Gujarat High Court
Panchmahal Steel Limited vs The Bank Of Baroda And 10 Ors. on 25 April, 2008
Equivalent citations: AIR 2008 (NOC) 2716 (GUJ.), 2009 (1) AJHAR (NOC) 27 (GUJ.)
Author: S.R. Brahmbhatt
Bench: S.R. Brahmbhatt
JUDGMENT S.R. Brahmbhatt, J.
1. The petitioner, a Company incorporated under the Companies Act, 1956, has approached this Court under Article 226 of the Constitution of India, challenging:
i. The order dated 1/11/2007 passed by the Debts Recovery Appellate Tribunal, Bombay; in Misc. Appeal No. 217 of 2007 ii. The Order dated 29/10/2007 passed by Debts Recovery Tribunal, Ahmedabad in Appeal No. 18/A of 2007 to the extent it held that the appeal was not maintainable against the order of Learned Recovery Officer till the attachment / seizure of the movables takes place;
iii. The Order dated 22/10/2007 passed by learned Recovery Officer, Debts Recovery Tribunal - II, Ahmedabad in the Recovery Proceedings No. 1503 as perverse, unjust, improper, bad in law and requires to be quashed and set aside.
2. The Respondent No. 1 is a nationalized Bank and a certificate holder against Respondent No. 2 to 10. Respondents Nos. 3 to 10 are guarantors to Respondent No. 1. Respondent No. 11 is another creditor to certificate debtor Nos. 2 to 10.
3. The facts in brief leading to filing this petition deserves to be set out as under.
(i) The Respondent No. 1 filed Original Application No. 77 of 1997 against Respondent Nos. 2 to 10, which came to be allowed by Debts Recovery Tribunal, Ahmedabad ['DRT Ahmedabad' for brevity], vide its order dated 7/1/2003. Pursuant thereto recovery proceedings bearing No. 1503 has been initiated by the Recovery Officer. In the said recovery proceedings No. 1503, Respondent No. 1 on 16.05.2007 filed an application for attachment and sale of Nickel from 3rd party i.e. petitioner on the ground that said Nickel was Hypothecated by Respondent No. 2, the Certificate debtor to the Respondent No. 1 Certificate Holder Bank and it was allegedly lent by Respondent Certificate debtor to the petitioner in the year 1986 contrary to the provisions of Export and Import Policy and orders then prevalent. Respondent No. 1 claimed that at the relevant time on account of hypothecation agreement between Respondent No. 1 Bank and Respondent No. 2 it could not have lent the same to present petitioner in the year 1986 as it was under it"s charge and otherwise also it"s transfer was regulated by Import Export Policy and restrictive orders made there under. The Respondent No. 1 has stated in the application for attachment that as the nickel was not available in the market the petitioner approached Respondent No. 2 and demanded nickel on loan basis and promised that as and when the petitioner would receive their quota of nickel petitioner would return the same quantity of nickel to Respondent No. 2. It has been claimed by the Respondent No. 1 that said nickel is in possession of the petitioner not as owner but for & on behalf of Respondent No. 2 as an agent of Respondent No. 2, and that the petitioner is not the owner of the said nickel as the petitioner has not purchased and Respondent No. 2 has not sold the same. It is alleged that the petitioner has no ownership right on the said nickel and therefore the petitioner has no right to possess the same. The Recovery Officer, DRT Ahmedabad vide its order dated 18/5/2007 issued show cause notice under Section 25 (a) of the Recovery Of Debts Due To Bank And Financial Institutions Act 1993 (here-in-after referred to as the 'Recovery Act' for short) to the petitioner as to why the movable being nickel should not be attached and sold to recover the certified dues of Respondent No. 1 within a period of 30 days thereafter. Respondent No. 4 to 7, 9 and 10 inter alia filed their affidavits-in-reply to the said notice. The petitioner was neither a party to the Original Application nor any averments were made in the said application against the petitioner. In this view of the matter the petitioner was a third party, therefore entitled to file objection which had been filed on 20/6/2007 for recalling the show cause notice issued under Section 25(a) of the Recovery Act. The petitioner also filed application-seeking direction to the Respondent No. 1 to produce documents on the basis whereof the claim against the petitioner had been made.
(ii) The petitioner denied claim of the Respondent No. 1 with regard to ownership of the nickel. It was further contention of the petitioner that the petitioner gave amount/value against the nickel and the said amount was deposited in the advance account of the respondent No. 2 with the respondent No. 1 bank. This fact clearly show that the transaction between petitioner and Respondent No. 1 was not of loan as alleged by Respondent No. 1. The Respondent No. 1 after having received money equivalent to the price of the nickel alleged to have been taken on loan, for the reasons best known to it and as the price of nickel had gone up in the market requested the petitioner to return the quantity of Nickel lent to them and filed civil suit being Civil Suit No. 260 of 1988 against the petitioner before the Learned Civil Judge (SD) Vadodara valued at Rs. 22.20 lacs for recovering the said material. The petitioner contested the suit on various grounds that the entire transaction was void ab initio and it was governed by Import Export Management, Orders, Rules, & Regulations etc. Learned Civil Judge, Vadodara heard the matter and passed the order that the petitioner should maintain stock of 27 M.T. Of nickel till final disposal of the suit and further directed the petitioner to submit affidavit every month in the Court. 4. Being aggrieved by the said order, petitioner preferred Appeal From Order before this Court being A.O. No: 500 of 1988 wherein this Court on 3/7/1989 modified the order and directed the petitioner to maintain stock of 13.5 M.T. Nickel in Ferro Nickel contents and also directed to file affidavit every month disclosing the same. The petitioner is complying with the said direction.
