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Judgment
S.N.H. Zaidi, J
Both these appeals have been filed against the order dated 15.6.2010 passed in Appeal No. 17/2008 whereby the DRT-I, Delhi, while setting aside the order dated 5.3.2008 of the Recovery Officer made in RC No. 71/06, has directed the Army Welfare Housing Organisation (AWHO) to deposit entire decretal amount along with up-to-date interest with the Housing and Urban Development Corporation Ltd. (HUDCO) and the HUDCO has been directed to return the amount deposited by the auction purchaser to it with interest @ 10% per annum. Briefly stated, the facts of the case are that AWHO, a registered Society constituted to promote and provide dwelling units to the serving/retired army men and their widows at all India level, had allotted flat No. K 170 in Manoj Vihar, Indrapuram, Ghaziabad (UP), a housing colony developed by it, to Captain (Retd.) Vishnu Swarup and his son Vismay Sharma (respondent Nos. 2 and 3 in both appeals). On the basis of the allotment letter, HUDCO (appellant of Appeal No. 318/2010) sanctioned a housing loan to them for the purchase of that flat after a tripartite agreement confirming the charge on the said flat in favour of HUDCO was executed amongst the borrowers, AWHO and HUDCO. When the borrowers defaulted in repayment of the loan, HUDCO filed an application (OA No. 52 of 2004) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) against them and the guarantor (respondent No. 4 in both appeals) for the recovery of outstanding amount of debt and arrayed AWHO as a pro forma defendant. The OA was allowed and a Recovery Certificate (RC) for Rs. 14.59.188/- along with interest was issued against the borrowers and guarantor and the proceeding in RC No. 71/2006 were commenced, The Recovery Officer (RO) attached the flat in question and issued notice for its sale by way of public auction. The auction was held on 6.2,2007 and the highest bid of Rs. 29,35,000/- of Privitech Project Pvt. Ltd. (Appellant of Appeal No. 311/ 2010) was accepted. The bid amount along with additional charge was duly paid by the auction purchaser. AWHO challenged the auction sale by filing objection/ application before the RO, alleging that Vishnu Swarup had obtained the allotment of the flat in question by playing fraud and misrepresentation that he was ex-army personnel, which had been cancelled. During the course of proceedings, AWHO tendered a cheque of the decretal amount of Rs. 14,42,188/-. which was. however, returned to it by the RO. The RO dismissed the objections on 5.3.2008 and after confirmation of sale the sale certificate was duly registered with the Sub-Registrar, Ghaziabad on 13.8.2008. AWHO assailed the said order of the RO dated 5.3.2008 in appeal (No. 17/2008) filed under Section 30 of the RDDBFI Act before the DRT, which allowed the same by the impugned order with the directions, as mentioned above. Aggrieved with that order, both the auction purchasers as well as HUDCO have directed these appeals separately.
Mr. Amit Dhupar appearing on behalf of the appellant/auction purchaser, mainly stressed on three points: (i) AWHO had no locus to challenge the auction sale; (ii) the RO could not go beyond the decree; and (iii) AWHO had not complied with the requirement of Rule 60 of the Second Schedule to the Income Tax Act.
According to him, so far as points (i) and (ii) are concerned, though AWHO was arrayed in the OA as a proforma defendant, but Paragraph 5.2 of the OA clearly shows that it was impleaded to effectively and completely adjudicate upon and settle all the questions involved in the matter and as per terms of the tripartite agreement, which was executed for creating charge in favour of HUDCO qua the property in question, AWHO was to cease to have any concern with that property after receiving the payment, which had indisputably been received by it. He pointed out that AWHO had neither disputed the execution of the tripartite agreement nor taken any plea of fraud in respect of the allotment of the flat in question in its written statement filed in OA proceedings. Mr. Dhupar further submitted that as per its own case, AWHO came to know about the fraud played by alleged Capt. Vishnu Swarup sometime in March/April 2005 and by September 2005 it was fully aware of the alleged fraud, as the allotment in question was cancelled by it in September 2005, but it did not raise any plea of fraud before the DRT either by seeking any amendment to its written statement or by moving any application to bring that plea on record until the OA was disposed of on 7.7.2006 and since it had acquiesced to the allotment in question, it has no locus to assail the sale on the basis of alleged fraud in obtaining the allotment. He has pointed out that even according to Clause (d)(v) of Para 12 of the AWHO's Master Brochure. Annexure A-20, which relates to the persons eligible for allotment of dwelling unit, civilians are also eligible for allotment under that given circumstance and list of allottees of dwelling units of Manoj Vihar Residential Complex, Indrapuram, Ghaziabad, Annexure-A to the affidavit (Page 286), shows that AWHO had allotted several dwelling units to the civilians.
