Dismissed

M/S. Flora International Ltd. v. M/S Karnataka State Industrial

Karnataka HC15 Sept 2021MFA/4685/2016

Case brief

AI extract

What is this about?

Loan recovery disputes concerned continuing guarantees, limitation and registration of mortgage documents. The court dismissed all five appeals, upheld enforcement against the guarantors and the equitable mortgage, and sustained rejection of one property-sale claim as time-barred. It applied Article 137 rather than Article 62 to the statutory application.

What the court decided

AI extract

M/S. Flora International Ltd. Vs M/S Karnataka State… — Banking and Recovery | Karnataka HC (2021)

¶1

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 15^TH DAY OF SEPTEMBER, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

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M.F.A.No.4738/2016 c/w M.F.A.No.4685/2016, M.F.A.No.4686/2016, M.F.A.No.5950/2016 & M.F.A.No.5951/2016 (SFC)

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IN M.F.A.No.4738/2016:

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BETWEEN :

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M/s KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LTD., HAVING ITS REGISTERED OFFICE AT NO.49, KHANIJA BHAVAN, 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BENGALURU - 560 001 REP BY ITS ASST. GENERAL MANAGER SMT.S.R.SHAKUNTALAMMA ...APPELLANT

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(BY SRI V.F.KUMBAR, ADV.)

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AND :

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1 . M/s FLORA INTERNATIONAL LTD., A PUBLIC LIMITED COMPANY, INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, REGISTERED OFFICE NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU - 560 027

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PLACE OF BUSINESS AT SY.NO.411, ANEKAL, KASABA HOBLI, ANEKAL

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BENGALURU DISTRICT-562 106 REP BY ITS CHAIRMAN SHRI M.S.A.ALEEM

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2 . SHRI M.S.A.ALEEM S/O M.SYED ABBAS, AGED ABOUT 63 YEARS, NO.36, 2^ND CROSS, DE-COSTA SQUARE, COOKE TOWN, BENGALURU - 560 087.

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3 . SMT.ANURADHA W/O V.R.NAGABHUSHAN, AGED ABOUT 53 YEARS, R/AT NO.23, MADHURI, 9^TH CROSS, J.P.NAGAR I PHASE, ITI LAYOUT, BENGALURU - 560 078.

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4 . SHRI M.S.C.PASHA S/O SYED ABBAS, AGED ABOUT 55 YEARS, R/AT NO.36, 2^ND CROSS, DE-COSTA SQUARE, COOKE TOWN, BENGALURU - 560 087.

¶20

5 . M/s FLORA SILKS LIMITED A PUBLIC LIMITED COMPANY, INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, HAVING REGISTERED OFFICE NO.376/35,6^TH CROSS, WILSON GARDEN, BENGALURU - 560 027 REP BY ITS CHAIRMAN SHRI M.S.A.ALEEM …RESPONDENTS

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(BY SRI S.A.H.RAZVI, ADV. FOR R-1, R-2, R-4 & R-5; SRI K.SUMAN, ADV. FOR R-3.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF THE STATE FINANCIAL CORPORATIONS ACT, AGAINST THE ORDER DATED 31.05.2016 PASSED IN MISCELLANEOUS PETITION NO.128/2010 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BENGALURU RURAL DISTRICT, BENGALURU, ALLOWING PETITION FILED UNDER SECTION 31(1)(aa) OF THE ACT.

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IN M.F.A.No.4685/2016:

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BETWEEN :

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1 . M/s FLORA INTERNATIONAL LTD., NO.376/35, 6^TH CROSS, WILSON GARDEN, BANGALORE-560027 REP. BY ITS DIRECTOR M.S.A.ALEEM

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2 . SHRI M.S.A.ALEEM S/O SAYED ABBAS, AGED ABOUT 64 YEARS, R/O NO.36, 2^ND CROSS, D’CASTA SQUARE, COOKE TOWN, BENGALURU-560087 REP. BY SPA HOLDER N.B.CHENGAPPA S/O LATE BHEEMAIAH, AGED ABOUT 33 YEARS, R/AT NO.191, DAISY BLOCK FLOT No.A2, LAL BAGH SIDDAPUR, JAYNAGARA 1^ST BLOCK, BANGALORE-560033 3 . M/s FLORA SILKS LIMITED., NO.376/35, 6^TH CROSS, WILSON GARDEN, BANGALORE-560027 REP BY ITS DIRECTOR M.S.A.ALEEM ...APPELLANTS

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(BY SRI S.A.H.RAZVI, ADV.)

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AND :

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1 . M/s KARNATAKA STATE INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., HAVING ITS REGISTERED OFFICE AT NO.49, KHANIJA BHAVAN, 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BANGALORE-560 001 REP. BY ITS MANAGER (LEGAL).

¶31

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2 . SMT.ANURADHA W/O V.R.NAGABHUSHAN AGED ABOUT 54 YEARS, R/AT No.23, MADHURI, 9^TH CROSS I PHASE, ITI LAYOUT, J.P.NAGAR, BENGALURU-560078.

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3 . M.S.C.PASHA S/O SYED ABBAS AGED ABOUT 62 YEARS, R/O NO.36, D’CASTA SQUARE, COOKE TOWN, BENGALURU-560084 …RESPONDENTS

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(BY SRI V.F.KUMBAR, ADV. FOR R-1; SRI K.SUMAN, ADV. FOR R-2.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF THE STATE FINANCIAL CORPORATION ACT, 1951, AGAINST THE JUDGMENT DATED 31.05.2016 PASSED IN MISC. PETITION NO.109/2010 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BENGALURU RURAL DISTRICT, BENGALURU, ALLOWING THE PETITION UNDER SECTION 31(1)(a) AND (aa) OF THE STATE FINANCIAL CORPORATIONS ACT.

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IN M.F.A.No.4686/2016:

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BETWEEN :

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M/s FLORA INTERNATIONAL LTD., A PUBLIC LIMITED COMPANY INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, HAVING REGISTERED OFFICE AT NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU-560027

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(DELETED VIDE COURT ORDER DATED 22.08.2016.)

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1 . SHRI M.S.A.ALEEM S/O M.SAYED ABBAS, AGED ABOUT 64 YEARS,

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R/O NO.36, 2^ND CROSS, DE-COSTA SQUARE, COOKE TOWN, BENGALURU-560087 REP BY SPA HOLDER N.B.CHENGAPPA S/O LATE BHEEMAIAH, AGED ABOUT 33 YEARS, R/AT NO.191, DAISY BLOCK FLOT No.A2, LAL BAGH SIDDAPUR, JAYANAGARA 1^ST BLOCK, BANGALORE-33 2 . M/s FLORA SILKS LIMITED, A PUBLIC LIMITED COMPANY INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, HAVING REGISTERED OFFICE AT NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU-560027 REP BY ITS CHAIRMAN M.S.A.ALEEM REP BY SPA HOLDER N.B.CHENGAPPA S/O LATE BHEEMAIAH, AGED ABOUT 33 YEARS, R/AT NO.191, DAISY BLOCK FLOT No.A2, LAL BAGH SIDDAPUR, JAYANAGARA 1^ST BLOCK, BANGALORE-33 ...APPELLANTS

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(BY SRI S.A.H.RAZVI, ADV.)

