Supreme Court overrules High Court, allows 'No Objection' certificate, and bars Tax Recovery Officer enforcement. Property transfer validated.

The Supreme Court set aside the High Court's judgment, directing the issuance of a 'No Objection' certificate to the Appellant and restraining the Tax Recovery Officer from enforcing the attachment order. The Court emphasized the validity of the property transfer to the Appellant due to the pre-existing charge on the property, overriding the attachment made by the Income Tax Department.

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Issues:
1. Transfer of property purchased in auction sale despite attachment by Income Tax Department.
2. Interpretation of Rule 16 of Schedule II to the Income Tax Act, 1961.
3. Priority of Crown debt over secured creditor's dues.

Issue 1: Transfer of Property Purchased in Auction Sale Despite Attachment

The Appellant filed a Writ Petition seeking to restrain the Tax Recovery Officer from enforcing an attachment made under the Income Tax Act for recovery of dues. The High Court dismissed the petition, stating that no transfer can occur once a property is attached. The Appellant purchased the property in an auction sale following a recovery certificate issued by the Debt Recovery Tribunal. The High Court held that the sale was void as it occurred after the attachment. The Appellant argued that the property was already charged to a secured creditor before the attachment notice, thus not subject to the attachment rules.

Issue 2: Interpretation of Rule 16 of Schedule II

Rule 16 of Schedule II to the Act prohibits dealing with attached property without permission. The High Court ruled that the sale to the Appellant post-attachment was void. The Appellant contended that the property was charged to a secured creditor before the attachment notice, making the transfer valid. The Court found merit in this argument, emphasizing that the charge existed before the attachment notice, rendering the sale valid despite occurring after the attachment.

Issue 3: Priority of Crown Debt over Secured Creditor's Dues

The Union of India argued for the priority of Crown debt over the Appellant's claim, citing the attachment made by the Tax Recovery Officer. However, the Court found that the property was already charged to a secured creditor before the attachment, giving precedence to the prior secured debt. Citing precedents, the Court emphasized that unless a statute provides otherwise, secured creditors' dues take precedence over Crown debts.

In conclusion, the Supreme Court set aside the High Court's judgment, directing the issuance of a 'No Objection' certificate to the Appellant and restraining the Tax Recovery Officer from enforcing the attachment order. The Court emphasized the validity of the property transfer to the Appellant due to the pre-existing charge on the property, overriding the attachment made by the Income Tax Department.

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