Orissa High Court
Bajaj Finance Limited vs The Tax Recovery Officer (1) on 23 August, 2023
Author: Arindam Sinha
Bench: Arindam Sinha
IN THE HIGH COURT OF ORISSA, CUTTACK
WP(C) No.19005 of 2023
Bajaj Finance Limited ....... Petitioner
-Versus-
The Tax Recovery Officer (1), ....... Opposite Parties
Bhubaneswar and others
Advocates appeared in the case:
For petitioner - Mr. Ramachandra Panigrahy
For opposite parties - Mr. Tushar Kanti Satapathy,
Senior Standing Counsel
(for opposite party no.1)
Mr. S. P. Mishra, Senior Advocate
(for opposite party no.2)
CORAM:
JUSTICE ARINDAM SINHA
JUSTICE SANJAY KUMAR MISHRA
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Dates of hearing : 22.06.2023 and 23.08.2023
Date of Judgment : 23.08.2023
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ARINDAM SINHA, J.
1. Mr. Panigrahy, learned advocate appears on behalf of petitioner, a finance company. He submits, opposite party no.2 is borrower from his client. Said opposite party created mortgage in respect of the property, being land and construction thereon, to secure repayment.
His client has challenged order dated 22nd February, 2023 made by the Tax Recovery Officer (TRO) in declaring the mortgage to be void and proceeding to attach the property. He seeks interference.
2. Mr. Satapathy, learned advocate, Senior Standing Counsel appears on behalf of revenue. Mr. Mishra, learned senior advocate appears on behalf of the borrower.
3. The writ petition was moved on 22nd June, 2023. We reproduce below paragraph 4 from our order made that day.
" 4. Adjournment is granted to the parties and particularly opposite parties to demonstrate from impugned order that there has been a finding on date of creation of the equitable mortgage for the consequent finding that it was later."
4. Mr. Panigrahy hands up documents to demonstrate that equitable mortgage created by the borrower was on 29th March, 2016 duly registered. He relies on several judgments including of coordinate Bench.
(i) Judgment of the Supreme Court in Tax Recovery Officer, Nagpur v. Gangadhar Vishwanath Ranade, reported in AIR 1999 SC 427. He relies on paragraph 9.Page 2 of 14
WP(C) no.19005 of 2023
(ii) Judgment of the Supreme Court in Connectwell Industries (P) Ltd. v. Union of India, reported in (2020) 5 SCC 373. He relies on paragraph 9.
(iii) Order dated 2nd December, 2022 made by coordinate Bench in, inter alia, RVWPET no.156 of 2022, arising out of W.P.(C) no.26500 of 2021 (M/s. Maa Kalika Bhandar and others vs. the Collector and District Magistrate, Khordha and others). He relies on paragraph 9.
5. Mr. Panigrahy then relies on section 26-E of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 to submit, with effect from 1st September, 2016 overriding effect and priority was given to secured creditors over claims, inter alia, of revenue, tax, cess etc. He also relies on section 31-B in Recovery of Debts and Bankruptcy Act, 1993 to demonstrate that with effect also from 1st September, 2016 said Act gives priority to secured creditors. He submits, there be interference in quashing impugned order, which does not even indicate finding on when the mortgage was created by the borrower.
6. Mr. Satapathy submits, counter is required to be filed. He points out, when the writ petition was moved, direction was not made for filing counter and today he seeks it. On query from Court, he is unable to point out from impugned order that there is finding as to when the Page 3 of 14 WP(C) no.19005 of 2023 mortgage was created by the borrower. He refers to impugned order to point out that several notices stood issued by the Assessing Officer (AO) to the borrower, including notice dated 23rd September, 2013 under section 143(2) of Income Tax Act, 1961, pertaining to assessment year 2012-2013. Addressee of the notice was borrower. He relies on several passages in impugned order, of which we reproduce below 2nd last paragraph in it.
"In the instance case, clear and
unambiguous facts demonstrate that the
proceedings under Income Tax Act, 1961 were
instituted prior to creation of equitable mortgage, this fact is corroborated with the information received from CERSAI under rule 83 of the Second Schedule to the Income Tax Act, 1961. Hence, the equitable mortgage created by the bank being a subsequent transaction is void in terms of the provisions of section 281 of the Act."
He submits, the writ petition is not maintainable as petitioner has efficacious alternative remedy of appeal under rule 86 in Part-VI of the Second Schedule.
7. Mr. Mishra, learned senior advocate appears on behalf of the borrower and submits, Gangadhar Vishwanath Ranade (supra) is Page 4 of 14 WP(C) no.19005 of 2023 inapplicable in law. This is because the judgment was rendered on provision in section 281 before amendment w.e.f. 1st October, 1975. Interpretation of the earlier provision required revenue to have adjudication by civil suit. It is no longer required under present provision.
