Karnataka High Court
Master Ayan Gupta vs Recovery Officer-I on 10 July, 2024
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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WP No. 48062 of 2017
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 10TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
WRIT PETITION NO. 48062 OF 2017 (GM-DRT)
BETWEEN:
MASTER AYAN GUPTA
AGED ABOUT 3 YEARS
S/O MR. ANIRUDH GUPTA
RESIDING AT NO.621, 16TH B MAIN,
3RD CROSS, 3RD BLOCK,
KORAMANGALA, BENGALURU - 560 034
REPRESENTED BY HIS FATHER AND
NATURAL GUARDIAN
MR. ANIRUDH GUPTA.
...PETITIONER
(BY SRI. UDAY HOLLA, SENIOR COUNSEL FOR
SRI. MOHAMMED SHAMEER, ADVOCATE)
AND:
1. RECOVERY OFFICER-I
DEBTS RECOVERY TRIBUNAL - II
Digitally signed by
NO.4, RESIDENCY ROAD,
R HEMALATHA BENGALURU - 560 025.
Location: HIGH
COURT OF
KARNATAKA 2. CANARA BANK
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES ACT, 1970,
HAVING ITS BRANCH OFFICE AT SPENCER TOWER,
M.G. ROAD, BENGALURU - 560 001
REPRESENTED BY ITS BRANCH MANAGER.
3. COMPUTER AGE MANAGEMENT SERVICES PVT LTD
HAVING ITS HEAD OFFICE AT RAYALA TOWERS
III FLOOR, 158 ANNASALAI
CHENNAI - 600 002
AND ITS BRANCH OFFICE AT TRADE CENTER
1ST FLOOR, 45, DICKENSON ROAD,
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WP No. 48062 of 2017
(NEXT TO MANIPAL CENTER)
BANGALORE - 560 042
REPRESENTED BY ITS MANAGER.
4. HDFC ASSET MANAGEMENT COMPANY LTD
HAVING ITS REGISTERED OFFICE AT "HDFC HOUSE",
2ND FLOOR, H.T. PAREKH MARG
165-166, BANKBAY RECLAMATION
CHURCHGATE, MUMBAI - 400 020
AND BRANCH OFFICE AT HDFC AMC LTD NITESH
BROADWAY, NO.9/31-A, GROUND FLOOR,
M.G. ROAD, OPP. TRINITY METRO STATION
BENGALURU - 560 001
REPRESENTED BY ITS DIRECTOR.
5. ADITYA BIRLA SUN LIFE AMC LTD
HAVING ITS REGISTERED OFFICE AT
ONE INDIABULLS CENTRE
TOWER 1, 17TH FLOOR,
JUPITER MILL COMPOUND 841, SENAPATI BAPAT MARG
ELPHINSTONE ROAD, MUMBAI - 400 013
AND HAVING ITS BRANCH OFFICE AT
9/3, GROUND FLOOR, NITESH BROADWAY
M.G. ROAD, BENGALURU - 560 001
REPRESENTED BY ITS DIRECTOR.
...RESPONDENTS
(BY SRI. M.R. SHASHIDHAR, ADVOCATE FOR R2;
SRI. C.K. NANDAKUMAR, ADVOCATE FOR R3 TO R5;
R1 SERVED AND UNREPRESENTED)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QAUSH THE
ORDERS DATED 21.9.2017 AND 12.10.2017 PASSED BY THE R-1
VIDE ANNEXURE-A; AND B; QUASH THE ELTTER DATED 28.9.2017
ISSUED BY THE R-3 VIDE ANNEXURE-D AND ETC.
THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN
'B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:
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WP No. 48062 of 2017
ORDER
The orders dated 21.9.2017 and 12.10.2017 passed by the respondent No.1 by which the money invested which is maintained by the respondent No.3 is attached, and deposited in the account of the respondent No.1 is impugned in this petition.
2. The DRT, in O.A. No. 364/2008, directed M/s Chamundi Industries Limited, Mr. M.S. Mahendra Kumar Gupta, Pavan Kumar Gupta, Usha Savitha, and Sarwan Kumari to pay Rs.43.44 crores along with compound interest to Canara Bank. The tribunal further directed that, if Defendant No. 2 failed to pay the amount, the bank was at liberty to sell the hypothecated/mortgaged movable and immovable properties and proceed against the defendants individually if necessary.
3. The DRT issued a recovery certificate on 16.7.2016 for the recovery of Rs.43.44 crores from the aforementioned six defendants.
