I -‘ IN THIS 111(1K COURt (ii: KARNAIAKA cIRc’L’rr BFNC’11 AT DIIARWAF) DATEI) THIS THE 8 th DAY OF AUGUST. 2011 PR ES isNi TIlE H0N131.E MR. i1’STICF V.G. SABIIAIIIr AND ii IF I 10N131.F MR.J1 ‘SlICI: II. MANOIIAR 675 2006 ( Mone ) Between: Mis Mandovi Engineers. C-2. KSSIDC Industrial Estate. Lakamanahalli. Dharwad—580 00 I. Represented by its Manager Sri Vivek Ilukkerikar. 2. Sri Vivek S’O Srinivas llukkcrikar. Age: Major. 0cc: business. Rio Vivekanand Nagar. Vidyagiri. I)haru ad—S 80 004. - Appellants (By Sri C.N. Harlapur. :d’ iwatc) And: State Bank of Mysore. I3ranch: Main Branch. Represented by its Branch Manager, Sri M.C. Chandrashekar. Anjuman-E-Islarn Complex. Dharwad-580 001. 2. Senior General Manager. (‘orporate Finance I)cpa rimen i. Kirloskar Electric Company Lid.. Industrial Suburb. Rajaj inagar. I3angalore- 10. * 3. Karnataka State Finance Corporation. Rep. by its Assistant General Manager. Navanagar. I’S. Road. Dharwad-580 004. 4. Sanjay sb Srinivas Hukkerikar. Age: Major. flee: business. R/o Vivekanand Nagar. Vidvagiri. I)har ad—58() 004. • Mó.tA ij 1 St ,Ssi sic.4tjae., SIJAJ JoS1 - Respondents (.0. cj%_1 i lkSri I l.N. Vid’ adhar. Ad’ ocale for R I. lo. o%4ou Sri I)ayanand M. flandi. i\d nettLe for 1(2. Sri Ileinanth R. Chandanagoudar and Sri lt.S. lndiresh. Advocates for R3 and Sri Sadashiv S. Patil. Advocate for R4) This Appeal is filed under Section 96 of C.P.C. against ihe judgment and decree dated 24.1 2.2005 passed in 0.5. No. II 21)02 on the Ii Ic of the Ill AddI. CR i I Judge (Sr. l)n. j & ( H ‘I. l)harwad. partly decreeing the suit for reeover5 of iii’’!) C [his Appeal coming on br final hearing this clay. V.(i.SABHAHIl .J. delivered the following: JUDGMENT I. This appeal is filed by the defendant tins. I and 2 in 0.5. So. II 2002 on the file of Ill Addi. CR il Judge (Sr. I)n. ) and ( .3. \1.. l)har ad. being aggrieved h3 the j udgment dated 24. 1 2.2005 passed against the appel hints herein and dismissing bite suit filed against defendant no. 4. 4 -3- 2. The material facts leading up to this appeal with 1 er’nee to the ranking ci the part ie5 he lore the trial Court. are as follows. The plaintiff Bank filed U.S. No. 11,2002 on I 7.11 .2001 seeking for reeo Cr> of 5Mti. I 79•$7 plus Z I MOO — tow ards epcnses ol filing of suit w ith future interest, from defendant Ntis. I. 2. 3 and 4 jointly and severally. ft is averred in the plaini that plaintiff Rank is an associate of’ State Rank of India. M;s Mandovi Engineers is an industry installed and functions at (-2. KSSIDC Industrial Estate. L.akamanhalli, Dharwar manufacturing machine components. represented by its proprietrix Smt. Suiata w 0 ‘ivck I lukkerikar. I he unit ‘as liavinii transaction w ith 11w plaintiff Bank since I 991) a’ ailing various loan facilities. In 1998. defendant no. I along with defendant nos. 2 and 3 had approached the plaintiff Bank seeking the enhancement and also grant of loan facilities to boost the business. Plaintiff Bank observing the need agreed to iirziiit the cash credit and o’ erdra it ag;tinst suppl> bills. loan I;tc i lit i es. I’ hi i ni i if Bank had perini tied the i iid ustr’ to operate the cash credit loan account upto the extent of Z 3.00.000 — and t -4- 6.() IaLhs overdratt aaainst suppl’ bills. l)efendant no. I had availed the above said bait facilities on I 8. I 1 . 1998 a 11cr executing the prescribed security documents in favour of the plaintiff Bank and also offered personal guarantee of defendant 1)0%. 