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TMI Blog2024 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... on and without notice of pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee. Impugned order does not give illumination regarding the assessment proceeding pursuant to notices issued under provisions of assessment procedure, referred therein, as had resulted, on completion of the proceeding, in a claim of tax requiring the TRO to certify the claim and thereafter declare the mortgage void. There is also no finding in impugned order that the mortgage was created after notice of the tax or other sum payable by the mortgagor assessee as a result of completion of the assessment proceeding in respect of one or more of the assessment years referred to in the mentioned notices. By impugned order valuable right of recovery of petitioner as secured creditor was sought to be interfered with. We notice that impugned order was made after [ 2023 (1) TMI 226 - ORISSA HIGH COURT] giving liberty to both, borrower and revenue, there being connection between said and present borrowers to be essentially the same person, to approach the DRT or any other forum for ventilating their grievance. We are told, instead of so doing, in this case r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order that there has been a finding on date of creation of the equitable mortgage for the consequent finding that it was later. 4. Mr. Panigrahy hands up documents to demonstrate that equitable mortgage created by the borrower was on 29th March, 2016 duly registered. He relies on several judgments including of coordinate Bench. (i) Judgment of the Supreme Court in Tax Recovery Officer, Nagpur v. Gangadhar Vishwanath Ranade , reported in AIR 1999 SC 427 . He relies on paragraph 9. (ii) Judgment of the Supreme Court in Connectwell Industries (P) Ltd. v. Union of India, reported in (2020) 5 SCC 373 . He relies on paragraph 9. (iii) Order dated 2nd December, 2022 made by coordinate Bench in, inter alia, RVWPET no.156 of 2022 , arising out of W.P.(C) no.26500 of 2021 ( M/s. Maa Kalika Bhandar and others vs. the Collector and District Magistrate, Khordha and others ). He relies on paragraph 9. 5. Mr. Panigrahy then relies on section 26-E of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 to submit, with effect from 1st September, 2016 overriding effect and priority was given to secured creditors over claims, inter alia, of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order. Furthermore, rule 11 in the Second Schedule requires petitioner to prefer objection to the attachment made in execution of the certificate, for there to be investigation regarding the objection. He also relies sub-rule (6) in rule 11, which gives option to the objector to institute a suit in a civil Court to establish the right, on it rejected by the investigating officer. Mr. Panigrahy responds, by letter dated 26th April, 2022, objection was raised by his client pointing out that the certificate case was initiated on 23rd March, 2020. 9. Paragraph 9 from Gangadhar Vishwanath Ranade (supra) is reproduced below. 9. The Tax Recovery Officer, therefore, has to examine who is in possession of the property and in what capacity. He can only attach property in possession of the assessee in his own right, or in possession of a tenant or a third party on behalf of/for the benefit of the assessee. He cannot declare any transfer made by the assessee in favour of a third party as void. If the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11 (6) to have the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in favour of the Bank is void. (emphasis supplied) In above case, the borrower had moved the writ Court challenging enforcement for recovery by the mortgagee bank. Contention of the borrower was that the mortgage could not be enforced for recovery by the bank inasmuch as it was created after there was attachment under the Income Tax Act. Hence, by operation of provision in section 281, the mortgage was void. This challenge of the borrower was relegated to the Debts Recovery Tribunal (DRT), wherein the bank and the borrower had already initiated proceedings regarding recovery under the Act of 2002. However, petitioner here is the finance company, a secured creditor seeking interference as impugned order affects its interest of obtaining recovery under the mortgage. On query from Court, Mr. Panigrahy submits, recovery proceeding under the Act of 2002 had already been launched by his client. The borrower challenged the same in the DRT. Said challenge of the borrower in the DRT is the same challenge it had made against the bank, in the review petition disposed of by order dated 2nd December, 2022 (supra). The borrower is obstructing recovery in alleging the mortgage having been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction being void before the forum of appropriate jurisdiction before seeking its simple impleadment before this Court, which concededly has not been done till now. Therefore, relegating the parties to seek adjudication on this issue by our order cannot be faulted with by any stretch of reasoning. The Income Tax Department is also free to seek its remedy before the appropriate forum including DRT to establish by leading cogent evidence that the action had been initiated which constituted proceedings prior in time of creation of an equitable mortgage in favour of the Bank so as to seek a declaration of the mortgage being void or the attachment being prior in time so as to seek a priority of charge. The Secured Creditor/Bank would be equally free to stress the impact of Section 26(E) and Section 31(B) of the SARFAESI Act, 2002 qua the priority of the claim. Accordingly, the adjudication before this Court in view of Section 281 of the Income Tax Act is also rejected. However, we observe that the I.T. Department and the parties would be free to raise all these pleas before the DRT for adjudication in accordance with law. 13. Section 281 on amendment with effect from 1st October, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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