2016 (4) TMI 267 - HC - Indian Laws

Court affirms auction legality, tax compliance, RBI guidelines in Recovery Officer case, denies writ petition.

The court upheld the lower authorities' decisions in a case involving the legality of a Recovery Officer's actions during an auction process, compliance ... Challenge to sale of immovable property in recovery proceedings - application under rules 60 and 61 of the Second Schedule to the Income tax Act, 1961 - adjournment of sale and requirement of fresh proclamation under rule 15(2) - confirmation of sale and rule 63 read with rule 56 (public auction) - one time settlement (OTS) vis a vis RBI guidelines and Article 14 - writ jurisdiction under Article 226 and doctrine of clean handsChallenge to sale of immovable property in recovery proceedings - application under rules 60 and 61 of the Second Schedule to the Income tax Act, 1961 - Whether the Petitioners could indirectly attack the confirmed sale before the High Court without first invoking rules 60/61 and depositing the amounts required thereunder - HELD THAT: - The Court held that the Petitioners never challenged the sale before the Recovery Officer and did not invoke rules 60 or 61, nor deposit the decretal amount as required under those provisions. Rules 60 and 61 mandate that an application to set aside a sale be accompanied by deposit of the amount specified in the proclamation (and penalty in rule 60) or otherwise satisfy the Recovery Officer; absent such compliance a defaulter cannot be permitted to challenge the sale in collateral proceedings. The Petitioners had consistently limited their challenge to deferment of confirmation rather than a setting aside of the sale, and elected not to pursue the statutory remedies because they did not intend to deposit the decretal amount. The Court declined to permit an indirect attack on the sale in writ jurisdiction in contravention of the mandatory scheme of rules 60/61. [Paras 21, 22, 23, 24, 25]Petitioners not entitled to challenge the sale without complying with rules 60/61; indirect attack dismissed.Adjournment of sale and requirement of fresh proclamation under rule 15(2) - tender under rule 15(3) - Whether the Recovery Officer's conduct in adjourning the auction and not issuing a fresh proclamation under rule 15(2) vitiated the sale - HELD THAT: - The Court found that the objection under rule 15(2) was not raised before the lower authorities and was urged for the first time in the writ petition. On merits, the record (roznama) showed that when bids were opened no copy of the Industrial Court injunction was placed before the Recovery Officer and the officer properly recorded reasons for opening bids while keeping the highest bid for consideration. Further, sub rule (3) provides that a sale shall be stopped if arrears and costs are tendered before knock down; the Petitioners never tendered the decretal amount. Given the absence of deposit/tender and the factual finding that the injunction order was not produced, reliance on rule 15(2) did not vitiate the sale. [Paras 17, 18, 19, 20, 21]No infirmity in not issuing a fresh proclamation; rule 15(2) objection is untenable in the facts.Confirmation of sale and rule 63 read with rule 56 (public auction) - Whether confirmation of the auction sale by the Recovery Officer was erroneous when an OTS was purportedly communicated on the date of confirmation - HELD THAT: - The Court noted that rule 56 contemplates sale by public auction to the highest bidder and confirmation is governed by rule 63 which requires confirmation where no application under rules 60-62 is made or where such application is disallowed and the purchase money has been paid. The record established that the application for deferment was filed after the sale had already been confirmed and that the purchase money had been paid by the auction purchaser. No application to set aside the sale had been prosecuted under the relevant rules. In these circumstances the Recovery Officer was entitled to confirm the sale. The factual finding that the OTS payment was not deposited was also material. [Paras 26]Confirmation of sale was valid; no error in Recovery Officer confirming the sale.Opening of bids despite interim order - procedure when injunction order not placed before Tax Recovery Officer - Whether the Recovery Officer acted illegally in opening bids on the auction date when an injunction of the Industrial Court existed - HELD THAT: - The Court observed that the roznama records that a copy of the Industrial Court order was not produced to the Recovery Officer on the date bids were opened. The Recovery Officer recorded that in absence of an order before him and in public interest he opened the bids and kept the highest bid for consideration, expressly deferring final acceptance until the order could be inspected. The bids were accepted only after the injunction was vacated. Given these findings, the Recovery Officer's actions did not contravene the injunction and were not illegal or vitiating. [Paras 6, 17]Opening of bids was not illegal; no interference warranted.One time settlement (OTS) vis a vis RBI guidelines and Article 14 - Whether the OTS sanctioned by the Bank (and its communication) contravened the RBI guidelines of 3rd September 2005 or violated Article 14 - HELD THAT: - The Court accepted the factual finding of the authorities below that the OTS was sanctioned on 16th September 2005 and that Petitioner No.2 was informed telephonically on that date by the Bank's Deputy General Manager that payment was to be made by 20th September 2005; the formal letter was sent later as it awaited signatory approval. The Court noted the Bank had previously attempted settlements