2 and 3. Defendant nos. 2 and 3 ith their consent agreed II) act as guarantors and co—ohligators to the loan account and thereby executed Guarantor Agreement in favour of the plaintiff Bank. Defendant nos. 2 and 3 have executed prom issorv notes on 1 8.11 . 1998 to a sum of 3.00.000/— under cash credit loan account and to a sum of O.5() Inklis under in erdraft against suppi) bills in la’ our of Ms Mando i Fnginecrs. represented by its proprietrix-defendant no. I. who. in turn negotiated and endorsed in favour of the plaintiff hank. thereby promised to pay a sum of 3.00 Iakhs in cash credit loan account and 0.50 lakhs under overdralt against suppl) bills with interest. Thus defendant no. 1, 2 and 3 have executed requisite documents in favour of the plaintiff flank binding themselves to the terms and conditions ol the loan ;,greemcnt . l)c fendant no. I “ hi be a’ ad Ii ng loan has hypothecated the stock of the unit and created charge over the KSSIDC shed, machineries of the unit, etc. flefendants also ;isiened the I. IC Policy of Z I .00 lakhs and created lien on RID ol 1.05 lakhs. Defendant no. I had secured loan by creating equitable mortgage over the properties as enumerated in the S lila hit. Defendant no. 2 created equitable mortgage o er three properties and defendant no. 3 created mortgage for one properly. It was agreed that loan amount would he repaid at the rate of 2.55% above the Slate Bank advance rates with the minimum of 15.55% per annum to be compounded on quarterly ieIs. subject to the changes and variations in interest as per 1< HI directions. The rate of interest charging on the loan account is lSfi, as per the directions of the R.lI.l . It Is further a erred that operation of’ the loan accounts by the borrow ers is highly irregular. Though agreed at the time of availing loans that the accounts would be closed or renewed once in a year ;iiitl maintain tip to date interest, but failed to do the same. I he> ha e failed to adhere to the terms and conditions of the loan agreement. thereby become chronic defau Iters in the repay ment of the loan dues. l)espité the repeated demands and notices issued on 09.11.2001. since the amount is not paid. the stilt is filed against them. So far as the defendant no. 4 is concerned, it is averred in t lie plai ut that overdra It facility a oh ..° tinsi suppl3 bills granted to the horroaers on the supply bill’ dinn b Kirloskat I leuric Compin3 lid.. a°ain%t inlinnation ordeis shuheser nc’i a it a I paid to the l’nrtowers on seseral ddtes and four II andk ssre drassn. Posset Dl tatorne> eiecuted b the borrossers in fasour ol the Bank nas duly foraardcd to the defendant no. 4. L nder the “‘ nions of lass it aa incumbent on the part of dehndanI no 4 to pay directl3 to the bank. Plaintiff Rank throuph k.l’.A.I). letter informed and requested to pa at the earliest. bitt the proceeds iscre not recehed b> the Company. i.e.. dtlendant no.4. It is turthct aserred that plaintiff b aeliable osirces learnt that for the abose said amount, defendant no. 4 opted and paid directl) to the borrossets. I e.. defendant no 1. a il’in, in loss to tk Rank thin fore the uit i filed for itios ers of the amount from defendant no 4 also. lotntl and tsualls sigh defindant no, I to 3 lXfcndant tt. S as m tIc i puts ma at as I sin’ tsrst chars a moat eI ir pert). lh t vase if adam i siraid at tic r ut nost In’ iii fits hit deftndin 1 8 II 9) t .. tfl d I rt dotnent ii a 1 a a a it )9) n ) 5 1 lit S -7- and conditions of the loan agreement and again on 09.11.2001 “hen the plaint ill Bank ha issued notice cal Ii ng upon the borrow ers to repa) the loan dues. [here fore the su it was filed for reco’ er’ of ? 5.06. 