Allowed

The Karnataka State Financial Corporation v. M/S. Sree Lakshmi Narasimha Swamy

Karnataka HC10 Jan 2019MFA/102637/2014

Case brief

AI extract

What is this about?

The High Court allowed appeals filed by Karnataka State Financial Corporation against orders dismissing petitions to enforce liability of sureties. The court held that the District Judge erred by failing to issue a mandatory notice under Section 32(1A) to the sureties to show cause before rejecting the enforcement claims. The impugned orders were set aside and the matter remanded.

What did the court decide?

The impugned common order rejecting the petitions was set aside and the matter was remanded to the Principal District Judge, Bellary to proceed in accordance with law.

The Karnataka State Financial Corporation Vs M/S… — Banking and Recovery | Karnataka HC (2019)

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IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH

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DATED THIS THE 10^th DAY OF JANUARY 2019

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PRESENT

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THE HON’BLE MRS. JUSTICE B.V. NAGARATHNA

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AND

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THE HON’BLE MR. JUSTICE BELLUNKE A.S.

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MISCELLANEOUS FIRST APPEAL No.102637 OF 2014 C/W MISCELLANEOUS FIRST APPEAL NO.102638 OF 2014 (KSFC)

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IN MFA NO.102637 OF 2014 BETWEEN:

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THE KARNATAKA STATE FINANCIAL CORPORATION BY ITS MANAGER (F & A), G.ESWARAPPA S/O LATE G RAMANNA AGED : 56 YEARS, K.S.F.C. HOSPET ROAD, BELLARY

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…APPELLANT

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(BY SRI. SHARAD V. MAGADUM, ADV. FOR SRI. HEMANT R. CHANDANAGOUDAR, ADV..)

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AND:

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M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, SITUATE IN SY.NO.68A/1 AND 68/3, WARD NO.17, ADONI ROAD, BELLARY, BY ITS PARTNER SRI.V.JAGANNATHA REDDY S/O V.C.NARSA REDDY, AGED ABOUT 48 YEARS, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET,

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YELEMALLESHAPPA COLONY, ADONI – 518301, DIST: KURNOOL, A.P

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V.JAGANNATHA REDDY S/O V.C.NARSA REDDY AGED ABOUT 48 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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SRINIVAS REDDY S/O V.C. NARSA REDDY AGED ABOUT 45 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES OCC: BUSINESS, R/O: BERAPPA TEMPAL STREET, TGL COLONY, ADONI - 518301, DIST: KURNOOL, A.P

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VIJAYLAKSHMI W/O V JAGANNATHA REDDY AGED ABOUT 43 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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V.VASANTHA W/O SRINIVAS REDDY AGED ABOUT 41 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES

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OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, TGL COLONY, ADONI - 518301 DIST: KURNOOL A.P

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V.C.NARSA REDDY S/O VEERA REDDY AGED ABOUT 73 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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LAKSHMIKANTHA REDDY S/O V.C.NARSA REDDY AGED ABOUT 51 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES OCC: BUSINESS R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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LAKSHMIDEVAMMA W/O V.C. NARSA REDDY AGED ABOUT 68 YEARS, PARNTER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES OCC: BUSINESS R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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LAKSHMI NARASAMMA W/O LAKSHMIKANTHA REDDY AGED ABOUT 48 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA

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SWAMY PARBOILED RICE INDUSTRIES OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, TGL COLONY, ADONI - 518301 DIST: KURNOOL, A.P

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…RESPONDENTS

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(BY SRI. K.L. PATIL AND SRI. S.S. BETURMATH, ADVS. FOR R1 TO R9)

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THIS MFA IS FILED UNDER SECTION 32(9) OF STATE FINANCIAL CORPORATION ACT 1951 AGAINST JUDGMENT AND ORDER DATED 10.09.2014 PASSED IN MISC. NO.53 OF 2014 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BELLARY, REJECTING THE PETITION FILED UNDER SECTION 31(1)(a)(a) OF THE STATE FINANCIAL CORPORATION ACT.

