Karnataka High Court
Sri. N. Shivaprasad vs The Competent Authority on 9 March, 2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF MARCH, 2026
PRESENT
THE HON'BLE MRS. JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL
MISCELLANEOUS FIRST APPEAL NO.2959 OF 2023 (KPIDFA)
BETWEEN:
SRI. N. SHIVAPRASAD
S/O SRI. NANJAPPA,
AGED ABOUT 59 YEARS,
R/AT NO.415,
6TH A MAIN, HRBR LAYOUT,
BANASWADI, BENGALURU-560 043.
...APPELLANT
(BY SRI.M.T.NANAIAH, SR. ADV. FOR
SRI. SHIVAKUMAR V., ADV.)
AND:
1. THE COMPETENT AUTHORITY
FOR M/S. SHREE SHAKTHI CREDIT SOUHARDHA
CO-OPERATIVE LTD.,
REPRESENTED BY ITS COMPETENT AUTHORITY,
JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES,
3RD FLOOR, 'A' BLOCK,
TTMC BUILDING, SHANTINAGAR,
BENGALURU-560 027.
2. M/S. SHREE SHAKTHI CREDIT SOUHARDHA
CO-OPERAITVE LTD.,
NO.171/1, 6TH CROSS,
2
8TH MAIN ROAD,
MALLESHWARAM,
BENGALURU-560 003.
REPRESENTED BY ITS OFFICIAL LIQUIDATOR,
SOUHARDHA SAHAKARI SOUDHA,
NO.68, 1ST FLOOR,
BETWEEN 17TH AND 18TH CROSS,
MARGOSA ROAD,
MALLESHWARAM,
BENGALURU-560 055.
...RESPONDENTS
(BY SRI.VEERESH R. BUDIHAL, ADV. FOR R1;
SRI. A. DEVARAJA, ADV. FOR R2)
THIS MFA IS FILED UNDER SECTION 16 OF THE
KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN
FINANCIAL ESTABLISHMENTS ACT, 2004, AGAINST THE ORDER
DATED 05.04.2023 PASSED IN MISC.NO. 1596/2022 ON THE
FILE OF THE XCI ADDITIONAL CITY CIVIL AND SESSIONS JUDGE
AND SPECIAL JUDGE FOR KPIDFE CASES, BENGALURU,
(CCH-92), ALLOWING THE PETITION FILED UNDER SECTION 5(2)
OF THE KPIDFE ACT-2004.
THIS MFA HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 21.02.2026 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 VIJAYKUMAR A. PATIL
3
CAV JUDGMENT
(PER: HON’BLE MRS. JUSTICE ANU SIVARAMAN)
The appeal is filed against the Order dated 05.04.2023
passed by the XCI Additional City Civil and Sessions Judge,
Bengaluru (CCH-92) (‘Special Court’ for short) passed in
Misc.No.1596/2022. The appellant herein was respondent
No.2 in the Miscellaneous Petition filed under Section 5(2) of
the Karnataka Protection of Interest of Depositors in
Financial Establishments Act, 2004 (‘KPIDFE Act‘ for short).
2. We have heard Shri. M.T. Nanaiah, learned senior
counsel appearing for Shri. Shivakumar. V, learned advocate
appearing for the appellant as well as Shri. Veeresh R
Budihal, learned counsel appearing for respondent No.1 –
Competent Authority appointed in respect of M/s. Shree
Shakthi Credit Souhardha Co-Operative Society Limited.
3. The brief facts are as follows:-
Respondent No.1 is M/s. Shree Shakthi Credit
Souhardha Co-operative Limited (‘Co-operative Limited’ for
short) and the appellant herein was its President. It was
4alleged that the Co-operative Limited had defrauded its
creditors and investors by siphoning off its funds for
purchasing properties and by transferring funds to the
names of firms owned by the appellant and his family
members. In view of the inability of the Co-operative Limited
to return the amounts to the depositors, Notification under
Section 3(2) of the KPIDFE Act was published on 07.02.2019
and published in the Official Gazette on 28.02.2019, in two
daily newspapers and was also affixed on a conspicuous part
of the schedule property for public notice. The previous
Competent Authority had filed a petition under Section 5(2)
of the KPIDFE Act within the prescribed period seeking
confirmation of the interim order of attachment, which was
registered as Misc.No.616/2019. During the proceedings, an
application was filed seeking withdrawal of the petition with
liberty to file afresh on the same cause of action after curing
the defects. By order dated 16.07.2022, the application was
allowed, granting liberty to file a fresh petition within 30
days. Thereafter, the petition was filed afresh by the
Competent Authority on 09.12.2022.
