Karnataka State Industrial Investment and Development Corporation vs Prashanth Minerals Exports (P) Ltd. and Others

P.S. Dinesh Kumar, J.—This appeal is preferred by the Karnataka State Industrial Investment & Development Corporation (''KSIIDC'' for short) calling in question the order dated 12.4.2012 passed in Misc. Petition No. 66/2010 on the file of the Principal District & Sessions Judge, Bengaluru Rural, dismissing its'' petition filed under Section 31(1)(aa) & 32(1) of the State Financial Corporations Act, 1951 (''SFC Act'' for short).

Brief facts:

First respondent, a constituent of the appellant-Corporation had borrowed a sum of Rs. 69 lakhs in the year 1989 to establish an 100% EOU to process granite in Bommasandra Industrial Area, Bengaluru. It was unable to service the loan. The management of the first respondent was taken over by the second and third respondents, who were also the Directors on the board of M/s. Karunai Granites Private Limited, Krishnagiri. Appellant accepted the proposal for ''take over''. In furtherance thereof, the second and third respondents executed a Deed of Guarantee dated 5.12.2014 and requested to handover the management of the first respondent company to M/s. Karunai Granites Private Limited.

In view of the default in repayment, appellant invoked the guarantee and called upon the second and third respondent vide notice dated 13/16.11.2000 to pay a sum of Rs. 2,60,44,352.28 paise which was due and payable from the first respondent company as on 3.12.1999 with interest to be computed at 18.5% per annum from 1.2.2000. Respondents did not comply the demand made in the said notice. Thereafter, appellant presented the instant petition under Section 31(1)(aa) and 32(1) of the Act which was registered as Misc.298/2001 and subsequently re-numbered as Misc.66/2010 on the file of the District Judge, Bengaluru (Rural).

After service of notice, respondents No. 2 and 3 initially resisted the claim by filing statement of objections. Thereafter, they did not participate in the proceedings. As a result, witnesses on behalf of the appellant have remained unchallenged.

On consideration of the material on record, the trial Court has dismissed the petition by the impugned order. Hence, this appeal.

Heard Sri B. Rudragowda, learned Counsel for the appellant. Respondent No. 1 is served and remained unrepresented. Service to respondents No. 2 and 3 is held sufficient vide order dated 6.1.2015.

Learned Counsel for the appellant vehemently submits as follows:--

(i) that the trial Court erred in dismissing the petition on the ground that the Court cannot act upon a sole document namely the extract of loan ledger (Ex. P12) to hold that the respondents were due and liable to repay a sum of Rs. 2,60,44,352.28 paise as on the date of filing of the petition;

(ii) that the Trial Court erred in assuming that Ex. P12 did not reflect true nature of transaction which had taken place between the appellant and the first respondent;

(iii) that the Trial Court was incorrect in coming to the conclusion that the appellant did not go before the trial Court with correct amount due and payable by the respondents;

(iv) that the Trial Court has wrongly come to the conclusion that the amount of Rs. 15,43,191/- paid by M/s. Karunai Granites Private Limited did not reflect in Ex. P12;

Amplifying his contentions, he submits that the amount of Rs. 15,43,191/- is reflecting in entries dated 22.11.1994 for a sum of Rs. 10,00,000/- and 22.2.1995 for a sum of Rs. 5,43,191/-. To substantiate this submission, he has placed for our perusal a copy of the loan ledger for the period between 1.4.1998 to 10.7.2012. He submits that the trial Court did not bestow its attention to the entries in the account extracts and therefore, the impugned order is unsustainable.

He further submits that the appellant - Corporation is entitled to recover the dues from their constituents by invoking the provisions of the SFC Act. He submits that the Ex. P12 is the true and correct extract of accounts and therefore the trial Court was not justified in dismissing the petition. Accordingly, he prays for allowing this appeal.

We have bestowed our anxious consideration to the submissions made by the learned Counsel for the appellant and perused the records.

