State Bank Of India vs Pushpa Baswan And Ors.

P.K. Bhasin, J

Almost two decades back the State Bank of India had filed an Original Application (being O.A. No. 38/1998) under Section 19 of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short 'the RDDBFI Act') for recovery of over eighty crores of rupees plus interest etc. on account of unpaid amount payable out of some financial dealings with respondent No. 1 herein which had commenced sometime in the early eighties and payment whereunder to the Bank was guaranteed by three individuals impleaded as defendants 2-4 in the O.A. out of whom defendant No. 2 Shri C.L. Verma died during the pendency of the O.A. and his legal heirs including the three respondents in this appeal and another son of the deceased Mr. Chander Verma (who was already defendant No. 3 in the O.A.) were brought on record. The wife of Shri C.L. Verma also expired soon after his death. Finally the appellant Bank was successful in obtaining an order for issuance of a Recovery Certificate against all the defendants in its O.A. on 25.5.2015 from the Debt Recovery Tribunal-II, Delhi (DRT) as had been prayed for. The liability of the L.Rs. of the deceased defendant No. 2 Shri C.L. Verma was restricted to the extent of the estate inherited by them.

The Bank had got a Recovery Certificate issued from the DRT on 25.5.2015 and the recoverable amount as notified to the Certificate Debtors by the Recovery Officer at the commencement of recovery proceedings in August, 2015 was Rs. 8,89,39,94,023.00 with interest @ 15% p.a. with half yearly rests from 3.8.2015 onwards till actual recovery of this amount. In the recovery proceedings the Recovery Officer passed an order of attachment of movable as well as immovable properties which the Bank claimed to be attachable and liable to be sold in execution of the Recovery Certificate issued by the DRT. That attachment order dated 4.11.2015 was challenged by the respondents in these two appeals by way of two separate appeals under Section 30 of the RDDBFI Act before the DRT-II alleging inter alia that they were not afforded opportunity by the Recovery Officer to object that the properties which had been attached on 4.11.2015 could not have been attached. Those two appeals have been allowed by the learned Presiding Officer Shri Ashish Kalia of DRT-III, who was holding additional charge of DRT-II also, vide its common order dated 7.1.2016 and the matter was remanded back to the Recovery Officer for passing a fresh speaking order.

Aggrieved by that order of the DRT the Bank has now come to this Appellate Tribunal with two appeals by invoking Section 20 of the RDDBFI Act. As common points were involved in both the appeals and which heard also analogously by the same set of Advocates from both sides the same are being disposed of by this common order.

In order to appreciate the grievance of the appellant Bank and the reasons given by the learned Presiding Officer of the DRT for setting aside the attachment order of the Recovery Officer relevant parts of some of the orders passed in the recovery proceedings and relevant portions of the impugned order of DRT may first be noticed. The proceedings before the Recovery Officer commenced with the issuance of mandatory demand notice to the certificate debtors (CDs) and the relevant direction given is as under:

"This is to notify that a sum of Rs. 8,89,39,94,023.00 (Rupees eight hundred eighty-nine crores thirty-nine lacs ninety-four thousand and twenty-three only) as become due from CD 1 to 4 as per recovery certificate drawn in O.A. No. 38/1998 dated 25.5.2015 by the Presiding Officer, Debts Recovery, Tribunal-II, Delhi, from the defendant with interest @ 15% p.a. on half yearly rest from 3.8.2015 onwards until recovery with cost of Rs. 2,50,000/- (Rupees two lacs and fifty thousand only)................

You are hereby directed to pay the above sum within 15 days of the receipt of the notice, failing which the recovery shall be made in accordance with the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 and Rules here under................"

Then further proceedings took place on 2.9.2015 and the relevant proceedings of that date recorded by the Recovery Officer are as under:

"Counsel for CH Bank submits that they have served the demand notice to CDs through all prescribed modes and filed the service report in the Registry vide Diary No. 7544 dated 2.9.2015.

Counsel Mr. Pallav Saxena seeks discharge in this matter on behalf of CD 1, Counsel for CH Bank further submits that as no one is appearing on behalf of the CDs and hence, default notice may be issued against them.

Directions

CD 4 is directed to file the comprehensive affidavit of assets giving the details of movable or immovable properties, statement of Bank accounts for the last five years, copy of the ITRs for the last five years, copy of PAN Card and present source of the income within two weeks time and also provide the copy of the same in advance to the CH Bank.

