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Judgment
K.K. Sasidharan, J.—The challenge in these Writ Petitions relates to the Recovery Certificate issued by the Debts Recovery Tribunal on
11th December 2001 to recover the debt from M/s. Navilkal Estate Tea Factory, Kothagiri and the consequential sale proclamation issued by the
Recovery Officer on 23rd December 2009 proposing to auction the property to realize the decree amount.
The prayer in Writ Petitions in W.P. Nos. 1609 & 6341/2010 are one and the same. The issue in W.P. No. 6740/2010 pertains to the
invalidity of sale proclamation.
W.P. Nos. 1609 and 6341/2010:
The Petitioners are the partners of M/s. Navilkal Tea Estate and Factory, Nilgiris at Kothagiri in the District of Nilgiris (hereinafter referred to as
''the firm''). The Firm took loan from the Aravenu Branch of Canara Bank and as security for sanctioning the loan, joint family property of the
partners were given as security. Since the firm defaulted in making payments, the Bank instituted proceedings before the Debts Recovery Tribunal
Coimbatore in T.A. No. 85/1998 and the firm as well as its partners were made parties to the proceeding. Ultimately, the Tribunal passed a
decree directing the firm and its partners jointly and severally to pay a sum of Rs. 18,33,975.50 with future interest at 15%. The Bank was
permitted to sell the mortgaged property and to adjust the sale proceeds towards the amount due. The Debts Recovery Tribunal on the basis of
the decree dated 29th October 2011 issued a Recovery Certificate dated 11th December 2001 authorizing the Recovery Officer to recover the
amount. The Recovery Officer passed an order of attachment on 2nd December 2002.
The Recovery Officer thereafter issued a proclamation of sale on 23rd December 2009 to auction the property shown in the order of
attachment. The proclamation was challenged in W.P. No. 1609/2010 and the Division Bench of this Court as per order dated 29th January
2010, restrained the Recovery Officer from confirming the sale in respect of items 2(i), (ii) and (iii) mentioned in the proclamation of sale, subject
to the condition that the Writ Petitioner deposits a sum of Rs. 10,00,000/-. The said order was duly complied with.
The Recovery action is challenged on the following grounds:
(i) The decree passed by the Debts Recovery Tribunal was on 29th October 2001. However, proclamation was issued only on 23rd December
2009. Therefore, it is barred by limitation;
(ii) The order of attachment was made on 2nd December 2002. The proclamation in question was issued three years thereafter. Therefore, the sale
is barred under Rule 68B of II Schedule to the Income Tax Act read with Section 29 of the Recovery of Debts due to Banks and Financial
Institutions Act, 1993.
(iii) The proclamation was issued in the name of Thiru. J.N. Durai, in spite of the fact that the said Durai died long back. The legal representatives
were not impleaded and no notice was issued to them. Therefore, the proclamation issued in the name of a dead person is bad in law.
W.P. No. 6740/2010:
The Petitioner is the son of J.N. Durai, who was also a partner of the firm M/s. Navilkal Tea Estate and Factory. The said Durai was a party to
the proceedings in T.A. No. 85/1998. The order of attachment was issued against the firm and its partners, including Mr. J.N. Durai. The said
Durai died on 30th May 2006. However, no action was taken by the Recovery Officer to bring the legal representatives of the deceased Durai as
party to the recovery proceedings. The proclamation of sale was issued on 23rd December 2009. It was issued in the name of a dead person
inasmuch as the deceased Durai was shown as Second Respondent in the proclamation of sale. The proclamation issued in the name of a dead
person is liable to be set aside. The auction was scheduled to be held on 29th January 2010. It was adjourned to 1st February 2010 due to
administrative reasons. It was once again postponed to 26th February 2010. There was no fresh proclamation or notice to the parties, intimating
them of such postponement. The notice was published only in the notice Board of the Office of the Recovery Officer. Auction was conducted on
26th February 2010 and the property was purchased by a staff of Canara Bank, just quoting `500/- over and above the upset price. Therefore,
the auction sale itself was a fraudulent one and as such, the same is liable to be set aside.
