SRI SRIDHAR BABU vs KARNATAKA STATE
- Court
- Karnataka High Court
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COMAP No. 446 of 2026
CNR: KAHC010573922026
®
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 28 DAY OF OCTOBER, 2026
PRESENT
THE HON'BLE MR. JUSTICE D K SINGH
AND
THE HON'BLE MR. JUSTICE H.SHANTHI BHUSHAN
COMMERCIAL APPEAL NO. 446 OF 2026
BETWEEN:
1. SRI SRIDHARA BABU,
S/O LATE P S RAJU,
AGED ABOUT 75 YEARS,
R/AT NO.C-2, CASAVELIE-4,
NO.12/1, LAVELLE ROAD,
BENGALURU-560 001.
…APPELLANT
(BY SRI RAJESWARA P N, ADVOCATE)
AND:
1. KARNATAKA STATE
FINANCIAL CORPORATION,
HAVING ITS HEAD OFFICE AT
NO.1/1, THIMMAIAH ROAD,
BENGALURU-560 001,
REPRESENTED BY THE
HEAD OF THE DEPARTMENT,
RECOVERY DEPARTMENT.
2. M/S. PRASHANTH MINERALS
EXPORTS PRIVATE LIMITED,
HAVING REGISTERED OFFICE AT
NO.3-C, SAH JEEVAN APARTMENT,
219, R.M.V. EXTENSION,
BENGALURU-560 080,
Digitally
signed by
VASANTHA
KUMARY B
K
Location:
HIGH
COURT OF
KARNATAKA
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REPRESENTED BY ITS
MANAGING DIRECTOR
SRI B. UDAY KUMARA.
P S RAJU
SINCE DEAD REPRESENTED BY LRS
SMT. PADMAMMA RAJU
SINCE DEAD REPRESENTED BY LRS
SMT. P R CHANGAMMA
SINCE DEAD REPRESENTED BY LR
3. DR. M GURAPPA,
S/O LATE MUNISWAMY,
AGED ABOUT 90 YEARS,
R/AT NO.110, 4TH BLOCK,
4TH STAGE, 8TH MAIN,
BASAVESHWARANAGAR,
BENGALURU-560 079.
4. SMT. PREMALATHA,
D/O LATE P S RAJU,
MAJOR IN AGE,
R/AT NO.110, 4TH STAGE,
4TH BLOCK, 8TH MAIN,
BASAVESHWARA NAGARA,
BENGALURU-560 079.
5. SMT. P R SWARNALATHA,
D/O LATE P S RAJU,
MAJOR IN AGE,
R/AT NO.110, 4TH STAGE,
4TH BLOCK, 8TH MAIN,
BASAVESHWARA NAGARA,
BENGALURU-560 079.
6. M/S. KARUNAI GRANITES
PRIVATE LIMITED,
HAVING ITS REGISTERED OFFICE
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AT NO.183, VAIBHAV, 2ND CROSS,
1ST BLOCK, SBM ROAD,
KORAMANGALA,
BENGALURU-560 034,
ALSO HAVING ITS REGISTERED OFFICE
AT NO.3/55, KARUNAI NAGAR,
JAGADEVIPALAYAM VILLAGE AND POST,
KRISHNAGIRI TALUK AND
DISTRICT-635 023.
…RESPONDENTS
(BY DR. SOMASHEKAR T, ADVOCATE FOR R1;
SMT. RABIYA KHANUM L, ADVOCATE FOR R3 & R4)
THIS COMAP IS FILED UNDER SECTION 13(1A) OF THE
COMMERCIAL COURTS ACT, 2015 READ WITH SECTION 32(9)
OF THE STATE FINANCIAL CORPORATIONS ACT, 1951,
PRAYING TO SET ASIDE THE JUDGMENT DATED 06.07.2026
PASSED IN COMMERCIAL MISC. PETITION NO.12/2020 BY THE
XI ADDITIONAL DISTRICT AND SESSIONS JUDGE (DEDICATED
COMMERCIAL COURT), BENGALURU RURAL DISTRICT AND
CONSEQUENTLY DISMISS COMMERCIAL MISC. PETITION
NO.12/2020.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
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COMAP No. 446 of 2026
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CORAM: HON'BLE MR. JUSTICE D K SINGH
and
HON'BLE MR. JUSTICE H.SHANTHI BHUSHAN
ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE D K SINGH)
1. The present appeal under Section 13(1A) of the
Commercial Courts Act, 2015 read with Section 32(9) of the
State Financial Corporations Act, 1951 has been filed
impugning the judgment and decree dated 06.07.2026 passed
by the Court of XI Additional District and Sessions Judge
(Dedicated Commercial Court), Bengaluru Rural District,
Bengaluru in Commercial Misc. Petition No.12/2020 filed by the
respondent No.1 herein.
2. The respondent No.1-Karnataka State Financial
Corporation (KSFC) instituted recovery proceedings under
Sections 31(1)(aa) and 32 of the State Financial Corporations
Act, 1951 (hereinafter referred to as 'the SFC Act' for the sake
of brevity) against M/s. Prashanth Minerals Exports Private
Limited, Sri P.S. Raju and M/s. Karunai Granites Private Limited
for recovery of a sum of Rs.2,40,64,651/- as on 10.03.2000
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together with future interest at the rate of 16.5% per annum
with quarterly rests until payment.
3. The appellant is the legal heir of the deceased P.S. Raju,
who was the respondent No.2 in the recovery proceedings
instituted by the KSFC. The deceased P.S. Raju stood as
guarantor inasmuch as he had executed Deeds of Guarantee
dated 16.01.1989 and 17.12.1989 unconditionally and
irrevocably guaranteeing repayment of all amounts due from
M/s. Prashanth Minerals Exports Private Limited. Under the
terms of the guarantees, the liability of the guarantor was
continuing, joint and several and enforceable immediately upon
default by the borrower.
