Munivenkata Swamy vs M/S Cham Lukking Pvt Ltd

Krishna S.Dixit, J

These appeals by the borrower and the guarantors seek to lay a challenge to the Judgment & Order dated 20.03.2013, whereby the learned District

Judge, Uttara Kannada, Karwar having favoured lenders Miscellaneous Case No.5/2008 filed under Sections 31(1) & 32 of the State Financial

Corporation Act, 1951, has held them liable to pay a sum of Rs.8,75,63,691/- with current interest at the rate of 18.5% p.a. and another sum of

Rs.1,85,74,890/- with interest at the rate of 21% from the date of petition, with post judgment interest at the reduced rate of 15% p.a.

After service of notice, the respondent lender i.e., Karnataka State Industrial Investment and Development Corporation Ltd., (hereafter 'KSIIDC')

having entered appearance through its counsel resisted these appeals making submission in justification of the impugned Judgment & Order and the

reasons on which they have been constructed. Learned Sr. Adv. Shri G.S. Khannur taking the Court through the LCR contends that, though the

challenge lies both in law and facts, the Court below having considered the pleadings of the parties and the evidentiary material borne out from the

records has entered the subject Judgment & Order and therefore, interference at the hands of this Court is not warranted, the arguable insignificant

lacunae therein, notwithstanding.

Brief facts:

(a) The KSIIDC is a lending agency which answers the description of State Financial Corporation under the provisions of SFC Act; it is a State

Government Agency; the appellant No.1(a) namely M/s. Cham Lukkung Pvt. Ltd., is a company (hereafter 'the borrower') incorporated under the

provisions of the erstwhile Companies Act, 1956; the other respondents happen to be the guarantors; in April 1996, the KSIIDC had advanced a Term

Loan of Rs.1 crore with 21% interest p.a. to be charged on quarterly rests; subsequently a Bridge Loan of Rs.25 lakh with compound interest at the

rate of 25% p.a. to be levied on quarterly rests came to be advanced in May 1996.

(b) These loans were secured by the mortgage of certain properties in addition to the personal guarantee of other respondents; the above loans having

remained over due and no repayment having been made despite demand, the KSIIDC had taken over the plant and machinery by invoking Section 29

of the Act; the Miscellaneous case came to be filed against the borrower and the guarantors; the same was resisted by filing objections, inter alia

contending that the claim was not maintainable in law and that the guarantors have not put their signatures to the loan papers at all.

(c) From the side of KSIIDC, its official Shri G.C. Kempahonnaiah got examined as PW1 and in his deposition, 12 documents came to be marked as

per Exs.P1 to P12 which inter alia comprised of loan documents, loan sanction letter, guarantee agreement, demand notice & legal notice and the

account extract. From the side of the guarantors one Mr. Hari Ram Cham i.e., one of the guarantor for the Term Loan was examined as RW1; the

learned Judge of the Court below having adverted to pleadings of the parties and having weighed the evidentiary material on record has made the

subject Judgment & Order that are put in challenge both by the borrower and the guarantors before us.

We have heard the learned counsel for the parties, perused the appeal papers and the original TCR; we have adverted to the rulings cited at the

Bar; we are inclined to grant a marginal indulgence in the matter as under and for the following reasons:

(i) A 'Term Loan' of Rs.100 lakh was sanctioned vide letter dated 18.03.1995, the loan documents have been signed by the Directors of the borrower

company on duly stamped papers; by way of security of repayment mortgage has been created of the plant & machinery and the land on which they

are founded; this Term Loan has been guaranteed by the sureties namely the respondent Nos.2 & 3; however, the respondent No.4-Ramachandra

Panchaksharam Naidu and respondent No.5-Mr. Munivenkataswamy has nothing do with this loan, he being one of the five personal guarantors to the

Bridge Loan of Rs.25 lakh; fairly enough, this is, not much disputed by the Sr. Adv. Mr. Kannur appearing for KSIIDC that being the position, the

liability for the repayment of this Term Loan is confined to the borrower company and two guarantors namely Hari Ram K.Cham & Ramesh K.

Cham; there is wealth of evidentiary material placed on record i.e., TCR which proves this loan transaction and the suretiship, beyond any pale of

doubt; the contra contention taken up in the objection statement therefore are rightly rejected by the learned Judge of the Court below.

