Dismissed

Karnataka State Financial Corporation v. Jayashree R Manoli

Karnataka HC20 Apr 2023RSA/3112/2007

Case brief

AI extract

What is this about?

In this regular second appeal, the Karnataka High Court dismissed the appeal filed by the Karnataka State Financial Corporation (KSFC) challenging a first appellate court order that allowed the appellant's loan suit against the borrower. The Court upheld the lower court's finding that KSFC acted negligently in not securing comprehensive insurance as per contract terms, holding that they could not

What did the court decide?

Appeal dismissed with costs; records sent back to trial court.

Karnataka State Financial Corporation Vs… — Contract and Commercial Disputes | Karnataka HC (2023)

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RSA No. 3112 of 2007

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 20^TH DAY OF APRIL, 2023

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BEFORE

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THE HON'BLE MR JUSTICE G BASAVARAJA

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REGULAR SECOND APPEAL NO. 3112 OF 2007 (DEC)

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BETWEEN:

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KARNATAKA STATE FINANCIAL CORPORATION, REPRESENTED BY ITS MANAGING DIRECTOR, HEAD OFFICE NO 1/1, THIMMAIAH ROAD, CANTONMENT RAILWAY STATION, BANGALORE - 560 052.

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THE DEPUTY GENERAL MANAGER, KARNATAKA STATE FINANCIAL CORPORATION DIVISIONAL OFFICE, NEAR NAVANAGAR HUBLI - 580 020

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THE BRANCH MANAGER, KARNATAKA STATE FINANCIAL CORPORATION, BRANCH OFFICE NO 2253, 2 FLOOR, APARNA COMPLEX, 2ND MAIN, VINOBA NAGAR OPPOSITE RAMAKRISHNASHRAMA DAVANGERE - 577006

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…APPELLANTS

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(BY SRI. L. GOVINDRAJ.,ADVOCATE) AND:

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Digitally signed by HARSHITHA B Location: High Court of Karnataka

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JAYASHREE R. MANOLI, W/O RAMESH S MANOLIAGED ABOUT 42 YEARS, RESIDENTIAL ADDRESS: DOOR NO 2001/1, MCC A BLOCK DAVANGERE - 577006

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…RESPONDENT

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(BY SRI. UDAYKUMAR SINGH.,ADVOCATE)

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THIS RSA IS FILED U/S. 100 OF CPC AGAINST THE JUDGEMENT AND DECREE DTD 31.10.07 PASSED IN R.A.NO 106/02 ON THE FILE OF THE ADDL. SESSIONS JUDGE AND PRESIDING OFFICER, FAST TRACK COURT-II, DAVANAGERE, ALLOWING THE APPEAL AND SETTING ASIDE THE JUDGEMENT AND DECREE DTD 20.2.02 PASSED IN OS 493/98 ON THE FILE OF THE PRL. CIVIL JUDGE, (JR.DN), DAVANAGERE.

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RSA No. 3112 of 2007

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THE ABOVE APPEAL HAVING BEEN HEARD ON 23.02.2023 AND RESERVED FOR JUDGMENT, COMING ON FOR “PRONOUNCEMENT OF JUDGMENT” THIS DAY, THE COURT DELIVERED THE FOLLOWING:

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JUDGMENT

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The present appeal is filed by the defendants aggrieved by the judgment and decreed dated 31.10.2007 passed in R.A.No.106/2002 on the file of the Addl. Sessions Judge, Fast Track Court-II, Davangere, by which the First Appellate Court allowed the appeal filed by the plaintiff and set aside the judgment and decree passed by the Prl. Civil Judge (Jr.Dn.) in O.S.No.493/1998 dated 20.02.2002.

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The parties are referred to by their rank before the Trial Court for the sake of convenience.

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The plaintiff/Jayashree R. Manoli, has filed a suit before the Trial Court against the defendants for following reliefs.

