Prior mortgage and execution rules upheld as section 281 could not invalidate a pre-Act mortgage or defeat enforcement.

Section 281 of the Income-tax Act, 1961 was held inapplicable to a mortgage executed before the Act commenced, so the pre-existing mortgage was not void. An auction sale in recovery proceedings did not extinguish that prior mortgage where the property was sold subject to existing encumbrances, and the bank could still enforce its mortgage and award against the property; the unchallenged Revenue Recovery Act order did not defeat that claim. The civil court was also held competent to execute the co-operative society award because the relevant rules were within the rule-making power under the Act and were not ultra vires.

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Issues: (i) Whether section 281 of the Income-tax Act, 1961 could invalidate a mortgage executed before the Act came into force; (ii) whether the auction sale in recovery proceedings prevailed over the prior mortgage and whether failure to challenge the order under the Revenue Recovery Act made the matter final; (iii) whether the civil court had jurisdiction to execute the co-operative society award and whether the relevant rules were ultra vires.

Issue (i): Whether section 281 of the Income-tax Act, 1961 could invalidate a mortgage executed before the Act came into force.

Analysis: The mortgage in favour of the bank was executed on 9 June 1959, when the Income-tax Act, 1961 had not yet come into force. Section 281 was held inapplicable to transactions completed before the commencement of that Act, and no retrospective operation was shown or assumed.

Conclusion: The mortgage was not void under section 281, and this contention failed against the respondent bank.

Issue (ii): Whether the auction sale in recovery proceedings prevailed over the prior mortgage and whether failure to challenge the order under the Revenue Recovery Act made the matter final.

Analysis: The sale was held after the mortgage and the property was sold subject to existing encumbrances. The bank was not seeking to set aside the sale as such, but to enforce its mortgage and award against the property. The prior mortgage, supported by an award passed before the appellant's sale, continued to bind the property. The objection based on finality of the rejection order under the Revenue Recovery Act did not defeat the bank's claim.

Conclusion: The sale did not extinguish the bank's mortgage, and the appellant's challenge on finality grounds failed.

Issue (iii): Whether the civil court had jurisdiction to execute the co-operative society award and whether the relevant rules were ultra vires.

Analysis: The rules framed under the Andhra Pradesh Co-operative Societies Act specifically permitted execution of the award through a civil court. Section 70 provided for execution by the Registrar notwithstanding other modes of recovery, while section 130 empowered rule-making to give effect to the Act. On that basis, the execution rules were held to be within power and the civil court was competent to entertain the petition.

Conclusion: The civil court had jurisdiction and the rules were not ultra vires.

Final Conclusion: The appellant's objections failed on every material issue, and the enforcement of the mortgage-backed award against the property was upheld.

Ratio Decidendi: A statutory provision cannot be applied retrospectively to invalidate a transaction completed before the statute came into force, and a prior mortgage supported by a subsisting award remains enforceable against a subsequent purchaser where the sale does not extinguish pre-existing encumbrances; execution rules made within delegated power are valid if they further the Act's scheme.

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