The court upheld the lower court's decision that a party cannot be held liable without credible evidence of their connection to a loan agreement, emphasizing the importance of properly executed and valid documentation.

(Order of the Court was made by C.V.KARTHIKEYAN, J.

The petitioner / the Tamil Nadu Industrial Investment Corporation Limited in O.P.No. 625 of 2010 is the appellant herein, having filed the appeal against the order of the learned Single Judge dated 31.03.2016 allowing the said Original Petition against the first to fourth respondents therein and absolving the fifth and sixth respondents from liability. The Appeal has been filed challenging that portion of the order absolving the fifth and sixth respondents from liability.

2. It is the case of the appellant that they are a public financial institution incorporated by the Government of Tamil Nadu with the object to grant loans and advances to industries. As security for such loan, land and building and also machineries are hypothecated in favour of the petitioner. It had been contended that the second to fourth respondents in the Original Petition, had sought financial assistance to start a leather garments manufacturing unit and on examination of the loan proposal, the appellant had sanctioned a term loan of Rs.5.50 lakhs on 28.08.1995 towards purchase of machinery and a further loan of Rs.5.50 lakhs towards capital term loan. The second to fourth respondents hypothecated their machineries by deed of hypothecation dated 28.02.1996.

3. It was contended by the petitioner that the fifth respondent had mortgaged his immovable property as security on 28.02.1996 and the title deeds were deposited on the same day and such deposit was indepdendently confirmed on the same day. The second to fourth respondents carried on business in the name of M/s. Sri Chakra Leather Garments, impleaded as the first respondent.

4. The second to fourth respondents executed a deed of guarantee on

28.02.1996 and undertook to repay the loan in 28 quarterly instalments with interest at the rate of 17.5% p.a. It was the contention of the appellant that they never repaid the loan but removed the machineries beyond the reach of the appellant corporation. The appellant then invoked Section 29 of the State Financial Corporation Act, 1951 and took constructive possession of the properties which had been mortgaged with them. However, the Hon'ble Supreme Court had held that Section 29 of the State Financial Corporation Act does not confer power on the financial institutions to recover from the properties of guarantors and therefore, the action initiated by the appellant corporation was withdrawn.

5. Thereafter, they filed O.P.No. 625 of 2010 under Sections 31 and

31(aa) of the State Financial Corporation Act 1951 seeking a Judgment and Decree against the second and fifth respondents to pay a sum of Rs.1,76,25,535/- together with interest at the rate of 18.5% p.a (2.5% will be charged on the defaulted amount for the defaulted period) compounded half yearly from the date of the petition till the date of realisation and also for costs of the litigation.

6. The fifth respondent had filed a counter affidavit specifically denying the allegation that he had deposited the title deeds of the property on 28.02.1996 with the petitioner corporation. He further denied that he had executed a confirmation deed for such deposit of title deeds. He further alleged that he was neither a borrower nor a guarantor for the loans advanced by the petitioner corporation/second to fourth respondents. He stated that a fraud had been played and this was evident when the documents were inspected and in the forms filed by the petitioner and obtained at the time of advancing the loan, the photograph of some stranger had been affixed as if he was the fifth respondent and the form had also been signed by a stranger and not by the fifth respondent. It was contended that one Radhakrishnan had obtained the original title deeds holding out that he would be able to sell the said lands for a good price. It was specifically contended that the said Radhakrishnan in collus