Secured creditors' rights under the Karnataka Act take precedence over attachment orders; non-inclusion of the Competent Authority in proceedings invalidates prior orders.

JUDGMENT :

VIJAYKUMAR A. PATIL, J.

These appeals are filed by the Canara Bank and the Resolution Professional of Sree Shanmuga Modern Rice Mills Private Limited challenging the orders passed in the miscellaneous cases by the XCI Additional City Civil and Sessions Judge and Special Judge for KPIDFE Cases, Bengaluru (CCH-92) as under:

2. Sri.Hemanth R.Rao, learned counsel appearing for the appellants submits that the appellants were not arrayed as parties before the Special Court and hence, they were not aware about the passing of the order by the Special Court under Section 5 (2) of the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (hereinafter referred to as 'the Act'). It is submitted that the Canara Bank is a secured creditor and its charge is prior than the attachment order. It is further submitted that the proceedings were initiated under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and an order under Section 14 of the IBC came to be passed on 17.03.2023 and in view of the said order, the impugned order of the Special Court is liable to be set aside. It is also submitted that both the appellants have filed writ petitions in W.P.Nos.1880/2022 and 16377/2021. The learned Single Judge of this Court, considering the rival contentions allowed the writ petitions holding that the attachment order insofar as the secured properties as regards which any mortgage or security interest has been created in favour of any member of the Committee of Creditors, shall stand vacated. It is contended that in view of the aforesaid orders of the learned Single Judge, the appeals are required to be allowed.

3. Per contra, Sri.Veeresh R.Budihal, learned counsel for the respondent No.1 supports the impugned order of the Special Court and submits that there is no dispute with regard to the orders passed by the learned Single Judge in the aforesaid writ petitions. However, as there is a law declared by the Hon'ble Supreme Court in the case of NATIONAL SPOT EXCHANGE LIMITED VS. UNION OF INDIA AND ORS. , W.P.(Civil) No.995/2019 dt. 15.05.25 wherein it was held that the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, has an overriding effect on the proceedings initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as well as the IBC and therefore, the question of interference would not arise. Hence, he seeks dismissal of the appeals.

4. We have heard the arguments of the learned counsel for the appellants, learned counsel for the respondent No.1 and meticulously perused the material available on record. We have given our anxious consideration to the submissions advanced on both sides.

5. In these appeals, the secured creditors-Canara Bank and the Resolution Professional of Sree Shanmuga Modern Rice Mills Private Limited filed appeals assailing the orders of the Special Court, wherein the Special Court has passed an order under Section 5 (2) of the Act confirming the attachment orders dated 24.02.2022. It is noticed that the appellants were not parties to the proceedings before the Special Court. It is also noticed that in the writ petitions filed by the appellants before this Court, the Competent Authority was not arrayed as a party. In W.P.No.1880/2022 filed by the Canara Bank against the State of Karnataka and others, the learned Single Judge vide order dated 13.12.2024 partly allowed the writ petition. The operative portion of t