Karnataka State Financial Corporation vs Prabhakar Mohan Sumanth

A.V. Chandrashekara, J.—This appeal is filed u/s 32(9) of the State Financial Corporation Act, 1951, challenging the dismissal of the Miscellaneous Petition filed before the District Court at Kolar, u/s 31(1)(aa) and Section 32 of State Financial Corporation Act, 1951. The appellant is a Financial Corporation establishment as per the provisions of State Financial Corporation Act, 1951. It has its Head Office at Bangalore.

Respondents herein were respondents 1 to 4 in the said case bearing Misc. No. 57/1994 which was pending on the file of the Court of II Addl. District and Sessions Judge, Kolar. Parties will be referred to as the petitioner and respondents 1 to 4 as per their ranking given in the Trial Court.

Facts leading to the filing of the present appeal are as follows:

An industrial concern run under the name and style M/s. ADAP Pvt. Ltd. Company, had its registered office at 214, North Extension, KSRTC Road, Chickaballapur of erstwhile Kolar District. It is a Company incorporated under the Companies Act, 1956.

At its request, the State Financial Corporation had sanctioned term loan of Rs. 14.75 lakhs, Rs. 3 lakhs as second loan and another sum of Rs. 3.06 lakhs under the Refinance Scheme for Rehabilitation on 17.04.1984, 16.07.1985 and 16.07.1987 respectively subject to the terms and conditions set out in the letters of the Corporation. At the time of sanctioning the third loan, the overdue interest in respect of loans 1 and 2 were funded subject to the terms and conditions set out in the letter dated 16.07.1987.

As a security for the repayment of the said loan, the Company had mortgaged its movables and immovables inclusive of plant and machinery vide mortgage deed dated 17.09.1984 which was subsequently modified on 17.08.1987 and another mortgage deed dated 22.08.1985 which was revised on 17.08.1987 and equitable mortgage dated 17.08.1987. Since the Company did not keep up any terms insofar as it relates to the repayment of money, action was taken u/s 29 of State Financial Act, 1951 (hereinafter referred to as the SFC Act'' for brevity) on 16.11.1990 after issuing statutory notice on 09.08.1991. Inspite of the same, Company failed to comply the terms of the notice.

In respect of loans 1 to 3 mentioned above, respondent 1 and 2 had executed personal deeds of guarantee on 17.09.1984, 22.08.1985 and 17.08.1987 respectively. The fourth respondent had executed a deed of guarantee on 22.08.1985 to which respondents 1 and 2 were also parties. The third respondent alone had executed a deed of guarantee dated 01.09.1987 for a total sum of Rs. 20.81 lakhs covering all the three loans referred to above. Petitioner was not able to recover any amount from the Company and its assets. Hence, notices were issued to respondents 1 to 4 after invoking their personal guarantees vide notice dated 17.03.1993. They had been called upon to pay in all a sum of Rs. 45,29,885-20 which was due as on 20.12.1992 with future interest.

In the meantime, a Company petition was filed in C.P. No. 38/1990 on 20.03.1990 by an unsecured creditor seeking winding up of the Company and the Company was wound up by order of this Court dated 08.04.1994. As the respondents herein did not pay any amount inspite of several notices, by invoking their personal guarantees, the petitioner was left with no avenue except to file a petition u/s 31(1)(aa) of the SFC Act.

Respondents 1 and 2 appeared before the Trial Court and filed detailed objections denying all the material averments. Petitioner had been called upon to prove the contents of the petition strictly. Petition is stated to be not maintainable without impleading the Company i.e., M/s. ADAP Pvt. Ltd. Company as it is necessary party.

The alleged guarantee deeds which is referred to in the petition are stated to be concocted and fabricated documents cooked up by the officials of the petitioner Corporation. It is further specifically denied that the signatures found on them are forged signatures and none of the respondents have subscribed signatures to these documents. Petitioner had been called upon to strictly prove the legal validity and enforceability of the four guarantee deeds. Apart from this, they had denied the execution of mortgage deed by the Company in favour of the petitioner. As such, they had denied the very liability to pay the amount. With these pleadings, they had requested for dismissal of the petition.