5
4. The appellant herein purchased the petition
schedule property under a Registered Sale Deed dated
27.09.2013 for a consideration of Rs.1,87,50,000/- along
with Shri. A.N. Kumar. The Sale Deed would show that an
amount of Rs.1,72,50,000/- was paid by the appellant. On
11.02.2017 the joint owner Shri. A.N. Kumar executed a
Relinquishment Deed in favour of the appellant. The said
property was also notified for attachment under Section 3(2)
of the KPIDFE Act vide Notification dated 07.02.2019.
Thereafter, the Competent Authority filed an application
under Section 5(2) of the KPIDFE Act, seeking to make the
order of attachment, absolute.
5. The learned senior counsel appearing for the
appellant contended that though the appellant had appeared
and contested the matter, the Special Court proceeded to
speedily pass orders on the application of the Competent
Authority, without giving a reasonable opportunity to the
appellant to contest the matter by adducing evidence. It is
contended that without any evidence being adduced by the
petitioner, the contentions of the petitioner were
6
mechanically accepted and an order was passed making the
attachment absolute. It is contended that the order is
vitiated inasmuch as it proceeded on assumptions and
conjectures as if the sale consideration paid by the appellant
was the amount of respondent No.1-Co-operative Limited. It
is contended that the Sale Deed shows that 90% of the sale
consideration had been paid by the appellant through a
Cheque of the Grain Merchant Co-Operative Bank and not of
respondent No.1 – Co-operative Limited. It is submitted that
the appellant had gone to China on business and returned
only on 29.03.2023 and that he was not able to proceed
with the evidence and he was not given a proper opportunity
to produce materials in support of his contentions. On these
grounds, the order of the Special Court is challenged. It is
further contended that though permission has been granted
by the Special Court by its Order dated 16.07.2022 to file
the application under Section 5(2) of the KPIDFE Act within
30 days, the same was not complied with and it was only on
09.12.2022, that is, after a delay of four and a half months
that the application was filed, which vitiated the entire
7
proceedings. It is contended that the application filed
beyond the period of 30 days was not maintainable and
ought to have been dismissed.
6. The learned counsel appearing for respondent
No.1 – Competent Authority, on the other hand, contends
that the entire proceedings were carried out as provided
under the KPIDFE Act and that all due notice of the
attachment of the property had been given as provided in
the KPIDFE Act. It is contended that it was for the appellant
to have shown cause as to why the orders of attachment
should not be made absolute. However, the appellant failed
to show cause or to produce any documents in support of his
contentions that the property in question was not liable for
attachment.
7. The learned senior counsel also contends that the
report had been placed on record before the Special Court,
under Section 8 of the KPIDFE Act, which showed that
respondent No.1 – Co-operative Limited had failed to return
deposit amounts to the tune of Rs.21.89 Crores as well as
8
other amounts collected by the appellant and Shri A.N.
Kumar directly from the depositors into other firms owned
by the appellant. It is contended that the appellant was
admittedly one of the Directors of the Financial
Establishment and that his property is also liable for
attachment, if the Society does not have sufficient property
to the value of the deposits collected by the Financial
Establishment. It is contended that the large part of the
financial consideration for the purchase of the property in
question was paid by the appellant himself even at the time
of purchase and he had paid further amounts to Shri. A.N.
