SREE SHANMUGA MODERN v. THE STATE OF KARNATAKA

(BY SRI. ACHAPPA PB.,ADVOCATE) AND:

1. THE STATE OF KARNATAKA, REP BY THE PRINCIPAL SECRETARY, DEPARTMENT OF REVENUE , ROOM NO.505, 5TH FLOOR, GATE NO.3, M S BUILDING, BANGALORE-560001.

2. THE DISTRICT COMMISSIONER, THE DISTRICT MAGISTRATE, KOLAR, KOLAR DISTRICT-563101. RAGHAVENDRA Location: HIGH COURT OF KARNATAKA PETITIONER - 2 - NC: 2024:KHC:52128 WP No. 16377 of 2021

3. THE ADDITIONAL DISTRICT COMMISSIONER, THE ADDITIONAL DISTRICT MAGISTRATE, KOLAR, KOLAR DISTRICT-563101.

4. THE CHIEF OFFICER, BANGARPET MUNICIPAL COUNCIL, BANGARPET-563114.

5. THE STATE OF KARNATAKA, REP BY DIRECTOR GENERAL OF POLICE, CID, SPECIAL UNIT AND FINANCIAL OFFENCES, CARLTON HOUSE, PALACE ROAD, BANGALORE-560001.

6. POLICE INSPECTOR, ECONOMIC OFFENCES INVESTIGATION SQUAD, COD, CID, BENGALURU-01.

7. POLICE INSPECTOR, CEN CRIME BRANCH, KGF, KOLAR DISTRICT. RESPONDENTS (BY SRI. MAHANTESH SHETTER., FOR R1 TO R3 AND R5 TO R7; SRI. AM VIJAY., FOR R4) THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ENTIRE PROCEEDINGS INITIATED IN PURSUANCE OF THE LETTER DTD. 21.12.2019, WRITTEN BY THE R-1 / PRINCIPAL SECRETARY, REVENUE DEPARTMENT, DIRECTING THE R-2 / DEPARTMENT TO INVOKE THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENT ACT, 2004, PRODUCED AT ANNX-A AND ETC,. THIS PETITION, COMING ON FOR INTERLOCUTORY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE SURAJ GOVINDARAJ - 3 - NC: 2024:KHC:52128 WP No. 16377 of 2021 ORAL ORDER

1. The petitioner is before this Court seeking for the following reliefs: “Wherefore, it is most respectfully prayed that this Hon’ble Court may be pleased to i) Issue a writ of certiorari to quashing the entire proceedings initiated in pursuance of the letter bearing No. KamE/43/GRC/2019, dated 21.12.2019, written by the respondent No. 1/ Principal Secretary, Revenue Department, directing the Respondent No.2/Department to invoke the Karnataka Protection of Interest of in Financial Establishment Act, 2004, Depositors produced at ANNEXURE-A, ii) issue a writ of certiorari quashing the consequential order of attachment issued by the Respondent No. 3, as per letter dated: 1/6/2021, Vide No Mis (R) CR 58/2019- 20, communicated to the Respondent no 4, produced at ANNEXURE-B, iii) issue a writ of certiorari quashing the order Dated: 6/8/2019, as per which the Learned Magistrate has permitted the Respondent no 6, to prosecute the petitioners under Section 9 of the KPID ACT in crime no 160/2019, cumulating in S.C No.4/2020, registered by Bangarpet police station, KGF now being investigated by Respondent No.6 produced at ANNEXURE-C, iv) issue such other writ or writs or pass any such order or orders as this Hon'ble Court may deem fit under the facts and circumstances of the case, in the interest of justice and equity.”

2. The proceedings under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (hereinafter referred as to ‘KPID Act’) having been initiated against the petitioner, the petitioner had approached this - 4 - NC: 2024:KHC:52128 WP No. 16377 of 2021 Court challenging the same and seeking for the aforesaid reliefs. During the pendency of the above matter under the Insolvency and Bankruptcy Court (IBC) a resolution profession has been appointed and a Committee of Creditors Constituted and now the petitioner is represented by the resolution professional.

