Karnataka High Court
Mrs. Jaya Gupta vs Recovery Officer-I on 10 July, 2024
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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NC: 2024:KHC:27031
WP No. 48060 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. 48060 OF 2017 (GM-DRT)
BETWEEN:
MRS. JAYA GUPTA
AGED ABOUT 32 YEARS
W/O MR. ANIRUDH GUPTA,
RESIDING AT NO.621, 16TH B MAIN
3RD CROSS, 3RD BLOCK,
KORAMANGALA
BENGALURU - 560 034.
...PETITIONER
(BY SRI. UDAY HOLLA, SENIOR COUNSEL FOR
SRI. MOHAMMED SHAMEER, ADVOCATE)
AND:
Digitally signed by B
K
1. RECOVERY OFFICER-I
MAHENDRAKUMAR
Location: HIGH
DEBTS RECOVERY TRIBUNAL - II
COURT OF
KARNATAKA
NO.4, RESIDENCY ROAD,
BENGALURU - 560 025.
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
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WP No. 48060 of 2017
CHENNAI - 600 002
AND ITS BRANCH OFFICE AT TRADE CENTER
1ST FLOOR, 45, DICKENSON ROAD,
(NEXT TO MANIPAL CENTER)
BANGALORE - 560 042
REPRESENTED BY ITS MANAGER.
4. L & T INVESTMENT MANAGEMENT LIMITED
HAVING ITS HEAD OFFICE AT BRINDAVAN
6TH FLOOR, PLOT NO.177,
C.S.T. ROAD, KALINA
SANTACRUZ EAST, MUMBAI - 400 098
AND BRANCH OFFICE AT S- 411,
2ND FLOOR, WEST MINSTER
CUNNINGHAM ROAD,
BENGALURU - 560 052.
5. HDFC ASSET MANAGEMENT COMPANY LTD
HAVING ITS REGISTERED OFFICE AT "HDFC HOUSE",
2ND FLOOR, H.T. PAREKH MARG
165-166, BANKBAY RECLAMATION
CHURCH GATE MUMBAI - 400 20
AND BRANCH OFFICE AT HDFC AMC LTD
NITESH BROADWAY
NO.9/3, 1-A, GROUND FLOOR,
M.G. ROAD, OPP. TRINITY METRO STATION
BENGALURU - 560 001.
REPRESENTED BY ITS DIRECTOR.
...RESPONDENTS
(BY SRI. M.R. SHASHIDHAR, ADVOCATE FOR R2;
SRI. C.K. NANDAKUMAR, ADVOCATE FOR R3 & R5;
SRI. H.R. NARAYAN RAO, ADVOCATE FOR R4;
R1 SERVED AND UNREPRESENTED)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO
QUASH THE ORDERS DTD 21.9.2017 AND 12.10.2017 PASSED
BY THE R-1 [VIDE ANNEXURE-A & B]; QUASH THE LETTER
DTD 16.10.2017 ISSUED BY THE R-3 TO THE PETITIONER
VIDE ANNEXURE-C AND ETC.
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NC: 2024:KHC:27031
WP No. 48060 of 2017
THIS PETITION, COMING ON FOR PRELIMINARY
HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE
FOLLOWING:
ORDER
The orders dated 21.09.2017 and 12.10.2017 passed by respondent No.1, which directed the attachment and deposit of the money invested with respondent No.3 into the account of respondent No.1, are challenged in this petition.
2. The Debt Recovery Tribunal (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 or mortgaged movable and immovable properties and proceed against the defendants individually if necessary.
3. The DRT issued a recovery certificate on 16.07.2016 for the recovery of Rs. 43.44 crores from the aforementioned six defendants.
4. The petitioner is the wife of Mr. Anirudh Gupta, who is Defendant No. 6 in O.A. No. 364/2008 before the Tribunal. The Tribunal issued attachment orders on 08.08.2017, 12.10.2017, and 21.09.2017, directing respondent No.3 to attach and deposit the -4- NC: 2024:KHC:27031 WP No. 48060 of 2017 petitioner's mutual fund investments with respondent No.1, the Recovery Officer.