Kumar for the purpose of release of rights in the property in
favour of the appellant. It is contended that though ample
opportunity had been provided to the appellant to produce
whatever material he wanted to produce before the Special
Court, no such material had been produced before the
Special Court. It is contended that even before this Court,
no material whatsoever is forthcoming to show that the
properties in question are not liable for attachment.
9
8. We have considered the contentions advanced.
Section 3(2) of the KPIDFE Act provides for issuance of an
order by publishing in the Official Gazette, attaching the
money or property believed to have been acquired by the
Financial Establishment in its own name, or in the name of
any other person from and out of deposits collected by the
Financial Establishment. Where such property is not
sufficient for repayment of the deposits, such other property
of the Financial Establishment or the personal assets of
promoters, partners, or other persons related to the
establishment can also be attached. It is clear that what is
contemplated under Section 3(2) of the KPIDFE Act is only
an order of interim attachment of money or property which
is “believed to have been acquired” by the Financial
Establishment or the personal assets of its Directors etc. The
said provisional attachment can be made absolute only after
following the procedure under Section 5 of the KPIDFE Act.
9. Further, Section 5 of the KPIDFE Act
contemplates an application to be made by the competent
authority under the Act before the Special Court to make the
10
order of attachment, absolute. It also contemplates a
consideration of objections by any person having an interest
in the property. Section 11 of the KPIDFE Act provides for
the powers of the Special Court regarding realisation of
assets and payment to depositors. The Special Court under
Section 11(2)(f) of the KPIDFE Act has the power to pass
any order for realisation of the assets of the Company and
repayment to the depositors.
10. Further, Section 12(3) of the KPIDFE Act
specifically provides that any person claiming an interest in
the property attached or any portion thereof may,
notwithstanding that no notice has been served upon him
under this Section, make an objection, as aforesaid, to the
Special Court at any time before an order is passed under
sub-Section (4) or sub-Section (6).
11. Section 19 of the KPIDFE Act provides that, “Save
as otherwise provided in the Act, the provisions of the Act
shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
11
force or any custom or usage or any instrument having
effect by virtue of any such law.”
12. It is clear that the KPIDFE Act is an enactment
intended to provide for protection of interest of gullible
depositors in financial establishments. It is a regulatory and
penal statute and has to be construed specifically as such,
so that the purpose of the enactment can be given effect to.
13. Section 5(2) of the KPIDFE Act provides a period
of 30 days from the date of the order made under Section 3
of the KPIDFE Act for the competent authority to apply to
the Special Court for making the order of attachment
absolute. A proviso has been added to sub Section 5(2) by
the Karnataka Act No.06 of 2021, providing as follows:-
“Provided that, the Secretary to Government,
Revenue Department, may on the request of the
Competent Authority, extend this period by another
fifteen days in cases having valid reasons and based on
the merits of the case.”
14. It is to be noticed here that there is no provision
in the KPIDFE Act excluding the provisions of the Limitation
Act for filing applications under the KPIDFE Act. The High
12
Court of Madras in a series of decisions has held that where
the applications are to be filed before a Special Court and
where there is no express exclusion of the provisions of the
Limitation Act, then, the Limitation Act is applicable. The
enactment being considered was the TNPID Act, which was
in pari materia to the provisions of the KPIDFE Act before its
amendment by introduction of the proviso to Section 5(2) of
the KPIDFE Act.
15. The Apex Court in K.K. Baskaran v. State
Represented by its Secretary, Tamil Nadu and others
reported in (2011) 3 SCC 793, upheld the legal validity of
the TNPID Act and held that the object of the Act to
safeguard the interest of the gullible depositors from
fraudulent activities of the financial establishments. It
further held at Paragraphs No.28 to 30, which reads as
follows:-
“28. In the case of the Tamil Nadu Act, the
attachment of properties is intended to provide an
effective and speedy remedy to the aggrieved depositors
for the realisation of their dues. The offences dealt with in
the impugned Act are unique and have been enacted to
deal with the economic and social disorder in society,
13caused by the fraudulent activities of such financial
establishments.
29. Under Sections 3 and 4 of the Tamil Nadu
Act, certain properties can be attached, and there is also
provision for interim orders for attachment after which a
post-decisional hearing is provided for. In our opinion this
is valid in view of the prevailing realities.