5. The Recovery Officer rejected petitioner's objection vide his order dated October 22, 2007 and issued Order of Attachment for attaching and selling movable property from the present petitioner being nickel lying at Kalol, district Panchmahal. Petitioner challenged the said order of learned Recovery Officer by way of filing Appeal under Section 30 of the Recovery Act before DRT, Ahmedabad which registered the appeal as Appeal No. 18/A of 2007. In terms of paragraph No. 7 of the aforesaid appeal, the petitioner prayed for staying operation, implementation and enforcement of the impugned order dated October 22, 2007. The said appeal was taken up for hearing on 26/10/2007 and the DRT, Ahmedabad vide its order dated 29/10/2007 issued show cause notice upon Respondents and made the same returnable on 5/11/2007. The DRT, Ahmedabad did not grant ex-parte relief in terms of para 7 (b) of the appeal memo. Being aggrieved with the said order of 29/10/2007 passed by the DRT, Ahmedabad, refusing to grant interim relief, petitioner filed Appeal under Section 20 of the Recovery Act before the Debts Recovery Appellate Tribunal, Mumbai on 30/10/2007. Said appeal was heard on the same day and the Debts Recovery Appellate Tribunal, Mumbai ['DRAT' Mumbai for brevity] was pleased to grant ad-interim stay. The DRAT, Mumbai disposed of Misc. Appeal No. 217 of 2007 observing that ad-interim relief order of not taking possession shall be continued up to 5/11/2007, but in the meantime petitioner shall allow Respondent No. 1 to take inventory of the property and attach the nickel. Being aggrieved and dissatisfied with the aforesaid order present petition is filed under Article 226 of the Constitution of India.
6. This Court [Coram: R.M.Doshit J] on 05.11.2007 issued Rule and granted ad-interim stay against the attachment of the quantity of Nickel in question on condition that the petitioner Company will continue to maintain stock of 13.5 MT of Nickel as directed by this Court on 3rd, July 1989.
7. Learned Counsel for the petitioner submitted that the Recovery Officer DRT Ahmedabad ought to have accepted their submissions and recalled the notice dated 22.05.2007. The Recovery Officer, DRT Ahmedabad ought to have appreciated that the goods in question i.e. Nickel in the possession of present petitioner cannot be said to be property of respondent No. 2 only on the strength of the contention and few correspondence indicating it to be the loan transactions. The Recovery Officer, DRT Ahmedabad ought to have appreciated the fact that the Certificate Holder Bank i.e. present respondent No. 1 cannot have better claim than the Respondent No. 2 the Certificate Debtor company against the third party against whom the Respondent No. 2 has already filed Special Civil Suit No. 260 of 1988 and wherein the Civil Court had passed order of maintaining 27 MT of which was challenged by the petitioner by preferring A.O. 500 of 1988 wherein the Court on mutual agreement of the parties modified it vide it"s order dated 3.07.1989 and ordered that the petitioner to maintained 13.5 MT of Nickel. In view of this the Nickel sought to be attached cannot be said to be property of the Respondent No. 2 so as to be amenable to attachment.
8. The Recovery Officer, DRT Ahmedabad ought to have appreciated the facts that when the competent Civil Court was examining the very title of the goods he could not have issued notice for attachment and sell as it did vide its order dated 22.10.2007.
9. The Learned Counsel for the petitioner further submitted that DRT Ahmedabad erred in not granting ad-interim relief to the petitioner as the order of the Recovery Officer,DRT Ahmedabad was ex facie erroneous and untenable. The impugned order passed by DRT Ahmedabad on 29.10.2007 in Appeal No. 18-A of 2007 is erroneous and untenable in so far as it does not grant ad interim relief and it observes about maintainability of very appeal. It was contended that DRT Ahmedabad erred in concluding pending appeal that no appeal could be filed till the time the actual attachment is over. Under provisions of Section 30 of the Recovery Act any person aggrieved by an order of Recovery Officer can maintain appeal against the same. The Counsel contended that while issuing the process the DRT passed an order about the maintainability rendering issuance of notice to other side a mere formality only. Hence the impugned order deserves to be quashed and set aside in so far as it holds that the appeal is not maintainable against the order of the Recovery Officer till the attachment /seizure of the moveable takes place.
10. The DRAT Mumbai and DRT Ahmedabad failed in appreciating the fact that under the order of this Court the petitioners were in fact maintaining the stocks of 13.5 MT of Nickel and the interest of the Bank was thus fully protected. The nickel lying with the petitioner if attached then manufacturing activities of the petitioner would come to a grinding halt.
11. The DRAT Mumbai and DRT Ahmedabad failed in appreciating that the Recovery Officer, by passing impugned order in fact decided the suit pending in the Court of Civil Judge (SD) at Vodadara without proper adjudication.
12. The Counsel for the petitioner also contended that the DRAT Mumbai and DRT Ahmedabad failed in appreciating that Respondent No. 4 to 7, 9,and 10 have stated that sale proceeds of the Nickel have been deposited by the Respondent No. 2 to the Respondent No. 1 Bank. The Counsel for the petitioner relied upon the following decisions of Apex Court as well as various High Courts in support of his submissions; (1) State Bank of Patiala v. union of India and Ors. wherein the Punjab High Court has held that under Rule 11 of the Second schedule of the Income Tax Act 1961 the Recovery Officer erred in proceeding to decide the objection petition of the petitioner-bank in spite of the fact that it was brought to his notice that a civil suit in the same matter was pending. The impugned order was liable to be quashed and set aside. (2) , Tax Recovery Officer v. Gangadhar Vishwanath Rande the Apex Court held that under Rule 11 of the Second Schedule of the Income Tax Act 1961 the Recovery Officer has no powers to declare any transfer of property to be void. (3) Sultan Ahmed (deceased by L.R."s) v. Rashid Ahmed the Allahabad High Court relying upon the principle of pari delicto that transaction is fraudulently entered into by both parties knowing it to be so then both the parties being pari delicto cannot take advantage thereof.
