Authority: High Court of Karnataka at Bengaluru

Order Date: 17 July 2026

Case Overview

  • Parties: Karnataka State Financial Corporation (appellant) vs. M/s Sri Yadu Mosaic (P) Ltd, M/s Sri Yadu Granites (P) Ltd, and the legal heirs of the late guarantors H.S. Ramaswamy Iyengar and Sadashiva Rao (respondents).
  • The appeals (Misc. First Appeals No. 932/2018 and 931/2018) challenged Special Court orders dated 13 June 2017 that dismissed petitions filed under Section 31(1)(aa) of the State Financial Corporations Act, 1951, on the ground of limitation.
  • KSFC had sanctioned a term loan of Rs 35 lakhs (16 Jan 1988) to Sri Yadu Granites and a term loan of Rs 36.60 lakhs plus a soft loan of Rs 4 lakhs (total Rs 40.60 lakhs) to Sri Yadu Mosaic (13 Mar 1989). Additional loans of Rs 7.35 lakhs (19 Jul 1989) and Rs 1.40 lakhs (14 Mar 1991) were later granted.
  • Security comprised equitable mortgages on immovable property, a deed of hypothecation on plant & machinery, and deeds of guarantee executed by the managing director and the heirs of the late guarantors.
  • Default led KSFC to issue a Section 29 notice on 24 Feb 1993 and a Section 30 notice on 14 Sep 1993 (Exhibit ‘P14’) recalling the entire dues and informing guarantors of the impending invocation of their personal guarantees.
  • Subsequent notices dated 20 Feb 1998, 03 Mar 1998 and 07 Apr 1998 (Exhibit ‘P15’) reiterated the invocation of guarantees.
  • The Special Court, relying on Article 137 of the Limitation Act, held the petition barred by limitation and dismissed the applications.
  • KSFC argued that the guarantee was only invoked by the 03 Mar 1998 notice, thus the limitation period should start then; respondents contended the 14 Sep 1993 notice already constituted a demand on guarantors.
  • The Court examined statutory provisions (Sections 29, 30, 31(1)(aa) of the SFC Act), relevant case law (Deepak Bhandari v. HP State Industrial Development Corp., Gulhati v. KSFC, Karnataka State Financial Corp. v. Awanthi Hotels, Maharashtra State Financial Corp. v. Ashok K. Agarwal, Syndicate Bank v. Channaveerappa Beleri, etc.), and the terms of the guarantee deeds which required payment “on demand”.
  • The Court concluded that the 14 Sep 1993 notice, which informed guarantors of the default and indicated that their personal guarantees would be considered, satisfied the demand requirement under the guarantee deeds.
  • Consequently, the limitation period began on 14 Sep 1993, making the Special Court’s dismissal timely.

Final Outcome

  • The High Court affirmed the Special Court’s orders; both Miscellaneous First Appeals are dismissed.
  • All pending interlocutory applications are ordered disposed of.

Topics: Court Judgment, Guarantee Enforcement, Limitation Period