1 79.87 and cost ol Z 1 .000— (ow airds ill ini of the suit, total ? 5.0. I ‘9.87 with current and lulure interest payable by defendants I. 2. 3 and 4 jointly and severally in favour of the plaintiff Bank. The description of (he property mortgaged is given in the schedule. Defendant no. 3 was placed exparte before the trial Court. 1)efendant no. I filed “risen statement on 27. I 0.21)05 clen mu the averments made in the plaint and it ws averred t liaf there is no violation ol the terms and conditions of the loan %aii)ct ion letter. It “as also a’ erred that onl properties as mentioned in the loan sanction letter were offered as securities and bank has retained excess property. which is illegal. It is also averred that defendant no. 4 has conveniently avoided the subject of Hundis. so as to escape from the liability, which cannot be allowed tinder law. Ihe plaintiff Bank has failed to realise the hund i amount as per their ow ii content it)!) in I’”’ agraph O of the plaint. Instead of making efforts to realise S -8- the II und i amount and to cover up ii s in isdeed. the plaintiff flank has filed a false case against defendant no. 1.2 and 3 and I lie stilt ought to han e filed against defendant no. 4 alone. I )el’endant no. I unit was nearl’ closed more than 2 years because of the misdeeds of the defendants and now is slowly limping back to normality and therefore the suit filed against defendants I to 3 is liable to he dismissed. 1)eiendant no. 2 filed separate w ritten statement rd lerait ing the Ibets narrated by de lenda lit no. I l)efendant no. 4 filed its written statement a erring that 11w averments made in the plaint regarding the liability of the 4111 defendant is not within the knowledge of4th defendant. The a’ erments made in paragraph no. 6 of the plaint regarding the liability are false and plaintiff is put to strict prool of the same. l)efendant no. 4 denied the plaintiff forwarded th’e power of attorney executed by defendants 1. 2 and 3 in faour of the plainti IT. It “as further denied that under the ro isions ol Ian it was incumbent on the part of it. Co pa> directly to the plaintiff, the dues owed by the defendants I. 2 and 3. That the plaintiff demanded on se’ eral occasions from this defendant p q .nd that on 02 02 ‘000 the plaintiff ii ou ‘I R.P .I) intoimed tiW tequested to pa> the amount at the e truest and that the rocteds isere not recihed by the plaintiff and the plaintiff is put to strict of the same Defendant i c. 4 has also denkd the .iserment made in the plaint rcgardina the liability alone a”ainst defendant no. 4 and it is further aerrcd that defendant no 4 was dealing with defendant no. I on a principal to principal basis and cannot be bound by an> aereement or power ol attorney executed It> the defendant no. I with any thud pai ty. including the plaintiff. I here is no pril ity of contract heiween the plaintiff and 4 defendant. %ny pa>ment that was l’i’ (torn thi. 4’ defendant to the lust dct’cndant has alread> been paid. much before the notice of the suit was scred on the I defendant and no amount is dot to defendant no I from 4 di.lendant Ihtrc is no a ssc. of au n k (hi. nit and think ri Ih stilt should be dismis ed ‘sgainst 4 di tendant Defendant no ‘a also flied i ri tin st :temcnt r si tin’ the i I a° imnst it Hi in’ •vud t I abt i. , I ed r tl hI iii flt £6 b -10— 1. Whether tilt’ plaintili proves that cic:Ieiiciant no. I has borrowed loan of e3.Ot) lakhs and eO.5O lakhs nuder O.D. from the plaintiff bank and dc:fèndants 2 and 3 are guarantors for the said loan by creating equitable mortgage as .ciated in the plaint? .?. Whether I/ic’ plain II proves thai th:Iendants I to 3 have 1101 i-cmid i/ic loan iiinoiiiii we) far ilisplIt’ 01 repecuted cic’i;iciiids? 3. Whether i/ic’ plaintif1 prc’s thai cic:ii’uiciant lit). -I has to par I/iL’ diiiic)lilit direct/v to 1/iL’ hank as stated in the plaint ,u,ra 6 anti defeiic/auit 110. 4 cannot par I/ic’ amouiiis directly to the horrowers and ciii account qi the saint’ plaintiff bank has ,sustainc’d loss? Hence defendant no. 4 is responsible for such loss to the plaintiff Bank? 4. Whether the plaintiff proves that th:fendant no. S is having .flrst charge over some cf the properties of 4,4,/s Mandovi Engineers? Hencc’ in ca.cc’ of stile of properties proceeds have to he aciustc’ci hot/i hr hank and KSF(’? ?. It’het/ier tilt’ plaiiitqi i.’c eiititled for the relief sought /or? 6. What order? 4. On behalf of the plaintiff Bank. Manager of the plaintiff Bank was examined as P.W.l and gdt marked documents as per I ..l’. I to Ex.P.35. l)efendant 110. 2 “as examined as l).W. I :ttW in the cross—e\amination Fx.I). 1 as uot marked. Oilier defendants have 1101 lead any evidence in support of their n idence. 5. Trial Court after considering the contentions of the learned coutisel appearing for the parties. on appreciating the #‘ Jo SUOSAOJd Mjl aapun iuepuzpp • 1 aqi iCq pa:dao3r unq auq LjULJM S!PLI11 fl .‘L(I JO Ma!A LI! 1ULJI IILIIPUZIUO3 coz itt w JJI1O) I’9 3L11 (4 jastud pun )LIMupnI 3L1 q iitiiaq J %OLI ILIUJ)LI.’j.’J) q I’’I !J S! jn’ddn S!LjJ 03,7?) ?.1.1.)t’/) .i.Ilflh! Itii/€Ud .11 •/Le)l.)()t?.I Si Ulfl/ i/humid 91/1 0/ ,.‘fn.fisow JOU dsd1L 1/3/i/at 1/fl °N SN U palon11 I 1I0 9 ‘ft 7 ‘SO/.j io,d Su.waq .causadosd 91/i lids OjI uoisswsad ZunuosS .dfOfJdflfl di/J ‘t0 09 U/i/J/M p!od iou s,i junowo 93439/) ‘l/l ft 9803 Ui 43119/ 1101j3U05 sad so ,ung JJ.iiuo,d .71/1 01 paSoSisoiti .idM 1/3/4cM saisadoad al/i //3.V /7111’ 1/301)0 0$ pa,imtii’d /uog jfIIuw/j ‘iIOiIflXi/l).).I /v ajop 91/I //il tHiS /0 (‘lop 91/1 U1OJ/ urns /7,11)5 •‘.tc’c/I’ 31/1 ItO 153.1 .L/.131.il’llb /‘.‘/‘IIflOchtlOi ‘I, ‘ii ‘;.‘l I” 1.s.).131U/ .lflhJ 1/l/• — (lOfi ‘1 2 Iii’ ‘6: 1 ‘c’t’i ‘c 2 /0 Uhifl/.’ i,iiis .L’nc/ 1 t’/ql’// .i,iun’/ as,; j oj ,, ‘0,, 1111pUe7/t)Q •j.S’03 1/11.11 /.3.).1.))/ .L/iJlNl / ill’S’ NYC!1() JapJo Stn woo,j iqi jssed .I2LI!I’ao3\’ YlIOSl)JJ ZU,M0/iOJ dill 40J .13/740 ivuif aqi ads ‘‘° iou,J sad sy d4/i/SOd 91/1 U! 94/JOS9U aqi Ut a*isod 31/i U! o.tiiisod p1/I”! 9 °N angst c ‘°N angst I’ ‘°N 9fl! £ ‘°N angst C ‘ON dflSS I ‘ON dncS’I :s “II JOj SI? SI1SS! a.uiql? ‘L1 Jl.’.I’ %tSIII! iti.ttiiipn Ag pini Un 13tI.’pA.1 JnIuaLLIIu)np pLil? fnJu — LL -12- the Negotiable Instruments Act. the suit ought to have decreed a;tinsl defendant no. 4 alone and not against defendant nos. I to 3. The trial Court was not justihed in decreeing the stilt against the appellants herein-defendant no. I and 2. Even oiher ise defendant no. 4 ould he jointly and severall liable to pay the deereetal amount, so that, if they repaid the amount due under the decree ‘ould be entitled to recover the same Ironi defendant no. 4. “. We have heard the learned counsel appearing for the ;llwel lants. i.e.. defendant no. 1 and 2 in the suit. learned counsel appearing for the plaintiff Bank, learned counsel a9)earing br defendant no. 4—respondent no. 2 and also learned counsel for defendant no. 3. “ho i1 respondent no. 4 in this appeal and reply arguments of the learned counsel for the parties. <. l.earned counsel appearing for the appellants submitted hai having regard to tile a’ erments made in the plaint and written statements, the fact that defendant no. 4 has not