On behalf of the petitioner Sri Jagannath, the representative of the petitioner-Corporation has been examined as PW1 and has got marked 24 exhibits.

Dr. Prahabakar Mohan Sumanth, first respondent is examined as RW1. No document has been got marked on behalf of the respondents. Ultimately, the learned II Addl. District & Sessions Judge, Kolar, has dismissed the petition on 09.04.2007 by framing the following three points for consideration:

1) Whether the petitioner proves that respondents are the guarantors for the loan borrowed by the M/s. ADAP Pvt. Ltd.?

2) Whether petitioner has proved that respondents are liable to pay the amount claimed in the petition?

3) Whether the relief''s sought for by the petitioner could be granted?

All the three points have been answered in the negative. It is this order, which is called in question on various grounds as set out in the appeal memo.

We have heard the learned counsel appearing for the parties at length.

The following points arise for our consideration:

Whether the learned District Judge is justified in holding that the petitioner has failed to prove the execution of the guarantee deeds?

Whether any interference is called for by this Court and if so, to what extent?

Re. Point No. 1:

Petition is filed u/s 31(1)(aa) of SFC Act, 1951, seeking recovery of the amount due based on personal guarantee deeds stated to have been executed by the respondents. Of course, the petitioner has taken all the steps available to it under law to recover the amount from the industrial unit to which loan was sanctioned on different dates and under different schemes. Inspite of taking steps inclusive of one u/s 29 of SFC Act, 1951, petitioner was not able to completely recover the amount.

Ex. P13 is the legal notice got issued by the petitioner on. 09.09.1991 calling upon the industrial unit as well as the respondent Nos. 1 to 4 herein to pay a sum of Rs. 35,49,248-20. On the basis of the same, the personal guarantees were invoked. Of course, all the notices issued to the parties inclusive of these respondents were returned and they are evident from the unserved RPAD covers marked as Exs. P15 to 19.

Ex. P1 is the letter dated 17.04.1984 addressed by the petitioner to the industrial unit M/s. ADAP Pvt. Ltd. in regard to the sanctioning of Rs. 14.75 lakhs for construction of building and acquisition of plant and machinery. Ex. P2 is the sanction letter dated 03.07.1985 in regard to the sanction of Rs. 1,00,000/- for construction of building and civil works and for acquisition of plant and machinery. Ex. P3 is the sanction letter dated 16.07.1987 for having sanctioned a sum of Rs. 3.06 lakhs as loan. Insofar as the exhibits marked as Exs. P1 to P3, conditions in regard to the repayment and the security to be provided for the loans so availed have been mentioned. Executing personal guarantees by persons having the capacity to repay is one of the conditions imposed in Exs. P1 to P3.

Consequent upon the conditions so imposed in the letters of sanction, Dr. Prabhakar Mohan Sumanth, the first respondent and Sri Dev Kumar, the second respondent chose to execute a deed of guarantee on 17.09.1984, is the averment. It is in this regard Ex. P4 which is stated to have been executed by respondents 1 and 2 is produced.

Ex. P5 is stated to be a modified, mortgage deed stated to have been executed by the first respondent Dr. Prabhakar Mohan Sumanth in regard to the immovable properties. Ex. P6 is stated to be another guarantee letter stated to have been executed by respondents 1, 2 and 4 on 22.08.1985 agreeing to pay the loan to an extent of Rs. 17.75 lakhs.

Ex. P7 is the mortgage deed dated 17.08.1987 stated to have been executed on behalf of the industrial unit by respondents 1 and 2.

Ex. P8 is stated to be another deed of guarantee dated 17.08.1987 stated to have been executed by respondents 1 and 2 agreeing to pay a sum of Rs. 3.06 lakhs as per the conditions imposed in the connected letter of sanction. Since the case is based upon the guarantee deeds stated to have been executed by respondents 1 and 2, initial burden was upon the petitioner to prove the same.

