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K.V. Badari Prasad v/s The Karnataka State Industrial Investment & Development Corporation Ltd., (KSIIDC), Gulbarga & Others

    MFA No. 200299 of 2015

    Decided On, 01 February 2021

    At, High Court of Karnataka Circuit Bench OF Kalaburagi


    For the Appellant: S. Srivastava, Senior Counsel, Vishwakarmaraj Nayak, Advocate. For the Respondent:R1 R.V. Nadagouda, Advocate.

Judgment Text

(Prayer: This MFA is filed under sub-Section 9 of Section 32 of the State financial Corporations Act, 1951, praying to pass a judgment setting aside the impugned judgment and award dated 27.11.2014 passed by the Hon’ble Principal District and Sessions Judge, at Bidar in Civil Miscellaneous No.42 of 2009 and to dismiss the application of the 1st Respondent Corporation as against the Appellant herein and to call for lower Court records and to pass any other order or relief as may be deemed necessary by this Court.)

N.K. SudhindraRao, J.

1. This appeal is filed by appellant against order passed by the Prl. District and Sessions Judge, at Bidar in Civil Misc.No.42/2009 dated 27.11.2014 whereby allowed petition determining that petitioner corporation is entitled to recover a sum of Rs.44,06,031/- with future interest at 16.5% p.a. on footing of compound interest at quarterly rests from 0.02.2009 till date of realization which is due from 1st respondent Company and respondents No.2 to 5 are jointly and severally liable to pay petitioner corporation. It is ordered that petitioner corporation is directed to take steps for enforcement of liability of respondents No.2 to 5 for the above said amount with future interest at 16.5% p.a. on footing of compound interest at quarterly rests from 01.02.2009 till date of realization by proceeding against personal properties of respondents No.2 to 5 both movable and immovable properties till complete realization of due of the petitioner corporation.

2. Now, the appellant- K.V. Bhadri Prasad who is respondent No.5 before the Trial Court has come in appeal and his prayer is that he is not liable to pay a loan amount to the KSFC on count that it is time barred, because the letter was written as per Ex.R.1, wherein the present appellant had intimated the KSFC that he has withdrawn his substitute collateral surety. Actually it is informed that appellant has relinquished his functions and he has cleared all outstandings. Thus, M.M. Hussain and Bhadri Prasad are no more liable for liabilities of the company. The said letter as per Ex.R.1 dated 11.11.1994 which reads as under:-

With reference to our letter No.CW1/FD-FE-012/263 dated 14.06.1994 wherein we had informed that Mr.M.M.Hussain has resigned from the Board and also Mr.K.V.Badari Prasad as relinquished his commercial functions a Director in-charge (copy enclosed). Subsequent to this Mr. K.V.Badari Prasad also resigned from the Board as Director w.e.f. 29.07.1994. Recently we have cleared all the outstanding up to 30.09.1994 in onego amounting to R.60,29,718=00 vide our letter No.CW1/KSIIDC/936 dated 27.09.1994 (copy enclosed).

Mr. M.M. Hussain & Mr. K.V. Badari Prasad who resigned from the Board have requested that they should be relived from the personal guarantee given to M/s KSIIDC as they are no more associated with the company and they also have their own individual business plans.

In view of the above we request you to release the personal guarantee given by Mr. M.M. Hussain and Mr. K.V. Badari Prasad for all outstanding loans and dues to M/S. KSIIDC and absolve them from their personal liabilities towards all the present and future dues to KSIIDC. We are prepared to substitute their personal guarantees by similar guarantees of Mr. S.B. Shetty and Mr.I.A.Khan who together have total net-worth of Rs.68,10 lakhs as against total net-worth of Rs.41.5 lakhs of Mr.M.M.Hussain and Mr. K.V.Badari Prasad together. Further please find enclosed herewith joint letter from Mr.S.B. Shetty and Mr.I.A.Khan offering their intention to give personal guarantee to M/s. KSIIDC as collateral security for the loans extended by you to the company along with their bio-data and net-worth statement as on 30.04.1994.

We requested you to kindly issue a letter relieving Mr.M.M.Hussain and Mr.K.V.Badari Prasad from their personal liability for the loans extended by you to the company.”

3. Learned counsel for the appellant contended that the judgment dated 27.11.204 is liable to be set-aside as being illegal and unreasonable. It is contended that the Trial Court has failed to notice that the alleged legal notice dated 08.04.2009 was issued by respondent No.1 only to bring the claim under limitation and that respondent No.1 had failed to as much as issuing a notice of demand against the appellant or any of the guarantors till that date. It is further contended that it is a settled position of law that a legal notice sent after the debt/claim being time barred does not result in renewal of cause of action. The Trial Court has failed to consider the document produced by the appellants and including other grounds as stated in the appeal memo, he prayed to allow the appeal.

