Dismissed

S Vanaja Rani v. State Bank of India

DRT18 Jun 2024APPEAL/1/2024

Case brief

AI extract

What is this about?

The Debt Recovery Tribunal dismissed the appellants' appeal challenging the attachment of property by the certificate holder bank. The Tribunal held that since the certificate holder was not a party to the pending civil suit regarding title disputes and the appellants had no independent right in the property, the Recovery Officer's order was justified.

What did the court decide?

Motion Appeal No.1 of 2024 was dismissed; appellants to bear their own costs.

S Vanaja Rani versus State Bank of India — Banking and Recovery | DRT (2024)

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IN THE DEBTS RECOVERY TRIBUNAL –I AT CHENNAI

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Dated this 18^th Day of June, 2024

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PRESENT: SHRI A.S.JAYACHANDRA

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Presiding Officer

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APPEAL No.01 of 2024

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MA No.135 of 2022

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TRC No.2 of 2022

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1. S. Vanaja Rani

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W/o. Late. A.S.R. Surya Prakash,

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14/1 M.C.Road, Old Washermanpet

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Chennai – 600 021.

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2. R.S. Praveen Raj

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S/o. Late. A.S.R.Surya Prakash, 14/1 M.C.Road, Old Washermanpet,

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Chennai – 600 021.

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3. R.S.Pradeep Raj,

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S/o. Late. A.S.R. Surya Prakash, 14/1 M.C.Road, Old Washermanpet, Chennai – 600 021. . . . Applicants/Petitioners/3^rd Parties

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-VERSUS-

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1. M/s. State Bank of India

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Rep by its Asst. General Manager & Relationship Manager-IV. Overseas Branch (Mid-Corporate group)

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No.86, Rajaji Salai, Chennai – 600 001. . . . Respondent/Respondent/Certificate Holder

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2. M/s. Thangam Steels Ltd

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Rep by its Managing Director, C-36, 2^nd Avenue, 4^th Floor, Anna Nagar, Chennai – 600 040.

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3. Mr. P.S. Krishnamurthy

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Managing Director of M/s. Thangam Steels Ltd.,

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Plot No.4582, New No.14, Y Block, Anna Nagar East, Chennai – 600 040.

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4. Mrs. K.Vadivambal

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W/o. Mr.P.S.Krishnamurthy Director of M/s. Thangam Steels Ltd., Plot No.4582, New No.14, Y Block Anna Nagar East,

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Chennai – 600 040.

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5. Mr. P.K.Srinivasan

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S/o. Mr.P.S.Krishnamurthy, Director of M/s. Thangam Steels Ltd., Plot No.4582, New No.14, Y Block, Anna Nagar East, Chennai – 600 040.

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6. M/s. P.S.Krishnamurthy Steels Pvt., Ltd.,

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Rep. by its Managing Director. C-36, 2^nd Avenue, 3^rd Floor, Anna Nagar, Chennai – 600 040

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Rep. by Official Liquidator,

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High Court of Madras.

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…Respondents/Respondents/Certificate Debtors

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Ld. Counsel for Applicants :- M/s. N. Nandakumar & G. Sanjeevi & R. Priya Ld. Counsel for Defendant :- M/s.M.L.Ganesh & S.Arun Kumar

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: - O R D E R - :

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This is an appeal filed under Section 30(1) of the Recovery of Debts and Bankruptcy Act, 1993 – the Appellants being the third parties who are not connected with the transaction in question with the first Respondent herein namely SBI. – The Certificate Holder in TRC No.2/2022. The Appellants challenge the order of the Ld. Recovery Officer dated 19.06.2023.

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BRIEF FACTS :-

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1.0 The Appellants are the Legal Heirs of one A.S.R.Surya Prakash who had lost the title to his property in connection with a mortgage he executed with M/s.Park Town Benefit Fund in the year 1995. The said Park Town Benefit Fund had sold the property in favour of the 3^rd Respondent herein in an auction held on 27.03.2002.

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1.1 During the life time of the said A.S.R.Surya Prakash he challenged the said sale in CS No.21/2004 with a prayer to declare that the said sale deed as null and void. The said suit filed before the Hon'ble High Court of Madras is transferred to the City Civil Court, renumbered as OS No.12047/2010 – which was dismissed for default on 25.07.2019. The plaintiff therein namely A.S.R.Surya Prakash expired on 02.12.2019. Now the legal representatives (the appellants herein) are prosecuting the matter in which the Respondents 2 to 6 are parties in the said litigation.

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1.2 It is also pleaded that the 1^st Respondent herein having succeeded in OA No.10/2014 before the DRT-II, Chennai to recover certain sum against the Respondents 2 to 6 herein who are the Certificate Debtors – had initiated the recovery in DRC No.537/2016 and accordingly warrant of attachment is issued by the Recovery Officer on 04.04.2022 concerning the property bearing Old No.60/2, 60/1A and 60/1B, New No.14/1, Maniyagar Choultry Road, Royapuram, Chennai – 600013.

