Allowed

Sri D Srinivasan v. Karnataka State Financial Corporation

Karnataka HC7 Jul 2021MFA/4804/2020

Case brief

AI extract

What is this about?

The High Court allowed the appeal partially, setting aside the trial court's order for failing to consider the observation to adjust realized amounts from secured assets before claiming recovery from guarantors, a direction given in a prior 2017 remand order.

What did the court decide?

The impugned order dated 24.10.2019 is set aside. The matter is remitted to the trial court for reconsideration of the recovery claim after adjusting the amount recovered from secured assets.

Sri D Srinivasan Vs Karnataka State Financial… — Banking and Recovery | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 7^TH DAY OF JULY, 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 E.S.INDIRESH

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M.F.A.No.4804/2020 (SFC)

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BETWEEN :

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SRI D.SRINIVASAN S/O LATE B.C.DESHIKACHAR AGED ABOUT 80 YEARS R/AT NO.4, 12^TH CROSS, 8^TH MAIN, MALLWSHWARAM, BENGLAURU-560003

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2 . SRI K.N.NARAYANA IYENGAR S/O K.N.NARASHIMHA IYENGAR AGED ABOUT 76 YEARS R/AT NO.26, JYOTHI MANSION 5^TH CROSS, MALLESHWARAM BENGALURU-560 003 ...APPELLANTS

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(BY SRI GAUTAM S. BHARADWAJ, ADV.)

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AND :

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1 . KARNATAKA STATE FINANCIAL CORPORATION NO.1/1, THIMMAIAH ROAD, BENGALURU-560052 REP BY ITS DEPUTY GENERAL MANAGER(R)

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SRI D.S.MURTHY SINCE DECEASED BY LRs.

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SMT.RADHA MURTHY W/O LATE D.S.MURTHY AGED MAJOR, R/AT NO.2, EAST LINK A STREET, MALLESWARAM,

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BENGALURU-560003 …RESPONDENTS

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(BY SRI BIPIN HEGDE, ADV. FOR R-1; NOTICE TO R-2 DISPENSED WITH.)

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF THE KARNATAKA STATE FINANCIAL CORPORATION ACT, AGAINST THE ORDER DATED 24.10.2019 PASSED IN MISC.NO.802/1999 ON THE FILE OF THE XXXVII ADDITIONAL CITY CIVIL JUDGE, (CCH-38), BENGALURU, ALLOWING THE PETITION FILED UNDER SECTION 31(1), 31(1)(aa) AND 32 OF SFC ACT.

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THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J ., DELIVERED THE FOLLOWING:

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J U D G M E N T

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This appeal is directed against the judgment and award dated 24.10.2019 passed in MISC.No.802/1999 on the file of the XXXVII Additional City Civil and Sessions Judge [CCH-38], Bangalore City [‘Trial Court’ for short].

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This is the second round of litigation inasmuch as the petition filed against the respondents under section 31[1], 31[1][aa] and Section 32 of the State Financial Corporations Act, 1951 [‘SFC Act’ for short] is concerned.

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Succinctly stated the facts are that on the loans having been sanctioned by the KSFC to the

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M/s.Cozy Polystone [P] Ltd., by executing the loan documents and after creating equitable mortgage by recording memorandum of entry and also on the execution of deeds of guarantee by the guarantors, action under Section 29 of the SFC Act was taken due to default in repaying the loan in terms of the loan agreement. It transpires that even after realizing Rs.75,27,089/-, the amount being insufficient for discharge of the loans, KSFC invoked the personal guarantee against the guarantors by issuing show cause notice, but in vain. Hence, MISC.No.802/1999 was filed by the KSFC.

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On issuance of notice, statement of

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objections were filed by the company M/s.Cozy Polystone [P] Ltd. The official of KSFC Sri.C.M.Shashikanth was examined as PW1 and marked the documents at Ex.P1 to P11. Sri.D.Srinivasan, appellant No.1 herein got examined himself as DW1 but no documents were marked.

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On the basis of the pleadings, points were formulated and upon consideration of the material on record, MISC.No.802/1999 came to be allowed on 02.11.2011 with costs holding that KSFC is entitled to recover a sum of Rs.1,09,01,595/- as on 10.12.1998 from the respondent Nos.2 to 5[1] with interest at the rate of 16.5% p.a., from 10.12.1998 till the date of realization.

