K.SELVI Vs. TAMILNADU INDUSTRIAL INVESTMENT

JUDGEMENT

(1.) THIS appeal arises out of the order dated 28.4.2005 made in S.F.C.O.P.No.117 of 2002 on the file of Principal District Judge, Erode allowing the Petition filed under Section 31(1)(aa) of State Financial Corporation Act in directing the appellants and 3rd respondent to pay a sum of Rs.51,19,739.00 with subsequent interest at the rate of 6% p.a. from the date of petition i.e., 13.09.2002.

(2.) THE 2nd respondent M/s.T.S.Oil Mills is the firm in which the 3rd respondent is the Managing Partner and 1st appellant is the Partner. The 2nd respondent firm sought for a financial assistance from Tamil Nadu Industrial Investment Corporation Limited, (in short, "TIIC ") to run their business in edible oil and oil cake. TIIC sanctioned Rs.15,40,000.00 on 19.3.1996 towards term loan and Rs.12,30,000.00 towards working capital loan on the same day. As per the terms and conditions of the sanction, the 1st appellant, 3rd respondent and one Sriranganathan have created an equitable mortgage by deposit of title deeds for Rs.14,90,000.00 and created a collateral security for Rs.11,85,000.00 and they have also executed deed of undertaking on 3.9.1996. The 3rd respondent and the 1st appellant have also executed a deed of hypothecation. That apart, the appellants and 3rd respondent have also executed a deed of guarantee on 3.9.1996 in respect of the said loans sanctioned to 2nd respondent. The 2nd respondent firm failed to repay the said loan. After due notice of publication, TIIC conducted auction sale of 2nd respondent unit on 8.12.1999. Challenging the said proceedings, the 2nd respondent firm filed writ petition in W.P.No.278 of 2000 seeking to restrain TIIC from taking further auction. The High Court granted conditional order on 9.2.2000 directing the firm and its partners to pay 20% of the due in two weeks and another 20% in two weeks thereafter. The said conditional order was also not complied with by the 2nd respondent firm, the 3rd respondent and the 1st appellant. Subsequently, the property was brought on auction and the property was sold to one S.Sundaram for Rs.7,70,000.00. Further auction was held on 22.2.2001 in respect of the factory, land, building and machineries of the 2nd respondent firm for Rs.9,15,000.00. The sale proceeds have been adjusted towards the account of the 2nd respondent firm. After so adjusting, there still remained a balance of Rs.34,96,394.00 towards term loan and Rs.16,23,345.00 towards working capital loan as on 12.9.2002. totalling Rs.51,19,739.00. Stating that the said amount is payable by the guarantors viz., appellants, 3rd respondent and one Sriranganathan, TIIC filed Petition under Section 31(1)(aa) of the State Financial Corporation Act.

(3.) THE 2nd appellant Kanthamani filed counter contending that when TIIC sealed the unit in the year 1998-99, TIIC is not justified in levying interest/penal interest. Once the unit was sealed, it became the property of TIIC and therefore it was not lawful on the part of TIIC to levy interest/penal and compound interest. It was further averred that when TIIC sold the entire properties, it was inequitable to claim the balance, that too, an exorbitant sum.