Case: M/S CONNECTWELL INDUSTRIES PVT.LTD Vs. UNION OF INDIA THROUGH THE MINISTRY OF FINANCE &amp; ORS

2. Biowin Pharma India Ltd. (hereinafter referred to as BPIL)- Respondent No.5 herein obtained a loan from the Union Bank of India. Property situated in Plot No.D- 11 admeasuring 1000 sq. mtrs. situated at Phase-III, Dombivli Industrial Area, MIDC, Kalyan along with plant machinery and building was mortgaged as security to Union Bank of India-Respondent No.5 herein. Respondent No.-5 filed OA No.1836 of 2000 before the Debt Recovery Tribunal III, Mumbai (hereinafter referred as the DRT) for recovery of the loan advanced to BPIL. The DRT allowed the OA filed by Respondent No.5 and directed BPIL to pay a sum of Rs.4,76,14,943.20/- along with interest at the rate of 17.34% per annum from the date of the application till the date of payment and/or realisation. A recovery certificate in terms of the order passed by the DRT was issued and recovery proceedings were initiated against BPIL. The Recovery Officer, DRT III (Respondent No.2) attached the property on 29.11.2002. Respondent No.2 issued a proclamation of sale of the said property on 19.08.2004. A public auction was held on 28.09.2004. The DRT was informed that there were no bidders except the Appellant. The offer made by the Appellant to purchase the property for an amount of Rs.23,00,000/- was accepted by Respondent No.2. On 14.01.2005, a certificate of sale was issued by Respondent No.2 in favour of the Appellant. The possession of the disputed property was handed over to the Appellant on 25.01.2005 by Respondent No.2 and a certificate of sale was registered on 10.01.20063. The Maharashtra Industrial Development Corporation (hereinafter referred to as the MIDC) informed Respondent No.2 that it received a letter dated 23.03.2006 from the Tax Recovery Officer, Range 1, Kalyan, Respondent No.4 herein stating that the property in dispute was attached by Respondent No.4 on 17.06.2003. The Appellant requested the Regional Officer, MIDC by a letter dated 10.04.2006 to transfer the property in dispute in its favour in light of the Sale Certificate issued by DRT on 25.01.2005. As the MIDC failed to transfer the plot in the name of the Appellant, the Appellant filed a Writ Petition before the High Court seeking a direction for issuance of No Objection in respect of the plot and to restrain Respondent No.4 from enforcing the attachment of the said plot, which was performed on 11.02.20034. The question posed before the High Court is whether the Appellant who bona fide purchased the property in auction sale as per the order of the DRT is entitled to have the property transferred in its name in spite of the attachment of the said property by the Income Tax Department. Relying upon Rule 16 of Schedule II to the Act, the High Court came to the conclusion that there can be no transfer of a property which is the subject matter of a notice. The High Court was also of the view that after an order of attachment is made under Rule 16(2), no transfer or delivery of the property or any interest in the property can be made, contrary to such attachment. The High Court held that notice under Rule 2 of Schedule II to the Act was issued on 11.02.2003, and the property in dispute was attached under Rule 48 on 17.06.2003, whereas the sale in favour of the Appellant took place on 09.12.2004 and the sale certificate was issued on 14.01.2005. Therefore, the transfer of the property made subsequent to the issuance of the notice under Rule 2 and the attachment under Rule 48, is void. The submission made on behalf of the Appellant that the sale in favour of the Appellant was at the behest of the DRT and not the defaulter i.e., BPIL was not accepted by the High Court. In view of the above findings, the High Court dismissed the Writ Petition.

Court's reasoning:
8. It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts10. There is no dispute regarding the facts of this case. The property in dispute was mortgaged by BPIL to the Union Bank of India in 2000 and the DRT passed an order of recovery against the BPIL in 2002. The recovery certificate was issued immediately, pursuant to which an attachment order was passed prior to the date on which notice was issued by the Tax Recovery Officer- Respondent No.4 under Rule 2 of Schedule II to the Act. It is true that the sale was conducted after the issuance of the notice as well as the attachment order passed by Respondent No.4 in 2003, but the fact remains that a charge over the property was created much prior to the notice issued by Respondent No.4 on 16.11.2003. The High Court held that Rule 16(2) is applicable to this case on the ground that the actual sale took place after the order of attachment was passed by Respondent No.4. The High Court failed to take into account the fact that the sale of the property was pursuant to the order passed by the DRT with regard to the property over which a charge was already created prior to the issuance of notice on 11.02.2003. As the charge over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Respondent No.4, we find force in the submissions made on behalf of the Appellant.