IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH LPA No. 1621 of 2010 Date of decision: 20.05.2011 M/s Atwal Agro Chemical Mentha Oil Industries and another …..Appellant vs. State Bank of India and ors …..Respondents CORAM: - HON’BLE MR. JUSTICE HEMANT GUPTA HON’BLE MR. JUSTICE A.N.JINDAL Present: - Ms. Jyoti Sareen, Advocate, for the petitioners. Mr. Ashok Gupta, Advocate, for respondent No.1. Mr. R.S. Bhatia, Advocate, for respondent Nos.2 & 3. HEMANT GUPTA, J. Challenge in the present appeal is to an order passed by learned Single Judge on 26.7.2010 whereby the writ petition filed by the appellants challenging the order passed by the Recovery Officer, Debt Recovery Tribunal, Chandigarh Bench, Chandigarh on 15.5.2007 was dismissed. In an original application filed by the State Bank of India before the Debt Recovery Tribunal, Chandigarh Bench, Chandigarh, the parties entered into a one time settlement before the Lok Adalat whereby the appellant agreed to pay Rs. 21.95 lacs plus interest @ 10% within one year, excluding the amount of Rs. 9.56 lacs on account of subsidy, which was to be claimed by the Bank from the Industries Department, Punjab. The Bank sought issuance of the recovery certificate, since, there was a default on the part of the appellants to make payment as per the settlement. Such recovery certificate was issued on 30.12.2004. It was in pursuance of the said recovery certificate, the Recovery officer issued a notice dated 13.12.2006 for settling the terms of proclamation of sale for 18.12.2006. LPA No. 1621 of 2010 On the said date, the Recovery Officer settled the terms of the proclamation of sale fixing and determining the reserve price for each of the three lots. The public auction was ordered to be conducted at 11.A.M. on 22.1.2007 at the road side of the Bus Stop at the entry of Village Bhagoran. After the auction was conducted on 22.1.2007, the appellants herein filed the objections on 30.1.2007 (Annexure P-4). The objections, inter alia, are that the substantial amount has been paid by the appellants during the pendency of the original application but the same has not been accounted in the recovery certificate dated 20.12.2004. An application for modification of the recovery certificate is pending. It is also pointed out that the in terms of Rule 48 of second schedule to Income Tax Act 1961, (for short the ‘1961 Act’) the property has not been attached prior to the issuance of the proclamation of sale and that the Recovery Officer has not called for the latest valuation report from the Bank before the issuance of the proclamation of sale. It is also pointed out that as per the order of proclamation of sale dated 18.12.2006, the property was to be auctioned by way of public auction at the road side of the Bus Stop at the entry of Village Bhagoran but no action has been taken regarding the auction of the spot aforementioned. It is also asserted by learned counsel for the appellants that neither any publicity regarding the proclamation of sale was made by beat of drum nor any publication was made in the newspaper and no video film has been made. Therefore, the entire auction proceedings stands vitiated. It is said to be sham transaction. Such objections filed by the appellants have been dismissed by the learned Recovery Officer on 15.5.2007, primarily for the reasons that the appellants has not deposited the amount in terms of Rule 61 of the Rules contained in the second schedule of 1961 Act which alone will entitle to the appellant herein for the consideration of the objections filed. It is also found that the auction purchaser has deposited the full and final amount of the sale 2 LPA No. 1621 of 2010 proceeds. Therefore, while dismissing the objections, sale in favour of the auction purchaser was confirmed. In the writ petition challenging the aforesaid order, learned Single Judge has held that no prejudice has been caused, on account of the procedural irregularities in the conduct of the auction at the site in lieu of the bus stand. It is also found that the co-villagers are invariably reluctant to participate in such like auctions, therefore, the outside bidders came and participated. Learned counsel for the appellants has vehemently argued that the provisions of second schedule are applicable as far as possible with necessary modifications in terms of Section 29 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short ‘the Act’). The condition of deposit of the amount recoverable is not mutatis mutandis applicable to the sales under the Debt Recovery Act. Thus, the condition of deposit of the amount recoverable in terms of Rule 61 is not mandatory. It is so held by learned Single Bench in M/s National Rice and General Mills, Jagraon and others Vs. Bank of India and others, C.W.P. No. 19113 of 2005, Decided on 27.11.2008, wherein the court held: - “……..The Court is, therefore, under a bounden duty to scrutinize first that the deposit has been made in compliance of Rule 60 with regard to the deposit of the money and then to see whether such irregularity which has surfaced has caused any substantial injury to the objector and also to see whether such a deposit is necessary. All this has to be inferred judiciously from the facts of each case. Thus, it is to be seen as to whether the rules enshrined in Second and Third Schedules of 1961 Act are mandatory or directory and regulatory. A reading of Section 29 of the Act of 1993 clearly shows that such rules shall, as far as possible apply with necessary modifications to the amount of debt due under this Act. It is, therefore, amply evident that all these rules which regulate the procedure for sale and also deal with post auction objections are not mandatory and are meant for sale and unfair muscle flexing by the financial bodies do not take place…...” 