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Judgment
B. Manohar, J.—The Appellants are the Respondents No. 3 and 4 before the Principal District Judge at Tumkur, being aggrieved by the order date 17-4-2005 made in Misc. No. 30/2001 passed by the Principal District Judge at Tumkur, preferred this Miscellaneous First Appeal.
The first Respondent Karnataka State Financial Corporation filed a petition u/s 31(1), 31(1)(aa) and 32 of the Karnataka State Financial Corporation Act (''SFC Act'' for short) seeking for recovery of a sum of Rs. 75.29,086/- from the first Respondent firm i.e. M/s. Karnataka Bricks and Tiles Factory (a Partnership Firm) as on 10-12-2000 with interest therefrom and to direct all the Respondents jointly and severally pay the said amount personally, by attachment and sale of the schedule property.
The Petitioner in the Miscellaneous petition contended that the first Respondent is a partnership firm. The Respondents 2 to 5 are the partners with an intention to set up a small scale industry of manufacturing bricks and tiles, approached the Petitioner for financial assistance. In response to their request, the Petitioner sanctioned a sum of Rs. 5,80,000/- to Respondent-Firm on 21-8-1975. Thereafter, on request, another sum of Rs. 1,70,000/- was sanctioned on 6-12-1977; thereafter Rs. 25,81,000 was sanctioned at their request on 12-3-1986. The Respondent 2 to 5 executed registered mortgage deed on 5-2-1976, 1-2-1978 and 29-8-1986 mortgaging lands, buildings and hypothecating plant and machinery for the respective loans. The Respondents have offered bank guarantee of Rs. 5.00 lakhs in favour of the Petitioner. Respondents 2 to 5 being the partners of the Finn have undertaken personally for repayment of the principal sum with interest accrued thereon. The 6th Respondent i.e. 5th Respondent in this appeal also has executed a mortgage deed on 29-8-1986 making it personally liable to make payment of the amount. Respondent No. 1 failed to clear the dues even after issuance of pre-installment notices and post-installment demands made by the Petitioner-Corporation. The Petitioner-Corporation in exercise of its power conferred on it u/s 29 of the State Finance Corporation Act, took over the Unit of the first Respondent on three occasions, and later released it on the promise to make payments by the Promoters. The second Respondent in the Misc. No. 30/2001, being a Managing Partner made assurance that they will pay the dues without any default. He approached the Petitioner-Corporation to close the account on one-time settlement. The request made by the second Respondent was considered and a letter dated 4-12-1999 was addressed to the first Respondent asking for payment of Rs. 35,23,317/- within 30 days from the date of receipt of the letter as one-time settlement. However, the Respondents failed to utilize the said one-time settlement scheme. Another letter was addressed to the first Respondent on 5-5-2000 informing them that OTS benefit given to them was cancelled. The first Respondent Firm sought for 60 days time in its letter dated 9-6-2000 requesting the Petitioner-Corporation not to take legal action stating that BDA has allotted a site in Rajmahal Extension Bangalore, and they will dispose of the said site and make payment. However, the first Respondent has paid only Rs. 1 lakh on 9-2-2001. The entire amount has not been paid as promised by them. The corporation issued notice on 7-3-2001, invoking personal liability of the Respondents as Respondents 2 to 6 committed default in payment. Therefore, Respondents 2 to 6 are jointly and severally liable to pay the said amount. Hence, the Petitioner filed the petition for recovery of the said amount.
In pursuance to the notice issued by the Principal District Judge, Turakur, Respondents 1 and 6 remained exparte in spite of service of notice. Respondents 2 and 5 died during the pendency cf the petition and their legal representatives have been brought on record. However, Legal representatives of Respondent No. 2(c) and (d) have not appeared. The legal representatives of Respondent No. 5 have entered appearance. Respondent 3 and 4 have engaged their advocates and filed objections.
Respondents 3 and 4 in their objections contended that there is no relationship of creditor arid debtor between the Petitioner and these Respondents and therefore, they are not liable for any transaction between the Petitioner and Bhaskarappa, Smt. Vasantha and the 6th Respondent-Company. The Petitioner is put to strict proof of contentions raised by them. It is the case of Respondents 3 and 4 that they are not the partners of the partnership firm. They were not aware of the assurances given by the second Respondent to clear the dues. In view of the reconstitution of the Firm on 27-12-1990, they are no longer partners of the first Respondent-Firm and hence they are not liable to pay any amount. The second Respondent being the Managing partner has given an assurance to the Petitioner-Corporation and these Respondents nave not made any promises. In view of the reconstitution of the partnership firm, the liability of old partner has been absolved. Respondents 1, 2 and 6 are only liable to pay the amount due, hence the petition is not maintainable as against these Respondents and sought for dismissal of the same.
