3. The petitioners claim to be the absolute owners in
29.09.2001. It is claimed that the property was
D.Komalakshi, under a sale deed dated 16.08.1995.
deed on 29.09.2001 in favour of D.Komalakshi. The
are bona fide purchasers for consideration. The only
this Court challenging the auction notification. This
5.1. The petitioners are bona fide purchasers for
consideration, having no information about any
attachment. There is no encumbrance which
has been reflected in the encumbrance
certificate. The only amount due to Indian
Overseas Bank, Medikeri, has been paid, and a
discharge deed has been executed by the bank;
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there is no one else whose claim is reflected in
the public documents. The petitioners, having
come across an auction notification of the
property belonging to the petitioners, are
before this Court challenging the auction
notification.
5.2. There is no attachment of the property
purchased by the petitioners reflected in any of
the public documents; hence, there is no
charge which can be said to have been created
over the property of the petitioners, and hence,
the auction sale notification is invalid and
illegal.
5.3. If the respondents had verified the revenue
documents, they would have seen the gift deed
executed by Sri.D.Rajkumar is in favour of
Smt.D.Komalakshi and the sale deed executed
by her in favour of the petitioners, much prior
to issuing the auction notification.
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5.4. His submission is that the mandatory procedure
under the Karnataka Co-operative Societies Act,
1959 ['KCS Act' for short] and the Karnataka
Co-operative Society Rules, 1960 ['KCS Rules'
for short] have not been followed. The Society
cannot have a claim over the property which
belongs to the petitioners. Any claim that the
Society has can be against the personal
properties of D.Rajkumar and not the property
which have been sold by him. Whether D.
Rajkumar was guilty of any misappropriation,
the enquiry was made or not, is between the
Society and D. Rajkumar. The petitioners'
property cannot be brought for sale on account
of the dues of D.Rajkumar.
5.5. He relies upon the decision in Lingabhatta -v-
M/s Saravana Enterprises and another1,
[AIR 2003 Karnataka 128]
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more particularly para 10 and 14 thereof, which
are reproduced hereunder for easy reference:
10. The Counsel also relied on the ruling of the
Supreme Court in Indira Devi Arya v. Bajrang Lal
Khaitan, 2001 AIR SCW 4665. In paras 2 and 3 the
following observations are made at page 4666 :
"2. The short question that arises for
consideration is whether on the dismissal of the
execution case, the attachment order also stood
vacated and would not revive on the restoration
of the execution case ? Order 21, Rule 57
provides that where any property has been
attached in execution of a decree and the Court
for any reason passes an order dismissing the
execution of the decree, the Court shall direct
whether the attachment shall continue or cease
and shall also indicate the period up to which
such attachment shall continue or the date on
which such attachment shall cease. Sub-rule (2)
of Rule 57 further provides that if the Court omits
to give such direction, the attachment shall be
deemed to have been ceased. Order 38, Rule 11-
A, Sub-rule (2) provides that an attachment
made before judgment in a suit which is
dismissed for default shall not be revived merely
by reason of the fact that the order for the
dismissal of the suit for default has been set
aside and the suit has been restored.
3. In the present case, we find that at the time
when execution case was dismissed for default,
the executing Court did not pass any order
extending the period of attachment. Therefore,
after the restoration of the execution case, the
order of attachment remained non-existent and
could not have been automatically revived on
the restoration of execution case. We are,
therefore, of the view that in law earlier order of
attachment, if not extended by the Court, stood
vacated and would not revive on restoration of
the execution case."
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11. The Counsel relied on the Division Bench ruling
of this Court in Vijaya College Trust v. Kumta Co-
operative Arecanut Sales Society, wherein the ratio
of this Court reported in AIR 1970 Mysore 152 is
reiterated in para 12 which reads thus :
"Learned Counsel for the respondents relied
on AIR 1920 Madras 358, Subramania Pathar v.
Appur Mudaliar, wherein it has been held that
the removal of an application for the execution
of a decree, for statistical purpose, from the file
is not a judicial termination of application, that
the application was still pending and the Court
should be moved to deal with it and to terminate
it legally; and that no fresh application was
necessary in such a case either under Article
181 or under Article 182 of the Limitation Act (9
of 1908). But in AIR 1970 Mysore 152, Byrappa
(deceased) by L.Rs. Smt. Munisanjeevamma v.
