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Judgment
Ashok Menon, Chairperson
These appeals are filed under Sec. 20 of Recovery of Debts Due to Banks & Financial Institutions Act (‘RDDB&FI’, for short) challenging the common judgment and order dated 12.08.2008 allowing Appeal Nos. 41 and 59 of 2007, and 16 of 2008 filed under Sec. 30 before the Debts Recovery Tribunal-I, Ahmedabad (D.R.T.).
The Bank of Maharashtra had filed a Civil Suit 2985 of 1994 for recovery of the amount due from the borrowers consisting of a firm and its partners before the Court of Civil Judge, Ahmedabad. The suit was transferred to the D.R.T. and re-numbered as Transfer Application No. 878 of 1995. The application was allowed by the D.R.T. on 26.05.2000 with a charge over the mortgaged property for the realisation of the decretal amount of Rs.2,31,73,142.50 together with interest at the rate of 15% per annum. Misc. The borrowers filed Application No. 13 of 2000 to clarify that the compounding of interest was not permissible. The M.A. was allowed on 25.02.2002 holding that the bank was entitled to only simple interest from the date of suit till realisation. In the appeal filed by the debtors before this Tribunal as Appeal No. 92 of 2002, challenging the order in the M.A., they were directed to deposit the decretal amount vide order dated 21.11.2002. The deposit was not made, resulting in the dismissal of that appeal. Hence, the order in M.A. No. 13 of 2000 has become final.
Recovery Proceedings were pending to execute the Recovery Certificate issued in Transfer Application No. 878 of 1995 before the Recovery Officer. The sale proclamation mentioned the debt due as ₹15,77,06117/- instead of the amended amount of ₹6,78,97,740.50. The Recovery Officer however called upon the borrowers to pay the debt due as revised. The subject property was put up for sale by the Recovery Officer on 04.04.2007 in the public auction that was held at 2.30 pm on 12.06.2007, and Esha Farm was declared as the highest bidder of the property for a sale price of ₹11.25 crores which was deposited within the stipulated time. Orders were passed by the Ld. Recovery Officer on 04.04.2007, 04.06.2007 and 10.09.2007 which were challenged before the D.R.T. in the appeals filed by the borrowers and guarantors alleging that the Recovery Officer was bound to commence the sale proceeding afresh after setting aside the sale. The case of the borrowers was that there were many shops/tenements/ units lying vacant in the mortgaged property named “Chinubhai Towers”, and hence, recovery should have been proceeded by the bank by the sale of those vacant rooms in the first instant rather than putting up the entire property for sale. The Recovery Officer did not get the valuation of the entire property before proceeding with the sale.
The Ld. Presiding Officer allowed the appeals and set aside the orders of the Recovery Officer dated 04.04.2007, 12.06.2007 and 10.09.2007 and the auction sale dated 12.06.2007 in favour of the highest bidder, Esha Farm Pvt. Ltd. (appellant in Appeal No. 166 of 2008) was set aside and the Recovery Officer was directed to proceed with the sale afresh. Appeal No. 16 of 2008 was filed by Avinash Estate Owners Association, the guarantor, with a delay, and I.A. No. 46 of 2008 was filed for condoning the delay. The allegation is that though the auction purchaser Esha Farm was arrayed as respondent No. 2 in Appeal No.16 of 2008, it was not made a party in that application for condonation of delay, and the delay was condoned even without hearing the successful bidder. Hence, Esha Farm has challenged the Order of the D.R.T. in Appeal No.16 of 2008.
Misc. Application No. 13 of 2000, to rectify the Recovery Certificate was allowed, but consequential amendment to the Recovery Certificate was not carried out. The recovery proceedings thus continued with the unamended Recovery Certificate which indicated a larger amount than that was due. The sale had allegedly proceeded based on a misleading and erroneous statement made in the proclamation. It was alleged that this was a material irregularity in publishing and conducting of the sale. It was, therefore, urged that the sale has to be set aside. The error in publishing and conducting the sale could not have been cured by calling upon the borrowers to pay only a reduced sum which was due. Hence, the orders of the Ld. Recovery Officer were challenged in the appeals.