He also contended that as per Section 25 of the RDDBFI Act, the RO was to comply with the RC issued in pursuance of the final order made in the OA and he could not go beyond the R.C. Mr. Dhupar also submitted that no prejudice was caused to AWHO by the sale of the properly as it had already received the entire loan amount towards the price of flat in question directly from HUDCO.
Mr. Dhupar also submitted that after the property in question was put to auction sale for 30.1.2007, AWHO caused a notice dated 25.1.2007 served through its Counsel upon HUDCO intimating the cancellation of allotment of flat made in favour of Capt. Vishnu Swarup and offering to pay the decretal amount to it, but despite the fact that the HUDCO in its reply had categorically said that AWHO should pay the amount in accordance with law to the RO, it did not make any deposit with the RO by the date of auction. He also pointed out that as the auction could not take place on 30.1.2007 due to declaration of a public holiday on that date, the RO rescheduled it for 6.2.2007, on which date the auction took place and the AWHO, after sending another notice dated 12.2.2007 through its Counsel to HUDCO, challenged the auction sale by filing application/objections dated 14.2.2007, before the RO, who ultimately rejected it. Mr. Dhupar further submitted that as the cheque of Rs. 14,42,188/- deposited by AWHO with the RO was not in accordance with Rule 60 of the Second Schedule to the Income Tax Act, it was rightly returned by the RO, vide his order dated 2.8.2007. He also submitted that tendering of the amount through cheque was also not a valid tender and since the cheque was of much lesser amount than specified in the proclamation of sale, it was not a proper compliance of the said Rule 60 and the RO had rightly rejected the objections of AWHO.
It is also submitted by him that while assailing the order of the RO in appeal before the Presiding Officer, AWHO did not show any reason as to why the plea of fraud was not raised before the DRT during the pendency of OA. Mr. Dhupar also pointed out that subsequent to the order of the RO, the sale in favour of the auction purchaser was confirmed and the appellant auction purchaser spent about Rs. 3 lacs in payment of stamp duty and registration of the sale certificate. It is also pointed out by him that as the flat in question remained unoccupied for quite a long time, the auction purchaser had to spend huge money in taking the electricity connection to it. Lastly, it has been submitted by Mr. Dhupar that the auction purchaser is an engineering graduate from IIT and had purchased the property in question for his own use.
Mr. S.V. Tyagi appearing on behalf of HUDCO has adopted the arguments of Mr. Dhupar in respect of Appeal No. 318/2010 and has submitted that the property in question was rightly sold by the Court's Auctioneer appointed by the RO in execution of the RC.
