2004 (4) TMI 17 - HC - Income Tax

Bank proceeded for recovery of its dues - (i) Is transfer of an immovable property in contravention of a prohibitory or injunction order of a court illegal or void? (ii) Whether and to what extent, the procedure under rule 11 of the Second Schedule to the Income-tax Act, 1961, is applicable in execution of a recovery certificate issued under section 19(7) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993? (RDB Act). - On the facts, the courts below having held that the sub-lease being in breach or violation of the order of this court and further the petitioners being unable to substantiate their claim or objection to the attachment and sale, it is not possible for us to reappreciate or reappraise the materials in our extraordinary jurisdiction under article 226 of the Constitution of India. That apart, the conduct of the petitioners is such that they are disentitled from claiming equitable and discretionary reliefs in our jurisdiction under article 226 of the Constitution of India. petition dismissed

Issues Involved:
1. Is transfer of an immovable property in contravention of a prohibitory or injunction order of a court illegal or void?
2. Whether and to what extent, the procedure under rule 11 of the Second Schedule to the Income-tax Act, 1961, is applicable in execution of a recovery certificate issued under section 19(7) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).

Detailed Analysis:

Issue 1: Legality of Transfer in Contravention of Court Orders
The court considered whether the transfer of immovable property in violation of a court's prohibitory or injunction order is illegal or void. The petitioners argued that there is no provision in the Civil Procedure Code or elsewhere that renders such a transfer null and void. They contended that the law imposes penalties for violating court orders but does not nullify the transaction itself. The respondents countered that any transfer in defiance of a court order is illegal and confers no rights to the transferee, emphasizing that such actions undermine the rule of law and public policy.

The court referred to Supreme Court precedents, including Surjit Singh v. Harbans Singh [1995] 6 SCC 50 and Ramchandra Ganpat Shinde v. State of Maharashtra, AIR 1994 SC 1673, which support the view that transactions violating court orders are illegal. The court emphasized that allowing such transfers would erode respect for judicial authority and the rule of law. It concluded that the transfer in question, made during the pendency of an injunction order, was illegal and conferred no rights on the transferee. The court stated, "It is time that we recognise the principle that transfer of immovable property in violation of an order of injunction or prohibition issued by a court of law, confers no right, title or interest in the transferee, as it is no transfer at all."

Issue 2: Applicability of Rule 11 of the Second Schedule to the Income-tax Act
The court examined the extent to which rule 11 of the Second Schedule to the Income-tax Act, 1961, applies in the execution of a recovery certificate under the RDB Act. The petitioners argued that the Recovery Officer must follow rule 11, which mandates an investigation into claims or objections to attachment or sale of property. The respondents contended that the provisions of the Second Schedule should be applied "as far as possible" and with necessary modifications, emphasizing the need for expeditious recovery of debts.

The court noted that section 29 of the RDB Act incorporates the Second and Third Schedules to the Income-tax Act "as far as possible," indicating that these provisions are not mandatory. The court cited N.K. Chauhan v. State of Gujarat, AIR 1977 SC 251, which held that terms like "as far as practicable" convey flexibility. The court concluded that strict adherence to rule 11 is not obligatory, stating, "If the outcome of such investigation is made subject to another round of litigation by way of civil suit, then the very purpose of establishing Tribunals and creating machinery for speedy and expeditious recovery of public monies would be defeated."

The court supported its conclusion by referencing a Division Bench decision of the Andhra Pradesh High Court in P. Mohan Reddy v. Debts Recovery Appellate Tribunal, AIR 2004 AP 94, which held that the provisions of the Second Schedule should be applied with necessary modifications to suit the context and purpose of the RDB Act.

Conclusion:
The court dismissed the petition, holding that the transfer of immovable property in violation of a court's injunction order is illegal and void. It also concluded that the provisions of rule 11 of the Second Schedule to the Income-tax Act apply "as far as possible" and with necessary modifications in the context of the RDB Act, emphasizing the need for expeditious recovery of debts without endless litigation. The court discharged the rule and dismissed the petition with no costs, granting an eight-week continuation of the ad interim order.

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