RECOVERY OFFICER MUST DECIDE THIRD-PARTY OBJECTION UNDER RULE 43 OF INCOME TAX (CERTIFICATE PROCEEDINGS), RULES 1962 BEFORE APPOINTING COMMISSIONER FOR POSSESSION

In Mr. S.N. Ganapathy Versus Recovery Officer, Debts Recovery Officer, Madurai, Indian Overseas Bank, Mr. S. Balasubramanian and Mr. N.K.S.D. Subramanian - 2026 (10) TMI 706 - THE DEBTS RECOVERY TRIBUNAL, MADURAI, the appellant filed the present appeal before the DRT, Madurai, under Section 30(1) of the Recovery of Debts and Bankruptcy Act, 1993. The appellant prayed to quash the order passed by the Recovery Officer, in M.A.200 of 2023 in R.P. No.43/2007 in TRC No 28/2003, dated 20.02.2024.

The appellant submitted the following before the DRT-

• The properties of Mr. Dharmalinga Mudaliar alone was attached and the sale certificate was issued to the 3^rd respondent herein in respect of Door No. 148, 149 alone. The Door No. 148, 149 is corresponding to Old Door No. 63H/9, 630/9. In the sale certificate, Old Door was wrongly shown as 63T, instead of 63H/9, 63O/9. The four boundaries were also wrongly mentioned in the sale certificate.
• Rule 39 of the Income-tax (Certificate Proceedings) Rules, 1962 deals with the delivery of immovable property in occupation of defaulter or of some person on his behalf or of some person claiming under a title created by the defaulter subsequent to the attachment of the property.
• The 1^st respondent has no jurisdiction to pass the present impugned order to evict the appellant from his dwelling house, since the appellant is neither a borrower nor a guarantor and having no nexus with the loan availed by the 4^th respondent.
• As per rule 43 of the ITCP Rules, the 1st respondent ought to have passed orders on the appellant’s application, before passing the impugned order. Whereas, the 1^st respondent has returned the appellant’s application as not maintainable.
• the 1st respondent ought to have heard the appellant’s objection, before passing the impugned order.
• As per the partition deed dated 01.12.1960, Old Door No. 63T had been allotted to the appellant’s father Mr. N.K.S. Nataraja Mudaliar’s share. The 3^rd respondent herein has no right over the property allotted to the appellant’s father.
• The 3^rd respondent has intended to block the pathway of the appellant’s residence and grab the appellant’s property.

The second respondent submitted the following before the DRT-

• The 4^th respondent herein had availed various credit facility and they had failed to repay the same.
• The 2^nd respondent bank had initiated recovery proceedings before the Tribunal and the subject property was put for public auction by the Tribunal.
• The 3^rd respondent herein had purchased the property and Sale certificate was issued in the name of the petitioner and sale certificate was also registered in favour of him.

• As per the directions of High Court, Chennai the Tribunal had appointed advocate commissioner for taking physical possession of the property sold to the petitioner.
• The advocate commissioner had failed to take the physical possession of the entire extent and only a part of the property was handed over to the petitioner.
• Another advocate commissioner was appointed by the 1^st respondent by order dated 20.02.2024 to take physical possession of the remaining property.
• There was certain dispute between the petitioner and the occupier of the premises, 3^rd respondent and several round of litigation before High court was made among them where bank is not a party to those proceedings.
• There was certain dispute between the petitioner and the occupier of the premises, 3^rd respondent and several round of litigation before High court was made among them where bank is not a party to those proceedings. The present applicant is not a party to the said proceedings. Therefore, the present appeal filed by the appellant is not maintainable
• The 4^th defendant is a defaulter and bank had initiated proceedings to recover the loan outstanding. The 3^rd respondent is the auction purchaser and the 1st respondent had conducted the sale. The bank had sold the secured asset by following the procedures to the 3^rd respondent. The order in O.A 467 of 2001 was passed by DRT Chennai and the appellant is aware of the proceedings. They had not made any attempt to challenge those proceedings and subject mentioned property is the secured asset of the bank. The 4^th defendant is a defaulter and bank had initiated proceedings to recover the loan outstanding. It is collusive attempt of the family members to defray the interest of the bank.

