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TMI Blog2019 (3) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... it petition is that a company by name M/s. Sojiram Ispat Private Limited availed financial assistance from the petitioner-bank, way back in June, 2011 and that the 3rd respondent herein guaranteed the repayment of the loan and also mortgaged the immovable properties bearing Plot Nos.B-52 and B-53 situated at Assisted Private Industrial Estate, Balanagar, Hyderabad. After the borrower company failed to repay the outstanding amounts and their account became a Non Performing Asset, the petitioner bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act, 2002) and sold the property and also got the Sale Certificate issued. But, when an attempt was made to have the sale certificate registered, the Sub-Registrar refused on the ground that there was an order of attachment issued by the Tax Recovery Officer of the Income Tax Department. Therefore, challenging the order of attachment, the Bank has come up with the above writ petition. 4. The Tax Recovery Officer, who is the 1st respondent herein, has filed a counter affidavit, primarily contending that the impugned attachment is pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14 05-05-2018 A fresh order under Section 14 is passed, but the Commissioner finds a tenant in the property. However, he undertakes to vacate the premises. 12-07-2018 A fresh writ petition in W.P.No.18947 of 2018 challenging the order under Section 14 is filed, but the same is dismissed by this Court. While dismissing the writ petition, this Court holds that even the auction in favour of the 4th respondent herein cannot be held to be invalid. 21-07-2018 Possession of the property is taken by the bank Last week of July, 2018 The bank approaches the Sub-Registrar for registration of the sale certificate, but the Sub-Registrar refuses to register, on the ground that there was an attachment by the Income Tax Department. 01-08-2018 The bank gives a representation to the Tax Recovery Officer, for raising the order of attachment. However, there was no reply. 14-09-2018 The bank files the above writ petition. II. Timeline relating to the events connected with the Income Tax Department. Date Event 31-07-2009 Sri Gopal Agrawal, Managing Partner of the 3rd respondent files a return of income. September 2010 The case of Sri Gopal Agrawal was selected for scrutiny through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated in Section 222 (1) should be in accordance with the rules laid down in the Second Schedule. Section 226 also prescribes other modes of recovery, in cases where no Certificate of Recovery is drawn up under Section 222. Similarly, Section 232 recognises the fact that apart from the modes of recovery specified in Chapter XVII of the Income Tax Act, the Department will always have the right either to file a suit for recovery of money or to take recourse to any other law relating to recovery of dues to the Government. 13. In order to make the procedure and modes of collection and recovery stipulated in Chapter XVII D of the Act more meaningful, Section 281 of the Act contains a declaration that any transfer or creation of charge on the assets of the assessee, during the pendency of the proceedings under the Act shall be void. Since the contentions raised by the learned standing counsel for the Department and the learning counsel appearing for the 3rd respondent revolve entirely around Section 281, the same is extracted as follows: "281 (1) Where, during the pendency of any proceeding under this Act or after the Second Schedule thereof, but before the service of notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the amendment to Section 281 (1) of the Income Tax Act, 1961, it may not be necessary to drive the Income Tax Department to the Civil Court to seek a declaration of nullity and voidity of the transfer under Section 281 (1) of the Act. The assessee has taken the said decision on appeal to the Supreme Court in S.L.P. (Civil) No.12299 of 2018 and the Supreme Court has ordered notice in the Special Leave Petition on 18-05-2018. 16. On the first question as to whether all transfers made by the assessee during the pendency of the proceedings under the Act become automatically null and void, we must search for an answer from the Second Schedule to the Income Tax Act, 1961. The Second Schedule contains a set of Rules specifying the modes of recovery and the procedure to be followed. The Second Schedule contains a set of 94 Rules, divided into six parts. Part-I contains general provisions, Parts-II and III contain the rules relating to attachment and sale of movable and immovable properties respectively, Part-IV contains the provisions for appointment of a Receiver, Part-V contains the provisions for arrest and detention of the defaulter and Part-VI contains some miscellaneous provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money. (2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment." 21. Since Rule 16(1) refers to a notice under Rule 2 as the trigger point, let us take a look at Rule 2. It reads as follows: "When a certificate has been drawn up by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realize the amount under the schedule" It is seen from Rule 2 extracted above that the notice to be issued thereunder, can be issued only after a Certificate of Recovery is drawn up by the Tax Recovery Officer under Section 222 (1). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third (rule 16[2)) talk about voidity. Rule 16 (1) merely talks about prohibition of alienation. 25. Therefore the only way Section 281 (1) can be reconciled with sub-rules (1) and (2) of Rule 16 is to hold that up to the stage of issue of an attachment in terms of Rule 48, the transfers made by the assessee in default can be declared void only if an exercise is carried out by some one (be it the Tax Recovery Officer or a Civil Court). But after an attachment is made, the declaration of voidity under Section 281 (1) becomes automatic without any further effort on the part of any one. This is in view of sub-rule (2) of Rule 16. 26. The conclusion that we have reached as above, is also fortified by the provisions of Rule 11 of the Second Schedule. Rule 11 empowers the Tax Recovery Officer to investigate into all claims and objections made to the attachment or sale in execution of a certificate of recovery. A detailed procedure is prescribed in sub-rules (3) and (4) of Rule 11 as to how the investigation is to be carried out. Sub-rule (5) of Rule 11 empowers the Tax Recovery Officer to disallow any claim or objection to the attachment or sale, if he is satisfied after investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental premise on which the scheme of Section 281 read with Section 222 and the Second Schedule to the Act operates, let us now come back to the facts of the case. The timeline of events Part-II, which we have furnished elsewhere, shows that the 3rd respondent herein filed a return of income on 31-07-2009. His case was selected for scrutiny through CASS. Notices under Section 143 (2) were issued in September 2010 and February 2011. A notice under Section 142 (1) was issued on 23- 02-2011. The order of assessment itself was passed only on 27-12- 2011 under Section 143 (3). Consequently, the demand notice under Section 156 was issued only on 27-12-2011, giving the Managing Partner of the 3rd respondent thirty days time. Even if the period of thirty days is counted from the date of the notice namely 27-12-2011, the notice period would expire on 26-01-2012. Therefore, the Managing Partner of the 3rd respondent became an assessee in default in terms of Section 220 (4), only on 26-01-2012. It is only thereafter that a notice ought to have been issued under Rule 2. We do not know the date on which the notice under Rule 2 was issued. 30. However, it is an admitted fact that the Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1963, by which a first charge was created on the property of the dealer, are inconsistent with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act); and (ii) whether by virtue of the non-obstante clauses contained in RDDB Act and Securitisation Act, the two Central Legislations will have primacy over State Legislations. Eventually, the Court held (i) that the RDDB Act, 1993 and Securitisation Act, 2002 do not create a first charge in favour of the secured creditor, (ii) that the relevant provisions of the Sales Tax Laws are not inconsistent with the provisions of the Central Legislations, so as to attract the non obstante clause and (iii) that the charge created under the relevant Sales Tax Laws would prevail over the charge created in favour of the Bank. 36. But in a more recent decision in The Stock Exchange v. V.S. Kandalgoankar (2015) 2 SCC 1, a question arose as to whether a lien created by the operation of the Rules of the Stock Exchange, on the security provided by a member, would have prece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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