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AND :

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1 . M/s KARNATAKA STATE INDUSTRIAL INVESTMENT AND DEVELOPMENT CORPORATION LTD., HAVING ITS REGISTERED OFFICE AT NO.49, KHANIJA BHAVAN 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BANGALORE-560 001 REP BY ITS MANAGER H.VENKATESH MOORTHY

¶46

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2 . SMT.ANURADHA W/O V.R.NAGABHUSHAN, AGED ABOUT 54 YEARS, R/O NO.23, MADHURI, 9^TH CROSS, I PHASE, J.P.NAGAR, ITI LAYOUT, BENGALURU-560078 3 . M.S.C.PASHA S/O SYED ABBAS AGED ABOUT 56 YEARS, R/O NO.36, 2^ND CROSS, DE-COSTA SQUARE, COOKE TOWN, BENGALURU-560084 4. M/s FLORA INTERNATIONAL LIMITED, A PUBLIC LIMITED COMPANY INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, HAVING REGISTERED OFFICE AT NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU-560027 PLACE OF BUSINESS AT Sy.No.411 ANEKAL-562106 BENGALURU DISTRICT REP BY ITS DIRECOR SHRI M.S.A.ALEEM (CAUSE TITLE AMENDED VIDE COURT ORDER DATED 22.08.2019.) …RESPONDENTS

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(BY SRI V.F.KUMBAR, ADV. FOR R-1; SRI K.SUMAN, ADV. FOR R-2; R-4 SERVED.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF THE STATE FINANCIAL CORPORATION ACT, 1951, AGAINST THE JUDGMENT DATED 31.05.2016 PASSED IN MISC. PETITION NO.128/2010 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BENGALURU RURAL DISTRICT, BENGALURU, ALLOWING THE PETITION UNDER SECTION 31(1)(aa) OF THE STATE FINANCIAL CORPORATIONS ACT.

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IN M.F.A.No.5950/2016:

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BETWEEN :

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SMT.ANURADHA W/O V.R.NAGABHUSHAN AGED ABOUT 54 YEARS NO.23, MADHURI, 9^TH CROSS J.P.NAGAR I PHASE, ITI LAYOUT BENGALURU

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...APPELLANT

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(BY SRI K.SUMAN, ADV.)

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AND :

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1 . M/s KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LTD., NO.49, KHANIJA BHAVAN 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BANGALORE-1 REP BY ITS MANAGER (LEGAL)

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2 . M/s FLORA INTERNATIONAL LIMITED, NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU REP BY ITS DIRECTOR M.S.A.ALEEM

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3 . SRI M.S.A.ALEEM S/O SYED ABBAS, MAJOR IN AGE NO.36, 2^ND CROSS, D’COSTA SQUARE COOKE TOWN, BENGALURU

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4 . SRI M.S.C.PASHA S/O SYED ABBAS, MAJOR IN AGE NO.36, 2^ND CROSS, D’COSTA SQUARE COOKE TOWN, BENGALURU

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5 . M/s FLORA SILKS LIMITED NO.376/35, 6^TH CROSS WILSON GARDEN, BENGALURU REP BY ITS CHAIRMAN M.S.A.ALEEM …RESPONDENTS

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(BY SRI V.F.KUMBAR, ADV. FOR R-1;

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SRI S.A.H.RAZVI, ADV. FOR R-2 & R-5;

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VIDE COURT ORDER DATED 03.02.2020 NOTICE TO R-4 IS HELD SUFFICIENT; R-3 SERVED.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF STATE FINANCIAL CORPORATION ACT AGAINST THE JUDGMENT AND AWARD DATED 31.05.2016 PASSED IN MISC PETITION NO.109/2010 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BENGALURU RURAL DISTRICT, BENGALURU, ALLOWING THE PETITION FILED UNDER SECTION 31(1)(a) AND (aa) OF THE STATE FINANCIAL CORPORATIONS ACT.

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IN M.F.A.No.5951/2016:

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BETWEEN :

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SMT.ANURADHA W/O V.R.NAGABHUSHAN AGED ABOUT 54 YEARS NO.23, MADHURI, 9^TH CROSS J.P.NAGAR I PHASE, ITI LAYOUT BENGALURU ...APPELLANT

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(BY SRI K.SUMAN, ADV.)

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AND :

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1 . M/s KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LTD., HAVING ITS REGISTERED OFFICE AT No.49, KHANIJA BHAVAN 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BENGALURU-1 REP BY ITS MANAGER SHRI H.VENKATESH MOORTHY

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2 . M/s FLORA INTERNATIONAL LIMITED, A PUBLIC LIMITED COMPANY INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, HAVING REGISTERED OFFICE AT NO.376/35, 6^TH CROSS, WILSON GARDEN,

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BENGALURU-560027 PLACE OF BUSINESS AT Sy.No.411 ANEKAL-562106 BENGALURU DISTRICT REP BY ITS CHAIRMAN SHRI M.S.A.ALEEM

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3 . SRI M.S.A.ALEEM S/O SYED ABBAS, AGED ABOUT 63 YEARS NO.36, 2^ND CROSS, DE-COSTA SQUARE COOKE TOWN, BENGALURU-560087

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4 . SRI M.S.C.PASHA S/O SYED ABBAS, AGED ABOUT 55 YEARS NO.36, 2^ND CROSS, DE-COSTA SQUARE COOKE TOWN, BENGALURU-560087

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5 . M/s FLORA SILKS LIMITED A PUBLIC LIMITED COMPANY INCORPORATED AND REGISTERED UNDER THE COMPANIES ACT, 1956, NO.376/35, 6^TH CROSS, WILSON GARDEN, BENGALURU-560027 REP BY ITS CHAIRMAN SHRI M.S.A.ALEEM …RESPONDENTS

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(BY SRI V.F.KUMBAR, ADV. FOR R-1; SRI S.A.H.RAZVI, ADV. FOR R-2, R-4 & R-5; R-3 SERVED.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF STATE FINANCIAL CORPORATION ACT AGAINST THE JUDGMENT AND AWARD DATED 31.05.2016 PASSED IN MISC PETITION NO.128/2010 ON THE FILE OF THE PRINCIPAL DISTRICT JUDGE, BENGALURU RURAL DISTRICT, BENGALURU, ALLOWING THE PETITION FILED UNDER SECTION 31(1)(aa) OF THE STATE FINANCIAL CORPORATIONS ACT.

