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Judgment
P.K. Bhasin, J
The appellant Bank is aggrieved by the order dated 2.9.2016 passed by the learned Presiding Officer of Debts Recovery Tribunal-II, Delhi (DRT) in Appeal No. 55/2014 whereby the appeal filed by the respondent objector against the order dated 22.7.2014 of the learned Recovery Officer attached to DRT-II in R.C. No. 143/2010 rejecting her objections filed by her under Rule 11 of the Rules framed under the Second Schedule to the Income Tax Act, 1961 in respect of the property No. D-2/185, Jeevan Park, Pandara Road, New Delhi (hereinafter referred to as 'the property in dispute') attached by the Recovery Officer in execution of the recovery certificate for a sum of Rs. 12,95,89,589.35 with pendente lite and future interest thereon D-2/185, Jeevan Park, Pandara Road, New Delhi @ 15.5% p.a. with quarterly rests issued by the DRT in O.A. No. 38/2009 on 13.7.2010 was allowed and the matter was remanded back to the Recovery Officer for passing a fresh order regarding the objections of the respondent-objector. One Mr. Ashwani Kumar Nayyar was one of the defendants in the O.A. as a guarantor for the repayment of loan advanced by the appellant herein to M/s. Megnostar Communications Pvt. Ltd. and he happens to be the brother-in-law of the respondent-objector. The property in dispute was attached by the Recovery Officer treating the same to be owned by the said defendant-certificate debtor Ashwani Kumar Nayyar while the respondent-objector had claimed in her objections that she was the exclusive owner thereof having been sold to her by her husband Shri Navneet Kumar Nayyar.
The relevant portions from the order dated 22.7.2014 of the learned Recovery Officer whereby he had dealt with objections pertaining to attachment of various properties including the property in dispute and had rejected the objections of the respondent-objector and which order was reversed in appeal by the DRT are re-produced below:
"4. Objections in respect of property bearing No. D-2/185, Jeevan Park, Pankha Road, New Delhi.
The objector Smt. Sunita Nayar filed the objection in respect of the property bearing No. D-2/185, Jeevan Park, Pankha Road, New Delhi. The objector submitted that the above said property has been illegally attached and worthwhile to mention that the property against which the present objections are being filed were neither the mortgaged with the CH Bank nor in any manner decree or order has been passed against the objector herein. The property in question is owned and purchased by the objector on 5.8.2004 vide sale deed dated 5.8.2004 registered as document No. 16357 in additional book No. 155792 at pages 37 to 45 with the Sub-Registrar, Delhi. Smt. Sunita Nayar purchased the aforesaid property from Sh. N.K. Nayar (built up property bearing No. 185 with roof rights, areas measuring 100 sq. yds., falling under the Khasra No. 11/22, situated in the area of Village Aslatpur, Khader, Delhi, known as Jeevan Park, Block D-2, New Delhi, with the freehold right of the land underneath the same.
In view of the above said sale deed Smt. Sunita Nayar is the owner of the aforesaid property and the above said property was neither the mortgaged to the CH Bank by the objector.
CH Bank has submitted in their written submission that the said property was given to shown the worth of Mr. A.K. Nayar i.e. the CD#2 and the objector is the sister-in-law of Mr. A.K. Nayar.
ORDER
On perusal of the written submission and after hearing the arguments on the above said properties it reveals that the property bearing No. D-2/185, Jeevan Park, Pankha Road, New Delhi had been purchased by the objector for the mere amount of Rs. 1 lacs on 3.8.2004 in the year 2004. Moreover it has not shown by which mode the consideration has been paid by the purchaser.
in view of the Rule 11(5) of 2nd Schedule of the Income Tax Act, 1961 it is transpired that the property in objections was not at the said date in possession of the objector on his own account but on account of or in trust of CDs hence the objections of the objector are disallowed."
