TaxTMI 
TaxTMI 
2011 (7) TMI 1321
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....1 and a recovery certificate was also issued in D.R.C.No.169 of 2003 on 15.9.2003. After the recovery certificate was issued, the secured asset was put to public auction on 23.11.2006 and the petitioner being the successful bidder for Rs. 60,00,000/-, his bid was confirmed and he was directed to make the payment of 25 percent of the purchase money, i.e., Rs. 15,00,000/-, which was complied with on the same day. Subsequently, as the petitioner was bedridden, he made a request to the Recovery Officer to give him time. Accordingly, he was given time to make the further payment of 75 percent. He also paid the balance purchase money of 75 percent only on 15.2.2007 along with the poundage fee and the amount was appropriated by the fourth respondent bank. In the meantime, the case stood transferred to the file of the Debts Recovery Tribunal-III and renumbered as O.A.No.206 of 2007. Pending issuance of the sale certificate, the third respondent approached the Recovery Officer by filing I.A.No.4 of 2007 under Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act read with Rules 11, 57 & 58 of the Second Schedule to the Income Tax Act to set aside the sale on the gr....
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.... as per Rule 57(2), the successful bidder should deposit the balance of 75 percent within 15 days from the date of confirmation, in the wake of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, a discretion is conferred on the Recovery Officer to grant extension. The extension, if any, granted by the Recovery Officer for the auction purchaser to deposit 75 percent of the amount beyond the period of 15 days immediately on confirmation of bid would not vitiate the auction proceedings. In support of the said submission, he would rely upon the judgment of the Andhra Pradesh High Court in P.Mohanreddy and others v. Debts Recovery Appellate Tribunal, Mumbai and others, AIR 2004 AP 94. 4. On the other hand, Mr.AR.L.Sundaresan, learned Senior Counsel appearing for the third respondent would submit that in the absence of any specific rules under the Recovery of Debts Due to Banks and Financial Institutions Act, the provisions of Part-III of the Second Schedule to the Income Tax Act relating to the sale of immovable property would alone be applicable. For the present case, Rule 57(1) and (2) are relevant. Admittedly, the petitioner had not deposited the rema....
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....ucting the sale. On the interpretation of Order XXI, Rule 84 of Civil Procedure Code, the Apex Court has held that in the event a decree holder purchasing the property in Court auction, failure on his part to deposit 25 percent immediately after sale as required under Rule 84 shall not render the sale invalid and application for setting aside such sale under Rule 90 cannot be entertained and allowed on that ground. However, the Apex Court found the rule mandatory in the case where the purchaser is other than the decree holder. As the above judgment of the Apex Court is quoted with approval in all the subsequent judgments, we are inclined to extract the relevant paragraphs 6, 7, 8 & 11 which read hereunder:- "6...The principal question which falls to be considered is whether the failure to make the deposit under Order XXI Rules 84 and 85, is only a material irregularity in the sale which can only be set aside under Rule 90 or whether it is wholly void. It is argued that the case falls within the former category and the application under Rule 90 being barred by limitation, the sale cannot be set aside. It is also contended that the Court having once allowed the set-off and condone....
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.... The rules do not contemplate that there can be any sale in favour of a purchaser without depositing 25 per cent of the purchase money in the first instance and the balance within 15 days. When there is no sale within the contemplation of these rules, there can be no question, of material irregularity in the conduct of the sale. Non-payment of the price on the part of the defaulting purchaser renders the sale proceedings as a complete nullity. The very fact that the Court is bound to resell the property in the event of a default shows that the previous proceedings for sale are completely wiped out as if they do not exist in the eye of law. We hold, therefore, that in the circumstances of the present case there was no sale and the purchasers acquired no rights at all." 7. In Balram son of Bhasa Ram v. Ilam Singh and others, (1996) 5 SCC 705, the Apex Court once again considered a similar auction sale with reference to Order XXI, Rules 84, 85, 86 and 90 of the Civil Procedure Code and ultimately held that the deposit of 25 percent into Court under Rule 84 is mandatory and the non-compliance of the said Rule renders the sale a complete nullity. In fact the Apex Court has relied upo....
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.... the amount of bid, he shall pay the full amount of the purchase money before the close of 15th day from the date on which he was declared the purchaser. Considering the above provisions, the Apex Court held that the deposit of 25 percent of the bid amount on the same day is mandatory. The Apex Court further held that in terms of Section 86 of the Act, if the highest bidder fails to pay the deposit as required under Section 85, the person conducting the sale is required to put the property forthwith to sale once again. The Apex Court further held that in terms of Section 88, the purchaser, whose bid has been confirmed, shall pay the entire balance amount before the close of 15th day from the date on which he was declared the purchaser, meaning thereby that the payment of deposit within the stipulated time under Section 85 is mandatory. The Apex Court has also held that even if the confirmation of sale was made and the sale certificate was also granted, they are of no consequence, as the sale had become void on the expiry of fifteenth day for default of payment as required by Section 88. The Apex Court quoted with approval the judgment in Manilal Mohanlal Shah's case. 11. In ....
