Dismissed

Mumthaz P v. Board of Directors of

Karnataka HC8 Nov 2024WP/554/2023

Case brief

AI extract

What is this about?

Writ petition challenging auction proceedings initiated by a Cooperative Bank under the Karnataka Cooperative Societies Act. Issue was whether only SARFAESI Act applies. Court denied relief based on Arihant precedent stating both Acts apply and first respondent bank is not estopped from using Karnataka Co-operative Societies Act.

What did the court decide?

Petition dismissed. Liberty reserved to file objections regarding auction sale to the Bank within four weeks.

Mumthaz P Vs Board of Directors of — Cooperative Societies | Karnataka HC (2024)

¶1

¶2

NC: 2024:KHC:45224 WP No. 554 of 2023

¶3

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

¶4

DATED THIS THE 8^TH DAY OF NOVEMBER, 2024

¶5

BEFORE

¶6

THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR

¶7

WRIT PETITION NO.554 OF 2023 (CS-RES)

¶8

BETWEEN:

¶9

MUMTHAZ P. W/O SULAIMAN K., AGED ABOUT 46 YEARS, MURABAIL HOUSE, GOLTHAMAJALU VILLAGE, KALAMADKA POST, BANTWAL TALUK, DAKSHIN KANNADA - 574 222.

¶10

SULAIMAN KALLADKA S/O ISBU BEARY, AGED ABOUT 48 YEARS, MURABAIL HOUSE, GOLTHAMAJALU VILLAGE, KALLADKA POST, BANTWAL TALUK, DAKSHINA KANNADA – 574 222.

¶11

Digitally signed by LEELAVATHI S R Location: High Court of Karnataka

¶12

(IMPLEADED VIDE ORDER DATED 28.08.2023)

¶13

…PETITIONERS

¶14

(BY SRI. MATHEW J. NEDUMPARA. ADV. A/W SMT. MARIA NEDUMPARA ADV. FOR SMT. VANAJAKSHI, ADV.)

¶15

AND:

¶16

BOARD OF DIRECTORS OF THE SOUTH CANARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., REPRESENTED BY ITS CHAIRMAN, “UTKRUSTHA

¶17

¶18

NC: 2024:KHC:45224 WP No. 554 of 2023

¶19

SAHAKARI SOUDHA” KODIALBAIL, MANGALURU - 575 003.

¶20

THE AUTHORIZED OFFICER OF THE SOUTH CANARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., ”UTKRUSTHA SAHAKARI SOUDHA”, KODIALBAIL, MANGALURU - 575 003.

¶21

THE BOARD OF DIRECTORS OF RBI REPRESENTED THROUGH CHAIRMAN, RESERVE BANK OF INDIA, NEW CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH RD, FORT, MUMBAI - 400 001.

¶22

THE COLLECTION OFFICER, THE SOUTH CANARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., ”UTKRUSTHA SAHAKARI SOUDHA” KODIALBAIL, MANGALURU - 575 003.

¶23

RELIANCE DIGITAL PLATFORM AND PROJECT SERVICES LIMITED REPRESENTED BY ITS MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, HAVING ADDRESS AT 19 WALCHAND HIRACHAND MARG BALLARD ESTATE, MUMBAI- 400 001. AND ALSO AT: RELIANCE CORPORATE PARK, THANE BELAPUR ROAD, GHANOSLI, NAVI MUMBAI, MAHARASHTRA - 400 701.

¶24

ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETY, PUTTUR MAIN ROAD,

¶25

¶26

NC: 2024:KHC:45224 WP No. 554 of 2023

¶27

OPP. TO HEAD POST OFFICE,

¶28

PUTTUR - 574 201.

¶29

DEPUTY COMMISSIONER, OFFICE OF THE DEPUTY COMMISSIONER, BUNDER MANGALORE, DAKSHINA KANNADA - 575 001.

¶30

STATION HOUSE OFFICER, PUTTUR POLICE STATION, DARBE PUTTUR, KARNATAKA - 574 202,

¶31

UNION OF INDIA REPRESENTED BY HON'BLE SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF FINANCIAL SERVICES, GOVERNMENT OF INDIA, JEEVAN DEEP BUILIDNG, PARLIAMENT STREET, NEW DELHI- 110 001.

¶32

MINISTRY OF MICRO SMALL AND MEDIUM ENTERPRISES. REPRESENTED BY ITS SECRETARY, GOVERNMENT OF INDIA, UDHYOG BHAVAN, NEW DELHI- 110 011.

¶33

STATE OF KARNATAKA, REPRESENTED BY ITS CHIEF SECRETARY, GOVERNMENT SECRETARIAT, BENGALURU, KARNATAKA - 560 001.