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THESE APPEALS HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S. SUJATHA, J ., DELIVERED THE FOLLOWING:

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J U D G M E N T

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Since the common and akin issues are involved in these appeals, they are clubbed, heard together and disposed of by this common judgment.

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The parties are referred to as per their status

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before the Trial Court.

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The petitioner-Karnataka State Industrial Investment and Development Corporation Limited (‘Corporation’ for short) filed petition under Section 31(1)(a)(aa) of the State Financial Corporations Act, 1951 (‘Act’ for short) before the Principal District Judge, Bengaluru Rural District, Bengaluru (‘Trial Court’ for short). MFA Nos. 4685/2016 and 5950/2016 are directed against the judgment and order dated 31.5.2016 passed in Miscellaneous Petition No.109/2010 and MFA Nos.4738/2016, 4686/2016 and 5951/2016 are directed against the judgment and

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order dated 31.5.2016 passed in Miscellaneous Petition No.128/2010 by the Trial Court.

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The Corporation filed petition before the City

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Civil Court, Benglauru under Section 31(1)(a)(a) of the Act in Miscellaneous Petition No.109/2010 contending that the respondent No.1-Flora International Limited had approached the Corporation for a loan of Rs.100 lakhs as working capital which was sanctioned and the respondent No.2-Sri.M.S.A.Aleem, respondent No.3Smt.Anuradha and respondent No.4-Sri.M.S.C.Pasha being the Directors of the respondent No.1 company had offered themselves as guarantors for the loan along with respondent No.5 company who also stood as the surety for the loan borrowed and that despite the repeated demand and issue of notices there was no payment to the petitioner. On the above averments the petition (Misc. Petition No.608/1999) was filed on 22.07.1999 in the City Civil Court, Bengaluru, seeking

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enforcement of the liability of the guarantors viz., respondent Nos.2 to 5 and also for recovery of the loan amount by sale of the petition schedule property which had been offered as security by the respondent No.3. None of the respondents contested the matter before the City Civil Court. It transpires that an application was filed by the petitioner Corporation on 14.09.2009 for return of the petition for presenting it before the appropriate court in view of the judgment of the Hon'ble Apex Court in S.K.K.Kulkarni Vs. KSIIDC Limited reported in 2009(2) SCC 236 on the premise that the respondent No.1 company was carrying on its business in a place within the jurisdiction of the Court of the Prl. District Judge, Bengaluru Rural District at Bengaluru. The said application was allowed on 17.9.2009 with a direction to return the petition to the petitioner with a further direction to present the same within 30 days from the date of receipt of the petition before the appropriate court.

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5. The original documents were returned to the

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petitioner on 10.8.2010 and thereafter Misc. Petition No.109/2010 was presented before the Trial Court on 3.9.2010.

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On issuance of notices, the respondents remained absent. One officer by name Sri.K.G.Ramesh was examined as PW-1 and Exs.P1 to P14 were got marked. The said petition came to be dismissed by order dated 25.6.2012 on the ground that it is barred by time.

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7. Being aggrieved, the petitioner had preferred

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MFA No.8048/2012 and this Court by its judgment and order dated 4.8.2015 set aside the order dated 25.6.2012 and remanded the matter to the Trial Court observing that the petition indeed was presented before the Trial Court within 30 days from the date of receipt of the same from the City Civil Court which was not

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brought to the notice of the Trial Court while passing the order on 25.6.2012.

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On issuance of notice after remand, the

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respondents appeared through their respective counsel. Respondent No.3 has filed objections denying the averments made in the petition inter alia denying the plea that she stood as a guarantor and offered the petition schedule property by creating an equitable mortgage. It was contended that the petition was barred by time. PW-1 was recalled for further examination and Exs.P15 to P22 were got marked. 3^rd respondent examined herself as RW-1 and Ex.R1 to R3 were got marked.

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The Trial Court formulated the following points for its consideration:

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Whether the petitioner has established that the 1^st respondent company has borrowed the loan in question and the

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remaining respondents are guarantors for the same?

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Has it established that the 3^rd respondent has created an equitable mortgage in respect of the petition schedule property for the loan in question?

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Is the petition in time?

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Has the petitioner established that as on 26.12.1997 a sum of Rs.98,49,310.73 paise was due towards the loan from the respondents?

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Is it entitled to the relief sought?

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On appreciation of the oral and documentary

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evidence, the petition was allowed holding that the respondent No.1 was due to the petitioner Corporation as on 26.12.1997 a sum of Rs.98,49,310.73. Respondent Nos.2 to 5 were directed to pay the said sum with interest @ 23% p.a. from 27.12.1997 till realization and also a sum of Rs.25,000/- as costs of

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the petition to the petitioner. It was further held that the petitioner is entitled to recover the said sum by sale of the petition schedule property further making it clear that the petitioner can execute the said order itself to recover the money from respondent Nos.2 to 5 and there is no need to draw a decree.

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The Corporation filed Misc.Petition

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No.128/2010 under Section 31(1)(a) and (aa) of the Act against the respondents contending that the 1^st respondent company borrowed loan from the petitionerCorporation on two occasions. On the first occasion a sum of Rs.185 lakhs and on the second occasion a sum of Rs.41 lakhs was sanctioned. The first loan was availed for degumming of silk waste and the second loan was granted under a scheme called ‘equipment finance scheme’. Necessary documents were executed by the respondent No.1 company by its Chairman and one of its directors, respondent No.2.

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Title deeds were deposited and an equitable

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mortgage was created relating to the petition schedule property. In respect of the second loan, the respondent Nos.2 and 4 executed a deed of guarantee dated 23.10.1996. The respondents were at default in making the repayments despite repeated demands. As such, the guarantee offered by respondent Nos.2 to 5 were revoked. On these averments the petition was filed for enforcing the liability of the sureties and for recovery of the amount due by sale of the petition schedule mortgaged property.

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On issuance of notice, respondents appeared through their respective counsel. Respondent Nos. 1, 2 and 5 appeared and have field a common objection statement denying the material averments made in the petition. It was also contended that one M/s Chilton Investment Private Limited had come forward and offered a sum of Rs.154 lakhs in full and final

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settlement of the amount due but the petitioner Corporation adopted harsh and unreasonable attitude and lost the offer. Reliance was made to the objection statement filed in Misc.Petition No.102/2010 filed by the petitioner against the respondents.

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Respondent No.3 has filed objections denying the petition averments and has taken a defence that the petition was barred by time. Respondent No.4 has remained absent.

