1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2657 OF 1991 1. Narayan Karwa ) ) 2. Jaichandlal Karwa ) ) 3. Narayanbhai Karwa (deleted) ) ) 3(a)Purshottan Karwa ) son of the deceased ) Narayanbhai Karwa ) ) 4. Ramchander Karwa ) Petitioner Nos.1 to 4 all ) of Bombay, Indian Inhabitant) residing at Kamal Kunj, ) 87-B, Bomanji Petit Road, ) Bombay - 400 036. ) 5. Messrs. Ashokkumar & Co., ) a Partnership firm ) occupying certain premises ) at Kamal Kunj, Bomanji ) Petit Road, Bombay 400 036. ) 6. Messrs.Chemilate Agencies, ) a partnership firm ) occupying certain premises ) at Kamal Kunj, Bomanji ) Petit Road, Bombay 400 036. ).. Petitioners. Versus Versus Versus 1. Union of India ) 2. Vijay M. Pangam, ) Tax Recovery Officer, ) outstation Charge, having ) his office at Mittal Court, ) 3rd Floor, Nariman Point, ) Bombay - 400 021. ) 3. Amta Desai, ) Commissioner of Income Tax, ) Bombay City - VIII, Bombay ) having his office at ) 2 Earnest House, Nariman Point) Bombay - 400 021. ) 4. Suresh Mehta, ) Bombay Indian Inhabitant ) residing at Muni Survat, ) Kama Lane, Ghatkopar (W), ) Bombay - 400 086. ).. Respondents. Mr.J.D. Mistry with Mr.A.K. Jasani i/by Mr.S.M. Shah for the petitioners. Mr.Ashok Kotangale with Mr.S.R. Chauhan for respondent Nos.1 to 3 - Union of India. Mr.Jay Chinoy with Mr.Kamal Katha i/by M/s.Chitnis Vaithy & Co. for respondent No.4. CORAM : DR.S. RADHAKRISHNAN & J.P. DEVADHAR, JJ. DATED : 6TH MARCH, 2007. ORAL JUDGMENT : (Per J.P. Devadhar, J.) 1. The petitioners who claim to be the tenants of a bungalow known as Kamal Kunj, situated at Bomanji Petit Road, Mumbai - 400 036 (‘disputed property’ for short) have filed this petition mainly to challenge two orders passed by the Tax Recovery Officer (‘TRO’ for short), namely order dated 9th July, 1991 and order dated 11th July, 1991. By order dated 9th July, 1991, the TRO has rejected the application made by the petitioner under Rule 60 of the Second Schedule to the Income Tax Act, 1961 (‘the Act’ for short) for setting aside the auction sale of the disputed property held on 7th November, 1990. By order dated 11th July, 1991, the TRO has 3 confirmed the auction sale of the disputed property in favour of the respondent No.4. During the pendency of this writ petition, the appeal filed by the petitioners against the order dated 9th July, 1991 has been dismissed by the C.I.T. Hence, the petition has been amended to challenge the said order passed by C.I.T. as well. 2. The facts relevant for the present petition are that one Sultan Karim Mithani was the owner of the disputed property. The said Mithani appears to have gifted the disputed property to Mrs.Kamala Chandwani by executing a gift deed on 20th February, 1974. The said gift deed was lodged for registration on 28th February, 1974. Mrs.Kamla Chandwani inducted the petitioners as tenants in the disputed property during the period from 1974-75. The petitioners are in peaceful possession and enjoyment of the disputed property since 1974-75. 3. On 3rd November, 1979, the TRO attached the disputed property with a view to recover the tax arrears payable by the tax defaulter Sultan Karim Mithani. Mrs.Kamla Chandwani objected to the attachment of the disputed property by filing an application before the TRO contending that she is the owner of the disputed property and that the disputed property belonging to her cannot be 4 attached for the tax default committed by Sultan Karim Mithani. The said application was rejected by the TRO on 28th February, 1984 under Rule 11 of the second Schedule to the Act and a proclamation of sale was issued to sell the disputed property by auction sale. Thereupon Mrs.Kamla Chandwani filed a suit bearing Long Cause Suit No.713 of 1984 in the High Court at Bombay to challenge the order dated 28th February, 1984 passed by the TRO under Rule 11 as well as the proclamation of sale. On a draft Notice of Motion taken out by Mrs.Kamla Chandwani in the said suit, this Court passed an order on 30th March, 1984 to the effect that the TRO may proceed to auction the disputed property but the sale shall not be confirmed until further orders of the Court. 