Karnataka State Financial Corporation vs M/S Sri Yadu Mosaic (P) Limited Company on 17 July, 2026

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    Karnataka High Court

    Karnataka State Financial Corporation vs M/S Sri Yadu Mosaic (P) Limited Company on 17 July, 2026

                     IN THE HIGH COURT OF KARNATAKA AT BENGALURU
    
                         DATED THIS THE 17TH DAY OF JULY, 2026
    
                                          PRESENT
    
                       THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
    
                                              AND
    
                       THE HON'BLE MR. JUSTICE VENKATESH NAIK T
    
                  MISCELLANEOUS FIRST APPEAL NO. 932 OF 2018 (SFC)
                                       C/W
                  MISCELLANEOUS FIRST APPEAL NO. 931 OF 2018 (SFC)
    
    
                IN MFA NO. 932 OF 2018:
    
                BETWEEN:
    
                KARNATAKA STATE FINANCIAL CORPORATION
                HAVING ITS HEAD OFFICE AT: No.1/1
                THIMMAIAH ROAD
                BENGALURU-560 052
                REPSRESENTED BY ITS DEPUTY GENERAL
                MANAGER-R-II
    
    
                                                           ...APPELLANT
    Digitally
    signed by
    PAVITHRA N (BY SRI. P.S. MALIPATIL, ADVOCATE)
    Location:
    High Court of AND:
    Karnataka
                1.    M/S. SRI YADU MOSAIC (P)
                      LIMITED COMPANY
                      REGISTERED OFFICE AT:
                      No.27/3, BULL TEMLPLE ROAD
                      BENGALURU-560 019
                                  2
    
    
    
    
    2.   H.S. RAMASWAMY IYENGAR
         (SINCE DECEASED BY HIS LEGAL
         REPRESENTATIVES)
    
    
    2(a). SMT. H.R. SHARADAMMA
         W/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR
    
    
    2(b). SRI. H.R. SRIVATSA
         S/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR
    
    
    2(c). SMT. CHITRA
         D/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR
    
    
         RESPONDENTS No.2(a) TO (c) ARE
         R/AT No.127/3,
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    3.   SMT. H.R. SHARADAMMA
         W/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR, R/AT No.127/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    4.   SRI. H.R. SRIVATSA
         S/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR, R/AT No.127/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
                                      3
    
    
    
    
    5.    SADASHIVA RAO
          (SINCE DECEASED, BY HIS LEGAL
          REPRESENTATIVES)
    
    
    5(a). SMT. SHAKUNTALA
          W/O LATE SADASHIVA RAO
          MAJOR, R/AT No.2
          K.H. ROAD
          BENGALURU-560 027
    
    
    5(b). MISS. ARCHANA
          D/O LATE SADASHIVA RAO
          MAJOR
          R/AT No.2, K.H. ROAD
          BENGALURU-560 027
                                                     ...RESPONDENTS
    
    (BY SRI. H.V. SUBRAMANYA, ADVOCATE FOR R5(a & b);
         V.C.O. DATED 12.06.2023, SERVICE OF NOTICE TO
         R1, R2(a) TO (c), R3 & R4 ARE HELD SUFFICIENT)
    
          THIS MFA IS FILED U/S 32(9) OF STATE FINANCIAL
    CORPORATION       ACT,   1951,   AGAINST   THE   ORDER   DATED
    13.06.2017 PASSED IN MISC. PETITION No.766/1998 ON THE
    FILE OF THE XXXVII ADDITIONAL CITY CIVIL AND SESSIONS
    JUDGE (CCH-38), BENGALURU CITY, DISMISSING PETITION
    FILED UNDER SECTION 31(1)(AA) OF THE STATE FINANCIAL
    CORPORATION ACT, 1951 AND ETC.
    
