Raj Kumar Vij vs Kotak Mahindra Bank & Ors.
2016 Latest Caselaw 4099 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                               Judgment Reserved on : May 23, 2016
                               Judgment Delivered on : May 30, 2016

+                        WP (C) 6881/2014

      RAJ KUMAR VIJ                                 .....Petitioner
              Represented by:         Ms.Kanika Agnihotri, Advocate
                                      with Mr.Mr.Vaibhav Agnihotri and
                                      Mr.Ravneet Kaur, Advocates

                                      versus

      KOTAK MAHINDRA BANK & ORS.              .....Respondents
              Represented by: Ms.Pratiti Rungta, Advocate for
                              R-1
                              Mr.Mukesh M.Goel, Advocate for
                              R-2

CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE MUKTA GUPTA

PRADEEP NANDRAJOG, J.

1. We must begin with an apology for recording the facts which may be a little blurred or slurred but we cannot be faulted inasmuch as the impugned orders passed are sketchy and so are the pleadings. We find traces of relevant facts scattered here and there, but sufficient to be picked up for a decision and not a remand. One Champa Bhen Kundia and her son Chandu Bhai appear to be scamsters of the first order. The mother was the owner of the perpetual lease-hold rights in property bearing Municipal No.2/22, Old Rajinder Nagar and on 28/29.04.2000 she executed a general power of attorney in favour of her son authorizing him to sell the building constructed on the plot and on June 16, 2001 she

created an equitable mortgage by deposit of title deed of the property availing a loan in sum of `13,00,000/- from M/s.Associated Finance Pvt. Ltd., a debt which was assigned to Kotak Mahindra Bank Ltd. But in between the basement was sold by her through her son to one Satnam Singh who in turn, under an agreement to sell dated April 23, 2001, receiving full sale consideration from the writ petitioner, handed over possession of the basement to the petitioner. Other floors were like-wise sold.

2. It is apparent that before the equitable mortgage was created, possession of the basement under an agreement to sell had already been transferred first to Satnam Singh and then to the petitioner.

3. The ground, first, second and third floor were likewise sold to different parties, with whom we are not concerned in the writ petition but would have a relevance for the factual narratives required to decide the instant writ petition.

4. The loan went in default. Debt being assigned to Kotak Mahindra Bank, it proceeded to auction the entire property. And here the facts are blurred. What exactly happened is not known, in that, who purchased what part of the property, but as regards the basement, the respondent No.2 purchased the same.

5. A securitization application under Section 17 of SARFAESI appears to have been filed in which some orders appear to have been passed to the effect that if the respective owners of the basement and the four floors above paid `2,50,000/- to the bank, the sales would be set aside and pursuant thereto except for the petitioner the others paid `2,50,000/- and if we may use the expression, redeemed the four floors. Thus, the dispute persists qua the basement.

6. The basement was purchased by respondent No.2 after learned DRT had passed an order directing as above in paragraph 5.

7. Vide order dated August 30, 2012 the learned DRT directed that the petitioner can redeem the basement and as regards the respondent No.2, Debts Recovery Tribunal held that the petitioner would in addition pay 9% simple interest on the sum deposited by the respondent No.2, which amount was to be returned to him and recompense through the interest to be deposited by the petitioner.

8. Said order, on an appeal filed by respondent No.2, has been set aside by learned DRAT vide impugned order dated September 03, 2014.

9. The position as of today is that whereas the purchasers of the four floor above the basement, upon paying proportionately to the bank the debt due, have redeemed their respective floor and the auction purchasers of said floors are not further litigating, the dispute persists qua the basement and it embraces the petitioner and the auction purchaser : respondent No.2. Of course, the bank is also inter-twined.

10. Vide impugned order dated September 03, 2014, learned DRAT has held that no right vests under an agreement to sell in favour of any party and thus the order passed by learned DRT has been set aside. Sale of the basement in favour of respondent No.2 has been affirmed.

11. Now, Section 25 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, reads as under:-

―25. Modes of recovery of debts.--

The Recovery Officer shall, on receipt of the copy of the certificate under sub-section (7) of section 19, proceed to recover the amount of debt specified in the certificate by one or more of the following modes, namely:-

(a) attachment and sale of the movable or immovable property of the defendant;

(b) arrest of the defendant and his detention in prison;

(c) appointing a receiver for the management of the movable or immovable properties of the defendant.‖

12. Section 29 of the said Act reads as under:-

―29. Application of certain provisions of Income-tax Act.--

The provisions of the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1961) and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income-tax:

Provided that any reference under the said provisions and the rules to the ―assessee‖ shall be construed as a reference to the defendant under this Act.‖

13. Section 30 of the said Act reads as under:-

―30. Appeal against the order of Recovery Officer.--

(1) Notwithstanding anything contained in section 29, any person aggrieved by an order of the Recovery Officer made under this Act may, within thirty days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal.

(2) On receipt of an appeal under sub-section (1), the Tribunal may, after giving an opportunity to the appellant to be heard, and after making such inquiry as it deems fit, confirm, modify or set aside the order made by the Recovery Officer in exercise of his powers under sections 25 to 28 (both inclusive).‖

14. Rule 4 and 11 of the Second Schedule to the Income Tax Act, 1961 read as under:-

―4. If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes:

(a) by attachment and sale of the defaulters movable property;

(b) by attachment and sale of the defaulters immovable property;

(c) by arrest of the defaulter and his detention in prison;

(d) by appointing a receiver for the management of the defaulters movable and immovable properties.‖

xxxxxx

―11. (1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection :

Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.