lead any e idence to substantiate the a’ ernients made in ihe ‘ ritten %tatement and in jew of the pro’ isions of Sec. 32 and 37 of the S II) -13- N.l. Act once the l-Iundis were accepted by the 4 th defendant it becomes prineipa I debtor li. operation ol law. Iherelore 11w suit ought to ha’ e decreed against de lendant no. 4 alone, lie further submitted that even otherwise, since the appellants did lit)1 dispute their ii abi 1113 for having a ailed the loan. tie tendant no. 4 would he jointly and seerall5 I iahle along ‘ ith appellants so that the appellants could have the remedy of reco cry of money from defendant no. 4 after satisfy ing the decreetal amount. lIe has taken LIS ihrouh the contents of l’x.l’.35 as also the evidence adduced before the trial Court and further submitted that there is no material to show that LIC I’endant no. 4 has made pay meni lo delendant nos. I to 3 directly as averred in the plaint add therefore the averments made in the plaint is not true. The trial Court has not at all properly appreciated the claim made by the plaintiff Rank against defendant no. 4 and has proceeded wrongly on the r’.’::soning that the suit was filed for recovery of amount of loan I’acil it In defendants 1 to 3 and also the Ilundis. [here “as no irivity of contract between the plaintiff and 4 th defendant. lie Further submitted that contents of bs.P.35 would clearly show that four TIn iid is Iia c beeti end osed a tid en 1 to de fendant no. 4 - 14 - “jilt a request to honour the 1-lundis and no reply was gi en to the said letter Iix.P.35 dated 02.02.2000. Defendant no. 4 has neither chosen to produce the Ilundis nor lead any evidence helore the trial Court to a’ old the liability as claimed in the suit. Therefore the trial Court ought to ha’ e either decreed the suit against defendant no. 4 alone or against defendants I to 4 jointly and severall) . Therefore the judgment and decree passed by the trial Court is liable to be set aside. 9. Learned counsel appearing for the 4 th defendant- respondent no. 2 in this appeal. submitted that the suit is filed in respect of the cash credit loan facility and overdraft facility availed by defendant no. 1 to 3. Sujt is not filed in respect of the Ilundis, which is the subject matter in Ex.P.35. There was 1)0 privity of contract between plaintiff and defendant no.4. I here was no necessity for defendant no. 4 to lead any evidence as the suit was based mainly upon the loan facility aailed by defendant nos. I to 3. LIe has taken us through the facts elicited in the cross—examination of l).W. I wherein it was admitted that there was ito privity 01 cotitritet between platinti if and defendant lit). 4. the suit is fi ld (or reco’ Cr) of amount 8# -15- ‘shich due from defendants I to 3 in respect of the loan transaction and the said loan was secured loan. Therefore the trial Court has rightly dismissed the suit against defendant no.4 and the said finding is justi lied. It’. Learned counsel appearing for the plaintiff Bank- respondent no. I herein, submitted that the suit was primarily filed against defendants 1 to 3. who, availed the loan facility. l)ciendant no. I availed the loan facility by way of cash credit tacility and overdraft facility and that defendant nos. no. 2 and 3 u crc guarantors. All of them have executed requisite documents in lii’s our of the plaint ill batik. ‘s as not at all di%puled and the same has been proved. l)elendant no. 4 was arrayed as party in 1”s of four pronlissor5 notes as referred in I\P35 and suit is not filed on the said promissor notes and defendant no. 4 has made