M/S. PUNJAB NATIONAL BANK ASSET RECOVERY MANAGEMENT BRANCH v. TH FLOOR NEW BLOCK

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 01.12.2010CORAM:-THE HON'BLE MR. JUSTICE R. SUDHAKARW.P. NO. 13998 OF 2007 M/S. PUNJAB NATIONAL BANK ASSET RECOVERY MANAGEMENT BRANCH REP. BY ITS MANAGER KHIVRAJ BUILDINGS FIRST FLOOR THOUSAND LIGHTS 624 ANNA SALAI,CHENNAI 600 006 .. Petitioner Vs1 THE TAX RECOVERY OFFICER XXVII . INCOME TAX DEPARTMENT, RANGE XIV ROOM NO. 609, 6TH FLOOR NEW BLOCK, 121 MAHATMA GANDHI ROAD, CHENANI600 0342 G. PURUSHOTHAMAN PROPRIETOR M/S.G.P-. CONSTRUCTION NO. 16 DEWAN RAMA ROAD PURASAWALKAM CHENNAI ... RespondentsPetition filed under Article 226 of the Constitution of India toissue a Writ of Mandamus forbearing the first respondent his menagents subordinates or anybody claiming through the first respondentfrom taking recovery proceedings in respect of the House propertyat No. 28 New No. 23 (Presently No. 35) Dewan Rama Iyengar Roadpurasawalkam, chennai 600 084 and allow this writ petition withcosts. For Petitioner : Mr. A.P. SrinivasFor Respondents : Mr. Senthilkumar - R1 SCGSC Mr. V. Chandrasekaran - R2 ORDERThe lender bank has filed this writ petition to forbearthe first respondent his men, agents, subordinates or anybodyclaiming through the first respondent from taking recoveryproceedings in respect of the House property at No. 28 New No. 23(Presently No. 35) Dewan Rama Iyengar Road purasawalkam, chennai600 084 and allow this writ petition with costs. https://hcservices.ecourts.gov.in/hcservices/

Tax Recovery Officer of the Income Tax Departmentissued a letter in TR No.76/TRO XXVII, dated 21.7.2006 to thepetitioner bank, which reads as follows:-" Sub:-Recovery of arrears – in the case of Sri.M.G.Purushothaman, No.16 Dewan Rama Road, Kilpauk, Chennai.10 – Details called for – Reg. Sri. M.G.Purushothaman residing in the aboveaddress is a defaulter and the property owned by him atNo.23, Dewan Rama Road, Kilpauk, Chennai.10 has beenmortgaged with your bank. As I am to take action to recover the tax arrear, Irequest you to furnish the copy of mortgage deedimmediately. The detail is required under Rule 83 of thesecond schedule of the Income Tax Act 1961, I request yourco-operation in this regard. "

The present writ petition has been filed to forbear thefirst respondent from initiating recovery proceedings.

The admitted facts of the case are as follows:-The property of the income tax defaulter/ second respondentherein has been mortgaged to the petitioner Bank. The mortgage, asper the petitioner, was effected on 9.10.1989 by deposit of titledeed. In response to the letter dated 21.7.2006, the petitioner-Banksubmitted a reply to the Tax Recovery Officer/ first respondent on10.2.2007 and it reads as follows:-" In this connection we wish to bring to your kindnotice that the mortgage created in favour of the erstwhileNew Bank of India (since amalagamated with our bank) was inthe year 1987 which is prior to the assessment year forwhich demand has been made by you against Purushottamanwhich is dated 31.3.2005 and therefore we request you notto proceed against the properties mortgaged to us".

After submitting a reply, the writ petition has beenfiled for the above relief and the apprehension of the Bank is thatthe Income Tax Department may proceed against the property, which hasbeen mortgaged to the petitioner-Bank, which has a priority rightover the property. It is the petitioner's case that recoveryproceedings were initiated and the bank has orders in its favour. https://hcservices.ecourts.gov.in/hcservices/

Though the first respondent has been noticed, nocounter has been filed so far. According to the counsel for thefirst respondent, the Tax sought to be recovered is based on a BlockAssessment Order dated 31.3.2005 in respect of the period 1986-87 to1996-97.

The learned counsel for the Income Tax Department statesthat no appeal has been filed against the assessment order, whichstatement is denied by the learned counsel for the second respondent-assessee stating that an appeal has been filed. Whatever be thefact, for the adjudication of the present issue, the only issue thathas to be decided is whether the petitioner-Bank has priority overthe claim of the Income Tax Department/first respondent.

In a case where the mortgage admittedly was made on9.10.1989 and the Bank being a secured creditor and having initiatedproceedings under Debts Recovery Act, the petitioner-Bank has apriority over the claim of the first respondent. That issue has beendecided by the Apex Court in Dena Bank – Vs. - Bhikhabhai PrabhudasParekh and Company reported in (2000, 5, SCC 694) wherein it hasbeen clearly held that the claim of the secured creditor prevailsover all other claims. This has been followed by the Division Benchof this Court in ICICI Bank Ltd., Chennai – Vs. - OfficialLiquidator Vibrant Investments and Properties Ltd. (in liquidation)Chennai, reported in (2005, 1, M.L.J. 434). The relevant portion ofthe said decision reads as follows:-" The revision petitioner is a secured creditor.M/s. Vibrant Investments and Properties Limited was acompany which went into liquidation and the question iswhether the claim of the petitioner will prevail over theclaim of the Income Tax Department and the Karnataka SalesTax Department. This issue is no longer res integra in view of thedecision of the Supreme Court in Dena Bank – Vs. -Bhikhabhai Prabhudas Parekh and Company (2000, 5, SCC 694)vide para 10, where it has been held that the claim of asecured creditor will prevail over crown debts. "Therefore, the petitioner-Bank, who is the secured creditor isentitled to proceed against the mortgage property for recovery of itsdues.

In such view of the matter, the first respondent canseek recovery of the amount towards tax dues out of the propertyunder mortgage after the amount due to the petitioner-Bank isdischarged and to that extent the first respondent interest issafeguarded. The first respondent/ Income Tax Department is atliberty to proceed against any other property of the second https://hcservices.ecourts.gov.in/hcservices/ respondent if available for recovery of its dues in accordance withlaw. This writ petition is ordered as above. Consequently, M.P.No. 1of 2007 is closed. No costs. Sd/Asst. Registrar/true copy/Sub Asst. RegistrarraTo1 THE TAX RECOVERY OFFICER XXVII . INCOME TAX DEPARTMENT, RANGE XIV ROOM NO. 609, 6TH FLOOR NEW BLOCK, 121 MAHATMA GANDHI ROAD, CHENANI600 0341 cc To Mr.V.Chandrasekaran, Advocate, SR.858521 cc To Mr.N.S.Sivakumar, Advocate, SR.858081 cc To Mr.J.Narayanaswamy, Advocate, SR.85592 WP No. 13998/2007SJ (CO)RH (24.12.10)