¶34

…RESPONDENTS

¶35

(BY SRI. MAHAMAD TAHIR A., ADV. FOR R1 & R2; SMT. PRATHIBHA R. K., AGA FOR R6 TO R8 & R11; *

¶36

SRI. MANU KULKURANI, ADV. FOR R5; * SRI. POOJAPPA J, CGC FOR R9 AND R10; SRI. PRUTHVI WODEYAR, ADV. FOR PROPOSED R12; R3 & R4 ARE SERVED, BUT UNREPRESENTED)

¶37

_ Deleted and corrected vide Court order dated 20.01.2025_*

¶38

¶39

NC: 2024:KHC:45224 WP No. 554 of 2023

¶40

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF CONSTITUTION OF INDIA, PRAYING TO DECLARE THAT BY VIRTUE OF ENTRY NO.45, LIST I, VII SCHEDULE OF THE CONSTITUTION, BANKING FALLS UNDER THE EXCLUSIVE LEGISLATIVE/EXCEUTIVE PROVINCE OF THE PARLIAMENT/UNION GOVERNMENT AND THAT SINCE THE CONTRACTUAL RELATIONSHIP BETWEEN THE PETITIONER AND THE DEFENDANT BANK IS PRIMARILY IN THERE ALM OF BANKING, THE LAWS ENACTED BY THE KARNATAKA LEGISLATURE AND THE ACTIONS TAKEN BY THE AUTHORITIES UNDER THE LAWS AND RULES ENACTED BY THE KARNATAKA LEGISLATURE/KARNATAKA GOVERNMENT, IN PARTICULAR, THE KARNATAKA STATE CO-OPERATIVE SOCIETIES ACT AND THE RULES THERE UNDER HAVE NO APPLICATION, WHATSOEVER, AND ARE EX FACIE RENDERED VOID AB INITIO, NON EST, STILL BORN, NEVER EVER EXISTING IN THE EYES OF LAW AND ETC.

¶41

THIS WRIT PETITION HAVING BEEN RESERVED FOR ORDERS COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING CORAM: HON'BLE MR JUSTICE S.R.KRISHNA KUMAR

¶42

CAV ORDER

¶43

In this petition, petitioner seeks for the following reliefs:-

¶44

“(a) To declare that by virtue of Entry no. 45, List I, VII Schedule of the Constitution, Banking falls under the exclusive legislative/executive province of the Parliament/Union Government and that since the contractual relationship between the Petitioner and the

¶45

¶46

NC: 2024:KHC:45224 WP No. 554 of 2023

¶47

Defendant Bank is primarily in there alm of Banking, the laws enacted by the Karnataka legislature and the actions taken by the authorities under the laws and rules enacted DV The Karnataka legislature/Karnataka Government, in particular, the Karnataka State Cooperative Societies Act and the rules there under have no application, whatsoever, and are ex facie rendered void ab initio, non est, still born, never ever existing in the eyes of law;

¶48

(b) In furtherance of relief (a) above, to issue a writ in the nature of certiorari calling for the entire records and proceedings from the Respondent Bank and other authorities of the action taken against the Petitioner/her firm under the Karnataka State Co-operative Societies Act and the Rules made thereunder and to quash and set aside the same;

¶49

(c) In furtherance of relief (a) and (b) above, to issue a writ in the nature of mandamus commanding the bank and its officers to restore the possession of the Petitioner/her firm and family of the properties of which they have taken illegal and forceful possession, forthwith, and further to award an amount of Rs. 50 lakhs as compensation for the injury, mental agony and damage to reputation caused to the Petitioners

¶50

(d) Without prejudice to the relief above, to declare that the Defendant Bank having invoked Section13(2)of the SARFAESI Act for the recovery of the amount allegedly due from the Petitioner is estopped from initiating any other mode of recovery, and in particular, under the Karnataka State Co-operative Societies Act and the rules made there

¶51

6 - NC: 2024:KHC:45224 WP No. 554 of 2023

¶52

under, and also, the recovery proceedings under Negotiable Instrument Act, 1881 initiated against the Petitioner and other guarantors;

¶53

(e) To declare that the license/authority given to the Defendant no. 2 Bank is liable to be cancelled/revoked since the permission to conduct the Banking business is granted on the undeniable and definite premise that the Defendant Bank will conduct its affairs in a just, fair and equitable manner and will not use the powers vested in them to harass and liquidate its constituents/the consumers of Banking services like the instant Petitioner.”

¶54

Heard learned counsel for the petitioner and learned counsel for the respondents 1 and 2 and perused the material on record.