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....ntial amounts of expenditure by way of legal charges which add to their overheads. The question of speeding up the process of recovery was examined in great detail by a committee set up by the Government under the Chairmanship of the late Shri Tiwari. The Tiwari Committee recommended, inter alia, the setting up of Special Tribunals which could expedite the recovery of process...." The Committee also suggested some legislative measures to meet the situation. 36. In its Second Report, the Narasimhan Committee observed that NPAs in 1992 were uncomfortably high for most of the public sector banks....... One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the court and for reconstruction of the assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions had been attracting the attention and the matter was considered in depth by the committees specially constituted consisting of the experts in the field. The Committee also opined that in the prevalent situation where the amount of....
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....namely the Recovery of Debts due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another expert committee was constituted then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved. 15. From the above, it is clear that even after the recommendations of the Narasimhan Committee and the Andhyarujina Committee, the measures taken for recovery of the money due to the banks/financial institutions did not yield the best results as expected. It is to be noted that a procedure was contemplated for rec....
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....- "Deposit by purchaser and resale in default. 57.(1) On every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty five percent on the amount of his purchase money, to the officer conducting the sale, and, in default of such deposit, the property shall forthwith be resold. (2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property. Procedure in default of payment. 58. In default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be resold, and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold." 18. As per sub-rule (1) of Rule 57, a person declared to be the purchaser of immovable property in auction shall pay immediately after such declaration a deposit of twenty five percent on the amount of the purchase money. The said sub-....
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....icer decides to forfeit the deposit or not, he should bring the property for resale immediately in terms of sub-rule (1) of Rule 57. A reading of Rule 58 would show that it is with reference to the condition stipulated under sub-rule (1) of Rule 57 and cannot arise under sub-rule (2) of Rule 57. 21. Though Section 29 postulates that the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962 should be followed while the immovable property is brought for sale, it also makes it clear that the rules are applicable as far as possible with necessary modification. A reading of the above provision shows that in the absence of any specific rules framed under the Recovery of Debts Due to Banks and Financial Institutions Act to be followed by the Recovery Officer for the conduct and completion of auction, he shall follow the Second and Third Schedule to the Income Tax Act and the Income Tax (Certificate Proceedings) Rules as far as possible and with necessary modification. The qualifying words "as far as possible" should mean that the Recovery Officer should follow the rules under the Schedule to the Income Tax Act as far as possible....
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....s the power to the Recovery Officer to modify the sale conditions. Sub-rule (2) of Rule 57, though provides that the purchaser shall pay the full amount of purchase money on or before the fifteenth day from the sale of the property, in the event the Recovery Officer is of the view that the said time could be also extended, he may do so in the sale notice for payment of the balance of 75 percent of the purchase money. It must be noticed that keeping in mind the necessity for speedy recovery of money due to the bank from borrowers, when rules were framed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, such power for the Recovery Officer to grant extension is also provided. In this context, we may refer to sub-rules (3) and (4) of Rule 9 of the Security Interest (Enforcement) Rules, 2002. Sub-rule (3) of Rule 9 states that the purchaser shall immediately pay the deposit of 25 percent of the amount of sale price to the Authorised Officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. This rule is similar to sub-rule (1) of Rule 57 of the Second Schedule to the Income Tax Act and i....
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....iew as, for our own reasons, we have held that Rule 57(1) is mandatory, as there is no option for the Recovery Officer to bring the property for resale in the event of failure of the auction purchaser to deposit 25 percent amount. Nevertheless, the following observations of the Division Bench with reference to Rule 57 and Section 29 are useful for consideration of Rule 57(2): "31. The entire emphasis of the learned counsel for the petitioners was that rule 57 is mandatory which is also the interpretation given to this rule by Supreme Court. But as already observed by us this rule has to be read only with Section 29 of the Act, which makes this Rule applicable as far as possible and with necessary modifications. Supreme Court interpreted the corresponding provisions of the Code of Civil Procedure, which are similarly worded, but had no occasion to deal with the phraseology as is used in Section 29 of the Act. We are, therefore, of the view that Section 29 of the Act does not enjoin upon the Recovery Officer, DRT to follow the provisions for recovery of Tax Rules provided in Second Schedule to Income Tax Act, 1961 in letter and spirit but gives him discretion to follow the same as....
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....y Officer to the petitioner could be sustained. In the auction sale notice, condition no.3 reads as follows:- "The successful bidder to pay 25 percent of the bid amount (less the EMD) immediately on the sale being knocked down in his favour and the balance money within 15 days." A reading of the above condition would show that the Recovery Officer has not prescribed any clause in the terms and conditions of sale allowing him to extend the time beyond the period specified under the rules for the purchaser to deposit the balance price within a period of 15 days. In the absence of the same, the extension granted in favour of the petitioner-auction purchaser cannot be sustained. In this context, we may refer to the judgment of the Apex Court in Himadri Coke and Petro Limited v. Soneko Developers Pvt.Ltd., and others, (2006) 132 Comp.Case 696 (SC). The Apex Court while considering a similar situation has observed as follows: "As far as respondent No.1 is concerned, we are of the view that it was bound by the terms and conditions of sale as was the authority concerned. It was not up to them to extend the dates for submission of the balance price when there was no clause in the t....