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V.C. Metagud & Others v/s Karnataka State Industrial Investment & Development Corporation Limited & Another

Company & Directors' Information:- INDUSTRIAL DEVELOPMENT AND INVESTMENT CO PVT LTD [Active] CIN = U65990MH1941PTC003300

Company & Directors' Information:- K V DEVELOPMENT AND INVESTMENT CO PVT LTD [Active] CIN = U65922MH1979PTC021155

Company & Directors' Information:- M G INVESTMENT AND INDUSTRIAL CO LTD [Not available for efiling] CIN = U99999MH1947PTC007551

Company & Directors' Information:- R N B J INVESTMENT AND DEVELOPMENT PVT LTD [Strike Off] CIN = U65990MH1982PTC028451

Company & Directors' Information:- S P INVESTMENT AND DEVELOPMENT COMPANY PVT LTD [Strike Off] CIN = U67121ML1988PTC003133

Company & Directors' Information:- V.C. INVESTMENT PRIVATE LIMITED [Strike Off] CIN = U67120DL1997PTC086961

Company & Directors' Information:- KARNATAKA INDUSTRIAL PRIVATE LIMITED [Strike Off] CIN = U29222KA1974PTC002711

Company & Directors' Information:- KARNATAKA INDUSTRIAL COMPANY LIMITED [Strike Off] CIN = U33130KA1916PLC000063

    M.F.A.No. 22426 of 2013 [KSFC]

    Decided On, 15 September 2014

    At, High Court of Karnataka Circuit Bench At Dharwad


    For the Appellants: Sachin S. Magadum, Advocate. For the Respondents: -------

Judgment Text

(Prayer: This MFA is filed U/S 32(9) of State Financial Corporation Act, 1951, praying to set aside the order dtd: 18.03.2013 passed in Misc No.151/2007 on the file of II Addl. District and Sessions Judge at Belgaum to meet the justice and equity.)

1. There is non-compliance with the order dated 09.09.2014 directing the appellants to deposit 50% of the amount directed to be paid by the appellants to the Karnataka State Industrial Investment and Development Corporation Limited (for short 'KSIIDCL').

2. Facts briefly stated are: the appellants stood as guarantee for the loan of `132.75 lakhs on 31.12.1992 and additional loan of `22.75 lakhs on 20.08.1996 extended to respondent No.2 by KSIIDCL. On failure of the 2 n d respondent to repay the amount together with interest, the amount became over-due.

3. The 2 n d respondent, it is said, approached the Board for Industrial Investment and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985, whence by order dated 02.04.2003, the Board opined that the 2 n d respondent Company should be wound up under the said Act and forwarded its opinion to this Court. Respondent No.1 Corporation took over the assets of the respondent No.2, exercising jurisdiction under Section 29 of the State Financial Corporations Act, 1951 (for short 'SFC Act') and in view of the winding up proceeding pending before this Court, the assets could not be disposed of. Since, respondent No.2 failed to repay the amount together with interest, as and when payable, respondent No.1 is said to have rescheduled the repayment of loan, whereunder, interest payable was agreed at 21.5% per annum on the principal sum compounded quarterly and over-due interest at the rate of 24% per annum compounded quarterly.

4. Respondent No.1/Corporation invoked personal guarantee of the appellants by issuing notice dated 28.06.2007, despite which payment was not effected, hence, filed Misc. No.151/2007 before the II Additional District and Sessions Judge, Belgaum, invoking Section 31(1)(aa) of the SFC Act, to enforce the personal guarantee offered by the appellants and for recovery of `22,41,89,284/-.

5. On notice of the petition, appellants resisted the claim by filing statement of objections, advancing the plea that the petition was filed beyond the period of limitation; that no notice was required under law to be issued to the appellants before invoking the guarantee, that winding up proceeding is pending and that the proceeding for enforcement of guarantee is infructuous, while admitting that the assets of the 2nd respondent was attached by the 1st respondent/Corporation and that on the sale of the attached moveables and immoveables, the realisation thereof would be sufficient to set off the entire claim.

6. Respondent No.1/Corporation examined two witnesses as PWs-1 and 2 and marked Exs.P-1 to 24, while for the respondents/appellants herein, none were examined and no documents were marked.

7. The District Judge, Belgaum, having regard to the material on record and the evidence, both oral and documentary, framed points for consideration and by Order dated 18.03.2013, returned findings in the affirmative, recording that the 1 s t respondent / Corporation proved the suit claim and its entitlement to enforce the guarantee against the appellants and accordingly, directed recovery of `22,41,89,284/- with interest at 21% per annum and granted six months time to the appellants to repay the amount together with accrued interest.

