The Recovery Officer is not entitled to adjudicate unadjudicated claims and adjust the balance proceeds for satisfaction of such claims. Rule 8 of Schedule II does not apply to recovery proceedings under the RDDB Act.

S.J. Vazifdar, J.

1. The petitioner has challenged the order dated 10th September, 2013 passed by the Debt Recovery Appellate Tribunal and sought a declaration that it is entitled to commission at the rate of 3% of the value of the guarantees issued by it in favour of the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons.

2. Respondent Nos.2 and 3 are M/s. Manish Estate Private Limited and M/s. Shah Diagnostics Institute Private Limited Respondent Nos.4 to 7 (in the title through inadvertence two respondents have been arrayed as respondent No.4) are individuals who had guaranteed the amounts due and payable by respondent No.3 to the petitioner. Respondent No.2 was the owner of an immovable property in Mumbai. The property was mortgaged with the petitioner as security for repayment of the facilities sanctioned by the petitioner to respondent No.3. Respondent No.3 is the sister concern of respondent No.2.

3. The question of law raised by the petitioner admits of no difficulty. The question, if answered in the petitioner's favour, would have the most alarming effect on the provisions of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "RDDB Act") and, in turn, on the provisions of the Income Tax Act, 1961. We have, therefore, dealt with the issue in detail.

4. It would be useful to preface the judgment with a summary.

(A) The petitioner's O.A. was allowed in the sum of Rs.1.67 crores. The petitioner initiated recovery proceedings. A party, in whose favour an award was passed, instituted execution proceedings. The property in question was sold by the Debts Recovery Tribunal, pursuant to orders in the execution proceedings. The recovery certificate and the award stood satisfied from the sale proceedings, leaving a balance of about Rs.42 crores. The petitioner then made an application for payment of amounts allegedly due to it as commission for guarantees issued by it at the respondents request from out of the balance sale proceeds. This claim, which was denied by the respondents, had not been adjudicated upon by any Court, Tribunal or authority. Nor had the petitioner filed any proceedings to have it adjudicated. The respondents, therefore, contended that the Recovery Officer is not entitled to adjudicate claims in execution/recovery proceedings.

(B) The question that falls for consideration in this petition is whether under the RDDB Act, the Recovery Officer is entitled to utilize the balance proceeds from the sale of a property in execution of a recovery certificate towards the satisfaction of any unadjudicated claim of any party, including of the holder of the recovery certificate. The question, in other words, is whether the Recovery Officer is entitled to adjudicate the unadjudicated claims himself in the recovery/execution proceedings and to utilize the balance amounts to satisfy the claims so adjudicated by him.

(C) Section 29 of the RDDB Act makes the provisions of the Second Schedule to the Income Tax Act applicable as far as possible and with necessary modifications. Rule 8 of the Second Schedule deals with the power of the Tax Recovery Officer (TRO) regarding the disposal of proceeds from the sale of the assessee's assets. The petitioner contends that once there is a recovery certificate before him, the TRO is entitled to utilize the balance sale proceeds for the satisfaction of any other claim of the Revenue i.e. claims other than those arising from the recovery certificate as also the claims of third parties even if such claims have not been assessed or adjudicated upon. For this purpose, the TRO is himself entitled to adjudicate upon such claims.

We have answered the question in the negative, against the petitioner.

5(A). In the year 1990, National Bank for Agriculture And Rural Development (NABARD) filed Suit No.1495 of 1989 against M/s. Shah Thakur and Sons for specific performance of an agreement which involved the construction o