Karnataka High Court
Ktk Group vs The Competent Authority And on 17 February, 2025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF FEBRUARY, 2025
PRESENT
THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL
MISCELLANEOUS FIRST APPEAL NO. 937 OF 2022 (RES)
BETWEEN:
M/s. KTK GROUP
No.52, REVA RESIDENCY
7TH MAIN, 14TH CROSS
BTM 2ND STAGE
MICO LAYOUT
BENGALURU-560 007
REP. BY ITS MANAGING PARTNER
SRI. RAHEEM KTK
S/O SRI. HASSAINAR
...APPELLANT
(BY SRI. V.B. SHIVA KUMAR, ADVOCATE)
AND:
1 . THE COMPETENT AUTHORITY AND
SPECIAL OFFICER FOR
IMA GROUP OF COMPANIES
2ND FLOOR, BMTC COMPLEX
K.H. ROAD, SHANTHINAGAR
BENGALURU
REP. BY ITS COMPETENT AUTHORITY
AND SPECIAL OFFICER
SRI. HARSH GUPTA
AGED ABOUT 50 YEARS
2 . I MONETARY ADVISORY AND
IT'S GROUP OF ENTITIES
REP. BY ITS PROMOTER/
-
2
MANAGING DIRECTOR
SRI. MOHAMMED MANSOOR KHAN
AGED ABOUT 44 YEARS
No.56/4, 1ST FLOOR
NANDI BUILDING
HOSPITAL ROAD
SHIVAJI NAGAR
BENGALURU-560 001
...RESPONDENTS
(BY SRI. VEERESH R. BUDIHAL, ADVOCATE FOR R1;
R2- SERVED)
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.
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:
CORAM: HON'BLE MRS. JUSTICE ANU SIVARAMAN
and
HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL
CAV JUDGMENT
(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN)
This appeal is filed by the appellant/second respondent
challenging the Judgment and Decree dated 22.12.2021,
passed by the XCI Additional City Civil and Sessions Judge
-
at Bengaluru (CCH No.92) (hereinafter referred to as "the
trial Court" for short) in Miscellaneous No.471/2020.
2. We have heard Shri. V.B. Shiva Kumar, learned
counsel appearing for the appellant and Shri. Veeresh R.
Budihal, learned counsel appearing for respondent No.1.
3. 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.
-
4. It is submitted that subsequently, perishable
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
-
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.
5. 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.
-
6. 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.
7. It is contended by the learned counsel appearing
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
-
distinguish between these legal concepts has resulted in an
erroneous application of the law by the trial Court.
8. 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.
9. 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
-
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.
10. 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.
11. 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
-
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:-
"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.
-
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 2nd respondent that, as per the
contractual liability he had adjusted the security deposit
towards arrears of rent as claimed by him cannot be
accepted."
12. 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
-
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.
13. The learned counsel appearing for the first
respondent has placed reliance on the following judgments:-
-
• Rita Khurana v. Kamla Devi, reported in 1998 AD DEL
2 745;
• M/s. Paul Rubber Industries Private Limited v. Amit
Chand Mitra and Another, by Order dated
25.09.2023 reported in 2023 INSC 854;
• Rajendra Pratap Singh v. Rameshwar Prasad,
reported in 1998 INSC 404;
• 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;
• 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
• 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).
14. We have considered the contentions advanced. It
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
-
appellant. It was the responsibility of the appellant to
convince the Special Court that the amount had been
received legitimately by the appellant.
15. The contention of the appellant is that it was as
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
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
-
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.
16. 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.
17. In the result, the appeal fails and the same is
accordingly dismissed.
Pending IAs, if any, shall stand disposed of.
Sd/-
(ANU SIVARAMAN)
JUDGE
Sd/-
(VIJAYKUMAR A. PATIL)
JUDGE
cp*
