S.Balachander v. Central Bank of India

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 30.9.2009CORAM:THE HONOURABLE MR.JUSTICE ELIPE DHARMA RAOANDTHE HONOURABLE MR.JUSTICE M.VENUGOPALWrit Petitions No.13107 to 13109 of 2009andM.P.Nos.1,1 and 1 of 2009 respectively in all the writ petitionsM/s.Fashion Apparels,rep.by its Partner S.Balachander,No.1 Kavya Garden First Lane,10th cross, Mangala Nagar Extension,Porur, Chennai-116.... Petitioner in W.P.13107/2009S.Balachander... Petitioner in W.P.13108/2009B.Annapoorani... Petitioner in W.P.13109/2009Vs.1.Central Bank of India, Mount Road Branch, No.834, Anna Salai, Chennai-2.2.P.Sathyavathy... Respondents in all the W.Ps.All these Writ Petitions are filed under Article 226 of theConstitution of India, praying to issue Writs of Certiorari to callfor the recordson the file of the Debts Recovery Appellate Tribunal,Chennai made in M.A.No.65 of 2007 and quash the order dated 5.3.2009,confirming the order of the DRT-I, Chennai made in AOR SR-7/2006 inO.A.1/2006 in DRC.65/2004 in O.A.63/2003. dated 27.11.2006.For petitioners in: Mr.V.T.Gopalan, all the W.Ps.: Senior Counsel for Mr.G.DesinguFor R.1: Mr. K.RajasekaranFor R.2: Mr.R.Subramanian Senior Counsel for Mrs.Sunanda Suren https://hcservices.ecourts.gov.in/hcservices/ COMMON ORDERELIPE DHARMA RAO, J.The petitioner in the first writ petition above is a firm andthe petitioners in the other two writ petitions are its partners,engaged in the business of exporting garments. The petitioners inthe 2nd and 3rd writ petition above are husband and wife.2. The petitioners availed packing credits and cash creditfacilities aggregating a limit of Rs.60 lakhs on execution ofnecessary documents and on the security of immovable property by wayof equitable mortgage and hypothecation of stocks. They havedeposited the title deeds of the properties on 16.11.1998 and10.12.1998 respectively with interest to create an equitable mortgagefor the loan facility granted in favour of the firm. Subsequently,on their application, the first respondent Bank sanctioned packingcredit facility and cash credit facility aggregating a sum of Rs.75lakhs on execution of necessary documents on 24.4.1999.Subsequently, the first respondent Bank sanctioned placing creditfacility and cash credit facility, aggregating a sum ofRs.72,50,000/= on execution of necessary instruments in favour of theBank and on extension of equitable mortgage on 20.3.2000. Thereupon,the petitioners have failed to repay the loan amount. Therefore, thefirst respondent Bank filed O.A.No.63 of 2003 before the DebtsRecovery Tribunal-II, Chennai for recovery of a sum of Rs.81,18,575/=with subsequent interest till date of payment with costs and draw therecovery certificate for the same. The said suit was decreed exparteon 31.12.2003, since in spite of notices, the petitioners did notappear before the Tribunal. The Tribunal issued the RecoveryCertificate on 31.3.2004 and the properties were brought to sale bythe Recovery Officer by public auction on 30.9.2004. 3. The petitioners filed M.A.Nos.55 and 56 of 2004 for settingaside the exparte order and for stay of recovery proceedings, but, asthe conditional order imposed by the Debts Recovery Tribunal was notcomplied with by the petitioners, the said applications weredismissed. Subsequently, the petitioners represented to the firstrespondent Bank that B.Raja, their son, filed O.S.No.645 of 2005before the XVI Assistant City Civil Court, Chennai and another sonArun Prasad filed O.S.No.19 of 2005 before the Principal DistrictJudge, Chengalpattu for permanent injunction restraining the Bank toauction the suit property. In the said O.S.No.19 of 2005, while thepetitioners are impleaded as defendants 1 and 2, the above saidB.Raja was impleaded as third defendant and minor Aravind wasimpleaded as 4th defendant and the first respondent Bank was impleadedas 5th defendant. In O.S.No.645 of 2005, a conditional order waspassed by the learned XVI Assistant City Civil Judge, Chennai,directing the plaintiff/petitioner therein (B.Raja) to pay a sum ofRs.5 lakhs to the Bank in a week's time and since the saidconditional order was not complied with, the interim injunctiongranted earlier was not extended. In both the above