G.G. Arora vs Union Bank Of India

Ranjit Singh, J

Through the impugned order dated 17.8.2012 passed by DRT-II, Delhi, the Tribunal has dismissed the appeal filed by the appellants under section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) against an order passed by the Recovery Officer (R.O.)

The property in issue is the commercial property bearing No. 58 and 79-80, Nehru Place, Kalkaji District, measuring approximately 980 sq. ft. with Shop No. 601. This property was concededly owned by Mr.D.V. Sachdeva and Mr. B.R Dougall, each having equal share. Mr.D.V. Sachdeva had died and his right devolved upon his wife Mrs. Champa Sachdeva. Accordingly, one half share of this property was transferred in her name. Mr. B.R Dougall and Mrs.Champa Sachdeva had entered into an agreement with the appellants on 9.5.2006 for transfer of their rights in favour of the appellants for a consideration of Rs. 26.50 lacs. The property stands mutated in the name of the appellants. This property is being occupied by M/s Consulting Engineering Services Pvt. Ltd. on a monthly rent of Rs. 21,560/- as per lease dated 1.1.2000. Tenancy has also been attorned the name of the appellants.

The cause of trouble for the appellants is the action taken by Mr. B.R. Dougall, who is CD No. 3, and has filed an affidavit dated 27.9.2004 before the RO. about his one half share in this property. It is alleged that the bank, failed to take any steps for getting his share attached. The bank also allegedly failed to intimate the government department, MCD, DDA. etc about the claim over this property. On this basis, it is alleged by the appellants that the property was purchased by him under the bona fide believe that the same was free from all encumbrance. The appellants also state that they had purchased this property after making necessary enquiries from the government departments and, when they found there was no encumbrances of any kind over this property.

Much after the date when the rights were created in favour of the appellants, the respondent bank moved an application on 21.2.1997 seeking attachment of the property. R.O. ordered the attachment of the same on 22.2.2007. He then issued sale proclamation on 15.3.2007. At this stage, the appellants came into picture and preferred objections. As per the respondent bank, demand notice was issued to CDs on 15.3.2002 by the R.O. and even if the attachment was ordered on 22.2.2007, it will relate back to 15.3.2002 i.e., the date of notices in terms of rule 51 of the Second Schedule to the Income Tax Act. The objections filed by the appellants, therefore, were dismissed on 3.1.2008 by the R.O. Against this, an appeal was filed but the Tribunal below, vide the impugned order, has dismissed the appeal, it being devoid of any merit. That is the order which is impugned by the appellants in the present appeal.

Along with the appeal, the appellants had also filed an application (I.A. No. 718/2012) seeking stay of the recovery proceedings qua the sale of the property in question. This Tribunal, after considering the submissions made before it, formed a prima facie view that the attachment did not appear to be invalid. The application for interim relief was dismissed on 24.6.2013. The appeal stands admitted as it contained arguable points. In between, another application (I.A. No. 915/2013) was filed seeking stay of the operation of the order dated 26.9.2013 whereby the R.O. had directed the sale of the half undivided share of the property in question. This Tribunal then directed the parties not to disturb the status of the property in question. After competition of pleadings, now the appeal has come up for final disposal.

Mr. Sanjeev Bhandari, the learned counsel for the appellants have made submissions with all vehemence to urge that the appellants are bona fide purchasers and had purchased this property after making due enquiries and since there was no charge noted on this property, the appellants cannot be faulted in any manner and their bona fides cannot be doubted. As per the counsel, the appellants have purchased this property on 9.5.2006 and on that date there was no order attaching the property in any manner. The counsel further submits that the notice to Mr. B.R. Dougall in this case was issued on 15.3.2002 and was served upon him on 17.3.2002. The attachment order, as per the counsel, however, came much later on 22.2.2007' and the proclamation thereafter was issued on 15.3.2007 for sale of the undivided half share. The counsel would emphasize that after the issuance of the demand notice in the year 2002, the bank did not take any action in the years 2003, 2004, 2005, 2006 and even subsequent thereto till the attachment order was obtained. There was no attachment in operation on the date when the appellants purchased this property on 9.5.2006. As per the counsel, the bank cannot claim its right over the property by urging, that the attachment would relate back to the date of notice as has been held by the Tribunal.

To contest the above finding, the counsel has relied upon various judgments in support of his submission. He would first refer to the observation made in the case of Vannarakkal Kallalathil Sreedharan vs. Chandramaath Balaksrishnan & Anr., 1990 (3) SCC 291. In this case, the High Court of Kerala in its judgement under appeal before the Supreme Court had held that sale would be subject to attachment. This view was called in question in this case before the Supreme Court. The Hon'ble Supreme Court in this case referred to Order XXXVIII rule 10 CPC which provides that attachment before judgment shall not affect the rights existing prior to the attachment of a person not party to the suit. Reference is made to the view held by Madras High Court, which says that a purchaser of an antecedent agreement gets good title despite attachment. Reference is also made' to s.ome other judgments where the view expressed is that under a contract of sale entered into before attachment the conveyance after attachment in pursuance of the contract passes on a good title in spite of the attachment.

