Allowed

Mr Anirudh Gupta v. Recovery Officer-I

Karnataka HC19 Jun 2024WP/44799/2017

Case brief

AI extract

What is this about?

Petition challenged attachment by the Recovery Officer of the petitioner's SBI Mutual Fund investments in recovery proceedings against his relatives. Held that no written notice under Section 28(3)(i) was issued and no evidence showed the funds were the defendants'. Attachment quashed; accounts defrozen.

What did the court decide?

Attachment order and refund communication quashed; respondents 3 and 4 directed to defreeze folio No.14968272 and account No.917010045870730 and restore the amount; Rs.24,69,602.68 ordered returned.

Mr Anirudh Gupta Vs Recovery Officer-I — Banking and Recovery | Karnataka HC (2024)

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NC: 2024:KHC:21964 WP No. 44799 of 2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 19^TH DAY OF JUNE, 2024

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BEFORE

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THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR

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WRIT PETITION NO. 44799 OF 2017 (GM-DRT)

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BETWEEN:

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MR. ANIRUDH GUPTA S/O. MR. MAHENDER KUMAR GUPTA, AGED ABOUT 31 YEARS R/AT NO.83, 1ST FLOOR, 7TH CROSS ROAD, 4^TH B BLOCK, KORAMANGALA, BENGALURU-560 034.

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…PETITIONER

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(BY SRI. UDAYA HOLLA, SENIOR ADVOCATE FOR SRI. MOHAMMED SHAMEER, ADVOCATE)

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AND:

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RECOVERY OFFICER-I DEBTS RECOVERY TRIBUNAL-II, NO. 4, RESIDENCY ROAD, BENGALURLU-560 025.

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Digitally signed by R HEMALATHA Location: HIGH COURT OF KARNATAKA

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CANARA BANK A BODY CORPORATE CONSTITUTED UNDER THE BANKING COMPAINES ACT, 1970, HAVING ITS BRANCH OFFICE AT SPENCER TOWER, M.G. ROAD, BENGALURU-560 001, REPRESENTED BY ITS BRANCH MANAGER.

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SBI MUTUAL FUND TRUSTEE COMPANY PVT LTD HAVING OFFICE AT 9TH FLOOR, CRESCENZO, PLOT C-38, AND C-39, G BLOCK, BANDRA-KURLA COMPLEX, BANDRA (E) MUMBAI-400 051 REPRESENTED BY ITS MANAGING DIRECTOR.

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AXIS BANK LTD HAVING ITS BRANCH OFFICE AT 80 FEET ROAD, HAL 2ND STAGE,

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NC: 2024:KHC:21964 WP No. 44799 of 2017

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INDIRANAGAR, BENGALURU-560 038, REPRESENTED BY ITS BRANCH MANAGER.

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…RESPONDENTS

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(BY SRI SHASHIDHAR M.R., ADVOCATE FOR R2; SRI RAGHU HULIKAR, ADVOCATE FOR R-3; SRI UNNIKRISHNAN, ADVOCATE FOR R4; R1 SERVED)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 8.8.2017 PASSED BY THE R-1 VIDE ANNEXURE-A; QUASH THE LETTER DATED 20.9.2017 SENT BY THE R-3 TO THE PETITIONER VIDE ANNEXURE-B AND ETC.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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This petition challenges the order dated 8.8.2017 passed by the Debt Recovery Tribunal (DRT) at Annexure-A. This order resulted in the attachment of Rs.1.75 crores invested by the petitioner with SBI Mutual Funds Private Limited. Additionally, the petition impugns the order dated 20.09.2017 issued by SBI Mutual Fund, which called upon the petitioner to refund Rs.1,76,82,841.21 in favor of the Recovery Officer-DRT.

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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.

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NC: 2024:KHC:21964 WP No. 44799 of 2017

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The DRT issued a recovery certificate on 16.7.2016 for the recovery of Rs.43.44 crores from the aforementioned six defendants.

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The petitioner is the son of Mahendra Kumar Gupta, the 2nd defendant before the DRT in OA No. 364/2008, and the grandson of Sarwan Kumari, the 6th defendant. The DRT issued an attachment order dated 8.8.2017, stating that Sarwan Kumari had received a substantial amount from the KIADB as compensation for mortgaged property. This amount was deposited with the Corporation Bank, and subsequently transferred to various persons/entities. During the money trail conducted by the DRT, it was found that some of the amounts were routed/diverted to the children of certified debtors through bank accounts and investments made in funds and scripts floated by them.

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The petitioner herein is listed as one of the certified debtors and a beneficiary of the compensation amount. Consequently, the DRT ordered the attachment of his investments with a further direction to attach investments made with the SBI Mutual Fund and to redeem and deposit the same before the DRT.

