[Cites 22, Cited by 0]

Karnataka High Court

Manappuram Finance Ltd vs State Of Karnataka on 20 February, 2026

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                                                           NC: 2026:KHC:11260
                                                       WP No. 10865 of 2025


                   HC-KAR



                     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                        DATED THIS THE 20TH DAY OF FEBRUARY, 2026

                                            BEFORE
                   THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
                          WRIT PETITION NO. 10865 OF 2025 (GM-RES)

                   BETWEEN:

                   1.     MANAPPURAM FINANCE LTD.,
                          A COMPANY INCORPORATED UNDER
                          THE COMPANIES ACT 1956
                          HAVING REGISTERED OFFICE AT
                          MANAPURAM HOUSE, A.O. VALAPAD
                          TRISSUR DISTRICT, KERALA -680 567
                          HAVING ITS BRANCH OFFICE AT
                          KUDLU SOMASUNDARAPALYA
                          NO. 48/7, 5TH FLOOR
                          KUDLU SOMASUNDARAPALYA ROAD
                          BENGALURU-560102.

                          DULY REPRESENTED BY ITS
                          AUTHORIZED REPRESENTATIVE/
                          LEGAL MANAGER
Digitally signed          MR. SHANMUGAM .A
by AL BHAGYA
Location: HIGH
                                                                ...PETITIONER
COURT OF
KARNATAKA
                   (BY SRI. ANISH JOSE ANTONY, ADVOCATE)

                   AND:

                   1.     STATE OF KARNATAKA
                          BY STATION HOUSE OFFICER
                          HULIMAVU PS
                          REPRESENTED BY HCPP
                          HIGH COURT OF KARNATAKA
                          BANGALORE-560 001.
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                                       NC: 2026:KHC:11260
                                    WP No. 10865 of 2025


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2.   SRIVATSA KUMAR
     S/O T.K. SRINIVASAN
     FLAT NO. 3023, PRESTIGE NOTINGAL HILL
     APARTMENT, B.G ROAD, HULIMAVU
     BANGALORE-560 076.
                                         ...RESPONDENTS

(BY SRI. RAHUL RAI, HCGP)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO
CALLING FOR THE RECORDS OF ANNEXURE-A ORDER DATED
19.12.2020 IN CC NO. 10049/2018 PASSED BY THE HONBLE V
ADDITIONAL CHIEF METROPOLITAN MAGISTRATE, BANGALORE
AND QUASH THE SAME TO AN EXTENT OF MAKING THE
INTERIM CUSTODY OF ARTICLES SEIZED IN PF NO. 88/2017
GRANTED TO THE 2ND RESPONDENT MAKING ABSOLUTE AND
FOR FURTHER DIRECT V ADDITIONAL CHIEF METROPOLITAN
MAGISTRATE, BANGALORE TO PASS ORDERS UNDER SECTION
452 OF CRPC IN CC NO. 10049/2018 WITH REGARD TO THE
ARTICLES SEIZED IN PF NO. 88/2017 FOR ITEM NO. 2 TO 4 DE
NOVO AFTER HEARING THE PETITIONERS WITHIN A PERIOD
OF ONE MONTH IN THE INTEREST OF JUSTICE AND EQUITY.

     THIS WRIT PETITION COMING ON FOR FURTHER
HEARING, THIS DAY ORDER WAS MADE THEREIN, AS UNDER:

CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM

                     ORAL ORDER

The captioned petition challenges the order dated

19.12.2020 passed in C.C.No.10049/2018, whereby the

learned Magistrate, after recording the settlement in the

Lok-Adalat, made the interim custody of certain gold

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articles (seized in P.F.No.88/2017) absolute in favour of

respondent No.2.

