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Supreme Court of India
M/S Connectwell Industries … vs Union Of India Through The … on 6 March, 2020Author: L. Nageswara Rao
Bench: L. Nageswara Rao, Hemant Gupta
Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1919 OF 2010
M/s. Connectwell Industries Pvt. Ltd. …. Appellant(s)
Versus
Union of India
Through Ministry of Finance & Ors. …. Respondent(s)
JUDGMENT
L. NAGESWARA RAO, J.
1. The Appellant filed the Writ Petition in the High
Court of Judicature at Bombay seeking a restraint order
against the Tax Recovery Officer, Range 1, Kalyan –
Respondent No.4 for enforcing the attachment made
under the Income Tax Act, 1961 (hereinafter referred to
as ‘the Act’) for recovery of the dues. The Writ Petition
was dismissed by the High court, aggrieved by which
the Appeal has been filed.
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2. Biowin Pharma India Ltd. (hereinafter referred to
as ‘BPIL’)- Respondent No.5 herein obtained a loan from
the Union Bank of India. Property situated in Plot No.D-
11 admeasuring 1000 sq. mtrs. situated at Phase-III,
Dombivli Industrial Area, MIDC, Kalyan along with plant
machinery and building was mortgaged as security to
Union Bank of India-Respondent No.5 herein.
Respondent No.-5 filed OA No.1836 of 2000 before the
Debt Recovery Tribunal III, Mumbai (hereinafter referred
as ‘the DRT’) for recovery of the loan advanced to BPIL.
The DRT allowed the OA filed by Respondent No.5 and
directed BPIL to pay a sum of Rs.4,76,14,943.20/- along
with interest at the rate of 17.34% per annum from the
date of the application till the date of payment and/or
realisation. A recovery certificate in terms of the order
passed by the DRT was issued and recovery proceedings
were initiated against BPIL. The Recovery Officer, DRT
III (Respondent No.2) attached the property on
29.11.2002. Respondent No.2 issued a proclamation of
sale of the said property on 19.08.2004. A public
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auction was held on 28.09.2004. The DRT was informed
that there were no bidders except the Appellant. The
offer made by the Appellant to purchase the property
for an amount of Rs.23,00,000/- was accepted by
Respondent No.2. On 14.01.2005, a certificate of sale
was issued by Respondent No.2 in favour of the
Appellant. The possession of the disputed property was
handed over to the Appellant on 25.01.2005 by
Respondent No.2 and a certificate of sale was registered
on 10.01.2006.
3. The Maharashtra Industrial Development
Corporation (hereinafter referred to as ‘the MIDC’)
informed Respondent No.2 that it received a letter dated
23.03.2006 from the Tax Recovery Officer, Range 1,
Kalyan, Respondent No.4 herein stating that the
property in dispute was attached by Respondent No.4
on 17.06.2003. The Appellant requested the Regional
Officer, MIDC by a letter dated 10.04.2006 to transfer
the property in dispute in its favour in light of the Sale
Certificate issued by DRT on 25.01.2005. As the MIDC
[3]
failed to transfer the plot in the name of the Appellant,
the Appellant filed a Writ Petition before the High Court
seeking a direction for issuance of ‘No Objection’ in
respect of the plot and to restrain Respondent No.4 from
enforcing the attachment of the said plot, which was
performed on 11.02.2003.
4. The question posed before the High Court is
whether the Appellant who bona fide purchased the
property in auction sale as per the order of the DRT is
entitled to have the property transferred in its name in
spite of the attachment of the said property by the
Income Tax Department. Relying upon Rule 16 of
Schedule II to the Act, the High Court came to the
conclusion that there can be no transfer of a property
which is the subject matter of a notice. The High Court
was also of the view that after an order of attachment is
made under Rule 16(2), no transfer or delivery of the
property or any interest in the property can be made,
contrary to such attachment. The High Court held that
notice under Rule 2 of Schedule II to the Act was issued
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on 11.02.2003, and the property in dispute was
attached under Rule 48 on 17.06.2003, whereas the
sale in favour of the Appellant took place on 09.12.2004
and the sale certificate was issued on 14.01.2005.
Therefore, the transfer of the property made
subsequent to the issuance of the notice under Rule 2
and the attachment under Rule 48, is void. The
submission made on behalf of the Appellant that the
sale in favour of the Appellant was at the behest of the
DRT and not the defaulter i.e., BPIL was not accepted by
the High Court. In view of the above findings, the High
Court dismissed the Writ Petition.
5. It was submitted by Mr. Basava Prabhu Patil,
learned Senior Counsel and Mr. Amar Dave, learned
counsel appearing on behalf of the Appellant that the
property in dispute was mortgaged by the BPIL in 2000
and the recovery certificate was issued pursuant to the
order passed by the DRT in 2002. They submitted that
the property was attached by Respondent No.2 on
29.11.2002, prior to the issuance of the notice by the
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Income Tax Officer under Rule 2 of Schedule II to the Act
on 11.02.2003. According to them, the rigours of Rule 2
and Rule 16 of Schedule II are not applicable to the
instant case as a charge over the property was created
prior to the issuance of the notice under Rule 2 of
Schedule II to the Act. It was argued that a government
debt in India is not entitled to have precedence over a
prior secured debt.