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On the basis of the pleadings, the points that

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were formulated for consideration by the Trial Court are as under:

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Whether the petitioner has established that the loans in question were borrowed by the 1^st respondent company?

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Has it established that respondents 2 to 5 are guarantors for the first loan and

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respondents 2 and 4 are guarantors for the second loan?

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Has it established that an equitable mortgage had been created in respect of item No.1 of the petition schedule property?

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Is the petition in time?

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Is the petitioner entitled to the

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reliefs sought?

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Sri.K.G.Ramesh, one of the officer of the petitioner Corporation was examined as PW-1 on behalf of the petitioner. Exs.P1 to P64 were marked. The respondent No.2 examined himself as RW-1 and respondent No.3 was examined as RW-2. Exs.R1 and R2 were marked.

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On appreciation of material evidence, the

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Trial Court allowed the petition under Section 31(1)(aa) of the Act holding that the respondent No.1 was due to the petitioner Corporation as on 20.6.2010 a sum of

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Rs.26,49,60,812/-. Respondent Nos.2 to 5 were directed to pay to the petitioner a sum of Rs.18,43,21,528/- with interest @ 21% p.a. from 21.6.2010 till realization. Respondent Nos.2 and 4 were directed to pay to the petitioner a sum of Rs.8,06,39,284/- with interest @ 23% p.a. from 21.06.2010 till realisation. Respondent Nos.2 to 5 were directed to pay cost of Rs.50,000/- to the petitioner.

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Being aggrieved by the portion of the said judgment and order in Misc. Petition No.128/2010 insofar as the dismissal of the petition under Section 31(1)(a) of the Act, the Corporation has filed MFA Nos.4738/2016, the respondent Nos.2 and 5 have filed MFA Nos.4686/2016 against the order of Misc. Petition No.128/2010, respondent Nos.1, 2 and 5 have filed MFA No.4685/2016 against the order of Misc. Petition No.109/2010 and respondent No.3 - Smt.Anuradha has filed MFA No.5950/2016 assailing the order in

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Misc. Petition No.109/2010 and MFA No.5951/2016

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against the order in Misc. Petition No.128/2010.

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Learned counsel appearing for the

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Corporation submitted that the Trial Court committed a palpable error in dismissing the petition under Section 31(1)(a) of the Act in Misc. Petition No.128/2010. The free hold rights and lease hold rights of the petition schedule property bearing Sy.No.No.411 situated with the village limits of Anekal, kasaba Hobli, Anekal Taluk, Bangalore Urban District, standing thereon and to be constructed/erected thereon were mortgaged with the Corporation by the respondent Nos.1 and 5. As such, as per section 32(6) of the Act, the provisions contained in the Code of Civil Procedure may be applied to the facts of the present case. The Trial Judge has failed to appreciate the same.

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It was submitted that as per Section 32(6) of the Act, the provisions of Code of Civil Procedure are

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applicable. In the present case, the provisions of Order 34 Rule 15 of the Code of Civil Procedure are applicable insofar as passing the order for sale of the equitable mortgaged property in favour of the Corporation.

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The Trial Court has failed to appreciate that

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when the petition was filed for enforcement of the payment of money of immovable property of the item No.1 of the petition schedule property, to enforce the said claim, Article 62 of the Limitation Act is applicable. Without appreciating the same, the Trial Court has arrived at a wrong conclusion that the provisions of Code of Civil Procedure are not applicable insofar as the claim made under Section 31(1)(a) of the Act against the principal borrower.

¶151

Learned counsel has referred to the Full Bench decision of this Court in Karnataka State Financial Corporation and others Vs. Smt.Jaya Menon and others reported in ILR 2004 KAR 2735 . It

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was argued that the guarantee executed by the respondents is continued guarantee and the undertaking by the respondents is to pay any amount that may be due by the respondent No.1 company on demand. Inviting the attention of the Court to Clause 8 of the deed of guarantee at Ex.P12 and P13, it was submitted that the guarantee is a continuing one for all amounts lent and advanced and/or to be lent and advanced by the Corporation to the company under the said security documents as also for all interest, costs, charges and expenses and all other money which may from time to time become due and payable and remain unpaid for the time being to the Corporation.

¶154

It was further argued that as per the judgment of the Hon'ble Apex Court in Deepak Bhandari Vs. Himachal Pradesh State Industrial Development Corporation Limited reported in (2015)

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5 SCC 518 the limitation would commence only after

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the assets of the company are sold and appropriated.

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Learned counsel appearing for the

¶159

respondent Nos.1, 2 and 5 placing reliance on the judgment of the Hon'ble Apex Court in the case of Mrs. Margaret Lalita Samuel Vs. Indo Commercial Bank Limited reported in AIR 1979 S.C.102 and Syndicate Bank Vs. Channaveerappa Beleri reported in AIR

¶160

2006 S.C. 1874 submitted that when the demand is made by the creditor on the guarantor, under a guarantee, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time barred against the principal debtor, the question of creditor demanding payment thereafter, for the first

¶161

time, against the guarantor would not arise. As the claim against the principal debtor was time barred, guarantor is not liable to make the payment on the

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demand made against the guarantors subsequent to the claim against the principal debtor getting time barred. It was submitted that the default was committed by the principal borrower in the year 1995 and the petition was filed against the guarantors in the year 2010 i.e. after 15 years. It was argued that the petition filed against the guarantors is only time barred; the deed of guarantee was specific, not continuing guarantee. The Trial Court grossly erred in allowing the claim of the Corporation under Section 31(1)(aa) of the Act. The entire claim ought to have been dismissed as barred by time.

¶164

Learned counsel Sri.K.Suman appearing for the respondent No.3 submitted that the petition was ex facie barred by limitation. If the petition is dismissed under Section 31(1)(a), it follows as necessary corollary that the petition under Section 31(1)(aa) also to be dismissed. The invocation of guarantee was made on

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11.2.1998 but the miscellaneous petition was filed on 11.11.2010 suppressing the materials. Inviting the attention of the Court to the deposition of PW-1 in the cross examination, it was contended that PW-1 has candidly admitted that Ex.P14 was issued invoking the personal guarantee as the 1^st respondent failed to repay the money due. It may be that on 11.2.1998 itself such a notice has been issued. It was argued that the learned judge without appreciating the evidence of the parties in a right perspective solely based on conjectures and surmises has answered the points formulated in the affirmative holding that Ex.P6 is a continuing guarantee.

¶167

Adverting to the arguments advanced by the

¶168

learned counsel for the parties, the points that arise for our consideration are:

¶169

Whether the Trial Court was justified in allowing the petition under Section 31(1)(aa) of the Act dismissing the

¶170

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petition under Section 31(1)(a) in Misc. Petition No.128/2010?

