KARUR VYSYA BANK vs Mahmad kaseem on 27 February 2026

:FINAL ORDER:

1. This Original Application (in short) OA is filed under Sec.19 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993; as it was then seeking issuance of recovery certificate for Rs.53,12,997/- together with further interest from the date of filing OA till the date of payment.

2. The case as put forth by the applicant is as follows:

3. On October 2014, the 1st defendant who represents himself as a trader in commodities had approached the applicant bank and sought for financial assistance for his business of purchasing paddy and keeping it in warehouse for selling it in future. The usual practice that was being followed is that, whenever the paddy parked in the warehouse belonging to the State warehouse Corporation, the warehouse receipt will be issued by the said Corporation. In view of the above, facility as sought for a loan for Rs.45,50,000/- was sanctioned against the pledge of warehouse receipt covering the stock of paddy stored in the godown of the 3rd defendant. In view of the above, the 2nd defendant extended the personal guarantee and defendants 1 to 3 have executed necessary loan documents.

4. It is the further case of the applicant is that, since the applicant marking lien over the specific goods which is kept with the 3rd defendant, the bank will be at liberty to sell the same at their discretion and also there was a covenant that the borrower will not remove the goods without making sufficient payment to the bank.

5. The applicant further contends that, the 1st defendant failed and neglected to make the prompt payment as agreed upon by them and in follow up inspection it is found that the entire stock of 4200 bags of pledged paddy kept in the warehouse of 3rd defendant is found missing. The applicant claims that the value of the paddy missing would come around Rs,72,29,600/-. It is also contended in the OA that, the 1st defendant admitted the sale of paddy by him without knowledge of the applicant and it is also the case of the applicant bank that, the defendant No.1 and 2 in collusion with the 3rd defendant had got released paddy pledged over with lien was marked over it in favour of the applicant bank and due the aforesaid default, the defendant Nos. 1 and 3 are liable for amount due in the account. As against the 3rd defendant it is the case of the applicant bank that, the 3rd defendant was the custodian of the commodities pledged and had permitted the release of stock without release order from the applicant bank. Hence, according to the applicant, by said act the 3rd defendant is liable for the above-mentioned amount.

6. After setting the 1st defendant exparte the final order came to be passed by this Tribunal on 24.02.2018 allowing the OA, the said Order has been impugned before the Hon’ble DRAT and the appeal came to be allowed and the matter was remitted back to this Tribunal with a direction to give opportunities to both parties to adduce the evidence in support of their respective contentions.

7. Even though the defendants were duly served and the defendant Nos. 1 and 3 entered appearance through their respective counsel, the 3rd defendant alone filed the written statement.

8. The 3rd defendant in the written statement contended that, the 3rd defendant is neither party to the loan transactions nor signatory to the loan documents. It is also stated that the disciplinary action is already taken against their warehouse manager for mis-appropriation of goods stored in the warehouse and said warehouse manager had expired before any penalty is imposed.

9. It is case of the 3rd defendant that, 1st defendant approaches the respective branch of the 3rd defendant for the storage of 4200 bags and the same was allowed by the 3rd defendant on schedule rate fee as applicable. It is the further case of the 3rd defendant that, the 1st defendant being a private depositor had by himself approached the applicant bank and in view of the security of the warehouse receipt and the execution of the necessary documents, the amounts were disbursed. The 3rd defendant further admits the intimation as to the creation of lien over the goods to them, as the bank has admittedly issued a letter dated 20.10.2014. it further contends that, since the 3rd defendant had not executed and agreement or guarantee in favour of the applicant bank and since there is no privity of contract between the 3rd defendant and the applicant bank.

The 3rd defendant cannot be proceeded for the recovery of the amount if any, done from 1st defendant.

10. In the written statement the 3rd defendant had taken a further contention that, the applicant bank staff one Sri. Satyanarayana had issued stock release order form on 07.11.2015 and 18.11.2015 for releasing 3700 bags covered by two ware house receipts and the same were released as the 3rd defendant has no authority to retain the goods once the release order is obtained from the applicant bank.

11. It is also stated that, 1000 bags were physically present in the warehouse with respect to the warehouse receipts after considering the partial release of 3200 bags. Hence, it is the specific case of the 3rd defendant that, the entire misappropriation of stocks if any, is happened due to the collusion with the applicant’s bank manager Satyanarayana Babu who has been dismissed from the service and hence the 3rd defendant is only a proforma defendant and not legally entitled to be proceeded against. The 3rd defendant also put forth the contention that, since the bank has suppressed the fact about the issuance of partial release orders, the OA is liable to be dismissed.