It is worth a notice that the Hon'ble Supreme Court did not accept the view expressed by the Punjab and Haryana High Court expressing a contrary view holding that sale in pursuance of a pre-attachment agreement is a private alienation of property and must be regarded as void against the claim of the attaching creditor (see Mohinder Singh vs. Nanak Singh, AIR 1971 P & H 381). In the above noted background, the Hon'ble Supreme Court has held that the view taken by the High Courts of Madras, Bombay, Calcutta and Travancore-Cochin appear to be reasonable and could be accepted as correct. It is accordingly held that agreement for sale indeed creates an obligation attached to the ownership of property and since attaching creditor is entitled to attach only the right, title and interest of the judgment-debtor, the" attachment cannot be free from the obligations incurred under the contract for sale. It is further observed that section 64 CPC,. no doubt, was intended to protect the attaching creditor, but if the subsequent conveyance is in pursuance of an agreement for sale which was before the attachment, the contractual obligations arising there from must prevail over the rights of the attaching creditor.

The learned counsel for the appellants has placed heavy reliance on the above noted observation made by the Hon'ble Supreme Court whereas the counsel for the respondent would, to an extent justifiably, point out that the agreement for sale which was entered into before the attachment would be allowed to prevail over the rights of the attaching creditor and not of that agreement which is after the attachment.

The counsel for the appellants has then has made reference to the case of Rajender Singh vs. Ramdhar Singh & Ors., (2001) 6 Supreme Court Cases 213. In this case, the Hon'ble Supreme Court, while referring to and relying upon the observation made in the Vannarakkal Kallalathil Sreedharan vs. Chandramaath Balaksrishnan & Anr., has observed that agreement entered into by the judgment-debtor prior to the attachment of the property and execution of decree would prevail over the attachment itself. The same is the view expressed in this case.

Importantly, however, the agreement has to be prior to the attachment and then the apparently the rights of the person entering into an agreement may stand protected in view of the observation made by the Hon'ble Supreme Court.

Reference is then made to the case of Tax Recovery Officer II, Sadar, Nagpur vs. Gangadhar Vishwanath Ranade (Dead) through Shobha Ravindra Nemiwant (Smt.), (1998) 6 Supreme Court Cases 658, to urge that the Recovery Officer can only attach the possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. As per the counsel, the R.O. cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee was transferred by him to a third party with the intention to defrauded the Revenue, it will have to file a suit under rule 11(6) of Second Schedule to the Income Tax Act to have the transfer declared void under Section 281 of the Income Tax Act. On the basis of the above observation made by the Hon'ble Supreme Court, the counsel would content that the Tribunal below was not justified in declaring the agreement of sale as void.

Lastly, the counsel has relied upon some observations made by the Division Bench of the Delhi High Court in Asha M. Jain vs. The Canara Bank & Ors., 2002 (61) DRJ 101 (DB) where the Court has observed:

We are thus of the considered view that it is not a fit case where valuable rights of the appellant should be put under jeopardy by the attachment order in respect of the property in question which for all practical purposes vests in the appellant. It is also relevant to add at this stage that though there was a scheme of conversion from lease hold to free hold learned counsel for the appellant has stated that the appellant was unable to seek conversion and get a registered document executed in her favour on account of the pendency of the present proceedings since the term of conversion require that there should be no litigation pending in respect of the property in question.

Taking support from the above observation, counsel contends that if nothing else, then the negligence on the part of the bank to keep quiet for more than 4 to 5 years after the issuance of notice cannot put the right of the appellants under jeopardy and this fact would be enough to save the appellants.

Counsel for the respondent, on the other hand, submits that the bank was proceeding against another property which was mortgaged with the bank to realize the loan amount and that would explain the silence on the part of the bank for some time and it was not due to any negligence on its part. The loan amount could not be fully realized from the sale of the said property and, thereafter, the bank took action to recover the amount by seeking attachment of this property about which Mr. B.R. Dougall, a CD, had filed- an affidavit. Though the attachment order is concededly after the agreement of sale in favour of the appellants, but rule 51 of the Second Schedule to the Income Tax Act would make the order of attachment to relate back to the date of notice and take effect from the date on which the notice to pay arrears was issued to the defaulters. Reference is also made to rule 16 of the said Rules, which stipulates that where notice has been served on the defaulter, then the defaulter or representative-in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer. In addition, the counsel would also rely upon the provisions of section 28 of the RDDBFI Act, which regulates the methods of recovery. As per the counsel, provisions of section 28(3)(v) clearly provides that any claim in respect of any property in relation to which any notice under this sub-section has been issued then transaction arising after the notice shall be void as against any demand contained in the notice. According to the counsel, in addition to the provision contained in the Second Schedule to the Income Tax Act, making such transfer to be void, the provisions of section 28(3)(v) would render any such claim in respect of property to be void as against any demand contained in the notice.

