Allowed

K.P.Kunjan v. the Senior Manager (R/R), Kerala State Financial Enterprises Ltd.

Kerala HC6 Apr 2017WP(C)/8402/2014

Case brief

AI extract

What is this about?

The court held that a retired employee surety was entitled to refund of a sum wrongly deducted from his retirement benefits. The creditor had previously recovered the same amount from the principal debtor's account due to an internal remittal error, meaning no debt existed to justify the second deduction.

What did the court decide?

Quashing of the rejection letter and directing the Kerala State Financial Enterprises Ltd. to refund Rs. 87,312/- to the petitioner within one month.

K.P.Kunjan Vs the Senior Manager (R/R)… — Contract and Commercial Disputes | Kerala HC (2017)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU

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THURSDAY, THE 6TH DAY OF APRIL 2017/16TH CHAITHRA, 1939

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WP(C).No. 8402 of 2014 (A)

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PETITIONER(S):

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K.P.KUNJAN, AGED 62 YEARS,

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S/O.PADMANABHAN,ILLIPARAMBIL HOUSE,

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KARAPUZHA P.O,KOTTAYAM 686 003

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(CHARGEMAN,KERALA STATE ROAD TRANSPORT CORPORATION, RETIRED ON 30-04-2007 FROM CHANGANACHERRY DEPOT)

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BY ADV. SRI.K.P.JUSTINE (KARIPAT)

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RESPONDENT(S):

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THE SENIOR MANAGER (REVENUE RECOVERY), KERALA STATE FINANCIAL ENTERPRISES LTD. HEAD OFFICE,THRISSUR 680 012.

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THE BRANCH MANAGER,

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KERALA STATE FINANCIAL ENTERPRISES LTD.,

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(LOAN UNIT), K.K ROAD, KOTTAYAM 686 003.

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THE MANAGER(REVENUE RECOVERY), KERALA STATE FINANCIAL ENTERPRISES LTD,

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BAKERY JUNCTION, KOTTAYAM 686 001.

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THE MANAGING DIRECTOR,

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KERALA STATE ROAD TRANSPORT CORPORATION,

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THIRUVANANTHAPURAM 695 023.

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P.K THANKAPPAN,

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CHERUKIDAYICHIRA,KILIROORP.O,

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KOTTAYAM DISTRICT - 686 003.

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(CHARGEMAN,KERALA STATE ROAD TRANSPORT CORPORATION,MANANTHAWADY UNIT,

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RETIRED ON 31-10-2004) (DELETED)

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THE SPECIAL DEPUTY TAHSILDAR

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REVENUE RECOVERY,KERALA STATE FINANCIAL ENTERPRISES LTD,

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BAKERY JUNCTION, KOTTAYAM 686 001)

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(R5 IS DELETED FROM THE PARTY ARRAY AS PER ORDER DATED 09.02.2016 IN I.A.NO.1796/2016).

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R1 -R 3 BY ADV. SRI.BABU VARGHESE (SR.) R1 -R 3 BY ADV. SRI.ALEXANDER.C.V., SC,

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R4 BY ADV. SRI.M.GOPIKRISHNAN NAMBIAR, SC, KSRTC R BY SRI.BABU JOSEPH KURUVATHAZHA,SC,KSRTC

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-04-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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WP(C).No. 8402 of 2014 (A)

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: 2 :

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APPENDIX

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PETITIONER(S)' EXHIBITS:

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EXHIBIT P1 TRUE COPY OF GRATUITY PAYMENT ORDER NO PA-11/019135/07 DATED 28-04-2010 ISSUED BY THE RESPONDENT NO 4 CORPORATION TO THE PETITIONER

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EXHIBIT P2 TRUE COPY OF LETTER NO KTM/5054/06-07 DATED 21-06-2010 ISSUED BY THE RESPONDENT NO 1

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EXHIBIT P2(A) TRUE COPY OF LETTER NO 5053/0607 DATED 21-06-2010 ISSUED BY THE RESPONDENT NO.1

