Disposed

M/S Vectra Consultancy Services Pvt. Ltd. v. the Recovery Officer

Karnataka HC4 Jul 2024WP/6717/2020

Case brief

AI extract

What is this about?

Writ petition challenging a garnishee order issued by the DRT Recovery Officer against the petitioner regarding sums allegedly payable to a former director. The court found Section 28(3) requires no show-cause notice or liability determination and disposed of the petition, allowing an objection statement on oath per Section 28(3)(vi).

What did the court decide?

Petitioner permitted to file objection statement on oath under S.28(3)(vi) within two weeks; interim protection extended four weeks; no costs.

M/S Vectra Consultancy Services Pvt. Ltd. Vs the… — Banking and Recovery | Karnataka HC (2024)

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NC: 2024:KHC:25374 WP No. 6717 of 2020

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 4^TH DAY OF JULY, 2024

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BEFORE

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THE HON'BLE MR. JUSTICE K. V. ARAVIND

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WRIT PETITION No. 6717 OF 2020 (GM-DRT)

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BETWEEN:

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M/S VECTRA CONSULTANCY SERVICES PVT. LTD., A PRIVATE LIMITED COMPANY UNDER THE COMPANIES ALL ACT, FIRM, HAVING ITS MAIN BUSINESS OFFICE AT No.54, RICHMOND ROAD, BENGALURU-560 025. REPRESENTED BY ITS AUTHORIZED SIGNATURES, SHRI M.S.RAM,

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…PETITIONER

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(BY SRI SHYAMSUNDAR M.S., SENIOR ADVOCATE FOR SRI VANDANA P. L., ADVOCATE)

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AND:

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Digitally signed by VALLI MARIMUTHU Location: High Court of Karnataka

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THE RECOVERY OFFICER, DEBTS RECOVERY TRIBUNAL -2, DRT BANGALORE BENCH, MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES, JEEVAN MANGAL BUILDING, 2^ND FLOOR, NO.4, RESIDENCY ROAD, BANGALORE-560025.

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M/S IFCI LIMITED, A GOVERNMENT OF INDIA UNDERTAKING, A NON-BANKING FINANCIAL COMPANY, HAVING ITS BANGALORE FACILITY AT

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N. R. SQUARE, No.3, CUBBONPET MAIN ROAD, BENGALURU-560 009. REPRESENTED BY ITS AUTHORIZED SIGNATORY.

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M/S INDIA PAGING SERVICES LTD., No.1/1, PALACE ROAD, BANGALORE-560 004, ALSO AT DYNAMIC HOUSE, No.64, CHURCH STREET, BANGALORE-560 001. REPPRESENTED BY OFFICIAL LIQUIDATOR, HIGH COURT OF KARNATAKA, 4^TH FLOOR, D & F WING, KENDRIYA SADAN, KORAMANGALA, BANGALORE-560 034.

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BPL ENGINEERING LTD., No.13/5, HOSUR ROAD, BOMMANAHALLI, BANGALORE-560 068. ALSO AT No.110, LALBAGH ROAD, BANGALORE-560 027. REPRESENTED BY OFFICIAL LIQUIDATOR, HIGH COURT OF KARNATAKA, CORPORATE BHAVAN, No.26-27, 12^TH FLOOR, RAHEJA TOWERS, M. G. ROAD, BANGALORE-560001.

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B. S. REGRIGERATORS LTD., PLOT No.1, A & D, KADUGODI, SADARAMANGALA INDUSTRIAL AREA, WHITEFIELD, BANGALORE-560096, ALSO AT 2^ND FLOOR,

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NC: 2024:KHC:25374 WP No. 6717 of 2020

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1/1, PALACE ROAD, BANGALORE-560 004.

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MR. RAJEEV CHANDRASHEKAR, S/O SHRI M. K. CHANDRASHEKAR, AGED MAJOR, C/O DYNAMIC HOUSE, No.64, CHURCH STREET, BANGALORE-560 001.

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…RESPONDENTS

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(BY SMT. ANUPAMA HEGDE, ADVOCATE FOR R1; SRI V.J. ACHALANAND, ADVOCATE FOR R2; SRI K.S., MAHADEVAN, ADV., FOR OFFICIAL LIQUIDATOR; R3, R4 & R6 are served, Vide order dated 24.03.2023 Notice to R5 is dispensed with)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE COSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED LETTER/ORDER DATED 10.03.2020 TITLED AS GARNISHEE ORDER VIDE ANNEXURE-A TO THE WRIT PETITION PASSED BY R-1 RECOVERY OFFICER-I, DRT-2, BANGALORE IN TRC No.910/18 IN OA No.113/02 AT THE INSTANCE OF THE CERTIFICATE HOLDER R2.

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THIS WRIT 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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Heard learned Senior counsel Sri. M.S. Shyamsundar

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with learned counsel Smt. P.L. Vandana for the petitioner,

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learned counsel Smt. Anupama Hegde for respondent No.1, learned counsel Sri. V.J. Achalanand for respondent

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NC: 2024:KHC:25374 WP No. 6717 of 2020

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No.2 and learned counsel Sri K.S. Mahadevan for Official Liquidator.