Let a default notice be issued against the CD 1, LRs of CD 2 and CD 3.

CH Bank/CHFI Bank is directed to serve the same by all prescribed modes and file the service report thereof on or before the next date of hearing.

Let this matter be listed on 21.9.2015.

Sd/-

(Sube Singh)

Recovery Officer

PS

Mr. Abhimanyu Singh, Counsel for CD 2(c) appeared and submits that he has filed the Vakalatnama on behalf of CD 2(c) in the Registry vide Diary No. 7553 dated 2.9.2015 and seeks time to file affidavit of assets.

Directions

CD 2(C) is directed to file the affidavit of assets to the extent of inheritance, within two weeks' time and also provide the copy of the same in advance to the CH Bank.

Default notice issued against CD 2(C) during the course of the day is hereby withdrawn."

On 21.9.2015 the following order was passed by the Recovery Officer when the Counsel for the three respondents herein were also present:

"Counsel for CD 2(a) (who is respondent in the present Appeal No. 126/2016) submits that he is going to file the Vakalatnama during the course of the day.

Counsel for CH Bank submits that they have filed the service report of the default notice in the Registry vide Diary No. 8307 dated 21.9.2015 and further submits that no one is appearing on behalf of CD 2(d) hence, show cause notice may be issued against him.

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Counsel for CH Bank submits that they have filed an application for the attachment of the inherited properties of the LRs. of CD 2 in the Registry vide Diary No. 8346 dated 21.9.2015 and shall provide the copy of the same in advance to the LRs of CD 2.

Directions

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CH Bank is directed to provide the copy of the above said application filed vide Diary No. 8346 to the LRs of CD 2 and LRs of CD 2 are directed to file their response, on or before the next date of hearing.

Let this matter be listed on 16.10.2015."

The proceedings of 16.10.2015 on which date also the respondents were being represented through Counsel, are as under:

"Counsel for CD 2(d) submits that he was present on the last date of hearing and the Vakalatnama has also been filed and hence, the show cause notice issued on the previous date may kindly be withdrawn.

Counsel for CH Bank submits that they have filed an application in the Registry vide Diary No. 9201 dated 15.10.2015 for the attachment of the property bearing No. 28-29, Continental House, Nehru Place, New Delhi, measuring 445.93 sq. mts. (532.89 sq. yds.), with super structure thereon and the copy of the same has been provided to the CD 1 and further submits that the above said property may be attached.

Counsel for CD 1 submits that they have received the copy of the above said application yesterday and further seeks adjournment to file their response on the above said application filed by the CH Bank.

Counsel for CD 4 further seeks adjournment to file the affidavit of assets.

Counsel for CD 2(a) also seeks adjournment to file the affidavit of assets.

Counsel for CD 2 (e & f) (who are respondents 1 and 2 in the present Appeal No. 125/2016) further seeks adjournment to file the affidavit of assets.

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Counsel for CDs and LRs of CDs requested that the CH Bank may be directed to provide the copy of all the application to all the CDs and LRs.

The above said request of the CDs cannot be acceded to because CDs have to file the reply only with respect to their applications.

Direction

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CDs and LRs are directed to file the reply to their respective applications filed by the CH Bank within two weeks' time and also provide the copy of the same in advance to the CH Bank.

CDs are LRs are directed to file the affidavit of assets within two weeks' time and also provide the copy of the same to the CH Bank.

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Let this matter be listed on 4.11.2015 at 2:30 p.m."

Then the following order dated 4.11.2015, with which the respondents herein had felt aggrieved and which was challenged in two Appeals to the DRT, came to be passed by the Recovery Officer when Counsel for the present three respondents (CD Nos. 2 (a, e & f) Mr. Rakesh Ranjan was also present:

"........................Counsel for CH Bank further submits that CDs have neither filed the reply to their application nor filed the affidavit of assets..............

The CH Bank has also filed an application for the attachment of the assets of the CD 2 to be inherited by the LRs of CD 2 in the Registry vide Diary No. 8346 dated 21.9.2015 but he CDs have not yet filed their reply on the above said application and hence, the properties mentioned in this application may also be attached and the details of the properties in this application are as under:

Counsel for CD 4 further seeks two days time to file their reply to the application filed by the CH Bank.

