Karnataka High Court
Esteem Estate Projects Pvt Ltd vs Suraksha Properties on 3 August, 2020
Author: N S Sanjay Gowda
Bench: N.S.Sanjay Gowda
WP.98/2020
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF AUGUST 2020
BEFORE
THE HON'BLE MR.JUSTICE N.S.SANJAY GOWDA
W.P.No.98/2020 (GM-DRT)
BETWEEN:
ESTEEM ESTATE PROJECTS PVT. LTD.,
NO.73, THE SHELTON GRAND HOTEL,
M.G.ROAD, BENGALURU - 560 001,
REP. BY ITS MANAGING DIRECTOR,
MR.HABIB KALWANI. ... PETITIONER
(BY SRI S.SHAKER SHETTY, ADV.)
AND:
1. SURAKSHA PROPERTIES,
NO.67, SRI RENUKA NILAYA, NEAR LAKSHMI TEMPLE,
KORAMANGALA, BENGALURU - 560 095,
REP. BY ITS PARTNER MR.DINESH R.
2. ASSET RECONSTRUCTION CO., INDIA LTD.,
'THE RUBY', 10TH FLOOR,
NO.29, SENAPATI BAPAT MARG,
DADAR (WEST), MUMBAI,
REP. BY ITS MANAGING DIRECTOR.
3. THE RECOVER OFFICER-2,
DEBTS RECOVERY TRIBUNAL NO.2,
NO.4, JEEVAN MANGAL,
LIC BUILDING, RESIDENCY ROAD,
BENGALURU - 560 025. ... RESPONDENTS
(BY SRI VIVEK S., ADV. FOR R1, SRI CHINMAY MIRJI, ADV.
FOR R2, R3 IS SERVED & UNREPRESENTED)
WP.98/2020
2
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 &
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH
THE ORDER DATED 30.12.2019 PASSED BY THE DEBTS
RECOVERY TRIBUNAL-II, KARNATAKA AT BENGALURU IN
D.NO.2537/2019 IN DRC NO.107/2017 IN O.A.NO.810/2011
AS PER ANNEXURE-E ACCORDING TO LAW.
THIS WRIT PETITION COMING ON FOR HEARING THIS
DAY, THE COURT MADE THE FOLLOWING:
ORDER
1. The facts necessary for disposal of this writ petition are as follows:
The petitioner had availed of certain loans from the Karnataka Bank Limited and assigned his property as security and for non-payment of the debt, proceedings were initiated by the Bank before the Debts Recovery Tribunal, Bengaluru (for short, 'the DRT'), in O.A.No.810/2011 which culminated in issuance of Recovery Certificate for a sum of Rs.33,58,99,112.50/-.
2. Pursuant to the Recovery Certificate, a Sale Proclamation dated 02.07.2019 was issued proposing to sell the properties mentioned in the proclamation. Clause 4 of the said proclamation stipulated payment of Earnest Money WP.98/2020 3 Deposit (for short, 'EMD') of Rs.2,75,70,000/- which was 10% of the reserve price of Rs.27,57,70,000/-. Clause 5 stipulated that the successful bidder should deposit 25% of the sale proceeds after adjustment of EMD by 3.00 p.m. on the next day and if the next day was a holiday or Sunday, then on the next working day. Clause 6 stipulated that the auction purchaser should deposit 75% of the sale proceeds on or before 15th day from the date of sale of the property and in case of default of payment within the prescribed period, the deposit, after defraying the expenses of the sale, would stand forfeited to the Government and the defaulting purchaser would also forfeit all claims to the property or to any of the part of the sum for which it may be subsequently sold. It was also stipulated that the property should be resold after issuance of fresh proclamation.
3. Pursuant to the Sale Proclamation, an auction was conducted on 23.07.2019. The 1st respondent herein was the successful bidder and his bid of Rs.27,59,70,000/- was accepted and after adjusting the EMD, he deposited a sum of WP.98/2020 4 Rs.6,89,92,500/- (i.e., 25% of the bid amount along with 1% of poundage).
4. The remaining amount was required to be deposited on or before 06.08.2019. The 1st respondent, however, did not deposit the balance 75% of the bid amount and on the other hand, he made an application in I.A.No.278/2019 before the Recovery Officer seeking for extension of time. The Recovery Officer rejected the said application on the ground that the application seeking for extension was not maintainable.