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Following this, the SBI Mutual Fund issued a communication stating that they had received a garnishee order dated 8.8.2017 from the Recovery Officer to attach the investments held by the petitioner in the SBI Mutual Fund schemes. The petitioner had already redeemed the mutual funds aggregating to

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NC: 2024:KHC:21964 WP No. 44799 of 2017

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Rs.1,76,87,841.21, and therefore, the petitioner was required to refund this amount to the Recovery Officer.

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Mr. Udaya Holla, the learned senior counsel representing the petitioner, submits that a sum of Rs.50 Lakhs was received from Sarwan Kumari out of the compensation amount from the KIADB. This Rs.50 Lakhs amount was credited through the Recovery Officer DRT's account, as evidenced by the petitioner's bank statement produced by Canara Bank in the statement of objections at Annexure-R6. Therefore, in the absence of any substantial evidence proving that the money invested with SBI Mutual Fund originated from Sarwan Kumari or any other defendants, the impugned order by the DRT and the communication from SBI Mutual Fund lack authority.

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Conversely, the learned counsel for the respondentBank argues that the material clearly establishes that the petitioner’s investment with SBI Mutual Fund came from the money received from Sarwan Kumari, his grandmother, out of the KIADB compensation. Consequently, the DRT rightly passed the attachment order and requested SBI Mutual Fund to furnish details of the petitioner’s and other beneficiaries' investments. Therefore, the impugned order aligns with sub-section 3(i) of Section 28 of the Recovery of Debts and Bankruptcy Act, 1993.

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The arguments of both parties have been duly considered.

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NC: 2024:KHC:21964 WP No. 44799 of 2017

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Section 28(3)(i) of the Recovery of Debts and Bankruptcy Act, 1993, mandates that the Recovery Officer must issue a written notice to any person owing money to the defendant, requiring them to pay such amount to the Recovery Officer.

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Section 28(3)(ii) of the Act, 1993, states that 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. For this sub-section's purposes, the shares of the joint holders in such amount shall be presumed to be equal unless proved otherwise.

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In this case, no notice was issued to the petitioner in writing, calling upon him to pay any amount due to the defendant, as mandated under Section 28(3)(i) of the Act, 1993.

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The DRT, 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 SBI Mutual Fund. Therefore, the impugned order by the DRT violates principles of natural justice and the provisions contained in Section 28 of the Act, 1993.

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In the statement of objections filed by the respondentCanara Bank, the bank statement of the petitioner at Annexure - R 6 shows that the Rs.50,00,000/- transferred from his grandmother's account was debited and credited to the Recovery Officer DRT's account.

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6 - NC: 2024:KHC:21964 WP No. 44799 of 2017

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Besides this amount, there is no material evidence to substantiate that the petitioner held Rs.1,76,87,841.21 on behalf of the defendants before the DRT. Therefore, the order attaching the petitioner’s investment with the SBI Mutual Fund is impermissible and arbitrary.

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16. Accordingly, the writ petition is allowed.

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The impugned order dated 8.8.2017 passed by the 1^st respondent at Annexure-A, and communication dated 20.9.2017 passed by the respondent No.3 annexure-B insofar it relates to attachment of investment of the petitioner with the SBI Mutual Funds and also direction to refund the investment before Recovery Officer, are hereby quashed.

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The respondents No.3 and 4 are hereby directed to defreeze the a/c bearing folio No.14968272 and account No.917010045870730, and restore the amount to the petitioner.

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Liberty is reserved for the Recovery Officer, DRT to pass an appropriate order afresh, should it be established, in accordance with the law, that the petitioner is holding money on behalf of any of the defendants.

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Sd/JUDGE

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7 - NC: 2024:KHC:21964 WP No. 44799 of 2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU [MR ANIRUDH GUPTA VS. RECOVERY OFFICER-I AND OTHERS] HCJ 15.07.2024

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(VIDEO CONFERENCING / PHYSICAL HEARING)

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ORDERS ON ‘FOR BEING SPOKEN TO’

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In compliance of the direction insofar as it relates to respondent No.1, the amount of Rs.50.00 lakhs, which was received from the bank account of defendant No.6, was credited to the account of Recovery Officer, DRT Account. However, an additional amount of Rs.24,69,602.86 has been recovered from the mutual funds of the petitioner by redemption of the mutual funds of the petitioner invested with the SBI Mutual Fund.

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In operative portion, the respondent No.1 is hereby directed to return the amount of Rs.24,69,602.68 to the petitioner within two weeks from today.

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This order shall be read in conjunction with the Order dated 19.06.2024 passed in W.P No.44799/2017.

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Sd/JUDGE

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UN List No.: 1 Sl No.: 2

Mr Anirudh Gupta v. Recovery Officer-I

Case brief

What is this about?

What did the court decide?

Mr Anirudh Gupta v. Recovery Officer-I

Case brief

What is this about?

What did the court decide?

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