3 LPA No. 1621 of 2010 Learned counsel for the respondents, on the other hand, contended that in view of Section 29 of the Act, the provisions of second and third schedule to the 1961 Act in respect of recovery of the amount of debt due under 1993 Act. It is contended that the provisions of Income-tax Act and the Income-tax (Certificate Proceedings) Rules, 1962 “as far as possible apply with necessary modifications” to the proceedings under the Act. The expression used in the 1961 Act, as ‘Income Tax’ and the assessment orders, to be read in the context of proceedings under the Debt Recovery Tribunal Act, as the amount due. There is nothing in Rules 60 or 61, which cannot be made applicable in respect of proceedings under the Act, therefore, such rule is applicable, as it is to the procedure for recovery under the Act with such modifications as are necessary to give effect to the provisions of the Act for expeditious recovery of public money. Learned counsel for the respondents have relied upon a Division Bench judgment of Delhi High Court reported as M.S.Comet Garments (P) Ltd. & others Vs. Recovery Officer, Debt Recovery Tribunal & others, II (2000) BC 610 (DB), wherein it has been held to the following effect: “17. …..Such an application, in view of the specific objection raised by the Bank ought not to have been allowed by the Recovery Officer in view of the requirement of proviso (b) to Rule 61. It expressly requires that an application shall be disallowed unless the applicant deposits the amount recoverable from him in execution of the certificate. Despite objection from the Bank, no effort was made by respondent No.1 to get the amount deposited from respondents 2 to 5 before considering or entertaining the objections. Deposit of the amount alone would have entitled respondents 2 to 5 to maintain their application. Otherwise on a plain reading of Rule 61, it was mandatory for the Recovery Officer to have disallowed the application. Deposit of the amount being a jurisdictional requirement, respondent No.1 acted without jurisdiction in proceeding ahead to entertain and decide the application of respondents 2 to 5 without insisting upon deposit of the amount from the said respondents. In case no deposit was made by respondents 2 to 5 of the 4 LPA No. 1621 of 2010 amount recoverable from them, respondent No.1 ought to have assumed that there was no application before him for setting aside the sale, as provided in Rule 61. …. ” Learned counsel for the respondents also relied upon the decision in the Letters Patent Appeal against the judgment relied upon by the appellant, wherein it was held that the objection was not filed by the appellants as per provisions of Rules 60 and 61 of the Rules contained in Second Schedule of the 1961 Act and that they had not made the mandatory deposit of amount before challenging the sale of the properties. It is contended that the observations on which, learned counsel for the appellant has relied upon, have not been approved in appeal. Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Rule 61 of Second Schedule of the Income Tax Act read 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 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.” “61. Where immovable property has been sold in execution of a certificate, [such Income Tax Officer as may be authorized by the Chief Commissioner or Commissioner in this behalf], the defaulter, or any person whose interests are affected by the sale, may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale of the immovable property on the ground that notice was not served on the defaulter to pay the arrears as required by this Schedule or on the ground of a material irregularity in publishing or conducting the sale; Provided that – 5 LPA No. 1621 of 2010 (a) no sale shall be set aside on any such ground unless the Tax Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of the non-service or irregularity; and (b) an application made by a defaulter under this rule shall be disallowed unless the applicant deposits the amount recoverable from him in the execution of the certificate.” After hearing learned counsel for the parties, we are of the opinion that the expression in Section 29 of the Act “as far as possible applies with necessary modifications” does not lead to inference that the proviso to Rule 61 is not applicable in respect of proceedings for setting aside of sale conducted under 1993 Act. The expression ‘as far as possible’ has been used in view of the fact that the provisions of altogether different Act have been extended in respect of sale under the Act. Certain provisions of such rule cannot be used by the Debt Recovery Tribunal or the Recovery Officer keeping in view the peculiarity of the Rules enacted in relation to tax recovery process. The expression ‘apply with such necessary modifications’ is in relation to contextual reading of the provisions of Second and Third Schedule of the Income Tax Act to be read as the Schedule for recovery of debt under Act. Such provision does not lead to inference that the proviso to Rule 61 is not applicable to the recovery proceedings before the Debt Recovery Tribunal. Apart from the said fact, in Samir K. Shah