¶172

Whether the Trial Court was right in allowing the petition under Section 31(1)(a) and Section 31(1)(aa) of the Act in Misc. Petition No.109/2010?

¶173

Re: Point No.1:

¶174

Exs.P41-original sale deed dated 4.10.1991 and Ex.P54-original lease deed dated 1.2.1992 were indeed placed before the Trial Court in Misc. Petition No.128/2010. The same would demonstrate that free hold rights and lease hold rights in respect of the petition schedule property were offered as security by depositing the title deeds as held by the Trial Court. The crux of the controversy relates to the point of limitation.

¶175

Before proceeding further, it is beneficial to refer to the judgments referred to by the learned counsel appearing for the respective parties.

¶176

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29. In the case of Mrs. Margaret Lalita

¶178

Samuel, supra, the Hon’ble Apex Court has held as

¶179

under:-

¶180

“The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach, under Article 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J. C. Shah, J., speaking for the Court said:

¶181

"On the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever ..... We are not concerned

¶182

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in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond ........ We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained a live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run." We agree with the view expressed by Shah, J. The intention and effect of a continuing guarantee such as the one with which we are concerned in this case was considered by the Judicial Committee of the Privy Council in Wright and Anr. v. New Zealand Farmers Cooperative Association of Canterbury Ltd. The second clause of the guarantee bond in that case was in the following terms:

¶184

"This guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing to you by the William Nosworthy and Robert Nosworthy on their current account with you for goods supplied

¶185

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and advances made by you as aforesaid and interest and other charges as aforesaid."

¶187

A contention was raised in that case that the liability of the guarantor was barred in respect of each advance made to the Nosworthys on the expiration of six years from the date of advance. The Judicial Committee of the Privy Council expressed the opinion that the matter had to be determined by the true construction of the guarantee. Proceeding to do so, the Judicial Committee observed (at p. 449):

¶188

"It is no doubt a guarantee that the Association will be repaid by the Nosworthys advanced made and to be made to them by the Association together with interest and charges; but it specifies in col. 2 how that guarantee will operate-namely, that it will apply to (i.e. the guarantor guarantees repayment of) the balance which at any time thereafter is owing by the Nosworthys to the Association. It is difficult to see how effect can be given to this provision except by holding that the repayment of every debit balance is guaranteed as it is constituted from time to time, during the continuance of the guarantee, by the excess of the total debits over the total credits. If that be true construction of this document, as their Lordships

¶189

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¶190

think it is, the number of years which have expired since any individual debit was incurred is immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and used for had been constituted".

¶191

Later it was again observed (at p. 450):

¶192

"That document, in their opinion, clearly guarantees the repayment of each debit balance as constituted from time to time, during the continuance of the guarantee, by the surplus of the total debits over the total credits, and accordingly at the date of the counterclaim the Association's claim against the plaintiff for payment of the unpaid balance due from the Nosworthys, with interest, was not statutebarred."

¶193

11. This was precisely the view which J.C. Shah, J., expressed in the passage already extracted by us, with which we expressed our agreement. We may add here that in Wright's case the Privy Council appeared not to approve of the decision in Parr's Banking Company Ltd. v. Yates(1), where it had been observed that the statutory limitation would run from the date of

¶194

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each advance. As noticed in Paget's Law of Banking (8th Edition) at pp. 82-83, the authority of Parr's case has been overruled so far as the guarantor is concerned by the judgment of the Court of Appeal in Bradford old Bank Ltd. v. Sutcliffe(1).

¶196

12. Now, the overdraft account which was guaranteed by the defendant by the execution of the guarantee bond dated 23^rd October, 1944, continued to be a `live' account even after the Company ceased its business on 30th June, 1946. A power of Attorney was executed by the Company in favour of the plaintiff bank and amounts due to the Bank were realised and credited in the overdraft account. A sum of Rs.2,19,784-4-0 was received from the Director General of Food Supplies on 27th June, 1950. On 6th September, 1950, another sum of Rs.1,15,229-15-0 was received from the Director General of Food Supplies and credited to the account or the Company. Again on 27^th January, 1951, 14^th March, 1951 and 29^th September, 1952, several amounts received by way of refund of Income- tax were credited to the Company in its account. The amount credited on 29^th September, 1952 was Rs.24,022-0-10. The

¶197

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overdraft account was thus a live account at least till 29th September, 1952. The Company executed various promissory notes and letters of acknowledgement. The defendant herself as guarantor executed, on 2^nd February, 1952, Exhibit 55, acknowledging her liability in respect of the guarantee given by her. Paragraph (a) of the letter is as follows:

¶199

"In respect of the personal guarantee which myself and my husband have given to the bank, the amount due to the bank as on 31^st December, 1951 is Rs.2,71,531- 8,6."

¶200

Thus far from repudiating her liability and breaking the contract of continuing guarantee, the defendant accepted her obligation under the guarantee bond in respect of the overdraft account which continued to be live at least upto 29^th September, 1952. The suit which was filed on 8^th November, 1954, was therefore, clearly within time under Article 115 of the schedule to the Limitation Act, 1908.”

¶201

Precise terms of the guarantee extracted in the said judgment reads as under:-

¶202

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“In consideration of your having agreed to allow overdraft accommodation upto Rs.10,00,000/- (Rupees Ten Lakhs only) to the Modern Hindustan Food Products Ltd., Poona, we, C. B. Samuel and M. L. Samuel, the undersigned do hereby jointly and severally guarantee to you, the Indo-Commercial Bank Limited the repayment of all money, which shall at any time be due to you from the said Modern Hindustan Food Products Ltd., on the general balance of their accounts with you or on any account whatever (such balances to include all interest, charges, commission and other expenses which you may charge as bankers) and also the due payment at maturity of any promissory note or other negotiable instrument on the security or in respect of which any credit or advance shall be made.

¶204

And we hereby declare that this guarantee shall be a continuing guarantee to the extent at any one time for Rs.10,00,000/- (Rupees Ten Lakhs only) and shall not be considered wholly or partially satisfied by the payment at any one time or at different times of any sums of money due on such general balance of account but shall extend and cover and be a security for every and all

¶205

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further sums at any time due to you thereon. And we further declare that you may grant to the Modern Hindustan Food Products Ltd., any indulgence without discharging our liability."

¶207

31. In Channaveerappa Beleri, supra, the

¶208

Hon’ble Apex Court considering the judgment of Mrs. Margaret Lalita Samuel, supra, has held thus:-

¶209

“8. The appellant-Bank contended that the guarantees executed by the respondents were continuing guarantees; that the guarantors had agreed to pay the amount/s on demand by the Bank; that such a demand was made by the Bank on the guarantors on 12.10.1987 and 17.12.1987; and that the guarantors' refusal to pay the amount demanded is contained in their reply-letters dated 31.10.1987 and 30.12.1987; and that, therefore, the suit filed on 16.3.1990, within three years from 31.10.1987 was in time. Reliance is placed on Article 55 of the Limitation Act, 1963 and the decision of the Supreme Court in Samuel (supra).

