KARNATAKA GRAMIN BANK vs MR. M. RAVI SHANKAR & ORS. on 9 October 2026

FINAL ORDER

1. The Application was filed before the Debts Recovery Tribunal-I, Bengaluru on 19.12.2012 Under Section 19 (1) of the Recovery of Debt And Bankruptcy Act, 1993 and numbered as OA No. 680/2013, seeking for issuance of a Recovery Certificate for Rs. 40,94,000/- (Rupees forty lakh ninety-four thousand only). Subsequently, owing to bifurcation of jurisdiction vide Government of India Gazette Notification dated 30.01.2017, the Application (OA No. 680/2013) was transferred from Debts Recovery Tribunal -I, Bangalore to this Tribunal and renumbered as TA No. 2256/2017.

2. It is the case of the Applicant that Defendant Nos. 1 and 2 availed a pledge loan of Rs. 30,00,000/- (Rupees Thirty Lakhs only) against the security of 3,000 bags of paddy and executed all the requisite loan documents as co-borrowers. Subsequently, Defendant No. 1 filed I.A. No. 1216/2015 seeking to implead K. V. Krishnarao as Defendant No. 3, which application came to be allowed on 19.10.2015. It is further recorded that in the IA order Defendant No. 1 produced three letters dated 19.10.2010, 14.01.2011 and 21.01.2011 issued by K. V. Krishnarao to the Applicant, wherein he stated that he had availed the pledge loan against the paddy stock belonging to the farmers and that the said loan had been availed in the names of 70 farmers. K. V. Krishnarao, in the said letters, further undertook to discharge the entire outstanding dues payable in respect of all the said farmers, including the dues relating to the present Defendants.

3. It is also the case of the Applicant that, to secure the said credit facility, the Defendants executed the requisite loan and security documents in favour of the Applicant Bank, including the Pronote and Produce Loan Agreement, thereby undertaking to repay the outstanding dues in accordance with the terms and conditions of the loan. The Defendants also created a pledge over the Schedule Property as security for the said credit facility.

4. It is the case of the Applicant that the Defendants, despite availing the credit facility, after agreeing with the Terms and Conditions for the loan, failed in complying with the same, resulting in defaults and consequentially turning the loan accounts as Non-Performing Asset (NPA).

5. In the above circumstances, the applicant approached this Tribunal by filing this TA seeking issuance of Recovery Certificate for the amount due in the account.

6. Summons were duly served upon the Defendants. Defendant Nos. 1 and 2 entered appearance and filed their written statement; however, they failed to lead any evidence despite sufficient opportunity being afforded to them. Accordingly, the evidence of Defendant Nos. 1 and 2 was closed on 28.09.2026. Despite due service of summons, Defendant No. 3 failed to appear before the Court and, accordingly, was placed ex parte on 08.09.2026.

7. In the written statement, Defendant No.1 contended that he had not approached the Applicant-Bank for any loan and had not stood as a surety for the alleged loan transaction. It is further contended that

Defendant No.1 did not avail the loan amount for his own benefit and that the loan of Rs.30,00,000/- was sanctioned against the hypothecation of 3,000 paddy bags/units having a then prevailing market value of Rs.43,50,000/-. According to Defendant No.1, the necessary documents were executed in his name at the instance of and for the benefit of Sri. K.V. Krishnarao. It is further contended that the Applicant had agreed to charge interest at 12% per annum as per the sanction memorandum, whereas the Applicant is now calculating interest at 16.25%, which is contrary to the sanctioned terms.

8. Defendant No.1 contends that the Applicant-Bank, in collusion with Sri. K.V. Krishnarao, Managing Director of M/s. Vishwa Shanthi Agro Industries, sanctioned loans in the names of Defendant Nos.1 and 2 and about 70 farmers, though the pledged paddy stock actually belonged to Sri. K.V. Krishnarao, who was the de facto beneficiary and had received the loan amounts. It is alleged that the Bank officials were aware of the arrangement and that Defendant No.1 did not possess sufficient land corresponding to the pledged stock. The loan of Rs.30,00,000/- was sanctioned against stock valued at about Rs.43,50,000/-, and the Bank, despite having authority to sell the stock within the stipulated 12 months, delayed the sale and subsequently sold the stock at varying/lower prices, thereby causing loss. Defendant No.1 also disputes the interest claimed at 16.25%, contending that the sanction terms provided for 12% interest.

