Allowed

Shri Narendra Kumar Lodha v. Shri.H.Govindaraj Rao

DRAT19 Mar 2025MISC APPEAL/4/2023

Case brief

AI extract

What is this about?

Appeals challenging setting aside of sale certificate by DRT-I were allowed prima facie due to alleged procedural violation regarding sale proclamation under Income Tax Act. Tribunal awarded sale valid after observing legal provisions do not mandate fresh proclamation for short adjournments.

What did the court decide?

Sale conducted on 6/10/2017 and sale certificate dated 4/12/2017 held valid and confirmed; impugned order setting aside sale quashed.

Shri Narendra Kumar Lodha versus Shri.H.Govindaraj Rao — Execution and Attachment | DRAT (2025)

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 19^th day of March, 2025

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PRESENT: HON’BLE MR. JUSTICE G. CHANDRASEKHARAN

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CHAIRPERSON

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MA 4/2023 & MA 5/2023

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(a rising out of AOR No.7/2017 in DCP No.5003 in OA No.209/2003 on the file of DRT-I, Bengaluru)

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I. MA 4/2023

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Between

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1. Shri Narendra Kumar Lodha S/o Shri Pannalal Lodha, Flat No.301, R & S Kushekunj, Opp. Ware House, Mannagudda, Mangaluru 575 006.

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…..Appellant

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And

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1. Shri H. Govindaraj Rao, S/o H. Ramachandra Rao, R/o No.4203, Anriya Dwellington Flats, L.G. Halli, 1^st Cross, Dollars Colony, RMV 2^nd Stage, Bengaluru 560 094.

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2. M/s Navagiri Financce & Investments Pvt. Ltd. Rep. by its Managing Director, Shri H. Govindaraj Rao,

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Having Office at Gautami;

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No.62, Amarjyothi Housing Colony, Sanjaya Nagar, Bangalore 560 094.

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3. The Karnakata Bank Ltd. Iddaya Branch, Surathkal, Rep. by its Branch Manager, Mangaluru Taluk, Dakshinia Kannada District.

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…..Respondents

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Counsel for Appellant : M/s Devaraj & Co. Counsel for R1 & R2 : M/s Shivakumar & Suresh Counsel for R3 : M/s Ramalingam & Associates

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II. MA 5/2023

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Between The Karnakata Bank Ltd. Iddaya Branch, Surathkal, Rep. by its Branch Manager, Mangaluru Taluk, Dakshinia Kannada District.

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…..Appellant

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And

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1. Shri H. Govindaraj Rao, S/o H. Ramachandra Rao, R/o No.4203, Anriya Dwellington Flats, L.G. Halli, 1^st Cross, Dollars Colony, RMV 2^nd Stage, Bengaluru 560 094. 2. M/s Navagiri Financce & Investments Pvt. Ltd. Rep. by its Managing Director, Shri H. Govindaraj Rao, Having Office at Gautami; No.62, Amarjyothi Housing Colony, Sanjaya Nagar, Bangalore 560 094. 3. Shri Narendra Kumar Lodha S/o Shri Pannalal Lodha, Flat No.301, R & S Kushekunj, Opp. Ware House, Mannagudda, Mangaluru 575 006.

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…..Respondents

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Counsel for Appellant	: M/s Ramalingam & Associates
Counsel for R1 & R2	: M/s Shivakumar & Suresh
Counsel for R3	: M/s M. Devaraj & Co.

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COMMON ORDER

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These appeals are filed under Section 20 of RDDB & FI Act, challenging the order dated 30.7.2021 passed in AOR 7/2017 in DCP 5003 in OA 209/2023 by Learned Presiding Officer, DRT-I, Bangalore.

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Respondents 1 and 2 in MA 4/2023 have filed AOR 7/2017 in DCP No.5003 under Section 30 of the RDDB & FI Act to set aside and quash the sale certificate dated 4.12.2017 and stay all further DCP Proceedings. After contest, AOR 7/2017 was allowed and sale conducted on 6.10.2007 and sale certificate dated 4.12.2017 have been set aside. Karnataka Bank Limited was ordered to refund the sale consideration to the auction purchaser Shri Narendra Kumar Lodha with simple interest at 9% per annum from the date of receipt of the same till the date of repayment. There was also a direction to the bank and the auction purchaser to get the sale certificate cancelled before the jurisdiction of concerned subRegistrar within 30 days from the date of the order. The amounts deposited by the applicants in the said AOR 7/2017 are permitted to be appropriated towards the loan dues of the appellants with Karnataka Bank Ltd. . As against this order, Auction Purchaser Shri Narendra Kumar Lodha filed Appeal MA 4/2023 and Karnataka Bank filed MA 5/2023.