The 5th Respondent has filed objections denying the relationship of creditor and debtor and they are not liable for any transaction between the Petitioner and the Respondents 1, 2 and 6. The objections are in the same line as of Respondents 3 and 4. The legal representatives of Respondent No. 2 have filed separate objections denying the transaction, sanction of the loan, execution of the mortgage deed and the liability to the extent stated in the application. The other averments regarding the action taken by the Corporation u/s 29 of the SFC Act also denied. Alternatively, it is pleaded that Respondents have raised only a meager amount from the Petitioner as a loan, towards which Respondent No. 2 has paid more than Rs. 55.00 lakhs, which is suppressed by the Petitioner, and sought for dismissal of the petition,
On the basis of the pleadings of the parties, the Principal District Judge, Tumkur framed the following issues:
(i) Whether the Petitioner-Corporation has proved the liability of the Respondents to pay the amount claimed in the petition?
(ii) Whether the petition is not maintainable for any reasons?
The Petitioner-Corporation in order to prove their case, examined two witnesses on its behalf who are the Manager and the Accountant of the Corporation. Respondent No. 4 and one of the legal representatives of R-5 have been examined before the Court.
The Civil Judge on the basis of the oral and documentary evidence led by the parties, held point No. 1 in the affirmative and Point No. 2 in the negative and allowed the petition filed u/s 31(1), 31(1)(aa) and Section 32 of the SFC Act with costs and current and future Interest. Further ordered that since the factory has been attached and sold in the public auction, a sum of Rs. 82,00,000/- has been recovered from the auction of the factory, The same shall be deducted from the money payable by the Respondents as on the date of actual receipt of the sale money. In view of death of Respondents 2 and 5, the legal representatives of those two Respondents are liable to discharge the money payable by the Respondents 2 and 5 under this order on the charge of the properties of respective Respondents 2 and 5 held by their legal representatives but not personally.
Being aggrieved by the order dated 17-4-2005 made in Misc. Case No. 30/200l, the Respondents 3 and 4 have preferred this appeal.
Sri. H. Kantharaj, learned Counsel appearing for the Appellant contended that the order passed by the court below contrary to law and facts of the case. The Appellants are not at all liable for any transaction which might have taken place between the Finance Corporation and the Respondents 2 to 5 in the appeal. The Appellants are not parties to the Partnership Firm since the partnership firm has been reconstituted on 27-12-1990 hence their liability has to be absolved. They are in no way concerned with any transaction. The Misc. Petition is bad for mis-joinder and non-joinder of necessary parties. There is no cause of action to file a petition against these Appellants. The Appellants are not liable to make any payment. With a malafide intention, present Misc. Petition has been filed and sought for setting aside the order dated 17-4-2005, by allowing this appeal.
On the other hand, Sri. S.G. Pandit, learned Counsel appearing for the first Respondent Corporation contended that the Principal Distract Judge taking into consideration oral and documentary evidence of the parties, appreciating the evidence led by both the parties held that the Appellants along with other Respondents before the Principal Civil Judge are liable to pay the amount as per their mortgage deed executed by them and also they are personally liable. Even though they ceased to be the partners, the liability does not absolve. Hence they are liable to pay the amount due and sought for dismissal of the appeal.
We have carefully gone through the arguments addressed by the learned Counsel for the parties and the oral and documentary evidence led by the parties.
It is not in dispute that Respondents 2 to 6 in Misc. Petition are the partners of the first Respondent-Firm. With a view to set up a small scale industry initially availed a loan of Rs. 5,80,000/- by executing the mortgage deed on 5-2-1976 thereafter, one more loan of Rs. 1,70,000/- was availed on 6-12-1977 by executing mortgage deed at Ex.P.3 dated 1-2-1978; further loan of Rs. 25,81,000/- was availed on 12-3-1986 by executing the mortgage deed dated 29-8-1986. P.W.1-Manager of the Corporation deposed before the Court that inspite of repeated remainders and requests, the Respondent-Firm failed to pay the installments. In view of that the Corporation invoking its power u/s 29 of SFC Act took over the Unit on 13-5-1994. Thereafter, on their request, released the same. However, on 10-11-1994, the firm was once again taken over by the Corporation. On their request, it was again released. Since there is persistent default in payment of the dues the first Respondent Firm was once again taken over by the Corporation on 6-11-1997. However, the same was released at their request. Indulgence was shown and sufficient opportunity was given to make payment. Further the Managing Partner approached the Corporation for one time settlement of the amount and to considered and a letter was addressed to the Respondents on 4-12-1999 to make payment of Rs. 35,23,317/- within 30 days from the date of receipt of the letter. No payment has been made. In view of that, the benefit of OTS was cancelled on 5-5-2000. The first Respondent-Firm once again sought for 60 days time by its letter dated 6-9-2000. However, only Rs. 1,00,000/-was paid.