12. The 3rd defendant further given parawise rebuttal of the contentions taken by the applicant in the OA.

13. The applicant had let in evidence as AW-1 and got marked the following documents: i) Copy of the sanction letter dated 20.10.2014

ii) On Demand Promissory Note dated 20.10.2014 by the 1st defendant iii) Security Delivery Letter dated 20.10.2014 by the 1st defendant iv) Agreement of Guarantee dated 20.10.2014 by the 2nd defendant v) Notice dated 20.10.2014 by the 1st defendant vi) Copy of the warehouse receipt bearing No.375620 dated 09.10.2014 by the 3rd defendant vii) Copy of the warehouse receipt bearing No.375619 dated 09.10.2014 by the 3rd defendant viii) Extract of the statement of account by the applicant bank.

14. An additional affidavit was also filed in view of the evidence further reiterating that no release order as put forth by the 3rd defendant was issued from the side of the applicant bank and reiterating that the 3rd defendant is liable for the shortage of stock. The 3rd defendant had let in evidence through their warehouse manager and got marked as D3 to D6.

15. Heard the counsels for both sides and perused the records.

16. The following issues arise for consideration in the light of pleadings and evidence. i) Whether the applicant had proved their entitlement to recover the amount as claimed in the OA? ii) Whether the defendants are liable for the amount if any, the applicant found entitled to recover. Both the issues are gone into and decided together.

17. The disbursement of the facility to the 1st and 2nd defendant as contended by the applicant is not in dispute even by the 3rd defendant. The applicant had produced the sanction letter evidencing the sanction of facility and the Demand Promissory Note and security delivery letter issued by the 1st defendant which evidences that the amount as claimed in the OA has disbursed in view of the loan account. The agreement of guarantee as executed by the 3rd defendant is sufficient to prove the personal guarantee claimed to have been executed by the 2nd defendant in favour of the applicant and the liability of the 2nd defendant to pay off the amount if any due in the account. The warehouse receipts as produced by the applicant and got marked in evidence is sufficient to prove that the amount were disbursed against the security of the paddy kept in the premises and the lien had been marked over the stock referred to the above receipts. The statement of account as produced by the applicant is sufficient to prove the disbursement of the facility, defaults occurred in the account and the entitlement of the amount recovered as claimed in the OA.

18. The issue of the liability of the defendants, the liability of the 1st and 2nd defendants to make the repayment being the borrower and guarantor is not in dispute. The question whether the 3rd defendant is found liable is to be looked into the averment made by the respective parties and evidence let in by them. The applicant contends that, the credit facility has been disbursed against the marking of the lien over the goods kept in the godown of the 3rd defendant by 1st defendant and against the security of the warehouse receipts covering the stocks kept in the warehouse. It is the case of the applicant that, the 3rd defendant who was in custody of the commodities pledged in convenience with defendant No.1 and 2 with had clandestinely permitted the release of the stock without

release order from the applicant bank . Apart from making such a contention and producing the warehouse receipt no documents is forthcoming to prove the obligation of the 3rd defendant to wait for the release order from the bank so as to the release the goods. Even, going by the OA averments and evidence, it is clear that the stock is kept by the 1st and 2nd defendant and the 1st defendant who in turn deposited the warehouse receipt with the applicant bank. Even though in the written statement the 3rd defendant had virtually contended that, 3200 bags were released in pursuant to a stock release order form dated 07.11.2015 and 18.11.2015 and further admits that, as follows: “10. The defendant No.3 submits that the applicant bank staff Sri. Satyanarayana (Bank Manager) has issued stock release order form on 07.11.2015 and 18.11.2015 for releasing 1500 bags as per Warehouse receipt No.375620 and 1700 bags as per Warehouse receipt No.375619 and the same was released to the defendant No.1 as the defendant No.3 has no authority to retain goods once the release order is obtained from the applicant bank.” (emphasis supplied)

19. Apart from the above admission coming from the side of the 3rd defendant no document has been produced by the applicant casting burden on the 3rd defendant to keep the goods until a release order is issued by the applicant bank. The 3rd defendant has correctly contended that the there is no privity to contract between the applicant and the 3rd defendant.

