Karnataka High Court Upholds Special Court Attachment Under KPIDFE Act, Rejects Canara Bank Challenge

The Karnataka High Court on 10 June 2026 dismissed an appeal filed by Canara Bank against a Special Court order that had made absolute an interim attachment under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (KPIDFE Act).

A Division Bench of Justices Anu Sivaramman and Venkatesh Naik T dismissed the appeal filed by Canara Bank and upheld the Special Court's order. It held that a secured creditor who has constructive notice of an attachment cannot later challenge the proceedings on the ground of non-joinder, and reaffirmed that the KPIDFE Act prevails over SARFAESI in depositor protection matters. The Bench observed:

“The Bank on knowing that there is an attachment of the property was free to have approached the Special Court and gotten itself included as is clear from Section 12(3) of the KPDIFE Act. Having constructive notice of the attachment and not having chosen to do so, the Bank cannot seek to challenge an order of the Special Court duly passed under Section 5(2) of the KPIDFE on this ground.”

The case arose from proceedings against Krantiveera Sangolli Rayanna Urban Co-operative Society Ltd., a financial establishment. The Government of Karnataka issued an interim attachment order on 3 November 2023 under Section 3(2) of the KPIDFE Act, covering properties linked to the society.

Canara Bank had extended loans to the society through registered mortgages. The accounts turned into non-performing assets in 2018, following which the bank initiated recovery proceedings under the SARFAESI Act, 2002 by issuing possession notices and taking symbolic possession of the secured assets.

The Competent Authority later moved the Special Court under Section 5(2) of the KPIDFE Act to confirm the interim attachment. The Special Court condoned a delay of 63 days and made the attachment absolute. Neither the society nor its directors opposed the application, leading to the present challenge.

Canara Bank argued that its prior mortgage rights under SARFAESI prevailed over subsequent attachments under the KPIDFE Act and that non-impleadment vitiated the proceedings. It also challenged the condonation of delay, contending that Section 5(2) does not permit such relaxation.

The Competent Authority opposed the appeal, submitting that depositor protection statutes override SARFAESI and relied on National Spot Exchange Ltd. v. Union of India, arguing that delay could be condoned under the Limitation Act.

The Division Bench rejected the bank's submissions. It held that depositor protection laws like the KPIDFE Act override SARFAESI in matters of depositor protection and relied on the Supreme Court's ruling in National Spot Exchange Ltd., which recognises that secured creditors cannot claim priority over attached properties.

The Court noted that the interim attachment had been duly published and affixed, giving Canara Bank constructive notice. It held that under Section 12(3) of the KPIDFE Act, the bank could have sought impleadment before the Special Court but failed to do so, and therefore could not raise non-joinder later.

Further, the Bench held that Section 5(2) of the KPIDFE Act does not exclude the Limitation Act and upheld the Special Court's power to condone the 63-day delay in making the attachment absolute.

Accordingly, the High Court dismissed the appeal.