v. Union of India, (2005) 10 SCC 134, the proclamation of sale has been issued on the basis of valuation without hearing the debtor and without making the report of valuation available to the debtor. The Hon’ble Supreme Court found that the provisions of Order 21 Rule 61 of the CPC expressly require that the sale proclamation to be issued in view of the estimate value of the property, if any, given by either or both of the parties. But there is no corresponding provision in Rule 52 or Rule 53 of the Schedule of Income Tax Act, 1961 or any other rule which has been incorporated into Act by Section 29. Therefore, Rule 61 of second schedule of 6 LPA No. 1621 of 2010 1961 Act is applicable to the recovery proceedings before the Debt Recovery Tribunal and or Recovery Officer with the modifications mentioned in Section 29 of the Act. The principles settled while interpreting the provisions of Code of Civil Procedure cannot be extended while considering the provisions of the Act. The proviso (b) in Rule 61 mandates that the application for deposit has to be disallowed, if the amount recoverable has not been deposited. In terms of such proviso, the consequences of non-deposit are mentioned in the proviso itself i.e. the application has to be disallowed. Therefore, such proviso is mandatory. That is the view taken by the Division Bench of Delhi High Court in M.S.Comet Garments (P) Ltd. case (supra). Since the appellant has not deposited the amount recoverable, therefore, the objections filed by the appellant were rightly not entertained. Though the objections could not be entertained in the absence of deposit of the amount recoverable, but we have proceeded to examine the merits of such objections as well. Learned counsel for the appellants argued that the auction was conducted at a place which was not ordered. The order dated 18.12.2006 was to conduct the public auction at a bus stand but the same was conducted at the site of the property. To controvert the said argument, learned counsel for the respondent produced the certified copy of the advertisement published for proclamation of sale meant for information to the general public from the records of the Debts Recovery Tribunal in support of the argument that the Recovery Officer has ordered the conduct of auction at the site of the property. The advertisement issued in the newspaper specified the date, time and venue of auction as 22.1.2007 at 11.A.M. at site i.e. in the Village of the property. The general public was informed only of the auction at the site. The order of sale at 7 LPA No. 1621 of 2010 Bus Stand was though part of record but the same was not given effect to any subsequent stage. Learned counsel for the appellants pointed out that the advertisements published are not the part of the record of this court and that no such plea has been raised by the respondents in the reply filed, therefore, such fact cannot be permitted to be taken into consideration. We find that the advertisement is part of the record of Tribunal. Its authenticity cannot be disputed, therefore, we do not find that conduct of auction at the property site has caused any prejudice to any person and is not a material irregularity which may vitiate auction, though the objections itself are not maintainable in the absence of deposit as discussed above. Learned counsel for the appellant argues that there is violation of principle of natural justice, as sufficient opportunity was not given to the appellant before the issuance of proclamation of sale. It is contended that the notice dated 13.12.2006 was served for the hearing on 18.12.2006. Since sufficient time was not given, therefore, the order passed by the Recovery Officer on 18.12.2006 is not sustainable. A perusal of the record transpires that a counsel for the appellant was appearing before the Debt Recovery Tribunal since the filing of the original application. It has also come on record that earlier proclamations of sale were ordered twice, but auctions could not be conducted as no bidder come to join the auction. The order dated 18.12.2006 was passed in the presence of counsel for the appellant and, therefore, it cannot be said that the same violates the principle of natural justice. Learned counsel for the appellants further argues that there was higher bid submitted by one Sita Ram within one month of the auction conducted at the spot. Therefore, the Recovery Officer has not attempted to obtain the optimum price. 8 LPA No. 1621 of 2010 The setting aside of sale on deposit is contemplated under Rule 60 of Second Schedule of the Income Tax Act. The offer submitted by Sita Ram is not in terms of Rule 60 of the Second Schedule, thus, such offer could not have been entertained and has not been rightly entertained by the Recovery Officer. The argument that the property was not attached before issuance of sale of proclamation is again not tenable for the reason that the property sold is a mortgaged property. Rule 48 of the Second Schedule is applicable, if the immovable property to be sold is not mortgaged property. In a mortgaged property, the Bank has a interest in the property, whereas Rule 48 is applicable in respect of the immoveable property of the defaulter over which the secured creditor has no interest. In view of the above, we do not find any illegality or irregularity in the order passed by the learned Single Judge, which may warrant any interference in the present appeal. Dismissed. (HEMANT GUPTA) JUDGE 20.05.2011 (A.N.JINDAL) preeti/Vimal JUDGE 9