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2009 Supreme(Bom) 1405
High Court of Judicature at Bombay
THE HONOURABLE MR. JUSTICE F.I. REBELLO & THE HONOURABLE MR. JUSTICE D.G. KARNIK
Hill Properties Ltd.
Versus
Union Bank of India & Others
Notice of Motion No.2332 of 2007 in Suit No.1627 of 2007 with Notice of Motion No.2983 of 2007 in Suit No.1627 of 2007
Decided on : 16-10-2009
For the Plaintiffs:M.S. Doctor and Nimay Dave i/b. Bachubhai Munim & Co., Advocates.
For the Defendants:D9, V.R. Dhond with Vinod Kothari i/b. Apex Law Partners, D3 & D5, P.C. Mankad with Pravin D. Kadam, D7, Avinash Joshi with Vipul Bilve and K. Tamhane i/b. Mulla & Mulla, Advocates.
The jurisdiction of the Civil Court is not barred in matters pertaining to third party claims regarding attachment or sale of property in execution of a recovery certificate issued under the RDB Act. A third party whose claim to the property is rejected by the Recovery Officer may institute a suit in the Civil Court to establish his right to the property.
Headnote:
RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 - JURISDICTION - CIVIL COURT - THIRD PARTY CLAIM - SUIT IN CIVIL COURT - BAR OF JURISDICTION - SECTION 29 - SECOND SCHEDULE TO THE INCOME TAX ACT, 1961 - RULE 11(6) - APPLICABILITY - INTERPRETATION.
Fact of the Case:
The plaintiffs filed a suit in the Civil Court challenging the sale of plant and machinery in execution of a recovery certificate issued by the Debt Recovery Tribunal (DRT) and orders passed by the DRT and the Appellate Tribunal. The defendant, Union Bank of India, contended that the suit was barred as the jurisdiction of the Civil Court was expressly or impliedly excluded by the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).
Finding of the Court:
The Court held that the jurisdiction of the Civil Court was not expressly or impliedly barred in matters pertaining to third party claims regarding attachment or sale of property in execution of a recovery certificate issued under the RDB Act. The Court interpreted Section 29 of the RDB Act, which incorporates the provisions of the Second Schedule to the Income Tax Act, 1961, and Rule 11(6) thereof, to mean that a third party whose claim to the property is rejected by the Recovery Officer may institute a suit in the Civil Court to establish his right to the property.
Issues: 1. Whether the jurisdiction of the Civil Court is barred in matters pertaining to third party claims regarding attachment or sale of property in execution of a recovery certificate issued under the RDB Act? 2. Whether Section 29 of the RDB Act, which incorporates the provisions of the Second Schedule to the Income Tax Act, 1961, and Rule 11(6) thereof, ousts the jurisdiction of the Civil Court in such matters?
Ratio Decidendi: The Court held that the RDB Act provides a self-contained Code for adjudication and recovery of debts due to banks and financial institutions, and that the jurisdiction of the Tribunals constituted under the Act is exclusive in matters of adjudication and recovery. However, the Court also held that the jurisdiction of the Civil Court is not barred in matters pertaining to third party claims regarding attachment or sale of property in execution of a recovery certificate issued under the RDB Act. The Court interpreted Section 29 of the RDB Act, which incorporates the provisions of the Second Schedule to the Income Tax Act, 1961, and Rule 11(6) thereof, to mean that a third party whose claim to the property is rejected by the Recovery Officer may institute a suit in the Civil Court to establish his right to the property.
Final Decision: The Court answered the questions referred to it as follows: (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 a 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 answered with a clarification. Section 29 incorporates Schedule II of I.T. Act into the R.D.B. 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) In so far 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 provision is attracted. (iv) The questions as referred are accordingly answered.
Ferdino I. Rebello, J.
A learned single Judge of this Court noticing an apparent conflict with the views taken in Keshrimal J. Shah vs. Bank of India, 2004 (4) Bom. C.R. 842, the judgment in Dr. Anil Nandkishor Tibrewala vs. Jammu & Kashmir Bank Ltd., & Ors., in Writ Petition No.1684 of 2006 decided on 11th July, 2006 on the one hand, and the view taken in Sarvadaman M. Joshi & Ors. vs. The Recovery Officer & Ors., Writ Petition No. 5405 of 2005, accordingly directed the Registry to place the matter before the learned Chief Justice under Rule 28 of the Rules of the High Court of Judicature, Bombay, Original Side, for consideration by a Larger Bench. The questions referred are:-
1. Whether in view of the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 read with Rules 11(1) and 11(6) of the, Second Schedule of the Income Tax Act, 1961 a person against whom an order is passed is entitled to institute a suit in a civil Court, or whether the said order can only be challenged by way of an Appeal under Section 30 of the Act?
2. Whether the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are only restricted to those cases in which the property of the judgment debtor is sought to be recovered in terms of Rule (4) of the second schedule of the Income Tax Act, 1961?
3. What is the remedy available to a party, who is not a party in proceedings before the Debts Recovery Tribunal, but, whose property has been declared by the Tribunal to be validly mortgaged in favour of a financial institution?
2. The main question which we are called upon to answer is whether in fact there is a conflict in the views taken in the judgments referred to.
3. We may firstly refer to the judgment in Keshrimal J. Shah (supra). Bank of Maharashtra had filed a suit in this Court which on coming into force of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the RDB Act) was transferred to the Tribunal constituted under the RDB Act. The Original Application was decreed exparte and in consequence thereof a recovery certificate was issued by the Tribunal. The bank had earlier obtained a temporary injunction restraining the original defendant from alienating or transferring the immovable property. Inspite of the injunction, the respondent No.2 therein transferred the rights in favour of the petitioner No.2 therein which document was registered on 29th August, 2000. It was the case of the petitioners that on coming to know on 8th October, 2000 that the property was put up for auction by Recovery Officer of D.R.T. II, Mumbai, they moved an Application for intervention which was heard by the Recovery Officer and rejected. An appeal was preferred which was dismissed. The petitioners preferred Misc. Appeal before the Debt Recovery Appellate Tribunal (DRAT). That appeal was dismissed. Against that order a Writ Petition came to be filed before this Court. The learned Judge took a view that the transfer was void being in contravention of the order of injunction dated 6th March, 1998 and also that the petitioners had failed to substantiate by proof, that they are bonafide purchasers without notice. This order was challenged before the Appellate Bench of this Court. This Court framed two questions for consideration, which were:-
“(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).”
The learned Bench answered the 1st question in the affirmative and thereafter went on to proceed to answer the second question. In answering the second question this is what