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Learned Counsel for appellants submitted that Learned Presiding Officer had rejected all the grounds raised by the respondents 1 and 2 before the Tribunal below and allowed the AOR 7/2017 only on the ground of technical plea raised that there was non compliance of Rule 15 of

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Schedule II of Income Tax Act. It was held that when the first sale held on 7.9.2017 had not taken place for want of bidders, Recovery Officer ought to have gone for a fresh proclamation and not adjourned the case. In view of the fact that no fresh sale proclamation was issued. There is violation of Rule 15 of Schedule II of Income Tax Act. Rule 15 of Schedule II of Income Tax Act, reads as follows:

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15. (1) The Tax Recovery Officer may, in his discretion, adjourn any sale hereunder to a specified day and hour; and the officer conducting any such sale may, in his discretion, adjourn the sale recording his reasons for such adjournment:

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Provided that, where the sale is made in, or within the precincts of, the office of the Tax Recovery Officer, no such adjournment shall be made without the leave of the Tax Recovery Officer.

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(2) Where a sale of immovable property is adjourned under sub-rule (1) for a longer period than one calendar month, a fresh proclamation of sale under this Schedule shall be made unless the defaulter consents to waive it.

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(3) Every sale shall be stopped if, before the lot is knocked down, the arrears and costs (including the costs of the sale) are tendered to the officer conducting the sale, or proof is given to his satisfaction that the amount of such arrears and costs has been paid to the Tax Recovery Officer who ordered the sale.

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It is submitted by Learned Counsel for appellant that fresh sale proclamation is required only when the sale is adjourned for more than a month. In the case before hand, sale was adjourned within a month from the date of failure of the first sale. Therefore, there is no violation of Rule 15 of II Schedule of Income Tax Act and Learned Presiding Officer misconstrued the provision and wrongly allowed AOR No.7/2017. Thus contending, Learned Counsel for appellants prayed to set aside the order of Learned Presiding Officer and allow these appeals.

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Learned Counsel for respondents 1 and 2 submitted that adjournment was not given on the date of failure of the sale, but on a future date. In that case, fresh proclamation ought to have been issued. When it was not done, setting aside the sale and consequently the sale certificate by Learned Presiding officer is factually and legally in order. Thus contending, he prayed for dismissal of the appeal.

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I have considered the rival submissions and perused the records

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It is seen from the appeal filed in AOR 7/2017, respondents 1 and 2 have raised the following grounds.

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a) No statutory notice was served on the borrower

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b) Auction sale was in violation of sale proclamation terms.

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c) Auction sale was in violation of Order 21, Rule 64 of CPC.

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d) Illegal Recovery process on the basis of invalid Arbitral Award is illegal.

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e) Sale was hit by the principle of Lis pendens . f) Violation of Section 79 (A), 79(B) and 81 (c) of Land Reforms Act.

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g) Violation of property is improper

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h) Deliberate mis-description of the schedule property in the sale proclamation.

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i) Lack of transparency in the auction sale proceedings and documentation.

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j) Procedural violation in the conduct of sale.

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Reading of the order of Learned Presiding Officer, DRT-I, Bangalore shows that all the grounds raised by respondents 1 and 2 have been negatived and rejected and the appeal was allowed only for violation of Rule 15 of Schedule II of Income Tax Act.

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9. The relevant part of the order is extracted for proper understanding.

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“As per Rule 15, sale can be adjourned by the Recovery Officer in execution of Recovery Certificate (RC) by following Rule 15(1) and (2) and such adjournments are envisaged or contemplated to be done prior to the auction date. If such adjournment is for more than one month, a fresh proclamation of sale is required under Rule 15(2). In the instant case, the sale has been adjourned from 7.9.2017 to 6.10.2017, which is not warranting a fresh sale proclamation. However, as per the publication carried out and filed, the publication of adjournment has been effected on 17.9.2017 much after the schedule date of 7.9.2017 when it is recorded that there was no bidder. Therefore, the first sale scheduled on 7.9.2017 has not taken place for want of bidders and the proper thing the Learned Recovery Officer ought to have done is to go for fresh sale proclamation and nor adjournment. The Tribunal is constrained to accept this technical plea vehemently raised by the appellants during the course of arguments, as the adjournment has been carried out by publication 10 days after the sale date and therefore there is non compliance of Rule 15. Though the Tribunal is very concerned about the recovery of such old NPA accounts in execution of Recovery Certificate, it cannot at the same time condone or overlook the procedural requirements which are to be followed by the Learned Recovery Officer and therefore the sale which has been conducted in violation of Rule 15 will have to be considered as not valid in the eye of law. I am, therefore, constrained to allow this appeal and quash and set aside the sale as well as the sale certificate by directing the parties to restore the status quo ante with respect to sale. All other contentions are grounds urgent like non following of the provisions of the Code of Civil Procedure etc. are found to be not applicable for this case as the

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Learned Recovery Officer has to follow the rules and procedures under Schedule II of the Income Tax Act in execution of RC and therefore the Tribunal comes to the conclusion that excepting the sale conducted in violation of Rule 15, all other contentions and grounds are bound to be false and without any basis and therefore rejected. The sale having been conducted in violation of Rule 15 as stated supra, is invalid and therefore is liable to be quashed and set aside”

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Certain proceedings are relevant to find out whether there is violation of Rule 15.

