Bombay High Court
Undertaking] Act vs Debts Recovery Appellate Tribunal on 6 May, 2014
Author: S.J. Vazifdar
Bench: S.J. Vazifdar, B.P. Colabawalla
WP2722.13.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2722 OF 2013
Canara Bank, a body corporate, constituted]
and established under the banking ]
Companies (Acquisition and Transfer of ]
Undertaking] Act, 1970, having its Head ]
Office at 112, Jayachamnarajendra Road, ]
Bangalore -500 002 in the State of Kerala ]
And its branch office at Kshmalaya, ]
Opp. Patkar Hall, New Marine Lines, ]
Mumbai - 400 020. ig ] ...Petitioner.
Versus
1. Debts Recovery Appellate Tribunal, ]
6th Floor, Scindia House, Ballard Estate]
Opposite L & T House, Ballard Estate, ]
Mumbai. ]
2. M/s. Manish Estate Private Limited, ]
A Private Limited Company, ]
incorporated under the Companies Act, ]
and having its Registered Office at 312 ]
Maker Bhavan III, 21, New Marine ]
Lines, Mumbai 400 020 and 4th floor, ]
Kshamalaya, 37, New Marine Lines, ]
Bombay - 400 020. ]
3. M/s.Shah Diagnostics Institute Pvt. Ltd.]
A Private Limited Company, ]
incorporated under Indian Companies ]
Act, 1956, and having it's Registered ]
Office at Kshamalaya, 37, New Marine ]
Lines, Bombay - 400 020. ]
4. Dr. Viral Chittaranjan Shah, ]
4. Mr. C.D. Shah ]
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WP2722.13.doc
5. Mr. H.D. Shah ]
6. Mr. A.S. Shah ]
7. Mrs. Sarala C. Shah ]
All of Bombay, Indian inhabitants, ]
having their address at Kshamalaya, ]
37, New Marine Lines, Bombay-400020] ...Respondents
Mr. Prathamesh Kamat with Mr. N.K. Kamat for the Petitioner.
Ms. N.G. Thakkar, senior counsel with Mr. M.K. Shah and Mr. G.C.
Mohanty i./b M/s. Mohanty & Associates for the Respondents.
Mr. Mihir C. Naniwadekar, amicus curiae, present.
ig CORAM : S.J. VAZIFDAR &
B.P. COLABAWALLA, JJ.
TUESDAY , 06TH MAY, 2014.
JUDGMENT :[Per S.J. Vazifdar, J.]
1. The petitioner has challenged the order dated 10 th September, 2013 passed by the Debt Recovery Appellate Tribunal and sought a declaration that it is entitled to commission at the rate of 3% of the value of the guarantees issued by it in favour of the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons.
2. Respondent Nos.2 and 3 are M/s. Manish Estate Private Limited and M/s. Shah Diagnostics Institute Private Limited 2/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc Respondent Nos.4 to 7 (in the title through inadvertence two respondents have been arrayed as respondent No.4) are individuals who had guaranteed the amounts due and payable by respondent No.3 to the petitioner. Respondent No.2 was the owner of an immovable property in Mumbai. The property was mortgaged with the petitioner as security for repayment of the facilities sanctioned by the petitioner to respondent No.3. Respondent No.3 is the sister concern of respondent No.2.
3. The question of law raised by the petitioner admits of no difficulty. The question, if answered in the petitioner's favour, would have the most alarming effect on the provisions of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "RDDB Act") and, in turn, on the provisions of the Income Tax Act, 1961. We have, therefore, dealt with the issue in detail.
4. It would be useful to preface the judgment with a summary.
(A) The petitioner's O.A. was allowed in the sum of Rs.1.67 crores. The petitioner initiated recovery proceedings. A party, in whose favour an award was passed, instituted execution proceedings.
3/29 ::: Downloaded on - 04/06/2014 22:32:23 :::WP2722.13.doc The property in question was sold by the Debts Recovery Tribunal, pursuant to orders in the execution proceedings. The recovery certificate and the award stood satisfied from the sale proceedings, leaving a balance of about Rs.42 crores. The petitioner then made an application for payment of amounts allegedly due to it as commission for guarantees issued by it at the respondents request from out of the balance sale proceeds. This claim, which was denied by the respondents, had not been adjudicated upon by any Court, Tribunal or authority. Nor had the petitioner filed any proceedings to have it adjudicated. The respondents, therefore, contended that the Recovery Officer is not entitled to adjudicate claims in execution / recovery proceedings.