4. Before the disputed property was sold in auction, the petitioners by their letter dated 28th March, 1988 called upon the TRO to bring to the notice of all the purchasers about their tenancy rights. The TRO by an order dated 31st August, 1989 rejected the application of the petitioners under Rule 11 of the Second Schedule inter alia on the ground that the disputed property has been under attachment since 1969 and, therefore, as per Section 281 of the Income Tax Act, 1961, the tax defaulter Mr.Mithani could not have gifted the property to Mrs.Kamla Chandwani in the year 1974 and 5 consequently, the tenancy created in favour of the petitioners by Mrs.Kamla Chandwani are void. Thereupon, the petitioners filed declaratory suits in the Court of Small Causes at Bombay and obtained injunction orders restraining the defendants therein from interfering with the possession of the disputed property in the hands of the petitioners without the due process of law and the said proceedings are pending. The petitioners had also challenged the order of the TRO dated 31st August, 1989 by filing S.C. Suit No.4248 of 1992 in the City Civil Court at Bombay and by a judgment and order dated 2nd February, 2001, the learned Judge of the City Civil Court at Bombay has set aside the order of the TRO dated 31st August, 1989. 5. In the meantime, the TRO issued a proclamation of sale on 25th September, 1990 specifically stating therein that the auction sale of the disputed property would be held on 5th November, 1990 subject to the tenancy rights claimed by the petitioners in the declaratory suits pending in the Court of Small Causes at Bombay. In the terms and conditions of auction issued along with the proclamation of sale it was specifically stated that the petitioners are in possession of the disputed property and that the said property will be sold on ‘as is where is’ basis. Clause 24 and 25 of 6 the terms and conditions of sale reads thus :- "24. On sale of property the person declared to be the purchaser shall pay immediately after such declaration, a deposit of 25% of the amount of purchase money to the Officer conducting the sale, in cash, pay order or demand draft drawn in favour of ‘The Tax Recovery Officer, Outstation charge, Bombay’. In default of such default of such deposit the property shall forthwith be resold by auction. The balance of 75% of the purchase price together with poundage fees, registration charges & Stamp Duty shall be paid in TRO’s office on or before 15th day from the date of auction sale. Under no circumstances this period of 15 days can be extended by any authority. If the total purchase price is not paid 25% deposit amount paid on auction sale, the costs of the auction will be deducted and the balance may be forfeited to the Government as per provisions under Second Schedule to the I.T. Act, 1961. 25. The sale of the property will be confirmed only after the decision of the Bombay High Court in L.C. Suit No.713 of 1984 and only on confirmation, the sale becomes absolute. before confirmation of sale if the entire arrears taxes and interest if paid by the defaulter then in that case the auction sale shall automatically be cancelled." 6. On 5th November, 1990, the petitioners and other bidders were present at the time and place where the auction sale of the disputed property was to take place. However, the TRO without assigning any reasons postponed the auction to 7th November, 1990. 7. On 6th November, 1990, a letter was 7 addressed by the TRO to Mrs.Kamla Chandwani’s advocates stating therein that after the auction sale of the disputed property, the petitioners who claim to be the tenants thereof will have to vacate the disputed property. 8. In the auction held on 7th November, 1990, the highest bid for Rs.72,00,000/- offered by the respondent No.4 was accepted. As per the terms of proclamation of sale, the respondent No.4 paid a sum of Rs.18,00,000/- being 25% of the total purchase price, by bank draft dated 6th November, 1990 immediately on acceptance of the bid. As per the terms of the auction sale, the respondent No.4 was obliged to pay the balance amount on or before 15th day from the date of auction sale. 9. After the disputed property was auctioned, the petitioners on 19th November, 1990 made an application before the TRO under Rule 60 of Schedule II to the Act for setting aside the auction sale of the disputed property held on 7th November, 1990 inter alia on the ground that their interests will be affected if the disputed property is auctioned to recover the tax arrears payable by the tax defaulter Sultan Karim Mithani. Along with the said application, the petitioners forwarded a bank draft for Rs.30,00,000/- being the tax arrears of 8 Sultan Karim Mithani specified in the proclamation of sale. The petitioners offered to deposit immediately, if any further amount of tax arrears is found payable. By a letter dated 23rd November, 1990, the TRO informed the petitioners that the total tax arrears together with the amount payable to the purchaser at 5% of the purchase