Apart from the deposit of the receipts issued by the 3rd defendant and release of the amount marking lien on the warehouse receipts nothing is available in the record to find that the 3rd defendant liable for loss if any caused to the applicant due to the above transaction. Even though, the 3rd defendant admits that the they have been served with the intimation as to the marking of the lien same will not ipso facto create any burden to the 3rd defendant took over the commitment, as the 3rd defendant having no agreement with the applicant bank.

20. The Bank had produced Exhibit A7 communication by the 1st defendant intimating the bank that the goods stored in the warehouse were secured against the credit facility availed by the applicant bank and also intimating that the bank and its Authorised representative is entitled to take the possession and sell commodities stored in the warehouse which are pledged with the bank. The said document also stated that, the above goods are part thereof shall not any time delivered/parted with by the warehouse without written instruction by the Karur Vysya Bank. The said communication also permits the warehouse corporation to sell the goods and deposits the sale proceedings with the applicant bank. Be that the case, the said undertaking given by the borrower creating lien on the goods is not under the dispute by the 3rd defendant and the receipt of the said is also not under the dispute. Even though it is true that there is no written documents mandating the 3rd defendant to keep the goods in custody unless and until the loan is cleared, the same will not create any obligation on the 3rd defendant towards the bank as the same can be only be an intimation informing that, the goods are already under lien with the applicant bank and the amount has been secured by deposit of warehouse receipts. By no stretch of imagination, the said document creates any obligation on the 3rd defendant towards the applicant as nothing there to connect the applicant with the 3rd defendant and there is no privity of contract between the applicant and the 3rd defendant.

21. Even otherwise, despite the denial of the applicant as to the issuance of any release order, the 3rd defendant had along with their evidence produced as Exhibits D3 and D4, communication stated to have been issued by the applicant bank requiring the 3rd defendant to release 1500 and 1700 paddy bags respectively and the exhibits D5 and D6 documents, the release order dated 17.11.2015 and 18.11.2015 also establishes the case of the 3rd defendant that the release of 3700 bags of paddy were made as requested by the bank official. The 3rd defendant content that, even at the time of filing of the OA, the applicant had not disclosed the issuance of release orders and also that balance 500 bags of stock are still remaining in the warehouse. However, as the applicant had not disclosed the entire facts as to the issuance of Exhibits D3 to D5, this Tribunal is not adverting to the enquiry as to the veracity of above contentions especially as all these occurred 11 years back.

22. In view of the findings, as entered above and in absence of any document evidencing the contractual obligation on the 3rd defendant to make the good the loss if any loss due to any negligence or omission, this

Tribunal is of the view that, the liability as sought for to recover cannot be enforced against the 3rd defendant.

:ORDER:

23. In the result, TA.No.129/2017 stands allowed,

i) The applicant is allowed to recovery a sum of Rs.53,12,997/- (Rupees Fifty Three Lakh Twelve Thousand Nine Hundred Ninety Seven only) with further interest of 8.00% p.a. with monthly rests from the date of filing OA till the realization from the defendants No.1 and 2, after giving credit to all the amount recovered and received during the pendency of the OA and allowed the same to be recovered by proceeding against defendants No.1 and 2 jointly, severally and personally and also by proceeding against the schedule property. The applicant is permitted to recover proceedings on Defendant No.1 and 2 and their assets and not against 3rd defendant. The claim as against the 3rd defendant is rejected. The schedule property to the OA be the schedule property to the Recovery Certificate.

ii) If the sale proceeds are not found sufficient to cover the amount due and payable to the applicant bank, the defendant No.1 and 2 jointly, severally and personally and their other assets are liable for all such amounts due under the loan accounts.

iii) The applicant bank is allowed cost of the proceedings which applicant to file cost memo within 7 days from the date of receipt of the order.

iv) The Recovery Certificate to be drawn in terms of this order and transferred to Recovery for execution.

v) Interim Application pending, if any, stands disposed of with this Final Order.

24. Communicate a copy of the order to the parties concerned in terms of Section 19(21)(i) of the RDB Act, read with Rule 16 of DRT (Procedure) Rules, 1993. [Dictated to the Stenographer (PR), transcribed by her, corrected and signed and pronounced by me in the Open Court, this the 27th Day of February 2026].

(T. RAJESH) PRESIDING OFFICER