(B) The question that falls for consideration in this petition is whether under the RDDB Act, the Recovery Officer is entitled to utilize the balance proceeds from the sale of a property in execution of a recovery certificate towards the satisfaction of any unadjudicated claim of any party, including of the holder of the recovery certificate.
The question, in other words, is whether the Recovery Officer is entitled to adjudicate the unadjudicated claims himself in the recovery / execution proceedings and to utilize the balance amounts to satisfy the claims so adjudicated by him.
4/29 ::: Downloaded on - 04/06/2014 22:32:23 :::WP2722.13.doc (C) Section 29 of the RDDB Act makes the provisions of the Second Schedule to the Income Tax Act applicable as far as possible and with necessary modifications. Rule 8 of the Second Schedule deals with the power of the Tax Recovery Officer (TRO) regarding the disposal of proceeds from the sale of the assessee's assets. The petitioner contends that once there is a recovery certificate before him, the TRO is entitled to utilize the balance sale proceeds for the satisfaction of any other claim of the Revenue i.e. claims other than those arising from the recovery certificate as also the claims of third parties even if such claims have not been assessed or adjudicated upon. For this purpose, the TRO is himself entitled to adjudicate upon such claims.
We have answered the question in the negative, against the petitioner.
5(A). In the year 1990, National Bank for Agriculture And Rural Development (NABARD) filed Suit No.1495 of 1989 against M/s.
Shah Thakur and Sons for specific performance of an agreement which involved the construction of 532 flats. NABARD was directed by this Court to deposit Rs.20 crores in this Court. M/s. Shah Thakur and Sons were allowed to withdraw a sum of Rs.2.5 crores by furnishing a 5/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc guarantee of a nationalized bank in that sum. Accordingly, the petitioner issued a guarantee in the sum of Rs.2.5 crores in favour of the Prothonotary and Senior Master, and at the instance of M/s. Shah Thakur and Sons, the said property was furnished as a collateral security for the said guarantee.
By an order dated 11th December, 1991, the Supreme Court modified the order of this Court by permitting M/s. Shah Thakur and Sons to withdraw 50% of the balance deposited by NABARD in this Court on furnishing a bank guarantee for the principal amount withdrawn together with interest thereon at the rate of 30% p.a. from the date of withdrawal till further orders. Pursuant to the said order, M/s. Shah Thakur and Sons withdrew a sum of Rs.4,14,49,377.50 by furnishing another guarantee issued by the petitioner in favour of the Prothonotary and Senior Master.
(B). By an internal Circular dated 18 th March, 1995, the petitioner directed all its branches to increase the commission charge to 3% in respect of guarantees issued with effect from 1 st April, 1995. Prior thereto, the petitioner had been charging commission at 0.75%.
Correspondence ensured between the petitioner and M/s. Shah Thakur and Sons in the course of which M/s. Shah Thakur and Sons requested 6/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc the petitioner to restrict the commission to 0.75%.
6(A). The petitioner had filed Suit No.42 of 1998 against respondent Nos.2 and 3 in this Court. The suit was transferred to the Debt Recovery Tribunal (DRT) and numbered as O.A. No.1347 of 2000. The O.A. was allowed. The respondent Nos.2 to 7 were directed to pay the petitioner a sum of Rs.1,67,00,000/- together with interest at the rate of 15% p.a. compounded quarterly and costs of Rs.1 lakh.
(B)(i) In the year 2004, one Camra Finance Investment Ltd.
instituted proceedings in this Court for the execution of an arbitration award and initiated the process of the sale of the suit property. The petitioner intervened in those execution proceedings. This Court directed the Recovery Officer of the DRT to sell the suit property.
(ii) On 27th October, 2004, the petitioner filed an application/affidavit before the Recovery Officer to protect its claim arising on account of it having issued the said guarantees. By the said affidavit, the said petitioner sought necessary orders for protecting its right in respect of the contingent liability that may have arisen on 7/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc account of the said guarantee as the said property was given as collateral security, even in respect of any liability arising on account of the petitioner having furnished the guarantee.
(C). On 10th February, 2005, the said property was sold by the Recovery Officer for Rs.42.01 crores in Recovery Proceedings No.466 of 2003.
