No liability attaches to a supposed guarantor where loan documents and signatures are proven forged.

The Appellant, a public financial institution, sanctioned a term loan and capital term loan totaling Rs. 11 lakhs to respondents 2 to 4 (trading as M/s. Sri Chakra Leather Garments) in 1995-1996

The Appellant alleged that the fifth respondent (deceased R1 in appeal) had mortgaged immovable property and deposited title deeds as security on 28.02.1996

Following a default in repayment and the removal of hypothecated machinery, the Appellant initially invoked Section 29 of the State Financial Corporation Act, 1951, but withdrew the action after the Supreme Court ruled that Section 29 cannot be used against guarantors

The Appellant then filed O.P. No. 625 of 2010 under Sections 31 and 31(aa) of the Act to recover Rs. 1,76,25,535/-

The fifth respondent denied executing any documents, alleging that his title deeds were obtained fraudulently by a third party and that the loan documents featured a stranger’s photograph

The Single Judge decreed the petition only against the principal borrowers (R1-R4) and absolved the fifth and sixth respondents due to a lack of evidence

Whether the fifth respondent (and his legal representatives) could be held liable for the loan transaction as a mortgagor or guarantor based on the documents produced by the Appellant

The Court considered Sections 29, 31, and 31(aa) of the State Financial Corporation Act, 1951, which govern the recovery of dues and the enforcement of liabilities of sureties

It applied fundamental principles of contract and evidence law, specifically that liability cannot be fastened upon a party in the absence of validly executed loan or security documents

The court also noted the judicial precedent that Section 29 power does not extend to the properties of guarantors

The Court focused on the authenticity of the security documents. Upon perusing the mortgage deed and associated forms, the Court observed that the photograph affixed to the documents was that of a stranger and not the fifth respondent

During the proceedings, the Appellant’s Branch Manager appeared in person and admitted that both the photograph and the signature on the records did not belong to the deceased fifth respondent

The Court found that the Appellant had instituted the recovery petition based on "inadmissible documents" and had failed to provide any record connecting the fifth respondent to the loan transaction between the corporation and the principal borrowers

Since the issue was purely factual and the fraud/discrepancy was admitted by the Appellant's own officer, the Court found no reason to disturb the Single Judge's findings.

The Court held that since the documents were fraudulent and did not contain the respondent’s signature or photograph, no legal obligation was created

No costs were awarded