This is a petition presented by KSIIDC which is a State Owned Body Corporate to recover the dues by invoking Section 31(1)(aa) and 32(1) of the Act, which read as follows:--

"31. Special provisions for enforcement of claims by Financial Corporation. - (1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment, [then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 (4 of 1882)] any officer of the Financial Corporation, generally or specially authorized by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:--

(a) xxxxxxxxxxxxxxxxxxxx

[(aa) for enforcing the liability of any surety; or]

Procedure of district judge in respect of applications under section 31. - (1) When the application is for the reliefs mentioned in clauses (a) and (c) of sub-section (1) of Section 31, the district judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realize in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation, together with the costs of the proceedings taken under Section 31, with or without an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment."

The Central Government vide notification dated 11.12.1986 in GSR 1107 published in Part-II Section 3 of the Gazette of India dated 27.12.1986, in exercise of powers conferred under Sec 46(i) of the SFC Act have made provisions of Sections 29, 30, 31 and 32 of the SFC Act applicable to the appellant. Accordingly, the appellant has filed the instant petition to recover dues from the respondents.

The respondents have not participated in the proceedings before the trial Court except filing statement of objections denying the petition averments and contending that the appellant had suppressed the consortium meeting held on 14.9.1994 with the erstwhile directors namely, Mr. B. Udayakumar and others. One witness was examined on behalf of the appellant and twelve documents marked.

After trial, on consideration of the pleadings of the parties, oral and documentary evidence placed by the appellant, the Trial Court framed the following three points for its consideration:--

1) Whether the petition is barred by time?

2) Whether the deed of guarantee is non-existing in the eye of law?

3) Whether the petitioner is entitled for the relief of a sum of Rs. 2,60,44,352.28 ps from the respondents together with compoundable interest at the rate of 18% p.a. with quarterly rest?

All points have been answered in the negative. While arriving at its conclusions, Trial Court has recorded a finding that the amount of Rs. 15,43,191/- paid by M/s. Karunai Granites Private Limited is not reflecting in Ex. P12. It has further held that various amounts paid by earlier directors were in terms of pari pasu agreement between the appellant and the KSFC. Adverting to Ex. P12, it is the opinion of the Trial Court that it cannot act on the extract of loan ledger and hold that the respondents were due and liable to pay the sum as claimed by the appellant. This reasoning of the Trial Court is palpably perverse, because under Section 44 of SFC Act, a financial Corporation shall be deemed to be a bank for the purpose of the Bankers'' Books evidence Act 1891 (18 of 1891). Therefore, a certified copy of entry in a Bankers'' Book Debt should be received as a prima - facie evidence. Relevant provision of law in this behalf reads as follows:--

"4. Mode of proof of entries in bankers'' books. - Subject to the provisions of this Act, a certified copy of any entry in a banker''s books shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every case where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise."

The finding of the Trial Court with regard to entries is also perverse because, on facts two entries made on 22.11.1994 and 22.2.1995 cumulatively account for a sum of Rs. 15,43,191/-. This figure matches with the plea taken by the respondents in the statement of objections. The copy of the loan ledger for the period from 1.4.1998 to 10.7.2012 indeed reflects two entries for a sum of Rs. 10,00,000/- and Rs. 5,43,191/- on 22.11.1994 and 22.5.1995.

There is a third dimension in this case namely, the respondents have remained absent after filing statement of objections. Efforts, if any, made on their behalf to substantiate their claim in the statement of objections is not forthcoming in the records.

In the light of above discussion, in our opinion the order passed by the trial Court is unsustainable and requires interference by this Court. In the circumstances, in our considered view, it would be appropriate to set aside the impugned order and remit the matter for a fresh disposal in accordance with law.

In the result, we pass the following:--

(i) The appeal is allowed;

(ii) Order dated 12.4.2012, passed in Misc. Petition No. 66/2010 on the file of the Principal District & Sessions Judge, Bengaluru Rural District, Bengaluru, is set aside and the matter is remitted back to the Court below for fresh disposal in accordance with law;

(iii) The Court below is directed to grant opportunity to all parties to lead evidence and thereafter to hear them and dispose of the Misc. Petition as early as possible and at any rate within a period of six months from the date of appearance of the parties wholly uninfluenced by any observations made herein;

(iv) All contentions of respective parties are left open;

(v) Parties are directed to appear before the Jurisdictional Court on 13.10.2015 at 11.00 a.m without notice and collect further adjourned dates;

No costs.