4. The petitioner is the son of Anirudh Gupta i.e. grand son of the defendant No.6 before the Debt Recovery Tribunal (for short `Tribunal') in OA No.364/2008. The Tribunal issued an attachment orders dated 8.8.2017, 12.10.2017 and 21.9.2017 directing the respondent No.3 to attach and deposit mutual fund investment of the petitioner before the respondent No.1 - Recovery Officer.
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5. The petitioner asserts that as of the date of filing of the writ petition, the sum total value of investment encashed by the respondent and transferred to the respondent No.1 is about Rs.14,88,514.71, and further the mutual funds valued at Rs.11,42,118.53, and Rs.11,06,378.36 has been attached. The petitioner asserts that he was not provided an opportunity of hearing as required under Section 28 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 before attaching and encashing the mutual funds investment. Therefore, he further asserts that in the absence of substantial evidence proving that the money invested with the HDFC and Aditya Birla Sun Life mutual fund originated from the defendant No.6. The impugned orders passed by the Tribunal subsequent to the encashment of the money lacks authority.
6. Per contra, the learned counsel for the respondent - Bank argues that the material clearly establishes that the petitioner invested with the HDFC mutual fund came from the defendants No.2 and 6. Consequently, the Tribunal rightly passed the attachment order and requested HDFC mutual fund to deposit and investment of the petitioner. Therefore, the impugned passed under sub-Section (3)(i) of Section 23 of the Act, 2023.
7. The learned counsel for the respondents No.3 to 5 submits that the respondent No.3 in compliance of the order passed by the respondent No.1 deposited the part of the investment of the petitioner with the respondent No.1 to redeem the part of the investment made by the petitioner and deposit the same -5- NC: 2024:KHC:27028 WP No. 48062 of 2017 with the respondent No.1 and the remaining investment was not redeemed.
8. The arguments of the learned counsel for the parties are duly considered.
9. Before addressing the point for consideration, it is pertinent to reproduce section 28 of the Act.
"Section 28: Other modes of recovery.
(1) Where a certificate has been issued to the Recovery Officer under sub-section (7) of section 19, the Recovery Officer may, without prejudice to the modes of recovery specified in section 25, recover the amount of debt by any one or more of the modes provided under this section.
(2) If any amount is due from any person to the defendant, the Recovery Officer may require such person to deduct from the said amount, the amount of debt due from the defendant under this Act and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Recovery Officer:
Provided that nothing in this sub-section shall apply to any part of the amount exempt from attachment in execution of a decree of a Civil Court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908).
(3)(i) The Recovery Officer may, at any time or from time to time, by notice in writing, require any person from whom money is due or may become due to the defendant or to any person who holds or may subsequently hold money for or on account of the defendant, to pay to the Recovery Officer either forthwith upon the money becoming due or being held or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount of debt due -6- NC: 2024:KHC:27028 WP No. 48062 of 2017 from the defendant or the whole of the money when it is equal to or less than that amount.
(ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the defendant jointly with any other person and for the purposes of this sub-section, the shares of the joint holders in such amount shall be presumed, until the contrary is proved, to be equal.
(iii) A copy of the notice shall be forwarded to the defendant at his last address known to the Recovery Officer and in the case of a joint account to all the joint holders at their last addresses known to the Recovery Officer.
(iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary.
(v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice.
(vi) Where a person to whom a notice under this sub-
section is sent objects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any money for or on account of the defendant, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the -7- NC: 2024:KHC:27028 WP No. 48062 of 2017 Recovery Officer to the extent of his own liability to the defendant on the date of the notice, or to the extent of the defendants liability for any sum due under this Act, whichever is less.
(vii) The Recovery Officer may, at any time or from time to time, amend or revoke any notice under this sub-section or extend the time for making any payment in pursuance of such notice.
(viii) The Recovery Officer shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the defendant to the extent of the amount so paid.
(ix) Any person discharging any liability to the defendant after the receipt of a notice under this sub-section shall be personally liable to the Recovery Officer to the extent of his own liability to the defendant so discharged or to the extent of the defendants liability for any debt due under this Act, whichever is less.
(x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Recovery Officer, he shall be deemed to be a defendant in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were a debt due from him, in the manner provided in sections 25, 26 and 27 and the notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 25."
10. The provisions of Section 28 is summarized as follows:
The Recovery Officer can use additional methods to recover debts specified under this -8- NC: 2024:KHC:27028 WP No. 48062 of 2017 section, aside from those mentioned in section 25, if a certificate is issued under section 19(7).
If anyone owes money to the debtor (defendant), the Recovery Officer can direct that person to pay the owed amount towards the debtor's debt. However, amounts exempt from attachment under civil court rules are not included.
• The Recovery Officer can notify any person who owes or will owe money to the debtor to pay the amount directly to the Recovery Officer.
