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
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
9Guarantee 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
18property 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
19granted 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
21considered 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
24invoke 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*