30. The Court should interpret the constitutional
provisions against the social setting of the country and
not in the abstract. The Court must take into
consideration the economic realities and aspirations of the
people and must further the social interest which is the
purpose of the legislation, as held by Holmes, Brandeis
and Frankfurter, JJ. of the US Supreme Court in a series
of decisions. Hence the courts cannot function in a
vacuum. It is for this reason that courts presume in
favour of constitutionality of the statute because there is
always a presumption that the legislature understands
and correctly appreciates the needs of its own people.”
16. We notice that the proviso to Section 5(2) of the
KPIDFE Act gives the Government in the Revenue
Department a right to extend the period of 30 days by 15
more days for the Competent Authority to move the Special
Court. However, such power given to the Government to
extend the time by 15 more days cannot be construed as
being a bar on the power of the Special Court under Section
14
5 of the Limitation Act. We are of the clear opinion that the
proviso granting a power to the Government dehors the
power of the Special Court to extend the time for making
the application before the Special Court cannot, in any way,
limit the powers of the Special Court.
17. The Special Court is constituted under Section 10
of the KPIDFE Act. Such Court is clearly a “Court” for the
application of the Limitation Act. As such, the Special Court
exercises its power under Section 5 of the KPIDFE Act by
virtue of its status as a Court. The time period provided
under the Act and the power provided to the Government to
extend the time for a period of 15 days thereafter cannot
therefore, be construed as limiting the powers of the Special
Court under Section 5 of the Limitation Act. In the instant
case, the delay in filing the application under Section 5(2) of
the KPIDFE Act had been condoned by a separate order
which is not under challenge before us. In any view of the
matter, the contention that a delay cannot be condoned
cannot be accepted by this Court.
15
18. Further, it is clear that an ample opportunity had
been given to the appellant to substantiate his case by
producing sustainable material before the Special Court. The
fact that such opportunity was not made use of cannot stand
in the way of the adjudication by the Special Court. It was
an admitted case that the appellant herein was a Director
and a past President of the Co-operative Limited. It was
found that his contention that he was not a Director and that
his signature in the proceedings of the Co-operative Limited
and its Audit Report were forged cannot be accepted, since
he had not raised any such contentions or taken any
appropriate legal action at the relevant time. It was an
admitted fact that the property was purchased by the
appellant and Shri. A.N.Kumar jointly. The purchase was
made at a time when the appellant was the Director of the
Financial Establishment. In view of the provisions of the
KPIDFE Act, the Special Court clearly found that it was for
the appellant to have substantiated his contention that the
purchase was made out of his independent funds. Therefore,
the source of such funds ought to have been established by
16
the appellant by adducing acceptable evidence. It was found
that no evidence whatsoever was forthcoming in support of
his contentions that the property was purchased out of his
independent fund. The Special Court found from the
materials on record including the statements of accounts
relating to the Financial Establishment held at AXIS Bank,
that substantial amounts had been transferred from the
account of the Bank to respondent No.2’s personal account
during the relevant time. The contention that it was the
amounts, which were transferred from the Bank’s account
that was utilized for the purchase of the property was
therefore accepted. No documents could be placed on record
by the appellant to show that the purchase of the property
was made with his independent income and no source of
such income could be substantiated by him before the
Special Court. Even before this Court, no material has been
placed on record to substantiate the contentions of the
appellant.
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19. The contention that the Competent Authority
should have proved the facts before the Special Court is also
completely unsustainable, in view of the special provisions of
the KPIDFE Act, where it is for the person who claims
ownership or interest in any of the properties attached to
show cause as to why such attachment shall not be made
absolute.
20. In the above view of the matter, we are of the
opinion that there is no substance in the contentions raised.
The appeal fails and the same is accordingly dismissed.
All pending interlocutory applications shall stand
disposed of.
Sd/-
(ANU SIVARAMAN)
JUDGE
Sd/-
(VIJAYKUMAR A. PATIL)
JUDGE
cp*