5. The petitioner asserts that as of the date of filing the writ petition, the total value of investments encashed by respondent No.3 and transferred to respondent No.1 is approximately Rs. 1,02,21,733.61, with mutual funds valued at Rs. 57,99,440.88 also being attached. The petitioner contends that he was not provided an opportunity for a hearing as required under Section 28 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, before the attachment and encashment of the mutual fund investments. Consequently, the petitioner asserts that, in the absence of substantial evidence proving that the money invested in the HDFC mutual fund originated from Defendants No. 2 and 6, the impugned orders lack authority.
6. In response , the learned counsel for the respondent- Bank argues that the material clearly establishes that the petitioner's investments with HDFC mutual fund were sourced from Defendants No. 2 and 6. Therefore, the Tribunal rightly passed the attachment orders and requested HDFC mutual fund to deposit the petitioner's investments. The impugned orders were issued under sub-Section (3)(i) of Section 23 of the Act, 2023.
7. The arguments of the learned counsel for the parties are duly considered.
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8. 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 with the respondent No.1 and the remaining investment was not redeemed.
9. The arguments of the learned counsel for the parties are duly considered.
10. 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).-6-
NC: 2024:KHC:27031 WP No. 48060 of 2017 (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 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.-7-
NC: 2024:KHC:27031 WP No. 48060 of 2017
(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 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 -8- NC: 2024:KHC:27031 WP No. 48060 of 2017 notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 25."
11. The provisions of Section 28 is summarized as follows:
The Recovery Officer can use additional methods to recover debts specified under this 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 -9- NC: 2024:KHC:27031 WP No. 48060 of 2017 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.
• 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.
12. 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.
13. 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.
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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 as detailed under:
Date of Name of the person to Amount Bank details where remittance whom amount is remitted remitted the amount is credited to 28.10.2016 Vikram Gupta, s/o Usha 1,20,00,058.00 Bank of India, Gupta (Defendant No.4) in Cantonment OS No.364/2008) Branch, Bengaluru 28,10.2016 Anirudh Gupta s/o 50,00,058.00 Kotak Mahindra Mahendra Kumar Gupta Bank, Lavelle Road (Defendant No.2) in OA Branch, Bangalore.
No.364/2008)
28.10.2016 Sabitha Jain (Defendant 50,00,058.00 Andhra Bank, Agra
No.5) in OA 364/2008)
28.10.2016 Sadhana Gupta, w/o 50,00,058.00 Karnataka Bank,
Mahendra Kuamr Gupta. Ashok 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 Bank,
Enterprises (Firm of Ashok Nagar
Mr.Mahendra Kumar Gupta Branch, Bangalore.
& others)
02.11.2016 Chamundi Industries Ltd 2,50,00,058.00 Karnataka Bank,
(Defendant No.1) in Ashok Nagar
O.A.364/2008) Branch, Bangalore.
02.11.2016 Chamundi Steel CAstings 2,50,00,058.00 Karantaka Bank,
Ltd (another Company of Ashok Nagar
Defendant No.2) in Branch, Bangalore
O.A.364/2008)
11.11.2016 Nourangari & Sons 3,12,00,000.00 Clearing
03.03.2017 SAdhana Gupta w/o 70,00,000.00 Karnataka Bank,
Mahendra Kumar Gupta Ashok Nagar
Branch, Bangalore
15. A perusal of the statement indicates that no money was transferred by defendant No.6 to the petitioner. Therefore, in the absence of substantial evidence showing that the petitioner received money from defendant No.6, the impugned order of
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NC: 2024:KHC:27031 WP No. 48060 of 2017 attachment and the encashment of the petitioner's investment are 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 Annexures-B and A are hereby quashed.
iii) The respondent Nos.1 to 4 hereby directed to refund a sum of Rs.1,02,21,733.61 to the petitioner, and consequently, 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 a period of two weeks from the receipt of certified copy of this order.
Sd/-
JUDGE bkm