money for setting aside the auction sale comes to Rs.30,74,079/-. As the petitioners had already deposited a sum of Rs.30,00,000/-, by the said letter the TRO called upon the petitioners to deposit the balance amount of Rs.74,079/-. Accordingly, the petitioners deposited the balance amount of Rs.74,079/- and the TRO by his letter dated 29th November, 1990 confirmed that the total amount of Rs.30,74,079/- deposited by the petitioners covers taxes, interest on demand, cost, charges, expenses and compensation payable to the auction purchaser on setting aside the auction sale. It was further stated in the said letter that the application for setting aside the sale filed by the petitioners will be considered in due course. 10. In the meantime, on 21st November, 1990, the respondent No.4 moved a draft Notice of Motion in Suit No.713 of 1984 filed by Mrs.Kamla Chandwani, inter alia seeking modification of the earlier order dated 30th March, 1984 so as to permit the TRO to 9 confirm the auction sale held on 7th November, 1990 and also sought an order seeking extension of time to pay the balance purchase price. However, on noticing that after the grant of ad-interim order on 30th March, 1984 on the draft Notice of Motion, no steps have been taken to register the same, the learned Single Judge by his order dated 21st November, 1990 held that the non-registration of the Notice of Motion amounted to misuse of the process and accordingly vacated the ad-interim order passed on 30th March, 1984. Thereupon, the advocate for the respondent No.4 did not press the draft Notice of Motion seeking extension of time to pay the balance 75% of the purchase price. Thus, the obligation to pay the balance 75% of the purchase price amounting to Rs.54,00,000/- on or before 15 days from the date of auction sale held on 7th November, 1990, that is, on or before 22nd November, 1990 remained unchanged. It is not in dispute that the respondent No.4 has not paid the balance purchase price amounting to Rs.54,00,000/- within the stipulated time. 11. Since the respondent No.4 failed to pay the entire purchase price within the stipulated time, the petitioners by a letter dated 3rd December, 1990 informed the TRO that failure to pay the entire purchase price within the stipulated time 10 renders the sale invalid and the amount of Rs.18,00,000/- deposited by the respondent No.4 is liable to be forfeited and the disputed property has to be resold. It was further stated that the petitioners are entitled to get back the amount deposited by them and that the respondent No.4 is not entitled to claim 5% of the purchase price as compensation. 12. The T.R.O. without considering the plea of the petitioners that the sale has become invalid on account of the failure on the part of the respondent No.4 to deposit the entire purchase price within the stipulated time, passed an order dated 9th July, 1991, rejecting the application made by the petitioners under Rule 60 of Schedule II to the Act. 13. Thereafter, the TRO by his letter dated 10th July, 1991 called upon the respondent No.4 to pay the balance 75% of the purchase price amounting to Rs.54,00,000/- within two days. On 11th July, 1991, the respondent No.4 deposited the balance amount of Rs.54,00,000/- and on the same day the TRO passed an order confirming the auction sale of the disputed property in favour of the respondent No.4. Challenging the orders of TRO in rejecting the application under Rule 60, as well as the order of 11 TRO in confirming the auction sale in favour of respondent No.4, the present petition is filed. As stated earlier, during the pendency of the petition, the appeal filed by the petitioners against the order of the TRO dated 9th July, 1991 in rejecting Rule 60 application has been dismissed by C.I.T. by an undated order which was received by the petitioners on 24th April, 1992. The petitioners have also challenged the said undated order of C.I.T. by amending the writ petition. 14. This petition was admitted on 2nd September, 1991 with an interim order to the effect that during the pendency of the writ petition, the petitioners shall not be evicted from the disputed property and that the petitioners shall deposit in Court Rs.1,150/- per month towards the rent payable by the petitioners in respect of the disputed property. 15. To complete the narration of facts, it may be noted that against the order passed by the TRO on 31st August, 1989 rejecting the application of the petitioners under Rule 11 of Second Schedule to the Income Tax Act, the petitioners had filed a suit in the Bombay City Civil Court at Bombay being Suit No.4248 of 1992. By a judgment and order dated 2nd February, 2001, the learned Judge of the City 12 Civil Court at Mumbai has allowed the said suit by setting aside the order of the TRO dated 31st August, 1989. 