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2025 Supreme(Online)(KAR) 3635
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
ANU SIVARAMAN, MR. JUSTICE VIJAYKUMAR A. PATIL, JJ
Ktk Group – Appellant
Versus
Competent Authority And Special Officer For Ima Group Of Companies – Respondent
MISCELLANEOUS FIRST APPEAL NO. 937 OF 2022 (RES)
Advocate Appeared:
For the Appellant :SRI. V.B. SHIVA KUMAR, ADVOCATE
For the Respondent:SRI. VEERESH R. BUDIHAL, ADVOCATE FOR R1; R2- SERVED
The court held that a lease agreement lacking registration is void, and security deposits cannot be adjusted against rent without sufficient evidence.
Headnote:(A) Karnataka Protection of Interests of Depositors in Financial Establishments Act, 2004 - Section 5(1) - Transfer of Property Act, 1882 - Section 107 - Registration Act, 1908 - Lease Agreement - The trial Court dismissed the petition regarding the adjustment of a security deposit of Rs.30,00,000/- against outstanding rent, ruling that the lease agreement was void due to lack of registration. The appellant contended that the security deposit was distinct from deposits under the KPIDFE Act and should be refundable upon lease termination. The trial Court found no evidence supporting the appellant's claims regarding the lease and the adjustment of the deposit. (Paras 3, 11, 15, 16)
(B) Legal Character of Security Deposit - The court emphasized that a security deposit under a lease is distinct from statutory deposits and can be adjusted against rent arrears. The trial Court's failure to recognize this distinction led to an erroneous application of the law. (Paras 7, 8)
(C) Evidence Requirement - The court noted that the appellant failed to provide sufficient evidence to support claims regarding the lease and the adjustment of the security deposit. (Paras 15, 16)
Facts of the case:
The appeal was filed against the trial Court's decision regarding the adjustment of a security deposit in a lease agreement. The appellant claimed the deposit was adjusted against rent arrears, while the trial Court found no valid lease agreement due to lack of registration.
Findings of Court:
The trial Court's conclusions regarding the lack of evidence for the lease and the adjustment of the security deposit were upheld.
Issues: The main issues included the validity of the lease agreement and the nature of the security deposit.
Ratio Decidendi: The court ruled that the lease agreement was void due to lack of registration, and the appellant failed to provide evidence for the adjustment of the security deposit.
Result: Appeal dismissed.
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