Mr. A.K. Tiwari, learned Counsel for the AWHO. on the other hand, pointed out that alleged Captain Vishnu Swarup had managed to obtain allotments of flats in three housing projects of AWHO at Indrapuram, Distt. Ghaziabad (U.P.), New Bombay and Gurgaon by playing fraud with AWHO by claiming himself to be an ex-army personnel but as soon as his fraud was detected, all the allotments were cancelled and possession of the properties were resumed and a report was lodged with the Delhi Police. He further submitted that the investigation of the police revealed that Capt. Vishnu Swarup alias ex-Capt. V.K. Gaur alias Maj. (Retd.) Vishnu Sharan Sharma was never an army personnel and due to these circumstances, AWHO being a proforma respondent in the OA. could not take the plea of fraud in its written statement filed on 13.12.2004 as the circumstance of fraud played by Vishnu Swarup was not detected by that time. Mr. Tiwari also submitted that after the cancellation of the allotment of the flat in question in terms of the tripartite agreement, it could not be sold by the RO in public auction as its mortgage was void ab intio and the only remedy available to the Certificate Holder (CH) was either to enforce the decree against the borrowers personally or to seek the refund of the loan amount paid to AWHO for the allotment of the flat. It is also submitted by him that Para 12 of the Master Brochure, which contains the rules for allotment, in Clauses (a), (b) and (c) sets out that the army personnel and their widows come in the first priority and Clause (d), which provides for other eligible persons, comes only when dwelling units are declared surplus and even the surplus units are required to be allotted in order of preference given in Sub-clauses (i) to (v) and the civilians come in the last preference (v). According to him, the flat in question was not allotted to Capt. Vishnu Swarup as a civilian and he obtained the allotment by misrepresentation and playing fraud that he was ex-army personnel and the appellant, being a civilian, gets the last preference in allotment after the personnel mentioned in Para 12(a), (b) and (c).
Mr. Tiwari further submitted that in order to show its bona fide. AWHO. vide its letter dated 2.8.2007, deposited the decretal amount of Rs. 14,42,189/- through cheque in favour of the RO, but HUDCO, with mala fide intentions, did not take the decretal amount and continued to enforce the mortgage, which was per se void. He also pointed out that by depositing the decretal amount AWHO had fully complied with the requirement of Rule 60 of the Second Schedule to the Income Tax Act, which is only directory and not mandatory. In this regard. Mr. Tiwari has referred to a judgment of the Apex Court in Salem Advocates Bar Association, T.N. v. Union of India, : V (2005) SLT 653 : III (2005) CLT 53 (SC) : (2005) 6 SCC 344.
Mr. Tiwari also contended that HUDCO had colluded with the borrowers in prosecuting the OA as well as recovery proceedings with the intention of making illegal and unjust enrichment. He also pointed out that the DRT did not issue any notice to AWHO calling for objection qua the recovery of the decretal amount although it did not have any objection for the recovery of the said amount from the borrowers who had defaulted in paying the loan amount.
Mr. Tiwari also submitted that the objection qua the locus of AWHO to impugn the order of RO is highly frivolous and misplaced as AWHO being the developer and owner of the flat in question was fully empowered to object to the attachment and sale thereof and since the allotment was void ab initio, being obtained by misrepresentation and fraud, the tripartite agreement too had become void. According to him, HUDCO could not enforce the recovery of the decretal amount against the flat in question and it could have proceeded only against the borrowers.
Mr. Tiwari further submitted that the contention that the RO had no jurisdiction to go beyond the decree is also misplaced as the RO, while enforcing the decree, was not acting as a Court of execution proceedings. He pointed out that the objections of the AWHO filed before the RO were neither to amend not modify the RC issued by the DRT but it were only for seeking the revocation of the order of sale of the flat in question by public auction on the ground that the allotment and subsequent mortgage thereof were void as it were obtained by misrepresentation and fraud. He also submitted that AWHO had the right to cancel the allotment by virtue of Para 73 of the Allotment Brochure and as per Clause 32 of the allotment letter.
Mr. Tiwari has also relied upon the judgments rendered in Official Receiver, Jhansi v. Jugal Kishore Lachhi Ram Jaina. Hyderabad & Ors., : AIR 1963 All. 459 (F B), S.N.R. Sundara Rao & Sons, Madurai v. Commissioner of Income Tax, Madras, : AIR 1957 Mad. 451, Manmadhan v. Krishnappan Unni, : 1985 K.L.T. 670, Surendranath Talukdar & Ors. v. Lohit Chandra Talukdar, : AIR 1975 Gau. 58, S.M. Kanniappa Nadar v. K.K. Karuppiah Nadar, : AIR 1962 Mad. 240, Belgaum Pioneer Urban Co-Operative Credit Bank Ltd., v. Styapromoda Thirth Guru Sri Satyabhidhy Thirth Sripadangalavaru Swamiji & Ors., : AIR 1962 Mys. 48, N. Purkayastha & Anr, v. Union of India, : AIR 1955 Ass. 33, M/s. Anand Prakash Om Prakash v. Oswal Trading Agency & Anr., : AIR 1976 Delhi 24 and Amresh Chandra Pandey v. Firm Kalyan Mal Dharam Narain Saraf, : AIR 1972 All. 130 in support of his contentions.