7. The said guarantees issued by the petitioner were not invoked. There was, therefore, no claim in that regard. The petitioner's claim in the O.A. / Recovery Proceedings No.466 of 2003 and the claim of the said Camra Finance Investment Ltd. were satisfied from the amount received pursuant to the sale of the said property.
8. By an affidavit dated 25th August, 2005, the petitioner raised claims in respect of the amounts guaranteed by the said guarantees as well as for commission. The guarantees having been discharged without being invoked and without any amount having been paid thereunder, the present claim of the petitioner is restricted only to the commission claimed by it for furnishing the guarantee. We are not concerned in this writ petition with the quantum of the amount claimed towards commission.
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9. This brings us to the orders passed in the Recovery Proceedings before the DRT which have led to the present writ petition.
(A) By an order dated 26th October, 2005 the Recovery Officer of the DRT-I held the petitioner to be entitled to commission at the rate of 1.5% per annum upto the year 2003-04 and at the rate of 1.7% per annum for the year 2004-05 till the date of the sale of the property. On this basis, the Recovery Officer directed the release of Rs.83,25,217/-
in favour of the petitioner from the balance sale proceeds.
(B) The petitioner and respondent No.2 filed cross appeals against the order of the Recovery Officer dated 26 th October, 2005 -
the petitioner seeking an enhancement in the rate of the commission and the respondents challenging the grant of any amount towards commission. By an order dated 25 th July, 2007, the Presiding Officer, DRT-I dismissed the appeals.
(C) The petitioner and respondent No.2 filed appeals against the order dated 25th July, 2007 before the Debt Recovery Appellate Tribunal. By an order dated 1st June, 2011, The Debt Recovery Appellate Tribunal dismissed the appeal filed by respondent No.2 and allowed the appeal filed by the petitioner. The only issue that was decided by the DRAT was the rate at which the petitioner was entitled 9/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc to the commission. The DRAT held that the petitioner was entitled to commission at 3% p.a. on the said guarantees issued by it from 18 th March, 1995. Both the appeals were disposed of accordingly.
(D) Respondent No.2 challenged the order of the DRAT by filing Writ Petition No.1570 of 2011. The Writ Petition was disposed of by an order and judgment dated 3 rd October, 2011. It was observed that respondent No.2 had questioned the jurisdiction of the Recovery Officer to entertain the claim of the respondent relating to the commission on the two bank guarantees. It was also noticed that neither the DRT nor the DRAT had dealt with this issue. The Division Bench, accordingly, set aside the orders and remitted the proceedings to the DRT for fresh consideration with a direction to render a specific finding on the question of jurisdiction raised by the respondent No.2.
10. On remand, DRT-I by an order dated 15 th November, 2012, set aside the order of the Recovery Officer holding that he had no jurisdiction to allow the petitioners application. The petitioner challenged the order before the DRAT. By the impugned order dated 10th September, 2013, the DRAT dismissed the appeal.
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11. The petitioner, therefore, sought to recover the amount claimed by it towards commission in respect of the said guarantees from the balance sale proceeds lying with the DRT. This claim has never been adjudicated upon by any Court, Tribunal or authority. The petitioner has not even filed an action to have it adjudicated.
12. Mr. Kamat, the learned counsel appearing on behalf of the petitioner submitted that the petitioner was nevertheless entitled to recover the guarantee commission from the balance sale proceeds after having it adjudicated upon by the Recovery Officer in the execution proceedings. He submitted that the Recovery Officer was entitled to adjudicate the petitioners claim in this regard in view of section 29 of RDDB Act, read with Rule 8 of the Second Schedule to the Income Tax Act, 1961.
Section 29 of the RDDB Act reads as under :
"29. Application of certain provisions of Income- tax Act.- The provisions of the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1061) and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the Income-tax:
Provided that any reference under the said provisions and the rules to the "assessee" shall be construed as a reference to the defendant under this 11/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc Act."
Rule 8, as amended by the Direct Tax Laws (Amendment) Act, 1987, which came into force with effect from 1st April, 1989, is applicable to cases under The Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (hereinafter referred to as "RDDB Act"), and reads as under :
"8. Disposal of proceeds of execution.--(1) Whenever assets are realised by sale or otherwise in execution of a certificate, the proceeds shall be disposed of in the following manner, namely:--
(a) they shall first be adjusted towards the amount due under the certificate in execution of which the assets were realised and the costs incurred in the course of such execution;
(b) if there remains a balance after the adjustment referred to in clause (a), the same shall be utilized for satisfaction of any other amount recoverable from the assessee under this Act which may be due on the date on which assets were realised; and
(c) the balance, if any, remaining after the adjustments under clauses (a) and (b) shall be paid to the defaulter.
