M/S. Ktk Group Vs the Competent Authority and

M/s. KTK GROUP No.52, REVA RESIDENCY 7^TH MAIN, 14^TH CROSS BTM 2^ND STAGE MICO LAYOUT BENGALURU-560 007 REP. BY ITS MANAGING PARTNER SRI. RAHEEM KTK S/O SRI. HASSAINAR

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...APPELLANT

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(BY SRI. V.B. SHIVA KUMAR, ADVOCATE)

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AND:

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1 . THE COMPETENT AUTHORITY AND SPECIAL OFFICER FOR IMA GROUP OF COMPANIES 2^ND FLOOR, BMTC COMPLEX K.H. ROAD, SHANTHINAGAR BENGALURU

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REP. BY ITS COMPETENT AUTHORITY AND SPECIAL OFFICER SRI. HARSH GUPTA AGED ABOUT 50 YEARS

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2 . I MONETARY ADVISORY AND IT'S GROUP OF ENTITIES REP. BY ITS PROMOTER/

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MANAGING DIRECTOR SRI. MOHAMMED MANSOOR KHAN AGED ABOUT 44 YEARS No.56/4, 1^ST FLOOR NANDI BUILDING HOSPITAL ROAD SHIVAJI NAGAR BENGALURU-560 001

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…RESPONDENTS

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(BY SRI. VEERESH R. BUDIHAL, ADVOCATE FOR R1; R2- SERVED)

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THIS MFA IS FILED U/S 16 OF THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2004 AND RULES 2006, AGAINST THE JUDGMENT AND DECREE DATED 22.12.2021 PASSED IN MISCELLANEOUS No.471/2020 ON THE FILE OF XCI ADDITIONAL CITY CIVIL AND SESSIONS JUDGE AND SPL. JUDGE FOR KPIDFE CASES, BENGALURU, CCH-92, ALLOWING THE PETITION FILED UNDER SECTION 5(2) OF THE KPIDEF ACT-2004 AND ETC.

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THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 29.01.2025 AND COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN J., PRONOUNCED THE FOLLOWING:

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CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN and

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HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL

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CAV JUDGMENT

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(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN)

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This appeal is filed by the appellant/second respondent

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challenging the Judgment and Decree dated 22.12.2021, passed by the XCI Additional City Civil and Sessions Judge

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at Bengaluru (CCH No.92) (hereinafter referred to as "the trial Court" for short) in Miscellaneous No.471/2020.

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We have heard Shri. V.B. Shiva Kumar, learned

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counsel appearing for the appellant and Shri. Veeresh R. Budihal, learned counsel appearing for respondent No.1.

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It is submitted by the learned counsel appearing for the appellant that the Competent Authority initiated proceedings against the appellant - I Monetary Advisory (IMA) and its associated entities in Miscellaneous No.471/2020, contending that the Special Officer of I Monetary Cases, appointed by the Government of Karnataka under Section 5(1) of the Karnataka Protection of Interests of Depositors in Financial Establishments Act, 2004, ('KPIDFE Act' for short) was authorized to take necessary steps against the Financial Establishment. The property described as Schedule-A to the petition was leased from respondent No.2 through a lease deed dated 03.08.2018 for a period of 9 years, with a lock-in period of 3 years. It is contended that a refundable security deposit of Rs.30,00,000/- was paid by the lessee.

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It is submitted that subsequently, perishable

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items were notified for auction and the Special Court ordered to conduct the auction. Upon confirmation of the auction, the purchaser remitted a sum of Rs.15,55,000/-, which was deposited into the State Bank of India, Vidhana Soudha Branch, Bengaluru and furnished security. In the meanwhile, on 04.09.2019, the moveable properties of M/s.Mulberry Greens were auctioned following an absolute interim order of attachment in respect to the property. However, the petition did not contain any pleadings regarding the lease amount of Rs.30,00,000/-. Additionally, in an earlier instance, Miscellaneous Petition No.1038/2019 was filed before the Principal Judge, which was dismissed by the XXI Additional City Civil Judge and Sessions Judge on 29.09.2020. The Trial Court, while dismissing the petition, observed that a dispute existed concerning the actual dues owed by the appellant, KTK Group to the second respondent herein-I Monetary Advisory and thus, the appellant herein (respondent No.2) could not be directed to pay a sum of Rs.30,00,000/- towards the alleged dues. The Trial Court

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also noted that an adjudication was necessary to determine the actual outstanding dues and the arrears of rent amounting to Rs.28,69,662/-, which was yet to be realized. The security deposit was to be appropriated accordingly.

