Borrower’s Bid To Lift Property Attachment Over Disputed ₹75 Lakh Loan Fails, As Karnataka HC Leaves Her Free To Seek Records Elsewhere

The Competent Authority initiated proceedings under Section 5(2) of the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (“KPIDFE Act”), seeking to make absolute an interim attachment of property said to secure a loan obtained from the financial establishment.

The appellant maintained that she had received and repaid only ₹42,80,000, rather than the ₹75,00,000 recorded in the mortgage agreement.

In the pending proceedings, she sought production and inspection of loan, account, disbursement and audit records under Order XI Rules 12 and 14 CPC, and sought an inquiry into her liability and relief from attachment under Section 7 of the KPIDFE Act read with Section 151 CPC.

The Special Court dismissed both applications. The appellant challenged those orders in these appeals under Section 16 of the KPIDFE Act.

1. Whether the Special Court erred in dismissing the appellant’s application for production and inspection of documents when the Competent Authority stated that it did not possess them.

2. Whether the appellant was entitled, on the applications before the Special Court, to an inquiry into the amount of her liability and to relief from or modification of the attachment.

Section 16 of the KPIDFE Act provides the appellate basis invoked for challenging the Special Court’s orders; Section 5(2) concerns proceedings before the Special Court for making an interim attachment absolute, and Section 7 was invoked by the appellant in seeking an inquiry into liability and relief concerning attachment.

Order XI Rules 12 and 14 CPC were invoked to seek discovery and production of documents.

The Court’s decision turned on the practical consideration that the Competent Authority could not be directed to produce records it did not possess; the appellant remained at liberty to obtain relevant documents from the financial establishment, bank, statutory authority or investigating agency and place them before the Special Court.

The Court accepted that the dispute over whether ₹42,80,000 or ₹75,00,000 had been disbursed required supporting documents.

However, the Competent Authority stated that the requested records were not in its custody, and the Court considered that they might instead be held by the financial establishment, bank or investigating agency.

Because the appellant could seek those documents from the relevant sources and present them to the Special Court, the Court found no sufficient ground to interfere with the dismissal of her applications.

It reserved liberty for the appellant to obtain the necessary documents from the relevant authority, financial establishment, bank or investigating agency and submit them to the Special Court. The Special Court was directed to consider any claim supported by those documents and pass appropriate orders in accordance with law; all contentions remained open.