(2) If the defaulter disputes any adjustment under clause (b) of sub-rule (1), the Tax Recovery Officer shall determine the dispute."
13. Mr. Kamat submits as follows: The words "any other amount recoverable" in Rule 8(1)(b) includes any amount claimed and 12/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc not merely amounts which have been determined or adjudicated upon by authorities under the Income Tax Act. Rule 8 authorizes the Tax Recovery Officer to adjust the surplus against any tax dues, even if not assessed. In view of sub-rule (2) the TRO is entitled to assess the tax dues himself and proceed thereafter to make the adjustments contemplated under Rule 8 even if the same are disputed. Once there is a recovery certificate in respect of a particular demand / claim under the Income Tax Act, the TRO is entitled to decide all other claims of the Revenue under the Income Tax Act himself whether assessed / adjudicated or not. He is entitled to decide all disputes in regard thereto.
He further submitted that in view of section 29 of the RDDB Act, the Recovery Officer appointed under the RDDB Act, has similar powers. Once there is a recovery certificate before him for execution, he is entitled to adjudicate upon the dues of any creditor whether adjudicated upon or not and upon adjudication, adjust and pay the balance amounts lying with him pursuant to the sale of the property of the judgment debtor.
14. We requested Mr. Mihir Naniwadekar to appear as amicus curiae. Before going further, we would like to express our 13/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc appreciation for his assistance in the matter. With his assistance, we have had the benefit of going through the relevant provisions to Income Tax Act which was necessary for dealing with the matter. We have accepted all the submissions advanced by Mr. Naniwadekar.
15. Mr. Naniwadekar rightly submitted that Rule 8 of Schedule II does not permit the TRO to assess or adjudicate the tax dues of an assessee under the Income Tax Act, 1961. His powers under Rule 8 are limited to the disposal of the assets realised by sale or otherwise in execution of a certificate. This, as he rightly submitted, is clear from an examination of the steps that precede the exercise of powers under Rule 8. He invited our attention to sections 156, 220 and 222 of the Income Tax Act, which read as under :
"156. Notice of demand.
When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable:
Provided that where any sum is determined to be payable by the assessee or by the deductor under sub-section (1) of section 143 or sub-section (1) of section 200A, the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section.14/29 ::: Downloaded on - 04/06/2014 22:32:23 :::
WP2722.13.doc The Proviso as it stands was inserted by the Finance Act, 2012, w.e.f. 1.7.2012. Prior to that date, the Proviso was originally inserted by the Finance Act, 2008, w.e.f. 1.4.2008, and reads as under :
"Provided that where any sum is determined to be payable by the assessee under sub-section (1) of section 143, the intimation under that sub-section shall be deemed to be a notice of demand for the purposes of this section."
... ... ... ...
Neither proviso makes a difference to the determination of the questions that fall for our consideration.
"220. When tax payable and when assessee deemed in default.
(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice:
Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.
... ... ... ...
(4) If the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in 15/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc the said notice the assessee shall be deemed to be in default.
222. Certificate by Tax Recovery Officer.
(1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee (such statement being hereafter in this Chapter and in the Second Schedule referred to as "certificate") and shall proceed to recover from such assessee the amount specified in the certificate by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule--
(a) attachment and sale of the assessee's movable property;
(b) attachment and sale of the assessee's immovable property;
(c) arrest of the assessee and his detention in prison;
(d) appointing a receiver for the management of the assessee's movable and immovable properties.
Explanation : For the purposes of this sub-section, the assessee's movable or immovable property shall include any property which has been transferred, directly or indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor child or son's wife or son's minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property so transferred to his minor child or his son's minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the assessee's movable or immovable property for recovering any arrears due from the assessee in respect of any period prior to such date.
(2) The Tax Recovery Officer may take action under sub-
16/29 ::: Downloaded on - 04/06/2014 22:32:23 :::WP2722.13.doc section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.
16. The petitioner's case is that the TRO is entitled, while exercising powers under Rule 8, to utilize the balance for satisfaction of any other amount recoverable from the assessee under the Act. The phrase "recoverable from the assessee under the Act", according to Mr. Kamat, indicated that so long as the TRO comes to the conclusion that any dues are recoverable under the Act, the balance sale proceeds can be adjusted towards satisfaction/payment thereof. In other words, according to him, the phrase "recoverable from the assessee under the Act" includes amounts which have never been assessed or adjudicated upon by the authorities under the Act to be due and payable.