S. Amni the question whether the attachment
still subsists if such a case has been dealt with.
In that Ruling it has been held as follows :
"The words "where any property has been
attached in execution of a decree" in the rule
should not be interpreted too literally. They
have to be understood as referring to an
attachment in enforcement of which the decree
could be executed and in the case of an
attachment in enforcement of which the decree
could be executed and in the case of an
attachment before judgment it is that
attachment which assumes the character of an
attachment in execution of a decree and so
becomes capable of enforcement in an execution
proceeding."
"The rule thus governs not only an attachment
before judgment. Whether, therefore, it is an
attachment before judgment which becomes an
attachment in execution or whether it is an
attachment made in execution proceeding that
attachment ceases to subsist under the rule
when an execution application is dismissed for
decree-holder's default."
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In view of this position of law, it will have to be
held that the attachment ceases on the closure of
the Execution Petition on 9-1-1982. Learned
Counsel for the respondents submitted that any
transfer of property made after issue of a certificate
is void against the Co-operative Society.
Section 101-A of the Act provides that any private
transfer or delivery of or encumbrance or charge
on, property made or created after the issue of the
certificate of the Registrar or any person authorised
by him in this behalf under Section 101 shall be null
and void as against the Co-operative Society in
whose application the said certificate was issued.
Section 99 lays down as to how the charge created
on the property under Sub-section (1) of Section
32 of the Act has to be enforced.
14. The first respondent had purchased the property
in dispute under a registered sale deed from the
second respondent on 24-11-1983. It was the
contention of the first respondent that the property
has been purchased for a valid consideration when
there was no valid attachment order subsisting.
Therefore the decree-holder cannot proceed against
the property in question. In view of the facts and
proposition of law discussed above, the objection of
the first respondent has to be upheld and I do not find
any error in the view taken by the trial Court in this
regard.
5.6. By relying on Lingabhatta's case, he submits
that the property has been purchased by the
petitioners under a valid registered sale deed,
at which time there being no attachment, the
decree holder cannot proceed against that
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property in question, which was sold prior to
the decree.
5.7. He relies upon the decision of the Hon'ble Apex
Court in D.L.Sridhar -v-
C.R.Chandramohan2, more particularly Para 6
thereof, which is reproduced hereunder for easy
reference:
6. A reference could be made to the decision
rendered in the case of Lingabhatta alias
Thammaiah -v- M/s Sharavana Enterprises,
reported in AIR 2003 Kar 128:2003 AIR -Kant HCR
270, whereini thas been held as follows:-
"O.21, R.30 and R.54- Recovery of decretal
amount - Attachment of property in execution -
Property in question has been purchased under
registered sale deed for valid consideration
when there was no valid attachment order
subsisting -Decree-holder cannot proceed
against property in question."
5.8. Para 6 is a reiteration of the decision in
Lingabhatta's case supra.
5.9. He submits that pursuant to the sale deed
executed by D.Rajkumar and D.Komalakshi in
favour of K.S.Ganapathi and M.M.Bharathi on
9.04.2014, the said K.S.Ganapathi and
ILR 2008 KAR 591/[LAWS (KAR) 2007 384]
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M.M.Bharathi are the absolute owners of the
said property, having been put in possession of
the said property, the suo moto surcharge
proceedings initiated by the Deputy Registrar of
Co-operative Societies [DRCS] in which vide
order dated 18.02.2002 notice of judgment
before attachment was issued. Subsequently,
on 23.03.2002, a confirmation of attachment
before judgment was passed. The surcharge
proceeding ending in passing an award on
27.05.2002 for recovery of Rs.4,59,69,000/-
along with interest at 18% p.a. It is in
pursuance of that award that execution
proceedings had been initiated in
Ex.No.6161/2004-05, which came to be
transferred to the ARCS, Madikeri. It is
challenging the same that K.S.Ganapati and
M.M.Bharathi preferred a writ petition in
W.P.No.40198/2014 before this Court.
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5.10. He submits that as on the date on which the
gift deed was executed on 29.09.2001, by
D.Rajkumar in favour of D.Komalakshi, there
was no surcharge proceedings which were
pending and as such, there was no legal
impediment for D.Rajkumar to gift the same to
D.Komalakshi. The surcharge proceeding, which
had been initiated in the year 2002, much after
the gift deed, would have no relevance as
regards the validity of the gift deed.