This order of the learned Recovery Officer was reversed by the learned Presiding Officer of DRT when it was challenged by the respondent-objector and the matter was remanded back to the Recovery Officer for passing a fresh order in accordance with law. That order dated 2.9.2016 which is now being impugned by the appellant Bank reads as under:
"This appeal is directed against the order dated 15th September, 2014 passed by the learned Recovery Officer-II, Debts Recovery Tribunal-II, Delhi passed in RC No. 143/2010 titled as KMB v. M/s. Megnostar Telecommunications. The factual matrix leading to the filing of the present appeal is as follows:
The factual matrix leading to the filing of the present appeal is as follows:
This Tribunal in the matter of Kotak Mahindra Bank v. M/s. Megnostar Telecommunications Pvt. Ltd. & Ors., had issued recovery certificate by virtue of final order passed in O.A. No. 38/2009 vide judgment dated 13th July, 2010 and as per operation portion of the order, the O.A. was allowed for recovery of Rs. 12,95,89,589.35 alongwith pendente lite and future interest @ 15.5% per annum with quarterly rests and directed D-1 to D-6 to pay the same within 90 days from the date of passing of the judgment and in default the CH Bank shall be entitled to recover the same from the sale of the mortgaged properties and hypothecated assets and the balance amount, if any, shall be recovered from the personal assets of the defendants in accordance with law. During the pendency of the recovery certificate, at the instance of the CH Bank, the property bearing No. D-2/185, Jeevan Park, Pankha Road, New Delhi was attached.
The claim of the appellant as seen from the appeal is that she had purchased the said property i.e. property bearing No. D-2/185, Jeevan Park, Pankha Road, New Delhi on 5th August, 2004 from Mr. N.K. Nayar vide a registered sale deed and, as such, she is owner of the same. The said property was neither hypothecated nor mortgaged with CH Bank and, as such, she is not bound by the decree passed in the O.A. and the attachment of the said property is untenable being illegal.
During hearing of the R.C. proceedings, the learned recovery vide his impugned order rejected the objections of the appellant on the ground that on the said date the property in question was not in possession of the objector on his own account but on account of the CDs and as such the objections of the appellant were dismissed in view of the Rule 11 (5) of 2nd Schedule of Income Tax Act, 1961. The claim of the appellant accordingly is negated by the learned Recovery Officer.
A perusal of the order rejecting the claim of the appellant would reveal that the learned Recovery Officer has not given any reason for rejecting the claim of the appellant. He has not given any reason as to how it transpired that the property in question was not on the relevant date in possession of the objector/appellant on her own account but was on account of or in trust of CDs. The findings to be given by the learned Recovery Officer should be based on some reasons and not only on trust is not sustainable in the eye of law. Accordingly, the impugned order passed by the learned Recovery Officer-II is set aside and the matter is remitted back to the Recovery Officer-II for disposal in accordance with law. The appeal file be consigned to the records."
Feeling aggrieved by the order of remand passed by the learned DRT the appellant Bank (certificate holder) has approached this Appellate Tribunal with the prayer that the order of remand of DRT may be set aside and the order earlier passed by the Recovery Officer rejecting the objections of the respondent-objector may be restored.
As noticed already, the objections filed by the respondent-objector before the Recovery Officer were under Rule 11 of the Rules framed under the Second Schedule to the Income Tax Act. The scope of investigation under Rule 11 was considered by the Hon'ble Supreme Court in The Tax Recovery Officer v. Gangadhar Vishwanath Ranade, VII (1998) SLT 466 : AIR 1999 SC 427 and the relevant paras of this judgment are being re-produced below:
"The powers of the Tax Recovery Officer, however, under Rule 11 of the Second Schedule to the Income-tax Act are somewhat different. Under Rule 11(1) where any claim is preferred to or any objection is made to the attachment or sale of any property in execution of a certificate on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection. Under Rules 11(4), (5) and (6) it is provided as follows:-
Rule 11(4) : Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.
Rule 11(5) : Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.
Rule 11(6) : Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a Civil Court to establish the right which he claims to the property in dispute; but subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive."
