Karnataka HC Bars Disturbing Four Claimants’ Possession Of Properties Attached Under Depositors Act Until Special Court Decides

The petitioners challenged a notification dated 29 December 2023 issued under Section 3(2) of the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (“the Act”), insofar as it attached properties they had acquired from respondent No. 3 through sale and gift deeds.

The properties were included in the notification on the allegation that respondent No. 3’s assets were proceeds derived from respondent No. 4, a financial establishment.

The petitioners approached the High Court before the Competent Authority had applied to the Special Court under Section 5(2); an interim order had directed the respondents not to precipitate the matter.

The petitioners feared that their possession would be disturbed if the writ petitions were disposed of.

Section 3(2) of the Act provides for attachment by the State; under Section 3(4), the attached property vests in the Competent Authority, as noted by the Court.

Section 5(2) provides for the Competent Authority to apply to the Special Court for an order making the attachment absolute, and affected persons may present their contentions in those proceedings.

The Court also relied on the co-ordinate Bench decision in W.P. No. 35914/2017, dated 15 November 2022, which it understood to support approaching the competent forum under the Act rather than seeking adjudication of the attachment in writ proceedings.

The Court declined to determine the validity of the notification in the writ petitions because the Act provided for the Competent Authority to approach the Special Court, where the petitioners could contest the transactions through which they acquired the properties.

In view of the petitioners’ apprehension about possession, the Court recorded the submission that possession would not be disturbed until the competent court decided the Section 5(2) proceedings.

It permitted the Competent Authority to approach the competent court under Section 5(2) within 30 days from receipt of the certified copy of the order, and allowed the petitioners to raise their contentions there.

The petitioners’ possession was directed not to be disturbed until those proceedings were decided.