    IN MFA NO. 931 OF 2018:
    
    BETWEEN:
    
    KARNATAKA STATE FINANCIAL CORPORATION
    HAVING ITS HEAD OFFICE AT: No.1/1
                                  4
    
    
    
    
    THIMMAIAH ROAD
    BENGALURU-560 052
    REPSRESENTED BY ITS DEPUTY GENERAL
    MANAGER-R-II
    
    
                                           ...APPELLANT
    
    (BY SRI. P.S. MALIPATIL, ADVOCATE)
    
    AND:
    
    1.   M/S. SRI YADU GRANITES (P)
         LIMITED COMPANY
         REGISTERED OFFICE AT: No.27/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    2.   H.S. RAMASWAMY IYENGAR
         (SINCE DECEASED, BY HIS LEGAL
         REPRESENTATIVES)
    
    
    2(a). SMT. H.R. SHARADAMMA
         W/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR
    
    
    2(b). SRI. H.R. SRIVATSA
         S/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR
    
    
    2(c). SMT. CHITRA
         D/O LATE H.S. RAMASWAMY IYENGAR
                                  5
    
    
    
    
         MAJOR
    
    
         RESPONDENTS No.2(a) TO (c)
         R/AT. No.127/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    3.   SMT. H.R. SHARADAMMA
         W/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR, R/AT. No.127/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    4.   SRI. H.R. SRIVATSA
         S/O LATE H.S. RAMASWAMY IYENGAR
         MAJOR, R/AT. No.127/3
         BULL TEMPLE ROAD
         BENGALURU-560 019
    
    
    5.   SADASHIVA RAO
         (SINCE DECEASED, BY HIS LEGAL
         REPRESENTATIVES)
    
    
    5(a). SMT. SHAKUNTALA
         W/O LATE SADASHIVA RAO
         MAJOR, R/AT. No.2
         K.H. ROAD
         BENGALURU-560 027
                                       6
    
    
    
    
    5(b). MISS. ARCHANA
        D/O LATE SADASHIVA RAO
        MAJOR, R/AT. No.2
        K.H. ROAD
        BENGALURU-560 027
    
    
                                                      ...RESPONDENTS
    
    
    (BY SRI. H.V. SUBRAMANYA, ADVOCATE FOR R5(a) & (b);
       V.C.O. DATED 12.06.2023, SERVICE OF NOTICE TO
       R1, R2(a) TO (c), R3 & R4 ARE HELD SUFFICIENT)
    
    
    
         THIS MFA IS FILED U/S 32(9) OF STATE FINANCIAL
    CORPORATION      ACT,   1951,   AGAINST     THE   ORDER     DATED
    13.06.2017 PASSED IN MISC. No.42/2000 ON THE FILE OF THE
    XXXVII ADDITIONAL CITY CIVIL AND SESSIONS JUDGE (CCH-
    38), BENGALURU CITY, DISMISSING PETITION FILED UNDER
    SECTION 31(1)(AA) OF THE STATE FINANCIAL CORPORATION
    ACT, 1951 AND ETC.
    
    
         THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR
    JUDGMENT     ON      29.06.2026       AND   COMING     ON     FOR
    PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN
    J., PRONOUNCED THE FOLLOWING:
    
    
    CORAM:   HON'BLE MRS. JUSTICE ANU SIVARAMAN
               and
             HON'BLE MR. JUSTICE VENKATESH NAIK T
                                           7
    
    
    
    
                                CAV JUDGMENT
    

    (PER: HON’BLE MRS. JUSTICE ANU SIVARAMAN)

    Miscellaneous First Appeals No.932/2018 and

    SPONSORED

    931/2018 are preferred against the Order dated 13.06.2017

    passed by the XXXVII Additional City Civil and Sessions

    Judge (CCH-38), Bengaluru City (‘Special Court’ for short) in

    Misc. No.766/1998 and 42/2000, respectively.

    2. We have heard Shri. P.S. Malipatil, learned

    counsel appearing for the appellant in both the appeals and

    Shri. H.V. Subramanya, learned counsel appearing for the

    respondent No.5(a) and (b) in both the appeals.

    3. The only question which requires consideration in

    these appeals is whether Exhibit ‘P14’ Notice dated

    14.09.1993 issued by the appellant – Karnataka State

    Financial Corporation (KSFC) amounts to invocation of

    guarantee to render the petition filed by the appellant under

    Section 31(1)(aa) of the State Financial Corporations Act,

    1951 (‘SFC Act’) as one barred by limitation.
    8

    4. The short facts necessary for deciding the

    question are as follows:-

    The appellant – KSFC sanctioned a term loan of Rs.35

    Lakhs vide Sanction Letter dated 16.01.1988 in favour of

    respondent No.1 in M.F.A.No.931/2018 – M/s Sri. Yadu

    Granites (P) Limited. Thereafter, the appellant also

    sanctioned a term loan of Rs.36.60 lakhs together with a

    Soft Loan of Rs.4 lakhs, totalling Rs.40.60 lakhs, vide

    Sanction Letter dated 13.03.1989, in favour of respondent

    No.1 in M.F.A.No.932/2018 – M/s Sri. Yadu Mosaic (P)

    Limited.