said suits, the https://hcservices.ecourts.gov.in/hcservices/ contention putforth on the part of sons of the petitioners is thatthe properties in question are ancestral properties and they wantpartition of the same.4. Thereupon, the Recovery Officer brought the mortgage propertyfor auction on 24.1.2006. The first petitioner Mr.Balachander filedC.R.P.No.144 of 2006 to set aside the auction sale proceedings inDRC.65 of 2004 in O.A.No.63 of 2003, including the Sale certificatedated 12.12.2005 and this Court, by the order dated 23.1.2006, hasdismissed the said petition, on the ground that the auction salenotice was issued on 11.2.2005 and the petitioner, withoutquestioning the same, has approached the High Court, after 11 monthsof the issuance of Sale certificate.5. Then, on 24.1.2006, auction was conducted, wherein the secondrespondent was declared as the successful bidder for Rs.44,50,000/=.Immediately, the petitioners filed I.A.No.1 of 2006 before theRecovery Officer to set aside the sale and stay the confirmation ofsale. But, the Recovery Officer, by the order dated 4.5.2006,dismissed the same and confirmed the sale on 9.5.2006 in favour ofthe auction purchaser and aggrieved by the order passed by theRecovery Officer, the petitioners preferred Appeal inAOR.SR.No.7/2006 before the Debts Recovery Tribunal-I, Chennai and onthe same having also been dismissed by the order dated 27.11.2006,the petitioners have an preferred appeal before the Debt RecoveryAppellate Tribunal, Chennai in M.A.No.65 of 2007 and the same havingalso met the fate of dismissal at the hands of the AppellateTribunal, they have come forward to file these writ petitionsindividually on one and the same grounds. Therefore, all these writpetitions are taken up for common hearing and are being disposed ofby this common order.6. The learned senior counsel appearing for the petitionerswould argue that the Recovery Officer issued the sale notice, fixingthe sale on 24.1.2006 and prescribing number of conditions for takingpart in the auction and though the fourth condition states that 'thesuccessful bidder should pay 25% of the bid amount (less the EMD)immediately on the sale being knocked down in his favour and thebalance money within 15 days', the purchaser had remitted the balanceamount only on 24.2.2006, which he should have paid on or before7.2.2006 and therefore, the Recovery Officer should not haveconfirmed the sale. The learned senior counsel, in support of hisarguments that the sale being against the terms of conditions of saleis illegal, would rely on a judgment of the Honourable Apex Court inHIMADRI COKE AND PETRO LTD. vs. SONEKO DEVELOPERS (P) LTD. [(2005) 12SCC 364]. In the said judgment, the offer of a third party to theentire auction was considered by the authorities over and above thehighest bidder in the auction since he failed to deposit the balancesale consideration within the stipulated time. In thosecircumstances, the Honourable Apex Court has held that: https://hcservices.ecourts.gov.in/hcservices/ "We are of the view that the sale must be set aside and theproperty be sold after readvertisement. As far as theappellant is concerned it could not have been allowed toparticipate in the proceedings as it had not submitted anoffer pursuant to the last advertisement. If any person’soffer other than the offers received in response to theadvertisement has to be considered, then an opportunitymust be granted to other offerers pursuant to a freshadvertisement. The appellant could not have been permittedto enter into the arena by making an offer which was not inresponse to the advertisement. The last date specified inthe advertisement resulting in the sale to Respondent 1 haslong since expired.9. As far as Respondent 1 is concerned, we are of the viewthat it was bound by the terms and conditions of sale aswas the authority concerned. It was not up to them toextend the dates for submission of the balance price whenthere was no clause in the terms and conditions of the saleallowing the authority to extend the time beyond the periodspecified in the advertisement for making the initialdeposit or the balance price."7. Relying on the above said judgment of the Honourable ApexCourt, a further argument has been