13. The petitioner"s Counsel further submitted that in the light of the provisions of the Recovery Act it could well be said that provisions of the Income Tax Act 1961 are to apply with appropriate modifications bearing in mind the facts and circumstances of each case only otherwise it would create quite an anomalous situation and would cause great hardship to the third parties and would result into exercise of powers by Recovery Officer not actually vested in him.
14. The counsel for the petitioner made elaborate submissions on the powers of Recovery Officer to take possession of certificate debtor"s moveable property from the third party. He heavily relied upon the provisions of Section 28 of the Recovery Act in support of his submissions that the very notice under Section 25(a) of the Recovery act itself was invalid and hence the resultant order of attachment ought to have been stayed.
15. Shri Shah Learned Counsel for the respondent No. 1 bank vehemently submitted that the provisions of the Recovery Act make it a Special Act having overriding effect upon the provisions of general law and it must be construed accordingly.
16. The Learned Counsel for the Respondent Bank submitted that in view of the provisions of Section 18 of the Recovery Act no Court or any other authorities shall have or be entitled to exercise any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under article 226 and 227 of the Constitution) in relation to the matters specified in Section 17.
17. The Learned Counsel for the Respondent Bank submitted that the goods in question i.e. Nickel ordered to be attached by Recovery Officer in fact belonged to the Respondent No. 2 Company and it was under Hypothecation with the Respondent No. 1 Bank. As such the respondent Certificate debtor-company did not have any authority to lend it to the petitioner as it did in the year 1986. More over it may be noted that the Nickel being one of those commodities requiring special permission of the Authority for its transfer could not have been lent by the respondent No. 2 the Certificate debtor. When the Loan Transaction itself was not permissible the theory of purchasing canvassed by the petitioner deserves out right rejection.
18. The respondent No. 2 has filed civil suit being Special Civil Suit No. 260 of 1988 wherein the court had passed interim order directing the present petitioner to maintain quantity of 27 MT Nickel which later on came to be modified by this Court on 3.07.1989 in A.O. 500 OF 1988. This also would go to show that the petitioner was liable to return the quantity of Nickel they received as loan from the respondent No. 2 Certificate Debtor company which was under the agreement hypothecated to the respondent No. 1 bank.
19. The Learned Counsel for the Respondent Bank submitted that Writ petition is not maintainable when the Recovery Officer has already passed an order after hearing the petitioner and when the Tribunal is already moved by the petitioner filing appeal against the order of Recovery Officer.
20. The Learned Counsel for the Respondent Bank submitted that close scrutiny of Rule 11 of the Second Schedule of the Income Tax Act 1961 would show that attachment precedes the investigation upon the objection and claim of any parties. As per the scheme of Rule 11 of the Second Schedule of the Income Tax Act 1961 the Recovery Officer on receipt of the validly issued Certificate proceed for recovery by attachment and only thereafter if he receives any objection or claims he may investigate into it and, if found genuine, shall release the same from attachment. Therefore in the instant case the petitioner may file objection to the Recovery Officer if so advised for releasing the Nickel from attachment and or in alternative if the order dated 22.10.2007 is treated as an order after investigation as envisaged into the Rule 11 of the Second Schedule of the Income Tax Act 1961 then remedy of instituting civil suit is available to the petitioner which they could have availed instead of filing petition under Article 226 or 227 of the Constitution.
21. The other side counsel Shri K.I. Shah for the Bank submitted that none of the orders impugned by the petitioner can be said to be in any way illegal. The perusal of impugned orders on the face of it, it would show that they are absolutely just & proper and the writ petition would not be maintainable under Article 226 of the Constitution as the alternative efficacious remedy is available. He submitted that the nickel in question was under hypothecation of the Bank and Respondent No. 2 did never have any right over the nickel. Hypothecation includes title to the property, without possession and Respondent No. 2 did not have any right & title so as to pass it on validly to any one else. The title has not passed and therefore it would not be open to the Respondent even to give nickel on loan. Parties cannot be permitted to carry out transactions prohibited by law by calling it in different names as the nickel at the relevant time was prohibited to be transferred in any manner without the prior and appropriate permission of the concerned authority. In the instant case the Bank is a public institution seeking to recover huge amount and nickel as ordered to be attached would help the bank in recovering part of its dues from the respondent No. 2. In view of this the impugned judgment & order deserves to be upheld and the petition deserved to be dismissed.
22. Heard learned Counsels for the parties and perused the papers. Before adverting to the rival submissions of the parties it would be expedient to enlist most undisputable facts as they emerge from the record of this petition without any gloss by the counsels of the respective parties.
(1) The respondent No. 2 Certificate Debtor as well as petitioner was using Nickel" in Ferro-Nickel" content as an alloying element in manufacturing of Alloy steel and /or stainless steel as it is mentioned by respondent No. 2 plaintiff in paragraph (3) of its plaint in Spl. Civil Suit No. 260 of 1988.
(2) The said material 'Nickel' used to be imported by its users under the 'Open General License' known as OGL Scheme was not permitted to be sold without prior permission of Iron and Steel Controller, Calcutta. However importers use to lend and borrow it depending upon their requirements on their personal relations and utility need as mentioned in paragraph (3) of the plaint of the respondent No. 2 herein above.
(3) It is also mentioned in paragraph (4) of the plaint of the respondent No. 2 that plaintiff company (i.e. present respondent No. 2 herein above)in and around June 1986 experienced total close of their production on account of the strike by employees for 42 days and it had in fact adversely affected manufacturing process even few weeks prior to the commencement of strike. The defendant company (i.e. present petitioner company) who was facing dire shortage of 'Nickel', had to borrow few tones of Nickel" in ferro-nickel content. The plaintiff company agreed to lend the agreed quantity of 'Nickel' on loan basis to the defendant company against a deposit arrangement for the price of the material. Total 27 MT of Nickel against demand draft of Rs. 22,20,000 was sent to the defendant company. As it is mentioned in paragraph 9 of the plaint"s, requests made in 1987 for retuning it against return of deposit was not complied with by the defendants as by then prices of this material had gone up.