I have given my anxious thoughts to the submissions of the parties' Counsel and perused the record.
Although AWHO was arrayed as a proforma defendant and no relief was sought against it in the O.A., yet it had filed its written statement and remained present and watchful during the hearing of the OA. In its written statement, it had admitted the facts relating to allotment of flat in question to defendant Nos. 1 and 2, sanctioning of housing loan to them for the purchase of that flat by HUDCO as well as mortgage of the flat in favour of HUDCO as a security for the repayment of the loan amount. No amendment in the written statement was, however, sought by AWHO to bring on record the fact of fraud allegedly played by the borrowers in obtaining the allotment, though, as per its own case, it had come to know about the alleged fraud in March/April, 2005 and in September, 2005 it had cancelled the allotment on that ground The explanation that since the fraud was detected subsequent to the filing of the written statement in December, 2004 therefore, the plea of fraud could not be taken before the DRT during the pendency of the OA cannot be accepted to be sufficient as it could have boon brought on record by way of amendment in the written statement or by filing an application to that effect before the DRT. In my opinion, failure on the part of AWHO to assail the allotment of the flat in question on the basis of alleged fraud during the pendency of the OA before the DRT, which could have adjudicated on it, showed acquiescence on its part and as such it does not appear to have locus to challenge the same before the RO, who was not competent to decide that issue.
Though it is said that the object of the constitution of AWHO was to promote and provide dwelling units to the serving and retired army personnel and their widows on all India level at no-profit-no-loss basis, yet AWHO has not disclosed about any mechanism in know whether or not an applicant for allotment of a dwelling unit is a genuine army personnel. There must have been, I believe some methodology for the AWHO to verify the genuineness of the applicant There is nothing on record to show that AWHO had made any effort to verify the genuineness of the claim of Vishnu Swarup in this regard. In the absence of any contention/evidence in this respect. AWHO did not appear to have exercised due diligence about ascertaining the claim of Vishnu Swarup before making the allotment order in his favour. In my opinion, AWHO cannot take the benefit of its own lapses in allotting the flat in question to Vishnu Swarup. It was only on the basis of the said allotment order that HUDCO had agreed to sanction loan in favour of the allottees and it was neither involved in the allotment process nor was privy to any order made by AWHO. Mere allegation/contention that the allotment was obtained by playing fraud by alleged Capt Vishnu Swarup with AWHO was not sufficient for the RO to make any observation/finding qua the said allegation as under Section 25 of the RDDBFI Act, it was to exercise its jurisdiction for the recovery of the amount as per RC issued by the DRT. The subsequent cancellation of the allotment order in question by AWHO did not ipso facto make either the mortgage of flat in question or its sale for the recovery of the amount of RC, bad in law.
Section 29 of the RDDBFI Act provides for application of the provisions of the Second and Third Schedules to the Income Tax Act, 1961, Rule 60 of the Second Schedule provides for filing an application to set aside the sale of immovable property. The said rule reads as under:
Application to set aside sale of immovable property on deposit--(1) Where immovable properly has been sold in execution of a certificate, the defaulter, or any person whose interests are affected by the sale may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale, on his depositing-
(a) the amount specified in the proclamation of safe as that for recovery of which the sale was ordered with interest thereon at the rate of fifteen per cent per annum, calculated from the date of the proclamation of sale to the date when the deposit is made; and
(b) for payment to the purchaser, as penalty, a sum equal to five per cent of the purchase money, but not less than one rupee
(2) Where a person makes an application under Rule 61 for setting aside the sale of his immovable property, he shall not, unless he withdraws that application, be entitled to make or prosecute any application under this rule.