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EXHIBIT P3 TRUE COPY OF LETTER NO SDT/KTM/5054/06-07 DATED 11-08-2010 OF THE 6TH RESPONDENT

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EXHIBIT P4 TRUE COPY OF THE SPLIT UP DETAILS OF THE RECOVERED AMOUNT OF RS.2.16,436/-FROM THE DCRG OF THE PETITIONER

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EXHIBITP5 TRUE COPY OF REPLY VIDE LETTER NO. SDT/KTM/5054/06-07 DATED 1108-2010 OF THE 6TH RESPONDENT

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EXHIBIT P6 TRUE COPY OF LETTER NO SDT/KTM/5053,5054/06-07 DATED 1-7-2010

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EXHIBITP7 TRUE COPY OF THE REPLY NO RR/KTM/5053,5054/06-07 DATED 28-072010 OF THE 1ST RESPONDENT

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EXHIBIT P8 TRUE COPY OF THE NOTICE FROM THE KERALA STATE ROAD TRANSPORT CORPORATION STAFF CO-OPERATIVE SOCIETY LTD NO K.141 KOTTAYAM DATED 2307-2013

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RESPONDENT(S)' EXHIBITS: NIL

True Copy/

P.A to Judge.

'CR'

DAMA SESHADRI NAIDU, J.

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W.P. (C) No. 8402 of 2014 (A)

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Dated this the 6^th day of April, 2017.

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JUDGMENT

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Introduction:

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Two employees stand surety to each other’s loan. They default on the repayment. The employer, acting as a guarnishee, deducts the borrowers’ terminal benefits and remits the amounts to the creditor. Because of some mix-up, the amount deducted from one borrower’s terminal benefits goes to a wrong department of the creditor. That amount, with interest, once again gets deducted from the other borrower’s, the surety’s, account. The surety demands return of that amount. But the creditor refuses: it asserts that the other borrower stood surety to some other defaulted loans, and the amount was adjusted to those accounts. Can the surety demand refund of amount deducted from his account? The answer: yes.

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Facts:

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K.P. Kunjan, the petitioner, and one P.K. Thankappan worked in the Kerala State Road Transport Corporation (“the

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W.P.(C.) No. 8402/2014 -2-

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Employer”), the 4^th respondent. While both were in service, they obtained loans of `50,000/- each from the Kerala State Financial Enterprises Ltd. (“KSFE”), the second respondent. After standing guarantee to each other's loan, both defaulted and later retired from service. Thankappan retired on 31.10.2004; Kunjan on 30.04.2007.

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Asked by the Senior Manager of KSFE, the Special Deputy Tahsildar, Revenue Recovery (the 4^th respondent), initiated proceedings under the Revenue Recovery Act and transferred the proceedings to the Revenue Recovery Unit (the 3^rd respondent) of KSFE. It proceeded further. On the Revenue Recovery Unit’s demand, the employer of both Kunjan and Thankappan recovered certain amounts from their terminal benefits.

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As seen from Ext.P4, out of `2,16,436/- due to Kunjan, the employer deducted these amounts and remitted them to the Revenue Recovery Division of KSFE:

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Towards the loan of Kunjan's wife 20,545/Towards the loan of Kunjan himself 42,855/Towards P.K. Thankappan's loan

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(to which Kunjan stood guarantee)

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`87,310/-

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The balance paid to Kunjan

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`65,724/-

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To a specific query, the learned counsel on both sides have

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submitted that these amounts were deducted on 28.04.2010.

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On parallel lines, the employer deducted certain amounts from Thankappan's terminal benefits—Death Cum Retirement Gratuity (DCRG)—too. In Thankappan's personal loan, to which Kunjan stood guarantee, the amount due by 2008 was `49,950/-. The employer did deduct this amount from his DCRG on 29.08.2008 or there about. But, instead of sending that amount to the KSFE’s Revenue Recovery Unit, it sent the amount to the Loan Unit., that is, the second respondent Branch.