(4) The respondent certificate debtor company had to file Special Civil Suit No. 260 of 1988 in the Civil Court (SD) at Vadodara valued at Rs. 22,20,000 against defendant on 7.05.1988 praying that defendants be ordered to return 'approximately 27 tons of Nickel in Ferro-Nickel from it stocks' or should be necessary from the next consignment of the defendant as the entire transaction was a mutual adjustment loan transaction against re-payment of Rs. 22.20 lakhs by the plaintiff. The plaintiff also filed exhibit 5 application for ad interim injunction under Order 39 Rule 1,2 and Section 151 of C.P.C praying that defendant be ordered to deliver 27 tons Nickel in Ferro Nickel contents from its stockyard or such quantity as the Court deemed fit. Or in alternative defendants to set aside and not use 27 tones of Nickel in Ferro Nickel contents and be restrained from using it into his production. Or direct the defendant to set aside 27 tons of Nickel from stocks to be arrived in future or from thestocks already ordered.
(5) The defendant (present petitioner) in its written statement to the suit contended inter alia that the material in question was imported material controlled by the Actual users conditions prescribed for it"s import under OGL Scheme. The plaintiff and defendants were actual users of the said material. The Import-Export Procedure in the years between 1985 to 1988 prescribed that on account of actual users inability to use the imported material or is surplus to his needs then he may transfer or loan to any other actual user with written permission from the Sponsoring Authority concerned provided both the buyer and seller (actual users) were in the jurisdiction of the same Sponsoring Authority. The Iron and Steel Controller, Calcutta, was the Sponsoring Authority for both the parties at the relevant time. The plaintiff did not obtain any such permission and hence committed serious illegality and such an agreement, which is contrary to law, or public policy cannot be enforced against the defendant. The transaction was sale as the defendant paid the prevalent market price of Nickel to the plaintiff.
(6) The Civil Court appears to have ordered maintaining quantity of 27 tones of Nickel which came to be modified to 13.5 tones vide order dated 3.07.1989 passed in Appeal from Order No. 500 of 1988 on mutual consent.
(7) The said Special Civil Suit is pending in the civil court, awaiting its final adjudication.
(8) There exists an agreement of hypothecation of goods, dated 4.03.1986 between Respondent No. 1 Bank and Respondent No. 2 certificate debtor company where under the respondent No. 2 hypothecated and accepted charge of the bank upon company"s all present and future stocks of raw materials, goods in process, finished goods stores components Dies and tools (except claims such as claims on Life Insurance Policy Goodwill outstanding debts, claims for arrears of rent Benefit of executory contracts and share in partnership.) Under Clause 6-A the borrower agreed and undertook to deposit from time to time all the sale proceeds of the hypothecated premises as and when the same were sold and undertook not to open any advance or deposit account with any other bank without the prior consent in writing of the Bank during the continuance of this advance.
(9) The respondent No. 1 Certificate Debtor Bank is not party to the Special Civil Suit No. 260 of 1988 pending between the respondent No. 2 and petitioner.
(10) The petitioner company had paid the amount equivalent to the price of Nickel at the time of its transfer and both the parties are silent about any arrangements as to how the repayment of said deposit is to be made.
(11) The so-called borrowed quantity of 'Nickel' was meant for consumption as raw material by the borrowing party and even as per their so called understanding or agreement quantity of 'nickel' from future consignment of petitioner was to be returned to the respondent No. 2 company.
(12) The quantity 27 MT of Nickel was transferred against amount of Rs. 22,20,000 as per the respondent No. 2 and against amount more than Rs. 22,20,000 as per the say of the petitioner. The transfer took place in the year 1986. The Respondent No. 2 Company made demands for return of 'Nickel' in the year 1987.
(13) The suit is pending wherein the respondent No. 2 has prayed for return of approximately 27 MT of NICKEL against repayment of Rs. 22.20 lacs by the plaintiff.
(14) The petitioner is, under the order of this Court dated 3.07.1989 passed on mutual agreement in A.O. 500 of 1988, maintaining quantity of 13.5 MT in Ferro - Nickel contents.
(15) The respondent No. 1 Bank in its application for attachment and selling of Nickel from third party made on 16.05.2007 to the Recovery Officer in Recovery Proceedings No. 1503 in O.A 77 of 1997 has in paragraph 5 set out the quantity and form of 'Nickel' said to have been lent to the petitioner wherein first column indicates dates second column indicates quantity of NICKEL in Gross Ferro nickel form whereas the Column three indicates quantity on content basis (MT) pure nickel. It may be noted that in the order passed by this Court on 3.07.1989 in A.O. 500 of 1988 the Court ordered on mutual consent of the parties that S the appellant (i.e. the present petitioner) will maintain a stock of 13.5 tonnes of nickel in ferro nickel contents and will go on filing affidavit every month in the trial court disclosing this facts.
(16) The Recovery Officer has recorded that Third Part i.e. present petitioner can comply with the order of this Court dated 3.07.1989 on buying required quantity of Nickel from the market and maintained quantity as ordered but that in itself would not be ground for not ordering attachment of the Nickel in question from the possession from the petitioner.
(17) The DRT Ahmedabad made observation in its order dated 29.10.2007 that learned recovery officer has passed order of attachment /seizure of the movables. One thing is clear that the actual attachment/seizure has not actually taken place and that Learned DRT was skeptical about maintainability of the Appeal.
(18) The DRAT in Appeal No. 544 of 2007 on 30.10.2007 ordered posting the matter on 1/11/2007, in the mean time ad interim stay of taking possession of the goods in question.
(19) On 1.11.2007 the DRAT Mumbai, in view of the statement made by the Advocate for the Bank that, warrant was issued for attachment and inventory & not for taking possession, continued the ad interim order of not taking possession till 5.11.2007 but ordered that in the meantime the appellant company shall allow the respondent bank to take inventory of the property and attach the goods. With this direction the appeal was disposed of.