Thus, as per the aforesaid rule, if an immovable property is sold in execution of certificate, the defaulter or any person, whose interests are affected by such sale, is entitled to make an application within 30 days from the date of sale before the Tax Recovery Officer (TRO) to set aside the sale of the immovable property on depositing the amount specified in the proclamation of sale together with interest @ 15% p.a., calculated from the date of such proclamation up to the date of deposit and a further sum @ 5% of the purchase money for payment as penalty to the purchaser.
In the instant case, the borrowers were in arrears of Rs. 14,70,091/- for the recovery of which HUDCO had filed the OA, which was allowed ex parte against the borrowers and guarantor on 7.7.2006 and an RC for the recovery of Rs. 14,59,188/- along with interest was issued in pursuance of the order passed in the OA. The flat in question was attached and after the issuance of the proclamation of sale it was sold for a sum of about Rs. 29.34 lacs in public auction, which was concluded in favour of the appellant, Privitech Projects Pvt. Ltd. Admittedly, the borrowers neither deposited the amount recoverable from them in execution of the RC nor challenged the sale of the flat in question. AWHO. while filing objection/ application for setting aside the sale of the flat in question before the RO, had also not deposited the entire amount recoverable from the defaulters qua proclamation of sale until the disposal of the said objection/application by the RO on 5.3.2008. Tendering of a cheque for Rs. 14,42,188/- by AWHO, which was less than the amount specified in the RC/proclamation of sale, cannot be held to be a proper compliance of Rule 60 of the Second Schedule to the Income Tax Act as it was not accompanying with any amount of interest or penalty as per requirement of Clauses (a) and (b) of the said rule. The contention of Mr. Tiwari that the said rule is only directory and not mandatory in nature cannot be accepted. Though Mr. Tiwari had referred judgment of the Supreme Court in the case of Salem Advocates Bar Association (supra) in support of his aforesaid contention, yet the Apex Court does not appear to have considered the nature of the said rule in the said judgment, which is mainly on the constitutional validity of amendments made to the CPC by Amendment Acts of 1999 and 2002. The other cases referred to by Mr. Tiwari, as mentioned above, are also on entirely different questions of law based on different facts and circumstances. The principles of law enunciated by the Hon'ble Courts in those cases cannot be said to be applicable to the facts and circumstances of the instant appeals.
The observation of the learned Presiding Officer in the order impugned that HUDCO had no objection in receiving the entire decretal amount from AWHO is contrary to the facts and circumstances of the case. In its notice dated 25.1.2007 (Annexure A-5), AWHO had expressed its desire to satisfy the money decree of the Debts Recovery Tribunal by refunding to HUDCO the loan amount availed by Capt. Vishnu Swarup and paid to AWHO and had offered to pay the decretal amount to HUDCO and in its reply to that notice (Annexure A-6) HUDCO had said that AWHO could make the payment with the RO in accordance with law to satisfy the debt of HUDCO before the auction sale. The said reply without showing any willingness on the part of HUDCO in accepting the offered amount, simply asked AWHO to make the payment in accordance with law to satisfy its debt. AWHO had not made the payment in accordance with law (Rule 60 of the Second Schedule to the Income Tax Act) as the entire amount specified in the RC/sale proclamation as well as the amounts of interest and penalty were not deposited by AWHO with the RO. In my view, mere showing the readiness and willingness to pay the decretal amount, as observed by the learned Tribunal below, was not a proper compliance of the said rule. The sale could only be set aside by the RO on proper and due compliance of the said rule by depositing the amounts mentioned therein otherwise the application was bound to be disallowed. I am convinced that the RO had rightly disallowed the objection/application of AWHO for setting aside the sale in question and the learned Presiding Officer, while exercising appellate jurisdiction under Section 30 of the RDDBFI Act, has committed manifest error in setting aside the order of the RO so far as it relates to the objection/application filed by AWHO. I am also of the view that no irregularity in publishing and conducting the sale of the property in question is also made out from the record. The learned lower appellate Tribunal has also committed error in observing that since the appellant (AWHO) had offered to pay and in furtherance thereof deposited the entire decretal amount by way of cheque, Rule 60 was sufficiently complied with, as it had failed to see that the amount tendered by AWHO through cheque was not conforming to the requirement of deposits envisaged under the said rule.