advanced on the part of thepetitioners that though in the auction one Bali Reddy, Triplicane wasdeclared as successful bidder, the sale certificate was issued in thename of his wife Mrs.B.Sathyavathi, the second respondent herein, andas per Rule 65 of the II Schedule to the Income-tax Act, the RecoveryOfficer should have issued sale certificate only in the name of theperson who has taken part in the auction viz. Bali Reddy and sincein the case on hand, the sale certificate has been issued in the nameof the second respondent/a third party to the auction, the sale hasto be held illegal.8. On a perusal of the entire materials placed on record, we areable to see that on the date of auction, the second respondent byname Mrs.Sathyavathi, has addressed a letter titled 'AuthorisationLetter' to the Recovery Officer, DRT-I, Chennai, authorising herhusband to participate in the auction and do the formalities for thesame on her behalf, as she was not able to come. Pursuant thereto,the auction proceedings were conducted wherein the name of Mr.P.BaliReddy was mentioned at Serial No.B2. Though such an authorisingletter was issued by the second respondent permitting her husbandBali Reddy to participate in the auction on her behalf, it seems, forthe sake of convenience of calling the parties and verifying theother details, the authorities have noted down the name of Mr.P.BaliReddy at Serial No.B2 wherefrom we are unable to find any illegalitysince, as has already been observed by us supra and as could be seen https://hcservices.ecourts.gov.in/hcservices/ from page No.19 of the typed set filed by the petitioners themselves,which bears the seal of the Debt Recovery Tribunal, indicating thatit is a part and parcel of the record, the second respondent has dulyauthorised her husband Mr.P.Bali Reddy to participate in the auctionon her behalf and only for the sake of convenience, the name ofMr.P.Bali Reddy was mentioned at Serial No.B2. Therefore, theratio laid down by the Honourable Apex Court in Himadri Coke case, tothe effect that the offer made by the third party to the auction,subsequent to the auction in the absence of any rule permitting suchaction, will have no bearing to the case on hand.9. Coming to the other aspect urged on the part of thepetitioners that the balance of 75% of the sale price was notdeposited by the auction purchaser within the time stipulated in thesale notice and therefore, the sale has to be held illegal, first ofall it is to be mentioned that the petitioners did not file anyapplication under Rule 61 of the second schedule to the Income-taxAct, 1961, challenging the sale conducted by the Recovery Officer onthe ground of irregularity. For the sake of convenience, we extracthereunder Rule 61 of the second schedule to the Income-tax Act, 1961:"61. Application to set aside sale of immovable property onground of non-service of notice or irregularity – Whereimmovable property has been sold in execution of acertificate, such Income Tax Officer as may be authorisedby the Chief Commissioner or Commissioner in this behalf,the defaulter, or any person whose interests are affectedby the sale,may, at any time, within thirty days from thedate of the sale, apply to the Tax Recovery Officer to setaside the sale of the immovable property on the ground thatnotice was not served on the defaulter to pay the arrearsas required by this Schedule or on the ground of a materialirregularity in publishing or conducting the sale:Provided that -(a) no sale shall be set aside on any such groundunless the Tax Recovery Officer is satisfied that theapplicant hs sustained substantial injury by reason of thenon-service or irregularity; and(b) an application made by a defaulter under this ruleshall be disallowed unless the applicant deposits theamount recoverable from him in the execution of thecertificate."10. At this juncture, we feel it apt to quote Section 29 of theRecovery of Debts Due to Banks and Financial Institutions Act,dealing with application of certain provisions of Income-tax Act andhence the same is extracted hereunder: https://hcservices.ecourts.gov.in/hcservices/ "29. Application of certain provisions of Income Tax Act.