5. On the following day, i.e., on 08.08.2019, the 1st respondent proceeded to file a memo once again seeking for extension of time for a period of three months for depositing 75% of the bid amount. The Recovery Officer proceeded to reject the said application on the ground that he had no power to extend the time.
6. Being aggrieved by the rejection of the memo, the 1st respondent proceeded to file a writ petition before this Court and the said writ petition was disposed of by this Court observing that the 1st respondent had an alternative remedy WP.98/2020 5 before the Debts Recovery Appellate Tribunal, Chennai (for short, 'the DRAT').
7. The 1st respondent thereafter proceeded to file an appeal before the DRAT. However, the DRAT took the view that the 1st respondent was required to approach the DRT and accordingly disposed of the appeal directing the parties to appear before the DRT on 18.12.2019 along with the appeal filed against the order dated 08.08.2019 passed by the Recovery Officer.
8. The DRT, thereafter, took up the appeal of the 1st respondent for consideration and by the impugned order, has allowed the appeal and set aside the order dated 08.08.2019 passed by the Recovery Officer, whereby he had rejected the request for extension. The DRT proceeded to issue a direction to the Recovery Officer to accept the remaining sale consideration and issue a Sale Certificate in favour of the 1st respondent. As against the said order, this writ petition has been filed on 03.01.2020.
WP.98/20206
9. It appears that on 02.01.2020 the Sale Certificate had already been issued. However, on 06.01.2020, this Court granted an interim order of stay as prayed for in the writ petition.
10. The narration of facts stated above go to show that the property in question had been sold to recover a debt as determined by the DRT. It will be therefore necessary to examine the provisions governing the recovery of debts determined by the DRT.
11. Chapter-V of the Recovery of Debts and Bankruptcy Act, 1993 (for short, 'the RDB Act') deals with recovery of debt determined by the Tribunal. Section 25 of the RDB Act states that Recovery Officer can recover the amount of debt specified in the certificate in on or more of the modes specified therein. The first mode stated therein is by attachment and sale of the movable or immovable property or by taking possession of the property or by appointing the Receiver for such property with an intention to sell the same. WP.98/2020 7
12. Sections 26 and 27 of the RDB Act deal with the validity of the certificate and its amendment and also about the stay of proceedings under the certificate and the amendment or withdrawal of the certificate.
13. Section 28 of the RDB Act provides for other modes of recovery of the debt determined by the DRT.
14. Section 29 of the RDB Act reads as under:
"29. Application of certain provisions of Income-tax Act.- 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 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 Act."
15. Schedule-II of the Income Tax Act deals with the procedure for recovery of tax. Rule 56 of the said Schedule mandates that the sale shall be by public auction to the WP.98/2020 8 highest bidder and would be subject to the confirmation by the Tax Recovery Officer. Rules 57 and 58 reads as under:
"57. (1) On every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty-five per cent on the amount of his purchase money, to the officer conducting the sale; and, in default of such deposit, the property shall forthwith be resold.
(2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of sale of the property.
58. In default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be resold, and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold."
16. It is, thus, clear that whenever a property is sought to be sold in order to recover the debt as determined by the Tribunal, by virtue of Section 29 of the RDB Act, the WP.98/2020 9 provisions of Schedule-II of the Income Tax Act would have to be adopted to bring the property to sale.
17. Sub-rule (1) of Rule 57 of said Schedule-II categorically states that on every sale of the immovable property, the person declared to be the purchaser shall immediately pay or deposit 25% of the purchase money and on default the property the property is required to be resold forthwith. the said Rule also stipulates that in default of such deposit, the property would forthwith be resold.
18. Sub-rule (2) of Rule 57 of Schedule-II further stipulates that the full amount of the purchase money shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of sale of the property.
19. Rule 58 of Schedule-II categorically states that if there is a default in payment of sale consideration as mentioned in Rule 56, the Tax Recovery Officer may, if he thinks fit, after defraying the expenses of the sale, order forfeiture of the amount to the Government and shall resell the property. It also makes it clear that the defaulting purchaser shall forfeit WP.98/2020 10 all claims to the property or to any part of the sum, for which it may subsequently be sold.
20. The statutory rule, thus, makes it clear that if the auction purchaser does not deposit either 25% on the same day or does not deposit the balance 75% of the purchase money within 15 days, the property would have to be resold.