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1.3 Aggrieved by the attachment warrant issued by the Recovery Officer, the present Appellants have filed MA No.135/2022 and contended that the schedule property belongs to them in the capacity of legal heirs of late A.S.R.Surya Prakash in which the title of one of the certificate debtors is questioned before the Civil Court. Therefore, the Appellants herein had prayed the Ld. Recovery Officer to raise the attachment order / warrant.

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1.4 The Ld. Recovery Officer had conducted the proper enquiry by hearing the parties concerned and by a separate detailed order dated 19.06.2023 had dismissed

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the claim of these appellants in MA No.135/2022 in TRC No.2/2022. (Recovery Proceedings have been transferred to DRT-1 consequent to the change in pecuniary jurisdiction)

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GROUNDS OF APPEAL :-

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2.0 The attachment warrant is issued without verifying several parameters such as ownership, possession, etc. The provision of Section 25 of the Act is not followed. The property in question is in continuous possession and enjoyment of these appellants since 1981. The same was ignored by the Ld. Recovery Officer who did not take note of the tenants paying the rent to the Appellants.

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2.1 The Ld. Recovery Officer failed to consider the documentary evidence and violated Rule 11(3) of the second schedule of the Income Tax Act.

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2.2 The Certificate Debtors were never in possession of the property, which was never considered by the Recovery Officer, thus violating Rule 11(4) of the Schedule – II of the Income Tax Act 1961.

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2.3 The Ld. Recovery Officer did not consider that the title is in dispute and the matter is sub-judice before the Civil Court and further that the Certificate Debtors are charged by CBI and that the Certificate Debtors cheated the 1^st Respondent Bank. The Ld. Recovery Officer is not bound to decide the intricate questions of law, which is subject matter of the Civil Court. Certain Rulings are also urged as grounds. Thus the Appellants pray for setting aside the impugned order dated 19.06.2023 on the files of the Recovery Officer No.1 in MA No.135 of 2022 arising out of TRC No.2/2022.

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3.0 This Tribunal issued notices to all the Respondents. Respondent No.1 had filed a detailed counter. The other Respondents were placed exparte after service of notice vide order dated 05.04.2024.

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VERSION OF RESPONDENT NO.1 :-

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4.0 The only contesting certificate holder bank in its counter submits that an order of recovery for a sum of Rs.100,21,50,944.44p is allowed in OA No.10/2014 vide order dated 14.07.2016 in favour of the 1^st Respondent. The Bank had also lodged a criminal complaint against the Respondents 2 to 6 herein which is pending before the CBI Court. The Bank came to know about two non – mortgaged properties belonging to Respondents 3 & 4. Upon this the Bank had sought for attachment of the properties which is allowed by the Recovery Officer. The property in question belongs to Respondents 3 & 4 as per the Registered Document No.1742/2002 on the books of SRO, Royapuram. The certificate holder has a legal right to enforce the recovery against the non – mortgaged properties. The suit filed by late A.S.R.Surya Prakash was dismissed for non – prosecution on 27.07.2019.

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4.1 Rule 4 of the Schedule II of Income Tax Act, 1961 empowers the Recovery Officer to attach and sell the immovable property since there is no security available to the certificate holder for recovery of huge amounts. The Order of attachment is justified. There has been no stay or interim order from initiating legal action against the Respondents 2 to 6 herein.

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4.2 It is also pointed out in the counter that the Appellants conceded to the mortgage in favour of M/s.Park Town Benefit Fund and the liability is still subsisting. The case law cited in the Appeal is not applicable to the present case. Any orders obtained by these Appellants without impleading the 1^st Respondent Bank is not binding and enforceable in the eye of law. There is no patent error in the impugned order of the Recovery Officer. Therefore, the Bank prays for dismissal of the Appeal.

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5.0 In the above context, the only point that arises for determination in this appeal is whether the impugned order is justified in accordance with the Rule 11 of Second Schedule of the IT Act?

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6.0 The Ld. Counsel for the Appellants relied on Vareed Jacob Vs. Sosamma Geevarghese & Ors. MANU/SC/0410/2004 in which the Hon'ble Supreme Court had held that:

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“on restoration of the suit the order of attachment before judgement or an order, an injunction is automatically revived, as a result whereof the status of the parties would be in the same position as on the date of passing of the initial interlocutory order, they may be proceeded with for violation of the order of injunction or an order of attachment before judgement. The right of subsequent purchaser may also be affected. By reason of taking recourse to a supplemental proceedings, the rights of the parties and in some cases the right of even a third party cannot be allowed to be taken away.” (Para-58).

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This ruling is relied by the Appellants to submit that even after dismissal of the suit which is sought to be restored; the injunction order operates granted by the civil court.

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6.1 It is also urged that the attachment order is to be raised since the present Appellants are in possession of their property in their own right and that no proper investigation is conducted. Reliance is placed on the ruling of DRAT, Delhi III

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(2004) BC 215 in Sharat Chander Khandelwal And Ano. Vs. Central Bank of India

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& Ors , wherein it is held that:

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“26. Therefore, it is evident that if, on the date of attachment the Certificate Debtor was not in possession, or if the Objectors are in possession of the property in question in their own right, and not on behalf of the Certificate Debtors, then the attachment will have tobe raised. Therefore, the contention that the property has vested with the Gram Sabha and therefore the Appellants have no locus standi to file the objections cannot be accepted.”