—The provisions of the Second and Third Schedules to theIncome Tax Act, 1961 and the Income Tax (CertificateProceedings) Rules, 1962, as in force from time to timeshall, as far as possible, apply with necessarymodifications as if the said provisions and the rulesreferred to the amount of debt due under this Act instead ofto the income tax:Provided that any reference under the said provisionsand the rules to the “assessee” shall be construed as areference to the defendant under this Act."11. On a reading of this Section, it is clear that this Sectionauthorises the Debt Recovery Officer to follow the Second and ThirdSchedules of the Income-tax Act, 'as far as possible' and apply withnecessary modifications. Therefore, under this Section no obligationhas been created on the Recovery Officer to scrupulously follow theSecond and Third Schedules of the Income-tax Act and on the otherhand, it has given a free-hand to the Recovery Officer to apply them,with necessary modifications. Therefore, it cannot be said that theRecovery Officer is bereft of any power to extend the time forpayment of the sale amount or anything of that sort, since underSection 29 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, which has been enacted with an object ofexpeditious adjudication and recovery of debts due to banks andfinancial institutions,he is required to camouflage to thecircumstances of the case and act judiciously, to achieve the objectsof the Act.12. At this juncture, the learned senior counsel appearing forthe second respondent/subsequent purchaser would rely on a DivisionBench judgment of the Andhra Pradesh High Court in P.MOHANREDDY ANDOTHERS vs. DEBTS RECOVERY APPELLATE TRIBUNAL, MUMBAI AND OTHERS [AIR2004 AP 94], wherein it has been held:"Section 29 of the Act authorises the Debt Recovery Officerto follow the Second and Third Schedules to Income-tax Act,1961 as far as possible with necessary modifications. Thephrase "as far as possible" can be interpreted in variousways. Keeping in view the intent and object of the Act useof this phraseology "as far as possible" in S.29 does notimpose an obligation on the Recovery Officer tometiculously follow the provisions of Second and ThirdSchedules. It provides liberty to Recovery Officer tofollow said provisions with necessary modifications. Thelanguage employed is such that there is flexibility and notmandate to follow the rules as they are."13. A contemporary Division Bench of this Court also in NAZIMSCONTINENTAL REP.BY ITS PARTNERS vs. THE INDIAN OVERSEAS BANK ANDOTHERS [2009-3-L.W. 792], has held that: https://hcservices.ecourts.gov.in/hcservices/ "Rule 55 (Part-III) of 2nd Schedule relates to 'time ofsale', however, u/s.27 of the Act, 1993, even afterissuance of certificate of recovery of amount, thePresiding Officer is empowered to grant further time forpayment of the amount; the recovery officer is alsoempowered to stay the proceeding until the expiry of thetime so granted. Therefore, it is clear that Rule 55 of 2ndSchedule prescribing a 'time of sale' is not mandatory forrecovery of debt under Act, 1993 and we hold accordingly."14. For the above discussions, we do not find any illegality orirregularity in the action of the Recovery Officer in accepting thebalance sale consideration from the second respondent over and beyondthe time limit of 15 days prescribed in the sale notice, since he isfully authorised to act in the manner required under the facts andcircumstances of the case, to achieve the objects of the Act.15. The learned senior counsel for the petitioners would furthersubmit that there was an objection for the sale by the sons of thepetitioners on the ground that they are co-parceners since theproperty in question is ancestral and the Recovery Officer has notconsidered this objection before proceeding with the sale, whichmakes the sale illegal. In support of his contentions, the learnedsenior counsel for the petitioners relied on the following judgments:1.DR.ANIL NANDKISHOR TIBREWALA AND ANOTHER vs. JAMMU ANDKASHMIR BANK LTD. AND OTHERS [{2006} 133 Comp.Cas 645(Bom)]2.DEEPA UDHAYAKUMAR vs. STATE BANK OF HYDERABAD [2007 (3)CTC 344]16. In the first judgment, a Division Bench of the Bombay HighCourt has held that 'the Tribunal to consider the objection thatproperty mortgaged with Bank belongs