¶210

9. A guarantor's liability depends upon the terms of his contract. A 'continuing guarantee' is different from an ordinary guarantee. There is

¶211

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

¶213

10. Samuel (supra), no doubt, dealt with a continuing guarantee. But the continuing guarantee considered by it, did not provide that the guarantor shall make payment on demand by the Bank. The continuing guarantee considered by it merely recited that the surety guaranteed to

¶214

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the Bank, the repayment of all money which shall at any time be due to the Bank from the borrower on the general balance of their accounts with the Bank, and that the guarantee shall be a continuing guarantee to an extent of Rs.10 lakhs. Interpreting the said continuing guarantee, this Court held that so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, the period of limitation could not be said to have commenced running.

¶216

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 the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.

¶217

x x x x x x

¶218

x x x x x x

¶219

14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which

¶220

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requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful :

¶222

Let us say that a creditor makes some advances to a borrower between 10.4.1991 and 1.6.1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1.4.1991. Let us further say a demand is made by the creditor against the

¶223

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guarantor for payment on 1.3.1993. Though the limitation against the principal debtor may expire on 1.6.1994, as the demand was made on 1.3.1993 when the claim was 'live' against the principal debtor, the limitation as against the guarantor would be 3 years from 1.3.1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1.6.1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15.9.1994 would not be valid or enforceable.”

¶225

32. The Hon’ble Court thus while distinguishing

¶226

Mrs. Margaret Lalita Samuel, supra has observed that the continuing guarantee considered by it, did not provide that the guarantor shall make payment on demand by the Bank. The continuing guarantee considered by it merely recited that the surety guaranteed to the Bank, the repayment of all money which shall at any time be due to the Bank from the borrower on the general balance of their accounts with the Bank and that the guarantee shall be a continuing

¶227

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guarantee to an extent of Rs.10 lakhs, whereas in

¶229

Channaveerappa Beleri, 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. The phrase ‘on demand’ has been explained. It is observed that the right to sue accrues within the stipulated period, if payment is not made or is refused within that stipulated period. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor.

¶230

In the present case, Exs.P6, P12, P13 are the deeds of guarantee which are similarly worded as in Samuel. In paragraph 1 of Ex.P6, it is stipulated as under:-

¶231

1. If at any time default shall be made by the Company in the payment of the said Principal sum of Rs.185.00 lakhs (Rupees One Hundred

¶232

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Eighty Five lakhs only) or any part thereof or interest thereon or any other monies for the time being due and owing by the Company to the Corporation under the said security documents the Guarantors will without demur pay to Corporation the whole of such principal sum, interest and all other monies which shall then be due to the Corporation as aforesaid which the Corporation may incur by reason of any default on the part of the Company its successor or successors and assigns and will indemnify and keep indemnified, saved harmless and defended the Corporation at all times hereafter against any loss or damage which the Corporation may suffer by reason of any default by the Company in repayment to the Corporation of the said loan or any part thereof and/or interest thereon or any other monies for the time being due and payable by the Company to the Corporation under the said Security Documents and all costs, charges and expensed whatsoever which the Corporation may incur by reason of any default on the part of the Company its successor or successors and assigns.

¶234

A reading of the said clause would indicate that it is a continuing guarantee and there is no

¶235

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agreement by the guarantor to make payment only on demand. On the other hand, the guarantors without demur liable to pay to the Corporation the whole of such principal sum, interest and all other monies which shall then be due to the Corporation and all cost, charges and expenses whatsoever which the corporation may incur by reason of any default on the part of the company its successor or successors and assigns and will indemnify and keep indemnified, saved harmless and defended the corporation at all times. On critical analysis of this clause, it could be inferred that the continuing guarantee herein fall within the ambit of the legal principles enunciated by the Hon’ble Apex Court in

¶237

Mrs. Margaret Lalita Samuel, supra.

¶238

35. In Channaveerappa Beleri, supra, the

¶239

Hon’ble Apex Court has observed in paragraph 9 that a claim may be even time-barred against the principal debtor, but still enforceable against the guarantor, thus,

¶240

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clarifying that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract. The caveat explained in paragraph 14 would relate to the case of demand made by the creditor on the guarantor, under a guarantee which requires a demand as a condition precedent for the liability of the guarantor, but not to the continuing guarantee as explained in paragraph 9 of the said judgment that a ‘continuing guarantee’ is different from an ordinary guarantee. The guarantor’s liability depends upon the terms of its contract. There is difference between a guarantee which stipulates that the guarantor is liable to pay only on demand by the creditor, and a guarantee which does not contain such a condition.

¶242

The arguments of the learned counsel for the respondents that the claim against the principal borrower was time barred, as such demanding payment

¶243

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for the first time against the guarantor would not arise, may not be applicable to the facts of the present case. The terms of the guarantee does not stipulate that the liability of the guarantor is limited either to the limitation to be enforceable against the principal debtor or only on the principal debtor. The close scrutiny of the terms of the guarantee would indicate that the parties have agreed that the liability of the guarantor shall be at all times i.e., even at the major point of time than that of the principal debtor. As such, the arguments of the learned counsel for the respondents that no payment could be demanded by the guarantors if the claim against the principal debtor is time barred cannot be countenanced. Hence, no exception can be found on the finding of the Trial Court on this aspect.

¶245

Section 32(6) of the Act provides that if cause is shown, the district judge shall proceed to investigate the claim of the Financial Corporation in

¶246

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accordance with the provisions contained in the Code of Civil Procedure, 1908 (5 of 1908) insofar as such provisions may be applied thereto.

¶248

Learned counsel for the Corporation placing

¶249

reliance on this provision made an endeavor to contend that Article 62 of the Limitation Act, 1963 would be applicable to the facts of the present case. As such, the relief for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the financial corporation as the security for the loan or advance would be attracted.

¶250

In MFA No.2462/2013 (D.D. 29.01.2021)

¶251

in the case of Karnataka State Industrial and Infrastructure Development Corporation Ltd., vs. M/s. Uniject Needles Ltd., and others, the coordinate

¶252

bench of this Court, where one of us (Hon’ble SSJ) was a member, has held that Article 62 of the Limitation Act

¶253

would be invoked only when the suit relates to an

¶254

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immovable property and it is filed to enforce payment of money secured by a mortgage or otherwise charged upon the immovable property. Referring to the Full Bench decision of this Court in Karnataka State Financial Corporation and others vs. Smt. Jaya Menon and others reported in ILR 2004 KAR 2735 and the judgment of Hon’ble Apex Court in Maharashtra State Financial Corporation vs. Ashok K. Agarwal and others reported in AIR 2006 SC 1584, it has been held that for a petition filed under Sections 31(1)(aa) and 32 of the Act, the applicable limitation is as per Article 137 of the Limitation Act.