On perusal of the records it reveals that the CDs have already taken two adjournments to file the reply to the above said application filed by the CH Bank but to no avail. This kind of conduct of the CDs and LRs of CD shows that they are deliberately not filing the compliance of the direction of this Forum.

Directions

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Let the following properties also be attached:

(i) Industrial Plot, Okhla bearing premises No. C, Okhla Industrial Area, Phase-I, New Delhi admeasuring approx. 589.33 sp. yrds.

(ii) Property No. 93, Basement, Ashok Bhawan, Nehru Place, Now Delhi admeasuring approx. 1729 sp. ft.

(iii) Property No. 93, Basement, B-II, Basement, Ashok Bhawan, Nehru Place, New Delhi admeasuring approx. 1600 sp. ft.

(iv) Agricultural Land 14 acres in Khasra No. 1463, in Village Chajju Nagar, Tehsil-Palwal, Distt. Faridabad, Haryana.

(v) Agricultural Land measuring 17 acres situated at Village Kail, Distt. Faridabad, Haryana.

(vi) Agricultural Land at Sikri, Village Kail, Tehsil -- Ballabgarh, Distt. Faridabad, Haryana.

(vii) Business in the name and style of Akhit Estates and Investments Pvt. Ltd.

(viii) Property, Bearing Survey Nos. 6/1A and 6/2 of Ittamadu Village, Uttrahalli, Hobli, Bangalore admeasuring 4 acres 29 Guntas.

(ix) Property bearing No. 4, Ring Road, Lajpat Nagar, New Delhi.

(x) Property Bearing No. 242 (Khasra No. 298/8M), Veerbhadra Road, Rishikesh, Distt. Dehradun, Uttranchal measuring 555 sp. yrd.

(xi) Property Bearing No. 14/2, Veerpur Khurd, Rishikesh, Distt. Dehradun, Uttranchal measuring 1.90 acres.

(xii) Property bearing 1580 sp. mtr., at 18, Pragati Vihar, Indira Gram, Distt. Dehradun, Uttranchal.

(xiii) Jewellery

(xiv) Fixed Deposit Receipts.

(xv) Shares in Continental Construction Ltd. which has already divided by the LRs.

(xvi) Amounts in Bank Accounts and various Bonds in the name of late Sh. C.L. Verma and late Smt. Urmilla Verma.

(xvii) The Shares in various company held by late Sh. C.L. Verma and late Smt. Urmilla Verma.

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Let this matter be listed on 30.11.2015."

As noticed already the two appeals filed on 26.11.2015 by the respondents herein against the said order dated 4.11.2015 of the Recovery Officer were disposed of by the DRT on 7.1.2016. Relevant portions of that order are as under:

"1. The present appeals are filed by the appellants against the order dated 4.11.2015, passed by the Recovery Officer No. II of DRT-II requesting therein for setting aside the direction No. 3 in recovery certificate dated 4.11.2015 thereby attaching certain properties of the CDs/appellants herein.

The first such objection on legal ground has been taken by the appellants herein is that the learned Recovery Officer cannot pass attachment order under Section 25 or 28 of the DRT Act in respect of the property which is not owned by the debtor or guarantor. It is further submitted that without verifying the ownership of CD No. 2 this order has been passed. Even prima facie allegation against it has not been put forth by the Bank. Smt. Urmila Verma is neither borrower, nor guarantor or party in the present proceeding, therefore the properties owned by her cannot be attached. Thus the order passed by the learned Recovery Officer is beyond his jurisdiction. The said order is passed in violation of principle of natural justice without affording an opportunity to the appellants herein. It is further submitted that the proxy Counsel made a request for a week's time to file reply to the attachment application but the said request was declined and impugned order passed in haste.

Lastly it is submitted that the principal amount claimed by the bank is Rs. 89 crores and certain amount lying in FDR and if the FDR amount is adjusted against Rs. 89 crores, the remainder amount would be almost zero.

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Heard the learned Counsel for both the parties at length. Mr. Sudhir Nandrajog, Senior Advocate appearing for the appellants, in Appeal No. 74/15 and Appeal No. 75/15, has impressed upon this Tribunal that the Recovery Officer has ordered to attach 16 properties for which the same very Bank had sought attachment which was not allowed by this Tribunal and final order passed declining the attachment of the above said properties and has only granted attachment of two properties situated at Okhla and 28, Nehru Place. Now the learned Recovery Officer is attaching these properties.

