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Judgment
JUSTICE R. D. KHARE, CHAIRPERSON
The present appeal has been filed under Section 20 of the Recovery of Debts and Bankruptcy Act, 1993 against the judgment and order dated 17.08.2023, whereby the Appeal No. 16 of 2009 filed by the appellant under Section 30 of the said Act has been dismissed.
The brief facts of the present case are that the Trade Tax Department had held a public auction sale for realization of the Trade Tax from M/s Durga Mata Bricks Field on 11.12.1996, in which the appellant participated and was declared as highest bidder in respect of immovable properties being Gata No. 299 having area 0.266 hectares and Gata No. 300 measuring 1.208 hectares. The sale was confirmed and the sale certificate was issued by the Trade Tax Department in respect of the said properties in favour of the appellant on 11.04.1997, which was registered on 01.05.1997.
It appears that the appellant had purchased 1/4th portion of Araji No. 35 measuring 1 bigha 15 bishwa on 28.02.1990 from erstwhile holder of the said land vide sale deed dated 15.03.1990. Pursuant to the said sale deeds, the name of the appellant was mutated in the revenue record vide order dated 31.07.1997 and the appellant is exercising all possessory and proprietary rights over the property in question without any obstructions.
It transpires that one M/s Durga Mata Bricks Field was granted a loan by the respondent-Bank through its proprietor Bhagwan Das in the year 1986, to which an equitable mortgage in respect of the property being Lot no. 1 & 2 was created by the borrowers by depositing original title deeds with the respondent-Bank on 12.09.1986 and the same was extended by the mortgagor on 14.10.1989 in favour of the Bank. Since the borrowers did not maintain the financial discipline, therefore, the Original Suit was filed by the Bank before the Civil Judge, Kanpur, which was subsequently transferred to DRT Jabalpur and on establishment of DRT, Allahabad, the same was transferred to the DRT, Allahabad, which was registered as T.A. No. 580/2000. The said suit was decreed on merits by the Tribunal below ex-parte against the borrowers/guarantors and recovery certificate was issued, which was registered as DRC No. 205 of 2002 before the Recovery Officer for its execution.
It is averred that the Recovery Officer had issued the auction sale notice for auctioning the entire mortgaged property including the Lot No. 1 & 2 scheduling the date of auction on 21.03.2003, but the same could not materialize for want of bidders, but against the same, the appellant had filed objection before the Recovery Officer, which was decided by the Recovery Officer vide order dated 26.10.2006. Thereafter, the Recovery Officer again put the property for auction on 13.10.2009 pursuant to auction sale notice dated 19.08.2009 and the properties including the Plot No. 1 & 2 were sold on 13.10.2009. The appellant had challenged the auction sale notice dated 19.08.2009 and the order dated 26.10.2006 by filing the appeal before the Tribunal below u/s 30 of the SARFAESI Act, which was decided by the Tribunal below vide order dated 14.08.2015 with direction for inter-se bidding. The said order was challenged by the appellant before this Tribunal by filing Appeal No. 257/2015, which was allowed vide order dated 06.11.2019 by setting aside the said order passed by the Tribunal below and the matter was remanded back for deciding the matter on merits. Pursuant to the said order, the Tribunal below has again heard the appeal of the appellant and dismissed the same vide order impugned. Being aggrieved by the said order, the present appeal has been filed by the appellant.
Learned counsel for the appellant submitted that the impugned order has been passed contrary to the provisions of Section 29 of the RDB Act, 1993 read with Schedule II of the Income Tax Act, 1961, which governs the execution proceedings before the Recovery Officer.
It was further contended that the appellant participated in the public auction conducted by the Trade Tax Department and was declared the highest bidder in respect of the immovable properties comprising Gata No. 299 measuring 0.299 hectares and Gata No. 300 measuring 1.208 hectares. It was also contended that the said auction was duly confirmed and a sale certificate dated 11.04.1997 was issued by the competent authority i.e. the Additional Collector (F&R), Kanpur Dehat and the sale certificate was duly registered in the office of Sub-Registrar, Bilhar on 01.05.1997 and as such the Recovery Officer could not have proceeded against the said property on a subsequent date.