(ii) The borrower company had availed the 'Bridge Loan' of Rs.25 lakh only subsequent to availing the Term Loan and that the appellant Mr.

Munivenkataswamy & Ramachandra Panchaksharam Naidu happen to be two of the five personal guarantors is again established by the loan

documents and the individual guarantee agreements which are part of the records; after seeing all this, findings are recorded by the learned trial

Judge; these guarantors had unconscionably and fraudulently taken a false plea in the objection statement that he has not signed the guarantee

documents; however cogent evidence having been placed on record by the lender, it was open to produce the rebuttal evidence which has not been

done by him; there is no explanation offered by him for not doing this, either; that being the position, he cannot escape liability at all for the repayment

of loan in question.

(iii) The contention of the guarantors that other four similar guarantors have not been made parties to the recovery proceedings and therefore, the

KSIIDC could not have maintained the miscellaneous case is liable to be rejected; it is always open to the lender to choose any one from amongst the

debtors and sureties for recovering the common/joint debt; the surety who has repaid the loan arguably may have right to contribution from the

borrower and other sureties, of course subject to all just exceptions is beside the point; no law or ruling is brought to our notice that a recovery

proceedings to which only a debtor and few of the sureties are arraigned as parties, others having been left out is not maintainable.

(iv) The vehement contention of learned advocates appearing for the guarantors that the liability of the surety is coextensive with that of the borrower

needs no elaboration, law being as clear as the Gangetic waters; a guarantor of one loan cannot be saddled with the liability of another to which he is

not the guarantor, the borrower being the same again does not need any argument; in the case at hands the appellants Ramachandra Panchaksharam

Naidu & Munivenkataswamy are the guarantors only for the Bridge Loan of Rs.25 lakh and therefore, his liability is confined to this loan and to the

exclusion of the aforesaid Term Loan; the other appellants being the guarantors, are saddled with the liability in respect of both the loans and in our

considered opinion the same cannot be faltered.

(v) The vehement contention of learned Sr. Adv. A.S. Ponnanna and learned advocates Mr. Holla & Ramanna that there being no demand notice,

recovery of loans could not have been ordered by the Court below cannot be countenanced; firstly, the demand notices are part of the record;

regardless of this factual aspect, law is well settled since centuries that it is the duty of debtors which necessarily include the sureties as well, to find

the creditor and put into his pocket the loan amount with all the interest that has accrued due thereon as per the agreed terms; as already mentioned

above, the guarantors have tried to play fraud on the Court below and on the lender KSIIDC as well by taking up a false contention as to they being

not the signatories to the respective guarantee agreements; such of the guarantors who have taken such a blatantly false plea are liable to be

prosecuted for the offence of perjury; however, it is for the lender to take appropriate proceedings in this regard.

(vi) The vehement contention of learned Sr. Adv. and other counsel appearing for the appellants that the loan itself is time barred the impugned

recovery order could not have been made is difficult to agree with; the terms of guarantee agreements make it abundantly clear that they comprise not

only a personal guarantee but the continuing ones as well; the guarantee agreements in the original have been marked in the evidence of respondent

lender; learned Sr. Adv. Mr. G.S. Kannur is more than justified in drawing our attention to one of the terms in the guarantee agreement which

characterizes the guarantors as the borrower too; it reads as under:

The Guarantor further declare that as between the Corporation and the Guarantor, the Guarantor will be treated as principal debtors jointly with

the company and accordingly the Guarantor shall not be entitled to and the Guarantor hereby waives all the rights conferred on the Guarantor by

Sections 133, 134, 135, 139 and 141 of the Indian Contract Act.

(vii) The above apart, there are other terms too in the said guarantee agreements which repel the contention of Mr. Holla and Ramana that the

enforcement of liability as against the guarantors had become time-barred; they fervently invoke the Apex Court decision in Maharashtra State

Financial Corpn. V. Ashok K. Agarwal (2006) 9 SCC 617, in support of their contention; however, it did not involve a case of personal-cum-

continuous guarantee; it hardly needs to be mentioned that a decision is an authority for the proposition that it actually lays down in a given fact matrix

and not for all that, that logically follows from what has been so laid down: Lord Halsbury in the celebrated case of Quinn V. Leathem, 1901 AC 495.