¶55

In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned counsel

¶56

for the petitioner submits that the respondents 1 and 2 – Co-operative Bank is not entitled to initiate proceedings for recovery of loan under the Karnataka Co-operative Societies Act, 1959 (for short ‘the said Act of 1959’) and the said proceedings initiated by the respondents 1 and 2 – Bank are without jurisdiction, null and void and deserve to be quashed. It is also submitted that the petitioner was a guarantor to the loan taken by M/s.Sahad

¶57

7 - NC: 2024:KHC:45224 WP No. 554 of 2023

¶58

Rental Pvt. Ltd., represented by the petitioner’s husband namely Sri.Suleman K. and Sri.Mohammad Saleem, who are its Directors and since the said company is an MSME protected under the MSMED Act, 2006 and Notification dated 29.05.2015, proceedings for recovery of the loan were not maintainable and the same deserve to be quashed. It was also submitted that in the light of the judgment of the Apex Court in the case of Pandurang Ganapathi Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited – (2020) 9 SCC 215 , the only remedy for recovery of loan available

¶59

to the respondents 1 and 2 – Co-operative Bank was by invoking the provisions of the SARFAESI Act, 2002 and the impugned proceedings initiated under the said Act of 1959 deserve to be quashed, since by virtue of Entry No.45 List – 1 of the VII Schedule to the Constitution, “Banking” falls within the exclusive legislative / executive province of the Parliament / Union Government and banking activities including recovery of loans cannot be initiated by the respondents 1 and 2 – Co-operative Bank by invoking the provisions of the said Act of 1959 enacted by the State of Karnataka. It is further submitted that the judgment of the coordinate Bench of this Court in the case of Sri.Arihant Credit Souhard Sahakari Limited vs. Assistant Registrar and others –

¶60

¶61

NC: 2024:KHC:45224 WP No. 554 of 2023

¶62

W.P.No.100985/2022 & connected matters dated 30.11.2022 is

¶63

erroneous and not applicable to the facts of the instant case.

¶64

Per contra, learned counsel for respondents 1 and 2 – Bank would reiterate the various contentions urged in the statement of objections and submit that there is no merit in the petition and the same is liable to be dismissed. It was submitted that the judgment of this Court in Arihant’s case supra completely covers the various contentions urged by the petitioner which have been specifically negatived by this Court and consequently, the present petition is also liable to be dismissed.

¶65

I have given my anxious consideration to the rival submissions and perused the material on record.

¶66

A perusal of the material on record will indicate that it is an undisputed fact that the respondents 1 and 2 – Bank sanctioned a loan of Rs.10 Crores on 06.06.2018 in favour of M/s. Sahad Rental Pvt. Ltd., represented by its Directors Sri.Suleman and Sri.Mohammed Sameer and that the petitioner herein who is none other than the wife of the said Sri.Suleman stood as a guarantor to the loan along with one Hameed Saheb. Since the aforesaid borrower did not repay the loan, recovery proceedings in Dispute

¶67

9 - NC: 2024:KHC:45224 WP No. 554 of 2023

¶68

No.623/2019 were raised by the Bank under Section 70 of the said Act of 1959, which culminated in an award dated 11.12.2020 passed against the petitioner and the borrowers. The said award dated 11.12.2020 has since attained finality and become conclusive and binding upon the petitioner and the aforesaid borrowers.

¶69

In pursuance of the aforesaid order dated 11.12.2020, the Bank initiated execution proceedings, in which, the mortgaged property was brought to sale in a public auction and sold in favour of a buyer on 28.10.2022 leading to issuance of sale certificate dated 16.10.2022 in favour of the buyer which was duly registered on 26.12.2022 by the jurisdictional Sub-Registrar. It is only after the aforesaid proceedings that the petitioner who is a guarantor has preferred the present petition putting forth various contentions.

¶70

The main contention urged by the petitioner is that insofar as default of a loan obtained by the respondent – Co-operative Bank is concerned, the only remedy available to the Bank is by invoking the provisions of the SARFAESI Act, 2002 as held by the

¶71

Apex Court in Pandurang’s case supra and that the subject proceedings initiated by the Bank by invoking the provisions of the

¶72

10 -

¶73

NC: 2024:KHC:45224 WP No. 554 of 2023

¶74

said Act of 1969 were without jurisdiction, null and void. In this context, it is relevant to state that this very contention was urged and negatived by the co-ordinate Bench of this Court in Arihant’s

¶75

case supra, wherein it was held as under:-

¶76

“W.P. No.100958/2022 is filed challenging the sale notice dated 15.02.2022 for auctioning of the property mortgaged by the Respondent No.4-Shivasagar sugar which defaulted in repayment of loan amount to the DCC Bank Belagavi and DCC Bank Vijayapura for recovering the loan amount due. This Court declined to grant an interim order to stay the impugned auction notice, however, the amount sought to be realized as a result auction was not to be disbursed till further order of this Court. The said auction did not go through as there was no bid.

