2025 (10) TMI 675 - HC - Indian Laws

RDDB Act is self-contained; Rule 68B not mandatory for RDDB recoveries; Section 19 governed by Article 136

Binu Vincent, Mini Vincent, Versus The Federal Bank Ltd., Recovery Officer, Debt Recovery Tribunal-II, Ernakulam, M/s. Header Systems (India) Ltd., Mammachan Thoppil Kunjappy.

Kerala HC held that the RDDB Act is a self-contained code for recovery by banks/financial institutions and Rule 68B of the Second Schedule to the Income ... Recovery of debt under RDDB Act, 1993 - Time limit for sale of attached immovable property u/r 68B of the Second Schedule to the Income Tax Act, 1961 expired - HELD THAT:- The legislative object of the RDDB Act is to ensure speedy and effective recovery of debts due to banks and financial institutions; subjecting sales to a rigid three-year or four-year bar would frustrate that object. The RDDB Act is a self-contained code that provides its own framework for adjudication, issuance of recovery certificates, and execution by the Recovery Officer, and therefore, there is no statutory basis for importing any period of limitation from the Income Tax Rules. Yet another reason why Rule 68B cannot be read into the scheme of the RDDB Act is that Section 31, which provides for the transfer of pending cases, and the jurisdictional threshold under the Act, make no distinction in limitation based on the value of the claim. There is nothing in the Act to suggest that Parliament ever intended to prescribe different limitation periods for claims below Rs.10 lakhs and those above Rs. 10 lakhs; importing Rule 68B into the RDDB framework would therefore create inconsistencies and defeat procedural uniformity. Rule 68B of the Second Schedule to the Income Tax Act, 1961, has no mandatory application to recovery proceedings under the RDDB Act. It is also relevant that under Sections 19(22) and 25 of the RDDB Act, the Recovery Officer derives jurisdiction to initiate recovery measures only after the recovery certificate attains finality. Hence, the time frame in Rule 68B, which is linked to the ‘order giving rise to demand’ under the Income Tax Act, cannot logically apply to proceedings initiated upon a recovery certificate under the RDDB Act - The time limit of three years, later extended to four years and further to seven years, is merely directory and not mandatory, since Rule 68B imposes a duty upon the Recovery Officer but confers no corresponding right upon the debtor, nor prescribes any consequence for delay. The limitation applicable to recovery proceedings under Section 19 of the RDDB Act would, therefore, be governed by Article 136 of the Limitation Act, 1963. The next question that arises is, even assuming the sale was conducted beyond the time, can the petitioners urge that the entire actions are void. The learned counsel for the petitioners argues that if on the limitation aspect they succeed, the entire proceedings taken till now being void must be declared so - The principle emerging from the decisions on the point, including those in Rafique Bibi [2003 (8) TMI 528 - SUPREME COURT] and Balvant [2004 (8) TMI 689 - SUPREME COURT], is that not every illegality or procedural irregularity renders a decree void or without jurisdiction. A decree becomes a nullity only when it is passed by a court that inherently lacks jurisdiction over the subject matter or the parties, and such a lack of jurisdiction is apparent on the face of the record. Mere errors in the exercise of jurisdiction, including those arising from incorrect appreciation of law, limitation, or procedure, at best render the decree illegal or irregular, but not void. Such decrees must be challenged through appropriate appellate or review proceedings and cannot be collaterally attacked in execution or incidental proceedings. In Forward Construction Co. [1985 (11) TMI 231 - SUPREME COURT], the Court held that Explanation IV to Section 11 CPC deems any matter which might and ought to have been made a ground of attack or defence in a former suit as having been directly and substantially in issue therein, and that an adjudication is conclusive not only on matters actually decided but also on those which could have been litigated as part of the same controversy. Both decisions thus reaffirm that constructive res judicata bars relitigation of matters that were or could have been raised earlier, thereby ensuring judicial efficiency, finality of adjudication, and preventing abuse of process. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether Rule 68B of the Second Schedule to the Income Tax Act, 1961, which prescribes a time limit for sale of attached immovable property, applies mandatorily to recovery and sale proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act), thereby rendering a sale beyond the prescribed period illegal and void. 2. If Rule 68B were held to apply, whether sales or subsequent orders and actions flowing from such sale become void ab initio, or merely unlawful/irregular and susceptible to challenge only by appropriate appellate or corrective proceedings. 3. Whether the writ petition is barred by delay, laches, constructive res judicata or abuse of process, having regard to earlier remedies pursued and orders obtained in specialized tribunals and courts, and to the interests of bona fide third parties who purchased at auction and altered their position. