Allowed

Mrs. Jaya Gupta v. Recovery Officer-I

Karnataka HC10 Jul 2024WP/48060/2017

Case brief

AI extract

What is this about?

The High Court of Karnataka quashed attachment orders against the petitioner's mutual fund investments under the Recovery of Debts Act, noting absence of requisite notice and evidence linking the funds to the debtor. A refund and defreezing of the account were directed.

What did the court decide?

Impugned orders quashed; respondents directed to refund Rs. 1,02,21,733.61 to petitioner and defreeze account.

Mrs. Jaya Gupta Vs Recovery Officer-I — Company and Corporate | Karnataka HC (2024)

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NC: 2024:KHC:27031 WP No. 48060 of 2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10^TH DAY OF JULY, 2024

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BEFORE

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THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR WRIT PETITION NO. 48060 OF 2017 (GM-DRT)

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BETWEEN:

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MRS. JAYA GUPTA AGED ABOUT 32 YEARS W/O MR. ANIRUDH GUPTA, RESIDING AT NO.621, 16^TH B MAIN 3^RD CROSS, 3^RD BLOCK, KORAMANGALA BENGALURU - 560 034.

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…PETITIONER

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

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AND:

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Digitally signed by B K MAHENDRAKUMAR Location: HIGH COURT OF KARNATAKA

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

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CANARA BANK

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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.

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COMPUTER AGE MANAGEMENT SERVICES PVT LTD HAVING ITS HEAD OFFICE AT RAYALA TOWERS III FLOOR, 158 ANNASALAI

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CHENNAI - 600 002 AND ITS BRANCH OFFICE AT TRADE CENTER 1^ST FLOOR, 45, DICKENSON ROAD, (NEXT TO MANIPAL CENTER) BANGALORE - 560 042 REPRESENTED BY ITS MANAGER.

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L & T INVESTMENT MANAGEMENT LIMITED HAVING ITS HEAD OFFICE AT BRINDAVAN 6^TH FLOOR, PLOT NO.177, C.S.T. ROAD, KALINA SANTACRUZ EAST, MUMBAI - 400 098 AND BRANCH OFFICE AT S- 411, 2^ND FLOOR, WEST MINSTER CUNNINGHAM ROAD, BENGALURU - 560 052.

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HDFC ASSET MANAGEMENT COMPANY LTD HAVING ITS REGISTERED OFFICE AT "HDFC HOUSE", 2^ND 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.

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…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)

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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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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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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.

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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.

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The DRT issued a recovery certificate on 16.07.2016 for the recovery of Rs. 43.44 crores from the aforementioned six defendants.

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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

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NC: 2024:KHC:27031 WP No. 48060 of 2017

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petitioner’s mutual fund investments with respondent No.1, the Recovery Officer.

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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.

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In response , the learned counsel for the respondentBank 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.

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The arguments of the learned counsel for the parties are duly considered.

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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.

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The arguments of the learned counsel for the parties are duly considered.

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Before addressing the point for consideration, it is pertinent to reproduce section 28 of the Act .

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"Section 28: Other modes of recovery.

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(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.

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(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:

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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).

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(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.

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(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.

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(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.

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(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.

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(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.

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(vi) Where a person to whom a notice under this subsection 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.

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(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.

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(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.

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(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.

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(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

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notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 25."

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The provisions of Section 28 is summarized as follows:

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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).

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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.

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• 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.

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• This includes joint accounts, with the shares presumed equal unless proven otherwise.

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• A copy of the notice is sent to the debtor and any joint account holders.

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• The notified person must comply, even without presenting documents like passbooks.

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• Any claims on property related to the notice after its issuance are void against the debt demand.

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• 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

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not required to pay, unless the statement is proven false. If false, they become personally liable.

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• The Recovery Officer can amend or revoke notices and extend payment deadlines.

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• The Recovery Officer provides receipts for payments made under the notice, discharging the payer’s liability to the debtor.

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• Anyone paying the debtor after receiving a notice becomes personally liable for the amount paid.

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• 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.

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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.

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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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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:

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Date of remittance	Name of the person to whom amount is remitted	Amount remitted	Bank details the amou credited to	where nt is
28.10.2016	Vikram Gupta, s/o Usha Gupta (Defendant No.4) in OSNo.364/2008)	1,20,00,058.00	Bank of Cantonment Branch,Ben	India, galuru
28,10.2016	Anirudh Gupta s/o Mahendra Kumar Gupta (Defendant No.2) in OA No.364/2008)	50,00,058.00	Kotak M Bank, Lavell Branch, Ban	ahindra e Road galore.
28.10.2016	Sabitha Jain (Defendant No.5)inOA364/2008)	50,00,058.00	Andhra Bank	, Agra
28.10.2016	Sadhana Gupta, w/o Mahendra Kuamr Gupta.	50,00,058.00	Karnataka Ashok Branch,Ban	Bank, Nagar galore.
02.11.2016	M Satish	79,21,601.00	Corporation Rajajinagar	Bank, Branch.
02.11.2016	Mahendra Vikram Enterprises (Firm of Mr.Mahendra Kumar Gupta & others)	5,00,00,058.00	Karnataka Ashok Branch, Ban	Bank, Nagar galore.
02.11.2016	Chamundi Industries Ltd (Defendant No.1) in O.A.364/2008)	2,50,00,058.00	Karnataka Ashok Branch,Ban	Bank, Nagar galore.
02.11.2016	Chamundi Steel CAstings Ltd (another Company of Defendant No.2) in O.A.364/2008)	2,50,00,058.00	Karantaka Ashok Branch, Ban	Bank, Nagar galore
11.11.2016	Nourangari& Sons	3,12,00,000.00	Clearing
03.03.2017	SAdhana Gupta w/o Mahendra Kumar Gupta	70,00,000.00	Karnataka Ashok Branch,Ban	Bank, Nagar galore

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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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attachment and the encashment of the petitioner's investment are not legally sustainable. Accordingly, I pass the following:

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ORDER

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i) The petition is allowed.

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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.

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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.

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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.

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Sd/-

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JUDGE

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bkm

Mrs. Jaya Gupta v. Recovery Officer-I

Case brief

What is this about?

What did the court decide?

Mrs. Jaya Gupta v. Recovery Officer-I

Case brief

What is this about?

What did the court decide?

What the court decided

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