16. Mr.Mistry, learned counsel appearing on behalf of the petitioners submitted that the order passed by the TRO on 9th July, 1991 in rejecting the application made by the petitioners under Rule 60 of the Second Schedule to the Act is liable to be quashed and set aside because, none of the grounds set out therein survive or are sustainable. The TRO had rejected the Rule 60 application filed by the petitioners firstly on the ground that the tenancy rights claimed petitioners has been rejected by an order dated 31st August, 1989 passed under Rule 11 of the second schedule to the Act. This ground does not survive because the order of the TRO dated 31st August, 1989 has already been set aside by a Judgment passed on 2nd February, 2001 in City Civil Court in Suit No.4248 of 1992. The second ground for rejecting the Rule 60 application was that the gift deed executed by the tax defaulter in favour of Mrs.Kamla Chandwani was invalid as the same has not been registered and consequently Mrs.Kamla Chandwani could not have created any valid tenancy in favour of the petitioners based on an invalid gift deed. This ground also does not survive because the gift deed dated 20th February, 1974 was lodged for 13 registration on 28th February, 1974 and the same has been finally registered on 20th September, 2003 and Index No.II has been issued. Since the registration of a document relates back to the date of execution of the document, the second ground of rejection is also without any merit. The third ground of rejection was that the tax arrears deposited by the petitioners was conditional and, therefore, the application was not in conformity with Rule 60 of the Second Schedule to the Act. Mr.Mistry submitted that even this ground of rejection is wholly unsustainable because, the petitioners had deposited the amount as specified in the proclamation of sale as well as further amount quantified by the TRO unconditionally and the same was confirmed by the TRO by his letter dated 29th November, 1990. 17. Mr.Mistry submitted that the letter addressed by the petitioners to the TRO on 3rd December, 1990 cannot be construed to mean that the tax arrears were deposited by the petitioners conditionally, because, by the said letter the petitioners had only brought to the notice of the TRO that in view of the failure on the part of the respondent No.4 to pay the balance 75% of the purchase price within 15 days from the date of the auction sale, the sale of the disputed property held on 7th November, 1990 stood cancelled and the TRO 14 was obliged to reauction the property and in that view of the matter, the petitioners had sought refund of the amounts deposited by them. Thus, the amounts deposited by the petitioners were not conditional as wrongly held by the TRO. However, Mr.Mistry fairly stated that in spite of the fact that the auction sale held on 7th November, 1990 stood cancelled on account of the failure on the part of the respondent No.4 to deposit the entire purchase price within the stipulated time, the petitioners want to pursue the challenge to the order rejecting the Rule 60 application and that the petitioners are not interested in seeking refund of the amounts deposited by them towards the tax arrears of Sultan Karim Mithani. He submitted that since none of the grounds set out in the order dated 9th July, 1991 are sustainable, the said order is liable to be quashed and set aside. 18. Mr.Mistry further submitted that the CIT was not justified in holding that the petitioners’ interest were not affected by the sale and dismissing the appeal filed by the petitioners against the order dated 9th July, 1991. Mr.Mistry submitted that if the disputed property is auctioned on the footing that the said property belongs to Sultan Karim Mithani, then the claim of the petitioners that Mrs.Kamla Chandwani is the owner of 15 the disputed property and she was entitled to create tenancy in favour of the petitioners would be defeated. Apart from that, even the TRO had addressed a letter on 6th November, 1990 to the advocates of Mrs.Kamla Chandwani to the effect that on auction sale of the disputed property the petitioners will have to vacate the said property. In these circumstances, it cannot be said that the auction sale of the disputed property would not affect the interests of the petitioners. 