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KSFE’s Revenue Recovery Unit did not realize—much less did it rectify—this mistake till 2010. Therefore, by 28.04.2010, the amount with interest swelled up to `87,312-. Demanded by KSFE’s Revenue Recovery Unit, the employer deducted this amount from Kunjan's account. Both were oblivious that Thankappan’s loan account had been adjusted from his own DCRG. The loan, thus, must have

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W.P.(C.) No. 8402/2014 -4-

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been squared up. Eventually, on 30.06.2010, KSFE realised this mistake and, as a result, its Loan Unit transferred `49,950/-, the amount it had originally received from the employer, to the Revenue Recovery Unit.

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Once he came to know of the mix-up and its later rectification, Kunjan represented to the KSFE to refund the amount wrongly deducted from his account. He pointed out that KSFE had already received the amount from Thankappan's account much earlier, through a wrong department, though. Then, the Special Deputy Tahsildar, Revenue Recovery, through Ext.P6, recommended to the KSFE’s Head Office that Kunjan's request for refund is justified. He has, nevertheless, brought to the Head Office's notice that Thankappan stood surety for other defaulted loans. Since the principal borrowers and the sureties, one of them being Thankappan, retired, KSFE had no chance of recovering the amounts. Therefore, KSFE refused to refund the amount to Kunjan. Aggrieved, he has filed this writ petition.

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Heard the learned counsel for the petitioner and the learned Standing Counsel for the KSFE, besides perusing the record.

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W.P.(C.) No. 8402/2014

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Discussion:

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Indeed, the issue lies in a narrow compass, and there are no disputed questions of fact.

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Kunjan, the petitioner, guaranteed Thankappan's loan taken from KSFE. Thankappan defaulted. The employer deducted the entire over-due amount of 49,950/- from Thankappan's DCRG and remitted it to the KSFE. But instead of sending the amount to the Revenue Recovery Unit, the employer had sent it to the Loan Unit. The amount lay in the Loan Unit (a separate Branch) for about two years, undetected. In the meanwhile, unmindful of the recovery effected earlier from Thankappan's account, the Revenue Recovery Unit invoked the guarantee clause and asked the employer to deduct the overdue amount from the Kunjan's DCRG. As it happened in 2010, by then, with interest the amount came to 87,312/-. Now, KSFE's defence, as seen from its counter affidavit, is that that `49,950/- was adjusted towards other loans to which Thankappan stood surety.

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First, the amount recovered from Thankappan's loan was sent to KSFE—but to one Department instead of another. The fact

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remains that the KSFE, a single entity, received the amount, the intradepartmental mishap notwithstanding. As the other Department was unaware of these developments, it invoked guarantee clause two years later and, by then, the outstanding loan amount attracted interest— and a penal one, at that.

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By equal measure, we could as well presume that the amount lying with the KSFE—in one Unit instead of another—too must have correspondingly earned interest, at the same rate. Viewed from another perspective, had the employer sent the amount at the first instance to the Revenue Recovery Unit instead of the Loan Unit, there could have been no occasion either for the KSFE to demand repayment or for the employer to deduct the amount from Kunjan's DCRG. Once the loan unit of KSFE received the amount that did not belong to it, it ought to have immediately transferred the amount to the Unit concerned—the Revenue Recovery Unit. Neither for the lapse of the employer in sending the amount to the wrong Unit nor for the lapse of the very lender, the KSFE, in not transferring the amount interdepartmentally, could Kunjan suffer.

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The employer, let us acknowledge, did make a mistake: not sending the amount to the correct Unit. We could not, at the same time, conclude that the employer’s error is egregious to mulct it with any liability, for in 2008 itself it parted with the amount. And it gained nothing.

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The learned Standing Counsel for the KSFE has contended that under the Indian Contract Act, the liability of a guarantor is always joint and several—coextensive. So, the KSFE's deducting the amounts from Kunjan's account could not be found fault with. True, there can be no quarrel about the statutory position and its legal interpretation. A guarantor’s liability under the Indian Contract Act, under Section 128, is joint and several.

