Kalpatharu Solvents Pvt. Ltd. vs Karnataka State Financial Corporation

N.K. Jain, C.J.—This appeal by the writ petitioner is directed against the order dated September 24, 2002, in W. P. No. 28238 of 2002.

The brief necessary facts are that the appellant a private limited company, viz., Kalpatharu Solvents Pvt. Ltd., carrying on the business of manufacturing edible oils, with an intention to expand its business approached the respondent-Karnataka State Financial Corporation (for short "KSFC") and borrowed a loan to the tune of Rs. 90 lakhs and another loan of Rs. 19.12 lakhs was sanctioned for establishment of small scale industry in 1982, subject to certain terms and conditions set out in the KSFC sanction communication letters dated August 27, 1992, and the respondents, in Miscellaneous No. 6/200 (annexure K to the writ petition), stood as personal guarantors for the repayment of loan amount in case of default and necessary documents were filed. As the appellant could not repay the loan amount in time, the KSFC issued a notice and seized the industry of the appellant. The KSFC issued a further notice intimating that the assets seized would be sold in auction. The appellant, in reply to the notice, requested the KSFC not to proceed with the proposed auction, but the same was turned down by the KSFC and it also rejected the proposal for selling the assets for an outright sale consideration of Rs. 45 lakhs in one instalment. However, the KSFC sold the assets of the appellant-company to one D. Shivaprasad, managing director of Mayura Coconut Industry for a sale consideration of Rs. 41 lakhs on certain terms with regard to the payment of the sale consideration. The same was challenged by the appellant-company in W. P. No. 28238 of 2002 seeking to quash the letter dated May 11, 2002, issued by the KSFC and the letter issued to the auction sale bidder dated June 19, 2002. The learned single judge, by a detailed order, refused to interfere with the impugned orders and dismissed the writ petition.

The main contention of learned counsel for the appellant is that the learned single judge, despite specific contentions raised in the writ petition that the KSFC could not invoke the provisions of Section 29 of the Karnataka State Financial Corporations Act, 1951 (for short "the Act") when the KSFC had already initiated proceedings u/s 31 of the Act and that no opportunity had been given to the appellant before auctioning the property, has erred in dismissing the writ petition, and therefore, the order of the learned single judge is liable to be set aside. Learned counsel for the appellant has relied upon the decision of the Supreme Court in Andhra Pradesh State Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, , the decision of this court in Mysore Chest Care and Pain Therapy Centre (Private) Limited, Mysore and another Vs. State of Karnataka and another, and the decision in M/s. Bags and Cortons and another Vs. Haryana Financial Corporation, .

We have heard the contentions of learned counsel appearing for the appellant and perused the decisions relied upon by him.

As per the terms of agreement, in case of default in repaying the loan amount, the KSFC can invoke Section 29 of the Act and also Section 31 of the Act to proceed against the defaulter and the liability to repay the loan amount is joint and several.

Their Lordships, in Andhra Pradesh State Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, , while considering the question, whether the financial corporation set up u/s 3 of the State Financial Corporations Act is entitled to take recourse to the remedy available to it u/s 29 of the Act even after having obtained an order or a decree after invoking the provisions of Section 31 of the Act but without executing that decree/order, answered the same in the affirmative holding that the Corporation has power to proceed under Sections 29 and 31 of the Act.

Section 29 of the Act enables recovery of money due and also contemplates the procedure to be followed without intervention of the court and Section 31 is in the nature of a provision for attachment before judgment and the said provision is without prejudice to the provisions of Section 29 of the Act and the Supreme Court had held that it is open to the corporation u/s 29 of the Act to realise its dues in the manner prescribed therein notwithstanding any order obtained by it u/s 31 of the Act, and Section 29 is not controlled by Section 31 of the Act. Further, the Supreme Court has held that it is not desirable to pursue both the remedies simultaneously by the Corporation. However, there is no provision to abandon or withdraw the proceedings initiated u/s 31 at any stage and then take recourse to the provisions of Section 29 of the Act as there is no bar for the Corporation to take action u/s 29 of the Act once the proceedings have been initiated u/s 31 of the Act. It is also held that there is no equity in favour of a defaulting party which may justify interference by the courts in exercise of its equitable extraordinary jurisdiction under Article 226 of the Constitution of India to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate rights of the corporation, which after advancing the loan takes steps to recover its dues from the defaulting party. It is further held that when exercising its equitable jurisdiction under article 226 of the Constitution it must so act as to prevent perpetration of a legal fraud and the courts are obliged to do justice by promotion of good faith, as far as it lies within their power. Equity is always known to defend the law from crafty evasions and new subtleties invented to evade law. Since the Legislature enacted Sections 29 and 31 with a view to aid the Corporation to recover its legitimate dues etc., from the defaulting party, the saving clause in Section 31 of the Act, preserving the rights u/s 29 of the Act by giving up the pursuit u/s 31 at any stage of the proceedings is available to the corporation.

As per the facts culled out, it is not in dispute that the appellant has borrowed money from the KSFC and a term loan of Rs. 90 lakhs and another loan of Rs. 19.12 lakhs was sanctioned for establishment of a small scale industry in 1982 and the appellant committed default in repayment of loan amount as per the terms of the agreement and despite opportunity given to the appellant, no payments were made, and therefore, provisions of Section 29 of the Act were invoked on December 3, 1999, itself and thereafter also opportunity was given to the appellant to repay the loan and notice was issued on May 11, 2002, stating that higher offer of Rs. 41 lakhs had been offered and an opportunity was given to the appellant to bring a bidder for a higher rate. It is also seen from the record that the appellant did not choose to do so and went on protracting the proceedings and therefore, the proposal of the bidder was accepted by notice dated December 3, 1999. Therefore, the decisions relied upon by learned counsel for the appellant are not helpful. It is also to be seen that the proceedings u/s 31(1)(a) of the Act were initiated on February 27, 2002, much after invoking the provisions u/s 29 of the Act on December 3, 1999, and therefore, in the present case the contention of the appellant that, since the Corporation had already initiated proceedings u/s 31 of the Act no provision could be invoked u/s 29 of the Act cannot be accepted.

The learned single judge has considered that the appellant was given an opportunity to bring the bidder for a higher rate and also considered the decision of the apex court in Haryana Financial Corporation and Another Vs. Jagdamba Oil Mills and Another, and has come to the conclusion that in the facts of the given case, it cannot be said that the Corporation is not fair to the petitioner and the learned single judge was satisfied that no case was made out for any interference.

Admittedly, the loan amount has not been repaid and the liability to repay the loan is joint and several as per the terms and conditions of communication letters of the KSFC, and as discussed, it is clear that the KSFC has in the first instance initiated proceedings u/s 29 of the Act on December 3, 1999, and the highest bid was Rs. 41 lakhs, since it was unable to recover the full amount, proceedings have been initiated u/s 31 of the Act against the guarantors u/s 31(1)(aa) of the Act. Therefore, the contention of learned counsel for the appellant cannot be accepted and the decisions relied upon by him are not helpful to him in the facts of the present case.

In view of what we have discussed above, we do not find any error or illegality in the order of the learned single judge so as to call for any interference.

The appeal is dismissed accordingly.