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a) Sale was scheduled on 7.9.2017 and till 5.9.2017 no bids had been received. The adjudication on various dates reads as follows:

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b) On 7.9.2017 - Sale has been postponed. CHB to file a Memo for further steps. Matter was posted to 13.9.2017.

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c) On 13.9.2017 - advocate for CHB filed a Memo seeking postponement of sale as there were no bidders and sought one more opportunity to sell the property through auction. “Allowed”. Accordingly, E Auction sale was fixed on 6.10.2017 and bid submission was upto 4.10.2017. Other terms and conditions remained the same. CHB to file Corrigendum of sale notice and the matter was posted to 20.9.2017.

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d) On 20.9.2017- Advocate for CHB filed a Memo with proof of E- Auction sale corrigendum that had appeared in ‘Udayavani Kannada Newspaper and the Times of India on 17.9.2017. Taken on record. Call on 4.10.2017.

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e) On 4.10.2017 - today is the last day for bid submission . This Office has received a bid today from Shri Narendnra Kumar Lodha. The particulars of the bidder has been communicated to the service Provider i.e., M/s Matexnet Solutions Pvt. Ltd. A copy is placed on file. Call on 6.10.2017.

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f) On 6.10.2017 - Today the bidding day. The bid has been held as scheduled. As per the report received from the service provider, Shri Narendra Kumar Lodha is the successful bidder for a sum of Rs.2,13,00,000/- (Rupees two crore thirteen lakhs only). A letter declaring him as the successful bidder is to be issued. Call on7.10.2017.

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g) On 7.10.2017 - Advocate for CHB telephonically confirmed deposit by the Auction Purchaser a sum of Rs.32,00,000/- in Karnataka Bank. Accordingly, a letter declaring Sri Narendra Kumar Lodha has been issued. A copy is place on file. Remaining 75% of the bid amount i.e., Rs.1,59,75,000/- and poundage fee of Rs.2,13,010/are to be paid on or before 21.10.2017. Failure will result in forfeiture. Call on 21.10.2017.

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Rule 15 of II Schedule of Income Tax Act states that Tax Recovery Officer may in his discretion adjourn any sale, recording his reason for adjournment. Only when the sale of immovable property is adjourned for a longer period than one calendar month, a fresh proclamation of sale under the schedule should be made. It is not in dispute that first sale was fixed on 7.9.2017. On failure to receive any bid, second sale was fixed on 6.10.2017, which was within one calendar month. Therefore, in this case, there is no requirement for issuing a fresh proclamation of sale. In fact,

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there is an observation in the impugned order “in the instant case, sale has been adjourned from 7.9.2017 to 6.10.2017 which is not warranting fresh sale proclamation”. What is required under the Rule is recording the reason for adjournment and in case of adjournment for a longer period more than a calendar month, issuance of fresh proclamation of sale is necessary.

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As per the diary proceedings, since no bid had been received, sale was postponed on 7.9.2017 with a direction to CSB to file a Memo with regard to further steps. On 13.9.2017 on the memo filed by CHB, E-Auction sale was fixed on 6.10.2017. Only corrigendum was ordered to be issued keeping other terms and conditions same. Accordingly, corrigendum was issued and it appeared in newspapers both in English and Vernacular languages on 17.9.2017. It is seen that sale was adjourned within one calendar month from 7.9.2017 and concluded by following necessary procedure. In the said circumstances, finding of Learned Presiding Officer that fresh sale proclamation should have been effected and non issuance of fresh sale proclamation resulted in the violation of Rule 15 of Schedule II of Income Tax Act is not correct. Allowing the AOR on that score is also not correct.

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Therefore, the order of Learned Presiding Officer, DRT-I, Bangalore dated 30.7.2021 passed in AOR 7/2017 in DCP No.5003 in OA No.209/2003 is set aside and the sale held on 6.10.2017 and the sale certificate dated 4.12.2017 issued in favour of auction purchaser/appellant are held valid and confirmed.

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In the result, Appeal MA 4/2023 and Appeal MA 5/2023 are allowed.

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Parties are directed to bear their own costs. Pending IAs, if any, stand closed.

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[Dictated to Steno(SN), transcribed by him, corrected, signed and pronounced by me in open court, this 19^th March , 2025)

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Sd/- JUSTICE G. CHANDRASEKHARAN) CHAIRPERSON

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Shri Narendra Kumar Lodha v. Shri.H.Govindaraj Rao

Case brief

What is this about?

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Shri Narendra Kumar Lodha v. Shri.H.Govindaraj Rao

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