3. The submission of Sri. Achappa PB, learned counsel for the petitioner represented by the RP is that the proceedings have been undertaken by the IBC those proceedings would override the proceedings under the KPID Act in terms of Section 238 of the IBC and in this regard he relies upon the decision of the Coordinate Bench of this Court vide order dated 24.05.2021 in WP.No.13477/2020 of M/S Dreams Infra India Pvt Ld V/S The Competent Authority Dreamz Infra India Pvt. Ltd., and Other, more particularly para Nos.3 and 20 thereof which are reproduced hereunder for easy reference. “3. The respondent is a Constituted Authority, appointed by the Government of Karnataka under Section 5(1) of the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (for short 'the Act, 2004') vide notification bearing No.RD.17.GRC 2017(P-2) dated 20.06.2019. Consequently, the respondent has initiated Section 7(1) of the Act, 2004 against the - 5 - NC: 2024:KHC:52128 WP No. 16377 of 2021 this petition contended petitioner and the same has been admitted by the Principal City Civil and Sessions Judge (Special Judge), Metropolitan Area, Bengaluru on 09.01.2020. Hence, the petitioners respondent-Authority owing to various complaints lodged against the promoters and directors of the petitioner- Company invoked the Act, 2004 and attached all the properties of the petitioner- Company since 2018. The respondent-Authority on the understanding of law that, the petitioner-Company falls under the scope and ambit of the Act, 2004 initiated action before Principal City Civil and Sessions Judge (Spl. Judge), Metropolitan Area, Bengaluru stating that the petitioner has accepted the deposits from 3668 depositors to the tune of Rs. 385 Crores.

20. Having perused the definition and also the object of the enactment, the very contention of the petitioner cannot be accepted. However, it has to be noted that the State Government has appointed competent authority and passed an order of attachment of property and consequent upon the appointment, the competent Authority has approached the Special Court invoking Section 7 of the Act, 2004 with regard to assessment of assets and deposit liabilities. It has to be noted that the said petition is filed before the Special Court on 30.12.2019. Learned counsel for the petitioner also brought to the notice of this Court that NCLT has passed an order on 20.08.2019 against the petitioner herein when some of the investor/homebuyers have approached the NCLT. The respondent also not disputes the said fact. Some of the homebuyers have already approached the NCLT and an order has also been passed on 20.08.2019.”

4. Heard Sri. Achappa PB, learned counsel for the petitioner and perused the records and Section 238 of IBC. It is clear that the Coordinate Bench of this Court has categorically held that said provision would over ride any other law the IBC being a Central Enactment, KPID being a State - 6 - NC: 2024:KHC:52128 WP No. 16377 of 2021 Enactment, the KPID Act is required to yield to the IBC, the proceedings under IBC having been undertaken those would override any proceedings initiated under the KPID Act.

5. In that view of the matter, I proceed to pass the following: ORDER i. The writ petition is allowed, thought proceedings under the KPID Act shall continue, the same shall be subject to the outcome of the insolvency proceedings undertaken in respect of the petitioner. The attachment order in so far as any secured properties as regards which any mortgagee or security interest has been created in favour of any member of the committee of creditors shall stand vacated. ii. The secured creditors in respect of those properties could be entitled to deal with them in accordance with law and as per the security interest credited favour of the secured creditor, as regards which is any - 7 - NC: 2024:KHC:52128 WP No. 16377 of 2021 attachment but no security interest which is created the attachment order is quashed, subject to any amount being received being over and above the requirement of discharging all the creditors of the petitioner company to be deposited with the authorities ceased of the proceedings under the KPID Act. SD/- (SURAJ GOVINDARAJ) JUDGE PNV List No.: 1 Sl No.: 0