21. Rule 58 of Schedule-II, in fact, makes it clear that if there is any default in payment of sale consideration as contemplated under Rule 57, the amount paid as deposit by the auction purchaser could be forfeited to the Government.
22. In the instant case, a Sale Proclamation was also issued. Clauses 5 & 6 of the said Sale Proclamation reads as under:
"5. The successful bidder should deposit 25% of the sale proceeds after adjustment of EMD on being knocked down, by next date i.e, by 3.00 PM in the said account as per details mentioned in para 3 above. If the next day is holiday or Sunday, then on the next first working/office day.
6. The purchaser shall deposit 75% of the sale proceeds on or before 15th day from the date of sale of the property, exclusive of such day, or if the 15th be a WP.98/2020 11 Sunday or other holiday, then on the first office day after the 15th day by prescribed mode as stated in para 3 above. In addition to the above purchaser shall also deposit poundage fee with recovery, Officer-II, DRT-II Bengaluru @ 2% up to Rs.1000/- and @ 1% of the excess of the said amount of Rs.1000/- through DD in favour of Registrar DRT-II, Bengaluru.
In case of default of payment within the prescribed period, the deposit, after defraying the expenses of the sale, may, if the undersigned thinks fit, shall be forfeited to the government and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold. The property shall be resold, after the issue of fresh proclamation of sale."
23. Thus, the Sale Proclamation also made it categorically clear that if there was default of payment within the prescribed period, the deposit, after defraying the expenses of the sale, could be forfeited to the Government and the defaulting purchaser would forfeit all his claims to the property.
24. It is the admitted case of all the parties that the auction purchaser did not deposit balance 75% of the bid amount within 15 days.
WP.98/202012
25. In view of Rule 58 of the II Schedule to the Income tax and also the conditions stipulated in the sale proclamation, the inevitable consequence of default would be that the auction bid knocked down in favour of the 1st respondent would stand annulled and the property would have to be resold.
26. The Rules do not in any way grant any discretion to the Officer who conducts the sale to extend the time for deposit. The Rules also do not enable the Tribunal to extend the time for making the deposit. In other words, if there is a default in payment of 75% of the bid amount, the inescapable consequence would be that auction sale would stand cancelled automatically.
27. Learned Counsel for the 1st respondent - auction purchaser, however, contended that Section 29 of the RDB Act makes it clear that the provisions of Schedule-II of the Income Tax Act can be applied only 'as far as possible' and 'apply with necessary modifications' and in view of the two terms found in Section 29 of the RDB Act, it was open for either the Recovery Officer or the Tribunal to extend the time WP.98/2020 13 for making the deposit. In respect of the said argument, he relied upon the decision of the Madras High Court in the case of P. KUMARAN Vs. DRAT - (2011) 6 CTC 369 : 2011 SCC Online Mad 871.
28. In my view, this argument of the learned Counsel is misconceived. The mandate of the law is that if the auction purchaser defaults in depositing the balance sale consideration, there is an immediate consequence, in as much as, the sale in favour of the auction purchaser stands cancelled.
29. The Legislature has deliberately emphasized that the property would be resold because it was aware that auction purchasers would make a bid depositing 25% and thereafter, default in order to protract the proceedings and delay the realization of the dues to the decree holder. If the argument of the learned Counsel is accepted, this mandate of the Legislature in ensuring a penal consequence would stand completely nullified and there would be ample role for mischief being played in an auction.
WP.98/202014
30. The argument of the learned Counsel that the terms 'as far as possible' and 'apply with necessary modifications' would result in granting discretion to the Recovery Officer and the Tribunal for extending the time cannot also be accepted. The terms 'as far as possible' and 'apply with necessary modifications' are used basically to refer to the amount of debt due under the RDB Act and not the arrears of tax as contemplated under the Income Tax Act. It is only in this regard that the terms 'as far as possible' and 'apply with necessary modifications' are used and these terms by themselves cannot result in dilution of the mandate of the deposit of 75% within 15 days.
31. In fact, a similar argument advanced was considered and rejected by the Apex Court in the case of C.N. PARAMSIVAM AND ANOTHER VS SUNRISE PLAZA - (2013) 9 SCC 460 wherein the Apex Court stated at paragraphs 26 and 27 as follows:
"26. It is, therefore, reasonable to hold that the phrase "as far as possible" used in Section 29 of the RDDB Act can at best mean that the Income Tax Rules may not apply where it is not at all possible to apply WP.98/2020 15 them having regard to the scheme and the context of the legislation.