8. He then submits with reference to above quoted paragraph from impugned order that there is reference to information received from CERSAI under rule 83 of the Second Schedule. Such information carried date of creation of mortgage and hence, it cannot be said there was no finding regarding date of creation of mortgage in impugned order. Furthermore, rule 11 in the Second Schedule requires petitioner to prefer objection to the attachment made in execution of the certificate, for there to be investigation regarding the objection. He also relies sub-rule (6) in rule 11, which gives option to the objector to institute a suit in a civil Court to establish the right, on it rejected by the investigating officer. Mr. Panigrahy responds, by letter dated 26th April, 2022, objection was raised by his client pointing out that the certificate case was initiated on 23rd March, 2020.
9. Paragraph 9 from Gangadhar Vishwanath Ranade (supra) is reproduced below.
Page 5 of 14 WP(C) no.19005 of 2023 "9. The Tax Recovery Officer, therefore, has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11 (6) to have the transfer declared void under Section 281."
Paragraph 9 from Connectwell Industries (supra) is reproduced below.
"9. 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 debts. [See; Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., Union of India v. SICOM Ltd., Bombay Stock Exchange v. V.S. Kandalgaonkar, CIT v. Monnet Ispat & Energy Ltd.]"
We find, the Supreme Court in Gangadhar Vishwanath Ranade (supra), by relied upon paragraph 9 declared the law on interpretation of section 281, as it stood prior to the amendment w.e.f. 1st October, 1975. The judgment does not come in aid of petitioner. Present provision omitted requirement of finding intention of borrower to Page 6 of 14 WP(C) no.19005 of 2023 defraud revenue. Connectwell Industries (supra) declared, 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 debts. On facts, the Supreme Court found notice under rule 2 was issued on 11th February, 2003 but charge over the property created in favour of the financier was much prior. The Court held, as the charge over the property was created much prior to notice under rule 2, therein appellant's submission had force being that rigors of rule 2 and rule 16 in Schedule II were not applicable to the case. Further argument was that Government debt in India is not entitled to have precedence over prior secured debt. Here we may add, the judgment comes to aid of petitioner not on point of reference of dates but that there must be clear finding on date of creation of the mortgage.
10. Moving on to order dated 2nd December, 2022 (supra) we find fit to reproduce below a passage from paragraph 6 in the order dealing with the review applications.
"6. Mr. T.K. Satapathy, learned counsel for the Review Petitioner Nos. 2 & 4/Income Tax Department argues that the properties in Writ Petitions W.P.(C) No.26500/2021 & W.P.(C) No.27775 of 2021 were attached by the Income Tax Page 7 of 14 WP(C) no.19005 of 2023 Department prior to their mortgage in favour of the Bank on 28.06.2016 and hence the mortgage is void in terms of the provisions U/s.281 of the Income Tax Act and the corresponding relevant rules. It is his contention that the property was mortgaged in favour of the Bank on 28.06.2016 whereas the Income Tax Authorities had attached the same on 31.12.2015. Hence, the mortgaged transaction in favour of the Bank is void."
(emphasis supplied) In above case, the borrower had moved the writ Court challenging enforcement for recovery by the mortgagee bank. Contention of the borrower was that the mortgage could not be enforced for recovery by the bank inasmuch as it was created after there was attachment under the Income Tax Act. Hence, by operation of provision in section 281, the mortgage was void. This challenge of the borrower was relegated to the Debts Recovery Tribunal (DRT), wherein the bank and the borrower had already initiated proceedings regarding recovery under the Act of 2002. However, petitioner here is the finance company, a secured creditor seeking interference as impugned order affects its interest of obtaining recovery under the mortgage. On query from Court, Mr. Panigrahy submits, recovery proceeding under the Act of Page 8 of 14 WP(C) no.19005 of 2023 2002 had already been launched by his client. The borrower challenged the same in the DRT. Said challenge of the borrower in the DRT is the same challenge it had made against the bank, in the review petition disposed of by order dated 2nd December, 2022 (supra). The borrower is obstructing recovery in alleging the mortgage having been declared void by revenue, to continue to enjoy the property.
11. Reverting back to our extracted paragraph 4 from our order dated 22nd June, 2023 we find from submissions at the Bar there is no dispute on fact regarding creation of the mortgage. However, in impugned order there is omission of finding regarding date of creation of the mortgage. We reproduce below another passage from impugned order.