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It is further submitted that the Miscellaneous Petition No.471/2020 was subsequently filed, wherein the statement of objections was submitted. It remained undisputed that the appellant is the owner of the commercial property. A Lease Agreement dated 03.08.2018 was executed between the appellant-M/s.KTK Group, and M/s.Mulberry Greens, a unit of I Monetary Advisory, with a lease term ending on 14.09.2027. The moveables were sold. The Lease Agreement contained a clause regarding a security deposit. The appellant issued a notice terminating the tenancy on 21.06.2019, following which possession was taken over. The notice included calculations of outstanding rent arrears, which were adjusted against the security deposit. However, the possession of the property was allegedly not handed over.

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It is also submitted that the Competent Authority, while rendering its decision, erroneously interpreted the nature of the security deposit and failed to distinguish it from statutory deposits made with financial institutions. The appellant, not being a depositor in the financial establishment, was nevertheless directed by the trial Court to deposit a sum of Rs.30,00,000/- in favour of the Competent Authority. Hence, the present appeal.

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It is contended by the learned counsel appearing

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for the appellant that the trial Court erred in interpreting the term "Depositor" as defined under the KPIDFE Act. The trial Court failed to appreciate that the security deposit in question, amounting to Rs.30,00,000/-, is a refundable security deposit provided under the Lease Deed dated 03.08.2018, and not a deposit within the meaning of KPIDFE Act. The security deposit under a lease arrangement carries a distinct legal character, intended either for adjustment towards outstanding rent or for refund upon the termination of the lease if no such adjustment is required. The failure to

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distinguish between these legal concepts has resulted in an erroneous application of the law by the trial Court.

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It is further contended that the trial Court failed to consider that the Lease Agreement, executed on 03.08.2018, was for a term of 9 years with a security deposit that was non-interest bearing to be refundable upon the delivery of vacant possession of the leased premises. The trial Court incorrectly held that the security deposit could not be adjusted towards outstanding rents, despite being an established legal principle that such adjustments are permissible under lease agreements. The reasons assigned by the trial Court in this regard are factually and legally incorrect, as the security deposit was rightly adjusted against the arrears of rent following the issuance of a termination notice dated 02.06.2019.

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It is contended that a sum of Rs.30,00,000/- has already been adjusted against the outstanding rent arrears, as reflected in the termination notice and the accompanying statement of accounts. The arrears of rent were duly notified

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and adjusted, no dues remain that could warrant the initiation of proceedings under the KPIDFE Act. The Trial Court’s failure to acknowledge this adjustment has resulted in a miscarriage of justice, as the security deposit has been lawfully appropriated towards the outstanding liabilities, leaving no enforceable claim against the appellant under the KPIDFE Act.

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The learned counsel appearing for the competent authority/respondent No.1 draws our attention to the provisions of the KPIDFE Act. It is submitted that the KPIDFE Act is enacted in public interest to curb the menace of Financial Institutions which depend gullible depositers. Our attention is drawn to Section 3(2) of the KPIDFE Act and the power to attach any money or property or personal assets under the KPIDFE Act. The provisions of Section of the KPIDFE Act are also relied on.

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It is contended that any amount paid by the Financial Establishment would be liable for attachment unless the person in possession of the amount is able to

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satisfy the Special Court as to how he is lawfully and legitimately in possession of such amount. In the instant case, the Special Court has specifically considered the contentions raised. The explanation provided by the appellant that a sum of Rs.30,00,000/- paid by the second respondent herein, to the appellant as security deposit for lease of his property was considered and it has been found as follows:-

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"24. The another contention of the respondent No.2 is that, there was an arrears of rent and as per the contractual liability he had adjusted the security deposit amount towards arrears of rent and as such there was no amount available for attachment. As already stated there is no dispute that, the respondent No.1 is a tenant under respondent No.2 with regard to petition 'A' schedule property and the respondent No.1 has paid security deposit of Rs.30,00,000/(Thirty Lakhs) to the respondent No.2. In this case as argued by the learned Special Public Prosecutor, the respondent No.2 has not opted to produce the original lease agreement and got marked the said document before the Court as exhibit on his behalf, for the reason best known to him. However both parties have produced xerox copy of the lease agreement, dated 03.08.2018. On going through the contents of the said lease agreement it is clear that, the duration of the lease is for a period of 09 years commencing from 15.10.2018 and ending on 14.09.2027.