4. The KSFC had sanctioned a term loan of Rs.60,00,000/-
vide Sanction Letter dated 20.07.1988 and a further term loan
of Rs.13,50,000/- vide Sanction Letter dated 29.11.1989 to
M/s. Prashanth Minerals Exports Private Limited for
establishment of a medium scale granite processing industry.
An equitable mortgage over the immovable properties by
depositing the title deeds was created by M/s. Prashanth
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Minerals Exports Private Limited, besides the aforesaid deeds of
guarantee executed by the deceased P.S. Raju.
5. The Commercial Court, vide impugned judgment and
decree dated 06.07.2026, allowed the petition filed under
Sections 31(1)(aa) and 32 of the SFC Act with costs and held
that all the respondents (including the appellant herein) would
be jointly and severally liable to pay to the KSFC a sum of
Rs.40,82,49,500.80 (original claim amount with interest and
charges from the date of petition till the date of the order) with
costs and future interest at the rate of 16.5% per annum
compounded quarterly rest basis from the date of filing of the
petition till realization.
6. Sri P.N. Rajeswara, learned counsel for the appellant,
submits that the legal heirs of the guarantor cannot be made
liable except to the extent they inherited the estate/properties
of the guarantor. It is submitted that the guarantor cannot bind
his legal heirs for repayment of the loans advanced to the
defaulter. The legal heirs of the deceased guarantor can jointly
be proceeded against only to the extent of the estate or assets
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inherited by them from the deceased guarantor. They do not
ordinarily incur personal liability merely because they are legal
heirs. It is, therefore, submitted that the finding of the
Commercial Court holding the legal heirs (including the
appellant) of the deceased P.S. Raju jointly and severally liable
for payment of the decretal amount is against the basic tenets
of law.
7. The learned counsel for the respondent No.1-KSFC does
not dispute this legal position. However, he submits that the
legal heirs of the deceased P.S. Raju have not furnished the
details of the properties inherited by them for executing the
decree passed by the Commercial Court.
8. We have considered the submissions. The only point for
consideration in this appeal is whether the legal heirs of the
deceased guarantor P.S. Raju can be jointly and severally held
liable for the entire decretal amount or they would be liable to
the extent of the estate/assets inherited by them from the
deceased guarantor?
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9. As per the settled proposition of law, legal heirs do not
ordinarily incur personal liability of the guarantor because they
are heirs. The deceased guarantor's outstanding liability may
be recovered from the inherited estate but not from the heirs'
independent assets, unless they separately assume the liability.
The Madras High Court, in the case of STATE BANK OF INDIA
AND ANOTHER vs JAYANTHI AND OTHERS (AIR 2011
MADRAS 179) , has held that Section 131 of the Indian
Contract Act, 1872 provides that in case of death of the
guarantor, the date of guarantee/continuing of the guarantee
executed in favour of the Bank stands revoked in respect of the
future transactions. However, the liability of the guarantor
cannot be extinguished on his death so far the liability which
existed on the date of the death of the guarantor. On the death
of the guarantor, the liability exists and such liability can be
fastened on the estate of the deceased, being inherited by his
legal heirs, and the creditor can recover the dues out of the
estate of the deceased.
10. The death of the guarantor does not extinguish
guarantor's existing liability. The guarantor's personal liability
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which has accrued before his death continues against his
estate. The legal heirs inherit the estate subject to the liability
and they do not receive the inherited estate free from
deceased's enforceable obligation. Therefore, the heirs' liability
is limited to the inherited estate as held in the case of RAM
KISHUN AND OTHERS vs STATE OF UTTAR PRADESH AND
OTHERS ([2012] 11 SCC 511).
11. The recovery of public dues must be made strictly in
accordance with the procedure prescribed by law. The liability
of a surety/guarantor is coextensive with that of the principal
debtor. In case there is more than one surety for the same
debt, the liability is to be divided equally among themselves.
12. Section 128 of the Indian Contract Act, 1872 provides
that the liability of the guarantor/surety is coextensive with
that of the principal debtor. Therefore, the creditor has the
right to obtain a decree against the guarantor/surety and the
principal debtor. Thus, where a borrower defaults after the
guarantor's death, the Bank/financial institution may recover
the outstanding dues from the deceased guarantor's estate.
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The heirs' personal income and independently acquired assets
should not be made liable merely by reason of inheritance. The
enforcement should be confined to the properties and assets
inherited from the deceased, subject to the amount actually
due from the guarantor and any applicable defences or
statutory charges.
13. In view of the aforesaid position of law, we modify the
impugned judgment and decree passed by the Commercial
Court and hold that the appellant and the other legal heirs of
the deceased P.S. Raju would be liable only to the extent of the
estate/properties inherited by them from the deceased
P.S. Raju and they are not jointly and severally liable to pay
the entire decretal amount to the KSFC i.e., a sum of
Rs.40,82,49,500.80 with interest and costs as ordered in the
impugned judgment and decree. The legal heirs i.e., the
appellant and the other legal heirs should disclose to the
Executing Court the properties inherited by them from the
deceased P.S. Raju.
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14. With the aforesaid clarification and modification in the
impugned judgment and decree, we dispose of this appeal.
Sd/-
(D K SINGH)
JUDGE
Sd/-
(H.SHANTHI BHUSHAN)
JUDGE
CT:SN
BKV
List No.: 1 Sl No.: 6