The Judgment was delivered by : M. C. JAIN (CHAIRPERSON)
Riya Garments Pvt. Ltd. (auction purchaser) has filed this appeal against the order dated 22th May, 2006 passed by the Tribunal below withdrawing the recovery certificate issued on 24th February, 2004 and directing that all remaining proceedings pending before the Recovery Officer related thereto would be dropped.
2. The appellants would be called 'Riya' in subsequent discussion for the sake of facility. The background facts are these: Respondent Nos. 1 to 3 (Pratap Rajasthan Copper Foils and Laminations Ltd., Pratap Steel Rolling Mills Pvt. Ltd. and Pratap Rajasthan Special Steels Ltd.), hereinafter to be called 'Pratap' for the sake of convenience, had availed of loan and credit facilities from respondent Nos. 4 and 5 (IDBI and IFCI) as also from other financial institutions on consortium basis. All of them had pari passu charge over the assets of Pratap as per the O.A. No. 277/2000 filed by IDBI and IFCI jointly against the said Pratap for the recovery of Rs. 46 crores and odd. The said O.A. was decreed and it was directed that the applicants in O.A. (respondent Nos. 4 and 5 herein) would be entitled to realise the due amount, amongst others, by the sale of mortgaged property. Accordingly, a recovery certificate dated 24th February, 2004 was issued. Pratap filed an appeal (Inward No. 126/2004) on 19th April, 2004 against the final order passed in O.A. This Appellate Tribunal, by order dated 28th July, 2005, refused to grant exemption from pre-deopsit as mandated by Sec. 21 of the RDDBFI Act. Pratap filed Writ Petition (C) No. 12708/2005 before the Hon'ble Delhi High Court against the dismissal of the application under Sec. 21 of the RDDBFI Act. On 6th September, 2005, the said writ petition was dismissed as withdrawn, without issuing notice, on the ground that the writ petitions were pending before the Hon'ble High Court of Rajasthan and to avoid conflicting decisions it was being withdrawn. Jitender Kumar Lakhotia - a shareholder of Pratap filed S.B. Civil Writ Petition No. 5592/2005 before the Hon'ble Rajasthan High Court. The Hon'ble High Court by order dated 27th July, 2005 provided that the auction proceedings could be proceeded with but confirmation of sale would remain stayed.
3. In pursuance of the recovery certificate dated 24th February, 2004, proceedings for the sale of immovable property of the JD Pratap were held and the auction took place on 4th July, 2005. Riya emerged as the highest bidder for Rs. 14.60 crores for the land and building. It deposited 25% of the bid amount and thereafter the remaining 75% within the stipulated time. JD Pratap did not file any application for setting aside the auction sale under Rules 60 and 61 of the Second Schedule to the Income tax Act, though several other objections were filed and remained pending for disposal before the Recovery Officer. The contention of the appellant Riya as per para 7 of the memo of appeal was that subject to the outcome of the objections pending before the Recovery Officer, it was entitled to confirmation of auction held on 4th July, 2005.
4. Pratap contended that the recovery certificate was never served as per requirement of Rule 2 of the Second Schedule to the Income-tax Act. The Recovery Officer has held deemed service by order dated 16th June, 2005. The said order was challenged by Pratap before the DRT by means of Appeal No. 7/2006 under Sec. 30 of the RDDBFI Act. The Presiding Officer of the DRT held by order dated 16th June, 2006 that demand notice had not been served on JD Pratap. However, since the JD Pratap and the CH-FIs had by then reached a settlement and execution proceedings were over in accordance with the direction of Hon'ble High Court in S.B. Civil Writ Petition No. 8336/2005, the order dated 16th June, 2005 of the Recovery Officer was held to be of no relevance.
5. Another limb of the history relates to proceedings in BIFR. Pratap had filed a reference before BIFR in 1987. In 1996, BIFR declared that the company could not be revived and hence recommended for its winding up. Pratap against the said order of 3rd September, 1996 of the BIFR filed an appeal before AAIFR, which was dismissed on 28th February, 1997. Aggrieved by the said order, Pratap filed a Writ Petition No. 3662/1997 in Hon'ble Rajasthan High Court. It was submitted there that there was possibility of revival of the company and in case the order dated 3rd September, 2006 (passed by BIFR) was given effect to, it would come in the way of revival of the company. An undertaking was given by Pratap not to transfer or alienate any asset of the company. Prayer was made for stay of operation of the order dated 3rd September, 1996 passed by BIFR. Notice was issued and the operation of the order dated 3rd September, 1996 was stayed. The contention from the side of Riya is that the said undertaking and stay continued till 22nd February, 2007 when the writ petition was disposed off, much after the assets of the company were sold privately by Pratap in favour of respondent No. 9 - Om Metals Infotech (P) Ltd. (hereinafter referred as 'Om').