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a) For declaration that the act of the defendants to proceed against the plaintiff and the properties offered as security by the plaintiff is highly illegal;

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RSA No. 3112 of 2007

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b) Consequently for permanent injunction to restrain the defendants, their agents, their subordinates, their officials, their attorneys or any other persons claiming under the defendants from calling upon the plaintiff to pay the loan installments and interest, as the same is prejudicial to the right and interest of the plaintiff.

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c) For permanent injunction restraining the defendants, their agents, their subordinates, their officials, their attorneys or any other person or persons claiming under the defendants from proceeding against the plaintiff in any manner to recover the loan installments and interest in respect of Modi Xerox Machine, as the same is prejudicial to the right and interest of the plaintiff;

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d) For mandatory injunction directing the defendants to return all the title deeds furnished by the plaintiff as security at the time of availing the security at the time of availing the financial assistance for the purpose of purchasing Modi Xerox Machine,

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e) For court costs and to grant such other reliefs as the Hon'ble court deems fit to grant under the circumstances of the case.

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The case of the plaintiff is that, she is an engineering graduate. She thought of involving herself in an avocation and with that intention she decided to have zerox machine, for the purpose of purchasing zerox machine, she approached the 3rd defendant for financial assistance in the month of January 1998. Her application

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RSA No. 3112 of 2007

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was considered by the first Defendant and a sum of Rs.75,000/- was sanctioned for the purpose of purchasing Modi Zerox Machine. She has invested nearly Re.25,000/-. The loan was sanctioned to install zerox Machine in the premises bearing D.No.2667/301, Dental college road Davangere. The 3rd defendant informed her about the sanction of the loan and the various terms and conditions of the loan. According to the terms and conditions of the sanction letter she availed financial assistance to the tune of Rs.75,000/- in the month of January 1998 and she

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purchased Modi Zerox Machine in the month of January 1998. The said fact is well within the knowledge of the defendants. After purchasing the zerox machine she started carrying on business in the premises. Her unit is a small scale industrial unit. According to the terms and conditions of loan, Insurance of the article is compulsory. According to condition 4(a) where the sanction loan amount is less than Rs.5,00,000/- the same is to be insured in consultation with the borrower with any national insurance company for fire, strike or any other causes

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RSA No. 3112 of 2007

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within the knowledge of the borrower, on account of which, there is likelihood of loss that may be caused to the article. Since all these terms and conditions are imposed by the defendants the same are binding on them.

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The defendants have no right to act contrary to

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the terms and condition in view of the specific terms and conditions incorporated in the sanction letter the defendants had no right to take out any insurance company policy in respect of the article i.e., Modi Zerox Machine purchased by her raising loan from the defendants without her knowledge concurrence and consent. While she was carrying on the business, on 2907-1998. Some miscreants broke upon the lock of the premises and committed theft of the said modi zerox machine. Immediately the plaintiff lodged complaint with the Extension Police Davangere through her husband, the case is registered in crime No.307/1998. The matter is still under investigation. After lodging the complaint with the police she wrote a letter to the 3rd defendant on

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RSA No. 3112 of 2007

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01.08.1998 in the said letter she had intimated the 3rd defendant about the theft of Zerox Machine and requested the 3rd defendant to lodge a claim with concerned insurance company and further requested to adjust the amount to be paid by insurance company to her loan account. This letter is received by the 3rd defendant on 1.8.1998 itself. Even though the defendants received letter on 01.08.1998 failed to respond to the letter. As she did not hear anything from the defendants there was no other way except to issue notice to the defendants. Whom she was contemplating to issue notice, she received the reply from the 3rd defendant dated 31.08.1998 to the effect that they have taken out only fire policy and therefore, it is not possible to get any compensation from the insurance company.

