The High Court
Case Details
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF FEBRUARY, 2025 PRESENT THE HON'BLE MRS. JUSTICE ANU SIVARAMAN AND THE HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL MISCELLANEOUS FIRST APPEAL NO.1218 OF 2023 (KPIDFA) BETWEEN: SRI. N. NANJUDAIAH AGED ABOUT 46 YEARS S/O LATE NARAYANAPPA R/AT. BRIGADE APARTMENT MALLESHWARAM BENGALURU-560 003 ...APPELLANT (BY SRI. VIKRAM A. HUILGOL, SENIOR ADVOCATE FOR SRI. SHREERAM TIMMAPPA NAYAK, ADVOCATE) AND: 1 . THE COMPETENT AUTHORITY FOR SRI. KANVA SOUHARDHA CREDIT CO-OPERATIVE LIMITED AND KANVA GROUP OF COMPANIES BENGALURU OFFICE OF THE MANAGING DIRECTOR KARNATAKA PUBLIC LAND CORPORATION URBAN DC OFFICE BUILDING, K.G. ROAD BENGALURU-560 009 2 . SRI. KANVA SOUHARDHA CREDIT CO-OPERATIVE LIMITED REPRESENTED BY ITS MANAGING DIRECTOR - 2 HAVING ITS OFFICE NO.A-408, BRIGADE APARTMENT MALLESHWARAM BENGALURU-560 003 …RESPONDENTS (BY SRI. VEERESH R. BUDIHAL, ADVOCATE FOR R1; R2-SERVICE OF NOTICE IS DISPENSED WITH V.C.O. DATED 19.02.2025) THIS MFA IS FILED U/S 16 OF THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT 2004, AGAINST THE ORDER DATED 14.06.2022 PASSED IN MISC.No.544/2022 ON THE FILE OF THE XCI ADDITIONAL CITY CIVIL AND SESSIONS JUDGE AND SPECIAL JUDGE FOR KPIDFE CASES, BENGALURU, (CCH-92), AND ALLOW THE MEMORANDUM OF APPEAL FILED BY THE APPELLANT HEREIN. THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN J., PRONOUNCED THE FOLLOWING: AND COMING ON 19.02.2025 CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN and HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL CAV JUDGMENT (PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN) This appeal is preferred under Section 16 of the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (for short 'the KPIDFE Act') against the order dated 14.06.2022, passed by the XCI Additional City Civil and Sessions Judge at Bengaluru (CCH- - 3 92) (for short "the trial Court") in Miscellaneous No.544/2022.
Legal Reasoning
raised in the appeal, we are of the opinion that absolutely no grounds have been made out to interfere with the order of the Special Court. In the above view of the matter, the appeal fails and the same shall stand dismissed.
Arguments
2. We have heard Shri. Vikram A. Huilgol, learned senior counsel as instructed by Shri. Shreeram Timmappa Nayak, learned advocate appearing for the appellant as well as Shri. Veeresh R. Budihal, learned counsel appearing for respondent No.1. In the light of the contentions raised by the parties, notice to respondent No.2 has been dispensed with. 3. The learned senior counsel appearing for the appellant submits that the second respondent financial establishment was registered under the Karnataka Souharda Sahakari Act, 1997 (for short "the KSS Act”) on 21.04.2005. It is admitted that the appellant was the promoter/founder member of the Society and was actively involved in the Society. It is further admitted that several Fixed Deposit/Recurring deposit Schemes and other allied investment schemes were operated by the Society and the Society had found it impossible to return the deposits due to - 4 a financial crisis. On 01.11.2019, three depositors had approached the Basaveshwaranagar Police Station and filed a complaint against the appellant and FIRs came to be registered. It is submitted that several FIRs have been filed and are pending and actions under the KSS Act were also initiated against the Society and its Board of Directors. Notifications were issued on 11.12.2020 and 24.02.2021, invoking the provisions of the KPIDFE Act, which was challenged by the appellant. A provisional order of attachment of the properties including the self acquired properties of the appellants came to be passed on 15.07.2021. Misc. No.544/2022 was filed on 22.03.2022 under Section 5 of the KPIDFE Act by the competent authority seeking to make the order of attachment absolute. The said application has been allowed making the attachment absolute which is under challenge in this appeal. 4. Though contentions have been raised in the appeal with regard to the applicability of the KPIDFE Act in view of the provisions of the KSS Act, the said contentions have not been urged when the appeal was argued. The - 5 learned senior counsel, however, submits that the notification under Section 3(2) of the Act specifically states that the properties in question were purchased by the appellant from out of the funds of the Financial Establishment. The Notification dated 15.07.2021 is produced along with the memo and it is contended that the attachment was specifically of immovable properties believed to have been acquired by the establishment either in its own name or in the name of any other person from out of the deposits collected by the establishment. It is contended that this is obviously incorrect and that the properties are clearly the self acquired properties of the appellant. It is contended, referring to the provisions of Section 3 of the KPIDFE Act that it is only where the properties acquired by the Financial Establishment in its own name or in the name of any other person from and out of the deposits collected by the Financial Establishment are inadequate or insufficient to repay the deposits that the personal assets of the Promoters, Partners, Directors, Managers etc., of the Financial Establishment can be - 6 attached. It is contended that what is contemplated under Section 5 of the KPIDFE Act is only a confirmation of the provisional attachment made under Section 3 of the KPIDFE Act and that the grounds on which attachment is made under Section 3(2) and made absolute under Section 5(2) cannot be separate and distinct. 