6. Another S.B. Civil Writ Petition No. 8336/2005 was filed by Pratap before the Hon'ble Rajasthan High Court. Riya was not impleaded as party thereto. A compromise application was made in the said writ petition before the Hon'ble Rajasthan High Court, on the basis of which the liabilities and obligations under order dated 24th February, 2004 passed by the DRT, Jaipur stood modified. So far as other respondents were concerned, they were free to proceed in accordance with the law. The writ petition was disposed off by recording the said compromise by Hon'ble Single Judge of Rajasthan High Court on 28th February, 2006, The contention from the side of Riya is that it was not impleaded as auction purchaser in the said petition and the proceedings took place at its back. The material fact that the mortgaged properties had been auctioned on 4th July, 2005 and it (Riya) was declared as the highest bidder was also withheld from the Hon'ble High Court.
7. An application was made before the Recovery Officer for taking on record the order dated 28th February, 2006 passed by the Hon'ble Rajasthan High Court and for declaring the auction proceedings held on 4th July, 2005 as infructuous. The Recovery Officer dismissed the said application on 27th March, 2006. Against the said order of the Recovery Officer, no appeal was filed before the DRT under Sec. 30 of the RDDBFI Act. In view of the order dated 27th March, 2006 passed by the Recovery Officer, Riya did not press its Appeal No. 309/2006 before the Division Bench of the Hon'ble Rajasthan High Court filed against the order dated 28th February, 2006 passed by Hon'ble Single Judge in Writ Petition No. 8336/2005. Hence, the same was dismissed as not pressed on 17th April, 2006.
8. Pratap, instead of filing an appeal against the Recovery Officer's order dated 27th March, 2006, made an application under Sec. 26 (2) of the RDDBFI Act before the DRT for withdrawal of the recovery certificate, without impleading Riya as party. Riya, however, filed an impleadment application. Relying on the Hon'ble Single Judge's order dated 28th February, 2006, the Presiding Officer of the DRT, by order dated 22nd May, 2006, withdrew the recovery certificate in question and dismissed Riya's application for impleadment. Complying with the DRT's order dated 22nd May, 2006 withdrawing the recovery certificate, the Recovery Officer dropped the recovery proceedings on 26th May, 2006. Riya then filed an application in Hon'ble Rajasthan High Court for recalling the order dated 17th April, 2006 passed by Division Bench in Special Appeal No. 309/2006. The appeal was restored on 1st August, 2006. The said appeal came to be ultimately dismissed on merits by the Division Bench of the Hon'ble Rajasthan High Court on 12th September, 2006. Riya filed an SLP before the Hon'ble Supreme Court against the said order dated 12th September, 2006 of the Division Bench of the Hon'ble Rajasthan High Court. The present appeal has been filed as per the provisions of the RDDBFI Act by Riya against the order dated 22nd May, 2006 passed by the Presiding Officer of DRT, withdrawing the recovery certificate.
9. Since the recovery certificate came to be withdrawn, the recovery proceedings were dropped and auction sale in favour of Riya was not confirmed. It is in this backdrop that appeal has been filed by the appellant.
10. Two SLPs being pending before the Hon'ble Supreme Court, this Appellate Tribunal has been required to expeditiously hear and dispose off the present appeal. It is in the above circumstances that the appeal has been heard by this Court.
11. Arguments from the side of the appellant have been advanced by Mr. B.S. Nagar, by Mr. Sudhir Gupta on behalf of the respondent No. 1 and by Mr. Rajeeve Mehra on behalf of respondent No. 9. For the sake of appearance, the contest is triangular, but, in fact, the fight is between auction purchaser- Riya on the one hand and respondent No. 1 - Pratap with respondent No. 9 - Om on the other as these two respondents are supporting each other. Respondent No. 9 is the subsequent purchaser of the property in question from Pratap for Rs. 20.80 crores, by sale deed dated 24th May, 2006. The entire sale proceeds are said to have been used to pay the dues of the banks/financial institutions as well as of the RIICO.
12. The chief contentions of the learned counsel for the parties may be set out here, to be dealt with in detail as per necessity while deciding the relevant aspects in the area of controversy, one by one.