9. Defendant No.1 further relies upon the undertaking dated 19.10.2010 given by Sri. K.V. Krishnarao, wherein he allegedly admitted ownership of

the stock, acknowledged that the loans were availed in the names of about 70 farmers against his personal co-obligation, and undertook to repay the dues while requesting the Bank not to proceed against the farmers. It is contended that, despite the undertaking, the Bank failed to take timely action against Sri. K.V. Krishnarao, improperly disposed of the stock, failed to account for about 800 bags, and did not disclose the procedure followed for sale. Hence, Defendant No.1 submits that the Bank ought to have proceeded against Sri. K.V. Krishnarao and that Defendant No.1 has been made a scapegoat. On these grounds, it is contended that no liability is established against Defendant No.1 and the application is liable to be dismissed.

10. The Defendant No.2 in the statement of objection contents that they availed a loan of Rs.30,00,000/- on 24.12.2009, repayable within 12 months, against pledge of 3,000 paddy bags stored at Bijangere. Due to Government restrictions on export of non-Basmati rice and adverse market conditions, the Defendants could not sell the paddy within the stipulated period. It is alleged that the Bank thereafter demanded repayment with interest and penal interest and, by threatening auction and publication of their names as defaulters, obtained signatures on blank forms purported to be No-Objection Certificates, assuring that the paddy would be sold in accordance with law and at a better price, in the presence of the Defendants. The Defendants contend that they were awaiting information regarding the sale but subsequently received summons from the Tribunal, without copies of the application and documents, which were furnished only

after filing of the Vakalath on 24.10.2013.

11. Further contents that they subsequently came to know that the Bank had already sold the 3,000 paddy bags through an alleged private auction for Rs.24,45,873/- and adjusted the sale proceeds towards the loan claim, without informing them or disclosing the particulars and procedure of such sale in the application. According to the Defendants, the sale was unilateral, arbitrary and illegal and was affected at a throwaway price, causing substantial financial loss. They allege that the Bank had obtained signatures on blank documents and subsequently filled them up, and that the documents relied upon are therefore subject to proof. The Defendants also dispute the alleged default and contend that the ledger extract does not disclose the proper particulars of the amounts paid, recovered or payable.

12. Furthermore, contents that the Bank, being a statutory body, ought to have followed a lawful public auction procedure and there is no material to show that any public auction was conducted or that the prescribed procedure was followed. It is alleged that the Bank has suppressed the material particulars of the sale and has failed to furnish proper accounts and details thereof. The Defendants therefore contend that the private sale is illegal and ultra vires, that the Bank is liable to compensate them for the loss and differential value of the paddy, and that there is no proper cause of action or basis for the amount claimed. On these grounds, they submit that the application is not maintainable either in law or on facts and is liable to be dismissed with costs.

13. The Applicant examined AW-1, who filed his proof affidavit

reiterating the averments made in the T.A. and produced documents marked as Exhibits A-1 to A-9.

14. The contentions of Defendant Nos.1 and 2 denying their liability are not, by themselves, sufficient to discharge the liability arising under the loan documents. Defendant No.1 has disputed the availing of the loan and contended that the transaction was for the benefit of Sri. K.V. Krishnarao. In support of the said contention, Defendant No.1 has produced an unconditional undertaking furnished by Sri. K.V. Krishnarao, wherein he is stated to have acknowledged the ownership of the pledged paddy stock, admitted that the loans were availed in the names of the farmers and undertaken to repay the dues. The said undertaking is a relevant document to be considered while determining the respective liability of the parties; however, the mere existence of such undertaking, unless it is shown to have been accepted by the Applicant-Bank as a substitution or discharge of the contractual liability of the defendants, cannot by itself absolve Defendant Nos.1 and 2 from the obligations arising under the loan documents executed in their names. The allegations of collusion between the Bank and Sri. K.V. Krishnarao also require proof and cannot be accepted merely on the basis of pleadings.

15. The objections regarding the rate of interest, delay in recovery and disposal of the pledged stock, alleged undervaluation, private sale and non- accounting of the entire stock are matters relevant to determination of the quantum of the outstanding amount and require consideration on the basis of the documentary evidence. The sale proceeds received from the pledged

stock are necessarily liable to be duly credited to the loan account, but such adjustment does not, by itself, extinguish the underlying loan liability unless the entire dues are thereby satisfied. Similarly, the allegation that signatures were obtained on blank documents and that the stock was sold at a lower price requires proof. The explanation offered by Defendant No.2 regarding Government restrictions and adverse market conditions may explain the delay in disposal of the paddy, but does not, in the absence of a contractual or legal basis, by itself discharge the repayment obligation. Therefore, while the unconditional undertaking produced by Defendant No.1 is required to be taken into consideration, the defendants cannot be exonerated solely on that basis, and their liability has to be determined with reference to the loan documents, the undertaking, the statement of account, the sale proceeds and the other evidence placed on record.