(2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.

(3) The claimant or objector must adduce evidence to show that

(a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or

(b) (in the case of movable property) at the date of the attachment,

he had some interest in, or was possessed of, the property in question.

(4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.

(5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.

(6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.‖

15. Rule 4 of the Second Schedule of the Income Tax Act, 1961, mirrors Section 25 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, and one mode of recovery of a debt determined by the Debts Recovery Tribunal upon the determination attaining finality is by way of sale of the defaulter's immovable property. Rule 11 of the Second Schedule of Income Tax Act, 1961 contemplates a situation where a claim is preferred or an objection is made to the attachment or sale of any property, be it movable or immovable. As per sub-Rule (1) of Rule 11, either a claim may be preferred to the property attached or an objection made to the attachment or sale of the property. If made, the sub-Rule casts an obligation upon the Recovery Officer to investigate the claim or the objection and the proviso to the sub-Rule vests a discretion in the Recovery Officer not to make any such investigation if the claim or the objection is unnecessarily delayed. Thus, one can safely say that the proviso itself throws light on the legal position being that the Recovery Officer has a discretion vested with respect to the recovery proceedings when a claim is preferred or an objection is made to the attachment or sale of the property. As per sub-Rule (2) of the Rule, if the claim or objection is filed after the advertisement is issued inviting offers for sale of the property, the Recovery Officer is empowered to postpone the sale pending investigation of the claim or the objection and may do so upon such terms and furnishing security or otherwise as the Recovery Officer deems fit. The sub-Rule also throws light on the legal position, being that, the Recovery Officer has a discretion vested in the matter of even postponing a sale. As per sub-Rule (3), the claimant or objector is obliged to adduce evidence to show : in case of immovable property, that on the date of service of the notice issued under the Schedule upon the defaulter to pay, the objector has some interest in or was possessed of

the property in question. The words in the sub-Rule ‗some interest' and ‗or was possessed' are of importance and we shall discuss the same a little later. Sub-Rule (4) evinces that the scope of the inquiry which takes its colour from the preceding sub-Rule requires the Recovery Officer to decide whether the objector has proved that the subject property was not in the actual or constructive possession of the defaulter on the date of the attachment, the property has to be released wholly or to such extent as the Recovery Officer determines.

16. The Rules under the Second Schedule of the Income Tax Act, 1961 have to be understood in their contextual incorporation under the Recovery of the Debts due to Banks and Financial Institutions Act, 1993. Whereas income tax dues are recovered by proceeding against immovable property of a defaulter and not by way of enforcing a charge or a lien created under a mortgage, but dues determined under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 may be with respect to a mortgaged property and may be not.

17. In our decision dated May 13, 2016, deciding a batch of writ petitions, lead writ petition being W.P.(C) No.4505/2015 Swaraj Kishore Arora vs. Indian Bank & Ors., the nature of the adjudication contemplated before the Recovery Officer with reference to 'some interest' and 'or was possessed'; being the rights of the objector to a property sought to be attached and sold to recover the dues from the defaulter were discussed by us in the context of possessory rights in immovable properties. The decision brings out that the word 'interest' in the rules is not used in the sense it has been used in Section 54 of the Transfer of Property Act. The concept of juridical possession was discussed and it was held that a person claiming a right under an

agreement to sell would have sufficient interest to be identified and protected by the Recovery Officer.

18. Our reasoning in the said decision may be treated as incorporated by reference in the instant decision.

19. Thus, the position would be that before the basement was mortgaged by the owner thereof, on receipt of full sale consideration and possession handed over, sufficient interest was created in favour of Satnam Singh which was passed on to the petitioner a little before the mortgage was created. The financial institution which advanced the loan would be deemed to have notice of the possessory rights in favour of Satnam Singh in view of Explanation II to Section 3 of the Transfer of Property Act, 1882, which reads as under:-

―Explanation II - Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof.‖

20. For two reasons therefore the petition must succeed. Firstly the petitioner must be put at par with the owners of the four floors above the basement; and as they were permitted to redeem the mortgage by paying proportionately and to recompense the auction purchaser to pay interest @ 9% of the sum deposited by the auction purchaser, the petitioner must be put at par. Secondly on account of the law declared by us in Swaraj Kishore Arora's case (supra), which in fact puts the petitioner in a better position on account of the petitioner having a protectable interest with no liability fastened. But since the petitioner acquiesced in the order dated August 30, 2012 passed by the learned DRT and accepted liability therein and it was respondent No.2 who succeeded before the Appellate Tribunal, we dispose of the writ petition setting aside the impugned order

dated September 03, 2014 and restore the order dated August 30, 2012 passed by learned DRT. The petitioner shall comply with the said order within 30 days from today. Respondent No.2 shall be refunded the money deposited by him and such interest as he would be entitled to as per the order passed by the learned DRT.

21. No costs.

(PRADEEP NANDRAJOG) JUDGE

(MUKTA GUPTA) JUDGE MAY 30, 2016 mamta