6. Mr. Arijit Prasad, learned Senior Counsel appearing
for the Union of India submitted that BPIL was in default
of a payment of income tax and a penalty arose
therefrom, due to which a notice under Rule 2 of
Schedule II to the Act was issued on 11.02.2003 by
following the prescribed procedure. He submitted that
no property which is the subject matter of a notice can
be transferred after the issuance of a notice under Rule
2. Mr. Prasad also submitted that the immovable
property was attached in accordance with Rule 48 of
Schedule II on 17.06.2003. Undisputedly, the sale in
favour of the Appellant took place subsequent to the
[6]
order of attachment dated 17.06.2003. He urged that
the Appellants are not entitled to any relief and the High
Court was right in dismissing the Writ Petition as the
Crown debt is entitled to priority in view of the
provisions of Schedule II to the Act and thus any
transfer of the property, which is subject matter of
attachment under Rule 16(2) is void.
7. As Rules 2 and 16 of Schedule II to the Act would
fall for interpretation in this case, the same read as
under :
“Issue of Notice
2. When a certificate has been drawn up by
the Tax Recovery Officer for the recovery of
arrears under this Schedule, the Tax Recover
Officer shall cause to be served upon the
defaulter a notice requiring the defaulter to
pay the amount specified in the certificate
within fifteen days from the date of service of
the notice and intimating that in default steps
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would be taken to realize the amount under
this Schedule.
16.1 Where a notice has been served on a
defaulter under rule 2, the defaulter or his
representative in interest shall not be
competent to mortgage, charge, lease or
otherwise deal with any property belonging to
him except with the permission of the Tax
Recovery Officer, nor shall any civil court issue
any process against such property in
execution of a decree for the payment of
money.”
8. It is trite law that, unless there is preference given
to the Crown debt by a statute, the dues of a secured
creditor have preference over Crown debts. [See:-
Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.
and Others1, Union of India & Ors. v. Sicom Ltd. &
Anr.2, Bombay Stock Exchange v. V.S.
1 (2000) 5 SCC 694
2 (2009) 2 SCC 121
[8]
Kandalgaonkar & Ors.3, Principal Commission of
Income Tax v. Monnet Ispat and Energy Ltd.4]
9. Rule 2 of Schedule II to the Act provides for a notice
to be issued to the defaulter requiring him to pay the
amount specified in the certificate, in default of which
steps would be taken to realise them. The crucial
provision for adjudication of the dispute in this case is
Rule 16. According to Rule 16(1), a defaulter or his
representative cannot mortgage, charge, lease or
otherwise deal with any property which is subject
matter of a notice under Rule 2. Rule 16(1) also
stipulates that no civil court can issue any process
against such property in execution of a decree for the
payment of money. However, the property can be
transferred with the permission of the Tax Recovery
Officer. According to Rule 16(2), if an attachment has
been made under Schedule II to the Act, any private
transfer or delivery of the property shall be void as
against all claims enforceable under the attachment.
3 (2015) 2 SCC 1
4 (2018) 18 SCC 786
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10. There is no dispute regarding the facts of this case.
The property in dispute was mortgaged by BPIL to the
Union Bank of India in 2000 and the DRT passed an
order of recovery against the BPIL in 2002. The
recovery certificate was issued immediately, pursuant
to which an attachment order was passed prior to the
date on which notice was issued by the Tax Recovery
Officer- Respondent No.4 under Rule 2 of Schedule II to
the Act. It is true that the sale was conducted after the
issuance of the notice as well as the attachment order
passed by Respondent No.4 in 2003, but the fact
remains that a charge over the property was created
much prior to the notice issued by Respondent No.4 on
16.11.2003. The High Court held that Rule 16(2) is
applicable to this case on the ground that the actual
sale took place after the order of attachment was
passed by Respondent No.4. The High Court failed to
take into account the fact that the sale of the property
was pursuant to the order passed by the DRT with
regard to the property over which a charge was already
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created prior to the issuance of notice on 11.02.2003.
As the charge over the property was created much prior
to the issuance of notice under Rule 2 of Schedule II to
the Act by Respondent No.4, we find force in the
submissions made on behalf of the Appellant.
11. The judgment of the High Court is set aside and
the Appeal is allowed. The MIDC is directed to issue a
‘No Objection” certificate to the Appellant. Respondent
No.4 is restrained from enforcing the attachment order
dated 17.06.2003.
……………………………….J.
[L. NAGESWARA RAO]
…………………………..J.
[DEEPAK GUPTA]
New Delhi,
March 06, 2020.
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