4. The learned counsel for the appellant also focuses on contents of Ex.R.2 which is issued by KSFC, wherein they have acknowledged the receipt of Ex.R.1. The sum and substance of the letter that he has produce the alternative collateral surety for the same and acceptance. Sri. Shrivatsa the learned Senior Counsel has pointed out that in the year 1998 Ex.P.1 was issued by the government, wherein the retirement of appellant was made known to the KSFC. Ex.R.2 is reply wherein it indicates that KSFC has come to know about the retirement, relinquishment or resignation as the case made, wherein the surety has terminated or want to terminate his relationship with that of the debtor. The learned counsel for the appellant in support of his arguments has relied upon the decision of the Hon’ble Supreme Court reported in (1979) 2 SCC 396 in the case of Mrs. Margaret Lalita Samuvel vs. The Indo Commercial Bank Ltd.

5. Sri. R.V. Nadagouda, the learned counsel for respondent No.1 contended that the appellant has not made out any grounds to allow the appeal. It is his further contention that the Trial Court after appreciating material on record has rightly passed the order. Accordingly, he prayed to dismiss the appeal.

6. Heard arguments of learned counsel appearing for appellant and the learned counsel appearing for respondent No.1.

7. In the above said circumstances, we take note that guarantee is not a principal debtor. The person who is party to the contract or a person who avails loan designated as principal debtor and a person from whom borrowed is a creditor. The person who assures the repayment of the liabilities is a surety. It is known position of law that whenever the guarantee has offered for repayment of debt or for performance of engagement which give raise to the peculiar obligation.

8. The liability of the surety goes coextensive with that of debtor. The liability of the guarantor is that he is liable as jointly and severally. In a sense it cannot be misconstrued that suppose Rs.1,00,000/- is liability, the surety is liable to pay to the extent of Rs.50,000/- and balance is on the debtor.

9. It is not in that way. Both the contract Act and the Transfer of Property Act recognize the extent of liability. Insofar as the surety, he is to discharge the liability. He also has remedies against the principal debtor.

10. Now, the question that come up for consideration is that the respondents’ (petitioners before the Trial Court) prayer before the Trial Court that, to pass an order to determine that a sum of Rs.44,06,031/- due as 3.01.2009 with future interest at 16.5% p.a. on the footing of compound interest at quarterly rest basis from 01.02.2009 till the date of realization. To pass an order under Section 31(1) (aa) of the SFCs Act directing by way of enforcement of the liability of the respondents No.2 to 5 as guarantors to pay the aforesaid sum due as on 3.01.2009 with future interest at 16.5% p.a. To pass an order to proceed against the personal properties of the respondents No. 2 to 5.

11. Another legal question that arises for consideration is that, in a contract whether the liability of the surety is coextensive and jointly and severally liable with that of the debtor. A surety is also called favoured debtor.

12. Now, the question is that the concept of discharge of surety who is a guarantor, in the Contract Act it deals with discharge of surety.

13. If guarantee may be a specific guarantee or act insofar as continuing the guarantee is concerned, in that sense continuing guarantee of a person who is not liable for the transaction after the termination. But the notice by surety to the creditor up so facto over not discharge surety, for this either the liability is cleared or alternative surety is accepted.

14. In the present circumstances, the appellant seeks by virtue of his resignation or relinquishment from the company, his past liability is to be exempted which is quite and legal position of law of guarantee. It is also necessary to state that the liability of surety is at par with principal debtor.

15. Per contra, Section 137 of the Indian Contract Act reads as under:-

“137. Creditor’s forbearance to sue does not discharge surety – Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.”

16. The above provision indicates that even forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not in the absence of any provision in the guarantee to the contrary, discharge the surety.

17. After the above discussion the fact is that borrowing of loan from KSFC is not dispute. The total amount in due falling on the date according to the petitioner – corporation is Rs.44,06,351/-. When the main liability is in force, the surety and debtor are jointly and severally liable. The liability of the surety coextensive with that of the debtor.

18. The learned counsel for the appellant submits that he referred to Exs.R.1 to 3. The reply as per Ex.R.2 of KSFC, they have no objection for retirement or resignation of surety as provided suitable alternative and was accepted by KSFC, but no suitable alternative ar

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e proposed. Further the letter indicates that the financial position of the surety, his name, address at end of the day with KSFC is concerned is shown with recovery of liability. 19. In case discharge of liability by the surety, he can always invoke right of subrogation against the principal debtor. 20. Thus, the very tenability of the question that the Misc. Petition and its entertainment at the very threshold is questionable. 21. We are of the considered view that the Trial Court has properly appreciated the evidence on record and rightly passed the order. On re-appreciation of the entire material on record, we do not find any justifiable reason to differ with the view taken by the trial court. Hence, we are of the considered view that the order passed by the trial Court does not want any interference. Hence, we are of the considered opinion that the appeal is devoid of merits liable to be dismissed. Accordingly, the appeal is dismissed. In view of the disposal of the main appeal, I.A.No.3/2015 for stay, does not survive for consideration. Accordingly, it is dismissed.