The third respondent submitted the following before the DRT-

• Being the successful bidder in the public auction conducted by the DRT-II, Chennai on 18.11.2005, the recovery Certificate was issued with reference to 19 properties of the 4th respondent herein. The sale certificate was issued in his name with reference to the above 10th of the property. The said Sale certificate was registered with the SRO, Sankarankoil on 19.01.2006. Since the physical possession was not handed over to 3^rd respondent.
• He filed a writ petition before the High Court which directed the Debts Recovery Tribunal to intervene in the matter and see that the petitioner’s grievance is redressed within a period of one month from the date of receipt of a copy of this order.
• One Advocate was appointed as Advocate Commissioner to take physical possession of the subject matter of the property and handed over to the same and the Advocate had taken half of the property and handed over.
• The remaining property was occupied by a tenant and the said tenant took time for vacating the premises. Hence the said Advocate commissioner abandoned his commission work and the remaining property was not taken possession and handed over to 3^rd respondent.
• Another Advocate Commissioner was appointed to recover the remaining property.
• In the meantime, a criminal case was registered against the 3^rd respondent.
•  Since the application made by the IOB, Sankarankoil for recovery of amount from Anusooya Cotton Mills based on the mortgage created by the Anusooya Cotton Mill. The Recovery Officer, Chennai after making debt recovery certificate against the said mills, passed an order to attach all of its properties including the present subject matter of the property through an order dated 28.11.2003.
• After the above attachment order, a public auction was held and he became the successful bidder and purchased the subject matter of the property and the sale certificate dated 02.01.2006 was also issued in favour of him and he is the absolute owner.
• The appellant had not taken any steps to set-aside the sale in my favour in the year 2006. Without setting aside the court auction sale, the present appeal is not at all maintainable.

The 4^th respondent submitted the following before DRT-

• The property in Survey No. 264/2 and other properties originally belong to the 4^th respondent’s grandfather Mr. N.K.S. Subbiah Mudaliar. His sons, vide unregistered partition deed dated 01.12.1960 had partitioned the above properties. As per the said partition deed, 1st schedule comprised of Old Door No. 63-A/9, 63-H/9, 63-O/9, 63-I/9 corresponding to New Door No. 148, 149, 150 had been allotted to the 4th respondent’s father Mr. Late N.K.S. Dharmalinga Mudaliar.
• The 2nd schedule comprised of Old Door No. 63T/9, corresponding to Door No. 152, 152A, 125B, 152C had been allotted to the appellant’s father Mr. Late N.K.S. Nataraja Mudaliar’s share.
• After the demise of the 4^th respondent’s father Mr. N.K.S. Dharmalinga Mudaliar, the 4th respondent and his brothers started a business in the name and style of Anooshya Cotton Mills and they availed loan from the 2^nd respondent Bank by pledging the 1st schedule of properties in the partition deed dated 01.12.1960. Since they committed default in repayment, the 2^nd  respondent bank had filed O.A. No. 467 of 2001 before the DRT – II, Chennai and the same was allowed.
• On 18.11.2005, the Recovery Officer, DRT II, Chennai had conducted public auction and the 3^rd respondent had purchased the property in Door No. 148, 149, (Old Door No. 63T) comprised in Survey No. 264/2. The Old Door Number was wrongly shown as 63T, instead of 63H/9, 630/9. The sale certificate was also issued in favour of the 3rd respondent.
• The 3^rd respondent has taken the physical possession of Door No. 148 and 149. He had also sold the said property to the third parties vide two registered sale deeds dated 29.10.2009 bearing Document No. 3780 and 3781. However, the 3^rd respondent has filed M.A. No. 200 of 2023 before the 1^st respondent herein after a lapse of more than 16 years for taking possession without mentioning the schedule of property.

The DRT considered the submissions of all the parties to the appeal. The DRT analysed the facts of the entire case. The DRT also analysed the Rule 43 of Income Tax Certificate proceedings. The DRT observed that the certificate clearly mentioned that where the Tax Recovery Officer is satisfied that the resistance or obstruction was occasioned by any person (other than the defaulter) claiming in good faith to be in possession of the property on his own account or on account of some person other than the defaulter, the Tax Recovery Officer shall make an order dismissing the application.

The DRT found merit on the arguments of the appellants. Accordingly, DRT set aside the order dated 20.02.2024 directed the Recovery Officer to decide the application according to law, if filed by the appellant and thereafter only he can proceed for taking physical possession of the property.