Learned counsel further submitted that apart from the above, the appellant had also purchased 1/4th portion of Arazi No. 35 through a registered sale deed dated 28.02.1990, which was registered on 15.03.1990. It was further contended that upon execution and registration of the said sale deed, the ownership of the said property stood transferred to the appellant and the same ceased to be the property of the alleged borrower.
Learned counsel also submitted that pursuant to the aforesaid registered sale deeds, the name of the appellant was duly mutated in the revenue records vide order dated 31.07.1997 passed by the competent revenue authority, copy of which is placed as Annexure 5 at page 129 of the paper book. It was thus contended that the appellant is a lawful owner legally and factually both and bonafide purchaser of the properties comprising Arazi Nos. 35, 37 and 38 situated at Village Birtiyan. Tehsil Bilhuar, Distt. - Kanpur, Dehat.
It was further contended that the objections filed by the appellant were heard on 09.02.2004 and 19.02.2004, after which the matter was reserved for orders, but the Recovery Officer had passed the order only on 26.10.2006, i.e., after a delay of nearly two years and eight months, without granting any opportunity of rehearing. It was further contended that the said order was never communicated to the appellants and it came to the knowledge of the appellant only when the proclamation of sale was issued in September, 2009.
It was also contended that the Recovery Officer rejected the objections of the appellant through a non-speaking order without properly examining the pleadings and documentary evidence, therefore, the impugned order suffers from misreading of records, erroneous appreciation of facts and incorrect application of law.
Learned counsel further submitted that Section 29 of the Act makes the provisions of Schedule II of the Income Tax Act applicable to recovery proceedings. It was also contended that under Rule 4 of the Second Schedule of the Income Tax Act, recovery can be effected only against the property belonging to the defaulter and Rule 11 of the said Schedule requires the Recovery Officer to conduct a property verification/investigation when a third party claims ownership over the attached property and under Rule 11(4), the Recovery Officer is empowered to release the property if it is found that the property does not belong to the defaulter, as such the Recovery Officer failed to exercise this statutory obligation and proceeded with the proclamation of sale.
It was also contended that the Ld. Presiding Officer erroneously held that the order dated 26.10.2006 has attained finality, as the said order was passed in the absence of the appellant and was never communicated to the appellant and the appellant immediately challenged the order upon gaining knowledge thereof.
It was further contended that the Ld. Presiding Officer has relied upon Section 31B of the Act to hold that the Bank had priority over the property, as Section 31B was inserted only w.e.f 01.09.2016 and cannot be applied retrospectively to transactions of the year 1996. It was thus contended that the order impugned suffers from a clear error of law, hence the same is liable to be set aside and the appeal filed by the appellant may be allowed.
Learned counsel for the respondent-Bank submitted that the present appeal is not maintainable before this Tribunal, since the appellants have stated themselves to be purchaser of mortgaged property, over which the first charge of the respondent Bank was created by Mr. Bhagwan Das, who mortgaged the property Lot No. 1 in favour of the Bank on 24.12.1982, thereafter, the Lot No. 1 & 2 on 12.09.1986 and subsequently on 14.06.1989. It was further contended that the appellants had purchased the property from Bhagwan Das (now deceased) vide sale deed dated 28.02.1990 during existence of the mortgage with the Bank.
Learned counsel further submitted that the Tribunal below after hearing the parties allowed the said Transfer Application vide judgment and order dated 20.05.2002 and held that the applicant-Bank can recover the dues from the defendants after the sale of the mortgaged properties and pursuant to it, the DRC No. 215/2002 was issued and put for execution before the Recovery Officer of the Tribunal below. The property was attached by the Recovery Officer vide order dated 29.10.2002 and thereafter, an order was passed by the Recovery Officer for sale of the mortgaged properties, scheduling the auction on 21.03.2003, but the same could not materialize. It was further contended that against the said sale, the appellant had filed an objection on 29.01.2003, which was rejected by the Recovery Officer vide order dated 26.10.2006, which was never challenged by the appellant before any forum available to it. It was further contended that thereafter, the properties in question were again put for auction vide order dated 19.08.2009 and the date of auction was fixed for 13.10.2009 and the properties were sold in favour of the respondents-Auction Purchasers.
