2010 (3) TMI 1237 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of the auction sale due to non-compliance with Rule 57 of the Second Schedule to the Income Tax Act, 1961.
2. Whether the petitioners are bona fide purchasers.
3. Applicability of the Limitation Act regarding the petitioners' claim for possession.

Detailed Analysis:

1. Validity of the Auction Sale Due to Non-Compliance with Rule 57 of the Second Schedule to the Income Tax Act, 1961:
The primary issue revolved around whether the auction sale was valid under Rule 57 of the Second Schedule to the Income Tax Act, 1961. The rule mandates that the purchaser must deposit 25% of the purchase money immediately after the auction and the remaining balance within 15 days. The petitioners claimed they complied with this rule by making a partial deposit through cheques and drafts. However, the court found that payment by cheque does not constitute a valid tender under Rule 57, which requires a cash deposit. The court cited the Supreme Court's decision in Rao Mahmood Ahmed Khan v. Sh. Ranbir Singh and Ors. which held that a cheque is not a valid deposit under similar rules. Additionally, the petitioners failed to deposit the balance within the stipulated 15 days, making the sale a nullity. The court emphasized that non-compliance with these mandatory provisions renders the sale invalid, as established in Manilal Mohanlal Shah and Ors. v. Sardar Sayed Ahmed Sayed Mahmad and Anr. and Balram Son of Bhasa Ram v. Ilam Singh and Ors..

2. Whether the Petitioners are Bona Fide Purchasers:
The petitioners argued that they were bona fide purchasers who were unaware of the pending litigation at the time of the auction. However, the court found that the petitioners were not bona fide purchasers as they were aware of the ongoing litigation between the decree holder and the judgment debtors. The court noted that the petitioners participated in the auction with the knowledge of the legal disputes, which disqualifies them from being considered bona fide purchasers. The Debts Recovery Appellate Tribunal's finding that the petitioners were not bona fide purchasers was upheld.

3. Applicability of the Limitation Act Regarding the Petitioners' Claim for Possession:
The respondents contended that the petitioners' application for possession was filed beyond the one-year limitation period prescribed under Article 134 of the Limitation Act. The court, however, did not delve deeply into this issue since it had already concluded that the auction sale was invalid due to non-compliance with Rule 57. Therefore, the question of limitation was rendered moot.

Conclusion:
The court dismissed the writ petition, affirming the Debts Recovery Appellate Tribunal's decision to set aside the auction sale. The court concluded that the auction sale was invalid due to non-compliance with the mandatory provisions of Rule 57 of the Second Schedule to the Income Tax Act, 1961. Consequently, the petitioners, having failed to comply with the mandatory deposit requirements, forfeited all claims to the property, and their status as bona fide purchasers was not recognized. The writ petition was dismissed with no order as to costs, and the connected miscellaneous petitions were closed.