    As security, Late Shri. Ramaswamy Iyenger – Managing

    Director of the respondent companies along with

    respondents No.3 and 4 created Equitable Mortgage on

    13.03.1989 by depositing the Title Deeds pertaining to their

    immoveable property in favour of the appellant. As further

    security, respondent No.1 executed a Deed of Hypothecation

    dated 13.03.1989, hypothecating the plant and machinery in

    favour of the appellant and the late Managing Director

    together with respondents No.3 and 4 executed a Deed of
    9

    Guarantee dated 13.03.1989 guaranteeing the due

    repayment of the loans advanced. Further, late Shri.

    Sadasiva Rao, executed a Surety Agreement dated

    13.03.1989 depositing the Title Deeds in respect of his

    immoveable property to an extent of Rs.20 lakhs out of the

    term loan sanctioned.

    Thereafter, on further applications made by M/s Sri

    Yadu Granites (P) Limited Company, the appellant

    sanctioned an additional term loan of Rs.7.35 lakhs which

    was communicated on 19.07.1989. The appellant further

    sanctioned an additional loan of Rs.1,40,000/- on

    14.03.1991 in favour of M/s Sri. Yadu Mosaic (P) Limited

    Company, and as security the borrowers and sureties

    executed the Mortgage Deed, Hypothecation Deed and

    Guarantee Deed on 29.07.1989 and 14.03.1991 in favour of

    the appellant.

    Respondent No.1 failed to repay the loan and

    consequently the appellant – Corporation issued a Notice to

    the respondents invoking Section 29 of the State Financial

    Corporations Act, 1951 (‘SFC Act’ for short) on 24.02.1993.
    10

    Thereafter, the appellant issued a Statutory Notice on

    14.09.1993 under Section 30 of the SFC Act against M/s Sri.

    Yadu Granites (P) Limited and M/s Sri. Yadu Mosaic (P)

    Limited, recalling the entire dues, and on the respondents

    failing to pay the outstanding loan. Thereafter, further

    notices allegedly specifically invoking the guarantees were

    issued on 20.02.1998, 03.03.1998 and 07.04.1998,

    pursuant to which, the appellant filed Miscellaneous

    Applications No.766/1998 and 42/2000 before the Special

    Court under Section 31(1)(aa) of the SFC Act. Respondents

    No.1 to 4 failed to appear before the Special Court and were

    placed ex parte, while respondents No.5(a) and 5(b)

    contested the matter by filing objections. An application was

    filed by respondent No.5 (a) under Section 32 of the SFC Act

    read with Section 3 of the Limitation Act, 1963 seeking

    dismissal of the petition as barred by limitation, which was

    rejected with liberty to raise the point during trial. After

    hearing the matter, the Special Court relying on Article 137

    of the Limitation Act, dismissed the Application as one

    barred by limitation by Order dated 13.06.2017 passed by
    11

    the Special Court in Misc.No.42/2000 and

    Misc.No.766/2000. Being aggrieved by the Orders of the

    Special Court, the appellant has preferred the present

    Miscellaneous First Appeals.

    5. The learned counsel appearing for the appellant

    would contend that the loan sanctioned on 13.03.1989 was

    supported by the personal guarantee of Shri. H.S.

    Ramaswamy Iyengar, respondents No.3 and 4 and Late

    Shri. Sadashiv Rao. The contesting respondents herein are

    the legal heirs of Late Shri. Sadashiv Rao. For an additional

    term loan of Rs.4.20 lakhs sanctioned on 19.07.1989, Deeds

    of Personal Guarantee were executed by the earlier sureties

    on 29.07.1989. Further, loan of Rs.1.40 lakhs was

    sanctioned on 14.03.1991, which was also similarly secured

    and supported by personal guarantee.