2. The petitioner, a Non-Banking Financial

Company (NBFC) which advanced loans against pledged

gold seeks that the said portion of the order (making

interim custody absolute) be set aside and that the matter

be remitted to the learned Magistrate to hold an enquiry

under Section 452 of Criminal Procedure Code, 1973

('Cr.P.C.' for short) and to pass appropriate orders after

giving notice to all persons claiming interest.

3. The petitioner is an established NBFC with

nationwide presence. The petitioner advanced loan to the

accused/Papubai and Madesha against pledges of gold

ornaments. A complaint came to be registered in Crime

No.179/2017 alleging offence under Section 381 of IPC.

The Investigating Officer issued notice under Section 91

Cr.P.C. and seized the gold articles (recorded as

P.F.No.88/2017). Interim custody of the seized articles

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was given during investigation and, following settlement

before the Lok-Adalat, the trial Court made the interim

custody absolute in favour of respondent No.2, without

hearing the petitioner. The petitioner contends it is a bona

fide pledgee and has a civil right/claim to possession which

was not adjudicated.

4. The petitioner's counsel reiterating the grounds

has placed reliance on the following judgments:

1) Nevada Properties (P) Ltd. vs. State of Maharashtra, (2019) 20 SCC 119;

2) N.Madhavan vs. State of Kerala - (1979) 4 SCC 1;

3) Hiralal Babulal Soni vs. State of Maharashtra - 2025 SCC Online SC 437;

4) Yes Bank vs. State of UP and Others - Criminal Appeal No.207/2023;

5) Muthoot Fincorp Ltd. vs. The SHO and Others -

Criminal Appeal No.1026/2024;

6) Shimoga District Central Co-operative Bank Limited, Shimoga vs. Karnataka Food and Civil Supplies Corporation, Bangalore - 2003 SCC Online Kar 831;

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7) Kasturi Lal Ralia Ram Jain vs. State of UP - 1964 SCC Online SC 38;

8) Union Territory of Ladakh vs. Jammu & Kashmir National Conference - 2023 SCC Online SC 1140;

9) Shabna Abdulla vs. Union of India - 2024 SCC Online SC 2057;

10) Union of India vs. Dayanand - (2008) 10 SCC 1.

5. Learned counsel appearing for the

respondent/State has also countered by producing the

following judgments:

1) Muthoot Fincorp Limited Rep. by its Branch Manager, Udumalpet vs. Inspector of Police and Another - 2020 SCC Online Mad 4664;

2) Muthoot Fincorp Ltd. vs. Station House Officer - 2022 SCC Online Ker 1539;

3) Manappuram General Finance & Leasing Limited vs. State of Telangana - 2024 SCC Online TS 1423;

4) Muthoot Finance Ltd., vs. State of Karnataka - 2024 SCC Online Kar 2531.

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6. Heard the learned counsel appearing for the

petitioner and learned counsel appearing for the

respondents. The following point would arise for

consideration:

"Whether the learned Magistrate was justified in making the interim custody of the seized gold articles absolute in favour of respondent No.2, without notice to the petitioner and without holding an enquiry under Section 452 Cr.P.C. and whether the settlement before the Lok Adalat could supplant the statutory process for disposal of seized property where third-party rights are claimed?"

Finding on the Point for consideration:

7. In the present case on hand,

petitioner/company asserts that it has advanced loan to

accused/Papubai and Madesha by accepting gold through

pledging by following the due process of law. The

petitioner's primary grievance is that pursuant to

complaint lodged which culminated in registration of crime

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at the instance of respondent No.2 in Crime No.179/2017,

the Investigating Officer based on statement given by the

accused seized the gold articles from the

petitioner/company in Crime No.179/2017 and the seized

property was assigned with Property Finding No.88/2017.

Petitioner/company therefore contends that gold

mentioned in the seized mahazar, since it was seized from

petitioner's branch, the interim custody given to the

complainant of the seized gold and consequent order by

the local authority making it absolute, according to the

finance company is arbitrary and prejudicial to petitioner's

claim over the seized golden articles.