¶77

2. Thereafter a fresh auction notice dated 09.06.2022 was issued and same is challenged in WP No,102493/2020. This Court permitted the authorities to proceed with the auction. However, the amount realized as a result of the auction was not be disbursed to any of the parties until further order of this Court. Against the order passed by the Coordinate Bench of this Court, writ appeal was filed and Division Bench of this Court declined to interfere with the interim order passed by the coordinate Bench of this Court and passed an order 11.07.2022 which reads as follows :

¶78

11 -

¶79

NC: 2024:KHC:45224 WP No. 554 of 2023

¶80

“Uday Holla, learned Senior Advocate appearing for the appellant, seeking interim order to defer conformation of auction of the property, which to scheduled to be held in the noon of this day. Sri Jayakumar S. Patil, learned Senior Advocate appearing for the Caveator/Respondent No. 2 opposes the same contending that such an order is likely to prejudice the interest of his client, that the conformation of auction would take 60 days and thus there is no need of such reprieve new Since some questions are under debate, any auction shall be subject to the result of this writ Appeal. However, this order or pendency of the Appeal shall not come In the way of parties negotiating an amicable settlement. Call this matter on the second week of August, 2022"

¶81

3. In pursuance of the auction notice dated 09.06.2022, Harikrishna Group Private limited participated in the auction conducted on 11.7.2022 and was the successful bidder and deposited 50% of the bid amount. The auction held on 11.07.2022 is challenged in W.P. No.102958/2022 and this Court passed the following interim order dated 08.08.2022:

¶82

i. “the case of the petitioner is that, it had advanced loan to respondents No.4 and had first charge over the properties mortgaged to it. However, respondents No.2 and 3 have

¶83

12 -

¶84

NC: 2024:KHC:45224 WP No. 554 of 2023

¶85

sought to bring the said properties for sale pursuant to an award from the Registrar of Cooperative Societies. It is further contended by the petitioner that, the properties are sought to be sold without valuation and without fixing the reserve price. Based on the submissions made by the petitioner, further proceedings before the 1st respondent in proclamation of auction bearing reference No.000542/2022-23 dated 09.06.2022 issued under Rule 38(2)(D) of the Karnataka Cooperative Societies Rules, 1960, vide Annexure-A, is stayed till the next date of hearing".

¶86

4. Since the issue involve in all these writ petitions are interlinked, they are taken up together and disposed of by this common order.

¶87

5. The parties are referred to their respective rankings in WP No.100985/2022.

¶88

6. During the pendency of these writ petitions, Karmaveera Bhahuroa Patil Multi State Co-operative Limited claiming to be the financial creditor filed a petition under Section 7 of the Insolvency and Bankruptcy for 2016 to initiate resolution process against ‘Shivsagar Sugar Agro Products’ i.e. borrower. The National Company Law Tribunal (for short `NCLT’), Mumbai admitted the application and by order dated 19.10.2022 prohibited the continuation of the proceeding against the corporate debtor including execution of any decree or order and the same

¶89

13 -

¶90

NC: 2024:KHC:45224 WP No. 554 of 2023

¶91

was published in the newspaper.

¶92

7. Sri. S.M.Chandrashekar, learned Senior counsel appearing for the petitioner counsel would make the following submissions:

¶93

a) The judgment and decree obtained under the provisions of Karnataka Co-operative Society Act, 1961 and consequently the auction conducted under the provisions of said Act and Rules is one without jurisdiction, since Section 35 of the Securitization and Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002 specifies that the provisions of the Act overrides any other laws. The provisions of the Act, 2002 are applicable to Cooperative Bank for recovery of loan. Therefore, the proceedings initiated to execute the award by auctioning the subject properties is a nullity in the eye of law. In support, reliance is placed on the decision of the Hon’ble Supreme Court in the Case of PANDURNGA GANPATHI CHAUGULE VS. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED (2020) 9 SCC Page 215 (paragraphs- 124 and 140.)

¶94

c) The National Company Law Tribunal, Mumbai having passed an order prohibiting the continuation of the proceeding against the corporate debtors- Shivasagar sugars, the confirmation of sale in favour of the successful bidder cannot be further proceeded with as specified under Section 14 of the Insolvency and Bankruptcy Code 2016.

