IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 23rd DAY OF SEPTEMBER 2016

BEFORE

THE HON’BLE MR. JUSTICE A.S.BOPANNA

WRIT PETITION NO.24632/2016 (GM-ML/PB)

BETWEEN:

M/S. MANAPPURAM FINANCE LTD.,

FORMERLY KJNOWN AS
M/S. MANAPPURAM GENERAL FINANCE
& LEASING LTD.,
REGIONAL OFFICE AT NO.21/1,
2ND FLOOR, JELLITA TOWER
OPPOSITE GOKULDAS EXPORT
BANGALORE-560 027
REP. BY ITS REGIONAL MANAGER
SR.RATHEESH.K.V.
S/O LATE NARAYANA
... PETITIONER

(BY SRI. SHANMUKHAPPA, ADV.)

AND:

1. THE STATE OF KARNATAKA

REP. BY ITS CHIEF SECRETARY
DEPARTMENT OF CO-OP SOCIETY
VIDHANA SOUDHA
BANGALORE-560 001

2. ADDITIONAL CHIEF SECRETARY

TO GOVERNMENT
KARNATAKA GOVERNMENT SECRETARIAT
 -2-

M.S.BUILDING
BANGALORE-560 001
... RESPONDENTS

(BY SRI. LAKSHMINARAYANA, AGA. FOR R1 & R2)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226

AND 227 OF THE CONSTITUTION OF INDIA PRAYER TO
QUASH THE ORDER DT.21.3.2016 PASSED BY THE R-2
DIRECTING THE PETITIONER TO STOP FURTHER AUCTION
PROCEEDINGS, VIDE ANNX-A.

THIS WRIT PETITION COMING ON FOR PRELIMINARY

HEARING IN `B’ GROUP, THIS DAY, THE COURT MADE THE
FOLLOWING:

ORDER

The petitioner is before this Court assailing the

order dated 21.03.2016 whereby the 2nd respondent has

directed the petitioner to stop further auction

proceedings.

2. The petitioner is a company registered under

the provisions of the Companies Act, 1956 having its

registered office in the State of Kerala and branches at

different places in the country including in the State of

Karnataka. The petitioner is stated to be engaged in the

business of lending money on gold/ornaments being

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pledged with the petitioner. In that regard, the

petitioner being a Non-banking Financial Corporation is

also regulated by the Reserve Bank of India as provided

under Chapter III B of the Act. In that light, the

borrowers in the State of Karnataka have also pledged

their gold/articles and have availed loan. Since

according to the petitioner the loans have remained

unpaid in respect of such pledges, the pledged

gold/articles are to be brought to sale and the money

due to the petitioner-Company is to be recovered. In

that regard, a paper publication was made indicating

the account numbers maintained in different branches

of which the same was being put for auction. At that

point the 2nd respondent, on taking note of the same

and also keeping in view the large number of complaints

being received with regard to the nature of activities of

not only the petitioner but similar Finance Companies

have issued the communication dated 21.03.2016 as at

Annexure `A’ to the petition herein whereby the

 -4-

petitioner has been directed not to proceed further with

the auction. It is in that circumstance, the petitioner is

before this Court.

3. The respondents have filed their objection

statement wherein a reference to the publication in the

newspaper is made and a copy of the same is produced

at Annexure `R1’ to articulate that the same does not

provide clear details due to which the gold/articles

pledged by innocent citizens of the State would be

arbitrarily sold without a transparent procedure.

Therefore, the respondents are required to step in and

protect the interest of such depositors. In that regard,

reference is also made to the farmers suffering the loss

due to drought and not being in a position to repay the

loans as exorbitant interest is being charged by the

petitioner. Further reference is also made to the

provisions contained in the Karnataka Money Lenders

Act and it is pointed out that the exemption which had

been provided to the petitioner earlier under Section

 -5-

2(10)(iv)(b) of the Act has now been withdrawn and in

that view the petitioner would have to subject itself to

the provisions contained in this Act. In that view, the

respondent seek to sustain their action and it is

contended that the action of the petitioner in

conducting the auction in such manner cannot be

permitted. Hence, it is contended that the prayer as

made in the petition is liable to be rejected.