13. The contention of the learned counsel for the appellant Riya is that Pratap had approached BIFR which recommended for the winding up of the company and on a writ petition. BIFR's order was stayed subject to the undertaking given by Pratap not to alienate the assets of the company. This undertaking was violated by sale of the property in favour of Om. Auction sale in favour of Riya was perfectly in order, not suffering from any illegality or irregularity. Riya is, therefore, entitled to the confirmation of sale. Pratap could not object to the auction sale to Riya without resorting to Rules 60 and 61 of the Second Schedule to the Income-tax Act. The Presiding Officer of the DRT could not pass the impugned order withdrawing the recovery certificate on an application made under Sec. 26 (2) of the RDDBFI Act and that, too, without impleading Riya (auction purchaser) before him. Section 26 (2) of RDDBFI Act, was not at all attracted. Instead, Pratap ought to have preferred an appeal against the order dated 27th March, 2006 of the Recovery Officer, dismissing its (Pratap's) application for declaring the auction proceedings dated 4th July, 2005 as infructuous. The property under attachment with Recovery Officer was 'custodia legis' and could not be sold by Pratap to Om without the permission of the Court, overriding the auction sale to Riya.
14. On the other hand, respondent No. 1 as well as respondent No. 9 complain of the auction sale dated 4th July, 2005 in favour of Riya to be contrary to rules contained in Second Schedule to the Income-tax Act. There was also allegedly cartelization in auction dated 4th July, 2005. The auction was allegedly rigged and the bid amount was pegged down owing to collusion of the bidders, the entire show having been orchestrated by Riya. The recovery certificate was rightly withdrawn under the impugned order of the Presiding Officer in compliance of the order dated 28th February, 2006 of Single Judge of the Hon'ble Rajasthan High Court in S.B. Writ Petition No. 8336/2005. The recovery proceedings came to an end. There was no occasion of necessity to carry them further. There could be no question of confirmation of sale in favour of Riya. Pratap could legally and validly sell the property to Om and it was sold for a much higher amount of Rs. 20.80 crores when there was no legal impediment or embargo. They have prayed for dismissal of the present appeal.
15. These are the broad features of the respective stands of contesting parties. The detailed discussion succeeds hereinafter. Care would be taken to avoid repetition unless the same is necessary for clarity.
16. It has first been argued by the learned counsel for the appellant that Pratap did not appeal against the order dated 27th March, 2006 passed by the Recovery Officer, declining to declare the auction proceedings held on 4th July, 2005 as infructuous. According to him, the filing of an appeal before the Presiding Officer of the DRT under Sec. 30 of the RDDBFI Act could be the only legally permissible course for Pratap which it did not avail of. Instead, it made another application before the Presiding Officer of the DRT purporting to be under Sec. 26 (2) of the RDDBFI Act, which led to the passing of the impugned order under challenge in the appeal at the instance of appellant - Riya.
17. On the other hand, the argument of the learned counsel for respondent No. 1 - Pratap is that the right course which ought to have been adopted was an application before the Presiding Officer of the DRT under Sec. 26 (2) of the RDDBFI Act and this right course was availed of on wisdom dawning upon Pratap after the passing of the order dated 27th March, 2006 by the Recovery Officer. It would be recalled that the final order passed in the O.A. had been challenged by Pratap by means of an appeal before this Appellate Tribunal under Inward No. 126/2004. However, permission for exemption from pre-deposit as per Sec. 21 of the RDDBFI Act was declined by this Tribunal on 28th July, 2005 and the application made in this behalf was rejected, resulting in the dismissal of the appeal too. Then the Writ Petition No. 8336/2005 was filed by Pratap before the Hon'ble Rajasthan High Court against the said order dated 28th July, 2005 passed by this Appellate Tribunal. The respondents were the banks and financial institutions including IDBI and IFCI who had filed O.A. before the Tribunal below, which was finally decreed on 24th February, 2004 leading to the issuance of the recovery certificate. One of the prayers made in the writ petition was for a direction to respondent Nos. 1 to 5 (banks and financial institutions) to properly consider the OTS proposal for rehabilitation and revival submitted by Pratap and till then to keep in abeyance the entire proceedings in pursuance of the judgment and recovery certificate dated 24th February, 2004. After the dismissal of the appeal by this Appellate Tribunal on 28th July, 2005, a fresh proposal for OTS (one time settlement) was given by Pratap to IDBI (Operating Agency) on 4th August, 2005. The OTS submitted by Pratap was accepted by Banks and Financial Institutions including IDBI and IFCI (who were decree holders). An application was made in the writ petition to dispose it of in terms of the compromise/ settlement. It came up before the Single Judge of the Hon'ble Rajasthan High Court on 28th February, 2006 who directed that the compromise be recorded and that the liabilities and obligations under the order dated 24th February, 2004 would stand modified in terms thereof. It was in consequence of this order of the Hon'ble Single Judge that an application was made before the Recovery Officer that the recovery certificate stood modified in the light of the settlement with the CH-FLIs - IDBI and IFCI and that the recovery proceedings be closed as infructuous. This application was opposed by Riya. vide order dated 27th March, 2006, the Recovery Officer came to the conclusion that the auction proceedings could not be closed/cancelled without legal proceedings under Rules 60, 61 and 62 of the Second Schedule to the Income-tax Act. So, to come to the point, the objection of the learned counsel for the appellant is that this order of the Recovery Officer could only be challenged by Pratap by means of an appeal before the DRT under Sec. 30 of the RDDBFI Act, which it did not do.
