors and the surviving personal guarantors did not abate. He submitted that, the outstanding amount towards the Corporation can be recovered either jointly or severally and hence there is no abatement of the entire petition, on account of not bringing on record the L.Rs., of deceased respondents 4 and 6. Thirdly, notice contemplated under Section 30 of the Act is power to recall the advance. Issue of such notice can be only to the borrower and not to the guarantors to the loan transaction and hence, the appellants cannot have any grievance with regard to the non-serving of notice contemplated under Section 30 of the Act on them. Fourthly, Ex.P.15/deed of guarantee executed by the directors of the industrial concern and the guarantors has Clauses of continuing liability. Learned Counsel submitted that, the unit was sold for consideration amount of Rs.3,10,000/- and the purchasers paid Rs.1,05,000/- and the balance amount was sought to be paid in 4 installments was permitted and the last payment was made by the purchasers on 11.5.1993, whereafter the sale deed Ex.P10 was executed on 14.6.1993, which also shows payment of Rs.49,921/-, which amount was adjusted to the loan account. Learned Counsel submitted that, Article 137 in the Schedule of Limitation Act, 1963 is applicable. The period of limitation prescribed therein when applied to the case on hand, the cause of action to sue arose on 14.6.1993 and the petition filed on 26.3.1996 is within the period of limitation. Lastly, Learned Counsel submitted that, material evidence, both oral and documentary has been correctly appre4ciated by the Learned District Judge and the findings and conclusion recorded in the impugned order is neither perverse nor illegal. Learned Counsel submits that, in view of the credible evidence brought on record of the case, allowing of petition by the Learned District Judge, even against the appellants is justified.

9. In view of the rival contentions and the record, the points for determination are:

(i) Whether the person who signed, verified and filed the petition had the authority?

(ii) Whether there is abatement of the petition on account of not bringing on record the L.Rs. of deceased respondents 4 and 6?

(iii) Whether the petition is bad for non-issue of notice under Section 30 of the Act to the guarantors?

(iv) Whether the petition is barred by limitation?

(v) Whether the appreciation of evidence by the Learned District Judge is perverse and illegal?

Re-Point No.1:

10. KSFC has been established in exercise of the power under Section 3 of the Act. It is a body corporate having perpetual succession and a common seal, with power, subject to the provisions of the Act, to acquire, hold and dispose of property and shall by the said name sue and be sued Section 9 of the Act has vested the powers in the Board of Directors to manage the Corporation. Section 43-A provides for delegation of powers. In terms of the said provision, the Corporation, has issued general Notification, wherein, the Officers working in the cadre of Assistant General Manager has also been Authorised to sue in the name of the Corporation. G.Nagaraja, who has signed and verified the petition, being an Officer in the cadre of Assistant General Manager in the Corporation, had the Authority to file and prosecute the petition.

Re-Point No.2:

11. Respondents 4 and 6, who were the guarantors for the loan, died during the pendency of the petition. Their legal representatives were not brought on record by the Corporation. As a result, the petition insofar as respondents 4 and 6 stood abated. Order 22, Rule 1 says that “the death of a plaintiff or defendant shall not cause the suit to abate if the right to sue survives”. Rule 2 says that “in case of multiple plaintiffs or defendants, if any of them dies, where the right to sue survives to the surviving plaintiff or plaintiffs alone, or against the surviving defendant or defendants alone, the Court shall cause an entry to that effect to be made on the record and shall proceed with the suit at the instance of the surviving plaintiffs or plaintiffs, or against the surviving defendant or defendants.”

12. Indisputably, there were multiple respondents in the petition. Respondents 4 and 6, who were only guarantors, died. The right to sue to the Corporation having survived against the remaining respondents in the petition, the Learned District Judge has rightly proceeded with the matter. Merely on account of death of two guarantors out of 7 respondents on record, thee is no abatement of the petition on account of not bringing the legal representatives of deceased respondents 4 and 6 on record. The cause of action for the Corporation against the industrial concern or each of the guarantors, is joint and several. Hence, the Learned District Judge has not committed any error in deciding the petition even after death of respondents 4 and 6 during the pendency of the matter, though their legal representatives were not brought on record.

