Manupatra

Fill in the following details to e-mail

Subject

<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"> <html xmlns="http://www.w3.org/1999/xhtml"> <head> </head> <body> <div style="font-family:Verdana, Geneva, sans-serif; font-size:12px; text-align:justify"> <table width="800" border="0" style="border:1px solid #ccc;padding:5px;" align="center" cellpadding="6" cellspacing="0"> <tr> <td align="left" valign="top"> Supreme Court Unless there is preference given to Crown debt by a statute, dues of a secured creditor have preference over Crown debts MANU/SC/0296/2020 - (06 Mar 2020) </td> </tr> <tr> <td align="left" valign="top">Connectwell Industries Pvt. Ltd. Vs. Union of India (UOI) and Ors.</td> </tr> <tr> <td align="left" valign="top" style="background-color:#FDEDCE">In present case, the Appellant filed the Writ Petition in the High Court seeking a restraint order against the Tax Recovery Officer-Respondent No. 4 for enforcing the attachment made under the Income Tax Act, 1961 for recovery of the dues. 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. 
Relying upon Rule 16 of Schedule II to the Act, the High Court came to the conclusion that there can be no transfer of a property which is the subject matter of a notice. The High Court was also of the view that after an order of attachment is made under Rule 16(2) of Schedule II to the Act, no transfer or delivery of the property or any interest in the property can be made, contrary to such attachment. The High Court held that notice under Rule 2 of Schedule II to the Act was issued on 11th February, 2003, and the property in dispute was attached under Rule 48 of Schedule II to the Act on 17th June, 2003, whereas the sale in favour of the Appellant took place on 09.12.2004 and the sale certificate was issued on 14th January, 2005. Therefore, the transfer of the property made subsequent to the issuance of the notice under Rule 2 of Schedule II to the Act and the attachment under Rule 48 of Schedule II to the Act, is void. The submission made on behalf of the Appellant that the sale in favour of the Appellant was at the behest of the DRT and not the defaulter i.e., BPIL was not accepted by the High Court. 
It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts. Rule 2 of Schedule II to the Act provides for a notice to be issued to the defaulter requiring him to pay the amount specified in the certificate, in default of which steps would be taken to realise them. 
 The crucial provision for adjudication of the dispute in this case is Rule 16. According to Rule 16(1), a defaulter or his representative cannot mortgage, charge, lease or otherwise deal with any property which is subject matter of a notice under Rule 2 of Schedule II to the Act. Rule 16(1) of Schedule II to the Act also stipulates that no civil court can issue any process against such property in execution of a decree for the payment of money. However, the property can be transferred with the permission of the Tax Recovery Officer. According to Rule 16(2) of Schedule II to the Act, if an attachment has been made under Schedule II to the Act, any private transfer or delivery of the property shall be void as against all claims enforceable under the attachment. 
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-Respondent No. 4 under Rule 2 of Schedule II to the Act. It is true that the sale was conducted after the issuance of the notice as well as the attachment order passed by Respondent No. 4 in 2003, but the fact remains that a charge over the property was created much prior to the notice issued by Respondent No. 4 on 16th November, 2003. 
The High Court held that, Rule 16(2) of Schedule II to the Act is applicable to this case on the ground that the actual sale took place after the order of attachment was passed by Respondent No. 4. 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 11th February, 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, there is 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. Respondent No. 4 is restrained from enforcing the attachment order dated 17th June, 2003.</td> </tr> <tr> <td align="left" valign="top" ></td> </tr> <tr> <td align="left" valign="top" >Tags : Attachment order, Enforcement, Legality</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr>  <td align="left" valign="top">Source : newsroom.manupatra.com</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> <tr> <td align="left" valign="top">Regards</td> </tr> <tr> <td align="left" valign="top">Team Manupatra</td> </tr> <tr> <td align="left" valign="top">&nbsp;</td> </tr> </table> </div> </body> </html>