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2010 Supreme(Kar) 653
High Court of Karnataka
THE HONOURABLE MR. JUSTICE RAM MOHAN REDDY
H.I. Shamshuddin
Versus
Karnataka State Financial Corporation & Others
W.P.No.3397 of 2008
Decided On : 17-06-2010
For the Petitioner:Sriyuths V.N. Madhava Reddy & J.S. Shetty, Advocates.
For the Respondents: R1 to R3, Sriyuths :Rudragowda, R1 to R3 & R5, Gururaj Joshi & Co., R4, Shivaswamy, Advocates.
Headnote:KARNATAKA STATE FINANCIAL CORPORATION ACT, 1951 - Section 29: [Ram Mohan Reddy,J] Jurisdiction of the KSFC to sell any property pledged, mortgaged, hypothecated or assigned to it other than that of the industrial concern - Action of the Corporation to realize the amount due by way of sale of Mortgaged Property - Challenge as to - Held, The liabilities of a surety or the guarantor to repay the loan of the Principal Debtor arises only when a default is made by the Principal Debtor. Section 29 of the Act no where states that the Corporation can proceed against the surety even if some properties are mortgaged or hypothecated by it. The right of the Financial Corporation in terms of Section 29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Section 29 by a surety or a guarantor. Further, Having regard to the definition of ’industrial concern’ under the SFC Act, the State Financial Corporation, for the purpose of enforcing its liability of the industrial concern, could take recourse both under Section 29 and 31 of the SFC Act. The default contemplated under Section 29 is said to be that of the ’industrial concern’, and the certain of a liability of the ’industrial concern’ which may arise due to default in repayment of any loan or advance or any instalment under an agreement or failing to meet its obligation in relation to any guarantee given by the Corporation or complying with the terms of the agreement with the Financial Corporation. The petitioner/surety and mortgagor of the petition schedule immovable property, to secure the loan extended to the 6th Respondent, cannot be said to be aggrieved by the communication addressed to the 6th Respondent fixing 10 days time to make payment under the OTS scheme. Hence, the impugned communications and sale Notification are liable to be quashed and as a consequence Sale Deed executed by the 2nd Respondent in favour of 4th Respondent is declared as null and void.
(The order dated 5.02.2008 vide Annex-A quash the communication dated 02.11.2007 issued by R1 vide Annex.B and undated notification issued by R1 for sale of the property of the petitioner as per Annex.C in so as the property of the petitioner mentioned at Sl.No.3 and also the communication of the first respondent dated 09.01.2008 in so far as fixing the unreasonable time of 10 days is concerned vide Annex.D and etc.)
Petitioner, a surety for the loan transaction between the first respondent Karnataka State Financial Corporation for short ‘KSFC’) and the sixth respondent loanee, mortgaged the petition schedule immovable property belonging to him, by way of memorandum of deposit of title deeds with the first respondent. As a consequence of the sixth respondent failing to repay amounts due under the loan and having committed breach of terms of the loan agreement, the first respondent in exercise of power under Section 29 of the State Financial Corporation Act, 1951 (for short ‘SFC’ Act) opted to realize the amount due by way of sale of mortgaged property and in that regard, addressed a letter dated 02.11.2007 Annexure-‘B’ to the petitioner extending an opportunity to make payment of the amount due on or before 15.11.2007, failing which, the mortgaged property would be put for sale as indicated in the sale notification Annexure-’C’ annexed to the said letter. According to the petitioner, sixth respondent being none other than his son was issued with a letter dated 09.01.2008 Annexure-‘D’ of the first respondent, and a copy marked to the petitioner, expressing its willingness to the one time settlement, provided Rs.15,69,256/- is deposited within ten days therefrom, failing which the petition schedule property would be put to sale. The petitioner having not repaid the amount pursuant to the letter Annexure-‘B’ and the failure on the part of the sixth respondent to take advantage of the one time settlement offer in the letter Annexure-‘D’, led to the sale of the mortgaged property and execution of the sale deed dated 12.02.2008 Annexure-‘E’, in favour of the fourth respondent as communicated by letter dated 25.02.2008 Annexure-A of the first respondent informing that in the auction sale of the petition schedule property Rs.19,00,000/- when realized as sale consideration was appropriated towards the outstandings in the loan amount. Hence, this writ petition for the following relief’s:
“a) A writ of certiorari or any other writ or direction in the nature of writ to quash order No.Ka Ra Ha Sa/MJ/3026/8266/07-08, dated 25.02.2008, the copy of which has been produced at Annexure-A to quash the communication dated 02.11.2007 No.Ka Ra Ha Sa/MJ/3023/1831/07-08, issued by the first respondent as per Annexure-B and undated notification issued by the first respondent for sale of the property of the petitioner as per Annexure-C in so as the property of the petitioner mentioned at Sl.No.3 and also the communication of the first respondent dated 09.01.2008, No.Ka Ra Ha Sa/MJ/3023/5080/5080/07-08, in so for as fixing the unreasonable time of 10 days is concerned, the copy of which has been produced herewith at Annexure-D;
b) declare that the sale deed dated 12.02.2008, registered before the Sub-Registrar, Malavalli on 13.02.2008, executed by the second respondent in favour of the fourth respondent, in respect of the property of the petitioner morefully described in schedule hereunder, under the alleged power under Section 29 of the State Financial Corporation Act, the copy of which has been produced at Annexure-E, is null and void and the same may kindly be set aside;
c) A direction may kindly be issued to the first respondent to settle the loan account of the petitioner and the sixth respondent by accepting the amount of Rs.15,69,256/- and to release all the properties;
d) Any other writ or order or direction which this Hon’ble Court may deems fit to grant in the facts and circumstances of the case, may please be granted in favour of t