(20) The petitioner preferred present Special Civil Application on 2.11.2007 in this Court.
(21) On 5.11.2007 this Court (Coram: Ms. R.M.Doshit J ) passed the following order SRule. Notice as to interim relief returnable on 26th November,2007. Pending this petition, there shall be ad-interim stay against the attachment of the quantity of Nickel in question on condition that the petitioner Company will continue to maintain stock of 13.5 MT of Nickel as directed by this Court on 3rd July 1989.
23. Against this backdrop the rival contentions of parties are to be examined in light of the provisions of Recovery Act as well as those of Income Tax Act 1961 as applicable to the recovery proceedings under the Recovery Act.
24. The Chapter V of the Recovery Act provides for recovery of debt determined by Tribunal. Section 25 of the Recovery Act reads as under:
Section 25: Modes of recovery of debts:- The Recovery Officer shall on receipt of the copy of the certificate under Sub-section (7) of Section 19, proceed to recover the amount of debt specified in the certificate by one or more of the following modes namely:- (a) attachment and sale of the movable or immovable property of the defendant. (b) arrest of the defendant and his detention in prison,(c) appointing a receiver for the management of the movable or immovable properties of the defendant.
25. Thus it deserves to be noted that in the entire section thrust is upon the phrase 'Property of the Defendant' for invoking provisions of this section the property has to be that of defendant only. This section does not empower the Recovery Officer to proceed against the property, which is not that of the defendant. This is all the more so as it could be seen from the provisions of Section 28 of the Recovery Act.
26. Section 28 of the recovery act, as its title suggests, envisages as many as five different situations and ten Sub-sections and modes for recovering dues of Certificate Holder. The relevant provisions of Section 28 are extracted herein below for ready reference.
Section 28: Other modes of recovery ;-(1) SWhere a certificate has been issued to the Recovery Officer under Sub-section (7) of Section 19,the Recovery Officer may, without prejudice to the modes of recovery specified in Section 25, recover the amount of debt by any one or more of the modes provided under this section.
27. Sub-section 3(v) of Section 28:
(v) Any claim respecting any property in relation to which a notice under this Sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice.
Thus this subsection clearly provides that claim in respect to the property if arising after issuance of notice under the sub-section would be void against the demand contained in the notice but not so if such claim is arising prior to the date of issuance of notice. This provision deserves to be borne in mind while examining the contentions of the respondent No. 1 bank against the Nickel in question.
Sub-section (4) of Section 28: SThe Recovery Officer may apply to the court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money or if it is more than the amount of debt due an amount sufficient to discharge the amount of debt so due.
Thus the defendant"s money if lying in the Court custody then also the Recovery Officer has to make an application to the Court for receiving and adjusting it against the debt. Sub-section (5) of Section 28 read as under:
(5) The Recovery Officer may recover any amount of debt due from the defendant by and sale of his movable property in the manner laid down in the Third Schedule to the Income Tax Act 1961.
Thus this provision empowers the Recovery Officer to recover any amount of debt due from the defendant by distraint and sale of his movable property in the manner laid down in the third Schedule of the Income Tax Act 1961. In this provision also the phrase 'from defendant by distraint and sale of his movable property' deserves to be noted which unequivocally denotes that the property must be belonging to the defendant only.
28. Now let us examine certain provisions of Second and Third schedule of the Income Tax Act 1961 as under provisions of Sub-section (5) of Section 28 of the Recovery Act the Recovery Officer is empowered to distraint and sale movable property of the defendant i.e. certificate debtor in accordance with the provisions of the Third schedule of the Income Tax Act 1961 as applicable. Third Schedule provides for procedure for distraint and it is stated therein that where any distraint and sale of movable property are to be effected by any (Assessing Officer) or Tax Recovery Officer authorized for the purpose such distraint and sale shall be made as far as may be in the same manner as attachment and sale of any movable property attachable by actual seizure and the provisions of the Second Schedule relating to attachment and sale shall so far as may be apply in respect of such distraint and sale. This makes it necessary to refer to and examine the provisions of the Second Schedule of the Income Tax 1961 also.
29. The Second Schedule of the Income Tax Act 1961 provides for procedure for recovery of tax. The Rule 4 prescribes modes of recovery. This rule is in pari materia with provisions of Section 25 of the Recovery Act. Rule 11 provides for Investigation by Tax Recovery Officer. It is expedient to set out the provisions of Rule 11 of the Second Schedule for appreciating its real purport so far as the recovery under the Recovery Act is concerned.
Investigation by Tax Recovery Officer:
11. (1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection:
Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.
2. Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.
3. The claimant or objector must adduce evidence to show that -
(a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or
(b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.
2. Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.
3. Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.
4. Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive.
30. The provisions of Section 29 and 30 of the Recovery Act also deserve to be set out as under.
31. Section 29: SApplicability of certain provisions of the Income Tax 1961:- The provisions of the Second and Third Schedule to the Income Tax Act 1961 (43 of 1961)and the Income-tax (Certificate Proceedings)Rules 1962, as in force from time to time shall as far as possible apply with necessary modification 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 be 'assessee' shall be construed as reference to the defendant under this Act.
32. The aforesaid provisions prescribe modes of and procedure for recovering Certified Dues of Bank and Financial Institutions under the Recovery Act from the persons held liable to pay the dues. In the instant case the competent tribunal has issued Certificate and it is being executed by the concerned Recovery Officer for realizing dues of the Respondent No. 1 Bank from the Respondent No. 2 and those liable to make it good under the Certificate. The aforesaid provisions essentially indicate their enforcement against the 'movable or immovable property of the defendant' i.e. the Certificate Debtor in this case the Respondent No. 2 and others who are held liable under the Certificate on determination of the claim of the respondent No. 1 Bank.