5.11. The attachment before judgment order dated
18.02.2002 and confirmation of attachment
before judgment dated 23.03.2022 are
subsequent to the registered gift deed dated
29.09.2001 and, as such, have been passed
after D.Rajkumar had gifted the property to his
wife D.Komalakshi.
5.12. His submission is that the earlier gift deed
prevails over the attachment order which has
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been passed subsequently. In this regard, he
relies upon the decision in D.R.Sridhar's case
supra.
5.13. His submission is that D.Rajkumar was not a
party to the surcharge proceedings and or order
of attachment before judgment nor
K.S.Ganapathi and M.M.Bharathi were parties
to the said proceedings. Therefore, nobody else
claiming thereafter are bound by the same, and
they cannot claim any interest contrary thereto.
As of the date on which the registered sale
deed was executed in favour of the petitioners,
i.e., on 9.04.2014, D. Rajkumar had no manner
of title or estate, since a registered gift deed
dated 29.09.2001 had already been executed
and acted upon.
5.14. The award under Section 103 of the KCS Act
was passed on 18.02.2002, whereas the gift
deed in favour of D.Komalakshi was executed
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on 29.09.2001, thus, the attachment being
subsequent would have no bearing on the title
of the property. The proceedings have been
initated by the Authorities as regard property
which is not belonging to D.Rajkumar is void
interms of Subsection (1) of Section 32 and
Subsection (3) of Section 103 of the KCS Act.
Subsection (1) of Section 32 is reproduced
hereunder for easy reference:
32. First charge of co-operative Society on
certain assets.-
(1) Notwithstanding anything contained in any
law for the time being in force, but subject to
any prior claim of the Government in respect
of land revenue or any money recoverable as
land revenue, any debt or outstanding
demand owing to a co-operative society by
any member or past member or deceased
member shall be a first charge upon the crops
and other agricultural produce, cattle, fodder
for cattle, agricultural or industrial
implements or machinery, raw materials for
manufacture and any finished products
manufactured from such raw materials,
belonging to such member, past member or
forming part of the estate of the deceased
member, as the case may be.
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5.15. By relying on Subsection (1) of Section 32 of
the KCS Act submission made is that a charge
would be created on the property of any
Member, past member or deceased member, if
there is any money recoverable from such past
member or deceased member.
5.16. Subsection (3) of Section 103 of the KCS Act is
reproduced hereunder for easy reference:
103. Attachment of property before award or
order.-
(1) Xxx
(2) Xxx
(3) Attachment made under this section shall not
affect the rights, subsisting prior to the
attachment of the property, of persons not
parties to the proceedings in connection with
which the attachment is made, or bar any
person holding a decree against the person
whose property is so attached from applying
for the sale of the property under attachment
in execution of such decree.
5.17. By relying on Subsection (3) of Section 103 of
the KCS Act, submission is that it is only the
subsisting rights prior to the attachment which
should not get effected by such attachment.
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Once an attachment is made any transaction
could be subject to the attachment.
5.18. By relying on Subsection (3) of Section 103 of
the KCS Act, he submits that there is no charge
on the property of D.Komalakshi which could be
claimed by the Co-operative Society, the Co-
operative Society could claim interest only as
regards the property belonging to the member
or past member or deceased member.
Komalakshi not being a member, no such claim
could be made.
5.19. By referring to Subsection (3) of Section 103,
he submits that the attachment made under
that provision would not have any effect on any
subsisting rights prior to the attachment of the
property and as such, he submits that
K.S.Ganapati and M.M.Bharathi having
purchased the property before the attachment,
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the attachment cannot have any effect on
them.
5.20. He refers to Rule 38 of the KCS Rules and
submits that there is a violation of the said
rules. None of the mandatory provisions of
Subrule (2) of Rule 38 has been followed before
issuing the impugned auction notification. He
submits that the valuation report of the
property has not been obtained, which goes to
the root of the matter. His submission is that
K.S.Ganapati and M.M.Bharathi, having
purchased the property before the surcharge
proceedings, no right could be claimed by the
Society.