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After receiving the reply she came to know that the defendant unilaterally acted and that too in contravention of the terms and conditions of their own sanction letter. Even though it was mandatory for the

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RSA No. 3112 of 2007

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defendants to consult her about the nature of the policy to be taken in respect of the goods hypothecated in favour of

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the defendants, The defendants for the reasons best known to them have not consulted her, that apart, even though the zerox machine was installed in the month of January 1998, as learnt by the plaintiff, the defendants have not taken out the policy immediately. On the other hand, policy is taken in the month March 1998. Thus there is not only negligence on the part of the defendants but also there is dereliction of duty on the part of the defendants, Now the defendants cannot take undue advantage of fastening their own negligence on fastening the liability on the plaintiffs. It is further contended that she got issued a notice to the defendants on 02.09.1998 calling upon them to indemnify her for lapse and negligence on their part in not obtaining insurance policy to cover the risk of burglury. This notice is served on the defendants. Till filing of the suit, defendants have not taken any pains to respond to the notice. Inspite of service of notice, the defendants have neither comply with the

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RSA No. 3112 of 2007

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terms made in the notice nor they have sent any reply. Therefore defendants have no right to call upon her to pay the loan installments or interest, similar the defendants have no right to proceed against her or the property offered as security by her. Inspite of having the knowledge the defendants have issued the notice calling upon her to pay loan installments as well as interest. This demand made by the defendants is highly illegal. The defendants should not be permitted to perpetuate illegal acts. The same is to be prevented by proper mandate of Hon'ble court. If not prevented in view of what is stated about she will be put to irreparable and legal injury which can be never compensated at all. Hence, this suit.

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7. Defendant No.3 filed written statement. It is

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admitted that the plaintiff has intimated about theft of zerox machine and also sought for lodging the claim with insurance company and for appropriation of the insurance amount to the loan amount. It is not admitted that the said letter was delivered on 01.08.1998 as alleged by the

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9 - RSA No. 3112 of 2007

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plaintiff. It is denied that only after reply dated 31.08.1998 the plaintiff came to know that there is insurance to cover only risk of fire and securing such policy was unilateral act and was in contravention of the terms and conditions of the sanction letter and it was mandatory on their part to consult the plaintiff about the nature of the policy to be taken in respect of the hypothecated goods and that they have not consulted the plaintiff in this regard and the plaintiff started her business in the month of January 1998 and that defendants have

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not secured the policy immediately to obtain the policy in the month of March 1998. Further it is contended that, the unit of the plaintiff is covered under small scale industry. It is a fact that if the unit is other than the small scale industry, defendants would have insisted for comprehensive policy covering all type of risk under shop keepers categorical (commercial) fire policy was secured with the concurrence and knowledge of the plaintiff and she was aware of the nature of the policy secured as on 02.03.1998. According to them, the plaintiff is attempting

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RSA No. 3112 of 2007

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to make out wrongful gain for herself. The plaintiff cannot deprive the right of the defendants to recover the loan subsisting on her unit and proceed against the collateral security. The plaintiff is liable to pay the loan advanced together with interest. The claim of the plaintiff does not overlap the recovery proceedings to be initiated. The liability to repay the term loan begins from the first December 1998 in view of loosing the machinery Hypothecated by the plaintiff in favour of the defendants, the defendants are constrained to recall the entire loan

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due from the plaintiff. The plaintiff has not complied with the terms of the reply notice dated 06.11.1998. Consequently 3rd defendant constrained to initiate recovery proceedings by recalling the entire loan due from the plaintiff. In case, recovery proceedings are obstructed by the plaintiff/defendants will be put to irreparable loss and legal injury. There is no cause of action to file this suit. The plaintiff is not entitled to the reliefs prayed for. The plaintiffs has not approached the court with clean hands. The suit filed by the plaintiff is frivolous, fictitious

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RSA No. 3112 of 2007

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and vexatious. Therefore, they are entitled to exemplary costs of Rs.2,000/-.

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On the basis of pleadings of both the parties,

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the Trial Court framed the following issues:

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1) Whether plaintiff proves that as per condition No.4(a) the defendant has to insure the xerox machine and risk of theft is to be covered?