8. Sections 451-452 (and 457) Cr.P.C. lay down

the power of criminal courts in respect of custody and

disposal of property produced or seized in connection with

an inquiry or trial. Section 451 deals with custody pending

trial; Section 452 authorizes the Court, at the conclusion

of the inquiry/trial, to pass orders for disposal of the

property (by destruction, confiscation, or delivery to any

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person who claims to be entitled); Section 457 empowers

a Magistrate to deal with property seized by a police officer

which is not produced before the Court. The scheme

presumes that disposal at the conclusion of the trial is a

judicial act requiring consideration of claims and, where

necessary, enquiry and opportunity to be heard.

9. Custody/disposal cannot be mechanically

determined by settlement without considering third-party

rights. It is now well settled that, custody or final disposal

of seized property is not a mere corollary of the settlement

on criminal liability; the criminal Court must consider and

determine, in accordance with law, which person is

entitled to possession and this normally requires an

enquiry under Section 452/457 Cr.P.C. where third-party

claims are made. In Bharat Sanchar Nigam Limited vs.

Suryanarayanan & Another1, the Hon'ble Supreme

Court set aside an order which had granted interim

custody and remanded the matter to the trial Court to

Criminal Appeal No.170 of 2009

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pass orders in terms of Section 452 Cr.P.C. because no

proper disposal order in terms of Section 452 Cr.P.C. was

passed. The Hon'ble Apex Court emphasized that Section

452 Cr.P.C. mandates final disposal by the Court and

interim custody cannot be treated as a substitute for that

statutory process.

10. The Hon'ble Apex Court has held that property

should not be detained longer than necessary. The Hon'ble

Apex Court has repeatedly emphasised that seizure and

custody by police/court is to be regulated so as not to

injure legitimate third-party rights and that property

should not be retained longer than necessary; disposal

must be done expeditiously while safeguarding rights of

claimants.

11. Lok-Adalat's play a very limited role, it cannot

determine ownership/merits when third parties are

excluded. Lok-Adalats are statutorily constituted fora for

facilitating settlements; they have no adjudicatory

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jurisdiction to decide questions of title/ownership or to

decide the merits where such questions are unresolved or

third-party rights are involved. The Hon'ble Apex Court

has emphasised that where a genuine compromise is not

possible or where a determination on merits is required,

the Lok-Adalat cannot assume the role of a court to

adjudicate such disputes and such matters should be

returned to the referring court for adjudication. Thus a

settlement before Lok-Adalat (or its recording) does not

absolve the trial Court from the statutory obligation to

determine, after notice and enquiry, the person entitled to

the seized property. In the present case;

(a) There is an admitted seizure made in course of investigation and the petitioner asserts a specific civil right as pledgee in respect of the gold articles.

(b) The Lok-Adalat settlement resulted in acquittal of the accused, but there is no contemporaneous adjudication in the trial Court under Section 452 Cr.P.C. regarding who is entitled

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to possession of the seized articles. The lok-Adalat proceeded to make interim custody absolute in favour of respondent No.2 without hearing the petitioner and without passing an order for disposal after enquiry in terms of Section 452 Cr.P.C. Such a course is contrary to the scheme of Sections 451/452/457 of Cr.P.C. and the authorities cited above.

(c) Under Section 452 of Cr.P.C., the Court is empowered to deliver the property to any person claiming to be entitled to its possession. The court has therefore jurisdiction to decide the question of possession. The section therefore empowers the court to return articles, whether involved in crime or not, to the person claiming to be entitled to possession. Therefore, it is the responsibility of the court to ensure and ascertain as to who is the person best entitled for the possession of the golden articles which were seized from the custody of the petitioner/finance company.

