Court quashes proceedings under State Act, citing IBC supremacy. Petitioner directed to NCLT.

The Court allowed the writ petition, quashing the proceedings initiated under Section 7(1) of the Act, 2004 against the petitioner. It held that the provisions of the IBC, 2016, specifically Sections 14 and 238, override the State Act, 2004. The petitioner was directed to seek orders from the NCLT where the matter was pending. The respondent could proceed as per law after the NCLT's decision, if required.

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Issues Involved:
1. Jurisdiction and applicability of the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (Act, 2004) versus the Insolvency and Bankruptcy Code, 2016 (IBC, 2016).
2. Validity of proceedings initiated under Section 7(1) of the Act, 2004 against the petitioner.
3. The effect of the moratorium under Section 14 of the IBC, 2016 on proceedings under the Act, 2004.
4. The overriding effect of Section 238 of the IBC, 2016 over the Act, 2004.
5. The petitioner's claim that it is not a financial establishment under the Act, 2004.

Detailed Analysis:

1. Jurisdiction and Applicability of Act, 2004 vs. IBC, 2016:
The petitioner contended that the provisions of Sections 14 and 238 of the IBC, 2016 have an overriding effect over the State Act, 2004. The petitioner argued that the initiation of proceedings under the Act, 2004 was invalid due to the moratorium imposed by the NCLT under the IBC, 2016. The Court noted that the NCLT had already initiated the Corporate Insolvency Resolution Process (CIRP) and appointed a Resolution Professional, thereby ceasing the matter before the NCLT. The Court emphasized that the IBC, 2016 prevails over the State enactment due to its non-obstante clause in Section 238, which overrides other laws.

2. Validity of Proceedings under Section 7(1) of Act, 2004:
The respondent initiated action under Section 7(1) of the Act, 2004, alleging that the petitioner had collected Rs. 385 Crores from 3668 depositors without allotting the promised flats. The petitioner's counsel argued that the State has no right to invoke the Act, 2004 against the petitioner, as it is not a financial establishment. The Court found that the petitioner had indeed collected money from homebuyers and failed to deliver the flats, thereby falling within the scope of the Act, 2004. However, due to the ongoing CIRP and the moratorium under the IBC, 2016, the Court held that the proceedings under the Act, 2004 were non-est and illegal.

3. Effect of Moratorium under Section 14 of IBC, 2016:
The petitioner argued that once the moratorium under Section 14 of the IBC, 2016 was in effect, no parallel proceedings could be initiated or continued against the petitioner. The Court agreed, citing multiple judgments, including the Apex Court's decision in Innoventive Industries Limited v. ICICI Bank and Another, which held that the moratorium under the IBC, 2016 stops the institution or continuation of pending proceedings against corporate debtors.

4. Overriding Effect of Section 238 of IBC, 2016:
The Court emphasized that Section 238 of the IBC, 2016, which contains a non-obstante clause, overrides other laws. The Court referred to the Apex Court's judgment in Anand Rao Korada, Resolution Professional v. Varsha Fabrics (P). Ltd., which held that the IBC, 2016 prevails over State laws. The Court concluded that the provisions of the IBC, 2016 have an overriding effect over the Act, 2004, and thus, the proceedings under the Act, 2004 were invalid.

5. Petitioner's Claim of Not Being a Financial Establishment:
The petitioner claimed that it was not a financial establishment under the Act, 2004. However, the Court found that the petitioner had collected significant amounts of money from homebuyers without delivering the promised flats, thereby falling within the definition of a financial establishment under the Act, 2004. The Court rejected the petitioner's claim and upheld the applicability of the Act, 2004, but quashed the proceedings due to the overriding effect of the IBC, 2016.

Conclusion:
The Court allowed the writ petition, quashing the proceedings initiated against the petitioner under Section 7(1) of the Act, 2004. The Court held that the provisions of the IBC, 2016, particularly Sections 14 and 238, have an overriding effect over the Act, 2004. The petitioner was directed to seek appropriate orders from the NCLT, where the matter was still pending. The respondent was permitted to proceed in accordance with the law after the disposal of the matter before the NCLT, if necessary.

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