19. Mr.Mistry further submitted that the expression ‘person whose interests are affected by the sale’ in Rule 60 of the Second Schedule to the Act as in Order 21 Rule 89(1) of the CPC must be construed widely so as to include even inchoate rights which a party may have over the property. Relying upon a decision of the Patna High Court in the case of Radharaman Choudhary V/s. Gulab Thakur & Others reported in AIR 1959 Patna 50, Mr.Mistry submitted that the petitioners whose interests were seriously affected by the sale had locus standi to file an application under Rule 60 and both the authorities below committed an error in rejecting the Rule 60 application filed by the petitioners. 20. As regards the order passed by the TRO on 11th July, 1991 confirming the auction sale held on 16 7th November, 1990, Mr.Mistry submitted that under Rule 57(1) of the Second Schedule to the Act, the auction purchaser is required to pay to the TRO 25% of the purchase money immediately on being declared as purchaser and in default of such payment, the property is liable to be resold. Rule 57(2) in the Second Schedule to the Act prescribes a mandatory condition to the effect that full amount of purchase money shall be paid by the purchaser to the TRO on or before the 15th day from the date of sale of the property. Rule 58 of the second schedule to the Act prescribes the procedure to be followed in case of default in payment. In the present case, even condition No.24 set out in the terms and conditions of sale attached to the proclamation of sale provides that under no circumstances the period of 15 days can be extended by any authority. Therefore, on acceptance of the bid for Rs.72,00,000/- given by the respondent No.4 in the auction sale of the disputed property held on 7th November, 1990, it was mandatory on the part of the respondent No.4 to deposit the entire amount of Rs.72,00,000/- on or before the fifteenth day from the date of the sale of the property, that is, on or before 22nd November, 1990. Admittedly, the respondent No.4 has not paid the entire purchase price within the above stipulated time. It is only after the TRO rejected the Rule 60 application of 17 the petitioners on 9th July, 1991 and addressed a letter on 10th July, 1991 calling upon the respondent No.4 to pay the balance purchase price within two days, the respondent No.4 paid the balance amount of Rs.54 lakhs on 11th July, 1991. Mr.Mistry submitted that there is no provision under the Act which empowers the TRO to grant extension or grant grace period for payment of the purchase price. Accordingly, Mr.Mistry submitted that in view of the breach of the mandatory provisions of the Act committed by the respondent No.4 in depositing the entire purchase price within the stipulated time, the sale of disputed property held on 7th November, 1990 had become void, nullity and nonest and, therefore, the TRO could not and ought not to have passed an order on 11th July, 1991 confirming the auction sale of the disputed property held on 7th November, 1990. 21. Relying upon various decisions of the Apex Court and other Courts, including the decision of the Apex Court in the case of Manilal Shah V/s. Sardar Sayed Ahmed reported in AIR 1954 SC 349, Sardara Singh V/s. Sardara Singh reported in (1990) 4 SCC 90 and Rao Mahmood Khan V/s. Ranbir Singh reported in AIR 1995 SC 2195, Mr.Mistry submitted that where the auction purchaser fails to pay the entire purchase price within the stipulated time, the sale is completely wiped off and no discretion 18 is left with any authority to grant extension of time to make payment of the balance purchase price. Accordingly, in the facts and circumstances of the case, the TRO was neither justified in granting extension of time nor justified in passing an order on 11th July, 1991 confirming the auction sale. 22. Mr.Mistry submitted that the conduct of the TRO in postponing the auction sale scheduled to be held on 5th November, 1990 without recording any reasons for postponing the auction was in breach of the mandatory requirement contained in Rule 15 of the Second Schedule to the Act. Similarly, the conduct of the TRO in writing a letter on 6th November, 1990 to the effect that the petitioners will have to vacate the disputed property after the auction sale was contrary to the express terms and conditions set out in the proclamation of sale wherein it was specifically stated that the sale will be on ‘as is and where is basis’ and subject to the tenancy rights claimed by the petitioners who were in possession of the disputed property. In these circumstances, the conduct of the TRO in rejecting the Rule 60