Learned counsel further submitted that the Trade Tax Department had no right to auction the mortgaged property on 11.12.1996 because the said properties were already under the charge of the respondent-Bank as the secured creditor has full right to realize its dues from the mortgaged properties by auctioning the same and as such the appellant has no authority or locus to file the present appeal against the property charged with the bank and as such, the auction made by the Trade Tax Department on 11.12.1996 is without jurisdiction, hence the Tribunal below has rightly dismissed the appeal of the appellant vide order impugned, therefore, the same does not warrant any interference by this Tribunal. It was thus prayed that the appeal filed by the appellants may be dismissed with heavy costs.
Learned counsel for the respondent-Auction Purchaser has adopted the arguments as advanced by the learned counsel for the respondent-Bank adding further that he has deposited the entire sale consideration with the respondent-Bank and sale certificate has been issued in his favour by the Bank. It was, therefore, prayed that the sale may not be disturbed at this stage and the appeal filed by the appellant may be dismissed with heavy costs.
I have considered the rival contentions of the learned counsels for the parties and perused the material available on record.
It is to be seen that one M/s Durga Mata Brick Field through its proprietor Mr. Bhagwan Das had availed financial assistance from the respondent-Bank on 24.12.1982, to which the proprietor Bhagwan Das had mortgaged the properties in question in favour of the Bank on 24.12.1982 and thereafter, on 12.09.1986 and subsequently on 28.02.1990. Further, the borrower M/s Durga Mata Brick Field through its partner Bhagwan Das, defendant no. 2 and Shanti Devi defendant no. 3 in T.A. no. 580/2000 availed financial assistance from the respondent-Bank, to which they executed and signed the loan documents in favour of the Bank and Bhagwan Das, owner of the property no. 1 created equitable mortgage on 24.12.1982 and with regard to lot no. 2 on 10.09.1986 in favour of the Bank, which was subsequently extended on 14.06.1989 with regard to further facility granted by the Bank.
The contention of the appellant that unless the sale certificate issued by the Trade Tax Authority is set aside by a Court of competent jurisdiction, no authority including the Recovery Officer can ignore or nullify the same is not tenable in view of the judgment passed by the Hon'ble Supreme Court in case of Central Bank of India Vs. State of Kerala (2009) 4 SCC 94, wherein it has been held that Government dues including sales/trade tax do not have priority over secured debts and Government authorities have no right to sell secured assets. Thus the auction in respect of the properties in question done by the Trade Tax Department on 11.12.1996 is illegal, as the respondent-Bank was having first charge over the said properties.
Admittedly, the property in question was mortgaged with the Bank in the year 1982 and the appellant had purchased the same in the auction on 11.12.1996 conducted by the Trade Tax Department, Kanpur and sale certificate was issued on 11.04.1997, which was registered on 01.05.1997. Thus, the Bank was having first charge over the property in question. The appellant purchased the same with the charge of the Bank, therefore, the Bank had preemptive right over the property. Though the appellant had purchased the same from the Trade Tax Authorities, but the said authority may recover the amount as arrears of land revenue and it was not the case of recovery of land revenue itself. The Trade Tax (U.P.) Act at the relevant time did not provide any provision with regard to the first charge of the State over the property.
There is no dispute on the proposition of law that if the right in property is transferred at different times, each later transaction created right shall be subject to the rights previously created as per section 48 of the Transfer of Property Act. Further, section 8(8) of the Trade Tax Act does not provide for creation of first charge over the property of the dealer and such dues are recoverable as arrears of land revenue. Thus, unless it is provided for crown's preferential right, the State cannot claim first charge. At the relevant time of sale of the property in question, such provision for preferential right was not there. Therefore, the appellant cannot claim the preemptive right, as the property was earlier mortgaged with the Bank, which had the first charge over the property. Since there was patent illegality in the auction sale of the property in question conducted by the Trade Tax Authorities, therefore, the Tribunal below has rightly rejected the claim of the appellant vide order impugned.
In view of the discussions as recorded above, the order impugned does not call for any interference by this Court and the appeal filed by the appellant is liable to be dismissed. Accordingly, the same is dismissed with no order as to costs.
A copy of this judgment be forwarded to the parties concerned as well as the DRT concerned and be also uploaded on the e-DRT portal.