17. The submission is contrary to the scheme of the Act itself as is evident from an analysis of the above sections. A mere assessment order does not entitle the TRO to start recovery proceedings. As demonstrated by Mr. Naniwadekar, Schedule II comes into the picture only as a culmination of a series of orders and events. In other words, the amount can be said to be recoverable from an assessee under the Act only after the necessary orders are passed, steps are taken and 17/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc events occur under sections 156, 220 and 222 of the Income Tax Act.
18. Under section 156, a notice of demand can be issued only when any tax, interest, penalty, fine or any other sum is payable "in consequence of any order passed under this Act" (i.e. the Income Tax Act). It is, therefore, necessary for there to be an order passed under the Income Tax Act before a notice of demand can be served by the Assessing Officer upon the assessee.
Under section 220(1), the amount specified as payable in a notice under section 156 must be paid by the assessee within 30 days of the service of the notice. If the amount specified in the notice under section 156 is not paid within the time stipulated in section 220(1), "the assessee shall be deemed to be in default." Thus, an assessee is not deemed to be in default merely upon the passing of an assessment order. An assessee is deemed to be in default only if he does not pay within the time stipulated in sub-section (1) of section 220, the amount specified in the notice issued under section 156. The notice under section 156, as we said earlier, can be issued only when a sum is payable in consequence of any order passed under the Income Tax Act.
18/29 ::: Downloaded on - 04/06/2014 22:32:23 :::WP2722.13.doc Under section 222, when an assessee is in default, the TRO may draw up a certificate under section 222. This certificate specifies the amount of arrears due from the assessee. Only thereupon, can the TRO proceed to recover from the assessee, the amount specified in the certificate in accordance with the rules laid down in Schedule II. The Second Schedule to the Income Tax Act, therefore, comes into play only upon the issuance of a certificate by the TRO under section 222.
19. In other words, a certificate under section 222 can only be issued in the case of an assessee in default. Under section 220(4), an assessee can be deemed to be in default only if he does not pay the amount specified in the notice of demand issued under section 156 within the period stipulated in sub-section (1) of section 220. Till an assessee is in default or is deemed to be in default, a certificate cannot be issued by the TRO under section 222. Lastly, the notice of default itself cannot be issued under section 156 unless there is an order passed under the Income Tax Act for the payment of any tax, interest, penalty, fine or any other sum.
20. We mentioned earlier that an assessee cannot be said to be in default or deemed to be in default merely because an order has been 19/29 ::: Downloaded on - 04/06/2014 22:32:23 ::: WP2722.13.doc passed assessing the tax or imposing interest, penalty, fine or any other sum. He would be deemed to be in default only if he fails to pay the amount within the period of 30 days of the service of the notice under section 156. This is clear from sub-sections (1) and (4) of section
220. There may, for instance, be assessment orders such as protective assessment orders under which an amount is not payable merely upon the passing of the order.
21. Mr. Naniwadekar invited our attention to the judgment of a Division Bench of the Calcutta High Court in the case of Calcutta Hardware And Iron Syndicate and Ors. v. Union of India, 1984 145 ITR 115. The Division Bench held as follows :
" But, in our view, the fundamental mistake of the Commissioner lies in the fact that he erroneously took the view that the recovery proceedings starts with the demand. We, however, find that under the statute the recovery proceeding can be initiated only when the assessee is in default and he is not in default until he had failed to pay on the demand made. Every bona fide assessee is expected to pay what is payable on a just and lawful assessment and thus avoid a proceeding for enforced recovery thereof. In order to enable the assessee to avail of that opportunity the demand is made.
In that way such demand is a part of the assessment proceedings and not the proceeding for recovery. If the assessed amount be paid voluntarily on the demand made, there would arise no case for recovery. Hence, we accept the contention of Mr. Pal that the Commissioner went wrong in thinking that a notice of demand under s. 29 of the old Act having been issued, a recovery proceeding had already been initiated under 20/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc that Act so that the recovery must be made in accordance with the provision of that Act and not the new Act of 1961. We further hold that the proceeding for recovery was yet to be initiated as and when the assessee fails to pay in accordance with the demand.
