Judgment Debtor’s right under Rule 60 of Second Schedule of Income Tax Act a valuable right to save his property; cannot be taken away on technical ground or bona fide mistake for which he is not at fault: SC

Supreme Court: The bench of MR Shah* and BV Nagarathna, JJ has held that the right available to the judgment debtor under Rule 60 of the Second Schedule of the Income Tax Act, 1961 is a valuable right and the last resort/opportunity to the judgment debtor to save his property and should not be affected on the technical ground and/or for the mistake and/or the bona fide mistake for which he was not at all responsible.

“It is a right available to the judgment debtor after his property is sold in a court auction. Therefore, such a valuable right available to the judgment debtor to save his property should not be affected on the technical ground and/or for the mistake and/or the bona fide mistake for which he was not at all responsible.”

Background

In the case at hand, Recovery Certificate bearing RP No.153/2006 was issued in favour of the IndusInd Bank for recovery of an amount of Rs.71,88,819.87/- recoverable from the original borrowers – respondent Nos. 3 to 5 with further interest payable at the rate of 12% p.a. from 27.12.1999 till realization and the costs, charges and expenses of the proceedings for recovery thereof.

A proclamation of sale of the properties was issued by the Recovery Officer, DRT on 28.11.2006 fixing the public auction on 08.01.2007. The amount due and payable was Rs.1,27,30,527/- including interests as on 30.06.2006. In the auction held on 08.01.2007, the bid of respondent Nos. 1 and 2 herein (original writ petitioners) being the highest offer being Rs.1.35 crores came to be accepted by the Recovery Officer. The successful bidders – respondent Nos. 1 and 2 deposited the bid amount on 22.01.2007.

The original borrowers thereafter filed an application under Rule 60 of the Second Schedule of the Income Tax Act, 1961 read with Sections 25 to 29 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 for setting aside the auction vide application dated 25.01.2007 and submitted a Demand Draft for an amount of Rs.1,27,30,527/- as specified in the sale proclamation.

The Recovery Officer adjourned the matter to 06.02.2007 directing the respondents to serve a copy of the order and the application on the Bank and the auction purchaser. The Bank filed its reply on 06.02.2007 before the Recovery Officer in response to the application of the respondent No.5 (on the 29th day from the date of auction). In its reply, the Bank claimed that there was some shortfall in the amount deposited by the borrower but no calculation sheet was attached to the reply.

The Recovery Officer thereafter passed an order dated 15.02.2007 allowing the application submitted by the borrower by holding that the borrower had deposited the requisite amount for setting aside the sale under Rule 60 of the Second Schedule of the Income Tax Act. Accordingly, the sale of the properties in question came to be set aside. The Recovery Officer also directed the Bank to hand over all the original documents pertaining to the immovable properties in question to the borrower immediately.

The Gujarat High Court, however, set aside the order passed by the DRAT and confirmed the sale in favour of auction purchasers by dismissing the application submitted by the judgment debtor under Rule 60 of the Second Schedule of the Income Tax Act, 1961 by observing that as there was a shortfall in the deposit of the amount while exercising the right under Rule 60 and hence, there was non-compliance of the provisions of Rule 60.

Analysis

The Supreme Court, however, disagreed with the opinion of the High Court and held that as such it was the duty cast upon the Recovery Officer to mention the exact amount in the sale certificate. The Recovery Officer mentioned the amount in the Sale Certificate of Rs.1,27,30,527/- including the interest as on 30.06.2006, however, did not specify any further amount towards the interest for the period between 30.06.2006 till the date of the sale proclamation, i.e., 08.01.2007, which the Recovery Officer ought to have mentioned specifically. The aforesaid mistake and/or inaccuracy on the part of the Recovery Officer led to the shortfall in the deposit of the amount, which was towards the interest for the period between 30.06.2006 to 08.01.2007, otherwise, the judgment debtor had substantially complied with Rule 60.

“The shortfall was Rs.3,57,647/-. When the judgment debtor deposited the substantial amount of Rs. 1,27,30,527/- and other amounts due and payable under Rule 60 including the penalty and the interest, there was no reason for the judgment debtor not to deposit Rs. 3,57,647/- which is a very small amount as against the amount deposited.”

Though the Bank filed its reply before the Recovery Officer in response to the application made by the judgment debtor – borrower made under Rule 60 and in which it was stated that there was some shortfall in the amount deposited, but according to the judgment debtor, no calculation sheet was attached to the reply and/or supplied to the judgment debtor. Hence,

“If the Recovery Officer would have been accurate in submitting the exact amount in the sale proclamation due and payable on the date of sale proclamation then the eventuality which has arisen in the present case would not have arisen. There was an absurd misconduct on the part of the Recovery Officer for which the judgment debtor should not be made to suffer.”

The Court observed that if the Bank would have submitted the calculation sheet earlier alongwith the reply on 06.02.2007, which was 29th day from the date of auction, the judgment debtor would have deposited the balance shortfall amount. Therefore, there was a substantial compliance/ compliance of Rule 60. If the Recovery Officer would have been accurate in submitting the exact amount in the sale proclamation due and payable on the date of sale proclamation then the eventuality which has arisen in the present case would not have arisen. There was an absurd misconduct on the part of the Recovery Officer for which the judgment debtor should not be made to suffer.

The Court explained that the legislative intent of Rule 60 is to give the defaulter as much latitude as possible till the end and he can, under Rule 60, without assigning any cause but after depositing the sum therein mentioned as mentioned in the sale proclamation within the stipulated time, avoid the auction and protect his property. Thus, the right which is available to the judgment debtor under Rule 60 is a most valuable right available and the same shall not be permitted to be affected on the technical ground and/or bona fide mistake for which he cannot be said to be at fault.

[RS Infra-Transmission Ltd v. Saurinindubhai Patel, 2022 SCC OnLine SC 854, decided on 11.07.2022]


*Judgment by: Justice MR Shah

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