33. The petitioner has raised contentions that whether the quantity of Nickel, an imported commodity regulated by restrictive orders with regards to is transfer under the provisions of Import and Export (Control) Act 1947, allegedly borrowed against the payment of its market price to the lender i.e the respondent No. 2 which in turn deposited the same in their advance account in the respondent No. 1 bank in the year 1986 as the Respondent No. 2 was unable to consume the same on account of strikes in their factory and as the petitioner wanted it for its consumption on assurance to return the quantity of nickel from its expected consignment and for which the Respondent No. 2 has instituted Special Civil Suit No. 260 of 1988, which is still awaiting its final disposal and in A.O No. 500 of 1988 arising there from the High Court has in its order dated 3.07.1989 in A.O. 500 of 1988 on mutual agreement of parties directed the petitioner to maintain quantity of 13.5 MT Nickel in Ferro Nickel form against the originally lent quantity of 27 Mt of Nickel, be said to be the 'property of the Defendants' liable to be attached and sold under Recovery Proceedings initiated by the Bank against the respondent No. 2 the certificate debtor company under liquidation overruling its objections raised before the Recovery Officer on various grounds as it is done by the Recovery Officer under the impugned order dated 22.10.2007.
34. In short the order of Recovery Officer dated 22.10.2007 is challenged in this petition under Article 226 and 227 of the Constitution of India. As it is stated herein above the petitioner has also preferred an appeal, on 26.10.2007, being Appeal No. 18/A of 2007 in the Debt Recovery Tribunal at Ahmedabad under Section 30 of the Recovery Act, against this very order dated 22.10.2007 passed by Recovery Officer rejecting its reply and objection submitted to him pursuant to his Show cause Notice dated 18.05.2007 calling upon them to show cause as to why the Nickel in question should not be attached and sold. The petitioner has also prayed for Ad Interim Relief against order of Recovery Officer dated 22.10.2007 impugned before the DRT Ahmedabad in Appeal No. 18-A of 2007.
35. The Learned DRT Ahmedabad, the appellate authority, did not grant any ad interim relief as prayed for by the petitioner and on 29.10.2007, only issued notice returnable on 5.11.2007 expressing its skepticism about the maintainability of the appeal as according to the Learned DRT the affected party can move appeal only after the actual seizure or attachment has been affected and not before that. The order-dated 29.10.2007 is reproduced here under so as to appreciate petitioners" contentions against it. DRT Ahmedabad"s Order dated 29.10.2007 passed on Appeal No. 18-A of 2007 presented on 26.10.2007. 'Read interim relief claimed in Para No. 7 of the Memorandum of Appeal. Heard the Ld. Sr. Counsel for the Appellant at length. Appellant has challenged the order dated 22.10.2007. It appears that Ld. Recovery Officer had passed the order for attaching/seizing of the movables. One thing is clear that the attachment/seizure has not actually taken place. I am skeptical about the maintainability of the Appeal. According to me, the aggrieved party can move the Executing Court /Appellate Court only after the attachment/ seizure has been effected. In other words no right would accrue to the parties before the actual attachment/seizure. Mere pointing out Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act,1993 in short The Act, would not be sufficient. In such circumstances, keeping open the point of maintainability it would be fit to issue notice to the Respondents. Issue notices to the Respondents. Returnable on 05.11.2007.' The petitioner challenged this order before the Debts Recovery Appellate Tribunal, Mumbai by lodging Appeal No. 544 of 2007 wherein the Appellate Tribunal initially on 30.10.2007 granted ad interim stay of taking possession of the goods in question and kept the matter on 1.11.2007. The Appellate Tribunal on 1.11.2007 while disposing the appeal made order on the statement of the Ld. Advocate for the respondent bank that warrant was issued for attachment and inventory & not for taking possession, continuing the ad interim order of not taking possession till 5.11.2007 and directing the petitioner to permit the respondent bank to take inventory of the property and attach the goods. The petitioner has challenged the order of Learned Recovery Officer dated 22.10.2007, that of Learned Debt Recovery Tribunal dated 29.10.2007 in so far as it did not grant ad interim relief and its observation about the very maintainability of Appeal No. 18/A of 2007 before actual attachment/seizure takes place, and order passed by the Learned Debit Recovery Appellate Tribunal Mumbai dated 1.11.2007 as it directed the petitioner to permit the Respondent Bank to take inventory and attaché the goods.
36. The position of law in respect of challenge to the orders passed in the recovery proceedings under the Recovery Act has by now crystallized. The Apex Court has in case of Punjab National Bank v. O.C. Krishnan reported in AIR 2001, 3208 the SUPREME COURT considering the provisions of Section 20 of the Recovery Act specifically observed that though jurisdiction under Article 226 and 227 is not ousted under the Recovery Act the judicial prudence requires that Courts should refrain from interfering with the orders where from remedy of appeal is provided.
37. In the instant case the petitioner has in fact moved an appeal being Appeal No. 18/A of 2007 under Section 30 of the Recovery Act challenging the order dated 22.10.2007 passed by the Learned Recovery Officer which is awaiting its hearing. A question may arise as to whether the remedy of appeal under Section 30 of the Recovery Act could be said to be really an efficacious and effective alternative remedy looking to the grounds of challenge to the order dated 22.10.2007 of Learned Recovery Officer and the skepticism expressed by learned Debt Recovery Tribunal, the Appellate Authority, in it"s order dated 29.10.2007 about the very maintainability of the appeal before actual effect of attachment/seizure? The immediate answer that may come to mind would be 'No'. But at the same time one needs to consider that whether this Court should exercise its jurisdiction under Article 226 and 227 only on the prima facie observation of Learned DRT in its order dated 29.10.2007 and it"s non granting of ad interim relief at the inception of appeal and when the substantive appeal is still pending before the DRT Ahmedabad and only when the Debt Recovery Appellate Tribunal Mumbai while disposing the appeal of the petitioner being Appeal No. 544 of 2007 vide its order dated 1.11.2007 granted limited ad interim relief qua taking over possession till the returnable date in Appeal No. 18/A of 2007 in the DRT Ahmedabad and directing the petitioner to permit the respondent Bank to take inventory and attaché the goods in question. In view of the facts and circumstances of the case on hand this Court is of the view as the Appeal No. 18/A of 2007 is pending it"s effective hearing against the order dated 22.10.2007 passed by the Learned Recovery Officer in R.P. No. 1503 in O.A No. 77 of 1997 this Court should not exercise its jurisdiction under Article 226 and 227 of the Constitution and examine the validity and propriety of the order dated 22.10.2007 passed by Learned Recovery Officer in R.P 1503 in OA 77 of 1997 at this stage.