¶95

d) Section 74 of the Code 2016, specifies that if the creditor contravenes any of the provisions of Code shall be punishable with imprisonment for a period shall not less

¶96

14 -

¶97

NC: 2024:KHC:45224 WP No. 554 of 2023

¶98

than three years, but may extend to five years or with fine.

¶99

e) Section 231 of the Code 2016 bars the jurisdiction of any Court in interfering the order passed by the NCLT under the provisions of the Code 2016 and Section 238 of the Code 2016 specifies that the provisions of the Code have got over riding effect over other laws including the Karnataka co- operative societies Act and Rules framed there under.

¶100

8. Sri.Gurudas Kannur, learned Senior counsel appearing for the petitioner in addition would submit that the auction conducted stands vitiated, since the reserve price was not reflected in the auction notice.

¶101

9. He further submits that the alternative remedy is not a bar for maintaining these writ petitions when there is infraction of the statutory provisions of Rule 38 of the Karnataka Co-operative Society Rules. In support, he places a reliance on the decision of the Division Bench of this court in the case of the K. DEVADAS KUMAR VS.

¶102

A. UMESH AND OTHERS ILR 6 2006.

¶103

10. Sri Jayakumar S.Patil, learned Senior counsel appearing for the respondent Nos.2 and 3 would make the following submissions:

¶104

a) The present writ petitions are not maintainable since Section 101(2) of the Karnataka Cooperative Societies Act and sub-Rule 5 of Rule 38 of the Rules 1960 provides for setting aside the auction sale on the objections submitted by the decree holder or any person entitled to a share in the ratable distribution or any

¶105

15 -

¶106

NC: 2024:KHC:45224 WP No. 554 of 2023

¶107

person whose interests are affected. Hence, the confirmation of the sale is subject to objections to be submitted by any person or decree holder whose interests are affected and the present writ petitions filed without invoking the remedy provided under Section 101(2) and rule 38(5) of the Rules 1960 are not maintainable. More so, in the back drop that the judgment debtor has already submitted objections with the respondent No.1 to set-aside the auction in favour of HCG private Limited.

¶108

(b) The award or auction conducted under the provisions of the Karnataka Co-operative Societies Act and Rules cannot be said to be one without jurisdiction, since Section 37 of the SARFAESI, Act 2002 specifies that the provisions of the Act are in addition to and not in derogation of any other law for time being in force. Hence the creditor has an option either to proceed under the provisions of Karnataka Co-operative Societies Act or under the provisions of SARFAESI Act and in the absence of any bar contained in the Act, 2002, the impugned auction conducted under the provisions of Karnataka Cooperative Societies Act cannot be said to be one without jurisdiction.

¶109

11. The provisions contained in the Code 2016 are not applicable to a proceeding before the High Court under Article 226 of the Constitution of India as held by the Hon’ble Supreme Court in the case of L.CHANDRAKUMAR VS. UNION OF INDIA (AIR 1997 SC 1125).

¶110

12. There is no requirement to reflect the

¶111

16 -

¶112

NC: 2024:KHC:45224 WP No. 554 of 2023

¶113

market value or reserve price in the auction notice issued under Rule 38 of the Karnataka Co-operative Societies Act and the impugned auction notice issued , was in conformity with the provisions of the Act and Rules. Rule 8 of the SARFAESI Act is not applicable to the auction to be conducted under the provisions of the Act 1961 and Rules made there under.

¶114

13. I have examined the submissions made by the learned counsel for the parties.

¶115

14. On the request made by the respondent No.4, the Board of Management of the respondent No.2 Bank approved the loan of Rs.38 Crores for the purpose of cogeneration and ethanol project. The respondent No.5 had extended term loan of Rs.64 Crores to the respondent No.4 and after obtaining No Objection certificate from the said respondent and in mutual agreement with the respondent No.5, a second charge was created in favour of the respondent No.2 over the co-gen and ethanol plant. In other words, it was agreed with both the bankers that the mutual pari-passu charge over all the mortgaged properties. Thereafter, the respondent No.4 requested the respondent No.3 to extend the loan and for the said loan, the respondent No.4 mortgaged the properties which were mortgaged in favour of respondent No.5. An agreement was entered into between the respondent Nos.2 and 3, whereby the respondent No.2 as lead Bank was given power to take action on behalf of respondent No.3.

¶116

15. The respondent No.4 approached the

¶117

17 -

¶118

NC: 2024:KHC:45224 WP No. 554 of 2023

¶119

petitioner to secure a loan for repayment of its existing dues to the 5^th respondent and in pursuance of the same, loan was sanctioned to the 4^th respondent to clear its debt with the 5^th respondent by way of one time settlement and stepped into the shoes of the 5^th respondent.

