JUDGMENT :

This appeal under Section 32(9) of the State Financial Corporation Act, 1951 (for short, 'the Act') filed against the judgment and order dated 26.09.2014 passed in Civil Miscellaneous No.23/2009 by the Principal District & Sessions Judge at Raichur determining the liability of the appellants towards the respondent No.1 -Karnataka State Industrial Investment & Infrastructure Development Corporation Limited (for short, 'Corporation') under Section 31(1)(a)(aa) and Section 32 of the Act for a sum of Rs.5,24,21,409/-and Rs.1,10,48,116/-and to direct the respondents to pay the said sum together with interest at 20% per annum and 20.5% per annum, respectively.

2. For the sake of convenience and to avoid overlapping, the parties are referred to as per their rank before the trial court.

3. The facts leading to filing of the present appeal briefly stated are that, the respondent No.1, a private limited company represented by its Managing Director, respondent No.2 had approached the petitioner -Corporation for financial assistance by way of term loan of Rs.101 lakh for the purpose of establishing unit for cutting, polishing of various types granites blocks and to manufacture granites slabs and tiles. The petitioner -Corporation advanced the said loan amount to the respondent Nos.1 to 3 in terms of letter of sanction dated 24.05.1996. The respondents had executed the following documents:

Sl. No Nature of Documents Dated

1 Mortgage deed executed by respondent Nos.2 and 3 20.10.1997

2 Loan agreement executed by respondent Nos.2 and 3 20.10.1997

3 Hypothecation deed executed by respondent Nos.2 and 3 20.10.1997

4 Irrevocable personal guarantee executed by respondent Nos.2 and 3 20.10.1997

5 Surety agreement by respondent Nos.2 and 4 20.10.1997

4. After execution of the aforesaid documents, the petitioner -Corporation had released an amount of Rs.1,00,19,000/-as against Rs.101 lakh. The respondent No.1 thereafter again approached the petitioner -Corporation for further financial assistance in the form of Bridge loan of Rs.25 lakh and the same was sanctioned on the terms and conditions mentioned in letter of sanction dated 20.07.2000. Respondent Nos.2 and 3 had executed the following documents.

Sl. No Nature of Documents Dated

1 Loan agreement executed by respondent Nos.2 and 3 28.08.2000

2 Hypothecation deed executed by respondent Nos.2 and 3 28.08.2000

3 Irrevocable personal guarantee executed by respondent Nos.2 and 3 28.08.2000

4 Agreement offering security in the form free hold rights over immovable property by respondent No.2 and 4 28.08.2000

5 Agreement offering security in the form free hold rights over immovable property by respondent No.2 28.08.2000

5. On execution of aforesaid necessary documents, the petitioner -Corporation had released Bridge loan of Rs.14,76,000/-on 25.10.2000 and Rs.10,00,000/-on 31.03.2001. The respondent Nos.1 to 4 have failed and neglected to repay the installments resulting in the petitioner -Corporation issuing a demand notice to them. Since the demand was not met, the petitioner -Corporation in exercise of its power under Section 29 of the Act taken over the mortgaged assets of the respondent No.1. The petitioner Corporation made efforts to sell the assets and issued several advertisements from 01.08.2005 to 18.03.2009. The petitioner -Corporation auctioned the property of the respondent No.1 on different dates for an aggregate sum of Rs.30 lakh which was deposited on 26.11.2010. Since the appellant was liable to pay term loan of Rs.4,13,73,293/-and Bridge loan of Rs.1,10,48,116/-, in all a sum of Rs.5,24,21,409/-as on 05.12.2008 and the respondents were liable to pay future interest at 20% and 20.5%, respectively compounded quarterly rests, the petitioner -Corporation invoked the personal guarantee executed by respondent Nos.2 to 4 by issuing notice dated 26.02.2009 and in view of non-compliance with the demand made in the said notice, the petitioner -Corporation proceeded to invoke the personal guarantee and