Delhi High Court
G.N. Gandhi vs Tax Recovery Officer-Iv And Others on 25 August, 1987
Equivalent citations: [1987]168ITR625(DELHI)
Author: S. Ranganathan
Bench: S. Ranganathan
JUDGMENT Ranganathan, J.
1. The petitioner challenges the validity of an auction sale of property No. A-206, defense Colony, New Delhi, which took place on February 27, 1987, at the instance of the Income-tax Department (represented by respondents Nos. 1 and 2). The sale was conducted under the provisions of Schedule II to Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the recovery of arrears of income-tax due from a firm known as Karamchand Pyarelal and its partners (hereinafter referred to as "the assessed").
2. The sale of the property by public auction was initially advertised to be held at 11.30 a.m. on February 19, 1987. Bidders were required to deposit a sum of Rs. 10,000 by way of refundable deposit. The successful bidder had to pay 25% of the sale price of the spot and the balance within 15 days. Clause 5 of the rules and conditions of the sale ran thus :
"The property is leasehold under the president of India. The unearned increase shall be borne by the purchaser in addition to the bid money."
3. Other terms and conditions of the sale are not of much importance. An auction was conducted on the said date. A reserve price of Rs. 13,79,900 is said to have been fixed. It is not found mentioned in the advertisement; it was perhaps mentioned in the proclamation of sale, which has not been placed before us. There were six bidders at the auction. One of them was the petitioner. The first and second respondents also jointly bid for the property. The petitioner bid up to Rs. 12,90,000, respondents Nos. 1 and 2 up to Rs. 13 lakhs. The maximum bid was, however, only Rs. 13,01,000 and, as this fell below the reserve price, the highest bid was rejected. The auction papers of the auctioneer contain an endorsement "closed" by the auctioneer and also contain a signature of respondent No. 1.
4. A second auction sale of the property was conducted of February 27, 1987, at 11.30 a.m. This sale was advertised in the newspapers of the same date. The terms and conditions of sale mentioned in the advertisement were the same as those in the earlier one but with a material difference. In contrast with clause 5 of the earlier advertisement, the corresponding clause in the later one read :
"The property is leasehold under the President of India. The unearned increase will be paid by the Income-tax Department of behalf of the owner of the property."
5. At this auction also, the petitioner as well as respondents Nos. 3 and 4 participated. There were five other bidders. The maximum bid of Rs. 14,13,000 was made by respondents Nos. 3 and 4. The property was "knocked down" in their favor, subject to its confirmation by respondent No. 1. The successful bidders have since deposited not only 25% but the whole of the sale price as required by the terms and conditions of the auction but the confirmation of the sale has been held up by reason of the interim order in this writ petition.
6. The contention of the petitioner is that the sale on February 19, 1987, had been rescinded as it did not fetch the reserve price. According to him, the auction of February 27, 1987, was bad for want of sufficient notice, the advertisement therefore having been published only on the date of the proposed auction. Attention is invited to rule 55 in the Second Schedule to the Act which provides that "No sale... shall...take place until after the expiration of at least thirty days calculated from the date on which a copy of the proclamation of sale has been affixed..."
7. The case of respondents Nos. 1 and 2, however is that the sale on February 27, 1987, was only an adjourned sale. On February 19, 1987, the sale had been adjourned to be held at the same time on February 27, 1987, and this had been announced on the spot on February 19, 1987, itself. They also pointed out that a subsequent written intimation was also sent to all the bidders on February 19, 1987. A fresh advertisement was also inserted in the newspapers of February 27. There was, it is thus claimed, ample notice and full compliance with the rules. It is submitted that, even assuming that there has been some irregularity or defect, the applicant has not suffered substantial injury by reason thereof and is, therefore, not entitled to any relief in view of the specific provisions in this behalf contained in rule 61 of the Second Schedule.
8. When the matter was first heard by us, we were informed that the petitioner and others had moved applications under rule 61 of the Second Schedule to the Act before the Tax Recovery Officer. The hearing of the writ petition was, therefore, adjourned. The applications were dismissed on May 22, 1987. It has subsequently been brought to our notice that a partner of the assessed-firm had preferred an appeal to the Commissioner of Income-tax (Recovery) from the order dated May 22, 1987, and that this has also been dismissed. The petitioners having exhausted their statutory remedies seek relief from this court.
9. Learned counsel for respondents Nos. 1 and 2 has produced before us the original records and we are satisfied that factually there was an adjournment of the sale of February 19, 1987. The endorsement in the auction papers only shows that the proceedings on that day were closed with the rejection of the bid of Rs. 13,01,000. But the order sheet of respondent No. 1 shows that the sale had been adjourned to February 27, 1987, and this fact is also confirmed by the affidavits of respondents Nos. 3 and 4. It is also admitted by the petitioner that he did receive a communication from respondent No. 2 to this effect. This communication is shown to have been sent by petitioner (though, according to him, after the sale was over). But the contents of this letter, written at a time when the present controversy had not arisen, clearly affirm the stand of the Department that the sale on February 19, 1987, had been adjourned to February 27, 1987. We are, therefore, unable to accept the petitioner's contention that the sale had been "rescinded" on February 19, 1987, when it was found that the highest bid was far below the reserve price.
10. We are, however, of the opinion that the sale of February 27, 1987, cannot be taken to be a simple adjournment of continuation of the earlier sale because of a vital change in the terms and conditions of the sale. Rules 52 and 53 of the second schedule to the Act are very material in this respect. They read :
"52. (1) The Tax Recovery Officer may direct that any immovable property which has been attached, or such portion thereof as may seem necessary to satisfy the certificate, shall be sold.