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On the other hand, the Ld. Counsel appearing for the Certificate Holder – Bank submits that the order of the Ld. Recovery Officer is justified and the same cannot be overruled since the orders of the Civil Court are not binding this Bank and further,

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the Appellants cannot claim the property as their own since the predecessor – in – title to the defaulter, has lost the title of the property to the defaulter and the same is the subject matter of the litigation between the title holder and the predecessor in – title. In the circumstances the Ld. Counsel submits that the objectors – Appellants have to establish their rights in the proper civil court. Till then, the order of the Tax Recovery Officer would be conclusive.

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6.2 This Tribunal has considered the provisions of Rule 11 of Part – 1 to the Schedule II of the Income Tax Act. Rule 11 provides that:

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"11. 1. Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection:

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Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.

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(2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.

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(3) The claimant or objector must adduce evidence to show that-

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(a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or

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(b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.

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(4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.

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(5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.

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(6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute ; but, subject, to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive."

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6.3 In the instant case, following sub-rule 3, the Ld. Recovery Officer, had conducted the enquiry. He has also noted Rule 11(3). The Objectors have relied on documentary evidence only. The impugned order notes “ Petitioner failed to produce concrete evidence that the personal property attached as part of Recovery Proceedings in TRC 2/2022 to recovery the dues from Mr.P.S.Krishnamoorthy is decreed in their favour and / or they have full right over the property. The simple fact remains that they have not repaid the loan taken from the Park Town Benefit Fund and lost their mortgaged property, but circumventing the law by filing cases in various courts and not vacating the property .”

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6.4 Whether this finding of the Ld. Recovery Officer is justified or not is the question. The Ld. Counsel submits that the Recovery Officer cannot go to the intricacies of the civil dispute. No doubt the Recovery Officer nor this Tribunal can exercise the powers of the Civil Court. The Ld. Recovery Officer had only noted that the Appellants did not show the title or right of their own in the property in question. It is admitted that Late A.S.R. Surya Prakash had lost the title to the Park Town Benefit Fund, which in turn is purchased by the defaulter to the bank namely P.S.Krishnamoorthy.

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6.5 Rule 11(6) provides that where a claim or objection is preferred, the party against whom the order is made may institute a civil suit to establish the fact, but subject to the result of such suit, the order of the Recovery Officer shall be conclusive.

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6.6 After hearing the parties and after careful perusal of the documents relied it is clear that the Objectors are totally third parties to the recovery proceedings. Their

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objection is based on the civil proceedings, which they are continuing in the capacity of Legal Heirs. The suit is instituted by a person who lost the title to M/s.Park Town Benefit Fund, which in turn sold the property to the defaulter P.S.Krishnamoorthy (Respondent No.3). For all the practical purposes the title to the property is with P.S.Krishnamoorthy subject to the result of the Civil Suit being prosecuted by the present Appellants.

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6.7 In the circumstances, Rule 11(6) comes into play, which is noted as above. It is not the case where the possession was with the defaulter or some other person in trust for him or the tenant under him. Since the Rule 11(6) comes into play, and there being no separate suit instituted against the certificate holder and further considering that the certificate holder bank is not a party to the pending proceedings before the Civil Courts, the orders of the Civil Court is not binding the Certificate Holder. The submission of the Ld. Counsel for the Bank that Rule 11(6) comes into play is justified in the factual situation.

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6.8 The ruling urged by the Ld. Counsel in Vareed Jacob (Supra) makes it clear that the orders of injunction passed prior to the dismissal and upon making restoration applications continue has no bearing to the present case since such orders are not against the Certificate Holder. The other ruling of the Hon'ble DRAT, Delhi concerns that the property was not properly identified and the matter was remitted back to find out the identity and also to demarcate the mortgaged property. This ruling in Sharat Chander Khandelwal (Supra) is distinguishable on facts.

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6.9 In Tax Recovery Officer – II Vs. Gangadhar Vishwanath Rande MANU/SC/0600/1998 , the Hon'ble Supreme Court held that “The Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right,

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he will have to raise the attachment.” In the instant case, the third party is not in its own right since the title is lost. The Objectors are not in trust for the assessee / the defaulter. Therefore, there is no question of raising the attachment. The Observation of the Recovery Officer that the petitioners are not in their own right to the property cannot be overturned since the certificate holder is not a party to the said pending civil proceedings. Consequently this Tribunal finds no merit in the appeal. Hence the following

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Appeal No.1/2024 stands dismissed. Parties to bear their own costs.

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Sd/- (A.S.JAYACHANDRA) PRESIDING OFFICER DRT-I, CHENNAI

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(Dictated to the Assistant who typed in the system, corrected, signed and pronounced in open court on this 18th Day of June, 2024)

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S Vanaja Rani v. State Bank of India

Case brief

What is this about?

What did the court decide?

S Vanaja Rani v. State Bank of India

Case brief

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