• This includes joint accounts, with the shares presumed equal unless proven otherwise.
• A copy of the notice is sent to the debtor and any joint account holders.
• The notified person must comply, even without presenting documents like passbooks.
• Any claims on property related to the notice after its issuance are void against the debt demand.
• If the notified person claims under oath that they do not owe money to the debtor or do not hold money for them, they are not required to pay, unless the statement is proven false. If false, they become personally liable.
• The Recovery Officer can amend or revoke notices and extend payment deadlines.-9-
NC: 2024:KHC:27028 WP No. 48062 of 2017 • The Recovery Officer provides receipts for payments made under the notice, discharging the payer's liability to the debtor.
• Anyone paying the debtor after receiving a notice becomes personally liable for the amount paid.
• If the notified person fails to pay, they are treated as a defaulting debtor, and further recovery actions can be taken against them as if the amount were a debt due from them, with the notice acting as an attachment of debt.
11. These provisions enable the Recovery Officer to collect debts by directing third parties who owe money to the debtor to pay the Recovery Officer, with specific rules and protections in place.
12. In this case, no notice was issued to the petitioners in writing, calling upon them to pay any amount due to the defendant as mandated under Section 28(3)(i) of the Act, 1993. Instead, an order under Section 28(3)(x) was directly passed, attaching the petitioners' investments. Therefore, the impugned order of attachment of the investments made with respondent No.3 violates the principles of natural justice and the provisions contained in Section 28 of the Act, 1993.
13. The Tribunal, without issuing the required notice as contemplated under Section 28(3)(i) of the act, 1993, passed the order of attachment of the investments made with the respondent No.3. Therefore, the impugned order passed by the Tribunal
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14. In the statement of objection filed by the respondent No.2-Bank at para-22, the compensation received by Mrs.Sarwan Kumari is detailed under:
Date of Name of the Amount Bank details remittance person to whom remitted where the amount is amount is remitted credited to 28.10.2016 Vikram Gupta s/o 1,20,00,058.00 Bank of India Usha Gupta Cantonment (defendant No.4 Branch, in OA Bengaluru No.364/2008) 28.10.2016 Anirudh Gupta s/o 50,00,058.00 Kotak Mahendra Kumar Mahindra Gupta (defendant Bank, Lavelle No.2) in OA Road Branch 364/2008) 28.10.2016 Sabitha Jain 50,00,058.00 Andhra Bank, (defendant No.5) Agra in OA.364/2008) 28.10.2016 Sadhana Gupta 50,00,058.00 Karnataka w/o Mahdnra Bank, Ashok Kumar Gupta Nagar Branch, Bangalore.
02.11.2016 M Satish 79,21,601.00 Corporation Bank, Rajajinagar Branch.
02.11.2016 Mahendra Vikram 5,00,00,058.00 Karnataka
Enterprises (Firm Bank, Ashok
of Mr.Mahendra Nagar
Kumar Gupta & Branch,
others) Bangalore.
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02.11.2016 Chamundi 2,50,00,058.00 Karnataka
Industries Ltd. Bank, Ashok
(defendant No.1) Nagar
in OA.364/2008) Branch,
Bangalore.
02.11.2016 Chamundi Steel 2,50,00,058.00 Karnataka
Castings Ltd Bank, Ashok
(another Nagar
Company of Branch,
defendant No.2) Bangalore.
in OA.364/2008)
11.11.2016 Nourangari & 3,12,00,000.00 Clearing
Sons
03.03.2017 Sadhana Gupta 70,00,000.00 Karnataka
w/o Mahendra Bank, Ashok
Kumar Gupta Nagar
Branch,
Bangalore.
Total 16,61,74,879.00
15. Perusal of the statement indicated that no money was transferred by the defendant No.6 to the petitioner. Therefore, in the absence of substantial evidence that the petitioner received money from the defendant No.6. The impugned order of attachment and the encashment of the investment of the petitioner is not legally sustainable. Accordingly, I pass the following:
ORDER
i) The petition is allowed.
ii) The impugned orders dated 21.9.2017 and 12.10.2017 passed by the respondent No.1 vide Annexure-A and B are hereby quashed.
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iii) The respondent No.1 is hereby directed to refund a sum of Rs.14,88,514.71, and further amount of Rs.11,42,118.53 and Rs.11,06,378.36, and the respondents No.3 to 5 are directed to defreeze the account of the petitioner.
iv) The respondent No.1 is hereby directed to refund the amount redeemed and deposited by the respondents No.3 to 5 with the respondent No.1 within two weeks from the date of receipt of certified copy of this order.
Sd/-
JUDGE BKM