Kulwant Kaur vs Punjab & Sind Bank

Ranjit Singh, J

The issue involved in the present appeal relates to the applicability of Rule 11 of the Second Schedule to the Income Tax Act, 1961 (hereinafter referred to as 'the rules'). In the present appeal, the appellant has impugned the order passed by DRT-II, Chandigarh, complaining that the Tribunal has upheld the order passed by the Recovery Officer (R.O.) who had brushed aside the objections filed by the appellant, without having any regard to Rule 11 of the Rules noted above. The facts noticed, in brief, are that the respondent Bank had filed an Original Application (O.A.) No. 222/2001 (Old No. 729/1996) against M/s. Oriental Motors and its partners for the recovery of Rs. 2,15,82,549.79 along with pendente lite and future interest in the Court of Senior Sub-Judge, Bhathinda. The said suit was first transferred to DRT, Jaipur after the enactment of the Recovery of the Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) and then to DRT at Chandigarh. On 12.6.2002 the O.A. was decreed for an amount of Rs. 2,15,82,549.72 along with pendente lite and future interest.

The execution proceedings being R.C. No. 544/2002 were initiated and a proclamation of sale was issued directing public auction of the property being Municipal No. HR 98, 98A, namely. State Bank of Patiala Building, Civil Lines, Mansa Road, Bhatinda, which was owned by Ms. Pushpinder Kaur, wife of Mr. Dilbhajan Singh. It is urged that M/s. Pushpinder Kaur, defendant No. 3 of O.A. No. 222/2001 had never been the owner of the said property. It is stated that the appellant herein was the owner of the said property as she had purchased the same from M/s. Oriental Automobiles for Rs. 13.50 lacs through a registered sale deed. It is further averred that the said property was purchased by M/s. Oriental Automobiles from Mr. Dilbhajan Singh who, in turn, had purchased the same from Ms. Gurtej Kaur who had got this property from Waqf. On this basis, it is urged that this property was never owned by Ms. Pushpinder Kaur. Statedly, State Bank of Patiala is a tenant in the said property and the rent thereof, as per the record, was being duly paid to M/s. Oriental Automobiles and after the execution of the sale deed in favour of the appellant she had been receiving rent.

When the sale proclamation was issued on 19.12.2005 in respect of this property, the appellant came forward to file objections before the R.O. The R.O., vide his order dated 3.1.2006, disposed of the objections without having regard to Rule 11 of the Rules. Aggrieved against the order passed by the R.O., the appellant filed a Writ Petition No. 132/2006 before the Hon'ble High Court of Punjab & Haryana. This Writ Petition was, however, got dismissed as withdrawn on 6.01.2006 with liberty to the petitioner to file an appeal against the order passed by the R.O. On 17.1.2006, the appellant filed an appeal before this Tribunal. The said appeal, however, was disposed of in view of the statement made by the appellant that she would file an appeal before the learned Presiding Officer under Section 30 of the RDDBFI Act to challenge the order dated 3.1.2006 passed by the R.O. The appellant, thereafter, filed an appeal before the DRT, Chandigarh. DRT has dismissed this appeal on 17.2.2012 being devoid of any merit an hence the appellant has approached this Tribunal again to impugn the said order.

The only issue raised by the learned Counsel appearing for the appellant is that the challenge of the appellant has been negated without considering the effect of Rule 11 of the rules and hence the impugned order would be bad on that count. Counsel would urge that the appellant being a bona fide purchaser has purchased this property from M/s. Oriental Automobiles and when this objection was raised before the R.O. he was obliged to decide the same on merits in terms of the provisions of Rule 11 of the rules which is applicable. This plea has, however, been opposed by the Counsel for the respondent Bank who would urge that the Bank had filed the recovery suit against M/s. Oriental Automobiles which stands decreed. The property in question stood mortgaged and thus the Tribunal has given this finding. It is also urged that the sale deed in favour of the appellant is subsequent to the mortgage. The Counsel would also highlight the fact that Mr. Dilbhajan Singh is Director-cum-Managing Director of the company along with M/s. Pushpinder Kaur had mortgaged this property in favour of the respondent Bank as security. Appellant, Ms. Kulwant Kaur, is the real sister of Mr. Dilbhajan Singh. It is urged that these objections have been filed to avoid recovery of the decretal amount and for this Ms. Pushpinder Kaur has executed sale deed in favour of the appellant. Both were fully aware of the recovery proceeding and so it is urged that the R.O. had rightly dismissed the objections by holding that the property mortgaged to the Bank but sold subsequently would not adversely affect the lawful right of the mortgagor.