to objector before proceedingfurther.'17. In the second judgment cited above, when persons who wereowners of property claimed that debtor had misused power of attorneyexecuted by them and such act was beyond scope of power of attorneyand Bank had fraudulently entered into compromise with some defendantand obtained decree and filed suit for declaring that compromisedecree and Recovery Certificate as null and void, a Division Bench ofthis Court has held that 'Section 18 bars jurisdiction of any otherCourt or authority which would have otherwise had jurisdiction butfor provisions of Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 and power to adjudicate upon liability isexclusively vested with DRT'.18. In the cases on hand, the sons of the petitioners have filedtwo suits, one in O.S.No.645 of 2005 before the XVI Assistant CityCivil Court, Chennai and the other in O.S.No.19 of 2005 before thePrincipal District Judge, Chengalpattu for partition and permanentinjunction. But, surprisingly, even though the recovery proceedings https://hcservices.ecourts.gov.in/hcservices/ have been initiated in the year 2003 itself in O.A.No.63 of 2003, theRecovery Officer has not been impleaded as a party to the above saidsuits. Further more, the conditional injunction order passed inO.S.No.645 of 2005 also was not complied with by one of the sons ofthe petitioners, resulting in refusal of extension of injunctionorder. 19. A bare perusal of the entire materials placed before uswould show that the petitioners are initiating vexatious litigations,one after other, only to thwart the ongoing legal proceedings againstthem and it is in this process, the above said two suits have beenfiled by their sons at different places for different reliefs, butwith similar averments, which shows the collusiveness among theparties to thwart the recovery proceedings initiated by the Bank.20., Rule 60 of the Second Schedule to the Income-tax Act, readsas follows:"60. Application to set aside sale of immovable property ondeposit -(1) Where immovable property has been sold in execution ofa certificate, the defaulter, or any person whose interestsare affected by the sale, may, at any time within thirtydays from the date of the sale, apply to the Tax RecoveryOfficer to set aside the sale, on his depositing -(a) the amount specified in the proclamation of sale asthat for the recovery of which the sale was ordered withinterest thereon at the rate of fifteen per cent per annum,calculated from the date of the proclamation of sale to thedate when the deposit is made; and(b) for payment to the purchaser as penalty, a sum equal tofive per cent of the purchase-money, but not less than onerupee,(2) Where a person makes an application under Rule 61 forsetting aside the sale of his immovable property, he shallnot, unless he withdraws that application, be entitled tomake or prosecute an application under this rule."21. It is not the case of the petitioners that they have invokedthe provision of this Rule, after complying with its mandate, so asto set aside the sale. In such circumstances, when the sale has beencompleted, by scrupulously following all the procedures contemplatedunder law, the auction purchaser becomes the absolute owner of theproperty. 22. The allegation of the petitioners that there was no noticeregarding the sale also cannot be appreciated, in view of the factthat a publication has been effected in 'Daily Thanthi' newspaper, acopy of which has been filed in the typed set filed by thepetitioners themselves, besides serving the sale notice by affixtureby the first respondent Bank. https://hcservices.ecourts.gov.in/hcservices/ For all the above reasons and discussions, we see no merit inthese writ petitions and accordingly, all these writ petitions aredismissed. No costs. Consequently, connected MiscellaneousPetitions are also dismissed. RaoSd/Asst. Registrar/true copy/Sub Asst.RegistrarTo1. The Debt Recovery Appellate Tribunal Chennai.2. The Debt Recovery Tribunal-I Chennai.+ Three CC to Mr.G.Desingu Advocate (SR.No.49271)+ One CC to Ms.Sunanda Suren Advocate (SR.No.49564)+ One CC to Mr.K.Rajasekaran Advocate SR.No.49416)Pre-deliveryCommon Order in W.P.Nos.13107 to13109 of 2009 and M.Ps.JRG(CO)VC(20.10.2009)