6. Sri. Mahesh Kiran Shetty, learned Counsel for
Respondent No. 1, Society would submit that:
6.1. His submission is that petitioners have
suppressed true and correct facts before this
Court. The petitioners claim the alleged sale
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deed is void ab initio since the property was
attached way back on 18.02.2002, and under
Section 103 of the KCS Act, 1959, they were
made part of the surcharge proceedings. He
submits that the Society, being a House
Building Corporate Society, D. Rajkumar was
the former president of the Society, who was
involved in a series of omissions and
commissions, as also misappropriated the funds
of the Society. Having collected monies in the
name of the Society, he had purchased
properties in his own name in Bengaluru and
Madikeri, including the subject property.
6.2. The JRCS had initiated a suo motu inspection
under section 65 of the KCS Act, 1959, as per
the order dated 16.10.2000. Inspector having
been appointed, he completed the inspection on
31.05.2001 and submitted a detailed report,
categorically indicating that D.Rajkumar had
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misappropriated an amount of Rs.4,59,69,000/-
The report categorically indicates that
D.Rajkumar had collected sital deposits from its
members and misappropriated those sital
deposits by purchasing properties in his own
name.
6.3. Based on the inspection report, an order dated
02.08.2001 under Section 68 of the KCS Act,
1959 was passed, directing the committee
members to rectify the defect that was pointed
out. Failure thereof resulted in surcharge
proceedings under Section 69 of the KCS Act,
1959 and the properties belonging to
D.Rajkumar and one other director, Rudrachar,
were attached before judgment under Section
103 of the KCS Act, which came to be
confirmed by the final decree, passed on
27.05.2002. The order under Section 68 having
been passed on 2.08.2001, the gift deed was
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executed on 29.09.2001, i.e., subsequent to
the attachment order, the sale deed was
executed much subsequently on 09.04.2014.
Though some of the properties belonging to
D.Rajkumar were brought to auction,
D.Rajkumar had approached the Karnataka
Appellate Tribunal in Appeal No. 306 of 2005,
wherein there was a direction to deposit a sum
of Rs.25,00,000/- which was not complied.
Against this order of KAT had approached this
Court in WP No.12666 of 2005, which came to
be dismissed on 6.04.2005, holding that all
alienations that were made subsequent to the
initiation of proceedings by the Society were
void and the property standing in the name of
D.Rajkumar as on the date of inspection would
have to be considered.
6.4. His submission, therefore, is that the order of
inspection having been passed on 16.10.2000,
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inspection having been completed on
31.05.2001, any property standing in the name
of D.Rajkumar as on that date, could be subject
to surcharge proceedings. All actions which
have taken place, including the gift deed
executed on 29.09.2001, much less the sale
deed executed on 09.04.2014 in favour of the
petitioners, were much subsequent and as
such, in terms of Section 103 of the KCS Act, it
is the Society which has a charge over the
property.
6.5. By referring to Section 105 of the KCS Act, he
submits that any order passed under Section
103 or Section 69 of the KCS Act is one
appealable under Section 105 and, as such, the
present writ petition is not maintainable.
6.6. His submission is that the petitioners cannot
claim to have acquired any title over the
property.
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6.7. The contention of the petitioners in W.P.
No.40198 of 2014 is contrary to the
submissions made by the petitioner in W.P. No.
3853 of 2024, wherein Orchid Investment, the
petitioner therein has claimed that the first
petitioner, namely K.S. Ganapathi has executed
an agreement of sale in favour of Orchid
Investment, agreeing to transfer the interest of
K.S.Ganapathi in the property to Orchid
Investment. The right of K.S.Ganapathi being
under an agreement of sale dated 1.04.2013, if
K.S.Ganapathi had transferred all his interest in
favour of Orchid Investment on 20.01.2014,
the question of a sale deed being executed in
favour of K.S.Ganapathi on 9.04.2014 would
not at all arise.
6.8. Lastly, he submits that the amounts having
been misappropriated by D.Rajkumar from poor
members of the Society, the property of
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D.Rajkumar would have to be sold and the
losses caused to the poor members of the
Society would have to be made good.
6.9. On the basis of the above, he submits that this
petition is required to be dismissed.