Counsel for the respondent has further drawn my attention to the agreement to sell dated 9.5.2006 entered into between Mr. B.R. Dougall and Mrs. Champa Sachdeva where the appellants defaulter Mr. B.R. Dougall has mentioned that the property is free from all sorts of encumbrances, charges, liens, claims, disputes, mortgage, actions, acquisitions and prior sale etc. This, according to the counsel, is a statement which is falsely made, as on this date Mr. BR. Dougall was very well aware of the fact that he had given an affidavit in respect of this property, being a CD. Similar assurances were given by Mr.B.R. Dougall in an affidavit given around 10.5.2006. In this affidavit, it is stated that the original purchase agreement had been misplaced by the first party, i.e., Mr. B.R. Dougall and others and the builders have issued a duplicate copy in this regard. The counsel would contend that nobody is made any wiser if the original is really lost or is put to any other use. Of course, counsel for the appellants would contest all submissions made on these lines and would contend that there was no falsehood in the statement that the property was free from encumbrances etc. as there was no charge standing on the property on the date when Mr. Dougall entered into an agreement of sale on 9.5.2006.

I have heard the counsel for the parties and have deeply considered the submissions made before me. The judgment relied upon by the counsel for the appellants, no doubt, talks of right of a person who has an agreement for sale in his favour but his rights, as per the judgments relied upon, would be protected only if such tin agreement for sale is before the attachment. Accordingly, the core issue which is required to be decided in this case is whether the attachment order passed on 22.2.2007 would relate back to the date of notice or not. If it is held that the order of attachment is to relate back to the date of notice, then, obviously by fiction of law, the agreement to sell in favour of the appellants would deemed to be after the date of attachment. In that view of the fictional legal position, the appellants, in my view, would not be able to derive any benefit out of the observation made by the Hon'ble Supreme Court in the cases of Vannarakkal Kallalathil Sreedharan vs. Chandramaath Balaksrishnan & Anr. & Rajender Singh vs. Ramdhar Singh & Ors., (supra). The Tribunal below, while considering this issue about the effect of attachment order of the R.O. on 22.2.2007, has heavily relied upon the provisions of rule 51 of the Second Schedule to the Income Tax Act. Section 29 of the RDDBFI Act makes the Second and Third Schedules of the Income Tax Act and Rules applicable to the proceeding under the Act with necessary modifications. If rule. 51 is to apply, then it is possible to view that the attachment, though ordered in the year 2007, would relate back to year 2002 when the notice was served upon the CDs. Rule 51 of the said Second Schedule reads as under:-

Attachment to relate back from the date of service of notice- Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule was served upon the defaulter.

Rule 16 of the said Rules may also be relevant, which reads as under:-

Private alienation to be void in certain cases.- (1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative-in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money.

By operation of rule 51, the attachment order apparently will relate back to the date of notice, which is 15.3.2002. The counsel for the appellants has not been able to show me anything which would not allow this fictional provision to take its course. Rule 16 also would be relevant, which clearly provides that once the notice has been served on the defaulter, then he would not be competent to create any right expect with the permission of the Tax Recovery Officer. In view of this situation in the case at hand, the ratios of the law laid down by the Hon'ble Supreme Court would not be attracted to the facts of this case. The Hon'ble Supreme Court, obviously, was dealing with a situation where the attachment was subsequent to the rights created in favour of the person entering into agreement to sell and thus his rights were held to be protected.

Section 64 CPC also makes private alienation of private property after attachment to be void. So seems to be the intent of the provisions of section 28(3)(v) where any attachment has been made, then private transfer / delivery of the property attached or by creating any interest therein etc. shall be void as against all claims enforceable against the attachment. If the view taken is that the attachment in the present case would relate back to the date of notice, which view seems reasonable and permissible, then the right in favour of the appellants had been created after the attachment and hence neither under the CPC nor under the provisions of RDDBFI Act, their interest can be protected. It may need a notice here that section 28(3)(v) seems to be even wider in scope and going further than the provisions of CPC. The CPC provisions talks of cases where the alienation of the property is after the attachment, which is said to be void. Section 28(3)(v) makes any claim in respect of the property to be void even when a notice under this sub-section has been issued and the claim in respect of that property arises after the date of that notice. Concededly, notice of this case has been issued in the year 2002, much before the rights were created in favour of the appellants. If that happens, then the claim of the appellants by operation of section 28(3)(v) may become void.

In view of the foregoing discussion, I do not find any infirmity in the view formed by the Tribunal below and accordingly would dismiss this appeal.

Parties shall bear their respective cost.

Copy of this order be furnished to the parties as per law.