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 ... Recovery proceedings - Auction sale - rejection of application for deferment of the confirmation of sale - Held that:- Immovable property sold in execution of a Recovery Certificate - Held that:- The bid of the highest bidder viz. IPCA Laboratories Ltd. (Respondent No.2) was kept for consideration whereas the other bids were returned. It was also made clear that the sale of the mortgaged property would be concluded only after seeing the order of the Industrial Court. Thereafter, the matter was adjourned to 1st July 2015. It is not in dispute that the bids were accepted by the Recovery Officer on 22nd August, 2005 which is after the date when the order of the injunction granted by the Industrial Court was vacated by it. In these facts, we are unable to agree with the submission of the Petitioners that the Recovery Officer's actions of opening the bids for sale of the mortgaged property was in the teeth of the stay order granted by the Industrial Court and therefore illegal and / or vitiated. As mentioned earlier, on the date when the bids were opened, a copy of the said order of the Industrial Court was not placed before the Recovery officer as is categorically recorded in the roznama. We therefore have no hesitation in rejecting this argument. Whether the sale of the mortgaged property was vitiated on the ground that the Recovery officer had not followed the mandatory provisions of rule 15(2) of Second Schedule to the Income Tax Act, 1961 which inter alia provides that when the sale is adjourned for a period of more than one month, then a fresh proclamation of sale is to be issued? - Held that:- The provisions of rules 60 and 61 are clear and unambiguous. In a nutshell, these rules provide that a defaulter is not allowed to challenge the sale of the immovable property sold in execution of a Recovery Certificate unless an application for setting aside the sale is preferred before the Recovery Officer and the amount sought to be recovered under the Recovery Certificate is deposited with the Recovery Officer. In the facts of the present case, as mentioned earlier, no such application was ever preferred by the Petitioners and no deposit has been made. The reason for the same is not far to see. It is because the Petitioners were aware that before their application to set aside the sale could be entertained by the Recovery Officer, they would be required to deposit the decretal amount. Since they had no intention to deposit the decretal amount, the Petitioners preferred not to challenge the sale of the mortgaged property but instead only made an application for deferment of the confirmation of sale. Having chosen this course of action all throughout, we cannot permit the Petitioners to place reliance on rule 15 and in an indirect fashion challenge the sale and give a complete go-by to the mandatory provisions of rules 60 and 61 of the Second Schedule to the Income Tax Act, 1961. If we were to accept the submissions of the Petitioners, it would effectively mean that the Petitioners are now allowed to challenge the sale of the mortgaged property without complying with the mandatory provisions of rules 60 and 61 and which sale was never challenged till the filing of this Writ Petition. In this view of the matter, we find absolutely no substance Whether Recovery Officer erred in confirming the sale of the mortgaged property under rule 56 of the Second Schedule to the Income Tax Act, 1961 and hence was liable to be set aside - Held that:- It is not in dispute that no application for setting aside the sale was ever preferred by the Petitioners. In this view of the matter, no fault can be found in the actions of the Recovery officer in confirming the sale in favour of the auction purchaser. This is more so, in view of the fact that the application made for deferment of confirmation of sale was filed before the Recovery Officer after the sale had already been confirmed. We must also mention here that the OTS sanctioned by the Respondent – Bank stipulated that the payment of ₹ 3.03 crores had to be made on or before 20th September, 2005. This amount admittedly was not deposited by the aforesaid date and in fact has not been deposited even till date. The facts of this case would clearly reveal that the Petitioners have no intention of paying the dues of the Respondent – Bank and are only seeking to thwart the sale of mortgaged property on one pretext or the other. We therefore find no substance in this argument. Equally, we find that the reliance placed by the Petitioners on a decision of the Supreme Court in the case of Mohan Wahi v/s CIT, Varanasi and others, reported in (2001 (3) TMI 4 - SUPREME Court) is wholly misplaced. The issue before the Supreme Court was whether the Tax Recovery officer could have confirmed the sale on a particular date when in fact the demand for tax for which the property was sold, had ceased to exist. It was in those facts that the observations of the Supreme Court have to be read and understood. In the facts of the present case, admittedly, the dues of the Respondent – Bank have not been satisfied. We therefore have no hesitation in rejecting this argument of the Petitioners. The Respondent – Bank, has on an earlier occasion, sought to settle the dues with the Petitioners without any success. Despite this, the Respondent – Bank once again gave an opportunity to the Petitioners to settle their dues by paying a sum of ₹ 3.03 crores by 20th September, 2005. Admittedly, no payment was made. In these facts, we cannot find any fault with the actions of the Recovery Officer or any of the authorities below in proceeding with the sale of the mortgage property to ensure recovery of the Respondent – Bank's dues. No violation by the Respondent – Bank of the RBI guidelines issued on 3rd September, 2005 mandating all Public Sector Banks to settle the dues of all NPAs below ₹ 10 crores by entering into a One Time Settlement Scheme. We do not read the RBI guidelines to mean that irrespective of the fact that the debtor has already defaulted in making payment of an earlier sanctioned OTS, would still continue to get the benefit of the RBI guidelines indefinitely. In any event, this argument (regarding the OTS being in violation of the RBI guidelines) has been dealt with by the authorities below in great detail and we do not think that the findings of these authorities are in any way perverse and / or arbitrary requiring interference in our extraordinary, equitable and discretionary jurisdiction under Article 226 of the Constitution of India. We therefore do not find any substance in this argument. 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.