Allowed

Sri Satya Kumar Tibarewalla v. Karnataka State Industrial

Karnataka HC15 Jul 2021MFA/7512/2016

Case brief

AI extract

What is this about?

Appeal filed by promoters against a trial court order directing them and the company to pay a large sum due to a State Financial Corporation. The High Court remanded the matter, holding that limitation computation depends on asset sale proceeds and findings on promoter contributions need reconsideration.

What did the court decide?

Impugned judgment set aside and matter remanded to the Trial Court for reconsideration of limitation, asset sale proceeds, and promoter liabilities.

Sri Satya Kumar Tibarewalla Vs Karnataka State… — Company and Corporate | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 15^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.7512/2016 (SFC)

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BETWEEN :

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1 . SRI SATYA KUMAR TIBAREWALLA S/O LATE MOHANLAL TIBAREWALLA, AGED ABOUT 70 YEARS, EARLIER R/AT NO.204, CHALET, 30, AGA ABBAS ALI ROAD, ULSOOR, BENGALURU-560042 NOW AT 12A, NETAJI SUBHASH ROAD, KOLKATA-700001,

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REP BY HIS POWER OF ATTORNEY HOLDER, SRI SUDHIR TIBAREWALLA.

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2 . SRI SUDHIR TIBAREWALLA S/O SATYA KUMAR TIBAREWALLA, AGED ABOUT 45 YEARS, EARLIER R/AT NO.204, CHALET, 30, AGA ABBAS ALI ROAD, ULSOOR, BENGALURU-560042, NOW AT 12A, NETAJI SUBHASH ROAD, KOLKATA-700001. ...APPELLANTS

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(BY SRI S.SRIRANGA, ADV.)

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AND :

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1 . KARNATAKA STATE INDUSTRIAL INVESTMENT & DEVELOPMENT CORPORATION LTD.,

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HAVING ITS REGISTERED OFFICE AT NO.49, ‘KHANIJA BHAVANA’, 4^TH FLOOR, EAST WING, RACE COURSE ROAD, BENGALURU-560001. REP BY ITS MANAGER, SRI M.MALLESHAPPA,

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2 . M/s BEE JAY PEE SACKS PVT. LTD., UNDER LIQUIDATION, REP BY ITS OFFICIAL LIQUIDATOR, HIGH COURT OF KARNATAKA, NO.26 & 27, 12^TH FLOOR, ‘RAHEJA TOWERS’, M.G.ROAD, BENGALURU-560001. …RESPONDENTS

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

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THIS M.F.A. IS FILED UNDER SECTION 32(9) OF STATE FINANCIAL CORPORATIONS ACT, 1951, AGAINST THE JUDGMENT DATED 21.9.2016 PASSED IN MISC.NO.123/2010 ON THE FILE OF THE 4^TH ADDITIONAL DISTRICT JUDGE, MYSURU, ALLOWING THE PETITION FILED UNDER SECTION 31(1)(a)(aa) OF THE STATE FINANCIAL CORPORATION ACT, 1951.

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THIS APPEAL COMING ON FOR HEARING, 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 order dated 21.09.2016 passed in Mics.No.123/2010 on the file of the IV Additional District Judge, Mysuru (‘Trial Court’ for short).

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For the sake of convenience, the parties are

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referred to as per their status before the Trial Court.

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The petitioner – Corporation has filed the petition under Section 31(1)(a)(aa) of the State Financial Corporation Act, 1951 (‘SFC Act’ for short) against the respondents seeking to pass an order to determine that a sum of Rs.20,55,85,719/- with interest is due from respondent No.1 and direct the respondent Nos.2 and 3 to pay the said amount with interest from 21.12.2009 till realization and also to pass an order to proceed against the personal properties of respondent Nos.2 and 3 in respect of both moveable and immovable properties for the realization of dues of the petitioner – Corporation.

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It is the case of the petitioner – Corporation that it is a financial institution established under the Companies Act, 1956. The Central Government by

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issuing the notification, made Sections 29, 30, 31 and 32 of the SFC Act applicable to the petitioner -

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Corporation. The respondent No.1 - company incorporated under the Companies Act, 1956 represented by its directors, approached the petitioner – Corporation for financial assistance for setting up a unit for the manufacture of HDPE woven sacks with circular looms at Madargally village, Mysuru – Nanjangud Road, Mysuru Taluk. The petitioner – Corporation has sanctioned term loan of Rs.38,00,000/- on 11.02.1986. The loan agreement dated 17.03.1986 was executed by the respondent – company along with the other loan documents. It transpires that another term loan of Rs.2,00,000/- was sanctioned on 04.11.1986 at the request of the respondent No.1 - company and thereafter the necessary loan documents were executed. Similarly, another sum of Rs.24,00,000/- (Rupees Twenty Four Lakhs) on 11.11.1998, Rs.400,000/(Rupees Four Lakhs) on 27.04.1989, Rs.1,91,000/-

