B. Veerappa, J

The appellant who was the guarantor is before this Court challenging the order, dated 27.11.2009 made in Misc.No.2/1999 on the file of the Addl. District Judge, Shivamogga, allowing the petition directing the appellant and another who are guarantors to pay a sum of Rs. 2,60,738/- with future interest at the rate of 16% per annum compounded quarterly. The appellant has filed the present appeal only insofar as the direction issued against him.

2. The parties are referred to as per their ranking before the Court below.

3. The respondent No. 1 herein filed a petition under section 31(1)(aa) of the State Financial Corporations Act, 1951, before the Addl. District Judge, Shivamogga, contending that respondent Nos. 1 to 5 being the Directors of M/s. Malnad Fasteners Private Limited Company incorporated and registered under the Companies Act, 1956, approached the petitioner Corporation and got sanctioned and obtained a term of loan of Rs. 4,80,000/- on 27.07.1998 for establishing M/s. Malnad Fasteners Private Limited Company. The said loan amount was to be repaid to the Corporation with interest at 14.5% per annum. The Company was established for manufacturing bolts, nuts and screws. Respondents 6 and 7 agreed to become the guarantors for the loan borrowed by respondents 1 to 5 for the bridge loan, accepting all the terms and conditions incorporated in the guarantee deed executed on 11.01.1990. The bridge loan was Rs. 61,000/- borrowed by respondents 1 to 5. They hypothecated all the assets of their industry concern by executing a hypothecation deed dated 06.04.1989 and 06.01.1990. They also personally guaranteed the repayment of the loan with interest. Petitioner allowed a rebate with interest at 1% per annum for regular repayment of principal and interest and in case of default, respondents agreed to repay the interest at the enhanced rate of 16% per annum for the loan. The loan was repayable in 24 quarterly installments of Rs. 20,000/- each. The soft loan of Rs. 50,000/- was to be paid in 10 half yearly installments of Rs. 5,000/- each from the date of first release and bridge loan of Rs. 61,000/- in 16 quarterly installments of Rs. 3,800/- for the first 15 quarterly installments and Rs. 4,000/- for the last installment. But the respondents failed to repay the loan in terms of the agreement and they became defaulters. Accordingly, under section 29 of the State Financial Corporations Act, 1951, the petitioner took possession of industrial unit and its assets on 05.02.1992. The machineries were sold and the sale price of Rs. 2,85,000/- was adjusted towards the loan amount. Respondents 6 and 7 were due to pay a sum of Rs. 2,60,738/- and respondents 1 to 5 were liable to pay Rs. 8,47,721/- with future interest, etc.

4. The respondent Nos. 1, 4, 5 and 6 appeared through their counsel. Respondent Nos. 2, 3 and 7 remained absent. Respondent No. 6 alone filed objections contending that he has no knowledge of the averments made in paragraphs 2 and 3 of the petition. The allegation that he himself offered as a guarantor to the loan borrowed by respondents 1 to 5 was denied as false. It was contended that his liability was limited to an additional security of Rs. 50,000/- only and for that, he had offered security of his industrial site measuring 20 guntas situated at Uragadur village and that land has been taken away by the petitioner. He was not accountable for any of the loan availed by the respondents 1 to 5. For bridge loan of Rs. 61,000/- he is jointly liable along with the seventh respondent and his liability, if any, is restricted only against the collateral security offered by him. Therefore, he sought for dismissal of the petition.

5. Based on the pleadings, the District Court framed the following issues:

(i) Whether the petitioner is entitled to enforce the liability with interest against the respondents as claimed?

(ii) What order?

6. The petitioner examined one witness as P.W.1 and produced documents Exs.P.1 to P