7. Sri. Pavana Kumar Shetty, learned Counsel who
appears for the auction purchaser, submits that he
has complied with the due terms of the auction, he is
the highest bidder for a sum of Rs.50,50,000/- and
has made payment of Rs.7,75,500/- as 15% of the
bid amount and he has been ready to make payment
of the balance amount. Though the property has
been auctioned in favour of the purchaser, no sale
deed has been executed, nor has the purchaser been
able to make use of the property. His submission is
that even today, the auction purchaser is ready to
make payment of the balance amount with interest
at 6% per annum, and as such, he seeks a direction
to be issued to the Society to register a sale deed in
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favour of the auction purchaser after receiving the
balance amount. On that basis, he submits that the
repetition is also required to be dismissed.
8. Heard Sri.Venkatesh R.Bhagat, learned Counsel for
the petitioners, Sri.Harish.A.S, learned AGA for
respondents No.2 and 3, Sri.Mahesh Kiran Shetty,
learned Counsel for respondent No.1, Sri.H.Pavana
Chandra Shetty, learned Counsel for respondent No.4
in W.P. No.40198/2014 and Sri.Rajesh Shettigara,
learned Counsel for the petitioner, Sri.Harish.A.S,
learned AGA for respondents No.1 to 3, Sri.Mahesh
Kiran Shetty, learned Counsel for respondent No.4,
Sri.H.Pavana Chandra Shetty, learned Counsel for
respondent No.4 and Sri.Venkatesh in W.P.
No.3853/2024. Perused papers.
9. The points that would arise for consideration are:
i. Whether post the order passed under Section
68 of the KCS Act and or inspection being
carried out by the Inspector appointed, could
any sale be affected by a member of the
board of director of the Society against
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whom the allegations made of
misappropriation?
ii. If any such alienation is carried out, what
would be the validity of such sale?
iii. Could a third party who claims to be an
alienee of the alienee seek to establish any
equity, In the present matter, is the gift deed
executed by D.Rajkumar in favour of his
wife, D.Komalakshmi on xxx blank and
subsequently the sale deed jointly executed
by D.Rajkumar and D.Komalakshmi in favour
of K.S.Ganapathi and M.m.Bharathi are valid
in the eyes of the law?
iv. What order?
10. I answer the above points as under
11. ANSWER TO POINT NO.1: Whether post the
order passed under Section 68 of the KCS Act
and or inspection being carried out by the
Inspector appointed, could any sale be affected
by a member of the board of director of the
Society against whom the allegations made of
misappropriation?
11.1. The relevant provisions have been extracted
above what would have to be seen is the
sequence of events as it has occurred. There
being allegations regarding misappropriation by
the office bearers of the Society. An inspection
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was directed to be conducted vide order dated
16.10.2000. The inspection report was
submitted on 31.05.2001. Subsequent thereto,
a gift deed was executed by D. Rajkumar in
favour of his wife, D.Komalakshi, on
29.09.2001. The DRCS initiated suo motu
surcharge proceedings vide order dated
18.02.2002, where an attachment before the
order was issued. On 23.03.2002, a
confirmation of the attachment order was
passed. An award was passed on 27.05.2002
for recovery of a sum of Rs.4,59,69,000/-.
11.2. Execution proceedings had been initiated in
Execution No.6161/2004-05. D. Rajkumar had
challenged the award in Appeal No.306/2005
before the Karnataka Appellate Tribunal, where
a direction had been issued for the deposit of a
sum of Rs.25,00,000/-, which was not complied
with, but however, D. Rajkumar had filed a writ
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petition in W.P.No.12666/2005, which came to
be dismissed on 06.04.2005.
11.3. It is much subsequently that an agreement of
sale came to be executed by D. Komalakshi and
D.Rajkumar in favour of K.S.Ganapathi and
M.M.Bharati, who are the Petitioners in
W.P.No.40198/2014 on 01.04.2013. If indeed
there was a valid gift in favour of D.
Komalakshi, there was no need for D.Rajkumar
also to be the vendor in the said sale deed.
11.4. Surprisingly, another agreement was entered
into in favour of Orchid Investment on
20.01.2014 with K.S.Ganapathi transferring his
interest under the agreement of sale in favour
of Orchid Investment. However, a sale deed
came to be executed in favour of
K.S.Ganapathy and M.M.Bharati on 09.04.2014.
11.5. Orchid Investment is the petitioner in
WP.No.3853/2024, contending that
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K.S.Ganapathi, having assigned all his interest
under the agreement of sale, no sale deed
could have been executed in favour of
K.S.Ganapathi.