Defence:
The Bank filed a Counter in answer to the contentions raised by the Petitioners in these three Writ Petitions:
(i) According to the Bank, the Recovery proceedings were taken in accordance with the provisions of the Recovery of Debts due to Banks and
Financial Institutions Act, 1993 and the mandatory provisions were scrupulously followed. With respect to the contention that the proclamation
was issued in the name of a dead person, it was contended that the Execution Petitions do not abate on account of the death of a decree holder or
a judgment debtor. Legal heirs of J.N. Durai were aware of the proceedings. Therefore, they have no right to challenge the sale proclamation with
respect to the joint family property.
(ii) The property was auctioned on 26th February 2010 and it was sold for a sum of Rs. 17,05,100.00 and as such, a sum of Rs. 5,100/- was
received in excess of the upset price. The purchaser was not an officer of the Court. He was only a Jewel Appraiser of the Bank and as such, he
was not precluded from bidding in Court auction. Therefore, there was no infirmity in the sale in respect of item No. 1.
Submissions:
The Learned Counsel for the Petitioners contended that the order of attachment was made as early as on 2nd December 2002. However, the
proclamation was issued only on 23rd December 2009. The provisions of Schedule II and III of the Income Tax Act and Income Tax (Certificate
Proceedings) Rules, 1962 were made applicable to the proceedings under the Debts Recovery Tribunal as per Section 29 of the said Act. Rule
68B contains time limit for the purpose of sale of immovable property. As per the said provision, no sale of immovable property shall be made
after the expiry of three years from the end of the financial year in which the order giving rise to the demand of any tax, interest, fine, penalty or any
other sum for the recovery of which the immovable property has been attached. Since the proclamation of sale was made after three years from
the date of attachment, action taken by the Recovery Officer was not in accordance with the rules and as such, the sale is liable to be set aside.
The Learned Counsel further contended that the proclamation was made in the name of a dead person. The Learned Counsel by placing reliance
on the averments in the Affidavit filed in support of the Writ Petition contended that the sale was a collusive one as it was made in favour of an
employee of the Bank, after postponing the sale on numerous occasions and ultimately, conducting the same without any kind of publicity.
The learned Senior Counsel for the Bank justified the action taken by the Recovery Officer to recover the amount from the Petitioners.
According to the learned Senior Counsel, Rule 68B has absolutely no Application in a matter like this. The said provision deals with amount due to
income tax Department and the same is evident by the expression ""financial year"". However, the amount due to the Bank was not confined to any
financial year and the decree passed by the Debts Recovery Tribunal was also not in relation to any financial year. Therefore, Rule 68B cannot be
taken as shelter by the Petitioners to defeat the action taken by the Recovery Officer.
Discussion:
The following are the substantial contentions raised by the parties in their respective Writ Petitions:
(i) The proclamation of sale was issued only on 23rd December 2009. The said Proclamation issued after a period of nine years from the date of
decree, is barred by limitation;
(ii) Section 29 of the Debts Recovery Tribunal Act provides that the provisions of Second and Third Schedule to the Income Tax Act and the
Income Tax (Certificate Proceedings) Rules, 1962 as in force from time to time shall apply to the proceedings under Debts Recovery Tribunal Act.
Rule 68B of II Schedule contains a bar for selling attached property after a period of three years. The attachment in the subject case was made on
2nd December 2002 and 4th July 2002. The proclamation of sale was made only on 23rd December 2009. Therefore, the proclamation of sale
made after three years from the date of attachment is barred by limitation and therefore, the Recovery Officer is precluded from proceeding with
the sale.
