IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.07.2011 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE K.K.SASIDHARAN W.P.No.20225 of 2009 P.Kumaran .. Petitioner -vs- 1. The Debts Recovery Appellate Tribunal No.55, Ethiraj Salai Chennai 600 008 2. The Debts Recovery Tribunal-III No.770-A, Spencers Towers Anna Salai, 5th Floor Chennai 600 002 3. S.Mohamed Siddique Proprietor M/s Data Shoe Company Ltd., No.256, Paper Mills Road Perambur, Chennai 600 011 4. Indian Bank Kolathur Branch Chennai 600 099 5. Mr.Salai Maran Formerly Recovery Officer D.R.T-II Presently Registrar The Debts Recovery Appellate Tribunal No.55, Ethiraj Salai Chennai 600 008 (R5 impleaded as per order of Court dt. 29.3.2010 in M.P.No.2 of 2009 in W.P.No.20225 of 2009) .. Respondents Petition under Article 226 of the Constitution of India, praying for the issue of a Writ of Certiorari, calling for the records pertaining to the order dated 18.9.2008 passed by the 1st respondent Debts Recovery Appellate Tribunal, Chennai in M.A.No.124 of 2008 and M.A.No.225 of 2008 affirming the order of the 2nd respondent dated 27.07.2007 made in M.A.No.14 of 2007 in R.P.No.3 of 2007 in O.A.No.206 of 2007 as well as the consequential order of the 2nd respondent dated 08.09.2009 in M.A.No.20 of 2008 in O.A.No.206 of 2007 and quash the same. https://hcservices.ecourts.gov.in/hcservices/ For Petitioner :: Mr.Vijay Narayan Senior Counsel for Mr.Thomas T.Jacob For Respondents :: Mr.AR.L.Sundaresan Senior Counsel for Mr.M.Venkadeshan for R3 Mr.Jeyesh B.Dolia for M/s Aiyar & Dolia for R4 RR1 & 2 - Tribunal ORDER D.MURUGESAN, J. The writ petition raises an important question as to whether sub-rules (1) and (2) of Rule 57 of the Second Schedule to the Income Tax Act, 1961 empower the Debt Recovery Officer to extend the time prescribed therein for the auction purchaser to pay the purchase money? 2. The petitioner is the auction purchaser and the third respondent is the borrower. The third respondent failed to settle the loan amount, which made the fourth respondent-Indian Bank, Kolathur Branch to initiate recovery proceedings in O.A.No.28 of 2001 before the Debts Recovery Tribunal-II, Chennai and the same was decreed for a sum of Rs.4,46,77,168.31 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 ground that the auction purchaser failed to pay the balance of purchase money within 15 days from the date of confirmation. However, the said application was dismissed on 5.4.2007 on the ground that the auction purchaser had paid the entire balance amount in the extended period and the sale certificate was issued to the petitioner. Aggrieved by that order, the third respondent preferred appeal in M.A.No.14 of 2007 in R.P.No.3 of 2007 in O.A.No.206 of 2007 and the same was allowed by the Debt Recovery Tribunal-III, the second respondent on 27.7.2007 on the ground that the petitioner had not deposited the balance amount within 15 days and ordered for resale after forfeiting 15% of the amount deposited by the petitioner. As against the said order, the https://hcservices.ecourts.gov.in/hcservices/ petitioner filed M.A.No.124 of 2008 and the fourth respondent bank filed M.A.No.225 of 2008 before the Debts Recovery Appellate Tribunal and both the appeals were dismissed on 18.9.2008. Thereafter, the order of the Appellate Tribunal was questioned by the fourth respondent bank in W.P.No.30781 of 2008 and the same was dismissed on 24.4.2008 confirming the order of the Appellate Tribunal. Subsequently, the third respondent filed M.A.No.20 of 2008 in O.A.No.206 of 2007 before the second respondent seeking to cancel the sale certificate issued in favour of the petitioner and to order fresh auction sale. The said application was allowed by the Tribunal on 8.9.2009 and the sale certificate issued in favour of the petitioner was cancelled and the fourth respondent bank was directed to return the sale proceeds. The above orders are questioned by the petitioner in this writ petition. 3. Mr.Vijay Narayan, learned senior counsel appearing for the petitioner would submit that Rule 57(1) of the Second Schedule to the Income Tax Act, 1961 obligates the purchaser to deposit 25 percent of the purchase money immediately on the date of sale. The petitioner has complied with the said condition. However, the petitioner has not paid the balance of 75 percent of the bid amount within 15 days as required under Rule 57(2). Nevertheless, on his request, the petitioner was allowed to deposit the amount even after the prescribed period of 15 days. Hence, the question of forfeiting the 25 percent of the amount deposited under Rule 57(1) on the ground that the petitioner failed to deposit 75 percent as per Rule 57(2) does not arise. Though 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 remaining 75 percent of the bid amount within a period of 15 days as required under sub-rule (2) of Rule 57. He only made a request for extension and that too after a period of 18 days of the prescribed time limit and on such request, the Recovery Officer has extended the period and accepted the balance amount. The action of the Recovery Officer in extending the time for the purchaser to pay the balance of 75 percent is without jurisdiction and hence the sale is a nullity. In support of the said submission, he would rely upon the following judgments of the Apex Court. https://hcservices.ecourts.gov.in/hcservices/ (i)Manilal Mohanlal Shah and others v. Sardar Sayed Ahmed Sayed Mohamad and another, AIR 1954 SC 349. (ii)Sardara Singh (Dead) by LRs and another v. Sardara Singh (Dead) and others, (1990) 4 SCC 90. (iii)Lakshmanansami Gounder v. C.I.T. Selvamani and others, JT 1992 (2) SC 298. (iv)Rao Mahmood Ahmed Khan v. Sh.Ranbir Singh and others, AIR 1995 SC 2195. (v)Balram son of Bhasa Ram v. Ilam Singh and others, (1996) 5 SCC 705. 