As already noticed, this is second round of litigation before this Tribunal. Earlier when the appellant had filed an appeal before this Tribunal, this Tribunal, vide its order dated 28.5.2008, was of the view that the claim challenging the ownership of Ms. Pushpinder Kaur vis-a-vis the property in question could not possibly be examined in the appeal filed before this Tribunal. At the same time, the Tribunal observed that this did not mean that the appellant was without remedy. This Tribunal then went on to observe that the answer in this regard was provided by Rule 11 of the Rules, which states that where any claim is preferred to or any objection is made to the attachment of sale of any property in execution of a certificate on the ground that such property is not liable for such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection. The said appeal, accordingly, was dismissed. In a way, this Tribunal showed the way and remedy available to the appellant to raise such objection before the R.O. The R.O., while dealing with the objections filed by the appellant, has viewed that DRT vide its judgment had already recorded a finding that the said properties were mortgaged. Accordingly, those properties after mortgage had to be sold which should not adversely affect, the rights of the Bank. The objections raised by the appellant were thus negated on this ground. On this basis, it is urged by the Counsel for the appellant that the R.O. failed to deal with the issues as would be the requirement under Rule 11 of the Rules.

The Tribunal below had also taken note of this Tribunal's order dated 28.5.2008 and went on to scrutinize the evidence produced by the appellant. Reference is made to the assessment Register of Municipal Corporation where the appellant has been shown to be the owner of the property of 98 and 98A where the word 'vichon' of Punjab language, meaning out of has been appreciated to negate the claim of the appellant she being owner of the said property. Accordingly, it is held that the appellant had purchased the property out of the mortgaged property and this is only a connivance to defraud the respondent Bank. The Counsel for the appellant, however, would contend that the objections filed by the appellant was summarily rejected by the R.O. and the Tribunal below, while deciding the appeal, has also not appreciated the relevance of Rule 11 of the rules. His sole submission thus is that the objection filed by the appellant was required to be dealt with and decided in terms of the provisions of that rule and that having not been done despite, the observation made by this Tribunal, would render the impugned order to be bad. The Counsel would plead that the case be remitted back to the R.O. to decide the objections in terms of Rule 11 of the rules.

In support of his submission, the Counsel has made reference to a number of precedents. Counsel would first refer to Tax Recovery Officer II, Sadar, Nagpur v. Gangadhar Vishwanath Remade (Dead) through Shobha Ravindra Nemiwant (Smt.), VII (1998) SLT 466 : 1998 (6) SCC 658, where the Hon'ble Supreme Court has viewed that the provisions of Rule 11 are analogous to Rules 58 to 61 and 63 of Order 21, CPC. As per the Hon'ble Supreme Court, Rules 59 to 62 of Order 21, prior to its amendment, provide for a summary investigation into possession as distinct from a thorough trial of ultimate right. By making reference to Rule 11(4) of the rules, the Hon'ble Supreme Court has observed 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 assesses or on account of the assesses. 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. On this basis, the Counsel would urge that the R.O. was required to examine this fact and could not have simply negated the challenge on the ground that the property, has been held to be a mortgaged property.