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It is also clear that, locking period of 03 years was fixed in the said lease agreement. Therefore, the tenancy between respondents No.1 & 2 is for a period of more than 01 year. This being the fact, as required under section 107 of the Transfer of Property Act, when a lease of immovable property from year to year or for any term exceeding 01 year or reserving a year rent can be made only by a registered instrument. Therefore, it is clear that, the lease agreement entered into between the respondents No.1 & 2 is required to be registered, but, the said agreement is not registered as required under law. Therefore, the said document is void in the eye of law and the respondent No.2 cannot enforce his right on the basis of the said unregistered lease agreement. Therefore the claim of the 2^nd respondent that, as per the contractual liability he had adjusted the security deposit towards arrears of rent as claimed by him cannot be accepted."

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It is further contended that in an earlier round of litigation that is in W.P.No.51235/2019, a Division Bench of this Court had specifically found that after alleged termination of tenancy by notice dated 21.06.2019, no proceedings for eviction of the tenant had been taken by the petitioner. Further, it was found that the premises belonging to the appellant had not been attached by the competent authority. In the said circumstances, taking over the

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possession of the premises in question was found to be bad in law. The prayer made by the appellant for handing over the possession of the premises to the appellant was also declined by this Court leaving open the right of the appellant to take the recourse to due process of law for evicting the tenant. It is contended that the dismissal of Miscellaneous Application No.1038/2019 will make no difference to the situation since the adjudication which has been directed has now been carried out by the Special Court in the present Miscellaneous Application on the basis of the materials on record. Since no reliable evidence could be produced as to the alleged tenancy or the terms agreed to between the parties, the rate of rent or arrears thereof, the Special Court came to the conclusion that the appellant had no explanation to offer for the admitted possession of Rs.30,00,000/- belonging to the Financial Establishment. In the above circumstances, the conclusions reached by the Special Court are unassailable.

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The learned counsel appearing for the first respondent has placed reliance on the following judgments:-

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Rita Khurana v. Kamla Devi , reported in 1998 AD DEL 2 745 ;

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M/s. Paul Rubber Industries Private Limited v. Amit Chand Mitra and Another , by Order dated 25.09.2023 reported in 2023 INSC 854;

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Rajendra Pratap Singh v. Rameshwar Prasad , reported in 1998 INSC 404 ;

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Sevoke Properties Limited v. West Bengal State Electricity Distribution Company Limited , by Order dated 11.04.2019 passed in Civil Appeal No.3873 of 2019;

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Punjab National Bank and another v. M/s. Srinivasa Enterprises , by Order dated 31.03.2023 passed in RFA No.1307 of 2019 (Mon); and

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M/s. K.T.K. Group v. State of Karnataka and others , dated 25.09.2020 passed in W.P.No.51235 of 2019 (GM-POLICE-PIL) .

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We have considered the contentions advanced. It

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is not disputed that the amount of Rs.30,00,000/- has been paid by the second respondent - Financial Establishment to the appellant herein. The appellant contended that the said amount had been adjusted towards arrears of rent. It is an admitted fact that the amount of Rs.30,00,000/- of the Financial Establishment was in the possession of the

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appellant. It was the responsibility of the appellant to convince the Special Court that the amount had been received legitimately by the appellant.

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The contention of the appellant is that it was as

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advance towards the lease agreement entered into between the appellant and the second respondent herein that the amount had been paid to the appellant. However, it is an admitted fact that no registered Lease Deed as required under Section 107 of the Transfer of Property Act, 1882 had been entered into between the parties. It is pertinent to note that the lease allegedly entered into was for a period of 9 years. Such a lease deed admittedly requires registration

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under Section 17 of the Registration Act, 1908. In the absence of registration, the said document could not have been received in evidence. Therefore, the passing of Rs.30,00,000/- as advance for the lease transaction could not also have been accepted in evidence by the Special Court. Further, though it had been contended that a sum of Rs.30,00,000/- was adjusted against outstanding rent arrears absolutely no evidence was on record in respect of

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the said allegations. A notice allegedly sent by the appellant to the second respondent claiming arrears of rent cannot be relied on as evidence of any of the facts pleaded.

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In the above view of the matter, the only inference that can be drawn is that the amount of Rs.30,00,000/- belonging to the second respondent herein, was in possession of the appellant without any valid explanation. In the light of the specific provisions of the KPIDFE Act, we are of the opinion that the conclusions drawn by the Special Court cannot be faulted. The contentions raised by the appellant are without merits.

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In the result, the appeal fails and the same is accordingly dismissed .

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Pending IAs, if any, shall stand disposed of .

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Sd/(ANU SIVARAMAN) JUDGE

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Sd/(VIJAYKUMAR A. PATIL) JUDGE

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cp*

M/S. Ktk Group v. the Competent Authority and

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M/S. Ktk Group v. the Competent Authority and

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