11.6. The sequence of events as narrated above
would indicate that many of the activities or
actions had occurred in the year 2000-2001
and knowing fully well, the surcharge
proceedings had been initiated, D.Rajkumar
had executed a registered gift deed in favour of
his wife D.Komalakshi on 29.09.2001. This gift,
obviously on the face of records, is a fraudulent
gift deed executed by D.Rajkumar in favour of
his wife trying to save his property, which he
knew would be subject matter of the surcharge
proceedings.
11.7. In terms of Sub-Section (3) of Section 103 of
the KCS Act, the protection is granted to a third
party and not to a related party, like the wife.
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The transactions in favour of Ganapathi and
Bharathi were entered into only in the year
2013 much after all the proceedings had
culminated. The gift deed was executed on
29.09.2001, soon after the order under Section
68 had been passed on 02.08.2001. Thus, the
proceedings have been undertaken against
D.Rajkumar, D.Rajkumar, knowing fully well
that his properties would be made subject
matter of those proceedings, he has executed a
gift deed in favour of his wife. Hence, the same
cannot confer any right title or interest in
favour of his wife, the same being a fraudulent
transfer.
11.8. I answer point No.1 by holding that post the
orders having been passed under Section 68 of
the KCS Act and the inspection having been
carried out, the inspection report having been
submitted. Firstly, the gift deed in favour of the
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wife of D.Rajkumar and, much subsequently,
after more than a decade, in favour of
Ganapathi and Bharathi is invalid. A member of
the Board of Directors of the Society against
whom allegations of misappropriation had been
made could not have executed such a gift deed
in favour of his wife, much less the sale deed,
until all the proceedings had concluded.
12. ANSWER TO POINT NO.2: If any such alienation
is carried out, what would be the validity of
such sale?
12.1. I have dealt with much of this aspect in answer
to point No.1. Suffice it to say that the
alienation which had been carried out by way of
a gift not being valid, the same would not
confer any right, title or interest to the donee
under the said gift deed.
12.2. Hence, I answer point No.2 by holding that any
alienation by way of gift or otherwise, once
proceedings under Section 68 of the KCS Act
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had been initiated, would be invalid and would
not confer any right, title or interest on such
alienee, donee or the like.
13. ANSWER TO POINT NO.3: Could a third party
who claims to be an alienee of the alienee seek
to establish any equity, In the present matter,
is the gift deed executed by D.Rajkumar in
favour of his wife, D.Komalakshmi on xxx blank
and subsequently the sale deed jointly
executed by D.Rajkumar and D.Komalakshmi in
favour of K.S.Ganapathi and M.m.Bharathi are
valid in the eyes of the law?
13.1. The sequence of events have been detailed out
in answer to point No.1 above, which makes it
very clear that the proceedings had been
initiated in the year 2000-2001, the gift deed
had been executed on 29.09.2001, the
agreement of sale in favour of the Petitioners in
W.P.No.40198/2014 had been executed on
01.04.2013 and sale deed in their favour came
to be executed on 09.04.2014, which is much
after the award had been passed on
27.05.2002. The challenge to the same before
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the KAT had failed and the writ petition filed
before this Court, came to be dismissed on
06.04.2005.
13.2. Insofar as Orchid Investments, the petitioner in
W.P.No.3853/2024 is concerned, it is only an
agreement holder and no rights have been
created in favour of Orchid Investments, the
auction having been conducted and culminated.
13.3. Respondent No.4 in W.P.No.40198/2014, being
the successful bidder, neither D. Komalakshi
nor the petitioners in both the above writ
petitions can claim any right, title or interest in
the said properties. As such, I answer point
No.3 by holding that K.S.Ganapathi and
M.M.Bharathi, the petitioners in
W.P.No.40198/2014 and the Orchid Investment
and the petitioners in W.P.No.3853/2024,
cannot claim any right, title or interest in the
property of D.Rajkumar, which had been made
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part of the surcharge proceedings. The auction
which has been carried out is proper and
correct and the auction purchaser would have
all right, title and interest in the said properties.
14. ANSWER TO POINT NO.4: What Order?
above, no grounds being made out, the petition
stands dismissed.
SD/-
(SURAJ GOVINDARAJ)
JUDGE
LN,KTY