The learned Senior Counsel further submits that these properties actually do not belong to his father late Shri C.L. Verma and these properties not inherited from him and learned Recovery Officer has passed order without giving opportunity to them or without making any investigation in regards to the ownership of the properties in question. Thus the learned Recovery Officer has failed to exercise jurisdiction vested upon him rather he has exceeded his jurisdiction. The Recovery Officer was supposed to make independent inquiry in regards to the ownership or Bank should otherwise engage a detective agency or other methods to prove the ownership rather they have obtained a piece of paper form the pleadings which is led before Hon'ble High Court. Incidentally the Bank has also filed an application for attachment on same very properties which is not found favour from this Tribunal and has declined to give attachment of these properties and only two properties as mentioned above were attached.

This Tribunal while going through the list of assets attached by the learned Recovery Officer is of the view that some of the items such as jewellery, fix deposit and share certificate and other items are required through investigation before attachment because prima facie it seems these are the personal properties........

Keeping in view the above facts and circumstances, I am of the considered view that this attachment order cannot sustain in the eyes of law because before attaching the personal properties of the CDs a fair opportunity should have been given to the CDs as to whether it is personal asset such as jewellery or not. The Bank has also not done its part of duty by providing assets by doing diligence and owned by the defendants prima facie.-

In view of the above facts and circumstances and legal position, this Tribunal is of the view that the order passed by the learned Recovery Officer is hereby set aside."

It was put to the learned Counsel for the respondents during the course of hearing as to what was the necessity for them to rush to the DRT straightaway in appeal against the order of attachment dated 4.11.2015. The answer was that ex-facie the order of attachment passed by the Recovery Officer was illegal since it was passed against the principles of natural justice having been passed without giving reasonable opportunity to the CDs to put forth their views in respect of the properties which the Bank wanted to be attached and further that the Recovery Officer in any case had shown undue haste in passing the order of attachment of a huge number of properties without even taking the trouble of enquiring as to whether those properties or any one of them actually belonged to the deceased CD Shri C.L. Verma or not Another reason given was that the Recovery Officer had attached the properties despite being aware of the fact that when the O.A. was still pending before the DRT the Bank had moved one application for attachment of same properties which it wanted the Recovery Officer to attach in its application dated 21.9.2015 but the DRT had refused to attach any of those properties and, therefore, same relief could not have been claimed by the CDs and given by the Recovery Officer to the Bank applying the principles of res judicata.

I find this justification given by the learned Counsel for respondents/CDs for challenging the attachment order straightaway in appeal to be hardly convincing at all.

The submissions made and the justifications given by the learned Counsel for the respondents/CDs appear to have been made in ignorance of the legal position regarding attachment of properties of any certificate debtor in execution proceedings and even the learned Presiding Officer also appears to be unaware of the legal procedure to be followed in execution proceedings by the Recovery Officers.