The case, therefore, appropriately comes within the first part of cl. (j) referred to hereinabove and, as such, the Revenue authorities were well within their right to initiate a proceeding for recovery under the provisions of the new Act of 1961." (emphasis supplied)
22. The making of the assessment order does not entitle the TRO to start recovery proceedings. We are in respectful agreement with these observations. Even the issuance of a notice of demand does not entitle the TRO to commence recovery proceedings under Schedule II.
Till there is a certificate issued under sub-section (1) of section 222, the Rules laid down in Schedule II are inapplicable. He is entitled to invoke the rules under Schedule II only upon the issuance of a certificate under section 222. The conditions precedent to the issuance of such a certificate have already been mentioned by us. It follows, therefore, that where there is not even an assessment order or any other order for the payment of any amount under the Income Tax Act, there is no question of the operation of the Rules under the Second Schedule.
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23. This view is also supported by Rule 1 of Schedule II. Rule 1(a), (b) and (c) read as under :
"Definitions.
1. In this Schedule, unless the context otherwise requires.-
(a) "certificate", except in rules 7, 44, 65 and sub-rule (2) of rule 66, means the certificate drawn up by the Tax Recovery Officer under section 222 in respect of any assessee referred to in that section;
(b) "defaulter" means the assessee mentioned in the certificate;
(c) "execution", in relation to a certificate, means recovery of arrears in pursuance of the certificate;"
24. Thus, what the TRO executes under Rule 8(1) is a certificate drawn up by the TRO under section 222 in respect of an assessee referred to in that section. Section 222 refers to an assessee in default.
"Defaulter" in Rule 1(b) means an assessee mentioned in the certificate. Again, the assessee mentioned in the certificate under section 222 is an assessee in default. An assessee is said to be in default if he does not pay the amount demanded in the notice under section 156 within the time stipulated in section 220(1). Thus, the words "any other amount recoverable from the assessee under this Act" mean the amounts payable in consequence of any order passed under the Act. The TRO cannot utilize the balance amounts for the 22/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc satisfaction of any amounts other than the amounts payable in consequence of any order passed under this Act.
25. A view to the contrary, as Mr. Naniwadekar rightly submitted, would lead to the most startling consequences. It would mean this. Once a recovery certificate is issued under section 222(1) in respect of any amount, all the dues of the assessee under the Income Tax Act for any assessment year even prior to the year in respect whereof the certificate is issued must be computed by the TRO and not by the Assessing Officer.
26. Indeed, the submission on behalf of the petitioner, if accepted, would confer a power upon the TRO to determine any amounts payable under the Act, including under Chapter X. In that event, the TRO would be entitled to determine the arms length price of international transactions, proceed to pass the assessment orders, by-
passing the entire procedure before the Disputes Resolution Panel, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal even in respect of international transactions.
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27. If Mr. Kamat's submission is accepted, the entire machinery for the assessment of tax would have to be given a go-by to, once proceedings under Rule 8 commence. This could never have been the intention of the Legislature. It was not. The plain language of the Rules, including Rule 8 does not support such a construction.
28. Under Rule 8(1)(b), the balance that remains after the adjustment under Rule 8(1)(a) can be utilized for satisfaction of "any other amount recoverable from the assessee under this Act" meaning thereby amounts recoverable from the assessee pursuant to any order passed under the Income Tax Act. The TRO is not entitled to pass an order determining whether an amount is recoverable from the assessee under the Act. In other words, the TRO is not entitled to adjudicate upon the tax and other dues of the assessee under the Income Tax Act.
29. Mr. Kamat, however, relied upon sub-rule (2) of Rule 8 in support of his submission. The dispute referred to in sub-rule (2) is not in relation to determination of the tax liability or any other liability under the Income Tax Act. In other words, the dispute under sub-rule (2) does not refer to whether an assessee is liable to pay any amounts under the Income Tax Act. The adjustments under sub-clause (b) of 24/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc sub-rule (1) relate to purely arithmetical calculations, after giving credit for any amounts to be adjusted such as refunds due to the assessee or part-payments made by the assessee or amounts recovered from the assessee. The adjustments referred to in clause (b) of sub-
rule (1) of Rule 8 are not those arrived at after an adjudication by the TRO of the liability per se. They are based on assessment orders and adjudication already made by the competent authorities under the Income Tax Act.