(d) Sections 452 and 453 of Cr.P.C.

contemplates cases where the order with regard to property is passed on the conclusion of the trial under Section 453 of Cr.P.C., where property is

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found to be stolen property. The person entitled to possession of the same in such case is the person from whom it was originally stolen. However, in the peculiar facts and circumstances of the case, the petitioner/finance company is asserting that the golden articles were pledged in accordance with law and therefore, the Lok Adalat had no power to make the interim custody absolute detrimental to the rights of the petitioner/company.

12. It is trite law that a Lok-Adalat derives its

jurisdiction strictly from the consent of the parties and is

empowered only to record a lawful settlement between

them. A Lok-Adalat does not exercise adjudicatory powers

and cannot decide disputed questions of fact or law, nor

can it pass orders affecting substantive or proprietary

rights of persons who are not parties to the settlement. In

the present case, the order of the Lok-Adalat making the

interim custody of the seized articles absolute travels far

beyond the scope of its statutory authority. The question

of final custody or disposal of seized property squarely

falls within the exclusive domain of the criminal Court

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under Sections 451 and 452 of Cr.P.C. and requires a

judicial determination after affording an opportunity of

hearing to all persons claiming an interest in the property.

The impugned order, insofar as it makes interim custody

absolute, directly and adversely affects the rights of the

petitioner, who asserts a lawful lien by way of pledge,

despite the petitioner not being a party to the Lok-Adalat

proceedings. Such an order, therefore, suffers from

inherent lack of jurisdiction and warrants interference by

this Court. Accordingly, the impugned order is liable to be

set aside to the limited extent it makes the interim

custody absolute, leaving it open to the jurisdictional

Magistrate to decide the issue of custody and disposal of

the property in accordance with law.

13. In the present circumstances the impugned

portion of the order (i.e., making interim custody

absolute) must be set aside and the matter must be

remitted to the learned Magistrate to proceed in

accordance with law, in particular to:

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(i) issue notice to the petitioner and any other person who claims interest in the seized articles;

(ii) hold an enquiry (if necessary, of a summary nature) to determine questions of entitlement to custody / possession;

(iii) having recorded evidence and heard the parties, pass appropriate orders for disposal of the property in accordance with Section 452 of Cr.P.C. (and, where relevant, Section 457/451), giving reasons;

and

(iv) ensure interim measures (if necessary) to protect the property pending enquiry, e.g., superdari bond, custodial safeguards, photographic record and inventory, so as to preserve the property and the rights of parties. The trial Court must act expeditiously. The direction to pass an order under Section 452 of Cr.P.C. is the exact remedy indicated by the Hon'ble Supreme Court in similar circumstances.

Accordingly, the point formulated above is answered

in the negative.

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14. For the foregoing reasons, this Court proceeds

to pass the following:

ORDER

(i) The writ petition is allowed in part;

(ii) The impugned order dated 19.12.2020 passed in C.C.No.10049/2018 by the V Additional Chief Metropolitan Magistrate, Bangalore vide Annexure-A is set aside insofar as it makes the interim custody of the gold articles (seized in P.F.No.88/2017) absolute in favour of respondent No.2;

(iii) The matter is remitted to the learned Magistrate, who shall, within a period of four (4) weeks from receipt of the records:

(a) issue notice to the petitioner and to any other person who claims interest in the gold articles;

(b) hold necessary enquiry/hearings under Sections 451/452/457 Cr.P.C., as may be appropriate in the facts of the case; and

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(c) after considering the claims and evidence, pass an order for disposal of the seized articles in terms of Section 452 Cr.P.C., recording reasons and following principles of natural justice.

(iv) Pending the aforesaid enquiry, the learned Magistrate may, if necessary, direct suitable custodial safeguards for the gold articles (including bond or other appropriate mechanism) so as to preserve the property and the rights of the parties;

(v) Liberty is reserved to the parties to move the learned Magistrate for interim directions, and thereafter to approach this Court for any exceptional relief, if need arises;

(vi) No order as to costs.

Sd/-

(SACHIN SHANKAR MAGADUM) JUDGE

CA List No.: 1