27. There is nothing in the provisions of Section 29 of the RDDB Act or the scheme of the Rules under the Income Tax Act to suggest that a discretion wider than what is explained above was meant to be conferred upon the Recovery Officer under Section 29 of the RDDB Act or Rule 57 of the Income Tax Rules which reads as under:
"57.....xxxx......"
It is clear from a plain reading of the above that the provision is mandatory in character. The use of the word "shall" is both textually and contextually indicative of the making of the deposit of the amount being a mandatory requirement."
32. The other argument of the learned Counsel for 1st respondent is that, the general terms and conditions of online auction sale permit that the balance amount of 75% should be paid before the fifteenth day or within such period as may be extended by the Recovery Officer. According to him, since these terms and conditions enable the Recovery Officer to extend the time, a conjoint reading of Section 29 of the RDB Act and the general terms and conditions would enable the WP.98/2020 16 Recovery Officer to extend the time for deposit. In my view, this argument also cannot be sustained.
33. Learned Counsel for the 1st respondent fairly admitted that the General terms and conditions of online auction sale, a copy of which is produced as Document No.3 to the statement of objections, is not traceable to any statutory power. In other words, the general terms and conditions of online auction sale cannot be held to be statutory in character.
34. In fact, the very General terms and conditions of the online auction sale stipulate that the sale would be governed by the Rules in Schedule-II to the Income Tax Act read with Section 29 of the RDB Act as per Clause 1(b) of the General Terms and Conditions of Online Auction Sale. Further, Clause 12 which deals with default of payment categorically states that in default of payment of 25% of the bid amount on the same day and 75% of the balance bid amount within the stipulated time, shall render an automatic cancellation of the sale without any notice. It is, therefore, clear that even these General terms and conditions which are produced as WP.98/2020 17 Document No.3 to the statement of objections also mandate that the sale would stand automatically cancelled if there is a default in payment of either 25% or 75% of the bid amount. It is, thus, clear that the Recovery Officer would not have the jurisdiction to extend the time by placing reliance on Clause 11(c) of the General Terms and Conditions of Online Auction Sale, which, as stated above, is not traceable to any statutory power. To put it differently, the conduct of sale can only be in accordance with the statutory rules as contemplated under Section 29 of the RDB Act. This, would, in turn, mean that the sale will have to be conducted strictly in accordance with the Rules provided in Schedule-II of the Income Tax Act.
35. It is to be stated here that there can be no escape from the liability to pay 75% of the bid amount within 15 days by the auction purchaser on any ground whatsoever. It is also to be noticed here that an auction purchaser participates in an auction with the clear knowledge that he has to deposit the entire bid amount within 15 days and if he fails to do so, he suffers a serious consequence of forfeiture. If an auction purchaser is permitted to participate in an auction and WP.98/2020 18 thereafter contend that he has difficulty in paying the balance bid amount and that some leniency should be given to him to deposit the balance bid amount, the very purpose of an auction sale would be completely defeated. I am, therefore, of the view that the DRT had no jurisdiction to direct acceptance of the sale consideration after a period of 15 days and direct issuance of Sale Certificate. I, therefore, set aside the order passed by the DRT and hold that the Recovery Officer is required to resell the property as provided under Schedule-II of the Income Tax Act.
36. As a consequence of the order of the DRT being set aside, it necessary follows that 75% of the bid amount paid by the 1st respondent pursuant to the order of the DRT would have to be refunded to the 1st respondent, subject to the condition that the 1st respondent surrenders the Sale certificate and also surrenders physical possession of the auctioned property if he has been put in possession.
37. Since the impugned order is set aside and the auction being declared non est, as a further consequence, the Sale Certificate issued pursuant to the impugned order shall be WP.98/2020 19 deemed to have been cancelled. The Recovery Officer is directed to ensure that necessary entries are made in the office of the Sub-Registrar to the effect that the Sale Certificate has been cancelled.
37. As far as the 25% of the bid amount that was deposited by the 1st respondent, as on the date of the auction sale, is concerned, the Recovery officer would have to first mandatorily defray the expenses of the sale from this 25% of the deposited amount. The Recovery officer shall thereafter decide whether the balance amount is required to be forfeited to the Government, as contemplated under Rule 58 of Schedule-II of the Income Tax Act.
Writ petition is accordingly allowed.
Sd/-
JUDGE PK