8. The District Judge declined to accept the plea of the appellants that the petition was barred by limitation, in the light of the observations of the Full Bench in KARNATAKA STATE FINANCIAL CORPORATION, BANGALORE Vs. Smt.JAYA MENON AND ANOTHER 1, whereunder it is held that an application filed by the State Financial Corporation, a statutory body established pursuant to the provision of the SFC Act, cannot be said to be an application filed by the State or Central Government and therefore, Article 136 prescribing the period of limitation under the Limitation Act, 1963, is inapplicable to an application filed under Section 31 of the SFC Act, while what is applicable 2004(4) Kar.L.J.366(FB) is Article 137, which prescribes period of limitation of three years from the date right to apply accrues. The District Judge observed that, notice invoking the guarantee/Ex.P.5 and the postal acknowledgments Exs.P-6 to 9 dated 28.06.2007, issued to the appellants, followed by the institution of proceeding, received on 16.11.2007, is well within the period of limitation.

9. In addition, it was held that the statement of accounts, Exs.P-20 to 23, and Ex.P- 24 being loan ledger extracts and ledger extract respectively, were duly certified and nothing was elicited in the cross-examination of either PW-1 or PW-2 that the entries in the loan ledger extract relating to the amount due by the 2 n d respondent were illegal or incorrect. The Trial court further held that the documents, Exs.P-21 to 24, and the oral testimony of PW-2, clearly establish the suit claim and the petition deserves to be allowed.

10. This appeal by the guarantors, with a delay of 13 days in filing, in our opinion, deserves to be condoned by accepting the cause shown. Accordingly, delay is condoned and I.A. No.1/2014 allowed.

11. Heard the learned counsel for the appellants. The first ground in the memorandum of appeal is that the filing of petition before the District Judge was pre-mature and not maintainable, since the properties and assets of the 2nd respondent were already attached and available and ought to be auctioned before proceeding against the properties owned by the appellants.

12. This contention of the appellants is in contradiction with the plea before the District Judge that the petition was barred by limitation. Appellants cannot be heard to approbate and reprobate. It is, no doubt, true that the assets, both moveable and immoveable, attached and in possession of 1st respondent/Corporation, the amounts realised on their sale in an auction, would have to be accounted for against the amounts due and payable by the 2nd respondent/loanee.

13. As regards the second ground that the 1 s t respondent failed to furnish correct accounts and statement of accounts produced were not duly certified, deserves to be rejected. The statement of accounts placed by the 1 s t respondent in the enquiry before the District Judge clearly disclose that were duly certified while the genuineness of the entries therein were not disputed. Moreso, there is nothing incriminatory elicited in the testimony of PW-1 and PW-2 over the said ledger accounts. In addition, appellants failed to place evidence, both oral and documentary, in support of their plea.

14. The next contention that though the assets of the 2 n d respondent have been attached and are in possession of the 1 s t respondent and cannot be put to auction due to the pendency of the proceeding for liquidation before this Court, is palpably erroneous, too cannot be countenanced. It is needless to state that in a liquidation proceeding pending before this Court, if the 1 s t respondent/Corporation desires to stand out of the liquidation proceeding, to recover its dues, it may have to file an application in the said liquidation proceeding for necessary orders of the Company Court, for orders to auction the attached assets of the 2 n d respondent, in association with the official liquidator, if any. There is wanting of material over the status of the liquidation proceeding before this Court, hence, the contention is rejected.

15. The next contention of the appellants at paragraph (4) of the grounds of the appeal is that, on the 2 n d respondent having gone into liquidation and the sale proceeds of its assets when distributed to the beneficiaries/claimants, hence, the 1 s t respondent/Corporation cannot maintain a petition under Section 31(1)(aa) of the SFC Act, in the facts and circumstances, cannot be countenanced. The guarantees extended by the appellants promising to repay the amounts due, if not done by the principal borrower, in terms of the Contract Act, are liable to make the payment, hence, under Section 31(1)(aa) of the SFC Act, the application to enforce the guarantee is maintainable.

16. Section 31(1)(aa) of the SFC Act provides for enforcing the guarantee and therefore, it is too far-fetched for the appellants to contend that the petition is not maintainable.

17. The last of the contention in the memorandum of appeal is that the Court below mechanically accepted the statement of accounts

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furnished by the 1 s t respondent/Corporation and therefore, the order is a nullity. 18. Exs.P-22 and 23 are the loan ledger extracts and Ex.P-24 is the ledger extract, duly certified recording the amount due under the accounts relating to loans extended to the 2 n d respondent, duly guaranteed by the appellants. There is not a titre of evidence to establish the contention advanced by the appellants. On the contrary, PW-2 though spoke to the ledger extract, nevertheless, nothing is elicited in cross- examination to discredit his evidence. In that view of the matter, that contention too, must necessarily fail. 19. No other grounds are urged. In our considered opinion, the order dated 18.03.2013 of the II Addl. District and Sessions Judge, Belgaum, in the facts, circumstances and material on record, is well merited, fully justified and does not call for interference. 20. In the result, this appeal devoid of merit is dismissed.