5. We have considered the submissions of Mr.Vijay Narayan, learned Senior Counsel for the petitioner, Mr.AR.L.Sundaresan, learned Senior Counsel for the third respondent and Mr.Jeyesh B.Dolia for the fourth respondent bank. 6. Before we consider the question as to whether in terms of sub-rules (1) and (2) of Rule 57, the Recovery Officer would have power to extend the time beyond the period prescribed therein to enable the purchaser to pay the full purchase money, we may firstly refer to the judgments cited by Mr.AR.L.Sundaresan, learned Senior Counsel for the third respondent. In Manilal Mohanlal Shah and others v. Sardar Sayed Ahmed Sayed Mohamad and another, AIR 1954 SC 349, the Apex Court had an occasion to consider the question as to whether the payment of full purchase money within the stipulated period is mandatory in terms of Order XXI Rules 84 and 85 of the Civil Procedure Code. That was a case where certain properties were brought for sale in execution of the decree. On the ground that 25 percent of the amount of purchase money was not paid, the sale was sought to be set aside in the wake of the provisions of Order XXI Rule 84, which contemplates that on every sale of immovable property, a person declared to be the purchaser shall pay immediately after such declaration 25 percent of the amount of his purchase money to the officer or other person conducting 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 https://hcservices.ecourts.gov.in/hcservices/ once allowed the set-off and condoned the failure to deposit, the mistake of the Court should not be allowed to prejudice the purchasers who would certainly have deposited the purchase price but for the mistake. We are of the opinion that both the contentions are devoid of substance. In order to resolve this controversy a reference to the relevant rules of Order XXI of the Civil Procedure Code will be necessary. These Rules are 72, 84, 85 and 86: 7. The scheme of the rules quoted above may be shortly stated. A decree-holder cannot purchase property at the court-auction in execution of his own decree without the express permission of the court and that when he does so with such permission, he is entitled to a set-off, but if he does so without such permission, then the court has a discretion to set aside the sale upon the application by the judgment-debtor, or any other person whose interests are affected by the sale (Rule 72). As a matter of pure construction this provision is obviously directory and not mandatory — See Rai Radha Krishna v. Bisheshar Sahay. The moment a person is declared to be the purchaser, he is bound to deposit 25 per cent of the purchase money unless he happens to be the decree-holder, in which case the court may not require him to do so (Rule 84). 8. The provision regarding the deposit of 25 per cent by the purchaser other than the decree- holder is mandatory as the language of the rule suggests. The full amount of the purchase-money must be paid within fifteen days from the date of the sale but the decree-holder is entitled to the advantage of a set-off. The provision for payment is, however, mandatory ... (Rule 85). If the payment is not made within the period of fifteen days, the court has the discretion to forfeit the deposit, and there the discretion ends but the obligation of the court to resell the property is imperative. A further consequence of non-payment is that the defaulting purchaser forfeits all claim to the property... (Rule 86). 11. Having examined the language of the relevant rules and the judicial decisions bearing upon the subject we are of opinion that the provisions of the rules requiring the deposit of 25 per cent of the purchase money immediately on the person being declared as a purchaser and the payment of the balance within 15 days of the sale are mandatory and upon non-compliance with these provisions there is no sale at all. The rules do https://hcservices.ecourts.gov.in/hcservices/ 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 upon its earlier judgment in Manilal Mohanlal Shah's case in that judgment. In both the above cases, the Apex Court considered the issue when the auction purchaser failed to deposit 25 percent of the amount immediately on the date of sale and accordingly held that Order XXI Rule 84 is mandatory and there is no option for the Recovery Officer except to bring the property for resale. 