¶120

16. The 4^th respondent having defaulted in repayment of the loan to the 2^nd respondent, a dispute under Section 70 of the Karnataka Co-operative Societies Act was registered and the Joint Registrar of Co-operative Society passed an award dated 27.08.2018 for recovering a sum of Rs.52.41 crores against the movable and immovable properties of the 4^th respondent. To execute the award, the subject properties were put to auction and in the auction dated 11.07.2022, respondent No.5 i.e. HKG Limited in W.P. No.102958/2022 was declared as the highest bidder at Rs.85 crores and deposited 50% of the bid amount.

¶121

17. Section 34 of the SARFAESI Act specifies that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debt Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine. A reading of the provision indicates that the jurisdiction of the civil court is barred in respect of any action taken under the provisions of the Act. To put it simply, any action taken under the Act 2002 can be subjected to challenge only before the Debt Recovery Tribunal and the jurisdiction of Civil Court is barred and nothing more.

¶122

18 -

¶123

NC: 2024:KHC:45224 WP No. 554 of 2023

¶124

18. Section 35 of the SARFAESI Act specifies that provisions of this Act to override other laws where there is inconsistency in the provisions of the Act, 2002 and any other law. The proceedings under the SARFAESI Act are in the nature of enforcement proceedings while provisions contained in the Karnataka Cooperative Societies Act provide for adjudication of a dispute between the Cooperative Bank and the borrower and also provide for procedure for recovering the dues determined under Sections 70 and 71 of the Karnataka Cooperative Societies Act. A reading of Section 37 of the SARFAESI Act specifies that the provision of the Act or Rules made there under will be an addition to the provisions of the Karnataka Cooperative Societies Act.

¶125

19. In other words, the provisions of the Act, 2002 prevail over other laws operating in the same field when there is inconsistency.

¶126

20. The creditor can resort to recover the dues under the Act, 2002 or under the provisions of any other law operating in the same field or under the provisions of both the laws. The creditor cannot be restricted to resort to recover the dues under the Act, 2002 and it is only an additional remedy provided.

¶127

21. The Hon’ble Supreme Court in the case of Panduranga Ganpathi Chaugule, at para 124, has held that the Co-operative Banks are covered under the Act, 2002 by virtue of the notification dated 28.01.2003 and, at para 142.3, it has been held that the Co-operative Banks under the State legislation and multi-State Co-

¶128

19 -

¶129

NC: 2024:KHC:45224 WP No. 554 of 2023

¶130

operative Banks are “banks” under Section 2(1)(c) of the SARFAESI Act.

¶131

22. It is clear that on a conjoint reading of the aforesaid provisions and the decision of the Hon’ble Apex Court in the case of Pandurang Ganpati Chaugule (supra), the co-operative bank can take recourse for recovery of money either under the provisions of the Karnataka Co-operative Societies Act, or under the SARFAESI Act, and there is no specific bar for the cooperative banks to invoke the provisions contained in cooperative Societies Act in the absence of any inconsistencies.

¶132

23. Initially, the first respondent had issued auction notice dated 15.02.2021 in Form No.8 indicating that a total sum due to the bank was Rs.102,46,73,960/with interest and other expenses. However, auction was not conducted since there were no sufficient bidders. Thereafter, the 1^st respondent issued a second auction notice in Form No.8 dated 09.06.2022 indicating that a sum of Rs.109,25,49,583/as due to the Bank from the borrower. However, the auction was not conducted since there were no sufficient bidders. Thereafter, the 1^st respondent issued third auction notice, and in pursuance of the same, auction was conducted and the 5^TH respondent-HKG Limited was a successful bidder.

¶133

24. The contention of the petitioners is that the auction notice issued by the 1^st respondent stands vitiated since it does not indicate the reserve price. However, the provisions contained in the Karnataka Co-operative

¶134

20 -

¶135

NC: 2024:KHC:45224 WP No. 554 of 2023

¶136

Societies Act, 1959 and the Rules made there under and Form No.8 does not mandate that the reserve price has to be indicated in the auction notice. In the absence of any specific provision either under the Act or Rules, the auction conducted cannot be said to be vitiated for not indicating the reserve price.

¶137

25. Section 101 of Act, 1959 deals with execution of the order passed by the Registrar concerned under Section 71 of the Act and Section 101(2)(a) specifies that notwithstanding anything contained every question relating to execution, discharge or satisfaction of an order, decision or award referred to in sub-section (1) or relating to the confirmation or setting aside of a sale held in an execution of such order shall be determined by the order of Registrar under said Clause (c).

