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Sunday, September 22, 2013

Board not liable to pay any amount to the Bank towards subsidy amount as the Borrower committed default =The Borrower had borrowed money from the Bank for its business and as per policy of the State of Karnataka, the Board had assured the Bank that by way of subsidy, the amount of interest would be paid by the Board to the Bank, provided there was no default in repayment of the principal amount by the Borrower.= the Board has been wrongly saddled with the liability of paying Rs.75,213/-.= The question only is with regard to the liability of the Board. The Board is neither a borrower nor a guarantor. = The Commission and the Karnataka State Khadi and Village Industries Board, will have no liability of any kind either in respect of the principal amount of loan or payment of 4% or revised rate of interest to be borne by the borrowers for which interest subsidy eligibility certificate has been issued by the Commission. Its liability shall be restricted only to the extent of payment of interest subsidy as per scheme. The Commission would be liable to pay interest subsidy as per the scheme only for the period of which the loan is sanctioned by the Bank and is not liable to pay such interest subsidy for the defaulted period 87-88.”= In other words, upon default committed by the Borrower, the Board was absolved of its liability of paying interest on behalf of the Borrower to the Bank and its liability was only to the effect that it would surrender its first charge over the moveable and immoveable assets of the borrower in favour of the Bank. 10. In spite of the aforestated facts, the trial court came to the conclusion that the Board was liable to pay interest which was due and payable by the Borrower. In our opinion, the said finding of the trial court is not correct. Even the High Court’s view of confirming the said finding is not correct and therefore, we quash and set aside the judgment of the appellate court as well as the decree passed by the trial court so far as it makes the Board liable to pay the interest on behalf of the Borrower. In view of the contents of the aforestated letter dated 23rd March, 1988, the Board shall surrender its first charge over all the moveable and immoveable assets of the Borrower in favour of the Bank as soon as possible. 11. The appeal stands partially allowed to the above extent with no order as to costs.

        published in  http://judis.nic.in/supremecourt/imgst.aspx?filename=40772
                                                    NON-REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION


                      1 CIVIL APPEAL NO. 8182  OF 2003

                 (Arising out of SLP ( C) No. 12161 of 2006)