payment in full and final settlement of the claim. I I . Saving regard to the aho’s e said contentions. the points that arise l’or determination in this appeal is: / Whether rise (indflnç’ of i/n’ trial (‘our! iisfl?is.cii?tT the suit /1/cd against c/tJiIu/uni no. 4 ix jusiqicd or culls or inieaferenee in this appeal:’ PUP \IitI!)I ç)cjP — ) } IS[Ii t Vu\, I 1 T Jij T ‘I iR’ I1 1 1I 1!1!i UiVIJ ptIU 1p)UJ H?OI 1ipi fl{1 pl\I ZU!AUIVI j lHptL)J({ >II J..JUUlUd ..JO Jn(:/•\uj U! S1U)IVUFU)O[) ....flS!flbIJ I) [IO!11)X pindsp P” I j1 111 j)i(i ! 1 U[l,1j1 \IiI[IS ° H 11 IH! t{ .icVRLI 1[ULt 1i \ pflpj)U i1 \ pun jnio ‘tif)1I ‘i tI!pl1Ii! }i)J LW IlNJ1UUi UjJ p7!U!II1Js plIU c!1.{nd ji i LiiJUJdU jSLll11 p1IIU[ ItIflI l L10!1.1PhLi I’I•’’ ‘I A\ I I SOSV]N / / () I) ) .i..Ji $O//O/ dl..// JO/ id/.)d(.) / 1)LI// dd(f : O\/ JO/ //.D)JOt/ /)I)).) /..)t/!.2 // //!IO) ///V../J )1/I/(.) /,!p/ p//f :i V\.V 1(J \U11 iii J\\L1l / •/() /1)/f I I - 17 - 13. ltvidenee ol P.W. I ‘ ould clean’ shun that he is the \lanager of the plainti II’ flank and has reiterated the a’ erments made in the plaint. I 1t has filed the a ffida it in the examination-in-chief and got marked documents as per Ex.P.I to rx.P.24. It is elicited in the cross examination of P.W.l by the counsel appearing for defendant No.1 and 2 that. it is true that defendants have executed four Hundis total amounting to Z7.95.55 I .50 and that had also given R.D. br Z I .03.000 —. lie had n ritten a letter on 02.02.2000 as per Fx.P.3 5 a erring that delendant no. 4 “as required to honour the said II undis. The I lundis had become overdue as per Iix.P.35. It is true that defendant no. 4 also liable to pay the amount. They had informed defendant no. 4 about the execution of Hundis and defendant no. 4 had executed the said Hundis and therefore they are made parties to the suit. It is elicited in the cross examination by the counsel appearing for deiendant no. 4 that o erdraft sanction is also cal led fli II l)iscount ini. n hich is made iii favour ol (lie persons ‘ho’ ha’ e draw ii I lundis. [he a id I lund is are discounted and sent to t he per%ons ho would make supply. to whom the defendant no. I would make supply f material. It is true that amount of Ilundis is credited to the I - iS - ;Iccount e en betore the II und i is sent and persons on whom the II LI itch s drawn. is en! it led to recover the amount under the I lundi. I F the amount is not paid. II undi is returned to the ;iccount of defendant no. I and 2. if it does not recei e the balance. what remains is. he has to ascertain us to whether the Ilundis are produced, he has to find out as to whether there was an) agreement between the plaintiff bank and defendant no. 4. lie does not know whether the said document is produced. he has to ascertain as to whether the said document is -produced. lie does not know as to whether’ defendant no. 4 was in financial trouble since 1998. lIe has denied the suggestion that since no amount is due with defendant no. 4. defendant no. 4 is tiol liable to pay amount to the plaintiff hank. 14. It is averred in the plaint that defendant no. I and 2 have rcco ered I lundi amount from defendant no. 4 as a erred in the plaint, lie has denied the suggestion that defendant no.4 is not liable to pay an> amount and defendant no. 4 is falsely implicated and as per the overdraft Facility defendant nos. I find 2 are liable, lie has denied the suggestion that no letter or authority was sent to defendant no. 4 and they are asking the 1- -1)- .4 amount from defendant no. 4 as power of attorney holder. lIe has denied the suggestion