Additional Questions raised in W.P. No. 6740/2010:
The order of attachment of the property belonging to the firm was on 2nd December 2002. The name of the partner Thiru. J.N. Durai was
shown in the order of attachment as the owner of the property along with four others as well as the firm. He was a joint owner of the property. The
said J.N. Durai died on 30th May 2006. However, no action was taken by the Recovery Officer to implead the legal heirs of the deceased. The
proclamation of sale was issued on 23rd December 2009. It was issued in the name of deceased Durai in spite of the fact that he died as early as
on 30th May 2006. The proclamation was issued only in the name of a dead person and as such, the said proclamation is a nullity.
The proclamation of sale gives an indication that the property would be sold on 29th December 2010 by way of tender cum public auction. It
was postponed to 1st February 2010 due to administrative reasons. The sale was once again postponed to 26th February 2010. The adjournment
was at the instance of the Recovery Officer. No reasons were given for such adjournment. The postponement of the sale was not published and no
fresh proclamation was also issued. It was published only in the notice Board of the Recovery Officer. As per records, the auction was conducted
on 26th December 2010 and one Jalal Basha, the jewel appraiser of the Canara Bank himself took part in the auction and his bid for a sum of `
17,05,100/- was confirmed. Therefore, the sale in effect was a collusive sale and the officer of the Bank himself managed to purchase the valuable
property for a song.
The Principal Challenge:
The core question is whether the proclamation issued on 23rd December 2009 is bad in law as it was made beyond the period of three years
from the date of attachment as provided under Rule 68B of the Income Tax Rules ?
Section 29 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 indicates the procedure to be followed by the
Recovery Officer. The said provision reads thus:
Application of certain provisions of Income Tax Act.-- The provisions of the Second and Third Schedules to the Income Tax Act, 1961 (43 of
1961) and the Income Tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary
modifications as if the said provisions and the Rules referred to the amount of debt due under this Act instead of to the income tax:
Provided that any reference under the said provisions and the Rules to the ""Assessee"" shall be construed as a reference to the Defendant under this
Act
A bare reading of the provision gives a clear idea that Second and Third Schedule to the Income Tax Act and the Income Tax (Certificate
Proceedings), 1962 have to be applied to a proceeding for recovery as far as possible and with necessary modifications.
Part III of Second Schedule to the Income Tax Act deals with attachment and sale of immovable property. Rule 68B deals with time limit for
sale of attachment of immovable property. The said proviso reads thus:
68B. (1) No sale of immovable property shall be made under this Part after order giving rise to a demand of any tax, interest, fine, penalty or any
other sum for the recovery of which the immovable property has been attached, has become conclusive under the provisions of Section 245-1 or,
as the case may be, final in terms of the provisions of Chapter XX
There is no doubt that the Recovery proceedings under the Debts Recovery Tribunal Act has to be conducted in accordance with Second and
Third Schedules to the Income Tax Act. The legislature while enacting Section 29 used the words ""as far as possible"", meaning thereby, the entire
Rules with its full force were not made applicable to a proceeding under the Debts Recovery Tribunal Act. This is not a case of the Application of
the entire provisions of the Second and Third Schedule to the Income Tax Act in respect of proceedings under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993, (hereinafter referred to as the DRT Act). The provisions of the Income Tax Act have to be applied
suitably and not absolutely.
The time limit prescribed for selling the attached property after passing an order of attachment as provided u/s 68B contains a reference about
financial year. The provision is very clear, when it used the word ""financial year "". The financial year has application and relevance only to the
proceedings under the Income Tax Act. The loan granted to the firm was not with respect to a particular financial year. It was a loan granted to
them in the ordinary course of business of the Bank. Similarly, the decree passed by the Debts Recovery Tribunal has no reference to a particular
financial year. Therefore, the bar, as contained under Rule 68B with respect to the sale of property three years after attachment, has absolutely no
application in respect of an attachment made u/s 25 of the Debts Recovery Tribunal Act.