Karnataka State K.V. Industries Board              .....APPELLANT



                                VERSUS


Punjab National Bank & Ors.                         ....RESPONDENTS



                              1 J U D G M E N T




1 ANIL R. DAVE, J.



   1. Leave granted.
   2. Being aggrieved by  the  judgment  delivered  by  the  High  Court  of
      Karnataka in Regular First Appeal No. 1684 of 2004  dated  29th  July,
      2005,
this appeal has been filed by  the  Karnataka  State  Khadi  and
      Village Industries Board, who was defendant No. 3 in the  Suit,  which
      had been filed by Punjab National Bank, who is respondent No. 1   (for
      sake of convenience, the  creditor-  Punjab  National  Bank  has  been
      described as ‘the Bank’ whereas the appellant has  been  described  as
      the ‘Board’ and the principal  debtor  Shevashakti  Gramodyoga  Sangh,
      Gulbarga, who had borrowed funds from the Bank has been  described  as
      the ‘Borrower’).
   3. The facts, giving rise to the present litigation, in a  nutshell,  are
      as under :
      The Borrower had borrowed money from the Bank for its business and  as
per policy of the State of Karnataka, the Board had assured  the  Bank  that
by way of subsidy, the amount of interest would be paid by the Board to  the
Bank, provided there was no default in repayment of the principal amount  by
the Borrower.
   4. As the Borrower could not pay its dues to the Bank in spite of several
      notices, the Bank was constrained to file Original Suit No. 83 of 2002
      in the Court of Civil Judge (Sr. Division) at Gulbarga.  
In  the  said
      Suit, the Board was joined as defendant no. 3 as the Board  had  given
      an assurance that the interest would be paid by the Board to the  Bank
      , if the Borrower was paying  its  dues  regularly  i.e.  without  any
      default.
   5. Upon perusal of the evidence and after hearing the learned  advocates,
      the suit was decreed.
All the defendants, namely  the  Borrower,  the
      Secretary of the Borrower, who was defendant No. 2 and the Board  were
      made liable to pay a sum of Rs.1,60,827.68/- with interest at the rate
      of 12% p.a. to the Bank.  
However, from the said amount, defendant no.
      3 was made liable to pay only Rs.75,213/- alongwith other  defendants,
      namely the Borrower and the Secretary of  the  Borrower  as  the  said
      amount was towards interest.
   6. Being aggrieved by the aforestated judgment delivered in the suit, the
      Board had filed Regular First Appeal No. 164 of 2004, which  has  been
      dismissed by the High Court and being aggrieved by the said  judgment,
      the Board has filed the present Appeal.
   7. We have heard the learned counsel appearing for the parties  and  have
      also perused the impugned judgment and the judgment delivered  in  the
      Suit and the relevant documents.
Upon hearing the  concerned  counsel
      and looking at the contents of a letter dated  23rd  March,  1988,  we
      find that the Board has been wrongly saddled  with  the  liability  of
      paying Rs.75,213/-.
   8.  It is an admitted fact that the Borrower had  borrowed  Rs.1,00,000/-
      from the Bank and the said amount, along with interest  thereon  could
      not be repaid by the Borrower to the Bank.
The question only is  with
      regard to the liability of the Board.  
The Board is neither a borrower nor a guarantor. 
 In pursuance of policy of State  of  Karnataka,  the
      Board was to give subsidy to the  Borrower.   The  letter  dated  23rd
      March, 1988, which had been written by the Chief Executive Officer  of
      the Board to the Manager of the Bank reads as under:
      “The above mentioned Sri Shiva Shakti Gramodyoga Sangha, Gulbarga  has
      applied to Gulbarga (sic) for a loan  of  Rs.1,00,000-00  for  working
      capital for P.C.P.I. Industry.
           The above loan upto Rs. 1,00,000 ( Rupees One Lakh Only) will be
      eligible for the interest subsidy payable by the Commission  in  terms
      of Government of India, Ministry of Industry (Department of Industrial
      Department) letter No. 4(47) 75 –KVI (1) dated the 17th May 77.
           The Commission agrees to surrender its  first  charge  over  the
      assets (moveable and immoveable) the above instruction  in  favour  of
      the Bank (sic).
           The final decision to accept or reject any loan application from
      eligible borrowers will vest with the Bank. 
 However, in case the Bank
      reject the application they may indicate to the Commission / the State
      Board the reasons for rejecting the Loan Application.
           The  Commission  and  the  Karnataka  State  Khadi  and  Village Industries Board, will have no liability of any kind either in respect  of the principal amount of loan or payment of 4% or  revised  rate  of interest to be borne by  the  borrowers  for  which  interest  subsidy eligibility certificate  has  been  issued  by  the  Commission.   Its  liability shall be  restricted  only  to  the  extent  of  payment  of  interest subsidy as per scheme.
           The Commission would be liable to pay interest  subsidy  as  per the scheme only for the period of which the loan is sanctioned by  the  Bank and is not liable to pay such interest subsidy for the  defaulted  period 87-88.”


   9. Upon perusal of the said letter, it is clear that the Board had agreed
      to pay interest on behalf of the  Borrower  and  the  Board  had  also
      agreed that whatever charge had been created on the Borrower’s  assets
      in favour of the Board would  be  released  in  favour  of  the  Bank.
      Moreover, the interest payable by the Borrower was to be paid  by  the Board by way of subsidy, provided the borrower  does  not  commit  any default in the payment.
 It is an admitted fact that the Borrower  had
      committed default by not paying its dues to the Bank regularly. In the
      aforestated circumstances, the Board cannot  be  held  liable  to  pay
      interest on behalf of the Borrower.
The liability,  which  the  board
      had, was only with regard to surrendering its first  charge  over  the
      assets of the Borrower in favour of the Bank as one can see  from  the
      third para of the letter dated 23rd March, 1988.
In other words, upon
      default committed by the Borrower,  the  Board  was  absolved  of  its liability of paying interest on behalf of the Borrower to the Bank and  its liability was only to the effect that it would surrender its first charge over the moveable and immoveable  assets  of  the  borrower  in   favour of the Bank.
  10. In spite of the  aforestated  facts,  the  trial  court  came  to  the
      conclusion that the Board was liable to pay interest which was due and
      payable by the Borrower.  
In our opinion,  the  said  finding  of  the
      trial court is not correct.  
Even the High Court’s view of  confirming
      the said finding is not correct and therefore, we quash and set  aside
      the judgment of the appellate court as well as the  decree  passed  by
      the trial court so far as  it  makes  the  Board  liable  to  pay  the
      interest on behalf of the Borrower. 
 In view of the  contents  of  the
      aforestated letter dated 23rd March, 1988, the Board  shall  surrender
      its first charge over all the moveable and immoveable  assets  of  the
      Borrower in favour of the Bank as soon as possible.
  11. The appeal stands partially allowed to the above extent with no  order
      as to costs.



                                       .....................................
                                       ...J.
                                                         (ANIL R. DAVE)



                            .......................................J
                                         (DIPAK MISRA)



New Delhi
September 13, 2013

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