JUDGMENT

ANIL R. DAVE, J.

1. Leave granted.

2. Being aggrieved by the judgment delivered by the High Court of Karnataka in Regular First Appeal No. 1684 of 2004 dated 29th July, 2005, this appeal has been filed by the Karnataka State Khadi and Village Industries Board, who was defendant No. 3 in the Suit, which had been filed by Punjab National Bank, who is respondent No. 1 (for sake of convenience, the creditor- Punjab National Bank has been described as ‘the Bank’ whereas the appellant has been described as the ‘Board’ and the principal debtor Shevashakti Gramodyoga Sangh, Gulbarga, who had borrowed funds from the Bank has been described as the ‘Borrower’).

3. The facts, giving rise to the present litigation, in a nutshell, are as under :

The Borrower had borrowed money from the Bank for its business and asper policy of the State of Karnataka, the Board had assured the Bank that by way of subsidy, the amount of interest would be paid by the Board to the Bank, provided there was no default in repayment of the principal amount by the Borrower.

4. As the Borrower could not pay its dues to the Bank in spite of several notices, the Bank was constrained to file Original Suit No. 83 of 2002 in the Court of Civil Judge (Sr. Division) at Gulbarga. In the said Suit, the Board was joined as defendant no. 3 as the Board had given an assurance that the interest would be paid by the Board to the Bank, if the Borrower was paying its dues regularly i.e. without any default.

5. Upon perusal of the evidence and after hearing the learned advocates, the suit was decreed. All the defendants, namely the Borrower, the Secretary of the Borrower, who was defendant No. 2 and the Board were made liable to pay a sum of Rs.1,60,827.68/-with interest at the rate of 12% p.a. to the Bank. However, from the said amount, defendant no. 3 was made liable to pay only Rs.75,213/- alongwith other defendants, namely the Borrower and the Secretary of the Borrower as the said amount was towards interest.

6. Being aggrieved by the aforestated judgment delivered in the suit, the Board had filed Regular First Appeal No. 164 of 2004, which has been dismissed by the High Court and being aggrieved by the said judgment, the Board has filed the present Appeal.

7. We have heard the learned counsel appearing for the parties and have also perused the impugned judgment and the judgment delivered in the Suit and the relevant documents.

Upon hearing the concerned counsel and looking at the contents of a letter dated 23rd March, 1988, we find that the Board has been wrongly saddled with the liability of paying Rs.75,213/-.

8. It is an admitted fact that the Borrower had borrowed Rs.1,00,000/- from the Bank and the said amount, along with interest thereon could not be repaid by the Borrower to the Bank. The question only is with regard to the liability of the Board. The Board is neither a borrower nor a guarantor. In pursuance of policy of State of Karnataka, the Board was to give subsidy to the Borrower. The letter dated 23rd March, 1988, which had been written by the Chief Executive Officer of the Board to the Manager of the Bank reads as under:

“The above mentioned Sri Shiva Shakti Gramodyoga Sangha, Gulbarga has applied to Gulbarga (sic) for a loan of Rs.1,00,000-00 for working capital for P.C.P.I. Industry.

The above loan upto Rs. 1,00,000 ( Rupees One Lakh Only) will be eligible for the interest subsidy payable by the Commission in terms of Government of India, Ministry of Industry (Department of Industrial Department) letter No. 4(47) 75 –KVI (1) dated the 17th May 77.

The Commission agrees to surrender its first charge over the assets (moveable and immoveable) the above instruction in favour of the Bank (sic).

The final decision to accept or reject any loan application from eligible borrowers will vest with the Bank. However, in case the Bank reject the application they may indicate to the Commission / the State Board the reasons for rejecting the Loan Application.

The Commission and the