30. On the basis of his submission with respect to Rule 8, Mr. Kamat had further submitted that on a parity of reasoning, the Recovery Officer under the DRT Act was entitled to adjudicate upon amounts that may be due by the judgment debtor in respect of amounts other than those covered by the recovery certificate issued under the RDDB Act. The contention based on a parity of reasoning cannot survive in view of what we have held.
31. In any event, the scheme of Rule 8 it is apparent that it cannot apply to recovery proceedings under the RDDB Act. Section 29 makes the second and third schedules of the Income Tax Act applicable only "as far as possible" and "with necessary 25/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc modifications".
32. Firstly, clause (a) of sub-rule (1) of Rule 8 requires the amounts realised by sale or otherwise in execution of a certificate to be first adjusted towards the amounts due under the certificate in execution of which the assets were realised and the costs incurred in the course of such execution. Priority is, therefore, fixed not merely in favour of the revenue, but qua the certificate in execution of which the assets were realised. Under Rule 8, the question of priority is irrelevant for the creditor is the same - the Revenue.
33. Further, Rule (b) requires the balance amount to be utilized for the satisfaction of any other amounts recoverable from the assessee under the Income Tax Act. Assuming that the words "this Act" in Rule 8(1)(b) must be read as the RDDB Act in respect of recovery proceedings under the latter Act, it would still be incongruous for Rule 8 pertains only to the claims of one creditor viz. the Revenue and that too only under the Income Tax Act. There is no provision entitling the TRO to entertain claims of third parties for the purpose of utilizing the balance amounts towards payment thereof. Section 29 makes Schedule II applicable to the RDDB Act "with necessary 26/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc modifications". To accept Mr. Kamat's submissions, Rule 8 would have to be not modified, but totally re-written.
34. The Recovery Officer under the RDDB Act also cannot adjudicate upon the claims of any party in proceedings instituted under the RDDB Act. That can only be done by the Debt Recovery Tribunal.
Under section 19 of the RDDB Act, a bank or financial institution is entitled to make an application "to the Tribunal". Section 19 then provides a detailed procedure for the adjudication of the claim filed under section 19(1) "to the Tribunal". Section 2(ja), (k) and (o) define the Presiding Officer and Tribunal as follows :
"2. Definitions.- In this Act, unless the context otherwise requires. -
... ... ... ...
(ja) "Presiding Officer" means the Presiding Officer of the Debts Recovery Tribunal appointed under sub-section (1) of section 4;
(k) "Recovery Officer" means a Recovery Officer appointed by the Central Government for each Tribunal under sub-section (1) of section 7.
... ... ... ...
(o) "Tribunal" means the Tribunal established under sub-section (1) of section 3."
Sections 4 and 5 also draws a clear distinction between a Recovery Officer on the one hand and the Presiding Officer / the Tribunal on the other. Even assuming that the Tax Recovery Officer 27/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc had the power to adjudicate the liability of an assessee under the Income Tax Act, it would not follow that the Recovery Officer has the power to decide the claims of parties even if such claims fall within the purview of the RDDB Act. The RDDB Act draws a clear distinction between the Recovery Officer on the one hand and the Presiding Officer / the Tribunal on the other. Under section 19 it is only the Tribunal that has the power to adjudicate upon the claims and counter claims and not the Recovery Officer. Section 5 prescribes the qualification of a Presiding Officer viz. one who has been or is qualified to be a District Judge. No such qualification is required for a Recovery Officer. It is difficult to imagine that the Legislature conferred upon the Recovery Officer, functions to be discharged by the Tribunal / Presiding Officer of the Tribunal although the Recovery Officer is not qualified to be a District Judge.
35. The Writ Petition is dismissed. There shall be no order as to costs.
By an order dated 9th October, 2013, the impugned order was stayed pending admission subject to the petitioner agreeing to pay interest from the date of the order, in the event of it losing and in the event of the commission otherwise being found to be not payable. By 28/29 ::: Downloaded on - 04/06/2014 22:32:24 ::: WP2722.13.doc an earlier order passed by the Presiding Officer / DRT dated 29th October, 2007, the petitioner was allowed to withdraw the amounts and submit an undertaking for bringing back the amount as and when required alongwith interest as per the bank rate. The money to be brought back is the amount which was determined as being payable towards the commission and which we have held could not have been determined by the Recovery Officer under Rule 8 of Schedule II. The rate of interest throughout is fixed at 10% per annum.
This order is stayed upto and including 31st July, 2014.
B.P. COLABAWALLA, J. S.J. VAZIFDAR, J.
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