P.W.1 in his evidence has produced the document Ex.P.1 regarding loan sanction order and Bx.P.2 to Ex.P.4 registered mortgage deeds executed by the Respondents 2 to 6, a Copy of the letter doted 4-12-1999 and letter dated 5-5-2000 as Ex.P.5 and Ex.P.6 and legal notice dated 7-3-2001 as Ex.P.7. The original partnership deed of the first Respondent Firm has been produced Ex.P.8.
In order to prove the case, the Accountant of the Petitioner-Corporation has been examined as P.W.2. In his evidence he has produced Ex.P.12 ledger extract to show that the loan was sanctioned and the manner of repayment to be made by the Firm. He has contended that as on the date of filing of the Misc. Petition, the first Respondent-Firm and its partners are due for a sum of Rs. 75,29,086/- with interest thereon.
The Appellant No. 2 G. Linganna examined himself as R.W.1 before the court below and contended that there is no relationship of creditor and debtor between the Corporation and the Respondents from 27-12-1990 as the Partnership Firm was reconstituted and he ceased to be the partner of the first Respondent-Firm. Hence, he is not liable to pay any dues to the Corporation. However, in the cross-examination R.W.1 fully confirmed that he is one of executants of Ex.P.2 to EX.P.4 and signed the registered mortgage deed. He has deposed that the liability has been absolved against him because of shifting of the burden on the 6th Respondent i.e. 5th Respondent in this appeal in view of reconstitution of the Firm and the liability of the Respondent is absolved.
R.W.2 who is the son of the 5th Respondent in Misc. Case No. 30/2001 deposed that he was working as an employee in DCC Bank and he admitted that he is aware of the procedure being adopted for the loan transaction. In his cross-examination he has clearly admitted execution of Ex.P.3 and Ex.P.4, registered mortgage deeds executed by his father and he is the original Respondent No. 5 in Misc. Case 30/2001. He has also identified the signature with that of his father. He contended that in view of the reconstitution of the firm, the liability of old partners has been absolved and they are not liable to make any payment.
Hence, it is clear that the Respondents have not disputed the execution of registered mortgaged deeds at Ex.P.2 to Ex.P.4 Clause Nos. 2(a) and 2(b) of the mortgage deed reads as under:
(a) The Mortgagor(s) doth/do hereby bind himself/herself./themselves/itself personally for the repayment of the principal sum with interest and other moneys due to the Corporation under these presents.
(b) The Mortgagor(s) doth/do further, hereby grant, convey and assure unto the Corporation by way of security for the said principal and interest and other moneys that become due to the Corporation under these presents, all that piece and parcel of land or ground together with buildings (messuages), tenements or dwelling houses now standing or hereafter to be erected thereon or any part thereof situate at Tumkur....
Reading of Clause (a) and (b) makes it clear that the mortgagors who had executed the mortgage deeds bound themselves personally for payment of principal sum with interest. Clause (b) makes it clear that all the mortgages have further granted, conveyed or and assured the Corporation by way of Security for the said principle and interest. Since the partners have agreed to pay the amount with the personal liability, even though the partnership firm was reconstituted in the year 1990 they cannot absolve their liability. The recital of the mortgage deed shows that the Respondents had offered their personal guarantee for the discharge of the loan contracted by the first Respondent. The Respondents 2 to 6 were not only the partners of the firm, but also they have personally stood as guarantors for the said loan. Hence, their liability cannot be absolved. In view of the amendment of the SFC Act, power has been granted to the State Financial Corporations to recover the amount invoking Section 31(1), 31(1)(aa) and Section 32 of the Act. The Hon''ble Supreme Court in a judgment reported in Maharashtra State Financial Corporation Vs. Jaycee Drugs and Pharmaceuticals Pvt. Ltd. and Others, upheld the action of the Finance Corporation. In the instant case, it is not in dispute that the Respondents 2 to 6 are the partners of the first Respondent Firm. The registered mortgage deeds have been executed by them and they are personally liable to pay the loan amount. Since, the first Respondent has committed default in payment of amount, the Appellant has taken steps to attach the landed property, plant and machinery''s and sold the same in the public auction. For the remaining amount, steps have been taken against the partners. The court below after considering the oral and documentary evidence has allowed the application and ordered for recovery of the balance amount from the Respondents.
We find that there is no infirmity or irregularity in the order passed by the court below.
In view of the amendment to Financial Corporation Act and the law laid by the Hon''ble Supreme Court, the Financial Corporation is entitled to recover the said amount. Except, Respondents 3 and 4, in the Misc. Case. No. 30/2001 neither Firm nor the Managing Partner have not preferred any appeal. The substantial amount of Rs. 82.00 lakhs has been recovered by selling the land, building, plant and machinery. For the remaining amount, the Financial Corporation has taken steps to recover from its partners. We find no error or illegality in the order passed by the court below. The Appellants have not made out any case to interfere with the order passed by the court below. Hence, we pass the following Order:
ORDER
Appeal filed by the Appellants is dismissed. Order passed by the court below is confirmed.