¶256

The Full Bench of this Court in Smt. Jaya Menon, supra, though observed that the district judge is not acting as a persona designata but discharging functions as a Civil Court under Section 32 of Act, made clear that the provisions of CPC would be made applicable for enforcing the provisions of section 31 of

¶257

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the Act. But the application filed under Section 31 of the Act is governed by the provisions of Article 137 of the Limitation Act, 1963. Hence, reliance placed on this judgment by learned counsel for the Corporation to contend that Article 62 of the Limitation Act would be made applicable has to be negated. Moreover, for the reasons best known to the Corporation no proceedings under Section 29 of Act has been initiated for the sale of mortgaged property. Having considered these aspects, the Trial Court has rightly held that the relief claimed under Section 31(1)(a) of the Act is time barred and the same cannot be faulted with.

¶259

For the reasons aforesaid, appeals filed by the Corporation as well as the respondents challenging the order passed in Miscellaneous Petition No.128/2010 stand dismissed.

¶260

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Re. Point No.2:

¶262

In addition to the arguments advanced as aforesaid, learned counsel Sri K. Suman for respondent No.3 – Smt.Anuradha, argued that the Trial Court grossly erred in considering Ex.P5 as document of equitable mortgage created by deposit of title deeds towards security for the loan amount availed by the respondent No.1 – Company. It was submitted that the said document was not a simple equitable mortgage, indeed it consists of several terms and conditions. As such, registration of the said document was mandatory. For want of registration, the said Ex.P5 ought not to have been looked into, by the Trial Court. The Trial Court having held that Ex.P5 is an unregistered document, ought not to have been given any credential value. In support of his contentions, learned counsel has placed reliance on the judgment of the Hon’ble Apex Court in the case of State of Haryana and others vs.

¶263

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Narvir Singh and another reported in 2014 (1) SCC 105.

¶265

Learned counsel submitted that the first

¶266

disbursement of loan was made on 25.01.1996 and even if the last disbursement on 15.02.1996, then also the petition ought to have been filed on or before 15.02.1999. Therefore, the presentation of the petition on 22.07.1999 is barred by limitation. The Trial Court committed grave error in presuming that even without proceeding against the principal borrower, a proceeding against the surety was maintainable under Section 31(1)(a)(aa) of the Act.

¶267

Learned counsel for the respondents No.1, 2

¶268

and 5 supporting the arguments advanced by the learned counsel for respondent No.3 submitted that no petition under Section 31(1)(a) and (aa) would be maintainable as the claim against the principal borrower was barred by time.

¶269

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45. As regards limitation, the issue is no more

¶271

res integra in view of the order passed by the Division Bench of this Court in MFA No.8048/2012 (D.D. 04.08.2015) which has reached finality wherein, it has been categorically held that the learned trial judge has committed a mistake in rejecting the application on the ground of limitation while remanding the matter to the Trial Court and thereby set aside the orders of rejecting the petition as barred by time. As per Ex.P2, the loan had to be repaid in four quarterly installments with a moratorium period of six months from the date of first drawal. 25.07.1996 was the date on which the first repayment was required to be made. For the purpose of limitation, computation of three years would run from 25.07.1996, the petition was filed on 22.07.1999 well within 3 years period i.e., 25.07.1999. Applying either

¶272

Mrs. Margaret Lalita Samuel, or Channaveerappa Beleri, case, the petition of the corporation is well

¶273

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within the period of limitation as rightly observed by the Trial Court.

¶275

The Division Bench of this Court in

¶276

N.Narasimhaiah and another v/s. Karnataka State Financial Corporation reported in ILR 2003 KAR 3344 has held that a proceeding against a surety is maintainable albeit no proceedings initiated against the principal borrower. Thus, it has been held that KSFC need not necessarily exhaust its remedy first with the principal borrower.

¶277

47. In the case of Narvir Singh, supra, the

¶278

Hon’ble Apex Court considering Section 58(f) of the Transfer of Property Act in para 11 has held thus:-

¶279

“11. Mortgage inter alia means transfer of interest in the specific immovable property for the purpose of securing the money advanced by way of loan. Section 17(1)(c) of the Registration Act provides that a non-testamentary instrument which acknowledges the receipt or payment of any consideration on account of the creation,

¶280

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declaration, assignment, limitation or extension of any such right, title or interest, requires compulsory registration. Mortgage by deposit of title-deeds in terms of Section 58(f) of the Transfer of Property Act surely acknowledges the receipt and transfer of interest and, therefore, one may contend that its registration is compulsory. However, Section 59 of the Transfer of Property Act mandates that every mortgage other than a mortgage by deposit of title-deeds can be effected only by a registered instrument. In the face of it, in our opinion, when the debtor deposits with the creditor title-deeds of the property for the purpose of security, it becomes mortgage in terms of Section 58(f) of the Transfer of Property Act and no registered instrument is required under Section 59 thereof as in other classes of mortgage. The essence of mortgage by deposit of title-deeds is handing over by a borrower to the creditor titledeeds of immovable property with the intention that those documents shall constitute security, enabling the creditor to recover the money lent. After the deposit of the title-deeds the creditor and borrower may record the transaction in a memorandum but such a memorandum would not be an instrument of mortgage. A memorandum reducing other terms and conditions with regard

¶282

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to the deposit in the form of a document, however, shall require registration under Section 17(1)c) of the Registration Act, but in a case in which such a document does not incorporate any term and condition, it is merely evidential and does not require registration.”

¶284

Reliance is placed on the judgment of the Hon’ble Apex Court in United Bank of India Ltd., vs. Lekharam Sonaram & Co., reported in AIR 1965 SC 1591, wherein it has been held that if a document which constitutes the bargain regarding security requires registration under Section 17 of the Registration Act, 1908. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either.

¶285

There is no cavil on this legal proposition. Now the question would be whether the document at Ex.P5 constitutes the bargain regarding the security. On

¶286

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careful scrutiny of the said exhibit, it cannot be said that payment of tax etc., by the respondent No.3 would be construed as a bargain. Hence, the arguments of the learned counsel for the respondent No.3 has to be negated. It is not in dispute that the original title deeds are in the custody of the Corporation. A memorandum recording the transaction after the deposit of title deeds is not an instrument of mortgage. It is only evidential in the circumstances of the case.