(2) Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district."
"53. A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible, -
(a) the property to be sold;
(b) the revenue, if any, assessed upon the property or any part thereof;
(c) the amount for the recovery of which the sale is ordered;
(cc) the reserve price, if any, below which the property may not be sold; and
(d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property."
11. In tune with the above provision, the first respondent rightly considered it important to insert in the sale proclamation and advertisements, the position regarding the liability for paying the "unearned increase" realised by such sale to Delhi Development Authority (D.D.A.). The plot on which the property stands is leasehold property and under the relevant clauses of the lease deed, 50% of the increase in the market value of the land realised on sale has to be paid to the D.D.A. The advertisements which appeared in respect of the sale on February 19, 1987, apparently consistent with the proclamation of sale drawn up under rule 52(2), specifically mentioned that the share of unearned increase will have to be paid by the purchaser. This condition, however, was replaced in the second advertisement by an announcement that the Income-tax Department would meet this obligation. This was a somewhat incorrect representation for, according to counsel for the Revenue, they had received a clarification from the D.D.A. that no share of the "unearned" increase was payable to it as this was a case of a first sale and, therefore, the Income-tax Department was in fact undertaking no liability in this respect. Also, although it was announced by the auctioneer on the spot on February 27, 1987, that it was a first sale of the property. this was at variance with the announcement made of February 19, 1987, that it was a second sale of the property. Be that as it may, so far as the intending purchasers were concerned, there was a world of difference between the conditions of sale on the two occasions. Considering the fact that 50% share of the unearned increase, if payable, would have been in the region of Rs. 3 or Rs. 4 lakhs atleast, intending purchasers bidding on the second occasion would normally have been prepared to pay for the property a substantially higher price than those on the first occasion. Since the second sale was thus on condition materially different from those of the first, the two must be considered as independent sales. The condition regarding unearned increase was a vital one which had to find a place in the proclamation of sale and any variation therein could have been effected only after drawing up a fresh sale proclamation in terms of rules 52 and 53. It cannot be treated as "continuation" or "adjournment" of the first sale. Moreover, the auction sale on February 19, 1987, had been duly conducted and concluded. A sale may be adjourned when, for some reason, it does not take place at all or when, due to some difficulties, it is not completed on the date on which it is announced to take place. Where, however, it has taken place but does not fetch the reserve price, what has to be ordered is a fresh sale. Thus the sale held on February 27, 1987, was a fresh sale and had to be carried out as such in accordance with the provisions of the statute. In other words, in accordance with the provisions of the statute. In other words, in accordance with rules 52 and 55, a fresh proclamation should have been drawn up and a fresh sale held after allowing the thirty days period provided for in rule 55. This has not been done and so there has been a violation of the statutory requirements in this regard.
12. It is true that the Second Schedule to the Act prescribes certain remedies to the affected parties and these provisions have also been invoked in the present case. We have seen the orders of the Tax Recovery Officer and the Tax Recovery Commissioner which are not in challenge before us. Thus have, perhaps rightly, held that the defaulters could not get relief in view of rule 61(b) and the petitioner because of rule 61(a). In particular, counsel for respondents Nos. 3 and 4 laid considerable emphasis on the fact that the petitioner had suffered no substantial injury and we are inclined to agree. He had been present at the earlier auction and knew of its "adjournment" though he alleges that there had been no adjournment. He had received the letter dated February 23, 1987, on February 27, 1987, and there is nothing to show that he did not receive it before the sale. Admittedly, he saw the advertisement and attended the second auction and, therefore, knew that there was a difference in the sale conditions. He never protested at the site of the auction to respondent No. 1, who was present, about the lack of proper notice. He deposited Rs. 10,000 and thus participated in the auction. The auction papers show he had bid only up to Rs. 12,90,000 on the earlier occasion and the maximum bid was considerably higher on both occasions. As against this, the respondents, who were almost in the same position as the petitioner, utilised the opportunity to improve their bids and also deposited the entire sale proceeds as required and are suffering loss because of the delay in the confirmation of the sale.
13. But the sale in question is not like an auction sale in a litigation between parties inter se held under the Code of Civil Procedure where the remedies have to be sought within the terms of Order 21 of the Code. This is a statutory sale for realisation of public dues and it is imperative that it should be conducted strictly in accordance with the relevant statutory rules and any failure to do so will have to be rectified by judicial intervention. These statutory requirements and safeguards are intended to ensure that the property in question fetches the maximum price possible and only such a sale can redound to the best advantage of not only the defaulter but also of the public revenues. In this case, it is somewhat surprising that the reserve price should have continued to be the same at the second sale despite the vital difference between the two sales referred to above. It is also doubtful whether the difference between the prices of Rs. 14,33,000 and Rs. 13,01,000 fetched at the two sales adequately reflects the impact of that condition, considering particularly that the reserve price had been fixed at Rs. 13,79,000 even for the first sale. But these doubts apart, we think the sale of February 27, 1987, should be set aside for the simple reason that it was a fresh sale and should have been conducted after drawing up a fresh proclamation of sale and after the prescribed period of notice.
14. We, therefore, order accordingly. The sale of February 27, 1987, is set aside and the respondents are directed to conduct the sale of the property afresh in accordance with the statute and the rules. The writ petition is allowed but there will be no order as to costs.
15. Petition allowed.