Re-point No.-3:

13. Section 30 of the Act is power to call for repayment before the agreed period. The said provision enables the Corporation by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporation. The notice contemplated in the said Section is required to be issued to the said industrial concern and not to the guarantors. Appellants 2 and 3 being merely guarantors, the non-issue of notice contemplated under Section 30 would not come to their aid. The petition is not bad for non-issue of notice to the guarantors/appellants.

Re-point.4:

14. The loan was borrowed on 16.10.1986. The agreement relating to loan transaction between the Corporation and the unit is at Ex.P-14. Ex.P_15 is the deed of guarantee executed by the guarantors and the borrower in favour of the Corporation. The loan amount was agreed to be paid in 16 monthly instalments. The industrial concern having committed default, was seized by the Corporation on 29.01.1991. The assets of the unit was sold by the Corporation for Rs.3,10,000/- in favour of Nissar Ahmad and Mohammed Amanulla, who paid Rs.1,05,000/- and sought 4 instalments for payment of the balance amount. Last payment was made by the purchasers on 11.05.1993 as spoken to by PW-2. The sale deed Ex.R-10 was executed on 14.06.1993. The last payment received from the purchasers was credited to the loan account of the industrial concern and there being still outstanding in the loan account, the petition was filed on 26.03.1996. Article 137 of the Limitation Act applies. The period of limitation commenced on 11.05.1993 when the last instalment amount was paid by the purchasers of the unit and was credited to the loan account.

15. Ex.P-15 is deed of guarantee. Clause 6 therein reads as follows:

“The Guarantors hereby also agree that any amount standing to the debit of the Company in the books of accounts of the Corporation at any particular time and admitted by the Company shall be conclusive evidence against the Guarantors as to their liability to the Corporation at that particular time”.

16. Sections 126, 128, 129 and 130 of the Contract Act, 1872, being relevant, read as follows:

“126. ‘Contract of guarantee’, ‘surety’, principal debtor ‘and’ creditor,- A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the ‘surety’; the person in respect of whose default the guarantee is given is called the ‘principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written.

128. Surety’s liability.- The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

129. ‘Continuing guarantee’.- A guarantee which extends to a series of transactions is called a ‘continuing guarantee’.

130. Revocation of continuing guarantee.- A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.”

17. Execution of Ex.P-15 is not under challenge. The last instalment of sale consideration amount received from the purchasers of the industrial concern was credited to the loan account of the industrial concern on 11.05.1993. The petition was filed before the Learned District Judge on 26.03.1996 showing the outstanding amount in the loan account of the industrial concern to be realized from the guarantors to the loan transaction. Guarantors liability depends upon the terms of contract. Ex.P-15 being a continuing guarantee, the principal amount being due and payable, the guarantors also remained liable. The guarantors did not repudiate their liability towards the Corporation any time prior to 11.05.1993. Hence, the petition filed on 26.03.1996 is within the period of limitation.

Re-point No.5:

18. The Learned District Judge by taking into consideration the material pleadings of the parties, raised the points for determination. The materials placed on record by the parties has been noticed. Keeping in view the scope of the petition under Section 31 of the Act, the availing of loan by the industrial nit being not in dispute and the documents marked as exhibits on behalf of the Corporation having not been questioned and in view of evidence of Pws.1 and 2, the outstanding loan amount of the industrial establishment as could be seen from Ex.P-36 was permitted to be realized from the represents, other than respondent 4 and 6, who having died and the petition as against them was abated. There is neither any perversity nor illegality in the matter of appreciation of evidence placed on record.

In the result, the appeal is devoid of merit and is dismissed with costs.


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