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2) Whether plaintiff prove that he is not liable to pay the installments of the loan taken by the third defendant?

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3) Whether plaintiff is entitle for the reliefs as sought for?

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4) What order or degree?

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To prove the case of the plaintiff one witness examined as PW.1 and got marked 18 documents at Exs.P1 to P18. On behalf of defendants, DW.1 was examined and got marked 5 documents as Exs.D1 to 5. On hearing the arguments on both sides, the Trial Court has given finding on issue Nos.1 to 3 in the Negative and dismissed the suit of the plaintiff.

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RSA No. 3112 of 2007

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Being aggrieved by this judgment and decree, the plaintiff has preferred appeal before the First Appellate Court in R.A.No.106/2002.

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On hearing the arguments on both sides, the

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First Appellate Court has framed the following points for consideration:

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(i) Whether the appellant/plaintiff has proved that the respondents/defendants without consulting her and without her knowledge, unilaterally had insured Modi zerox Machine only to cover risk of fire?

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(ii) Whether the appellant/plaintiff, has proved that the respondents have acted negligently in getting the Modi Zerox Machine insured only to cover fire risk. Therefore, they cannot take advantage of their own wrong?

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(iii) Whether the judgment and decree passed by the Trial Court calls for interference?

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(iv) What order?

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The First Appellate Court has given the findings as under:

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RSA No. 3112 of 2007

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Point No.1 : In the Affirmative

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Point No.2 : In the Affirmative Point No.3 : In the Affirmative Point No.4 : As per final order

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In view of the above findings, the First Appellate Court has allowed the appeal filed by the appellant/plaintiff and decreed the suit of the plaintiff and passed the judgment and decree in favour of the plaintiff. The operative portion of the judgment of the First Appellate Court is as under:

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"The appeal is allowed. In the facts and circumstances, parties are directed to bear their own costs throughout.

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The judgment and decree dated 20th February 2002 passed in 0.S.No.493/1998 is hereby set aside and suit of the plaintiff is decreed in part as under:

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It is hereby ordered and decreed that, the act of the defendants/respondents to proceed against the plaintiff and the properties offered as security is illegal and arbitrary. The defendants/respondents are hereby directed to refund Rs.1,22,864/- paid by the plaintiff/appellant by means of Demand Draft of the State Bank of Mysore, P.J.Extn., Brach dated 28.03.2 and to return all the title deeds furnished by the plaintiff as security at the time of availing the financial assistance for the purpose of purchasing Modi Zerox Machine within one month from the date of this order.

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RSA No. 3112 of 2007

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Draw decree accordingly.

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Send a copy of this judgment to the Trial Court along with Trial Court records."

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Being aggrieved by this judgment and decree passed by the First Appellate Court, defendant Nos.1 to 3 have preferred this regular second appeal.

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This Court vide order dated 07.12.2011 while admitting the appeal formulated the substantial question of law as under:

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1. Whether the lower appellate court justified in directing the appellant to refund sum of Rs.1,22,864/- recovered from the respondent though there is no prayer made in the suit?

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2. Whether interpretation of clause 4, of the agreement extend into between the parties, by the lower appellate court is in accordance with law?

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The learned counsel for the appellants

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submitted that, the judgment and decree passed by the First Appellate Court is erroneous both in law and facts.

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RSA No. 3112 of 2007

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The First Appellate Court has not properly appreciated the evidence on record. The First Appellate Court erred in considering the judgment of the Trial Court. The First Appellate Court has also proceeded to grant relief without there being any prayer/relief claimed by the respondent. The First Appellate Court has failed to see that clause 4(a) of the terms and agreement, it clearly indicated that it was the responsibility of respondent to seek insurance on any other ground apart from regular fire and riot insurance policy which was taken by the Corporation by was of abundant caution. The First Appellate Court also failed to see that the respondent was a consenting party to the insurance taken out by the Corporation. The First Appellate Court has gone about adjudging the case tangentially. The First Appellate Court has based its judgment on issues which have no bearing on the questions involved in the case. Further it is submitted that

