JUDGMENT

Challenging the dismissal of its petition under Sections

31(1)(aa) and 32 of the State Financial Corporations Act, 1951 (‘the Act’ for short), the Karnataka State Financial Corporation which was the petitioner in Misc.No.8/2010 on the file of the Principal District Judge, Kolar has preferred this appeal.

2. The appellant was the petitioner and respondent Nos.1 to 8 were respondent Nos.1 to 8 before the Trial Court. For the purpose of convenience, the parties are referred to henceforth according to their ranks before the Trial Court.

3. The petitioner is a Corporation owned by the Government and established under the Act for the purpose of lending financial assistance to industrial concerns. Respondent No.1 is the Private Limited Company. Respondent No.2 was the Managing Director and respondent Nos.3 to 8 were the Directors.

4. Respondent No.1 availed term loan of Rs.62,50,000/- from the petitioner agreeing to repay the same with interest at 19.5% per annum. On 10.11.1992 respondent No.1 further availed soft loan of Rs.4,00,000/- with interest at 3.5% per annum. Respondent Nos.2 to 8 executed guarantee deed dated 28.05.1993 for repayment of loan granted to respondent No.1. The properties were mortgaged to the petitioner as security for payment of money. Respondent No.1 committed default in payment of loan. Therefore the petitioner issued notice dated 08.01.2001 to respondent No.1 for initiation of the proceedings under Section 29 of the Act. Requisition of respondent No.1 under its letter dated 14.12.2001 to reschedule of the loan was rejected and respondent No.1 was called upon to pay overdue amount of Rs.28,82,000/- with interest.

5. Petitioner issued notice dated 30.03.2002 invoking guarantee and called upon the respondents to pay the overdue amount with interest. On 14.06.2002 petitioner filed Misc.No.456/2002 before the City Civil Court, Bangalore against the respondents under Sections 31(1)(aa) and 32 of the Act for recovery of Rs.82,89,680/- on the term loan account and Rs.4,31,890/- on the soft loan. The City Civil Court by order dated 11.09.2009 ordered to return the said petition to the petitioner for presentation before the appropriate Court on the ground that the said Court lacked jurisdiction as mortgaged properties situated within the jurisdiction of Kolar Court. Petitioner presented the same on 03.02.2010 before the Principal District Judge, Kolar which was registered in Misc.No.8/2010 out of which the proceedings of this appeal arise.

6. Respondent Nos.3, 4 and 7 did not contest the petition. Respondent Nos.1, 2, 5, 6 and 8 contested the petition by filing their statement of objections. They admitted availment of loan and execution of the guarantee deed by respondent No.1 for business purpose. They contended that their signatures were taken on the guarantee deed in blank forms. They denied service of notice, their request to reschedule the loan and the claim made in the petition. They contended that respondent No.1 suffered loss in the business due to burglary in their premises and theft of computer stationery and other material instruments. They contended that though the petitioner took possession of the mortgaged and hypothecated properties, did not sell and realize the same for longtime due to which those properties lost their value and ultimately sold to one Devi Industries. Even the said sale proceeds were not adjusted for the dues. They claimed that the petition was barred by time and their liability was disputed.

7. In support of its claim, the petitioner got examined one T.Z.Baba Sab, Manager (Recovery) in the petitioner/Corporation as PW.1 and got marked Exs.P1 to P24. Respondent Nos.5, 8 and 6 were examined as RWs.1 to 3 respectively and on their behalf, Exs.R1 to R8 were marked.

8. The Trial Court on hearing the parties, by the impugned judgment and order dismissed the petition on the following grounds:

(i) PW.1 had no authority to tender evidence on behalf of the petitioner;

(ii) The petition was ba