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6. Being aggrieved, M/s.Cozy Polystone [P] Ltd.,

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along with the appellants herein has filed MFA No.11429/2012 which came to be disposed of on 03.03.2017 setting aside the order dated 02.11.2012 passed in MISC No.802/1999 and remitting the matter to the Trial Court for re-consideration. The relevant paragraph 12 reads thus:

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“12. The Court below while passing the order impugned herein, has not kept in view the settled position of law. There is failure to specify the amount which has to be recovered by proceeding against the secured asset. Hence, the order suffers from legal infirmity

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and is unsustainable. Further it was required for the Court to examine that after the adjustment of the amount realised, what is the amount recoverable and as to whether defences raised by the appellants herein / respondents therein are acceptable or not and the reasons thereof.

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In the result, appeal is allowed and the order dated 02.11.2012 passed in Misc. No.802/1999 by the XXXVII Addl. City Civil and Sessions Judge, Bengaluru City is set aside. As the case has not been decided in accordance with law, Misc. No.802/1999 stands remanded to the Court below for consideration by keeping in view the observations made supra. All the contentions of both parties are left open. Having regard to the facts and circumstances of the case, the parties are directed to bear their respective costs in this appeal.”

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This order was passed referring to the judgment of the Hon'ble Apex Court in the case of

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Deepak Bhandari V/s. HImachal Pradesh State

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Industrial Development Corporation Limited [(2015)

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5 SCC 518] wherein the Hon'ble Apex Court has held that while considering the question of law pertaining to the starting point of limitation for filing of the suit for recovery by the State Financial Corporations constituted under the State Financial Corporations Act, the period of limitation is to be counted from the date when the assets of the company was sold and not when the recall notice was given.

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After remand, the impugned order has been

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passed formulating the points for consideration as under:

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[1]. Whether the petitioner Corporation proves that, on 19.5.1987 it has sanctioned a term loan of Rs.55.00 lakhs and on 15.6.1990 it has sanctioned additional loan of Rs.5.00 lakhs to the respondent No.1 company as stated in the petition?

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[2]. Whether the petitioner Corporation proves that, at the time of availment of term loan and

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additional loan the respondents have agreed to repay the due amount with interest at the rate of 15% p.a., compoundable at quarterly rest with penal interest at the rate of 1.50% as contended in the petition?

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[3]. Whether the petitioner Corporation proves that, on 26.5.1988 the respondents No.2 to 4 have executed loan agreement and guarantee deed in favour of the petitioner Corporation to discharge it’s dues with cost, interest, charges etc., as contended in the petition?

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[4]. Whether the petitioner Corporation proves that on 27.5.1991 the respondents No.2, 4 and 5 have executed guarantee deed and hypothecation deed in favour of the petitioner Corporation to discharge it’s dues with cost, interest, charges etc., as contended in the petition?

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[5]. Whether the petitioner Corporation proves that, this petition is in time?

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[6]. Whether the petitioner Corporation proves that, it is entitle for recovery of petition claim amount?

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[7]. What order?

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The specific direction issued by this Court to consider the settled position of law in terms of Deepak Bhandari supra as well as the specification of the amount which has to be recovered by proceeding against the secured asset has not been addressed.

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It is trite that on the remand made by this Court with the specific directions/observations, it is incumbent on the part of the Trial Judge to keep in mind such observations made for re-considering the matter. As could be seen, no such analysis is made by the Trial Judge. The Trial Court has proceeded merely framing fresh points for consideration ignoring the scope of remand. It was required for the Court to examine that after adjustment of the amount realized, what is the amount recoverable. In order to decide the said issue, it was necessary to consider what was the amount recovered by the proceedings initiated against

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the secured assets and so on. In the absence of such exercise having been done by the Trial Judge, we deem

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it appropriate to remand the matter for reconsideration, setting aside the impugned judgment and order.

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Hence, the following:

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ORDER

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i) Appeal is allowed in part.

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ii) The impugned order dated 24.10.2019 passed in Misc. No.802/1999 by the XXXVII Additional City Civil and Sessions Judge, Bengaluru City is set aside.

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iii) The matter is remitted to the XXXVII Additional City Civil and Sessions Judge, Bengaluru City for reconsideration with a direction to pass appropriate order keeping in mind the order passed by this Court in MFA No.11429/2012 dated 03.03.2017.

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iv) Since the parties are represented by their respective counsel, the parties or the learned counsel for the parties are directed to appear before the trial Court on 28.07.2021 without waiting for any notice and shall take further orders.

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v) The Trial Court shall dispose of the matter as directed by this Court in MFA No.11429/2012 in an expedite manner.

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vi) Pending I.As, if any, stand disposed of.

Sd/-

JUDGE

Sd/JUDGE

NC.

Sri D Srinivasan v. Karnataka State Financial Corporation

Case brief

What is this about?

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Sri D Srinivasan v. Karnataka State Financial Corporation

Case brief

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