38. Now let us examine the challenge to the orders dated 29.10.2007 passed by the Learned Debt Recovery Tribunal Ahmedabad upon the Appeal No. 18/A of 2007 to the extent it negates ad interim relief against attachment/seizure and expresses skepticism about the very maintainability of the appeal in absence of attachment/seizure. As well as challenge to the order dated 1.11.2007 passed by Debt Recovery Appellate Tribunal Mumbai on Appeal No. 544 of 2007 and Miscellaneous Application 217 of 2007 to the extent it contained direction to the present petitioner to allow the respondent No. 1 Bank to take inventory of and attach the goods in question.
39. This Court is conscious of the fact that petitioner"s challenge to the propriety, legality and validity of the order dated 22.10.2007 passed by the Learned Recovery Officer is pending before the Debt Recovery Tribunal hence it would not be proper for this Court to make any observations regarding the order dated 22.10.2007 passed by Learned Recovery Officer. However The Tribunal"s skepticism about the maintainability of appeal against that order of Learned Recovery Officer dated 22.10.2007 in absence of any effective attachment/seizure, and its non granting of ad interim relief at the inception, warrants at least some discussion of obvious and glaring aspects and relevant provisions of Recovery Act and Income Tax Act 1961 having direct bearing upon the present controversy. It is admitted position that the Nickel in question is not in physical possession of the respondent No. 2 since 1986. The respondent No. 2 Certificate Debtor admitted that it lent quantity of total 27 MT of Nickel to the petitioner in the year 1986 against the payment of its market price, as it could not consume it on account of labour problems and it was required by the petitioner for it"s consumption. The Respondent No. 2 has already filed Special Civil Suit No. 260 of 1988 valued at Rs. 22,20,000 i.e. the amount alleged to have been received from the petitioner against lending of Nickel. The said suit is pending before the competent Civil Court. The present petitioner has taken serious contention that in fact the transaction was not loan but it was that of sale only. Against the total quantity of 27 MT of Nickel this High Court vide its order dated 3.07.1989 in AO 500 of 1988 on mutual agreement between the parties passed order directing the petitioner to maintain 13.5 Mt of Nickel in Ferro form only.
40. Thus when the Certificate Holder Bank respondent No. 2 herein above filed an Application for Attachment taking possession from the third part i.e. present petitioner herein above on 16.05.2007 or even on the date when the Certificate was issued the original quantity of 27 M.T. of Nickel allegedly burrowed by the petitioner had already been consumed and after the Special Civil Suit 260 of 1988 and this Court"s Order dated 3.07.1989 the petitioner use to maintain quantity of 13.5 MT of Nickel in Ferro form out of the its periodical purchases as observed by the Court. Therefore a question arises as to whether Nickel lying at the premises of petitioner from its periodical purchases be treated to be the 'nickel' belonging to the Certificate Debtor incurring liability of attachment under Section 25(a) of the Recovery Act.
41. As against this following provisions of the Schedule Second deserve to be noted. Sub-Rule (3) and (4) (6) of Rule 11 of the Second Schedule indicate that the objector has to show and establish that on the date of attachment he has some interest or was in his possession or that it was not in the possession of defaulter (i.e. Certificate Debtor so far as the Recovery Act is concerned.) And under the provisions of Sub-rule (6) the order of the Recovery Officer is made subject to the result of Civil Suit that may be filed by the objector.
42. The provisions of part II in the Second Schedule entitled S ATTACHMENT AND SALE OF MOVABLE PROPERTY SUB-HEADING 'Attachment' also deserve to be perused. Rule 26 of the Second Schedule deserve to be set out as under:
Debts and shares, etc.
26. (1) In the case of -
(a) a debt not secured by a negotiable instrument,
(b) a share in a corporation, or
(c) other movable property not in the possession of the defaulter except property deposited in, or in the custody of, any court, the attachment shall be made by a written order prohibiting-
(i) in the case of the debt - the creditor from recovering the debt and the debtor from making payment thereof until the further order of the Tax Recovery Officer;
(ii) in the case of the share - the person in whose name the share may be standing from transferring the same or receiving any dividend thereon;
(iii) in the case of the other movable property (except as aforesaid)- the person in possession of the same from giving it over to the defaulter.
2. A copy of such order shall be affixed on some conspicuous part of the office of the Tax Recovery Officer, and another copy shall be sent, it he case of the debt, to the debtor, in the case of the share, to the proper officer of the corporation, and in the case of the other movable property (except as aforesaid), to the person in possession of the same.
3. A debtor prohibited under Clause (i) of Sub-rule (1) may pay the amount of his debt to the Tax Recovery Officer, and such payment shall discharge him as effectually as payment to the party entitled to receive the same.
The provisions especially provisions of Rule 26 (1) (c)(iii) indicate how the other property of the defaulter not in his possession are to be dealt with. Thus in view of these provisions it cannot be said that petitioner"s case was absolutely without merits.