    6. When the loan repayment was defaulted, Notice

    under Section 29 of the SFC Act was issued on 24.02.1993

    and the entire loan was recalled by Notice dated

    14.09.1993. This notice was sent to all guarantors as well.

    Thereafter, notices invoking personal guarantee were issued
    12

    on 03.03.1998 and 07.04.1998. The Misc. Application

    No.766/1998 was filed on 17.09.1998 and the Misc.

    Application No.42/2000 was filed on 10.01.2000.

    7. The learned counsel appearing for the appellant

    contended that Exhibit ‘P14’ was only a notice to the

    borrower and it is only when the personal guarantee stood

    specifically invoked by Notices sent to the guarantors on

    03.03.1998 and 07.04.1998 and that the time for filing the

    petition has to be calculated from that date. The learned

    counsel for the appellant contended that paragraph 11 of

    Ex.P14 cannot be treated as invocation of the personal

    guarantee. The invocation of the guarantee occurred only

    through Ex.P15 dated 03.03.1998. The question that arises

    for consideration here is whether a communication amounts

    to invocation of a guarantee.

    8. The learned counsel for the appellant contended

    that the appellant’s right to sue the guarantors is

    independent of any proceedings against the principal debtor.

    Limitation must be computed from the demand on the

    guarantors because deeds of guarantee provide that the
    13

    guarantee shall be enforceable notwithstanding the fact that

    no action having been taken against the borrower company,

    and that the Corporation shall be entitled to act as if the

    guarantors were the principal debtors.

    9. In support of the said contention, the following

    decisions were relied on:-

    • Deepak Bhandari v. Himachal Pradesh State
    Industrial Development Corporation Ltd.
    ,
    reported in AIR 2014 SC 961;

    • Gulhati and Another v. Karnataka State
    Financial Corporation and Others
    , reported in
    ILR 2007 KAR 44; and

    • Karnataka State Financial Corporation v. M/s.
    Awanthi Hotels and Others, by order dated
    08.12.2020 passed in MFA No.2499/2013
    (SFC).

    10. The learned counsel appearing for respondents

    No.5(a) and (b), on the other hand, contends that the loan

    repayments were in default and the notice under Section 29

    of the SFC Act was issued on 24.02.1993. Thereafter, the

    loan was recalled and notice under Section 30 of the SFC Act

    was issued to the borrowers as well as the sureties on
    14

    14.09.1993. It is contended that this notice clearly

    amounted to a demand to the guarantors and the guarantee

    stood invoked. The petition under Section 31(1)(aa) of the

    SFC Act ought to have been filed within 3 years from

    14.09.1993, failing which, the remedy stood barred by

    limitation.

    11. In support of the said contention, the following

    decisions were relied on:-

    • Maharashtra State Financial Corpn. v. Ashok
    K. Agarwal and Others
    , reported in (2006) 9
    SCC 617;

    • Syndicate Bank v. Channaveerappa Beleri and
    Others
    , reported in (2006) 11 SCC 506; and

    • Karnataka State Industrial Investment and
    Development Corporation v. Madhu Paper
    Mills (P) Ltd. and Others
    , by order dated
    27.02.2025 passed in MFA No.8628/2012
    (SFC).

    12. We have considered the contentions advanced. As

    stated earlier, the question which requires a consideration is

    as stated in paragraph No.3 of this judgment, Section 128 of

    the Indian Contract Act, 1872, specifically provides that the
    15

    liability of the surety is co-extensive with that of the principal

    debtor and is immediate upon the principal debtor’s default.

    In Bank of Bihar Ltd. v. Damodar Prasad reported in AIR

    1969 SC 297, the Apex Court has clearly held that in the

    nature of the co-existing liability of the surety, the creditor is

    not bound to proceed against the principal debtor and

    exhaust the remedies against such principal debtor before

    proceeding against the creditor. The deeds of guarantee

    create an independent and co-extensive liability against the

    guarantors, upon the principal debtor’s default and do not

    require the corporation to first exhaust its remedies against

    the borrower.