Recovery certificate issued by DRT in an O.A. is to be executed by the Recovery Officer in accordance with the procedure laid down in the Second and Third Schedules of the Income Tax Act as provided under Section 29 of the RDDBFI Act. As per the Second Schedule of the Income-Tax Act when the Recovery Officer receives a recovery certificate from the DRT a notice of demand has to be given to the CDs requiring them to pay the amount mentioned in the recovery certificate within fifteen days from the date of receipt of that notice. If the CDs do not make the payment within that period the Recovery Officer then can straightaway proceed to take further steps available in law to recover the money from the CDs. This demand notice undisputedly was received by the respondents/CDs. One of the steps which the Recovery Officer can take in case of default of payment on receipt of demand notice is to attach the properties which the CH seeks to be attached. There is no provision of law either under the RDDBFI Act or under the Second and Third Schedules of the Income-Tax Act which requires the Recovery Officer to issue a show cause notice to anyone inviting objections against the proposed attachment action nor was any such requirement brought to my notice by the learned Counsel for the respondents/CDs. Therefore, the grievance of the respondents raised before the DRT in their appeals against the attachment order of the Recovery Officer was meritless and equally unsustainable in the view taken by the learned Presiding Officer of DRT that the Recovery Officer should have given opportunity to the CDs to come forward with objections against the proposed attachment of the properties which the CH Bank claimed to be belonging to the deceased CD Shri C.L. Verma, who had been held liable by the DRT in the O.A. as a guarantor of defendant No. 1 Company in the O.A. In fact, the learned DRT very conveniently ignored the fact that the respondents/CDs had in any case been afforded due opportunity by the Recovery Officer even before passing the attachment order, though not required to be given, to respond to the application moved by the Bank on 21.9.2015 for the attachment of the properties which belonged to the deceased guarantor Shri C.L. Verma and that prayer was based on the admissions of his legal heirs made in a partition suit filed by some of them in High Court claiming that the deceased had left behind those properties (which were sought to be attached). The respondents however did not avail of that opportunity and instead rushed to the DRT and that too with a wrong plea that the Recovery Officer had passed an ex-parte order of attachment against the principles of natural justice when in fact it was passed in the presence of the Counsel for the respondents and that is also evident from their own assertion in this appeal also that on 4.11.2015 time was sought by the proxy Counsel for filing of reply to attachment application which request was rejected and so it could not be claimed in any case in appeal by them that attachment order was passed ex-parte, though it has to be passed ex-parte only. All the grounds which were urged by the respondents before the DRT in appeal and which have rightly been not gone into by the learned Presiding Officer, could have been urged before the Recovery Officer only at first instance by filing objections to the attachment order instead of raising the grievance that they should have been heard before passing of the attachment order by the Recovery Officer.

The only opportunity of hearing which anyone aggrieved by the attachment order of Recovery Officer can ask for is after attachment order is passed and it comes to the knowledge of the person aggrieved and some objections are raised against the attachment. If objections are filed after attachment the Recovery Officer then, of course, is obliged to investigate the objections and during the investigation period he may keep further proceedings for putting the attached properties to sale in abeyance. In fact, even that he may not do if he is satisfied that the objections were designedly and unnecessarily delayed. This is so provided under Rule 11 of the Second Schedule of the Income Tax Act. Thus, the reason given by the learned Presiding Officer of DRT for setting aside the order of attachment passed by the Recovery Officer that it was liable to be set aside since it had been passed without hearing the CDs is not sustainable at all. The theory propounded by the learned Presiding Officer that the Recovery Officer should have carried out investigation before ordering attachment of properties in execution proceedings is unknown in law.

The CDs instead of rushing to the Appellate Court immediately on the passing of the attachment order could have filed objections, if at all they had any, against the attachment of the properties which the Bank was claiming to have been left behind by the deceased guarantor Shri C.L. Verma. The learned Presiding Officer of DRT instead of dismissing the appeals on the ground that they had failed to object to the attachment order before the Recovery Officer himself got persuaded into accepting an argument of the CDs which had no substance at all and any legal foundation. He has set a new procedure to be followed by Recovery Officers which would mean they will have to carry out initial investigation immediately on receiving a recovery certificate and before ordering attachment of properties of CDs a speaking order should be passed and after an ex-parte investigation another investigation will have to be carried out if someone comes forward with an objection after attachment order and then another speaking order has to follow. This view taken by the DRT therefore being alien to law needs to be rejected so that the Recover Officers do not start treading on a wrong path suggested by the learned Presiding Officer.

It was submitted by the learned Counsel for the respondents that no prejudice has been caused to the Bank by the order of remand passed by the DRT since while remanding the matter to the Recovery Officer for passing a fresh order and in case attachment order is to be passed again after hearing the CDs a speaking order should be passed and till a fresh decision is taken status quo in respect of the attached properties was also ordered to be maintained which direction duly protects the interests of the appellant Bank and, therefore, there was really no necessity of filing this appeal against the impugned order.

There is no doubt that the learned DRT has passed an order of status quo also in respect of the properties which the appellant Bank is wanting to be attached and that takes care of the interests of the Bank but for this reason alone the impugned order cannot be sustained which is based on a totally faulty, if not perverse, reasoning and if it is sustained by this Tribunal that will set a bad precedent for the Recovery Officers who are bound to follow the path shown to them by the DRT. The result of above discussion is that these appeals succeed and the impugned order dated 7.1.2016 passed by the DRT is set aside.