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High Court of Judicature at Madras
MR. SANJAY KISHAN KAUL, M. SATHYANARAYANAN, JJ.
Maan Saravoar Properties Development Pvt. Ltd., rep. by its Director, Besant Nagar Extension
Versus
Union of India, rep. by its Joint Secretary, Ministry of Finance, Department of Economic Affairs, New Delhi & Others
W.P.No. 25685 of 2014
Decided On: 23-09-2014
Income Tax Act, 1961 - RDDB & FI Act - Section 29 - Mortgage of immovable property - Debt Recovery - Recovery Certificate - This was in view of fact that writ petition bearing was preferred before this Court challenging proclamation of sale and vide order this Court permitted auction sale but confirmation was subject to final disposal of writ petition - Writ petition was disposed of permitting Bank to appropriate dues but with leave for moving Recovery Officer Debt Recovery Tribunal to set aside auction to petitioner therein in accordance with law - Proceedings initiated thereafter before Debts Recovery Tribunal seeking setting aside of sale auction resulted in order - A perusal of this order shows that petitioner herein and other defendants sought to plead they have remitted entire amount due to certificate holder bank before expiry of days so as to seek setting aside of sale - This amount was stated to have been deposited as per Rule 60(1) including under sub-clause(b) of second Schedule of Income Tax Act, 1961 - But that sub-Rule actually was not applicable to present case under Recovery of Debts Due to Banks and Financial Institutions Act in view of observations of Hobble Supreme Court - Finding on this aspect was however arrived at against petitioner but since total amount had been paid auction sale was set aside - Prayer for refund was however rejected being penalty amount and only some excess amount was directed to be remitted to petitioner – Held, In terms of aforesaid Section provisions of Second and Third Schedules to Income Tax Act, 1961 have been made applicable as far as possible with necessary modifications - In this context Hobble Supreme Court observed that this was to take care of situations where certain provisions under Income Tax Rule may have no application on account of scheme under RDDB & FI Act being different from that of Income Tax Act or Rules framed there under - They are attracted only in so far as same deal with recovery of debts under RDDB & FI Act, and thus modification is that amount of debt referred to in Rules is deemed to be one under RDDB & FI Act – Thus such Rules would be applicable which have a role to play in matter of recovery of debts under RDDB & FI Act, and not as if there is a discretion vested in Recovery Officer to apply said Rules or not to apply same in specific factual situations - Hobble Supreme Court further held that use of words as far as possible may be indicative of a certain inbuilt flexibility scope of that flexibility extends only to what is not at all practicable - Thus for a Rule not to apply it would have been to be proved that application of that Rule was not at all practicable in context of RDDB & FI Act - This was in context of observations - Court fail to appreciate how this judgment comes to aid of petitioner - It cannot be said that application of Rules is impracticable - Applicability of Rules infect gives an opportunity to holder of property to still evade consequences of an auction sale even though somebody may have bid for it validly and that auction was direct result of failure to clear dues - That is reason why within stipulated period of days amount due which is sought to be recovered through sale has to be deposited apart from penalty - Penalty partakes of character of compensation to auction purchaser who has participated in bid and deposited amount - Auction purchaser does not make a bid for fun of it and it has financial consequences apart from loss of opportunity cost - It cannot be said that amount of such compensation would be undue enrichment for auction purchaser - In fact petitioner was quite conscious of this fact and thus deposited full amount – Petition dismissed
Sanjay Kishan Kaul, CJ.
The petitioner-company availed of a loan from the fifth respondent-State Bank of Travancore, but failed to maintain financial discipline resulting in filing of O.A.No.197 of 2010 before the Debt Recovery Tribunal by the Bank. The decision was rendered in favour of the fifth respondent-Bank on 17.10.2012 and a Recovery Certificate dated 29.04.2013 was issued for recovery of Rs.4,53,98,125.57/- as on 23.05.2013 along with interest, costs charges and expenses. The defendants in the proceedings still failed to pay the amount.
2. It appears that the loan was secured by mortgage of immovable property with structures thereon located at Lake Road, Kodaikanal, Dindigul District, and thus a sale proclamation was issued on 20.11.2013 for sale of the property by E-auction on 30.12.2013. There was a single bid for Rs.7,00,50,000/-, which was accepted, subject to final confirmation.
3. This was in view of the fact that the writ petition bearing No.34591 of 2013 was preferred before this Court challenging the proclamation of sale and vide order dated 29.01.2014, this Court permitted the auction sale, but confirmation was subject to final disposal of the writ petition. The writ petition was disposed of on 29.1.2014 permitting the Bank to appropriate the dues, but with leave for moving the Recovery Officer, Debt Recovery Tribunal to set aside the auction to the petitioner therein, in accordance with law.
4. The proceedings initiated thereafter before the Debts Recovery Tribunal seeking setting aside of the sale auction resulted in order dated 24.03.2014. A perusal of this order shows that the petitioner herein and other defendants sought to plead they have remitted the entire amount due to the certificate holder bank before the expiry of 30 days so as to seek setting aside of the sale dated 30.12.2013. This amount was stated to have been deposited as per Rule 60(1) including under sub-clause(b) of the second Schedule of the Income Tax Act, 1961. But that sub-Rule actually was not applicable to the present case under the Recovery of Debts Due to Banks and Financial Institutions Act (in short RDDB & FI Act), in view of the observations of the Hon'ble Supreme Court in C.N. Paramasivam and another vs. Sunrise Plaza and others, 2013 (9) SCC 460. The finding on this aspect was however arrived at against the petitioner, but since the total amount had been paid, the auction sale was set aside. The prayer for refund of Rs.35,56,809.71/-, was however rejected, being the penalty amount, and only some excess amount was directed to be remitted to the petitioner.
5. We may note that this order appears not to have been assailed as the present writ petition has been filed only seeking a declaration that the applicability of Rule 60(1)(b) of the II Schedule of the Income Tax Act, 1961 to the RDDB & FI Act is arbitrary, unconstitutional and opposed to public policy.
6. In order to appreciate the plea of the learned counsel for the petitioner, we reproduce hereunder Rule 60 of the II Schedule to the Income Tax Act, 1961:-
“60(1) Where immovable property 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 sale as that for the recovery of which the sale was ordered, with interest thereoin 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.”
7. The submission of the learned counsel for the petitioner is that the RDDB & FI Act was enacted only to expeditiously adjudicate and recover the dues and does not provide for any penalty on the defaulting borrowers. The auction purchaser ca
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