2013 (6) TMI 135 - SC - Indian Laws

Debut recovery - auction - Whether Section 29 of the RDDB Act do not apply the Income Tax Rules in the Second Schedule of the Income Tax Act to the recovery proceedings under RDDB Act with full force and that the expression as far as possible appearing in Section 29 vests the Recovery Officer with discretion to apply the said Rules depending upon the fact situation of each case. - held that - Section 29 of the RDDB Act incorporates the provisions of the Rules found in the Second Schedule to the Income Tax Act for purposes of realisation of the dues by the Recovery Officer under the RDDB Act. The expressions as far as possible and with necessary modifications appearing in Section 29 have been used to take care of situations where certain provisions under the Income Tax Rules may have no application on account of the scheme under the RDDB Act being different from that of the Income Tax Act or the Rules framed thereunder. The provisions of the Rules, it is manifest, from a careful reading of Section 29 are attracted only in so far as the same deal with recovery of debts under the Act with the modification that the amount of debt referred to in the Rules is deemed to be one under the RDDB Act. For instance Rules 86 and 87 under the Income Tax Act do not have any application to the provisions of the RDDB Act, while Rules 57 and 58 of the said Rules in the Second Schedule deal with the process of recovery of the amount due and present no difficulty in enforcing them for recoveries under the RDDB Act. Suffice it to say that the use of the words as far as possible in Section 29 of RDDB Act simply indicate that the provisions of the Income Tax Rules are applicable except such of them as do not have any role to play in the matter of recovery of debts recoverable under the RDDB Act. The argument that the use of the words as far as possible in Section 29 is meant to give discretion to the Recovery Officer to apply the said Rules or not to apply the same in specific fact situations has not impressed us and is accordingly rejected. No reason hold that Rules 57 and 58 of the Income Tax Rules are anything but mandatory in nature, so that a breach of the requirements under those Rules will render the auction non-est in the eyes of law. There is, in our opinion, no doubt that there is an apparent conflict between the decisions upon which reliance was placed by learned counsel for the parties. But having regard to the view that we have taken on the question of the validity of this auction itself, we do not consider it necessary to make a reference to a larger bench to resolve the conflict. The cleavage in the judicial opinion is for the present case only of academic importance, hence need not be addressed by us or by a larger bench for the present. - Decided against the appellant.

Summary

Issues Involved:
1. Validity of the auction sale conducted by the Recovery Officer.
2. Applicability and interpretation of Section 29 of the RDDB Act and Rule 57 of the Income Tax Rules.
3. Rights of bona fide purchasers in the context of setting aside an ex-parte decree.

Issue-wise Detailed Analysis:

1. Validity of the Auction Sale Conducted by the Recovery Officer:
The appellants challenged the High Court's decision which had declared the auction sale illegal and void due to non-compliance with Rule 57 of the Second Schedule of the Income Tax Act, 1961. The High Court had dismissed the writ petition filed by the appellants, holding that the auction conducted by the Recovery Officer was illegal. The Supreme Court analyzed whether the auction sale complied with the mandatory provisions of Rule 57, which requires a 25% deposit immediately after the sale declaration and the full amount within fifteen days. The Court concluded that the provisions of Rule 57 are mandatory, and any breach renders the auction non-est in the eyes of the law.

2. Applicability and Interpretation of Section 29 of the RDDB Act and Rule 57 of the Income Tax Rules:
The appellants argued that Section 29 of the RDDB Act, which incorporates the Income Tax Rules, should be applied "as far as possible" and with "necessary modifications," suggesting a discretionary application by the Recovery Officer. The Supreme Court rejected this argument, stating that the expressions "as far as possible" and "with necessary modifications" were intended to address situations where certain provisions of the Income Tax Rules might not be applicable due to differences in the scheme of the RDDB Act. The Court emphasized that Rule 57 is mandatory and must be applied fully unless impracticable, which was not the case here.

3. Rights of Bona Fide Purchasers in the Context of Setting Aside an Ex-Parte Decree:
The appellants contended that they were bona fide purchasers and should be protected against any interference with the sale, even though the ex-parte decree on which the auction was based had been set aside. They cited several precedents to support their claim. However, the Supreme Court noted an apparent conflict in judicial opinions on the rights of bona fide purchasers. Given the decision on the validity of the auction itself, the Court deemed it unnecessary to resolve this conflict in the present case, as the auction was invalid due to non-compliance with Rule 57.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision that the auction sale was illegal and void due to non-compliance with mandatory provisions of Rule 57 of the Income Tax Rules. The Court clarified that the provisions of the Income Tax Rules incorporated into the RDDB Act must be applied fully unless impracticable, and the rights of bona fide purchasers were not addressed due to the invalidity of the auction itself.