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TMI Blog2010 (3) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... piry of six months from the date of attachment. Thus, the action of the bank in releasing the amount under the fixed deposits was patently illegal and in clear violation of the terms and conditions of the contract of the bank guarantee. While allowing writ petition, bank directed to refund the petitioners the amount of their fixed deposits which were encashed on November 1, 2006, within a period of one month with simple interest at 8 per cent. per annum, with effect from November 1, 2006, till the date of refund. - bank at liberty to claim the amount with interest from the department. - 1654 of 2006 - - - Dated:- 30-3-2010 - RAJES KUMAR, PANKAJ MITHAL, JJ. JUDGMENT 1. All the five petitioners of this writ petition are related to one another. 2. A search and seizure under section 132 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), was conducted on May 9, 2003, and May 24, 2003, on the business and the residential premises of respondent No. 5, Purshottam Das Khandelwal who happened to be the proprietor of the firm M/s. Suraj Bhan Purshottam Das engaged in money-lending business. During the aforesaid search, jewellery worth Rs. 34.33 lakhs was sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 18, 2006, imposing penalty of Rs. 22,36,172 upon respondent No. 5. The petitioners are aggrieved by the encashment and release of the fixed deposits aforesaid. 3. It is in the above back-drop that the petitioners have invoked the writ jurisdiction of this court for issuance of the following directions : "(i) a suitable writ, order or direction in the nature of mandamus directing the Assessing Officer, respondent No. 3, to forthwith refund the amount of the STDRs/FDRs to the petitioners, encashed and paid by the State Bank of India, Aonla Branch, Bareilly, to the Income-tax Department on November 1, 2006, together with the interest at the rate of 15 per cent. per annum from November 22, 2005, up to the date of the payment of the said refund to the petitioners ; (ii) a suitable writ, order or direction in the nature of certiorari calling for the record of the case to and quashing the letter and notice both dated November 18/21, 2005, under section 281B/226(3) of the Income-tax Act, 1961, issued by respondent No. as contained in annexure to the writ petition ; (iii) any other suitable writ, order direction which this hon'ble court may deem fit and proper in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, principal debtor and the creditor wherein a person who gives the guarantee is called the "surety" ; the person on whose behalf guarantee is given is called "principal debtor" ; and the person to whom the guarantee is given is called "the creditor" or the "beneficiary". Bank guarantee is also a similar kind of contract. However, if a contract of bank guarantee is examined in depth instead of three, sometimes a fourth player also comes into picture though not described in the contract. This generally happens when the principal debtor himself has nothing to offer to the bank to enable it to give guarantee on his behalf and a fourth party steps into to offer security. This undisclosed fourth person is one who offers his property in any shape including fixed deposits to the bank for the purposes of extending the bank guarantee for the principal debtor to the creditor. 11. In the banking system bank guarantee has dual aspects. It is not merely a contract between the bank and the beneficiary but it is also a contract of security between the bank and the third party, i.e., who offers his property for the purposes of executing the bank guarantee. Bank guarantee is, there-fore, a spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Now, let us examine the validity of the directions contained in the letter/order dated November 18/21, 2005, for attachment and payment of the balance amount under the fixed deposits. 15. Section 222 of the Act authorises the Tax Recovery Officer to adopt any of the modes prescribed therein to recover the tax due where an assessee against whom tax is due and payable commits default in its payment or is deemed to be in default. Section 226(3) of the Act empowers the assessing/recovery officer to direct any person who holds or is likely to hold any money for or on account of the assessee to pay to him so much of the money which is sufficient to satisfy the amount due to the assessee. It is applicable when money is due to the assessee from any person (See Administrator, Unit Trust of India v. B. M. Malani [2007] 10 SCC 101 ; [2008] 296 ITR 31 (SC). A combined reading of the aforesaid provisions clearly indicates that the procedure prescribed under section 226(3) of the Act can only be resorted to when tax is payable and the assessee is in default or deemed to have defaulted in its payment and not otherwise. Default would arise only when there is a demand. Admittedly, on N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g defeated and to enable him to release his dues without any let or hindrance subsequently. 20. The effect of the order of attachment, as explained earlier, was only to restrict the bank as well as the owners of the fixed deposits from dealing with the fixed deposits and nothing more. It in no way authorised respondents Nos. 3 and 4 to invoke the bank guarantee so as to encash the fixed deposits of the petitioners that too after the expiry of the period of the bank guarantee. 21. The bank guarantee was valid initially for a period of one year from January 22, 2003, ending on November 21, 2004, which period was extended for another one year expiring on November 21, 2005. It was not extended thereafter and no new bank guarantee was executed. The petitioners have also not offered their fixed deposits as security for furnishing bank guarantee after November 21, 2005. Therefore, in the normal circumstances after the expiry of the period of bank guarantee the fixed deposits could not have been encashed and the petitioners would have been free to deal with their fixed deposits in their own way without any restriction either by the bank or the beneficiary. In such a situation, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of bank guarantee, cessation of the provisional attachment which otherwise was illegal and in no way authorised the encashment of the fixed deposits was totally unjustified. 25. In view of the aforesaid facts and circumstances, we are of the considered opinion that the petitioners have been wronged and their fixed deposits have been illegally encashed by the bank and the payment released on November 1, 2006, in favour of respondents Nos. 2 and 3. 26. We are conscious that ordinarily disputes arising from a contract are not to be adjudicated in exercise of the writ jurisdiction but we have proceeded to decide the matter on the merits as only a pure legal question was involved and the facts were not disputed. It is also high time to avoid technicalities in imparting justice and to bring disputes to their logical end and to grant the appropriate relief as may be found suitable in law, equity and justice, otherwise it would be negation of discretionary powers vested in court. 27. Accordingly, we allow the writ petition and issue a writ of certiorari quashing the order dated November 18/21, 2005 (annexure 7), and also a writ of mandamus commanding respondents Nos. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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