It is true that the order of attachment contains a statement that it was made under Rule 48 of the Second Schedule to the Income Tax Act. In
fact, DRT Act itself contains provision for attachment. Section 25 clearly provides for the mode of recovery of debt. Section 25(a) deals with
attachment and sale of movable and immovable property of the Defendant. There is no time limit prescribed under the DRT Act for the purpose of
selling the attached property after the order of attachment.
The DRT Act, 1993 is a self-contained Code dealing with all aspects commencing from filing Application to the Tribunal to pass a decree, and
ending with the recovery of the amount through Recovery Proceedings. Section 19 deals with the Procedure of the Tribunal. There is nothing like
Original proceedings (like Original Suit) and the subsequent Execution Petitions to execute the decree insofar as the DRT Act is concerned.
Section 19 contemplates a comprehensive Application for the purpose of deciding the claim and the consequential issue of Recovery Certificate.
Section 24 deals with limitation. The said provision shows that the Limitation Act, 1963 would apply to an Application made to a Tribunal. The
Recovery Officer is an agent of the Tribunal. The function of the Recovery Officer would commence the moment Recovery Certificate is issued by
the DRT under Sub-section (7) of Section 19.
It is true that an Appeal would lie to the Tribunal against the orders passed by the Recovery Officer. That does not mean that the Recovery
Officer is conducting an independent proceeding, unconnected with the proceedings under the DRT Act. The Recovery Officer is a creature of the
Statute and he would get jurisdiction only on issuance of a Recovery Certificate by the Tribunal.
The DRT does not contain any provision regarding limitation in the matter of sale of attached property. The provisions of Second and Third
Schedule to the Income Tax Act and the Income Tax Certificate Proceeding, 1963, were made applicable to the Recovery proceeding under DRT
Act only for the purpose of a fair and transparent procedure to be adopted by the Recovery Officer in the matter of Recovery of the Debts due to
Banks and Financial Institutions. In case the Recovery Officer is given a free hand without any kind of established procedure governing the
Recovery proceedings, it would result in arbitrariness. It was only to regulate the proceedings the relevant Recovery Rules under the Income Tax
Act were made applicable to a Recovery proceeding under the DRT Act. The various other provisions of the Income Tax Act and the Recovery
Rules cannot be imported to nullify the action taken by the Recovery Officer. Therefore, we are of the view that Rule 68B dealing with time limit
for sale of immovable property after the expiry of three years from the end of the financial year in which the order giving rise to a demand for
recovery of which, the property has been attached by the Recovery Officer has no application to an attachment made by the Recovery Officer u/s
25 of the DRT Act. Accordingly, we reject the principal contention regarding the alleged violation of Rule 68B.
The Second Issue:
The second contention relates to the initiation of Recovery proceedings and proclamation of sale after a period of eight years from the date of
decree passed by the Debts Recovery Tribunal.
The decree was made on 29th October 2001. It is a matter of record that the Recovery Officer passed an order of attachment on 2nd
December 2002. The proclamation of sale was made on 23rd December 2009. There are no provisions either under the DRT Act or under
Second and Third Schedule to the Income Tax Act prohibiting sale of property to realise the debts due to the Banks or Financial Institutions after a
particular period. Even as per the Code of Civil Procedure, Decree could be executed within a period of twelve years. The proclamation of sale
was issued within eight years from the date of decree and as such, the proclamation of sale was well within time.
The Remaining Issue:
The other contention raised by the Petitioner in W.P. No. 6740/2010 relates to the invalidity of proclamation of sale as it was issued in the
name of a dead person.
There is no dispute that as on the date of passing the order of attachment, ownership of the joint family property stood in the name of Mr.
Durai and Ors. and Mr. Durai was very much alive. The said Durai died on 30th May 2006. There is also no dispute with regard to the fact that
the property was jointly owned by five of the partners of the firm. The Bank has taken a contention that the legal representatives of the deceased
Durai were in the know of things and as such, they cannot subsequently challenge the Recovery proceedings on the ground that the proclamation of
sale was issued in the name of a dead person. There is no merit in the said defence. The property stood in the name of five of the partners, they
being joint owners. One of the joint owners Mr. Durai died on 30th May 2006. The proclamation was issued only on 23rd December 2009.