These guarantee deeds are important documents. Hence, they were required to be proved in accordance with law, more particularly, in the light of emphatic denial found in the written objection by respondents 1 and 2. They have not only denied the execution of such deeds of guarantee but they have gone to the extent of terming those documents as concocted and fabricated documents and have further averred that the signatures so found on them are not their signatures.

Sri M. Jagannath was the Deputy Manager, Bangalore Branch, of the petitioner-Corporation and he has been examined as PW1. He has deposed about the loan sanctioned on different dates to the industrial unit and the sanction letters and the documents stated to have been executed by the Company represented by its Managing Director as well as the respondents in their personal capacity undertaking to repay the amount notwithstanding the inability of the Company to repay the amount. He has also spoken about the issuance of legal notice on 09.08.1991 vide Ex. P13 and some cheques issued by the Managing Director vide Exs. P21 and P22 being dishonoured.

In the light of specific denial of the execution of the guarantee deeds and the validity and in the light of disputing the very signatures found on the personal guarantees produced before the Court, it was incumbent upon PW1 to have identified the signatures as the one subscribed by the respondents 1 to 4. No attempt is made to confront those documents to RW1 at the time of cross-examining him u/s 145 Evidence Act.

PW1 has been cross-examined and in his examination he has admitted that he does not have any personal knowledge about the loan transaction of the Company. In the light of PW1 having no personal knowledge, the petitioner-Corporation should have examined atleast one person who was present at the time of obtaining these loan documents from the Company as well as the respondents.

Learned counsel for the appellant has vehemently argued that in the light of there being no specific denial of the assertion of PW1 while cross-examining him, documents are deemed to have been admitted by the respondents. We are unable to accept the said contention for the reason that the respondents have emphatically denied the execution of the document and the signatures found thereon. Evidence includes cross-examination. On looking to the entire evidence of PW1, we are of the opinion that the initial burden cast upon the petitioner in regard to the proof of disputed documents being not effectively discharged, onus does not shift on the other side, as per Section 101. of Evidence Act.

Respondent No. 1 is examined as RW1 and he has filed an affidavit in lieu of examination-in-chief. It is nothing but the replica of the written objections filed before the Trial. Court. During the course of cross-examination, nothing has been culled out from his mouth to discredit his deposition insofar as it relates to the denial of the execution of the documents and the signatures found thereon. Usual suggestions have been put to him stating that he has been deposing falsely to defraud the petitioner. Suggestions put to him that himself and other respondents have executed the guarantee deeds has been specifically denied. He has feigned ignorance as respondents 3 and 4 are the guarantors for the loan borrowed by the petitioner. Just because respondents 3 and 4 have not appeared before the Trial Court, it does not give a leverage to the petitioner to contend that the disputed documents have been proved.

In the light of oath and counter oath and in the light of initial burden cast upon the petitioner being not effectively discharged, more particularly, about the proof of important documents on which reliance is placed upon by the petitioner, we are of considered opinion that the Trial Court is justified in coming to the conclusion that petitioner has failed to prove that the respondents are the guarantors and they have executed necessary guarantee deeds vide Exs. P4, P6 and P8. In the light of these important documents marked as Exs. P4, 6 and 8 being not proved, the Trial Court has held that the petitioner is not entitled to recover the amount.

It is unfortunate that no adequate evidence is placed on record on behalf of the petitioner in proof of these very important disputed documents. Hence, Trial Court is justified in dismissing the petition, though it has held that the claim is in time. Hence, we answer point No. 1 in the affirmative.

In view of our finding on point No. 1 appeal is liable to be dismissed.

ORDERS

Appeal is dismissed by upholding the judgment dated 09.04.2007 passed in Misc. Petn. No. 57/1994 which was pending on the file of II Addl. District & Sessions Judge, Kolar.

There is no order as to costs.