    In Hindustan Construction Co. Ltd. v. State of

    Bihar reported in (1999) 8 SCC 436, the Apex Court held

    that invocation must conform to the terms of the guarantee

    and must be judged by what is stated in the Deed. In the

    instant case, clause one of the Deeds of Guarantee deals

    with the invocation of the deeds stating that the Guarantors

    “on demand” shall pay to the Corporation, the whole of such

    principal sum, interest, commitment charges and/or other
    16

    moneys. The phrase “on demand” has been interpreted by

    the Apex Court in Syndicate Bank v. Channaveerappa

    Beleri reported in (2006) 11 SCC 506. Wherein the Apex

    Court held that guarantee is payable on demand and no

    period is stipulated within which payment is to be made, the

    breach occurs and the right to sue accrues when the

    demand is served on the guarantor. The relevant paragraphs

    on this point are extracted below:-

    9. A guarantor’s liability depends upon the terms of
    his contract. A “continuing guarantee” is different from
    an ordinary guarantee. There is also a difference
    between a guarantee which stipulates that the guarantor
    is liable to pay only on a demand by the creditor, and a
    guarantee which does not contain such a condition.

    Further, depending on the terms of guarantee, the
    liability of a guarantor may be limited to a particular
    sum, instead of the liability being to the same extent as
    that of the principal debtor. The liability to pay may
    arise, on the principal debtor and guarantor, at the same
    time or at different points of time. A claim may even be
    time-barred against the principal debtor, but still
    enforceable against the guarantor. The parties may
    agree that the liability of a guarantor shall arise at a later
    point of time than that of the principal debtor. We have
    referred to these aspects only to underline the fact that
    the extent of liability under a guarantee as also the
    17

    question as to when the liability of a guarantor will arise,
    would depend purely on the terms of the contract.

    11. But in the case on hand, the guarantee deeds
    specifically state that the guarantors agree to pay and
    satisfy the Bank on demand and interest will be payable
    by the guarantors only from the date of demand. In a
    case where the guarantee is payable on demand, as held
    in Bradford [(1918) 2 KB 833] and Hartland [(1863) 1
    H&C 667] , the limitation begins to run when the demand
    is made and the guarantor commits breach by not
    complying with the demand.

    13. Section 29 of the SFC Act reads as follows:-

    “29. Rights of Financial Corporation in case of
    default.–(1) Where any industrial concern, which is under
    a liability to the Financial Corporation under an
    agreement, makes any default in repayment of any loan
    or advance or any instalment 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 agreement with the Financial Corporation, the
    Financial Corporation shall have the [right to take over
    the management or possession or both of the industrial
    concerns], as well as the [right to transfer by way of
    lease or sale] and realise the property pledged,
    mortgaged, hypothecated or assigned to the Financial
    Corporation.

    (2) Any transfer of property made by the Financial
    Corporation, in exercise of its powers under sub-section
    (1), shall vest in the transferee all rights in or to the
    18

    property transferred 5 [as if the transfer] had been made
    by the owner of the property.

    (3) The Financial Corporation shall have the same
    rights and powers with respect to goods manufactured or
    produced wholly or partly from goods forming part of the
    security held by it as it had with respect to the original
    goods.

    [(4) [Where any action has been taken against an
    industrial concern] under the provisions of sub-section
    (1), all costs, [charges and expenses which in the opinion
    of the Financial Corporation have been properly incurred]
    by it [as incidental thereto] shall be recoverable from the
    industrial concern and the money which is received by it
    shall, in the absence of any contract to the contrary, be
    held by it in trust to be applied firstly, in payment of such
    costs, charges and expenses and, secondly, in discharge
    of the debt due to the Financial Corporation, and the
    residue of the money so received shall be paid to the
    person entitled thereto.]

    (5) [Where the Financial Corporation has taken
    any action against an industrial concern] under the
    provisions of sub-section (1), the Financial Corporation
    shall be deemed to be the owner of such concern, for the
    purposes of suits by or against the concern, and shall sue
    and be sued in the name of [the concern].”

    14. Section 30 of the SFC Act reads as follows:-

    “30. Power to call for repayment before agreed
    period.–Notwithstanding anything in any agreement to
    the contrary, the Financial Corporation may, by notice in
    writing, require any industrial concern to which it has
    19

    granted any loan or advance to discharge forthwith in full
    its liabilities to the Financial Corporation,–

    (a) if it appears to the Board that false or
    misleading information in any material particular was
    given by the industrial concern in its application for the
    loan or advance; or

    (b) if the industrial concern has failed to comply
    with the terms of its contract with the Financial
    Corporation in the matter of the loan or advance; or

    (c) if there is a reasonable apprehension that the
    industrial concern is unable to pay its debts or that
    proceedings for liquidation may be commenced in respect
    thereof; or