The Counsel has then placed reliance on the Division Bench judgment of the Hon'ble Bombay High Court Hill Properties Ltd. the Companies Act, 1956 v. Union of India under the Banking Companies Acquisition of Transfer of Undertakings) Act, 1970 and Ors., IX (2013) SLT 358 : I (2014) CLT 121 (SC) 2010(1) Bom. Cr. 873. The issue involved in this case was recovery of debt by the Bank where R.C. was granted by DRT. Objection to attachment and sale of the property was made by third-party claiming their right. The matter was referred for consideration to a Larger Bench and accordingly it is held that when the RDDBFI Act itself has provided a remedy, then that remedy cannot be defeated by an interpretation process that render the statutory remedy otiose. It is also observed that Section 29 of the RDDBFI Act incorporates the Second and Third Schedules to the Income Tax Act to the RDDBFI Act and provides another mode of recovery in terms of the certificate from defaulter. Third party who has a right or interest to the property sought to be attached or sold can file their objection which are to be considered under Rule 11 of the Rules. It is further held that normal remedy available to a party who is a party in the proceedings before the DRT, but the property has been declared to be validly mortgaged in favour of the financial institution, is to invoke Rule 11 of the Rules. In this case, the Division Bench has noted the question referred for consideration but went on to frame two questions which would arise for consideration and these are:-

"(i) Is transfer of an immovable property in contravention of a prohibitory or injunction order of a Court illegal or void;

(ii) Whether and to what extent, the procedure under Rule 11 of Second Schedule to Income Tax Act, 1961 is applicable in execution of a recovery certificate issued under Section 19(7) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short RDB Act)."

Questions have been answered by the Division Bench in the following manner:

"(i) Question No. 1 would have to be answered in the affirmative. The remedy of an appeal provided under Section 30 would not oust the jurisdiction of the Civil Court in entertaining of Civil Suit as provided under Rule 11(6) of the Second Schedule to the I.T. Act;

(ii) Question No. 2 will have to be answerer with a clarification. Section 29 incorporates Schedule II of I.T. Act into the RDDBFI Act and provides another mode of recovery in terms of the certificate from the defaulter (judgment debtor). However, third parties who have a right or interest to the property sought to be attached or sold can considering Rule 11 of the Second Schedule to the Income Tax act file their objections. With the above clarification the question is answered in the affirmative;

(iii) Insofar as Question No. 3 is concerned, the normal remedy of such a party could be to invoke the provisions of Rule 11 of the Second Schedule to the I.T. Act. It is also open to a third party aggrieved by a declaration in respect of a property in which such party claims a right or interest to apply under Section 19(25), if that provisions is attracted;

(iv) The question as referred are accordingly answered."

The Counsel would rely upon the finding that remedy for a party is to invoke the provisions of Rule 11 of the Second Schedule. Reference is also made to a latest judgment of the Hon'ble Supreme Court in the case of Sadashiv Prasad Singh v. Harendar Singh & Ors., II (2014) SLT 5 : I (2014) BC 654 (SC) : 2004 (1) SCALE 230. The Counsel has mainly relied upon the finding recorded in Para 15 of the judgment where the Hon'ble Court has observed that it thought of remanding the matter to the R.O. to investigate the objection of the third party under Rule 11 of the rules, but went on to examine the objection and ultimately rejected the same for a variety of reasons. From this, the Counsel would contend that when objections are raised by third-party, these are required to be decided by the R.Q. in terms of Rule 11 of the Rules.