Appeal Nos. 41 and 59 of 2007 filed before the D.R.T were both filed by the certified debtors while Appeal No. 16 of 2008 was filed by the guarantor/mortgagor. The appeals were allowed in part and except for the prayer challenging the order of the Recovery Officer dated 19.12.2006, the other orders were set aside. The Ld. Presiding Officer observed that the proclamation of sale was not drawn as required under Rule 53 (c) of the II Schedule to the Income Tax Act. It is observed that the proclamation of sale should have mentioned the correct amount of debt that is to be recovered by the CH from the CD. Since the proclamation has specified a higher amount than that was due, the order dated 04.04.2007 of the Recovery Officer needs to be set aside. Consequently, the auction sale, dated 12.06.2007 is also required to be set aside. The Ld. Recovery Officer had, vide order dated 10.09.2007, directed that the CDs need to pay only an outstanding debt of ₹6,73,97,740.50. According to the Ld. Presiding Officer, the said order rectifying or clarifying the amount that is due from the CDs will not salvage the situation and hence the order dated 10.09.2007 was also set aside. The CDs had also raised objections regarding the sale of shops and offices which were already sold to third parties before the creation of the mortgage. Observing that the CDs did not produce any evidence regarding the sale of the shops and offices to third parties before the creation of the mortgage, the order of the Ld. Recovery Officer dismissing their objection vide order dated 19.12.2006 was not interfered with in appeal by the Ld. Presiding Officer.
Since the auction sale was set aside, the successful bidder Esha Farms filed Appeal No. 166 of 2008, while the bank aggrieved by it, filed Appeal No. 143 of 2009 challenging the order in Appeal No. 16 of 2008. Appeals Nos.129 and 144 of 2009 are also filed by the bank against the order of the D.R.T. in Appeals Nos. 41 and 59 of 2007 respectively.
The question that arises for consideration in all these appeals is whether the order of the Ld. Presiding Officer in setting aside the auction sale in favour of Esha Farms could be justified. A perusal of the prayer clauses in Appeal No. 41 of 2007 filed by respondent Nos. 1 to 3 and also the prayer clauses in Appeal No. 16 of 2008 filed by the 4th respondent guarantor, as also in the prayer incorporated in Appeal No. 59 of 2007 filed by respondent Nos. 1 to 3, it is seen that the appellants therein had not challenged the sale proclamation issued on 13.04.2007. The challenge was to the procedural order/direction of the Ld. Recovery Officer dated 4th of April 2007. A perusal of the procedural order dated 04.04.2007 of the Ld. Recovery Officer indicates that directions to issue the sale proclamation were given. It does not contain any figures regarding the outstanding debt due. The amount of debt due is shown only in the proclamation dated 13.04.2007 which has not been challenged in any of the three appeals filed by the CDs. It will now have to be examined whether the mentioning of a higher amount as the debt due in the sale proclamation would nullify it. It is pertinent to note that the CDs had themselves filed M.A. No. 13 of 2000 and got the Recovery Certificate rectified vide order dated 25.02.2002. Dissatisfied by the order, the CDs had also preferred an appeal before this Tribunal as Appeal No. 92 of 2002 which was dismissed, at the threshold for not depositing the amount directed to be deposited by this Tribunal. Hence, the CDs were aware of the amount that was due, as debt from them. Despite knowing, the CDs did not raise any objection concerning the proclamation for sale. They had challenged this only in the appeals filed by them, and that too, the challenge was to the order dated 04.04.2007 wherein the Ld. Recovery Officer had directed the issuance of the proclamation of sale, and not the actual proclamation of sale, dated 13.04.2007. The Hon’ble Supreme Court has in L & T Housing Finance Limited vs. Trishul Developers & Ano. (2020) 10 SCC 659 held that unless the debtor can show any substantial prejudice was caused on account of the procedural lapses as prescribed under the Act or the Rules framed thereunder, still with the caveat that it always depends upon the facts of each case to decipher if any, being because there cannot be a straitjacket formula which can be uniformly followed in all the transactions. Even if the mistake in mentioning the amount of debt in the sale proclamation is to be taken as an error, it has to be observed given the above-cited decision, that the technical defect pointed out was trivial and could not have caused any substantial prejudice to the CDs since they were aware of the amount that was payable by them.
The Ld. Senior Counsel, Mr Umesh Shetty drew the attention of this Tribunal to the relevant portion of Sec. 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, which was enacted to provide for the continuation and validation of proceedings in relation to Government dues and for matters connected therewith, which states thus:
“3. Continuation and validation of certain proceedings. – (1) Where any notice of demand in respect of any Government dues is served upon an assessee by the Taxing Authority under any scheduled Act, and any appeal or other proceeding is filed or taken in respect of such Government dues, then,-
(a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the assessee and other notice of demand only in respect of the amount by which such Government dues are enhanced and any proceedings in relation to such Government dues as are covered by the notice or notice of demand served upon him before the disposal of such appeal or proceeding may, without the service of fresh notice of demand, we continued from the stage at which such proceedings stood immediately before such disposal;
(b) where such Government dues are reduced in such appeal or proceeding, __
(i) it shall not be necessary for the Taxing Authority to serve upon the assessee of fresh notice of demand;
(ii) the Taxing Authority shall give intimation of the fact of such reduction to the assessee, and where a certificate has been issued to the Tax Recovery Officer for the recovery of such amount, also to that officer…………………….”