43. This Court is unable to accept the submission of learned Counsel for the Respondent Bank that attachment must precede the objection. On plain reading of Rule 11 of the Second Schedule wherein it is stated that on being satisfied of the case of objector the Recovery Officer may release the attachment. In fact close perusal of relevant provisions of Recovery Act would show that only certain provisions of Income Tax Act 1961 are applicable and that too as far as possible only. The aforesaid provisions of Second Schedule clearly indicate as to how even the movable property of the defaulter in possession of Third Party is required to be dealt as mentioned in Rule 26 of the Second Schedule. While in the instant case the movable property i.e. quantity of Nickel maintained by the petitioner under the order of this Court dated 3.07.1989 in OA 500 of 1988 awaits its adjudication in the Civil Court as the Respondent No. 2 Certificate debtor has filed Special Civil Suit No. 260 of 1988. As it is stated herein above this Court need not elaborately dwell upon the aspect as the appeal challenging the order of attachment dated 22.10.2007 is pending. The provisions of Section 30 of the Recovery Act needs to be set out as under.
[30. Appeal against the order of Recovery Officer - (1) Notwithstanding anything contained in Section 29, any person aggrieved by an order of the Recovery Officer made under this Act may, within thirty days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal.
(2) On receipt of an appeal under Sub-section (1), the Tribunal may, after giving an opportunity to the appellant to be heard, and after making such inquiry as it deems fit, confirm, modify or set aside the order made by the Recovery Officer in exercise of his powers under Sections 25 to 28 (both inclusive)]
44. Thus as it could seen the Section 30 starts with non obstinate clause that Notwithstanding anything contained in Section 29 any person aggrieved by the order of Recovery Officer made under the Recovery Act may file an appeal to the Debt Recovery Tribunal. It may be noted that so far as the provisions of Second Schedule are concerned no appeal is provided against the order of Tax Recovery Officer whereas in the recovery of Debt Due to Banks And Financial Institutions Act 1993 Section 30 clearly provides for appeal to the Debt Recovery Tribunal against an order made by Recovery officer in exercising of his powers under Section 25 to 28 (both inclusive). Thus by insertion of Section 30 it can be said that sufficient safeguard is provided against orders of the Recovery Officer passed against any person. The Apex Court in case of Union of India v. Delhi High Court Bar Association held that, Section 30 provides adequate safeguard to any person against arbitrary and illegal orders of Recovery Officer.
45. As it is stated herein above the insertion of Section 30 in the Recovery Act and absence of such provisions in Income Tax Act 1961 coupled with the fact that even Section 29 also contains rider that provisions of Second Schedule and Third Schedule to Income Tax 1961 are applicable only as far as possible, go to show that under Section 30 there is no bar to maintain appeal unless the attachment/ seizure is actually effected as it is observed by the Learned DRT Ahmedabad in its order dated 29.10.2007.
46. The Debts Recovery Tribunal cannot read in to the provisions of Section 30 that appeal is maintainable only after the attachment/seizure is effected. Any such reading would amount to frustrating the very objective of Section 30 in the Recovery Act. The Apex Court has observed in paragraph 30 in case of Union of India v. Delhi High Court Bar Association (supra) that Section 30 provides enough safeguards against the arbitrary orders of Recovery Officer.
47. It may be noted here that provisions of Section 222 of the Income Tax Act 1961 are almost in pari matera with the provisions of Section 25 of the Recovery Act. Similarly provisions of Section 224 of the Income tax Act 1961 are in pari materia with Section 26 of the Recovery Act and provisions of Section 28 of the Recovery Act are in pari materia with the provisions of Section 226 of the Income Tax Act 1961. But the Income Tax Act 1961 does not contain any provisions similar to that of Section 30 of the Recovery Act.
48. This Court is, therefore, of the considered view that Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993 does not provide effective attachment/seizure as prerequisite for entertaining appeal against the order passed by the Recovery Officer under Section 25 to 28 both inclusive. The order of the learned DRT dated 29.10.2007 to the extent it raises doubts about maintainability deserve to be set aside.
49. The DRAT Mumbai has it appears on the same premise directed the petitioner to permit the Bank take inventory and attaché the goods. In view of the aforesaid discussion the order of DRAT Mumbai to the extent it permits attachment deserves to be set aside.
50. In view of the aforesaid discussions this Court is of the view that DRT Ahmedabad deserves to be directed to hear the appeal of the petitioner without there being any effective attachment/seizure and decide the same on merits. The facts and circumstances narrated herein above go to show that till the DRT hears the petitioner on Interim Relief the Ad Interim Relief granted by this Court dated 5/11/2007 may be continued. Hence the following order.
51. : ORDER:
(A) In view of the aforesaid discussions, this Court is of the considered view that the order dated November 01, 2007 passed by the DRAT, Mumbai in Misc. Appeal No. 217 of 2007 to the extent it permits attachment and inventory of goods and the order dated October 29, 2007 passed by the DRT, Ahmedabad in Appeal No. 18/A of 2007, to the extent that it held that Appeal No. 18/A of 2007 is not maintainable deserve to be quashed and set aside. Accordingly they are quashed and set aside.
(B) Prayer with regard to the order of Learned Recovery Officer dated October 22, 2007 in the Recovery Proceedings No. 1503 can not be granted since the Appeal No. 18/A of 2007 is pending before the DRT, Ahmedabad. Hence the same is rejected without going into its legality, validity, as the competent tribunal, i.e. DRT, Ahmedabad is already seized with the matter.
(C) The petitioner is at liberty to move The Debts Recovery Tribunal, Ahmedabad, for ad-interim relief / interim relief in the pending Appeal No. 18/A of 2007 latest by 15/5/2008, and the Debts Recovery Tribunal, Ahmedabad is hereby directed to decide the said application on merits, and till the same is decided the ad-interim relief granted by this Court dated 5/11/2007 shall remain operative.
(D) The Debt Recovery Tribunal Ahmedabad is hereby directed to decide the Appeal No. 18-A of 2007 on merits and without insisting for effective attachment/seizure.
52. In view of this, this petition stands partly allowed. Rule made absolute to the aforesaid extent. No cost.