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the First Appellate Court has failed to see that the relief of declaration restraining the appellants, a statutory body from recovering its dues could be brought and that a suit

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for declaration could only lie in a matter relating to a legal character or to any right as to any property or denial of title. Further submitted that the First Appellate Court has erred in restraining a statutory authority from exercising the powers under the Karnataka State Financial

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Corporation's Act. Thus, preventing realization of public funds. On all these grounds sought for allow this appeal.

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To substantiate his arguments he relied

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following decisions:

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i) ILR 1994 Kar 540 : Karnataka State Financial Corporation vs. M/s Associated Engineers;

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ii) ILR 1974 Kar 1275 : Dr.Narayan vs. Dr.R.Vaidyanath & Ors.

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iii) ILR 1985 Kar 2460 : State of Karnataka vs. Vishwanatha Rao.

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The plaintiff has filed a suit for declaration and consequential relief for permanent injunction and

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mandatory injunction and also to grant other reliefs as court deem fit to grant under circumstances of this case.

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RSA No. 3112 of 2007

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It is the case of the plaintiff that the plaintiff

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has obtained a loan of Rs.75,000/- in the month of January 1998 from defendant No.3 for purchase of Modi xerox machine. The unit of the plaintiff is a small scale industrial unit. According to the terms and conditions of which the loan was sanctioned to the plaintiff. Insurance of the article is compulsory. According to Condition No.4(a) where the sanctioned loan amount of less than Rs.5 lakhs, the same is to be insured in consultation with the borrower with any national insurance company for fire strike or any other purpose within the knowledge of the borrower. Further it is the case of the plaintiff that defendant No.3 had inspected the premises where the Xerox machine after installing the Xerox machine the defendants were collecting the loan installment as well as interest from the plaintiff. While plaintiff was carrying on the business that on 29.07.1998 same miscreants broke open the lock of the premises and committed theft of the Modi Xerox machine. Immediately the plaintiff lodged

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RSA No. 3112 of 2007

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complaint with the police through her husband and case was registered in Crime No.307/1998. After lodging complaint the plaintiff wrote a letter to the defendants and though defendants received letter on 01.08.1998, they failed to respond to the letter of the plaintiff. Even plaintiff waited nearly a month. As the plaintiff did not hear from the defendants, there was no other way to plaintiff to issue notice to defendants. Later it is alleged that plaintiff received the reply notice from the defendant No.3, which is dated 31.08.1998 to the effect that defendant No.3 has taken out only Fire policy. Therefore it is not possible to get any compensation from the insurance company. After receiving the said reply, plaintiff came to know that defendants unilaterally acted and that too in contravention of the terms and conditions of their own sanction letter. Thereafter plaintiff got issued notice to the defendants on 02.09.1998 calling upon the them to indemnify her for the lapse and negligence on the part of

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the defendants that notice was duly served on the defendants. Inspite of service of notice, defendants have

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RSA No. 3112 of 2007

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neither complied with the demand made in the notice nor they have sent any reply. Hence, plaintiff has filed this suit.

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To substantiate the case of the plaintiff, she has examined herself as PW1. 18 documents got marked as Ex.P-1 to P-18. Defendants have denied liability of the Karnataka State Financial Corporation and to substantiate their defence, one Kulkarni D.S. was examined as DW1 and 5 documents were marked as Ex.D-1 to D-5.