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(Rupees One lakhs Ninety One thousand) on 25.04.1990, Rs.13,24,000/- (Rupees Thirteen Lakhs Twenty Four Thousand) on 20.02.1991, Rs.39,67,000/(Rupees Thirty Nine Lakhs Sixty Seven Thousand) on 22.08.1994 and Rs.10,00,000/- (Rupees Ten Lakhs) on 08.05.1996 was sanctioned by the petitioner – Corporation on the request of the respondent No.1 – company. The loan documents were executed by the respondent No.1 - Company accordingly. Further, on the request of the respondent No.1 – Company, the petitioner - Corporation rescheduled the loans and executed the necessary modification deeds. In the meantime, on the reference made by the company before BIFR under Section 15(1) of the Sick Industrial Companies Act (SICA) for declaration of sickness and determination of measures for its rehabilitation, the respondent No.1 - company was declared as a sick industrial unit on 21.06.1996 and the State Bank of India was appointed as Operating Agency (OA).

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5. The BIFR in its hearing held on 21.06.1996

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had sanctioned the rehabilitation scheme for revive of

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the company. As per the scheme of the BIFR, the personal guarantees of the existing promoters were released after obtaining the personal guarantees of new promoters. Pursuant to the rehabilitation scheme, the petitioner - Corporation has sanctioned additional term loan of Rs.39,00,000/- (Rupees Thirty Nine lakhs) by way of rehabilitation assistance for revival of the unit subject to certain terms and conditions. Respondent Nos.2 and 3 – the promoters have executed the necessary documents to reschedule the loans. However, BIFR ordered for the issuance of show-cause notice to the Managing Director of the respondent No.1 – company under Section 33 of the SICA for failing to comply with the provisions of the sanctioned scheme. On 13.02.2004, the KSFC was permitted to take over the assets of the company under Section 20(4) of SICA which included a nominee of the respondent No.1 -

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company. The KSFC took over the assets of the company on 12.04.2004. The High Court of Karnataka in COP No.60/2004 accepting the recommendation of BIFR, ordered for winding up of the company as per the order dated 01.04.2005 and directed the SBI (OA) to take possession of the assets of the respondent No.1 - company.

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The petitioner – Corporation filed the Misc.

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Petition before the Trial Court alleging default on the part of the respondents in not clearing the dues amounting to total sum of Rs.20,55,85,719/- with interest from 21.12.2009 till realization.

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On service of notice, Respondent No.1 -

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company remained absent. Respondent Nos.2 and 3 appeared. Respondent No.3 filed objection statement denying the liability to pay total sum of Rs.20,55,85,719/- inter alia contending that the petitioner – Corporation has failed to release the

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additional term loan of Rs.49,00,000/- to revive the sick industry. The SBI (OA) without assigning any reason had returned the cheque of Rs.2,00,000/- issued by the respondent - company despite sufficient funds with the Company’s bank account. However, as per the scheme, respondent Nos.2 and 3 advanced their contribution and signed all the modification deeds and guarantee deeds without any fail and fulfilled their obligations. Accordingly, sought for dismissal of the petition.

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On basis of the pleadings, the following

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points were formulated by the Trial Court:-

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1. Whether the petitioner proves that respondent No.1 company is liable to pay total sum of Rs.20,55,85,719/- with interest as prayed for in this petition?

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2. Whether the respondents 2 and 3 being Guarantors are personally liable to pay the said amount?

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3. Whether the respondents prove that because of non-disbursement of

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rehabilitation assistance by this petitioner as directed by the BIFR, the company was not able to revive, accordingly the respondents are not liable to pay any amount?

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4. What order?

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The petitioner – Corporation got examined its

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Assistant General Manager as PW.1 and marked 44 documents at Exs.P1 to P44. On the contrary, respondent No.3 got examined himself as RW1 and marked documents at Exs.R1 to R10.

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On analyzing the evidence on record, the

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Trial Court allowed the petition determining that the respondent No.1 - company is due to pay a total sum of Rs.20,55,85,719/- with interest from 21.12.2009 till the date of realization and directing the respondent Nos.2 and 3 to pay the same, failing which the petitioner – Corporation can proceed against the personal properties of respondent Nos.2 and 3 both moveable and

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immovable properties for realization of the dues in accordance with law.

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Being aggrieved, the respondent Nos.2 and 3 have preferred the present appeal.

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Learned counsel for the appellants

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(respondent Nos.2 and 3 before Trial Court) would submit that the petition filed by the petitioner – Corporation was barred by the law of limitation. The respondent No.1 - company having been ordered to be wound up by this Court in COP No.60/2004 on 01.04.2005, Section 446 of the Companies Act, 1956 places an embargo on the continuation of any proceedings against the company in liquidation after passing of the order without obtaining leave from this Hon’ble Court. The appellants have contributed the promoters’ contribution in order to revive the sick company. But the Trial Judge erroneously held that they have not contributed any amount. The KSFC

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having taken possession of the assets of the company as far back as on 12.04.2004, no attempts were made to sell the assets of the company to clear the term loans said to have been raised by the respondent No.1 - company. The liability, if any, would arise only on appropriating the value of the assets and as such the petition filed by the petitioner - Corporation under Section 31(1)(a)(aa) of the SFC Act is wholly misconstrued. Wrongful dishonor of the cheque by SBI has resulted in serious consequences. The respondent No.2 had filed its complaint before the Bank Ombudsman as they have wrongfully dishonored the cheque of Rs.2,00,000/- despite the sufficient funds in its bank account. The conduct of the petitioner was vindictive and smacks of mala fides . The Trial Court brushed aside these aspects. In support of his arguments, the learned counsel has placed reliance on the judgment of the Hon’ble Apex Court in Deepak

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Bhandari vs. Himachal Pradesh State Industrial

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Development Corporation Limited reported in (2015) 5 SCC 518.