Therefore, the legal heirs of the deceased joint owner should have been made a party to the recovery proceedings. The proclamation of sale was
issued indicating Mr. Durai, a dead person, as a party. It is therefore, evident that the proclamation was issued only in the name of a dead person.
Therefore, we are constrained to set aside the proclamation of sale.
Sale to the Employee of Bank:
The Petitioner in W.P. No. 6740/2010 challenged the validity of sale made in favour of Third Respondent. The proclamation of sale indicates
that the sale would be conducted on 29th January 2010. Notice issued by the Recovery Officer on 23rd January 2010 and affixed on the Notice
Board of his office shows that the auction was postponed to 1st February 2010 due to administrative reasons. It was once again postponed to
26th February 2010. It is also a matter of record that the bid submitted by the Jewel Appraiser of the Bank was accepted and he was declared as
the successful bidder. There is nothing on record to show that the notice postponing the sale was published or it was put to the notice of public.
The postponement of sale due to administrative reasons on two occasions and conducting the auction without any publication on the adjourned
date and acceptance of the bid submitted by the Jewel Appraiser of the Bank made the Petitioner to challenge the sale on the ground of fraud.
Since we are setting aside the sale proclamation on the ground that it was issued in the name of a dead person, we are not considering the said
issue in detail.
The tender process should be conducted in a transparent manner without giving room for Complaints. It should be the endeavour of the
Recovery Officer to conduct the auction on the prescribed date and in case it is necessary to postpone the same, due publication should be made.
The publication on the Notice Board of the Recovery Officer alone would not suffice. If the sale is adjourned beyond a particular period, attempt
should be to publish a fresh sale proclamation as there would be Complaints that the sale was postponed with a view to accept the bids of a
chosen few.
Article 300A contains a Constitutional recognition of the right to property. It is true that the property right is no longer a fundamental right.
Deprivation by authority of law implies a fair procedure also. Therefore, the validity of the proceeding adopted by the Recovery Officer to auction
the property and thereby to deprive the landowner of their property should be tested on the touchstone of Article 300A of the Constitution of
India. The Recovery Officer should adopt a fair and transparent procedure to auction the property so as to secure the best price.
The Supreme Court, in Chairman and Managing Director, SIPCOT, and Madras and others Vs. Contromix Pvt. Ltd. by its Director (Finance)
Seetharaman, Madras and another, , while considering the sale of public property, observed that dominant consideration of any sale is to secure
the best price. The relevant observation is as follows:
In the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved
only when there is maximum public participation in the process of sale and everybody has an opportunity of making an offer. Public auction after
adequate publicity ensures participation of every person who is interested in purchasing the property and generally secures the best price. But
many times it may not be possible to secure the best price by public auction when the bidders join together so as to depress the bid or the nature
of the property to be sold is such that suitable bid may not be received at public auction. In that event, the other suitable mode for selling of
property can be by inviting tenders. In order to ensure that such sale by calling tenders does not escape attention of an intending participant, it is
essential that every endeavour should be made to give wide publicity so as to get the maximum price.
Result:
In the result, the challenge made to the proclamation of sale on account of violation of Rule 68B and the initiation of Recovery proceedings
after a period of eight years from the date of decree is negatived. The challenge made to the sale proclamation on the ground of issuing
proclamation in the name of a dead person is upheld and consequently, the sale effected pursuant to the said proclamation includes the sale in the
name of Third Respondent in W.P. No. 6740/2010 is set aside. In short, we direct the Recovery Officer to issue a fresh proclamation after
incorporating the names of the legal heirs of the deceased Joint Owner and conduct auction in a transparent manner, with due publicity and with an
idea to fetch best price.
The Writ Petitions are disposed of as indicated above. No costs.