5. It is contended that the appellant was put a notice of the provisional attachment on the ground that the properties to be attached were purchased by him out of the funds of the Financial Establishment and it is that specific allegation that he has been called upon to answer. It is contended that making of the interim attachment absolute on the ground that his self acquired properties which were acquired even before the complaints against the Financial Establishment were raised for the first time are also liable to be attached and sold is completely illegal and ultra-vires. It is contended that, since there is an ample remedy available to the depositors under the provisions of the KSS Act and where such remedies have already been resorted to, it was not open to the competent authority to have attached the - 7 personal properties of the appellant and make such attachment absolute. 6. The learned senior counsel appearing for the appellant relying on the ruling of this Court in the case of M.S. Shivashankar v. State of Karnataka Represented by its Chief Secretary to Government and another reported in ILR 2010 KAR 328. 7. The learned counsel appearing for respondent No.1/competent authority, on the other hand, contends that the appellant has not denied that he was a promoter and a founder member of the second respondent - Financial Establishment. It is also not disputed that deposits had been collected from the members of the Society as well as from the public and that the Financial Establishment was unable to repay the depositors. It is contended that the liability of the Society ran into several Crores of rupees and the amounts and properties of the Financial Establishment were totally insufficient to meet the repayments due to the depositors. It is submitted that these facts are clear from - 8 the application filed by the competent authority before the Special Court, which is specifically referred to by the Special Court itself. These aspects were not disputed before the Special Court as is evident from the discussion in the impugned judgment. It is submitted that all the properties which have been attached are purchased during the period, when the Financial Establishment was functioning and the appellant was at the helm of its affairs. It is submitted that even if it is admitted the property is the self acquired property of the appellant, it would make no difference to the situation since the provisions of the KPIDFE Act permit the attachment and sale of the personal properties belonging to the promoters and directors of the financial establishment as well. 8. In the instant case, it is contended that there is absolutely no pleading raised before the Special Court by the appellant he was not a person directly involved in the affairs of the Society or that the properties are not liable to be proceeded against. It is submitted that though it is the case of the competent authority that the properties were - 9 purchased out of the funds of the financial establishment, the said aspect need not be proved since the properties of the financial establishment are evidently not sufficient to meet it's liabilities to depositors. 9. We have considered the contentions advanced. We notice that the KPIDFE Act is enacted to provide for protection of interest of depositors in financial establishment. The act is intended to overwrite the provisions of all other enactment. Section 3(2) of the KPIDFE Act reads, as follows:- "3(2) Not withstanding anything contained in any other law for the time being in force,- (i) where, suo moto or based on the market intelligence reports or upon complaint received from any depositors or otherwise, the Secretary to Government, Revenue Department is satisfied that any financial establishment has failed,- (a) to return the deposit after maturity or on demand by depositor; or (b) to pay interest or other assured benefit; or (c) to provide the service against such deposit; or;) (ii) Where the Government has reason to believe that any Financial Establishment is acting in and detrimental to the interest of the depositors with an intention to defraud them; or - 10 (iii) Where the Government is satisfied that such Financial Establishment is not likely to return the deposits or make payment of interest or other benefits assured or to provide the services against which the deposit is received. the Government may, in order to protect the interests of the depositors of such Financial Establishments, after recording reasons in writing, issue an order by publishing it in the official gazette, attaching the money or property believed to have been acquired by such financial establishment either in its own name or in the name of any other person from and out of the deposits collected by the financial establishments, and where it transpires that such money or other property is not available for attachment or not sufficient for the repayment of the deposits, such other property of the said financial establishments, or the personal assets of the promoters, partners, directors, managers or members or any other person of the said Financial Establishments." 