8. The Apex Court in the judgment in Rao Mahmood Ahmed Khan v. Sh.Ranbir Singh and others, AIR 1995 SC 2195 considered Rule 285-D of the U.P. Zamindari Abolition and Land Reforms Act providing that 25 percent of the bid amount should be deposited immediately on the date of sale and on the failure of the purchaser to deposit the 25 percent of the bid amount immediately, the land shall be re-sold. The rule is similar to Rule 84 of Order XXI of Civil Procedure Code and Rule 57(1) of the Second Schedule to the Income Tax Act and the Court found that the rule is mandatory. 9. In Lakshmanansami Gounder v. C.I.T. Selvamani and others, JT 1992 (2) SC 298, the Apex Court considered the provisions of Section 36 of the Tamil Nadu Revenue Recovery Act. Under that section, the bidder should deposit 15% of the price of the land at the time of purchase and the balance consideration within thirty days, failing which the money deposited is liable to forfeiture. As the provision employed the word "shall", the Apex Court ultimately found that the provisions of Section 36 are mandatory. With that finding, the Apex Court held that the confirmation of sale without compliance of the provision was illegal and accordingly declared the sale vitiated by manifest error of law. 10. A similar question came up before the Apex Court in the judgment in Sardara Singh (Dead) by LRs and another v. Sardara Singh https://hcservices.ecourts.gov.in/hcservices/ (Dead) and others, (1990) 4 SCC 90 under Sections 85, 86 and 88 of the Punjab Land Revenue Act which are substantially the same as Order XXI Rules 84 and 85 of the Civil Procedure Code, where the auction purchaser was required to deposit 25 percent of the price offerred on the same date under Section 85 of the said Act. Under Section 86, 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. Under Section 88, after the highest bidder is declared the purchaser on payment of 25 percent of 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 the light of the above decisions, it is to be considered as to whether the ratio laid down by the Apex Court would be applicable to the sale proceedings initiated by the Recovery Officer under the provisions of Second Schedule to the Income Tax Act in the wake of the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act? 12. For better appreciation of the issue in question, a reference to the objects and reasons for the enactment of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is necessary. The Apex Court in the judgment in Mardia Chemicals Ltd., and others v. Union of India and others, (2004) 4 SCC 311 considered the scope of the Act and upheld its validity and held in paragraphs 35 and 36 as follows:- "35. The Narasimhan Committee was constituted in the year 1991 relating to the Financial System prevailing in the country. It considered wide ranging issues relevant to the economy, banking and financing etc. Under Chapter V of the Report under the heading 'Capital Adequacy, Accounting Policies and other Related Matters', it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of banking system. The Committee also suggested for reconstruction of assets saying: "The Committee has looked at the mechanism https://hcservices.ecourts.gov.in/hcservices/ employed under similar circumstances in certain other countries and recommends the setting up of, if necessary by special legislation, a separate institution by the Government of India to be known as 'Assets Reconstruction Fund (ARF) with the express purpose of taking over such assets from banks and financial institutions and subsequently following up on the recovery of dues owed to them from the primary borrowers." While recommending for setting up of special Tribunals, the Committee observed: "Banks and financial institutions at present face considerable difficulties in recovery of dues from the clients and enforcement of security charged to them due to the delay in the legal processes. A significant portion of the funds of banks and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial 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 dues were huge and hope of early recovery was less, it could be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to." 13. After the above report of the Narasimham Committee, yet another committee was constituted headed by Mr.Andhyarujina for bringing about the needed steps within the legal framework. By referring to the above recommendations, the Apex Court in Mardia https://hcservices.ecourts.gov.in/hcservices/ Chemicals case observed as follows:- "Considering the totality of circumstances the financial climate world over, if it was thought as a matter of policy, to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor it is a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy." 14. The Court further observed that some facts which need be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill-effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the governments in creating Debt Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the concerned spheres are desired to move faster. In the present day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. The Court further observed that it cannot be said that a