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IN MFA NO.102638 OF 2014 BETWEEN:

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THE KARNATAKA STATE FINANCIAL CORPORATION. BY ITS MANAGER, (F&A), SRI G ESHWARAPPA S/O LATE G RAMANNA, AGE: 56 YEARS, K.S.F.C. HOSPET ROAD, BELLARY

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... APPELLANT

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(By Sri. SHARAD V. MAGADUM, ADV. FOR SRI. HEMANT R CHANDANGOUDAR, ADV.)

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AND:

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M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, SITUATE IN SY NO.68A/1 AND 68/3, WARD NO.17, ADONI ROAD, BELLARY, BY ITS PARTNER, SRI V JAGANNATHA REDDY, S/O.V.C NARASA REDDY,

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AGED ABOUT 48 YEARS, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SRI V C NARASA REDDY S/O VEERA REDDY AGED ABOUT 73 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SRI LAKSHMIKANTHA REDDY S/O V C NARSA REDDY, AGED ABOUT 51 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SMT LAKSHMIDEVAMMA W/O V C NARSA REDDY AGED ABOUT 68 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SMT LAKSHMI NARASAMMA W/O LAKSHMIKANTHA REDDY AGED ABOUT 48 YEARS, PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, TGL COLONY, ADONI-518301, DIST:KURNOOL A.P

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SRI V JAGANNATHA REDDY S/O V C NARSA REDDY AGED ABOUT 48 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SRI SRINIVAS REDDY S/O V C NARSA REDDY AGED ABOUT 45 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, TGL COLONY, ADONI-518301, DIST:KURNOOL A.P

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SMT VIJAYALAKSHMI W/O V JAGANNATHA REDDY AGED ABOUT 43 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, YELEMALLESHAPPA COLONY, ADONI-518301, DIST:KURNOOL A.P

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SRI V VASANTHA W/O SRI SRINIVAS REDDY AGED ABOUT 41 YEARS, GUARANTOR TO THE LOANS PARTNER OF M/S. SREE LAKSHMI NARASIMHA SWAMY PARBOILED RICE INDUSTRIES, OCC: BUSINESS, R/O: BEERAPPA TEMPAL STREET, TGL COLONY, ADONI-518301, DIST:KURNOOL A.P

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... RESPONDENTS

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(By Sri. K L PATIL & SRI. S.S BETURMATH, ADVOCATES)

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THIS MFA IS FILED UNDER SECTION 32(9) OF THE STATE FINANCIAL CORPORATION ACT 1951 AGAINST THE ORDER DATED 10.09.2014 IN MISCELLANEOUS CASE NO.54/2014 ON THE FILE OF THE PRINCIPAL DISTRICT AND SESSIONS JUDGE BELLARY REJECTING THE PETITION FILED UNDER SECTION 31(1)(A)(A) OF THE STATE FINANCIAL CORPORATION ACT.

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THESE MFAs ARE COMING ON FOR ADMISSION THIS DAY, NAGARATHNA J., DELIVERED THE FOLLOWING:

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Though these appeals are listed for

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admission, with the consent of the learned counsel on both sides, they are heard finally.

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These appeals are also connected together as they arise out of the common order dated 10.09.2014 passed by the learned Principal Sessions Judge, Bellary.

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Briefly stated the facts of the case are that the appellant- Karnataka State Financial Corporation (hereinafter referred to as the ‘KSFC’ for the sake of convenience) filed petitions under

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Section 31(1)(a)(a) of the State Financial

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Corporation Act, 1951 (hereinafter referred to as the ‘SFC Act’, for the sake of convenience) against the respondents herein, who are both the sureties and defaulters, seeking an order against them for payment of Rs.1,22,80,510/in Miscellaneous No.53 of 2014 and Rs.91,86,821/in Miscellaneous No.54 of 2014 from 10.07.2014 and for grant of future interest at the rate of 17.5% per annum on the said amount till the date of realization with quarterly rests. The said petitions have been rejected by the learned Principal Sessions Judge, Bellary. Being aggrieved by the said common order, the KSFC has preferred these appeals.

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We have heard learned counsel appearing for the appellant and learned counsel for the respondents and perused the material on record.

