2017 (8) TMI 386 - HC - Income Tax

Sale of property by the bank under SARFAESI Act of 2002 - Right of the Income Tax department over the property - Attachment order by IT department since 1976 - challenge to the sale conducted by the bank - Held that - The same has not been produced from any of the pleadings before any of the forai before which the parties are litigating. As noted above, there are at least two writ petitions pending which does not enclose the order of attachment dated February 23, 1976. When the writ petition was taken up for hearing noticing such fact, a request was made to the department to produce such order of attachment. The department had filed a supplementary affidavit. However, the order of attachment dated February 23, 1976 has not seen the light of the day. The order of attachment dated February 23, 1976 is however referred to in the diverse correspondence issued on behalf of the Income Tax Authorities and as late as in 2016. It is not understood how an Income Tax Authority is in a position to write the letter on the basis of an order of attachment dated February 23, 1976 as late in 2016 is unable to produce the same when required at the time of hearing. The order of attachment dated February 23, 1976 is required for the purpose of understanding the scope, ambit and extent thereof. It may or may not relate to an immovable property. It may relate to the rent receivable in respect of the immovable property or anything otherwise. Without the order of attachment being actually placed for consideration any exercise in trying to understand the scope, extent and ambit of the order of attachment would be an exercise in futility. It would be in the rem of speculation. The foundational basis therefore is not available to the Income Tax Department. The bank had proceeded to put up an immovable property for sale under the provisions of Act of 2002. The bank had sold 1/9th share in an immovable property without taking actual physical possession thereof. The act of sale is under challenge in a proceeding pending before the Debts Recovery Tribunal, Kolkata. The borrower has raised various valid points which impinge upon the validity of the sale conducted by the bank. They are however to be looked at by the Debts Recovery Tribunal, in accordance with law.

Summary

Issues:
1. Validity of sale of 1/9th share in immovable property by State Bank of India under SARFAESI Act, 2002.
2. Impact of prior orders of attachment dated February 23, 1976 and March 23, 2007 by Income Tax Department on the sale.
3. Compliance with legal procedures and rules in conducting the sale.

Issue 1: Validity of Sale under SARFAESI Act, 2002:
The Income Tax Department challenged the sale of a 1/9th share in an immovable property by the State Bank of India under the SARFAESI Act, 2002. The petitioners argued that the property was attached by the Income Tax Department, making the sale invalid. They cited previous orders and correspondence to support their claim that the bank acted beyond its authority. The State Bank of India defended the sale, stating that income tax acquisition proceedings were dropped, and permissions were granted, indicating no dues. They argued that the Income Tax Department should pursue statutory remedies against the bank's actions under the Act.

Issue 2: Impact of Prior Orders of Attachment:
The petitioners contended that the bank was aware of the attachment orders, citing various documents and court proceedings. However, the actual order of attachment dated February 23, 1976 was not produced in court, raising doubts about its existence and scope. The absence of this crucial document led to uncertainties regarding the validity of the sale. The respondent supporting the petitioners alleged an improper sale process, pointing out violations of Security Interest Rules and lack of proper notices to the borrower.

Issue 3: Compliance with Legal Procedures:
The judgment emphasized the importance of producing essential documents like the order of attachment to determine the validity of actions taken. It highlighted that the foundational basis for the sale, including compliance with legal procedures and rules, must be established. The court refrained from granting relief to the petitioners due to the absence of critical documents and directed parties to pursue remedies through the appropriate legal channels, such as the Debts Recovery Tribunal.

In conclusion, the judgment disposed of the petitions, emphasizing the need for clarity on the legal basis of actions and adherence to procedural requirements in such cases. It underscored the significance of presenting all relevant documents to support claims and decisions, ensuring transparency and legal validity in property transactions under the SARFAESI Act, 2002.