Proceedings under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004, including the attachment of assets, have an overriding effect, giving them priority over the claims of secured creditors under the SARFAESI Act.

THIS MFA IS FILED UNDER SECTION 16 OF THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2004, AGAINST THE ORDER DATED 20.07.2024 PASSED IN MISC. PETITION NO.202/2024 ON THE FILE OF THE XCI ADDITIONAL CITY CIVIL AND SESSIONS JUDGE, SPECIAL JUDGE FOR KPIDFE CASES, BENGALURU (CCH 92), ALLOWING THE PETITIONS FILED U/S.5(2) OF THE KPIDFE ACT, 2004 WITH COST.

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 02.06.2026 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 VENKATESH NAIK T

CAV JUDGMENT

(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN)

1. This Miscellaneous First Appeal is preferred against the Order dated 20.07.2024 passed by the XCI Additional City Civil and Sessions Judge, Bengaluru (CCH-92) ('Special Court' for short) in Misc.No.202/2024.

2. We have heard Shri. B.S. Jeevan Kumar, learned counsel appearing for the appellant and Shri. Veeresh R. Budihal, learned counsel appearing for the respondents.

3. The Canara Bank, which is the appellant herein seeks to file this appeal challenging the order of the Special Court under the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 ('KPIDFE Act' for short) on the ground that the property which was subject matter of the application under Section 5(2) of the KPIDFE Act was mortgaged with the appellant - Bank. It is contended that respondent No.3 - M/s. Krantiveera Sangolli Rayanna Urban Co-operative Society Limited ('Society' for short), which is the Financial Establishment in the instant case had created a registered mortgage in favour of the appellant - Bank, as security for working capital and term loan availed by respondent No.2 and other borrowers. The loan had become a Non-Performing Asset as on 16.10.2018 and Notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act' for short), was issued by the Bank on 10.09.2019. When the borrowers failed to comply, a possession notice was also issued on 05.03.2020 and symbolic possession of the secured property was taken.

4. In the meanwhile, the Government of Karnataka issued an interim order of attachment dated 03.11.2023 under Section 3(2) of KPIDFE Act in respect of the schedule properties in proceedings against the Society. It is further submitted that respondent No.1 - Competent Authority had filed an application under Section 5(2) of the KPIDFE Act before the Special Court with a delay of 63 days, seeking making of the interim order of attachment absolute. The Society as well as the Directors did not oppose the application under Section 5(2) of the KPIDFE Act. The Special Court condoned the delay of 63 days in filing the application, allowed the same and made the attachment absolute.

5. It was found by the Special Court that by Sale Deeds dated 30.03.2010, 18.08.2015 and 27.01.2020, respondent No.2, being a Director of the Financial Establishment had purchased the properties out of the deposits in the Financial Establishment. Further, it was found that since the assets standing in the name of the Society were insufficient to meet the claim of the depositors, the personal properties of the Directors was also liable to be attached.

6. The said order is assailed by the appellant - Bank on the ground that it had a prior charge on the properties and that since the possession of the properties had been taken by the Bank under the SARFAESI Act, the attachment and the order making it absolute under th