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Learned counsel for petitioner – corporation submitted that the KSFC has sold the assets of the Company in auction sale on 29.01.2021 and Rs.635.61 lakhs has been received by the KSFC towards the said auction sale. It is after appropriating the money as per the Companies Act, the petitioner – Corporation would be entitled to the claim. Learned counsel further argued that provisions of the Limitation Act would not be applicable to the facts of the present case.

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We have carefully considered the arguments advanced by the learned counsel appearing for the parties and perused the records.

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The Hon’ble Apex Court in the case of Deepak Bhandari, supra, in para 21, 22, 23 has held

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thus:-

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“21. We thus, hold that when the Corporation takes steps for recovery of the amount by resorting to the provisions of Section 29 of the Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the industrial concern. As the Corporation would be in a position to know as to whether there is a shortfall or there is excess amount realized, only after the sale of the mortgage/hypothecated assets. This is clear from the language of sub-section (1) of Section 29 which makes the position abundantly clear and is quoted below:

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“Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over

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the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.”

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22. It is thus clear that merely because the Corporation acted under Section 29 of the State Financial Corporations Act did not mean that the contract of indemnity came to an end. Section 29 merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main contract. It may be that only the Corporation taking action under Section 29 and on their taking possession they became deemed owners. The mortgage may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. The right to sue on the contract of indemnity arose after the assets were sold. The present case

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would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old Limitation Act, 1908. The right to sue on a contract of indemnity/guarantee would arise when the contract is broken.

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23. Therefore, the period of limitation is to be counted from the date when the assets of the Company were sold and not when the recall notice was given.

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24. The up-shot of the aforesaid discussion is to hold that the present appeal is bereft of any merits. Upholding the judgment of the High Court, we dismiss the instant appeal, with costs.”

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Thus, in order to determine from which date the period of limitation has to be counted, it is relevant to ascertain the date on which the assets taken over under Section 29 of the SFC Act were sold.

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As per the judgment of the Hon’ble Apex Court in Deepak Bhandari , supra, the right to sue on

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the contract of indemnity would arise after the assets were sold. The period of limitation is to be counted from the date of assets of the company were sold and not when the recall notice was given. As per the submission of the learned counsel for the petitioner – Corporation, the assets of the company were sold on 29.01.2021. The actual limitation would be computed after appropriating the sale proceeds received from the auction sale of the assets by the KSFC. Moreover, the approach of the Trial Judge that the respondent Nos.2 and 3, new promoters have not made their contribution as per the revival scheme is admitted by the respondent Nos.2 and 3 is wholly erroneous and the same indeed was disputed as such this aspect requires to be re-considered. Number of documents are produced before this Court by the respondent Nos.2 and 3 to contend that the new promoters – respondent Nos.2 and 3 have made their contribution, having done so, now they are penalized with the liability of Rs.20,55,85,719/- for no fault of

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them. The finding of the Trial Judge on this aspect of default said to have been committed by respondent Nos.2 and 3 in not contributing for the revival of the scheme requires re-consideration apart from the subsequent developments of the sale of the assets of the company as aforesaid. Thus, the matter certainly requires a remand keeping open all the rights and contentions of the parties.

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For the reasons aforesaid, we deem it

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appropriate to set aside the impugned judgment and order and remand the matter to the Trial Court for reconsideration.

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Hence, the following

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ORDER

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i) The appeal is allowed. ii) The impugned judgment and order dated 21.09.2016 passed in Misc. No.123/2010 on the file of the IV Additional District Judge, Mysuru is set aside.

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iii) The matter is remanded to the Trial Court for reconsideration in accordance with law.

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iv) All the rights and contentions of the parties are left open.

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v) The Trial Court shall reconsider the matter and take appropriate decision in accordance with law in an expedite manner keeping in mind the observations made hereinabove.

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vi) Since the parties are represented by their respective learned counsel, the parties/learned counsel for the parties are directed to appear before Trial Court on 16.08.2021, without waiting for any notice and shall take further orders.

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vii) The Registry is directed to transfer the original records to the Trial Court, forthwith.

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Sd/JUDGE

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Sd/JUDGE

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PMR

Sri Satya Kumar Tibarewalla v. Karnataka State Industrial

Case brief

What is this about?

What did the court decide?

Sri Satya Kumar Tibarewalla v. Karnataka State Industrial

Case brief

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What did the court decide?

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