(viii) The Vehement contention of Mr. Ramana and Mr. Holla that the proceedings against the guarantors were time barred does not impress us even

otherwise; they cannot support this contention by placing reliance on the decision of Apex Court in Deepak Bandari V. Himachala Pradesh State

Industrial Development Corporation Ltd., 2015(5) SCC 518; Mr. Kannur points out from the very decision that the limitation of three years under

Article 55 of Schedule to the Limitation Act, 1963 avails in the case at hands inasmuch as the limitation for instituting the recovery proceedings need

to be reckoned from the date when the amounts received from the auction of mortgaged/hypothecated properties were appropriated to the loan and

the residue thereby was ascertained; he thus contends and in our opinion rightly, that the limitation period begins not from the date when notice

recalling the loan amount was issued; admittedly, the mortgaged properties were auctioned for a sum of Rs.15,50,000/- on 29.01.2008; this was

pursuant to action taken u/s 29 of the SFC Act; the Miscellaneous Case has been presented on 15.04.2008; the proceeds of auction were received by

the lender KSIIDC from the auction buyers in only June 2008; this aspect has been duly considered by the learned Judge of the Court below at

paragraphs 11, 12 & 13 of the impugned order.

(ix) Learned advocates appearing for the appellants passionately contended that for computing the limitation period, we have to bank upon the

residuary Article 137 of the Limitation Act, 1963; in support of this they banked upon a Full Bench decision of this Court in Karnataka State Financial

Corporation V. Smt. Jaya Menon, ILR 2004 KAR 2735, wherein arguably it has been held that the limitation for the proceedings instituted u/s 31 of

SFC Act are governed by Article 137 of the Limitation Act; however, what the Apex Court observed at paragraph 28 in Deepak Bhandari case

(supra) as under, is in variance with the view of the Full Bench:

It is thus clear that merely because the Corporation acted under Section 29 of the State Financial Corporations Act did not mean that the contract

of indemnity came to an end. Section 29 merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main

contract. It may be that on the Corporation taking action under Section 29 and on their taking possession they became deemed owners. The mortgage

may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under

the contract of indemnity, only when the sale proceeds were found to be insufficient. The right to sue on the contract of indemnity arose after the

assets were sold. The present case would fall under Article 55 of the Limitation Act, 1963 which corresponds to old Articles 115 and 116 of the old

Limitation Act, 1908. The right to sue on a contract of indemnity/guarantee would arise when the contract is broken.

(x) To put the above succinctly where the lender in exercise of power u/s 29 of the SFC Act has taken over the possession of the mortgaged property

and has realized the auction/sale proceeds thereof, the same have to be appropriated to the repayment of the loan; thereafter what amount still

remains as due, has to be ascertained; from the date of such ascertainment the limitation period of three years as provided under Article 55 has to be

reckoned; thus in the fact matrix of this case there is no scope for invoking residuary Article 137 as rightly contended by learned Sr. Adv. Mr.

Kannur; even otherwise where two decisions of precedential value broadly covering similar facts are cited at the Bar, the one whose fact matrix

matches more, becomes the guiding star.

(xi) Lastly we will be failing in our duty if we do not refer to unethical act of the officials of the lender KSIIDC; admittedly, the mortgaged properties

were sold in January 2008; the recovery proceedings have been instituted subsequent thereto i.e., in April 2008; not even a whisper was made about

the KSIIDC invoking Section 29 of the SFC Act and auctioning of the mortgaged property for a consideration of Rs.15,50,000/-; this amount reached

hands of the SFC in August 2008 as admitted by PW1; but nothing prevented it from amending the pleadings; this it did not do, unfairly to say the

least; strangely the guarantors too did not seek amendment of their pleadings, either; all this came to light only in the cross-examination of PW1 done

on 19.06.2012; there is unfairness on the part of the guarantors as well who had taken up a false plea of not being the signatories to the guarantee

agreements in question; this is a case of unfairness of the lender qua the unfairness of the sureties; thus far and not further, we delebrate in the

matter.

In the above circumstances and with the above observations, these appeals are disposed off; the impugned Judgment & Order are modified holding

the guarantors Mr. Ramachandra Panchaksharam Naidu and Mr. Munivenkataswamy i.e., the appellants in MFA No.23064/2013 and MFA

No.101186/2020 liable only in respect of the Bridge Loan of Rs.25 lakh and the interest that has accrued due thereon and not in respect of Term

Loan, rest of the impugned order is left intact.

Costs made easy.