O R D E R

The auction notice dated 12.01.2015 issued by the first respondent is sought to be quashed in the present Writ Petition. The petitioner is the Indian Overseas Bank and it states that the second respondent and its group have availed various credit facilities and as security had mortgaged the schedule mentioned property among other properties by way of Equitable Mortgage on 12.01.2011 by deposit of title deeds at Indian Overseas Bank, Villupuram Branch being a notified town and also executed a registered Memorandum of Deposit of Title Deeds dated 07.02.2011 bearing D.No.455 of 2011 in the office of Sub-Registrar, Villupuram. The petitioner states that they are the secured creditors and therefore, they hold priority over the charge. The second respondent had defaulted in payment of loan dues and consequently, the petitioner Bank initiated action against the second respondent by issuing a demand notice on 10.11.2014 under Section 13(2) of the SARFAESI Act. While so, the petitioner Bank received an information on 22.01.2015 through the second respondent that the schedule property is sought to be brought for auction sale by the first respondent Commercial Tax Department for the arrears of tax dues payable by the second respondent to the first respondent and further provided a copy of the impugned auction sale notice dated 12.01.2015. Immediately, the petitioner sent a legal notice to the first respondent on 29.01.2015 stating that they are the secured creditors and hold first charge over the property. Thereafter, the Writ Petition is filed to quash the auction. However, the first respondent sent a reply to the legal notice also.

2. The issue of priority over the charge with reference to various enactments are elaborately considered by this Court and judgment was delivered on 19.07.2021 in W.P. No. 15437 of 2014. In the said writ petition, the priority over charge claimed by the Income Tax Department was considered. Thus, it is useful to extract the relevant paragraphs of the said judgment.

“30.Let us now consider the scope of Section 281 of the Income Tax Act. Chapter XXIII Section 281 of the Income Tax Act contemplates certain transfers to be void. Sub~clause (1) enumerates that where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise“. A close reading of the above provision would reveal that where during the pendency of any proceedings under this Act or after the completion thereof, but before service of notice under rule 2 of the Second Schedule, if any charge is created by an assessee in favour of any other person shall be void as against any claim in respect of any tax or any other some payable by the assessee. Therefore, it is unambiguous that, during pendency of the proceedings if any charge is created, then such charge created by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever shall be void.

31.Schedule II Rule 11 of the Income Tax Act which contemplates investigation by Tax Recovery Officer. Sub~Clause (1) to Rule 11 states that “where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection“.

32.Sub~clauses (5) and (6) to Rule 11 of the Income Tax Act reads as under:

(5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaul