- Vide decision of Supreme court of India in Connectwell Industries (P.) Ltd. Vs Union of India
Facts of the case:
- The Appellant filed the Writ Petition in the High Court of Judicature at Bombay seeking a restraint order against the Tax Recovery Officer for enforcing the attachment made under the Income Tax Act, 1961 for recovery of the dues. The Writ Petition was dismissed by the High court, aggrieved by which the Appeal has been filed.
- Biowin Pharma India Ltd. (BPIL) - herein obtained a loan from the Union Bank of India.
- Property (land along with Plant and Machinery, building) was mortgaged as security to Union Bank of India herein.
- BPIL filed an application before the Debt Recovery Tribunal (DRT) for recovery of the loan advanced to BPIL.
- The DRT allowed the application filed by BPIL and directed BPIL to pay a sum of Rs.4,76,14,943.20/- along with interest at the rate of 17.34% per annum from the date of the application till the date of payment and/or realization.
- A recovery certificate in terms of the order passed by the DRT was issued and recovery proceedings were initiated against BPIL.
- The Recovery Officer, DRT III attached the property on 29.11.2002.
- DRT issued a proclamation of sale of the said property on 19.08.2004.
- A public auction was held on 28.09.2004. The DRT was informed that there were no bidders except the Appellant.
- The offer made by the Appellant to purchase the property for an amount of Rs.23,00,000/- was accepted by DRT.
- On 14.01.2005, a certificate of sale was issued by DRT in favor of the Appellant.
- The possession of the disputed property was handed over to the Appellant on 25.01.2005 by DRT and a certificate of sale was registered on 10.01.2006.
- The Maharashtra Industrial Development Corporation (hereinafter referred to as ‘the MIDC’) informed DRT that it received a letter dated 23.03.2006 from the Tax Recovery Officer, herein stating that the property in dispute was attached by Tax recovrey officer on 17.06.2003.
- The Appellant requested the Regional Officer, MIDC by a letter dated 10.04.2006 to transfer the property in dispute in its favor in light of the Sale Certificate issued by DRT on 25.01.2005.
- As the MIDCfailed to transfer the plot in the name of the Appellant, the Appellant filed a Writ Petition before the High Court seeking a direction for issuance of ‘No Objection’ in respect of the plot and to restrain Respondent No.4 from enforcing the attachment of the said plot, which was performed on 11.02.2003.
- The question posed before the High Court is whether the Appellant who bona fide purchased the property in auction sale as per the order of the DRT is entitled to have the property transferred in its name in spite of the attachment of the said property by the Income Tax Department.
Judgement:
The Honorable supreme court of India held the case as follows:
- There is no dispute regarding the facts of this case. The property in dispute was mortgaged by BPIL to the Union Bank of India in 2000 and the DRT passed an order of recovery against the BPIL in 2002.
- The recovery certificate was issued immediately, pursuant to which an attachment order was passed prior to the date on which notice was issued by the Tax Recovery Officer under Rule 2 of Schedule II t the Act.
- It is true that the sale was conducted after the issuance of the notice as well as the attachment order passed by the Tax Recovery Officer in 2003, but the fact remains that a charge over the property was created much prior to the notice issued by Tax Recovery Officer on 16.11.2003.
- The High Court held that Rule 16(2) is applicable to this case on the ground that the actual sale took place after the order of attachment was passed by The tax Recovery officer.
- The High Court failed to take into account the fact that the sale of the property was pursuant to the order passed by the DRT with regard to the property over which a charge was already created prior to the issuance of notice on 11.02.2003.
- As the charge over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Respondent No.4, we find force in the submissions made on behalf of the Appellant.
The judgment of the High Court is set aside and the Appeal is allowed. The MIDC is directed to issue a ‘No Objection” certificate to the Appellant. Tax Recovery Officer is restrained from enforcing the attachment order dated 17.06.2003.
https://www.taxmann.com/TEMP/101010000000194056/connectwell_347936.pdf