    (d) if the property pledged, mortgaged,
    hypothecated or assigned to the Financial Corporation as
    security for the loan or advance is not insured and kept
    insured by the industrial concern to the satisfaction of the
    Financial Corporation or depreciates in value to such an
    extent that, in the opinion of the Board, further security
    to the satisfaction of the Board should be given and such
    security is not given; or

    (e) if, without the permission of the Board, any
    machinery, plant or other equipment, whether forming
    part of the security or otherwise, is removed from the
    premises of the industrial concern without being replaced;
    or

    (f) if for any reason it is necessary to protect the
    interests of the Financial Corporation.”

    15. Section 31(1)(aa) of the SFC Act reads as

    follows:-

    20

    “31. Special provisions for enforcement of
    claims by Financial Corporation.– (1) Where an
    industrial concern, in breach of any agreement, makes
    any default in repayment of any loan or advance or any
    instalment 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 agreement
    with the Financial Corporation or where the Financial
    Corporation requires an industrial concern to make
    immediate repayment of any loan or advance under
    section 30 and the industrial concern fails to make such
    repayment, [then, without prejudice to the provisions of
    section 29 of this Act and of section 69 of the Transfer of
    Property Act, 1882 (4 of 1882)] any officer of the
    Financial Corporation, generally or specially authorised
    by the Board in this behalf, may apply to the district
    judge within the limits of whose jurisdiction the industrial
    concern carries on the whole or a substantial part of its
    business for one or more of the following reliefs, namely:

    (a) x x x x x

    (aa) for enforcing the liability of any surety.”

    16. The relevant portion of Exhibit ‘P14’ Letter issued

    under Section 30 of the SFC Act reads as follows:-

    “10. This is to further inform you that in the event
    of your failure to comply with be aforesaid demand the
    Corporation would proceed to take steps for the sale of
    your assets in exercise of its power U/s.29 of the Act and
    any written cause shown by you in this behalf would be
    21

    considered if such cause is shown within ten days from
    the date of the receipt of this notice.

    11. A copy of this notice is being endorsed to the
    guarantors for their information and to give them an
    opportunity to safeguard their own personal interest by
    taking steps to cause the repayment to be made by you
    without any further delay. The sureties are hereby
    informed that the matter of invoking their personal
    guarantee given to by them under the aforesaid deeds of
    guarantee would be considered by the Corporation in the
    event of your failing to honour your commitments under
    the contract and in the event of you failing to pay the
    amounts as demanded above.”

    17. Thereafter, on 03.03.1998, a further Notice is

    issued, the relevant portion of which reads as under:-

    “4. You are further aware that under the said
    deeds of guarantee, you undertook to pay my client the
    whole of the principle sum, interest, commitment
    charges and other moneys due from the company in
    the event of company committing default at any time.
    This is to bring to your notice that despite of the notice
    aforesaid, and repeated demands made by my client,
    the company failed to pay the due amounts in respect
    of the aforesaid loans. My client, therefore, was
    constrained to take over possession of the Unit
    exercising it’s power under Section 29 of S.F.C’s Act on
    24.2.1993. Efforts are being made to dispose of the
    assets to the highest bidder.

    (emphasis supplied)
    22

    5. Having regard to the defaults committed by the
    company, my client has decided to invoke the personal
    guarantee given by you under the deeds of guarantee
    referred to earlier and in pursuation to the said
    decision
    , the Corporation hereby invokes the personal
    guarantee given by you in terms of the deeds of
    guarantee dated 13.3.89, 29.7.89 and 21.3.1990.”

    18. It is clear that between Exhibits ‘P14’ and ‘P15’,

    nothing further has transpired. The assets of the borrower

    were sold only in the year 2001. No further transaction or

    renewal or rescheduling of the loan has also taken place

    between 14.09.1993 and 03.03.1998.