The Counsel for the respondent, on the other hand, has relied upon the judgment of this Tribunal in case of Rajneesh Kumar Tialang v. Oriental Bank of Commerce & Ors., IV (2011) BC 70 (DRAT). In this case, the Tribunal has held that prior mortgage will get preponderance over the subsequent purchase and subsequent mortgage. The Counsel has relied upon the observations made by the Tribunal that law has crystalline clarity and Section 48 of the Transfer of Property Act has well-established equitable maxim qui prior est tempore potior est jure and lays down that transferor cannot prejudice the right of the transferee by any subsequent dealing with the property. Counsel would accordingly contend that this order would clearly show that subsequent transfer in favour of the appellant even if true cannot take away the right of the Bank to recovery money from the property which was mortgaged with the Bank. The Counsel has also placed before me an order passed by the Delhi High Court upholding the view of this Tribunal in the case of Rajneesh Kumar Tialang 's case, vide its judgment dated 14.1.2011. The Hon'ble High Court of Delhi has noted the contention of the Counsel for the petitioner before it, which was that the procedure for recovery of tax by a Recovery Officer envisaged under Rule 11 of the Second Schedule to the Income Tax Act ought to have been followed in view of the provisions of Section 29 of the RDDBFI Act. In support the Counsel for the petitioner before the High Court had relied upon some judgments of this Tribunal and that of the Supreme Court in the case of Tax Recovery Officer-II, Sadar, Nagpur v. Gangadhar A. Vishawanath Ranade (dead) through Mrs. Shobha Ravindra Nemiwant, AIR 1989 SC 427. While dealing with this submission, the Hon'ble High Court has observed that Section 29 of the RDDBFI Act makes the provisions of Second and Third Schedules of the Income Tax Act applicable as far as possible. The view of this Tribunal that the matter of controversy is to be determined in view of Section 48 of the Transfer of Property Act has been held to be justified and right. The Court has ultimately held that in view of much prior equitable mortgage created by deposit of title document in favour of the Bank, the petitioner could not have a better title or claim on the property in question. The observation made by this Tribunal that the petitioner if is a bona fide purchaser could still recover their money from the seller/mortgagor of the property. Reference is even made to the case of Shri Ishar Dass Malhotra v. Dhanwant Singh & Ors., 26 (1984) DLT 377 (DB) : AIR 1985 Delhi 83 (DB), which had examined and dealt with such a situation. The finding in this case was that a subsequent purchaser cannot avoid the mortgage by leading evidence to show that he had made all reasonable inquiries to find out the property was mortgaged by deposit of a title deed or not. It is held that Section 48 of the Transfer of Property Act did not admit any such exception. The writ petition was accordingly dismissed.

Counsel for the respondent would also refer to the case of Keshrimal Jivji Shah & Anr. v. Bank of Maharashtra & Ors., IV (2004) BC 6 (DB). In this case, the Court has observed that it is not possible to read the provisions of Rule 11 of the Second Schedule in its entirety in Section 29 of the RDDBFI Act and this rule will have to be read with such modification as in facts and circumstances of the case and the nature of investigation required. The Counsel would accordingly contend that the appellant cannot insist that if objection is filed, it has to be dealt under Rule 11 of the rules has to apply as far as possible. The relevant observation of the Hon'ble High Court are as under:

"32. The provisions dose not get themselves incorporated completely. They have to be read into as far as possible and subject to such modification, as the context as well as object and purpose of the Act, require. The setting in which the words occur, the Statute in which they appear, the object and purpose for which the Statute has been enacted and the mischief that is sought to be taken care of and remedied, are factors which would be extremely relevant in determining such issues. In the case of N.K. Chauhan v. State of Gujarat and Ors., AIR 1977 SC 251, the Supreme Court has held that these words are to be assigned on and the same meaning. Whenever, the Legislature says 'as far as practicable', 'as far as possible' it conveys one and the same meaning. If the purpose of RDDBFI Act is to expediently recover the public monies in a summary manner than an interpretation which would advance this purpose should be placed on Section 29 of the RDDBFI Act. So interpreted and considered, in our view, it will not be possible to read provisions of Second Schedule and more particularly Rule 11 in their entirely in Section 29. They will have to be read as far as possible and with such modifications as the facts and circumstances of a case and the nature of an investigation require. Though it is not possible or advisable to lay down a general rule in this behalf. However, Rule 11 need not be completely adhered to by the Recovery Officer always. If the contentions of Mr. Nap-hade are accepted, it would result in investigation of claim or objection to attachment and sale never achieving any finality in proceedings under RDDBFI Act. If outcome of such investigation is made subject to another round of litigation by way of civil suit, then the very purpose of establishing Tribunals and reaching machinery for speedy and expeditious recovery of public monies would be defeated. If Banks and financial institutions are made to face another round of litigation in the form of civil suit after consideration of the claim to attachment and sale then it will become possible for them to recover and realize their dues. Even otherwise, in the case of Gopalpur Tea Co. v. Corporation of Calcutta, AIR 1966 Calcutta 51, it has been held that non following of procedure of seizure strictly not vitiate the seizure itself once the Legislature does not make it obligatory and mandatory to follow the same. Similar analogy can be applied here. The Parliament does not make it mandatory nor compulsory for the recovery officer to apply the second and third Schedule of I.T. Act and 1962 Rules, advisedly because the Legislature has provided safeguards after investigation of claims and objections by recovery officer. This investigation can be challenged in Appeal under Section 30 of the act which has been substituted with effect from 17th January, 2000. Even proceedings in such appeal are not final because Section 20 of RDDBFI Act provides for a further appeal by person aggrieved against any order made or deemed to have been made by a Tribunal under RDDBFI Act. Such an appeal lies to the Debt Recovery Appellate Tribunal. To compel Banks or financial institutions to either institute or defend proceedings after all this before a Civil Court is defeating and frustrating the Legislative intent completely. Investigation and adjudication cannot be endless. That apart, the remedy to approach this Court in appropriate cases by invoking its jurisdiction under Articles 226 and 227 of the Constitution of India is always available. Hence, question No. 2 is answered in these terms that it is not obligatory to apply second and Third Schedule of I.T. Act and 1962 Rules while investigation while investigation a claim of objection to attachment and sale during the course of execution of recovery certificate under RDDBFI Act. We are supported in these conclusions by a Division Bench decision of A.P. High Court, AIR 2004 A.P. 94."

Reliance is also placed on the judgment in the case of Fashion Apparels & Ors. v. Central Bank of India & Anr., III (2010) BC 364 (DB). In this case, the High Court has noted the provisions of Section 29 of RDDBFI Act and has held that on reading of this section it would be clear that this section authorizes the Recovery Officer to follow Second and Third Schedules to the Income Tax Act as far as possible and apply with necessary modification. Accordingly, it is held that there is no obligation created on the Recovery Officer to scrupulously follow Second and Third Schedules of the Income Tax. It is further held that on the other hand it has given a free-hand to the Recovery Officer to apply them with necessary modifications.

To respond to the submissions made by the Counsel for the respondent Bank, the Counsel for the appellant has referred to C.N. Paramasivam & Anr. v. Sunrise Plaza through Partner & Ors., IV (2010) BC 165 : (2013) 9 SCC 460. In this case, the Hon'ble Supreme Court has interpreted the expression 'as far as possible' appearing in Section 29 of the RDDBFI Act. What is held in this regard is that the expression 'as far as possible' and 'with necessary modification' appearing in Section 29 of the Act has been used to take care of the situation where certain provisions would have no application on account of their being not at all practicable as the scheme of the RDDBFI Act is different from that of Income Tax Act or the rules. The Court has further observed that modification was to avoid any confusion in the application of Income Tax Rules to the recovery of debts under the RDDBFI Act, which confusion could arise from liberal application of the rules to the recoveries under the said Act. The submission that words as far as possible in Section 29 are meant to give discretion to the Recovery Officer to apply the said rule or not to apply in specific situation did not impress the Court and was rejected. There is no scope of any dispute or difference that the law laid down by the Supreme Court has to be followed. In my view, the Hon'ble Supreme Court in this situation was dealing with the fact whether the Recovery Officer could refuse to apply the said rules or not at all and not that whether this rule was required to be meticulously followed as has been observed in some of the judgments cited before me. This aspect will get strength from the observation recorded in the same judgment where the Hon'ble Supreme Court has noticed as under:

"26. It is, therefore, reasonable to hold that the phrase "as far as possible" used in Section 29 of the RDDB Act can at best mean that the income Tax Rules may not apply where it is not at all possible to apply them having regard to the scheme and context of the legislation."