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Joint and Several Liability:

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In this context, I may note that the rule of suretyship enjoins that the liability of a guarantor or surety “cannot be extended by implication or otherwise beyond the actual terms of his engagement.” The claim against surety is strictissimi juris (the strictest letter of the law; to be construed strictly).

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W.P.(C.) No. 8402/2014

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As defined by Section 126 of the Indian Contract Act, 1872, a contract of guarantee is a contract to perform the promise, or to discharge the liability of a third person if he defaults on his loan payment. A guarantee may be oral or written. An enforceable guarantee presupposes the jural relationship between the creditor, the principal debtor, and the surety. There ought to be a distinct promise by the surety to be answerable for the principal debtor’s liability, which must be legally enforceable. Section 128 of the Act makes the surety’s liability coextensive. As Sections 142 and 143 of the Act mandate, misrepresentation or concealment vitiate the guarantee.

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First, the surety or the guarantor has, under Section 140 of the Act, the right of subrogation: On his discharging the principal debtor’s liability, he is invested with all the rights which the creditor had against the principal debtor. A surety, on the other hand, stands discharged, by issuing a notice of revocation (Sec.130); by death of surety himself (Sec.131); by variance in the terms of the contract (Sec.133); by discharge of the principal debtor (Sec.134); by composition, extension of time, or promise not to sue (Sec.135,

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W.P.(C.) No. 8402/2014

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subject to Secs.135 to 137); or by impairing the surety’s remedy (Sec.139).

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As the surety’s liability is joint and several, besides being coextensive, the creditor can straightway proceed against the guarantor without first proceeding against the principal debtor. But his liability can never be greater than the principal debtor’s.

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That said, I must add what is reckoned as a basic postulate of the surety’s contractual obligation: The principal debt must be preexisting or subsisting. If there could be no debt, then there could be no demand, and “there must be an end of the obligation to pay.” Put another way, whatever action the creditor could initiate against the principal borrower, it could as well take the same action against the surety.

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Could KSFE have sued Thankappan?

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Let us assume that KSFE sued Thankappan in 2010. He could repel the action by asserting that his employer had already deducted the amount from his service benefits—and at the very request of KSFE, at that. The employer played the role of a garnishee. How the actual

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W.P.(C.) No. 8402/2014 -10-

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remittance took place could not be Thankappan’s lookout. His account deducted, Thankappan could, therefore, maintain that the debt was wiped off, squared up. The same defence is available to Kunjan, too. The debt having disappeared by 29.08.2008, when the employer debited Kunjan’s DCRG account, there existed no debt, so to say.

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The Refund:

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In these circumstances, equities demand that the amount the KSFE initially received in 2008, i.e., `49,950/- should have been adjusted to Thankappan's account, obviating any recovery from the Kunjan's account. For the lender's mistake, let not the borrower, much less a guarantor, suffer.

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Before parting, I may further observe that `87,312/- has remained with KSFE from 28.04.2010 to this day. It is deemed to have earned interest. Kunjan requested for a refund in 2010, without success, however. But he is rather generous, I reckon, in not demanding interest on the amount from KSFE for all these years.

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I, therefore, allow this writ petition quashing Ext.P7 rejection letter. Consequently, this Court further directs the KSFE to refund

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W.P.(C.) No. 8402/2014

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`87,312/- to Kunjan expeditiously, at any rate, within one month from

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the date of receipt of a copy of this judgment. No order on costs.

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DAMA SESHADRI NAIDU, JUDGE.

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W.P.(C.) No. 8402/2014 -12-

K.P.Kunjan v. the Senior Manager (R/R), Kerala State Financial Enterprises Ltd.

Case brief

What is this about?

What did the court decide?

K.P.Kunjan v. the Senior Manager (R/R), Kerala State Financial Enterprises Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Parties & counsel

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