The contention of Mr. Tiwari that AWHO had lodged the report with the Delhi Police qua the fraud played by Vishnu Swarup in obtaining the allotment of the flats in the housing colonies developed by AWHO and the police in its investigation had found that Vishnu Swarup had never been an army personnel and had several aliases, cannot be accepted as a ground sufficient to hold the allegation of fraud as proved unless the same is found proved by any competent Court. As mentioned above, the factum of the alleged fraud was not brought to the notice of the PO during the pendency of OA, otherwise it could have given finding qua the said allegation. In the absence of any finding in respect of the alleged fraud and misrepresentation by any competent Court, the allotment in question cannot be held to be void ab initio as Clause 12(d)(v) of Chapter II of the Master Brochure of AWHO shows that civilians are also eligible for allotment of the dwelling units in the given circumstance and the record shows that allotments were made to several civilians in Manoj Vihar. Indrapuram, Residential Complex of the AWHO.
Since the OA was allowed only against the borrowers and guarantor and not against the AWHO, which was a proforma defendant, the contention of Mr. Tiwari has no force that DRT should have issued notice to AWHO for calling for any objection qua the recovery of the decretal amount as he has admitted that AWHO did not have any objection for the recovery of the decretal amount from the borrowers. I also do not find any substance in the contention that RO should not have enforced the RC against the flat in question as its allotment was obtained by misrepresentation and fraud, because the RO could not have travelled beyond the RC and adjudicate upon the allegation of fraud in exercise of jurisdiction under Section 25 of the RDDBFI Act and the said plea could have only been considered by the DRT while disposing of the application filed under Section 19 of the said Act, had it been raised before it during pendency of the OA. But, as observed earlier, it has neither been raised before the DRT nor any plausible reason, for not taking that plea, has been advanced despite the fact that AWHO admittedly came to know about the alleged fraud sometime in March/April, 2005 and had cancelled the allotment in September 2005, i.e., much prior to the disposal of the O.A. on 7.7.2006. I also do not agree with the contention of Mr. Tiwari that the RO could have considered and adjudicated the plea of fraud during execution of the RC on the ground that he was not acting as a Court of execution while enforcing the RC. The RO is required to exercise jurisdiction under Section 25 of the RDDBFI Act read with Sections 28 and 29 thereof, which provides for other modes of recovery and application of certain provisions of the Income Tax Act respectively for the enforcement of the RC received by him. The aforesaid provisions do not empower the RO to go beyond the RC while proceeding to recover the amount of debt specified in the RC.
In view of the discussion made above, the impugned order cannot be sustained and is liable to be set aside and the appeals directed against it are entitled to be allowed.
However, before parting with the matter I want to mention that since the appellant auction purchaser had participated bona fidely in the sale proceedings of the flat in question conducted in accordance with relevant statutory provisions and, being the successful bidder, had deposited the entire sale consideration and other expenses and had also spent big money in registration of the sale certificate and in the electric connection and no mala fide has either been alleged or is made out against it from the record and the allotment in question in favour of its original allottees, namely Capt. Vishnu Swarup and Vismay Sharma. has been cancelled. AWHO may favourably consider its allotment in favour of the auction purchaser under Clause 12(d)(v) of its rules of allotment to uphold the sanctity of Court's auction as an exceptional and special case as it had already received the price of the flat and its interest would not be prejudicially affected.
As the money recovered in execution of the RC by the sale of the mortgaged flat is more than the amount of debt due on the borrowers and after the satisfaction of the RC the excess money is in deposit with the DRT below, the same shall be returned/released in favour of the borrowers as and when any demand is made by them. Until such release it shall be invested in FDR of any Nationalised Bank in the joint names of the borrowers for such period as may fetch the highest rate of interest.
With the above observations both the appeals are accordingly allowed. The impugned order dated 15.6.2010 passed in Appeal No. 17/2008 is set aside and the order of the RO dated 5.3.2008 qua the dismissal of the objection/application of the AWHO, is confirmed. Copy of this order be sent to the parties and to the DRT concerned as per law.