The reading of the provision abstracted above would indicate that a fresh notice to the assessee is not necessary in case there is an alteration in the amount due in appeal. It is particularly so in the instant case because it is at the behest of the CDs that the amount due was reduced, and they already knew of that.
The Ld. Presiding Officer had relied upon the decision of the Hon’ble Supreme Court in Income Tax Officer, Kolar Circle, Kolar & Ano. vs. Seghu Buchiah Setty (1964) 7 SCR 148: AIR 1964 SC 1473 to find the appeal in favour of the CDs that the proceedings started based on the original notice of demand and recovery Certificate could not be continued after the amount was varied on appeal. It is pertinent to note that the Hon’ble Supreme Court has in a later decision in Union of India vs. M/s Jardine Henderson Ltd. (1979) 2 SCC 258 overruled the decision, and held that in case of rectification of a notice of demand, it is to be served only in respect of the amount by which the Government dues are enhanced. In the instant case, the dues were reduced and not enhanced.
Under Rules 60 and 61 of the II Schedule to the Income Tax Act, it was imperative on the part of the CDs to deposit the amount stated therein, in case they challenged the auction sale. The CDs did not exhaust the remedy under Rule 61. An appeal under Sec. 30 of the RDDB & FI Act would be sustainable only if the objection filed by the CDs to get the sale set aside is filed before the Recovery Officer after making the deposit contemplated under Rule 60/61. The debtor has an opportunity to have the same set aside on his satisfying three conditions. He must deposit the amount recoverable from him in the execution of the Recovery Certificate. He has to establish that the notice to pay the arrears was not served upon him, secondly, that there has been a material irregularity in publishing or conducting the sale, and thirdly, that he applied us to demonstrate a substantial injury in the case falling under the first and second condition (see Hotel Paras Garden & Anr. vs. Central Bank of India & Ors. 2015 (6) Mh.L.J. 152).
It is also contended for the appellant that Appeal Nos. 41 of 2007 and 16 of 2008 were barred by limitation and therefore, the D.R.T. could not have entertained these appeals, which were filed beyond a period of 30 days prescribed under Sec. 30 of the RDDB & FI Act. Appeal No. 41 of 2007 challenges the order dated 04.04.2007. The appeal was filed only on 02.07.2007. Hence, it is clearly beyond a period of 30 days. Similarly Appeal No. 16 of 2008 challenges the orders dated 19.12. 2006, 04.04.2007 and the order dated 12.06.2007. The said appeal was filed only on 03.03.2008 and hence this appeal is barred by limitation. It is now settled law that Sec. 5 of the Limitation Act is not applicable to condone the delay in filing an appeal under Sec. 30 of the RDDB & FI Act, as held by the Hon’ble Supreme Court in International Asset Reconstruction Company of India Limited vs. Official Liquidator Aldrich Pharmaceuticals Ltd. & Ors. (2017) 16 SCC 137.
Before the sale is set aside, merely establishing a material irregularity or fraud will not do. The applicant has to go further and establish to the satisfaction of the court that the material irregularity or fraud has resulted in substantial injury to the applicant. Conversely, even if the applicant has suffered substantial injury by reason of the sale, this would not be sufficient to set aside the sale unless substantial injury has been occasioned by a material irregularity or fraud in publishing or conducting the sale. (See Direndra Nath Gorai & Suibal Chandra Shaw & Ors. vs. Sudhir Chandra Ghosh & Ors. (1964) 6 SCR 1001). The Ld. Presiding Officer refused to accept the decisions cited by the appellant on the ground that the judgments cited are decisions coming under the Code of Civil Procedure. Sec. 29 of the RDDB & FI Act uses the expression “as far as possible” which indicates that all those provisions of the Income Tax Rules are applicable, except those which do not have any role to play in the matter of recovery of debts under the RDDB & FI Act. The phrase used in the section may indicate a certain inbuilt flexibility, but the scope of that flexibility extends only to what is “not at all practicable” (see Allowed
The Ld. Counsel appearing for the respondents submits that a cheque for the entire debt was submitted based on an OTS proposal and having accepted the cheque for the overdue amount of ₹ 2,20,22,618/-, the bank is estopped from backing out. Grant of benefits under OTS is always subject to eligibility criteria mentioned under the OTS scheme and guidelines issued from time to time. Such a decision should be left to the commercial wisdom of the bank whose amount is involved and it is always to be presumed that the financial institution/bank shall take a prudent decision whether to grant the benefit or not under the OTS scheme. (See Bijnor Urban Cooperative Bank Limited vs. Minal Agarwal & Ors (2023) 2 SCC 805.)
The upshot of the discussions made above is that the Ld. Presiding Officer was in error setting aside the sale in favour of the highest bidder Esha Farms Ltd. The impugned common judgment and order is, therefore, set aside. The appeals are allowed.