4. The petitioner has filed the rejoinder to the

objection statement and apart from reiterating the

contentions urged in the petition, the petitioner has also

indicated that the withdrawal of the exemption under

the Money Lenders Act has been assailed in W.P.

No.33358/2016 and through the order dated

15.06.2016 the withdrawal of exemption has been

stayed. At this point of time, the exemption still

subsists and the respondents therefore, cannot interfere

with the business of the petitioner.

 -6-

5. In the light of the pleadings put forth by the

parties, I have heard the learned counsel for the

petitioner and the learned Government Advocate and

perused the petition papers.

6. At the outset it is necessary to indicate that the

issue relating to the exemption granted under the

Money Lenders Act, the withdrawal of the same and the

same being challenged, is a matter which is required to

be considered in the relevant writ petition where such

issues have been raised. In the instant petition, the

issue relates to the auction notice published by the

petitioner proposing to bring to auction the pledged

gold/articles of the different borrowers and in that light

the communication dated 21.03.2016 addressed to the

petitioner restraining them from proceeding further with

the auction. With regard to the mode and manner in

which the petitioner has to exercise its right to recover

the loan, what is relied on by the petitioner at

Annexure `D’ is the guidelines dated 26.03.2012 of the

 -7-

Reserve Bank of India which indicates the procedure

that is required to be followed.

7. In terms thereof, the petitioner – Company

themselves have formulated the auction policy as at

Annexure `F’ to the petition. Both the regulations of the

RBI which is also adopted by the petitioner provides for

transparent manner of conducting the auctions and

also the restrictions which are placed while conducting

such auction. No doubt while taking note of the

transparent auction procedure not merely the actual

conduct of auction is necessary to be kept in view but

the same should appear transparent from the stage the

auction notice is published. As per the procedure laid

down, the individual notices no doubt is required to be

issued to the borrowers. It is only thereafter, the public

notice is to be issued for the purpose of conducting the

auction. If this aspect of the matter is kept in view and

the present publication as at Annexure `R1’ which has

raised the present question for consideration is taken

 -8-

note, certainly the respondents to the said extent were

justified in directing the petitioner to put on hold the

further process of the auction. A perusal of the

notification does not refer to the name of the borrower,

the details of the article sought to be auctioned, the

quantum of amount due from the borrower and the

reserve prices fixed after assessing its value. Such

indication in the publication is not only necessary for

general public namely the auction purchasers who take

part in the auction process and purchase the said

articles but should also to be to the benefit of the

borrowers so that if the borrowers have any objection

with regard to the same, they could put forth their

contentions.

8. In that light, though at that point of time the

2nd respondent was justified in issuing the

communication, such communication cannot be of such

nature where the petitioners would be totally prevented

from carrying on their business for which they have

 -9-

been established. Therefore, the appropriate course

would be to direct the petitioner to comply with such

requirements and take out publication in a more explicit

manner and under such circumstance, if any of the

borrowers file objections against the petitioner, their

grievance could be redressed. That apart, when such

publication is made whether any of the borrowers

approach the respondents herein or the respondents

while taking note of such publications find any

objections with specific reasons for raising such

objections, in such individual cases certainly, the

respondents may thereafter issue notice to the

petitioners call for particulars and if action is required,

the relevant law under which the auction is proposed

may also be made known to the petitioner. However,

such a general communication to the petitioner stating

that the interest is being charged at higher rate cannot

be accepted unless in specific terms the same is

brought to the notice of the petitioner.

 - 10 -

9. Therefore, keeping all these aspects in view

since the communication dated 21.03.2016 lacks all

these particulars, the same is quashed. However, the

petitioner while proceeding further shall take out fresh

publication indicating specific details in the manner as

indicated therein and thereafter proceed with the

auction. As indicated, if in specific case the

respondents have any objection, the petitioner shall be

notified in this regard with specific details and only in

such of those specific cases appropriate action will be

taken in accordance with law.

In terms of the above, the petition stands

disposed of.

Sd/-
JUDGE

SPS/bms