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Respondent Nos.3, 4 and 6 are served and notice to respondent No.5 dispensed with.

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This petition impugning the order of garnishee issued by respondent No.1 in TRC No.910/2018 in O.A.No.113/2002 dated 10.03.2020.

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It is stated that respondent No.2 lent money to respondent No.3. Respondent Nos.4 and 5 were corporate guarantors to the said loan. Respondent No.4 has been ordered for winding-up. Respondent No.6 was Director of respondent No.4-Company at the relevant time. It is stated that respondent No.6 submitted his resignation as Director in respondent No.4-Company.

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It is stated that respondent No.6 filed applications before the Debts Recovery Tribunal [DRT] under Order XXI Rule 101 of CPC read with Rules 9 and 11 of Schedule-II to the Income Tax Act, 1961 seeking declaration that he

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has no obligation or liability in his capacity as Director

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after the date of his resignation as Director. The said applications are pending consideration.

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Respondent No.1 at the instance of respondent No.2-

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Certificate holder has issued order of garnishee to the petitioner directing the petitioner to pay forthwith in favour of respondent No.1 such sum as is payable to the respondent No.6 herein. The said order of garnishee is under challenge.

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Learned Senior counsel Sri M.S. Shyamsundar with learned counsel Smt. P.L. Vandana appearing for the petitioner submits that respondent No.1 has not conducted any enquiry before issuing direction to pay the amount forthwith. There is no material to demonstrate that the petitioner is due in a sum in favour of respondent No.6. It is further contended that respondent No.1 before issuing the order of garnishee under Section 28 of the Recovery of Debts and Bankruptcy Act, 1993 [hereinafter referred to as 'Act of 1993'] is required to issue show-cause notice,

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after consideration of the reply, has to determine whether the petitioner is in due of sum payable to respondent No.6. In the absence of said exercise, the order of garnishee cannot be issued.

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On the other hand, learned counsel Smt. Anupama Hegde for respondent No.1 and learned counsel Sri.V.J.Achalanand for respondent No.2 in vehemence contend that the contention of the petitioner is beyond the scope of Section 28 of the Act of 1993. The Act does not contemplate issuing of show cause notice, determination of the liability and the quantum of amount/sum due by the petitioner in favour of respondent No.6.

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Heard learned counsel for the parties.

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Section 28 of the Act of 1993 provides modes of recovery. Section 28 of the Act of 1993 reads as under;

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" 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.

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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 subsection, 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 subsection shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post

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NC: 2024:KHC:25374 WP No. 6717 of 2020

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office, bank, financial institution, or an insurer, it shall not be necessary for any passbook, 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 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 defendant's 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 subsection 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 defendant's so 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 subsection 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.

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(4) The Recovery Officer may apply to the court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it is more than the amount of debt due, an amount sufficient to discharge the amount of debt so due.

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[(4-A) The Recovery Officer may, by order, at any stage of the execution of the certificate of recovery, require any person, and in case of a company, any of its officers against whom or which the certificate of recovery is issued, to declare on affidavit the particulars of his or its assets.]

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(5) The Recovery Officer may recover any amount of debt due from the defendant by distraint and sale of his movable property in the manner laid down in the Third Schedule to the Income Tax Act, 1961 (43 of 1961)."

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The order of garnishee has been issued under

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Section 28(3)(i) of the Act of 1993. The language of Section 28(3)(ii) of the Act of 1993 is clear that notice can be issued to any person who holds or may subsequently hold any money for or on account of defendant jointly with any other person.

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The language of the section is clear, the same do not contemplate issuance of show-cause notice nor

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determination of money that is payable. The section does not contemplate that the liability of the garnishee to pay sum of money is to be crystallized on that date.

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Be that as it may, in view of remedy to the petitioner being provided under Section 28(3)(vi) of the Act of 1993, this Court do not find it relevant to examine in detail the contentions raised by learned counsel for the petitioner. It is suffice to permit the petitioner to file objection statement on oath to the extent stated in Clause (vi) of sub-Section(3) of Section 28 of the Act of 1993.

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It is submitted that this Court during the pendency of this writ petition has protected the petitioner from any coercive action. This Court is inclined to extend the interim protection earlier granted by this Court for a period of four weeks.

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In the circumstances, the following,

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NC: 2024:KHC:25374 WP No. 6717 of 2020

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Order

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i) Writ Petition is disposed of.

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ii) The petitioner is at liberty to file reply in terms of Clause (vi) of sub-section (3) of Section 28 of the Act of 1993 before respondent No.1 within two weeks from the date of receipt of copy of this order.

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iii) The interim order granted by this Court dated 30.04.2020 is extended for a period of four weeks.

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iv) No order as to costs.

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Sd/JUDGE

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MV List No.: 1 Sl No.: 17

M/S Vectra Consultancy Services Pvt. Ltd. v. the Recovery Officer

Case brief

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M/S Vectra Consultancy Services Pvt. Ltd. v. the Recovery Officer

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