¶288

In the case of Rachpal Mahraj vs. Bhagwandas Daruka and others reported in AIR (37) 1950 SC 272, the Hon’ble Apex Court has held as under :

¶289

“4. A mortgage by deposit of title deeds is a form of mortgage recognised by section 58 (f) of the Transfer of Property Act which provides that it may be effected in certain towns (including Calcutta) by a person "delivering to his creditor or his agent documents of title to immovable property with intent to create a security thereon." That is to say, when the debtor deposits with the

¶290

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creditor the title deeds of his property with intent to create a security, the law implies a contract between the parties to create a mortgage, and no registered instrument is required under section 59 as in other forms of mortgage. But if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. As the deposit alone is not intended to create the charge and the document, which constitutes the bargain regarding the security, is also necessary and operates to create the charge in conjunction with the deposit, it requires registration under section 17 of the Indian Registration Act, 1908, as a nontestamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. The time factor is not decisive. The document may be handed over to the creditor along with the title deeds and yet may not be registrable, as in Obla Sundarachariar v. Narayana Ayyar (1). Or, it may be delivered at a later date and nevertheless be registrable, as in Hari Sankar Paul v. Kedar Nath

¶292

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Saha (2). The crucial question is: Did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document ? If so, the document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then, there being no express bargain, the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document, being merely evidential does not require registration.”

¶294

In the light of these judgments, Exs.P4 and P5 are examined. Ex.P4 is the surety agreement executed on 20.01.1996 by M/s Flora International Ltd., represented by Sri. M.S.A. Aleem, director referred to as the borrower and Smt.Anuradha - respondent No.3 as the surety in favour of the KSIIDC - Corporation. Ex.P5 is the surety agreement executed by Smt.Anuradha offering the petition schedule property bearing No.23, 9^th Cross, ITI Layout, Sarakki I Phase,

¶295

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J.P. Nagar, Bangalore – 560 078 measuring 3600 sq.

¶297

feet or 334.39 sq. mtrs as security for the due repayment of the loan of Rs.100.00 Lakhs. Loan agreement at Ex.P2 was entered into between the M/s Flora International Limited - borrower and KSIIDC – Corporation by a separate document dated 20.01.1996. Deed of personal guarantee dated 20.01.1996 was executed by the guarantors namely 1) Sri. M.S.A. Aleem, 2) Smt. Anuradha, 3) M.S.C. Pasha.

¶298

The said surety agreements at Exs.P4 and P5 do not create or extinguish any rights or liabilities as observed by the Hon’ble Apex Court in Narvir Singh, supra to mandate registration. In the present case, it is a live account being continuing guarantee as held by

¶299

Mrs. Margaret Lalita Samuel, supra. Respondent No.3 – Smt.Anuradha was one of the director of the Respondent No.1 – Company who has offered the

¶300

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petition schedule property as a security for the loan raised by the Company.

¶302

In the case of Syndicate Bank vs. Estate Officer and Manager, APIIC Ltd., and others reported in (2007) 8 SCC 361, in para 33, the Hon’ble Apex Court as held as under:

¶303

“33. In M.M.T.C. Limited v. S. Mohamed Gani and Another [AIR 2002 Madras 378], a learned Single Judge opined :

¶304

"18. The plaintiff has sought for a mortgage decree specifically alleging that the first defendant in respect of the advances made by the plaintiff to his business has offered the immovable property of his wife viz., the second defendant herein as security and has created an equitable mortgage. Both the counsel have made elaborate submissions in that regard. Hence, a question would arise whether an equitable mortgage by deposit of title deeds was created. What is mortgage by deposit of title deed is defined under Section 58(f) of the Transfer of Property Act, as follows :

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- 59 -

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'58. [f] Mortgage by deposit of title deeds. – Where a person in many of the following towns, namely, the towns of Calcutta, Madras and Bombay, and in any other town which the State Government concerned may by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent, documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds.'

¶307

It is called in English law an equitable mortgage. Lord Cairns defined the same as 'It is well established rule of equity that a deposit of a document of title without more, without writing, without word of mouth, will create Equity a charge upon the property referred to.' In order to prove the existence of an equitable mortgage, the following requisites are necessary: (1) a debt; (2) a deposit of title deeds, and (3) an intention that the deeds shall be security for the debt. The debt may be an existing debt or a future debt. Insofar as the deposit of title deeds is concerned, physical delivery of document is not the only mode of deposit and even the constructive delivery has been held sufficient. It is sufficient if the deeds deposited bona fide relate to the

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property or are any material evidence of title and are shown to have been deposited with an intention to create a security thereon. The essence of the whole transaction of equitable mortgage by deposit of title deeds is the intention that the title deeds shall be the security for the debt. Whether the said requisite intention is available in a given case is a question of fact and has to be ascertained after considering the oral, documentary and circumstantial evidence. It is true the mere fact of deposit does not raise the presumption that such an intention existed. Such an intention cannot be presumed from the possession since the mere possession of the deeds is not enough without evidence as to the manner in which the possession originated so that an agreement may be inferred. Even the mere possession of the deeds by the creditor coupled with the existence of a debt need not necessarily lead to the presumption of a mortgage. The mere fact that the documents were coming from the custody of the plaintiff is not by itself sufficient to prove an intent to create a security. But in a given case unless and until the defendants satisfactorily explain how the documents came to the plaintiff's custody, the

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said fact would be significant and have a great bearing."

¶312

The three requisite ingredients viz., (i) debt of the company (ii) intention of the respondent No.3, director of the company to create a sec6urity thereon (iii) deposit of title deeds as a security for the debt raised by the company are well proved. Mere denial by the surety, Smt.Anuradha, a self interested witness would not dislodge the material evidence on record. MFA No.2730/2016 (D.D.10.02.2021) filed by the Corporation against Misc. Petition No.102/2010 has been disposed of by this Court, setting aside the judgment of the Trial Court and remanding the matter for re-consideration by the Trial Court.

¶313

In that Misc. Petition No.102/2010, the Corporation has produced certain additional documents before this Court including the original title deeds relating to the schedule 2 and 3 (therein) and the original title deeds relating to the schedule 1 (therein)

¶314

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having produced before the Trial Court in Misc. Petition No.128/2010. Hence, defence of dismissal of Misc. Petition No.102/2010 by the Trial Court is no more available to the respondents.

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For the reasons aforesaid, appeals filed by the respondents challenging the order passed in Miscellaneous Petition No.109/2010 are devoid of merit and accordingly stand dismissed.

¶317

In the result, the appeals stand dismissed.

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Sd/JUDGE

¶319

Sd/JUDGE

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DVR/PMR

M/S. Flora International Ltd. v. M/S Karnataka State Industrial

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M/S. Flora International Ltd. v. M/S Karnataka State Industrial

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