10. The power under Section 3(2) of the KPIDFE Act, therefore, is in the Government to attach the money or property of the financial establishment held in its own name or in the name of any other person, where it appears that such money or property are not available or is not sufficient for repayment of the deposits, such other property including the personal assets of the Promoters, Partners, Directors - 11 etc., of the financial establishment can also be attached. Thereafter, it is for the competent authority to apply to the Special Court to make the order of attachment absolute. Section 5(3) of the KPIDFE Act provides as follows:- "5(3) An application made under sub-section (2) shall be accompanied by one or more affidavits, stating the grounds on which the order is made under Section 3 and the amount of money or other property believed to have been acquired from out of the deposits and the details, if any, of persons in whose name such property is believed to have been invested or acquired or any property attached under Section 3." 11. It is therefore clear that once an order of attachment is passed under Section 3(2) of the KPIDFE Act and an application is made under sub-Section (2) of Section 5 of the KPIDFE Act by the competent authority to make the interim attachment absolute, it is for the person, who claims that the property is not liable to attachment to show cause as to why such attachment should not be made absolute. The provisions of Section 7 of the KPIDFE Act, which provides for assessment of assets and deposit liabilities of the financial establishment by the competent authority and - 12 the filing of a report by that authority before the Special Court are also relevant in this regard. 12. In the instant case, it is clear that a report of assets and liabilities of the financial establishment has been prepared by the competent authority and submitted before the Special Court at Annexure 'D'. It is based on such report, that the request made by the competent authority for making the attachment absolute has been considered by the Special Court. The Special Court has considered all the factual and legal contentions advanced by the appellant as is evident from paragraphs No.18(a) to (u) of the judgment under appeal. The clear provisions of Section 19 of the KPIDFE Act was also considered and it was held that action under the KPIDFE Act is indeed maintainable. 13. The contention raised by the appellant that the properties are the personal properties of the appellant was specifically considered by the Special Court. It is held as under:- - 13 " 18. Analysis and Findings:- 18(a). On hearing the arguments and on verifying and analyzing the materials placed before this court it is noticed that, there is no dispute with regard to the certain facts and the same are summarized as under:- 18(d) x x x x x But, in this regard it is pertinent to note that, the petitioner in the petitions has specifically contended that, in order to safeguard the interest of the depositors and to repay the deposit amount, the Government has realized that, the assets available with respondent No.1 and its group of entities are not sufficient to return the deposit amount of the depositors and hence the schedule properties have been attached to realise the amount. Further in the notifications it is stated that, since the property of the Financial Establishment is not sufficient for the repayment of the deposits or interest or such other assured benefits to the depositors, the personal assets of the promoters/ partners/ directors etc., are attached. Therefore it is clear that, since the properties of the respondent No.1 are not sufficient to satisfy the claim of the depositors, the personal properties of the respondent No.2 were attached by the Government under section 3(2) of the KPIDFE Act. " 14. The contention with regard to the non applicability of the KPIDFE Act has also been considered in detail and it was found that in the light of Section 19 of the KPIDFE Act is applicable notwithstanding the KSS Act. The learned Senior Counsel did not raise any contentions on the aspect. - 14 15. It is thereafter that the Special Court has come to the conclusion that respondents No.1 and 2 have failed to show any cause as to why the attachment shall not be made absolute. 16. Having considered the contentions advanced, we notice that Annexure 'D', report of assets and liabilities of the second respondent would show that the assets available are worth of an amount of Rs.85,78,75,586/- while the deposit liabilities are to the extent of Rs.650 Crores. It is specifically stated that there is a deficit of more than Rs.564 Crores. It is after noticing these facts that the competent authority had requested the Investigating Officer to identify the additional properties of the Financial Establishment and its associates. Thereafter, the request has been made before the Special Court to make the attachment absolute. In the said facts and circumstances, we are of the opinion that the hyper-technical contention raised that there is a variation in the language of the Section 3(2) of the KPIDFE Act Notification and the order passed under Section 5 of the KPIDFE Act cannot be a reason to invalidate the - 15 proceedings, which are taken in terms of an enactment which has been made with the specific intention of protecting the interest of depositors. 17. On an anxious consideration of the contentions
Decision
There will be no order as to costs. All interim applications shall also stand disposed of. Sd/- (ANU SIVARAMAN) JUDGE Sd/- (VIJAYKUMAR A. PATIL) JUDGE cp*