    19. In Deepak Bhandari‘s case (supra), the Apex

    Court had considered a case where Deeds of guarantee were

    executed in the year 1985 and 1986 and recall notices were

    issued on 21.05.1990. However, the

    mortgaged/hypothecated properties of the Company was

    taken over under Section 29 of the SFC Act and the Sale of

    the assets fructified on 21.03.1994. Thereafter, a Notice

    was sent to the defaulters as well as the guarantors on

    21.05.1994 invoking the guarantee. The suit for recovery

    of the balance amount was filed on 26.12.1994. It was in
    23

    the said circumstances, the Apex Court held that the

    question of recovery of the balance amount from the

    guarantors would arise only after the balance amount is

    ascertained after the sale of the hypothecated property

    fructifies. In the circumstances, it was held that the

    limitation period for recovery of the balance amount would

    start only after adjusting the proceeds from the sale of the

    Industrial Concern.

    20. In Gulhati‘s case (supra), the Division Bench of

    this Court had also considered a similar fact situation and

    had held that a surety is not discharged until the entire

    amount under the loan including interest is repaid. At

    paragraph No.20 thereof, the Bench had held as follows:-

    “20. As regards the periods of limitation, though
    it is baldly stated in the counter that the petition is
    barred by limitation and the date of the first notice be
    taken as the starting point of limitation, there is no clear
    details given as to how such a contention would stand. It
    needs to be mentioned that under the first notice, the
    first respondent-Corporation had only recalled the entire
    loan payable by the principal borrower and at the same
    time, had alerted the guarantors to see that something is
    done to save the company. Under the first notice
    admittedly, the first respondent – Corporation did not
    24

    invoke the liability of the surety under the guarantee
    bond. It is only in the second notice, the first respondent

    – Corporation invoked the liability of the surety and if the
    period of limitation is to be computed from the date of
    the second notice, the petition filed by the first
    respondent – Corporation under Section 31(1)(aa) for
    enforcing the liability of surety, it is well within time even
    if it is to be assumed that the residuary Article 137 is
    applicable to such petitions.”

    21. In MFA No.2499/2013 as well, Section 30

    Notice was issued on 22.11.2001 and personal guarantee

    was invoked on 27.05.2004. The petition under Section

    31(1)(aa) and Section 32 of the SFC Act filed on 05.08.2004

    was held to be within limitation. However, in Ashok K.

    Agarwal‘s case (supra), the Apex Court had clearly held

    that the period of limitation for filing an application under

    Section 31(1)(aa) of the SFC Act falls under Article 137 of

    the Limitation Act, 1963 and the time provided is three

    years. It was held that it is only on the basis of a legal

    fiction that the proceedings under Section 31 of the SFC Act

    are treated as akin to execution proceedings and that Article

    136 of the Limitation Act has no application.
    25

    22. In the instant case as well, a reading of the

    Deeds of Guarantee would clearly show that it is stipulated

    that the deeds provided for repayment of the amounts by

    the borrower and surety on demand. The relevant clause

    reads as under:-

    “The Corporation will be at liberty to (but it will not
    be obligatory on its part) pay the same and the Borrower
    and Surety shall repay the same to the Corporation on
    demand with interest thereon at the gross lending rate of
    the Corporation prevailing from time to time with a
    minimum 16.5 per cent per annum with half yearly rests
    and said amount paid by the Corporation shall be treated
    a charge on the schedule properties.”

    23. In the instant case, recalling of the loan under

    Section 30 of the SFC Act, with notice to the guarantors

    occurs on 14.09.1993. The relevant portion of the notice

    which is extracted herein before would amount to a demand

    as provided in the Deed of Guarantee. It is clear that the

    sureties have been informed of the fact of the default and

    that they are required to meet the liability which is co-

    existent with that of the principal borrower. The sale of

    assets of the Company which was taken over had occurred

    only much later, in the year 2001.

    26

    24. In the above view of the matter, we are of the

    opinion that the finding of the Special Court to the effect

    that the loan stood recalled and the guarantee invoked by

    Exhibit ‘P14’ – Letter dated 14.09.1993 is the correct

    proposition. Since there is no change in the liability after

    14.09.1993, except the enhancement of the amount by

    adding interest, we are of the opinion that the Letters dated

    03.03.1998 and 07.04.1998 are only made as an attempt to

    extend the period of limitation which is not permissible. We

    therefore find no grounds to interfere with the order of the

    Special Court. The appeals therefore fail and the same are

    accordingly dismissed.

    All pending interlocutory applications shall stand

    disposed of.

    Sd/-

    (ANU SIVARAMAN)
    JUDGE

    Sd/-

    (VENKATESH NAIK T)
    JUDGE

    cp*



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