16. The evidence adduced by the Applicant through AW-1 has remained unchallenged and unrebutted, as Defendant Nos.1 and 2, despite sufficient opportunity, failed to lead any evidence. The documents produced by the Applicant, including the loan and security documents, establish that Defendant Nos.1 and 2 were parties to the credit facility of Rs.30,00,000/- availed against the pledge of 3,000 paddy bags and are liable to repay the amount in accordance with the terms of the loan documents. The defence taken by Defendant No.1 that the loan transaction was for the benefit of Sri. K.V. Krishnarao and the undertaking relied upon by him have been considered. However, the said undertaking, though produced, was not marked in evidence or duly proved before this Tribunal and, in any event,

does not establish that the Applicant-Bank had released Defendant Nos.1 and 2 from their contractual obligations. The allegations regarding collusion, improper sale of the pledged stock and the disputed rate of interest have also not been substantiated by any independent evidence on behalf of the defendants. The Applicant is, therefore, entitled to recover the legally due amount from Defendant Nos.1 and 2, subject to giving due credit for the amount realized from the sale of the pledged paddy stock and subject to determination of the applicable rate of interest on the basis of the proved documents.

17. In view of the above discussion and the unrebutted evidence of the Applicant, Defendant Nos.1 and 2 are held liable for repayment of the outstanding amount due under the loan transaction. As regards Defendant No.3, though Defendant No.1 relied upon the alleged undertakings of Sri. K.V. Krishnarao, the said documents were not marked or proved in evidence, and the Applicant has not otherwise established any independent contractual or legally enforceable liability of Defendant No.3 in respect of the subject loan transaction. This Tribunal is also not inclined to enter into or adjudicate upon the inter se rights, liabilities or arrangements between Defendant Nos.1 to 3. Accordingly, no liability is fastened upon Defendant No.3 in the present proceedings. The issue regarding the Applicant's entitlement to recover the legally due amount is, therefore, answered in favour of the Applicant against Defendant Nos.1 and 2 and against the Applicant insofar as Defendant No.3 is concerned. The Applicant is entitled to a Recovery Certificate against Defendant Nos.1 and 2 for the amount

found legally due and payable, after giving due credit to the sale proceeds and subject to the findings recorded herein regarding interest.

18. Since the TA claim has been arrived at by calculating interest at the agreed rate, pendente lite and future interest are awarded at 7.00% per annum (simple). The prayer for interest with monthly rests and for penal interest for the future period is hereby declined.

19. In view of the above

i. TA 2256 OF 2017 stands allowed

ii. The Applicant is allowed to recover an aggregate sum of Rs. 40,94,000/- (Rupees forty lakh ninety-four thousand only) from the Defendants jointly, severally and personally with pendente lite and future interest of 7.00% p.a. (simple), from the date of filing of the TA till the realization, after giving credit to all the amounts recovered and received during the pendency of the TA if any, and allowed the same to be recovered by proceeding against the Defendant Nos. 1 and 2 jointly, severally and personally and their other assets including the schedule movable property. Properties schedule to the TA be the schedule to the Recovery Certificate.

iii. As regards Defendant No.3, the undertakings relied upon by Defendant No.1 were neither marked nor proved in evidence, and the Applicant has not produced any independent evidence establishing his liability. Hence, no liability is fastened upon Defendant No.3.

iv. Interim application pending, if any, stands disposed of in terms of this final order. v. A Recovery Certificate is to be drawn and issued to the recovery Officer to enable recovery of the as per the above terms. vi. Applicant is allowed to realize cost of the proceeding for which cost memo is to be filed in 14 days’ time from the date of the order.

20. 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 PY directly on the Computer, after its transcription, corrected and pronounced by me in the open Court on this the 30th day of September, 2026).

Sd/- (T. RAJESH)

PRESIDING OFFICER

ANNEXURES WITNESSES EXAMINED FOR THE APPLICANT BANK: AW-1: Sri. Dinesh Kumar Pandey, Manager, of Applicant Bank. Exhibits on the part of the Applicant:

Exhibit Nos. Date Particulars of Documents A1 24.12.2009 Application A2 24.12.2009 Sanction memorandum A3 24.12.2009 Produce loan agreement A4 24.12.2009 Pronote & Take Delivery Letter to DPN A5 24.12.2009 Godown/ Building on lease agreement A6 24.12.2009 Specimen signature card A7 24.12.2009 Letter of Access

A8 -- Certified statement pertaining to the loan account A9 -- Statement showing the total outstanding in the loan accounts Witness Examined for the Defendants:

-Nil- List of Documents Exhibited for the Defendants:

-Nil-

Sd/-

(T. RAJESH)

PRESIDING OFFICER