To this an extent the observation made in the earlier judgments by different High Court in regard to the term 'as far as possible' may have to be read as interpreted by the Hon'ble Supreme Court in C.N. Paramasivam 's case (supra). Even if we do so, in my view, it may not lead to any major change. If we interpret the provisions of Section 29 to mean that Income Tax Rules may not apply where it is not at all possible to apply having regard to the scheme of the RDDBFI Act and there is no discretion wider than what is meant to be conferred upon the R.O.

What we have to see is whether the R.O. or DRT have dealt with the issues raised the appellant while dealing with the objections/appeal or not. The R.O. has decided the objection after recording that the mortgage of the property in favour of the Bank had already been upheld. What else be could have done in view of the law emerging from Section 48 of the Transfer of Property Act and as laid down in various judgments? The Recovery Officer cannot be faulted for adopting this approach. If the validity of the mortgage is held in favour of the Bank, then the subsequent sale in favour of the appellant would lose its significance in view of the provisions of Section 48 of the Transfer of Property Act. Prior mortgagee will always get preponderance over the rights of subsequent purchaser or subsequent mortgagee. Once there is no dispute with the proposition that there was a prior mortgage in favour of the Bank, then the rights of the appellant who was a subsequent purchaser would have expressed this in so many words. The Presiding Officer of the DRT, however, has considered the objection of the appellant pursuant to the sale in her favour. Without going into this aspect, the finding returned is that the appellant had purchased a part of the land or property referred to as 98 or 98-A. If that is so, now remanding the case to the Recovery Officer to consider the objection on the ground that he did not fully comply with the requirement of Rule 11 of the rules in my view, would be an exercise in futility. What ultimately the Recovery Officer would do is to see whether the property in question was mortgaged in favour of the Bank. Concededly, this mortgage was prior to the sale in favour of the appellant. The main objection by the appellant is that she is the owner and Ms. Pushpinder Kaur was never the owner. The appellant claims to have purchased this property from M/s. Oriental Automobiles Ltd. Even if it be so, the Recovery Officer then will not be able to ignore the provisions of Section 48 of the Transfer of Property Act. The end result would be just a remand to give birth to another round of litigation starting from the order passed by the Recovery Officer up to this Tribunal or even upward. This endless process and creating litigation at the stage of execution would go against the spirit of the provisions made in the RDDBFI Act. In a way these objections have been dealt with by the Tribunal below as noticed above.

The fact that the appellant is related to one of the judgment-debtor cannot also be completely ignored. I am conscious of the fact that the appellant claims to have purchased this property from M/s. Oriental Motors which, according to the Counsel for the appellant, is a separate entity even if her brother was part of that organization. This controversy unnecessarily raked up by making reference to two different names would not lead to any changeable results. The challenge raised by the appellant in the appeal filed by her before the DRT where it was considered would render the need to remand this case back to the Recovery Officer a meaningless ritual. In this regard, one can make reference to the approach adopted by the Hon'ble Supreme Court in the case of Sadashiv Prasad Singh's case (supra) where instead of remanding the case to the Recovery Officer to decide the same under Rule 11 of the Court itself considered the objections and rejected the same. There would not be any need for remanding the case to R.O. to decide the objections filed by the appellant. These objections have sufficiently been dealt with by the DRT and I do not find any infirmity with the order which may call for an interference. Accordingly, I see no reason to remand this case back to the R.O. to decide the objection of the appellant under Rule 11 of the Rules in view of the peculiar facts and circumstances of the case, even if it is to be viewed that the Recovery Officer has to adopt and follow Rule 11 of the Rules when objection is raised before him. Accordingly, I am not inclined to interfere in the impugned order having regard to the peculiar facts and circumstances of this case and would reject this appeal.

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