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Succinctly stated the facts are that respondents 2 to 5 are the partners of respondent No.1 rice industry situate at Adoni road, Siruguppa. They had borrowed certain sums of money from the appellant-KSFC and respondents Nos.6 to 9 are the guarantors to the loan advanced by respondent No.1-Rice Industry and that respondent Nos.2 to 5 are the partners of respondent No.1-firm. Respondent No.1-firm had availed a term loan, additional term loan and working capital loan from the years 2000 to 2009. As the respondents became defaulters, petitions were filed under Section 31(1)(a)(a) of the SFC Act for enforcement of the liability against the sureties, who are respondent Nos.6 to 9. The Court on referring to Section 31 of the SFC Act, has held that, the said section does not indicate that the court had any power to pass an order in the nature of decree for the payment of any

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amount and therefore has dismissed the petitions as not maintainable. However, Section 31 deals with special provisions for enforcement of claims by Financial Corporation. The same reads thus:

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“ 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

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on the whole or a substantial part of its business for one or more of the following reliefs, namely:—

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(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the [Financial Corporation] as security for the loan or advance; or

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[(aa) for enforcing the liability of any surety; or]

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(b) for transferring the management of the industrial concern to the Financial Corporation; or

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(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.

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(2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.”

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According to Section 31 of the SFC Act, where an industrial concern, in breach of any agreement, makes any default in repayment of

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loan or advance or any installments 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 any officer of the Financial Corporation(i.e. in the instant case), generally or specially authorized by the Board in this behalf, cay 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 reliefs mentioned under Clause (a) (aa), (b) or (c).

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In the instant case, the petition was

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filed for enforcing the liability of the respondentssureties/guarantors. Sub-section (2) of Section 31 of the SFC Act states that an application under Section 31(1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation(KSFC herein), the ground on which it is made and such other particulars as may be prescribed. When such applications are made, the procedure to be flowed by the District Judge is stipulated under Section 32 of the Act.

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Under Section 32 (1A), when the application is for the relief mentioned in clause (aa) of sub-section (1) of Section 31, the District Judge shall issue a notice calling upon the surety to show cause on a date to be specified in the notice why his liability should not be enforced. In the instant case, no such notice has been issued by the District Court. The object and purpose of

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issuing notice is to ascertain cause on or before the date specified in the notice with regard to enforcement of the liability of the surety.

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As per Section 32(4A), if no cause is shown on or before the date specified in the notice under subsection (1A) of Section 32, the District Judge shall forthwith order the enforcement of the liability of the surety. But if cause is shown, that the District Judge has to proceed to investigate the claim of the Financial Corporation (KSFC in the instant case) as per the provisions contained in the Code of Civil Procedure, 1908, insofar as such provisions may be applied thereto.

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As per sub-section (7) of Section 32, after making an investigation under sub-section (6), the District Judge may direct enforcement of the liability of the surety or reject the claim made in that behalf.

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As per the proviso to sub-section (7) of

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Section 32, when making an order rejecting the claim to enforce the liability of the surety under clause (da), the District Judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit.

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In the instant case, the learned District Judge had neither issued notice to the respondentsguarantors nor ascertained as to whether there was any cause shown. In the absence of issuance of notice to the respondents-guarantors, the petitions filed by the appellant(KSFC) is dismissed. The approach of the learned District Judge is wholly contrary to what has been prescribed under Section 32 of the Act as is referred to above.

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In the circumstances, the impugned

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common order is set aside. The matter is remanded to the Court of Principal District Judge, Bellary.

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As the parties are represented by their respective counsel, they shall appear before the said Court on 18th February 2019 without expecting any separate notices from the said Court.

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The appeals are allowed in the aforesaid terms without any order as to costs.

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All other contention on both sides are left open.

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Sd/JUDGE

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Sd/JUDGE

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Kmv

The Karnataka State Financial Corporation v. M/S. Sree Lakshmi Narasimha Swamy

Case brief

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The Karnataka State Financial Corporation v. M/S. Sree Lakshmi Narasimha Swamy

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