(Italics ours)
The Tax Recovery Officer, therefore, has to examine who is in possession of the property and in what capacity. He can only attach property in 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......The provisions, therefore, of Rule 11 are analogous to those of Order 21 Rules 58 to 61 and 63 of the CPC as they stood prior to the amendment of the Civil Procedure Code in 1976. In fact, the language of Order 21 Rules 60 and 61 is similar to the language of Rule 11(4) and Rule 11(5) of the Second Schedule to the Income-tax Act. Similarly, the language of Order 21 Rule 63 is similar to the language of Rule 11(6). Rules 59 to 62 of Order 21, prior to the amendment of 1976, provide for a summary investigation into possession as distinct from a thorough trial of ultimate right. No doubt, it is impossible to separate altogether the question of possession and of title. Thus, if the judgment-debtor was in possession, he may have been in possession as agent or trustee for another; and this has to be enquired into. To that extent title may be a part of the inquiry. Similarly, if the property attached is claimed by a third party who adduces evidence to show that he was possessed of the property under some kind of a title, the property will have to be released from attachment. The procedure is not meant to decide intricate questions of law as to title to the property. Therefore, where a claim is made to the property attached, by someone claiming to be a transferee from the judgment-debtor and the claim is disallowed, the claimant can institute a suit under Order 21 Rule 63 to establish his title to the property. In such a suit it would be open to the attaching creditor to plead in defence that the transfer was in fraud of the general body of creditors and was void under Section 53 of the Transfer of Property Act. Similarly, if the claim of the transferee is allowed, the attaching creditor may sue on behalf of himself and all other creditors under Section 53 of the Transfer of Property Act for a declaration that the transfer was void as it was in fraud of the creditors.
In the case of C. Abdul Shukoor Saheb v. Arji Papa Rao (deceased) by his heirs and L.Rs. & Ors., this Court considered, inter alia, the nature of proceedings under Order 21 Rules 58 to 61 prior to the amendment of the Civil Procedure Code in 1976. This Court observed, "In the summary proceedings under Order 21 Rules 58 to 61, having regard to the terms of Rule 61, the Court is concerned only with the question as to whether the transferee is in possession of the property in his own right and not on behalf of the judgment-debtor. When a transfer is real, though it is liable to be impeached as a fraud on creditors, and the transferee has entered possession, he would succeed in the summary proceedings, with the result that it is defeated attaching creditor who would have to figure as a plaintiff. In every case, therefore, where a transfer is real, but it is liable to set aside under Section 53(1) of the Transfer of Property Act, on the provisions of Order 21 Rules 58 to 61 Civil Procedure Code, the transferee is bound to succeed in the summary proceedings and the attaching decree-holder would have to figure as a plaintiff......"
This Court also held that where the suit is filed by the transferee if the decision in the summary proceedings goes against him, it is open to the attaching creditor to plead in his defence that the transaction is vitiated by fraud and is void under Section 53 of the Transfer of Property Act.
In the light of this discussion about the provisions of Order 21 Rules 58 to 63, if we examine Rule 11(4) of the Second Schedule to the Income-tax Act, it is clear that the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment...............
In the present case the Tax Recovery Officer could not have examined whether the transfer was void under Section 281 of the Income-tax Act. His adjudication of the transfer as void under Section 281 is without jurisdiction........nor can the Tax Recovery Officer, while proceeding under Rule 11, declare a transaction of transfer as void........His jurisdiction relates to examining possession, and only incidentally, any question of right to possession as claimed by the Objector.''''
(Emphasis supplied)
After noticing these views of Hon'ble Apex Court in Ranade's judgment (supra) regarding the scope and ambit of investigation of claim filed by a third party, like the respondent-objector herein, under Rule 111 need not lose much breath in dismissing this appeal since I find that the learned Recovery Officer had not proceeded to dispose off the objections of the respondent-objector in accordance with the law laid down in the above referred two judgments. The Recovery Officer did not specify in his order as to when demand notice under Rule 2 of the Rules under Second Schedule to Income Tax Act was served on the concerned certificate debtor Ashwani Kumar Nayyar, brother-in-law of the respondent-objector and as to who was in occupation of the property in dispute and in what capacity, as was expected of him keeping in mind Rule 11 which has been extracted by the Hon'ble Supreme Court in Ranade's judgment (supra). In fact, attention of the Recovery Officer to those judgments should have been drawn by the learned Presiding Officer himself while remanding back the matter to the Recovery Officer so that after remand at least correct order was passed. Now, it is hoped that the learned Recovery Officer will pass an order in accordance with the legal position laid down in the above referred judgment of the Apex Court.
This Tribunal is of the view that the appellant ought to have waited for the fresh decision of the Recovery Officer instead of rushing to this Appellate Tribunal against the remand of the matter by the DRT. The learned Recovery Officer, however, should decide the remanded matter within a period of two months from the date of receipt of copy of this order.
Record of DRT be sent back alongwith a copy of this order and one copy shall be sent to Recovery Officer also.