"In the instant case, clear and unambiguous facts demonstrate that the proceedings under Income Tax Act, 1961 were instituted prior to creation of equitable mortgage, this fact is corroborated with the information received from CERSAI under rule 83 of the Second Schedule to the Income Tax Act, 1961. Hence, the equitable mortgage created by the bank being a subsequent transaction is void in terms of the provisions of section 281 of the Act."Page 9 of 14
WP(C) no.19005 of 2023 We enquired of revenue and the borrower regarding finding on initiation of the proceeding, based on which the authority declared creation of the mortgage as void. Mr. Satapathy points out from impugned order that apart from aforesaid notices, there is reference to survey under section 133A, conducted at business premises of the borrower on 31st December, 2015. He submits consequent to the survey there was demand notice and there has been issuance of certificate. Mr. Mishra relies on immediately above quoted passage from impugned order to reiterate, mention of information received from CERSAI is deemed to include date of creation of the mortgage and the authority has said, clear and unambiguous facts demonstrate that the proceeding under Income Tax Act was instituted prior to creation of equitable mortgage. Mr. Panigrahy draws attention to letter dated 15th March, 2022 issued by revenue to his client in respect of the proceeding against the borrower pertaining to assessment year 2016- 17, wherein there is clear statement that the certificate case is dated 23rd March, 2020.
12. We also reproduce below paragraph 9 of order dated 2nd December, 2022 (supra).
Page 10 of 14 WP(C) no.19005 of 2023 " 9. It cannot be disputed that the question whether the attachment of the mortgaged property by the Tax Department or "any proceedings" stood initiated by the Income Tax Department prior to the mortgage are serious questions of disputed facts, which cannot be decided in writ jurisdiction under Article 226. The Income Tax Department was well within its right to seek a declaration of transaction being void before the forum of appropriate jurisdiction before seeking its simple impleadment before this Court, which concededly has not been done till now. Therefore, relegating the parties to seek adjudication on this issue by our order cannot be faulted with by any stretch of reasoning. The Income Tax Department is also free to seek its remedy before the appropriate forum including DRT to establish by leading cogent evidence that the action had been initiated which constituted "proceedings" prior in time of creation of an equitable mortgage in favour of the Bank so as to seek a declaration of the mortgage being void or the attachment being prior in time so as to seek a priority of charge. The Secured Creditor/Bank would be equally free to stress the impact of Section 26(E) and Section 31(B) of the SARFAESI Act, 2002 qua the priority of the claim. Accordingly, the adjudication before this Court in view of Section 281 of the Income Tax Act is also rejected. However, we observe that the Page 11 of 14 WP(C) no.19005 of 2023 I.T. Department and the parties would be free to raise all these pleas before the DRT for adjudication in accordance with law."
13. Section 281 on amendment with effect from 1st October, 1975 provides for certain transfers to be void. The voidable transfer is to be shown as made during pendency of any proceeding under the Act of 1961 or after the completion thereof but before service of notice under rule 2 of the Second Schedule, resulting in a claim in respect of any tax or any other sum payable by the assessee on completion of the proceeding. Clause (i) in the proviso excepts the transfer from being void if made for adequate consideration and without notice of pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee. Impugned order does not give illumination regarding the assessment proceeding pursuant to notices issued under provisions of assessment procedure, referred therein, as had resulted, on completion of the proceeding, in a claim of tax requiring the TRO to certify the claim and thereafter declare the mortgage void. There is also no finding in impugned order that the mortgage was created after notice of the tax or other sum payable by the mortgagor assessee as a result of completion of the assessment Page 12 of 14 WP(C) no.19005 of 2023 proceeding in respect of one or more of the assessment years referred to in the mentioned notices.
14. By impugned order valuable right of recovery of petitioner as secured creditor was sought to be interfered with. We notice that impugned order was made after order dated 2nd December, 2022 (supra) giving liberty to both, borrower and revenue, there being connection between said and present borrowers to be essentially the same person, to approach the DRT or any other forum for ventilating their grievance. We are told, instead of so doing, in this case revenue has issued impugned order. As aforesaid, from it we have been unable to locate finding on date of initiation of proceeding as prior to date of creation of the mortgage. Neither of the two dates have been mentioned in impugned order. In the circumstances, impugned order is bad for being vague. We are fortified in taking such view, without going into enquiry on documents referred to in impugned order, by judgment of the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner, reported in AIR 1978 SC 851.
15. Omission to mention finding on dates of initiation of proceeding and creation of the mortgage, to demonstrate that the mortgage was created subsequent to initiation of the proceeding cannot be supplied Page 13 of 14 WP(C) no.19005 of 2023 on contention that the Tax Recovery Officer has power under rule 83 in the Second Schedule empowering him to take evidence exercising power of civil Court. The power is undoubtedly there and the officer has and had the power but in exercise of the power there must be laid evidence to substantiate declaration of the mortgage being void. So far as rule 86 is concerned, revenue was not heard to argue that impugned order is not one, which is conclusive in declaring the mortgage void.
16. Impugned order is set aside and quashed.
17. The interim order stands vacated. The writ petition is allowed and disposed of.
(Arindam Sinha) Judge (S. K. Mishra) Judge P.C.Dash Signature Not Verified Digitally Signed Signed by: PADMA CHARAN DASH Designation: Secretary In-Charge Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 24-Aug-2023 16:39:08 Page 14 of 14 WP(C) no.19005 of 2023