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2013 Supreme(Kar) 738
High Court of Karnataka
A.S. BOPANNA, J.
Mrs. Shruti Shetty
Versus
The State of Karnataka rep. by its Secretary & Others
Writ Petition No. 767 of 2013 (GM-KSFC)
Decided On : 18-11-2013
For the Petitioner:N. Suresha for Ms. Sandya U. Prabhu, Advocates.
For the Respondents:R1, Vijayakumar A. Patil, HCGP, R2, Gururaj Joshi, R3, MS. T.M. Asha, R4, A. Venkatasathyanarayana, Advocates.
Headnote:STATE FINANCIAL CORPORATIONS ACT, 1951 - Sections 31(1)(a), (aa) & 32-G: [A.S. Bopanna, J] Liability of guarantor - For the loan advanced by KSFC, petitioner’s father gave personal guarantee - Petitioner’s father with his wife and brothers were the partners of Borrower firm - Property in dispute was bequeathed by sister of petitioner’s father in favour of petitioner’s father by a Will - father of petitioner by a settlement deed settled the property in favour of petitioner - Petitioner had obtained a housing loan from bank - KSFC after selling the property of the firm, for the balance proceeded against the guarantor - Property in dispute was not a property regarding which mortgage or charge was created - Held, KSFC could not have all of a sudden in the year 2012 invoked the provision contained in Section 32G of the SFC Act. It does not also refer to the proceedings where the State Government has considered and issued a certificate to the collector. Further, as already noticed, the property which is the subject matter of auction had not been mortgaged in favour of the first respondent. In that circumstance, when the petitioner claims right in respect of the said property based on a deed of settlement dated 01.09.2005 and contention is also put forth with regard to the property being governed under the Aliyasanthana Law, even though the first respondent disputed these aspects and contends that the settlement deed is contrary to Section 53 of the Transfer of Property Act, 1882 itself is an issue which may require consideration at the relevant stage in such appropriate proceedings. Therefore, even before the liability of the surety is crystallised, the property in any event cannot be brought to sale in an arbitrary manner so as to deprive the property without complying due process of law. Further, even though it is contended that the objection if any, by the petitioner could have been raised before the Tahsildar himself since the Karnataka Land Revenue Act provides for the said procedure, such contention cannot be accepted, since the Revenue authority cannot decide such intricate issues and also since even the preceding procedure prior to invoking power under section 32G of the SFC Act is not shown to have been complied. That apart, the interest of the third respondent in respect of a property which did not suffer from prior charge is also involved. Impugned paper publication of KSFC was quashed.
STATE FINANCIAL CORPORATIONS ACT, 1951 - Sections 29, 31,32 & 32-G: [A.S. Bopanna, J] Relative Scope - Section 31 & 32 of the SFC Act is distinct from the right provided to the Financial Corporation under Section 29 of the SFC Act. The right under Section 29 is no doubt without the intervention of the Court but it is limited to exercised only in respect of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. In that light, if Section 32-G of the SFC Act is considered, though a right is granted to the Financial Corporation to recover the amount without prejudice to any other mode of recovery by making an application to the State Government, the said provision would not enable the Financial Corporation to proceed in such manner in respect of the alleged liability against the surety, more particularly in a circumstance where no charge is created by such surety in respect of any particular property. After determination of the liability by the District Judge and the same attains finality on conclusion of the statutory appeal of preferred, the said procedure prescribed under Section 32-G of the SFC Act could be resorted to as an expeditious mode of recovery instead of the regular process of execution. Even in such circumstance, the certificate to be issued to the collector, by the State Government would, be on satisfaction of the property undisputedly belonging to the surety.
1. The petitioner is before this Court seeking for issue of writ of certiorari to quash the paper publication dated 26.12.2012 (Annexure-G) by which the property belonging to the petitioner is brought to auction.
2. The petitioner claims to be the owner of the land bearing Sy.No.1573/1B in different bits situate at Kodialbail village, Mangalore Taluk, presently within the Mangalore City Corporation. It is stated that the property is ancestral property. Being governed under Aliyasanthana law, the petitioner's father's sister Smt. Rajivi S. Shetty executed a WILL dated 11.09.2004 and bequeathed her property to the father of the petitioner. The father of the petitioner executed a settlement deed dated 01.09.2005 in favour of the petitioner. The khatha entries from the Mangalore City Corporation has been obtained in favour of the petitioner. The entry in the RTC was not changed since the land was used for non-agricultural purpose.
3. The petitioner has thereafter obtained housing loan from M/s Vijaya Bank, the third respondent by creating charge over the property. When this was the position, the petitioner noticed the impugned paper publication issued by the second respondent bringing the property to sale which has resulted in this petition. This Court on directing notice to the respondents has stayed the confirmation of the sale.
4. The second respondent has filed their objection statement and it is averred that the father of the petitioner Sri Ullas Shetty, who is impleaded as fourth respondent to the petition has executed Personal Guarantee Deeds dated 17.06.1994 and 29.04.1999 to clear all dues in respect of loan advanced to M/s Mookambika Metal Finishers. The fourth respondent with his wife and brothers were partners of the firm. Term loan of Rs.7,50,000/- and working capital of Rs.1,20,000/- was advanced on 28.05.1994. This was secured by primary assets in the form of land, building, plant and machinery. Additional loan of Rs.5,62,000/- was also granted. Due to non-repayment, the land, building, plant and machinery of the firm was sold on 25.10.2005 for Rs.6,00,000/-. Thereafter the Personal Guarantee has been invoked and applications under Section 31(1) (a) and (aa) of the State Financial Corporations Act, 1951 ('SFC Act' for short) was filed against the Guarantors including the fourth respondent on 18.07.2008 which is pending. Thereafter, the second respondent on finding that the property in question belonged to the fourth respondent has invoked the right available under Section 32G of the SFC Act. It is contended that the alleged title of the petitioner is fraudulent and is hit by Section 53 of the Transfer of Property Act.
5. The third respondent-Vijaya Bank have filed their objection statement and the housing loan of Rs.11,00,000/- advanced to the petitioner has been referred and the entire details relating to the same is disclosed. The nature of due diligence conducted by them before advancing the loan to ascertain the ownership of the property by the petitioner is referred. The third respondent thus having interest in the property towards the charge in their favour have contended that the further process with regard to the property be stopped.
6. In addition to the pleadings on factual aspects, the question also arose regarding the scope of the different provisions and remedy thereunder. This was noticed in the order sheet dated 07.08.2013 and opportunity was provided to argue on the question of law which was raised.
7. Heard Sri M.V.V. Ramana, learned counsel for the petitioner, Sri Vijayakumar A. Patil, learned Government Advocate, Sri Guruaj Joshi, Ms. T.M. Asha and Sri Venkatasathyanarayana, respective learned counsel for respondents No. 1 to 4 and perused the petition papers.
8. The basic fact noticed from the contentions is that though the loan was advanced by KSFC to M/s Mookambika Metal Finishers and the fourth respondent who is the father of the petitioner has executed a Personal Guarantee is the position,