¶138

26. Section 101(2)(b)(i) specifies that if any claim is referred against or any objection is made to the execution in pursuance of clause (c) of sub-section (1) on the ground that the said property if not liable to such attachment, the Registrar shall proceed to investigate the claim or objection. Rule 38 of the Rules deals with attachment and sale of immoveable property. Rule 38(5)(a) of the Rules specifies that at any time within 30 days from the date of the sale of an immoveable property, the decree-holder or ay person entitled to share in a rateable distribution of the assets or whose interests are affected by the sale, may apply to the Recovery Officer to set aside the sale on the ground of a material irregularity or mistake or fraud in publishing or conducting it. Proviso to Rule

¶139

21 -

¶140

NC: 2024:KHC:45224 WP No. 554 of 2023

¶141

38(6)(a) specifies that if the Registrar has reason to think that the sale ought to be set aside notwithstanding that no such application has been made or on the grounds other than those alleged in the application which has been made and rejected, he may after recording his reasons in writing set aside the sale.

¶142

27. A reading of Section 101 of the Act and Rule 38 of the Rules specifically provides that any person who claims that his rights have been adversely affected by the sale of immoveable property on the ground that the sale conducted suffers from material irregularity or mistake or fraud in publishing or conducting it may file objection for setting aside the auction sale before confirmation. The petitioners, without exhausting the remedy provided under Section 101 of the Act, 1959 and Rule 38 of the Rules, have field these writ petitions and the present petitions filed without exhausting the statutory remedy provided under the said provision are not maintainable.

¶143

28. The decision in the case of K Devadas Kumar (supra) was rendered with reference to the challenge to theconfirmation of sale , and in the instant case the sale has not been confirmed in favour of the auction purchaser and confirmation is subject to objection to be submitted by any interested person and upon adjudication of the said objection as specified under Section 101 read with Rule 38 of the Rules. In the absence of any statutory infraction, the present writ petitions filed without exhausting the statutory remedy are not maintainable.

¶144

29. Section 14 of the Insolvency and

¶145

22 -

¶146

NC: 2024:KHC:45224 WP No. 554 of 2023

¶147

Bankruptcy Code, 2016, specifies that subject to provisions of sub- sections (2) and (3), from the date of commencement of insolvency proceedings, the Adjudicating Authority shall by order declare moratorium for prohibiting execution of an award. In the present case, the NCLT, Mumbai has passed an order admitting the application filed by one of the creditor for initiation of corporate insolvency resolution process.

¶148

30. Sub-section (2) of Section 74 of the Code, 2016 specifies that where the corporate debtor or any of its officer violates the provisions of section 14, any such officer who knowingly or willfully committed or authorised or permitted such contravention shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to three lakh rupees, or with both.

¶149

31. The Hon'ble Supreme Court in the case o f Chandra Kumar (supra) at paras-79 and 80 has as follows:

¶150

"79 . We also hold that the power vested in the High Courts to exercise judicial superintendence over the decisions of all courts and tribunals within their respective jurisdictions is also part of the basic structure of the Constitution. This is because a situation where the High Courts are divested of all other judicial functions apart from that of constitutional interpretation, is

¶151

23 -

¶152

NC: 2024:KHC:45224 WP No. 554 of 2023

¶153

equally to be avoided.

¶154

80 . However, it is important to emphasise that though the subordinate judiciary or Tribunals created under ordinary legislations cannot exercise the power of judicial review of legislative action to the exclusion of the High Courts and the Supreme Court, there is no constitutional prohibition against their performing a supplemental — as opposed to a substitutional — role in this respect. That such a situation is contemplated within the constitutional scheme becomes evident when one analyses clause (3) of Article 32 of the Constitution which reads as under:

¶155

“32. Remedies for enforcement of

¶156

rights conferred by this Part.—

¶157

(1) ***

¶158

(2) ***

¶159

(3) Without prejudice to the powers conferred `on the Supreme Court by clauses(1)and (2), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause (2).”

¶160

(emphasis supplied)"

¶161

32. In view of the ratio enunciated by the Hon'ble

¶162

24 -

¶163

NC: 2024:KHC:45224 WP No. 554 of 2023

¶164

Supreme Court, there is no constitutional prohibition against this Court in exercising the power under Article 226 of the Constitution of India. The bar contained in Section 14 of the Code is not applicable to the proceedings under Article 226 of the Constitution of India.