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Trial court has dismissed the suit of the plaintiff. Ex.D-3 issued by KSFC at Clause 4(a) it is stated

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as under:

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"C) ªÀÄAdÆgÁzÀ ¸Á®zÀ ªÉÆ§®UÀÄ 5.00 ®PÀë gÀÆ UÀ¼ÀÄ CxÀªÁ CzÀQÌAvÀ PÀrªÉÄ EzÀÝ°è ¸ÀA¸ÉÜUÉ ¨sÀzÀævÉAiÀiÁV ¤ÃqÀÄªÀ ¸ÀévÀÄÛUÀ½UÉ ¨ÉAQ, ZÀ¼ÀÄªÀ½ ªÀÄvÀÄÛ ¤ªÀÄUÉ w½¢gÀÄªÀ EvÀgÉ AiÀiÁªÀÅzÁzÀgÀÆ PÁgÀt¢AzÀ ºÁ¤- £ÀµÀÖ DUÀÄªÀ ¸ÀA¨sÀªÀ«gÀÄªÀÅzÀjAzÀ ¸ÀA¸ÉÜAiÉÄÃ ¤ªÀÄä Rað£À°è D ¸ÀévÀÄÛUÀ¼À ¥ÀÆtð ªÀiË®PÉÌ ¤ªÀÄä ªÀÄvÀÄÛ ¸ÀA¸ÉÜAiÀÄ dAn ºÉ¸Àj£À°è AiÀiÁªÀÅzÁzÀ gÉÆAzÀÄ gÁ¶ÖçPÀÈvÀ «ªÀiÁ PÀA¥À¤AiÀÄ°è PÀqÁØAiÀÄªÁV «ªÉÄ ªÀiÁr¸ÀÄvÀÛzÉ. C®èzÉÃ Ez À £ÀÄß ¸ÀA¸ÉÜAiÀÄ ¸Á® ZÁ°ÛAiÀÄ°ègÀÄªÀ ¸ÀªÀÄAiÀÄzÀ°è PÀqÁØAiÀÄªÁV £À«PÀj¸ÀÄvÀÛzÉ. ¸ÀA¸ÉÜAiÀÄÄ ¤ªÀÄä ¥ÀgÀªÁV «ªÉÄAiÀÄ PÀAvÀÄ ªÀÄwÛvÀgÀ ªÉZÀÑªÀ£ÀÄß ¨sÀwð ªÀiÁrzÀÝgÉ. CªÀÅUÀ¼À£ÀÄß ¤ÃªÀÅ ¸ÀA¸ÉÜUÉ §rØAiÉÆA¢UÉ vÀÄA§ ¨ÉÃPÁUÀÄªÀÅzÀÄ."

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RSA No. 3112 of 2007

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This is an undisputed document produced b the defendants. This condition No.4(a) reveals that if the loan amount is less than Rs.5 lakhs. It is the duty of the KSFC to get the articles/property given as security for

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repayment of loan insured to cover the risk of fire, strike and any other cause on account of which there is likelihood of loss of damage to the property given as security or hypothecated goods and getting property insured and KSFC shall go on renewing the insurance till payment of the entire loan at the cost of the loanee.

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Though it is the duty of the KSFC for getting the

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property insured, the KSFC has failed to comply this Clause '4(a)' of the terms and conditions of the sanction of loan. A perusal of the judgment and decree passed by the first appellate court, the first appellate court has elaborately discussed as to the oral and documentary evidence placed by the both parties in accordance with law and facts. I do not find any legal infirmities in the impugned judgment and decree passed by the first

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RSA No. 3112 of 2007

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appellate court. The first appellate court has properly interpreted the Clause 4 of the agreement entered into between the parties and the first appellate court has justified in directing the respondents to refund Rs.1,22,864/- recovered from the appellant. The first appellate court has assigned proper reasons with decision of Hon'ble Apex Court and also provision of Order VII Rule 7 of CPC and passed the impugned judgment and decree in favour of the plaintiff, which is in accordance with law and facts. Hence, I answer substantial question of law in favour of the plaintiff and against defendants.

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I have carefully gone through the decisions

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relied on by the learned counsel for the appellant. The fact and circumstances of this case are entirely different from the decisions relied by the learned counsel for the appellant. Hence, on the basis of this judgment, appeal cannot be allowed.

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