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability and mandatory character of Rule 68B to RDDB Act recovery proceedings Legal framework: The RDDB Act provides for issuance of recovery certificates and execution measures by a Recovery Officer under Sections 19, 22 and 25; Section 29 imports the Second and Third Schedules of the Income Tax Act 'as far as possible' and 'with necessary modifications.' Rule 68B (Second Schedule, IT Act) prescribes a time limit (three years, later notifications/ amendments extended) for sale of attached immovable property in tax recovery. Precedent Treatment: The Court examined divergent authorities-decisions holding Rule 68B inapplicable to RDDB Act executions and applying Limitation Act principles to DRT/RDDB proceedings; decisions holding sales beyond Rule 68B void. Earlier judgments of this Court and other High Courts (including a division bench decision and subsequent citations) and Supreme Court pronouncements on sale irregularities were considered. Interpretation and reasoning: The Court held that the RDDB Act is a self-contained code aimed at speedy, effective recovery and that incorporation of the Income Tax Rules is qualified by 'as far as possible' and 'with necessary modifications.' References in Rule 68B to tax-specific concepts (e.g., finality under section 245-I, Chapter XX) are alien to RDDB proceedings. Imposing Rule 68B's rigid time bar would frustrate the legislative object of the RDDB Act and improperly penalize creditors for administrative or procedural delays beyond their control. The Court emphasized the adversarial and independent tribunal nature of RDDB proceedings, distinguishing them from tax recovery processes where the Tax Recovery Officer acts as a State functionary. The Court also referred to precedents and consistent views that procedural rules from the Income Tax Schedules apply only insofar as they align with the RDDB Act's object. Ratio vs. Obiter: Ratio - Rule 68B does not have mandatory application to recovery proceedings under the RDDB Act; the Second Schedule applies only to the extent compatible with the RDDB Act's purpose and subject to necessary modifications. Obiter - observations on administrative causes of delay and policy considerations that may justify non-application in particular factual contexts. Conclusions: The Court rejected the contention that Rule 68B rendered the sale illegal and void; Rule 68B is not mandatorily applicable so as to nullify RDDB Act sales conducted beyond its time limit. Issue 2: Character of defects - when an order/sale is void v. merely illegal or irregular and remedies therefor Legal framework: Distinction between a decree or order void for want of inherent jurisdiction (nullity) and an order that is erroneous/illegal but passed by a competent authority which must be set aside or corrected by the prescribed appellate or review remedies. Precedent Treatment: The Court relied on established principles distinguishing void and voidable/illegal decrees, and on authorities holding that only lack of inherent jurisdiction apparent on record produces a nullity; mere procedural or legal errors do not. Interpretation and reasoning: The Court held that even if a time limit from the Income Tax Rules were breached, that would not ipso facto make all consequent orders void unless the adjudicating or executing authority lacked inherent jurisdiction. The RDDB Act confers jurisdiction on the Recovery Officer and Tribunal; errors in applying rules or observing time limits do not convert validly constituted proceedings into nullities. Allowing collateral challenges to execution on grounds of illegality without following appellate remedies would undermine finality and encourage multiplicity of litigation. Ratio vs. Obiter: Ratio - A decree or sale by a court/tribunal or a Recovery Officer vested with jurisdiction is not rendered void by procedural or legal irregularities; such defects make the order illegal/voidable and require challenge through the prescribed statutory remedies. Obiter - references to particular authorities cited by parties and discussion of when a proceeding may be deemed void ab initio. Conclusions: The petitioners cannot contend that the entire proceedings and consequent transfers are void merely because of alleged procedural non-compliance; appropriate appellate or corrective remedies must be invoked, and collateral nullification is disallowed absent inherent jurisdictional defect. Issue 3: Delay, laches, constructive res judicata and prejudice to bona fide purchasers Legal framework: Exercise of writ jurisdiction under Article 226 is discretionary and may be refused on grounds of gross/unexplained delay, acquiescence, or where relief would prejudice innocent third parties; doctrines of constructive res judicata and abuse of process bar relitigation of issues which could and should have been raised earlier. Precedent Treatment: The Court relied on settled authorities establishing that equity aids the vigilant, not those who sleep on their rights, and that courts should not unsettle transactions where third parties have altered position or invested substantially in reliance on impugned acts; principles of constructive res judicata prevent re-agitation of issues that were or could have been raised in prior proceedings. Interpretation and reasoning: The Court found that the petitioners had long litigated before the DRT/DRAT and High Court without raising the specific limitation point in earlier proceedings, and the present writ was filed after substantial delay (sale in 2016, writ in 2025). Third-party purchasers had registered title and taken possession and invested significant funds in improvements. Given the delay, acquiescence and prejudice to purchasers, and the existence of earlier remedies and adjudications, the Court characterized the present challenge as stale and abusive of process. The Court applied principles limiting equitable relief where intervening bona fide interests exist and where litigants failed to pursue available remedies in time. Ratio vs. Obiter: Ratio - Relief under writ jurisdiction may be declined for delay, laches, and where constructive res judicata or abuse of process obtain; bona fide purchasers who changed position can constitute decisive prejudice justifying refusal of relief. Obiter - factual observations about the scale of improvements and typical causes of administrative delay. Conclusions: The writ petition was barred by delay, laches and constructive res judicata and would cause prejudice to bona fide purchasers; therefore, even if some infirmity were arguable, equitable relief was refused. Overall Disposition The Court concluded that Rule 68B does not mandatorily apply to RDDB Act recovery executions so as to render the sale void; even assuming an irregularity on time grounds, the proceedings are not necessarily void but remedyable via prescribed statutory channels; and, on discretionary grounds of delay, laches, and prejudice to bona fide purchasers, intervention by writ was declined. The writ petition was dismissed.