¶165

33. In view of the aforesaid preceding analysis, I am of the view that the provisions contained in the Act, 2002 is only in addition to and not in derogation of the provisions contained in the Karnataka Co-operative Societies Act and the Rules made there under and when a statutory remedy is provided under the provisions of the Act and the Rules, the present petitions filed without exhausting the said remedy are not maintainable. Accordingly, I pass the following:

¶166

34. The petitions stand disposed of reserving liberty to the Petitioner - Cooperative Society to submit objections to the impugned auction proceedings with the 1^st respondent as specified under Rule 38 of the Rules within four weeks from the date of certified copy of this order ,and if such objections are submitted, respondent No.1 is directed to consider the same and pass appropriate orders in accordance with law, after notifying the interested parties.

¶167

35. All contentions are kept open.

¶168

36. Petitioners are at liberty to submit an appropriate application with the 1^st respondent to bring to the notice of 1^st respondent the order passed by the NCLT, Mumbai.

¶169

25 - NC: 2024:KHC:45224 WP No. 554 of 2023

¶170

37. The contention of the learned Senior Counsel appearing for the respondent-Bank that there is no assignment of loan by the predecessor bank in favour of the petitioner-bank cannot be considered in this writ petition and the same can be agitated before the appropriate forum.

¶171

38. Till filing of the objections, the interim order granted earlier is extended. The objections shall be filed within four weeks from the date of receipt of a certified copy of this order.”

¶172

As is clear from the aforesaid judgment, this Court has come to the categorical conclusion that a co-operative Bank is entitled to take recourse to remedies for recovery of outstanding loans by invoking the provisions of both the SARFAESI Act as well as the said Act of 1959; in fact, in Arihant’s case supra the judgment of the Apex Court in Pandurang’s case supra, has been considered and applied by this Court. It is significant to note that the said judgment in Arihant’s case supra by the co-ordinate Bench was confirmed by the Division Bench in W.A.100311/2023 which was dismissed as withdrawn vide judgment dated 06.03.2024.

¶173

I am in respectful agreement with the view taken by this Court in Arihant’s case supra and consequently, the said

¶174

26 -

¶175

NC: 2024:KHC:45224 WP No. 554 of 2023

¶176

contention to the contrary urged by the petitioner cannot be accepted.

¶177

Insofar as the contentions urged by the petitioner that she is entitled to protection under the MSMED Act, 2006 and Notification dated 29.05.2015 are concerned, it is relevant to state that it is an undisputed fact that the petitioner is not an MSME; on the other hand she is merely a guarantor for the loan taken by the aforesaid company M/s.Sahad Rental Pvt. Ltd., which is an independent, juristic and legal entity; consequently, so long as the petitioner was merely a guarantor for the loan obtained by the aforesaid company which is claimed to be an MSME, without the petitioner being an MSME herself, it cannot be said that the petitioner was entitled to the protection under the MSMED Act, 2006 or the Notification dated 29.05.2015 and as such, even this contention urged by the petitioner cannot be accepted.

¶178

The contention urged by the petitioner by placing reliance upon the judgment of the Apex Court in the case of Vidya

¶179

Drolia vs. Durga Trading Corporation – (2021) 2 SCC 1, is misconceived and untenable. The observations made in the said judgment at paragraphs-58 and 78 deal with arbitrability of disputes

¶180

27 -

¶181

NC: 2024:KHC:45224 WP No. 554 of 2023

¶182

under the RDBI Act and the same are not applicable to the issues in controversy involved in the present petition and consequently, even this contention urged by the petitioner cannot be accepted.

¶183

Insofar as the contention urged by the petitioner with regard to banking being a subject matter contained in Entry 45 to List-1 of VII Schedule which cannot be invoked or made applicable to proceedings under the said Act of 1959 is concerned, as stated

¶184

hereinbefore and as held by this Court in Arihant’s case supra , mere availability of remedy under the SARFAESI Act cannot be made the basis to come to the conclusion that the respondent – Bank is not entitled to invoke and proceed under the said Act of 1959 and as such, even this contention of the petitioner is liable to be rejected.

¶185

In view of the aforesaid facts and circumstances, I do

¶186

not find any merit in the petition and the same is hereby rejected.

¶187

Sd/(S.R.KRISHNA KUMAR) JUDGE

¶188

Srl.

¶189

List No.: 19 Sl No.: 1

Mumthaz P v. Board of Directors of

Case brief

What is this about?

What did the court decide?

Mumthaz P v. Board of Directors of

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Siddappa and Ors. Vs the Principal Secretary and Ors.

Chandrakant and Ors. Vs the Deputy Commissioner and Ors.

M/S Kolhar Canes Limited Vs the Union of India and Ors.

Shekappa @ Chandrashekhar S/O Bapu Kali Vs Gangabai W/O Basavaraj Chalagetri and Ors.

Sri H Srinivas Vs Vishwabharathi House Co. Operative Society

Hpr Manipal School of Nursing Vs State of Karnataka