with the Petitioners and that the Petitioners did not deposit the OTS amount despite subsequent opportunities (including an interim DRAT order). The RBI guideline did not mandate indefinite extension of OTS benefits where the debtor had repeatedly defaulted, and the Bank's conduct was not shown to be arbitrary or violative of Article 14 in the circumstances. The factual findings were not shown to be perverse. [Paras 12, 27, 30, 31]OTS and its communication did not violate RBI guidelines or Article 14; no relief to compel Bank to accept OTS amount.Writ jurisdiction under Article 226 and doctrine of clean hands - Whether the High Court should exercise discretionary writ jurisdiction to grant relief in favour of the Petitioners - HELD THAT: - The Court reiterated that exercise of extraordinary writ jurisdiction under Article 226 is discretionary and requires the petitioner to come with clean hands and show that justice lies on his side. Applying this principle to the facts, the Court found that Petitioners had not acted with the requisite good faith (repeated defaults, failure to pursue statutory remedies requiring deposit, non compliance despite interim orders) and thus equity did not favour interfering with the orders of the recovery fora. The Petitioners' attempt to obtain monetary compensation from a private auction purchaser by writ was also unsustainable. [Paras 32, 33, 34]Discretionary writ relief refused; Petitioners not entitled to interference under Article 226 and claim for damages against private purchaser dismissed.Final Conclusion: Writ petition dismissed. The High Court upheld the orders of the Recovery Officer, DRT and DRAT: the confirmed auction sale was valid; the Petitioners could not challenge the sale without complying with rules 60/61; objections under rule 15 and alleged OTS/RBI violations were without merit on the facts; discretionary relief under Article 226 was denied and parties to bear their own costs. Issues Involved:1. Legality of the Recovery Officer's actions during the auction process.2. Compliance with Rule 15(2) of the Second Schedule to the Income Tax Act, 1961.3. Validity of the confirmation of sale under Rule 56 of the Second Schedule to the Income Tax Act, 1961.4. Conformity of the One Time Settlement (OTS) with RBI guidelines.5. Petitioners' entitlement to monetary compensation.Detailed Analysis:1. Legality of the Recovery Officer's Actions During the Auction Process:The Petitioners argued that the Recovery Officer could not have opened the bids for the sale of the mortgaged property on 27th June 2005 due to an existing stay order from the Industrial Court. This argument was not raised before the DRT or the DRAT and was introduced for the first time in the Writ Petition. The court rejected this argument, noting that the Recovery Officer did not have a copy of the stay order on the auction date. The Recovery Officer proceeded to open the bids but deferred acceptance until the stay was vacated. The court found no merit in the Petitioners' argument.2. Compliance with Rule 15(2) of the Second Schedule to the Income Tax Act, 1961:The Petitioners contended that the sale was vitiated because the Recovery Officer did not issue a fresh proclamation of sale after adjourning the auction for more than a month. This argument was also not raised before the lower authorities. The court noted that the Petitioners did not challenge the sale of the mortgaged property before the authorities below. Instead, they only sought deferment of the confirmation of sale. The court emphasized that rules 60 and 61 of the Second Schedule to the Income Tax Act require a defaulter to deposit the decretal amount before challenging the sale, which the Petitioners did not do. Thus, the court found no substance in this argument.3. Validity of the Confirmation of Sale Under Rule 56 of the Second Schedule to the Income Tax Act, 1961:The Petitioners argued that the Recovery Officer erred in confirming the sale under Rule 56. The court clarified that Rule 56 deals with the public auction process, while Rule 63 pertains to the confirmation of sale. The authorities below found that the application for deferment was filed after the sale was confirmed. The court noted that the Petitioners never filed an application to set aside the sale under rules 60 or 61. The court found no fault in the Recovery Officer's actions and rejected this argument.4. Conformity of the One Time Settlement (OTS) with RBI Guidelines:The Petitioners claimed that the OTS sanctioned by the Respondent Bank was contrary to RBI guidelines. They argued that the OTS, which required payment by 20th September 2005, was communicated to them only on 21st September 2005, making compliance impossible. The court noted that the authorities below found that the OTS was communicated to Petitioner No.2 on his mobile phone on 16th September 2005. The Petitioners did not deposit the OTS amount even after being given additional time by the DRAT. The court found no violation of RBI guidelines and rejected this argument.5. Petitioners' Entitlement to Monetary Compensation:The Petitioners sought monetary compensation of Rs. 73 crores from Respondent No.2. The court found no basis for issuing a writ against a private party for damages. The court emphasized that the Petitioners did not approach the court with clean hands and had suppressed material facts. The court concluded that justice did not lie on the Petitioners' side and dismissed the Writ Petition.Conclusion:The court found no merit in the Petitioners' arguments and upheld the orders of the authorities below. The Writ Petition was dismissed, and the rule was discharged. The court left the parties to bear their own costs.