18. I am of the opinion that the contention raised by the learned counsel for Riya cannot be accepted. It is not necessary for a losing party to always prefer an appeal even when the passed order does not suffer from any vice on factual or legal matrix. As a matter of fact, the Recovery Officer could not go behind the recovery certificate. Section 26 (1) of the RDDBFI Act clearly provides that no objection to the certificate (recovery certificate) shall be entertainable by the Recovery Officer. To say in other words, the Recovery Officer cannot travel back behind the recovery certificate. It is not within his domain to cancel a recovery certificate. The prayer made by Pratap before the Recovery Officer, in essence, was to modify the recovery certificate and to drop the recovery proceedings. He was not competent to do so. There was no mistake in his approach when he did not accede to the prayer made by Pratap. May be, Pratap was ill-advised to have approached the Recovery Officer with such a prayer which, actually, should have been made to the Presiding Officer of the DRT. The reason was that as per Sec. 26 (2) of the RDDBFI Act, notwithstanding the issuance of the recovery certificate the Presiding Officer had the power to withdraw it. Therefore, Riya cannot score a point on the premise that Pratap did not file an appeal against the order dated 27th March, 2006 passed by the Recovery Officer.
19. It has next been argued by the learned counsel for the appellant that Riya was not formally made a party in the proceedings held before the DRT in relation to the application made by Pratap under Sec. 26 (2) of the RDDBFI Act there, whereupon the impugned order dated 22nd May, 2006 came to be passed by the DRT.
20. On the other hand, the submission from the sale of Pratap is that full-fledged hearing was given to Riya on the application under Sec. 26 (2) of the RDDBFI Act made by it (Pratap).
21. It may pertinently be pointed out that the purpose of impleading a party in a pending cause is to afford a right of hearing putting forth its stand in relation to the controversy involved. The copy of the order passed by DRT on 22nd May, 2006 on the application under Sec. 26 (2) made by Pratap is on record. Its perusal shows that the appellant Riya has made an interim application No. 141 dated 24th April, 2006 that in the public auction held on 4th July, 2005 in the recovery proceedings the property of Pratap was auctioned in its favour for Rs. 14.60 crores, as being the highest bidder. It came up with all the contentions available to it, praying for the dismissal of the application made by Pratap. During the arguments, it came to light that the appellant Riya had not made any prayer for its impleadment as party. So, it made another application No. 169 dated 12th May, 2006 for amendment in the previous application. The perusal of the older further shows that full-fledged hearing was afforded to Riya on the contentions raised by it, whereafter the application under Sec. 26 (2) of the RDDBFI Act was allowed with the withdrawal of the recovery certificate dated 24th February, 2004 and all the pending proceedings before the Recovery Officer related to the case were dropped. The application of the auction purchaser - Riya was dismissed. Thus, it makes no practical difference that Riya was not formally made a party in the proceedings before the Presiding Officer. The real purpose was served. It had been heard on its contentions and the same were considered by the Presiding Officer of DRT who, ultimately, passed the impugned order declining its application and allowing the one made under Sec. 26 (2) of the RDDBFI Act. The DRT and DRAT are to be guided by principles of natural justice which came to be followed at the time of the decision on the application under Sec. 26 (2) of the RDDBFI Act. The argument raised by the learned counsel for the appellant is hyper- technical and is accordingly rejected.
22. The third argument of the learned counsel for the appellant - Riya is that Sec. 26 (2) of the RDDBFI Act was not at all applicable and the Tribunal below gravely erred in passing the impugned order professedly under the said section. He challenged the compromise arrived at between Pratap and CH-FIs as unrecognizable on the basis of the Hon'ble Supreme Court's decision in Mohd. Yunus v. Mohd. Mustaqim (1983) 4 SCC 566, in which it was held that once immovable property of surety is sold to a third party by Court in execution of a decree, the third party's interest having intervened in the matter, there could be no certification of an adjustment between the decree-holder and the judgment debtor. In such case the Court has no alternative, but to confirm the sale under Order XXI, Rule 92 of CPC. Referring to the case of Seth Nanhelal v. Umrao Singh, (1931) 58 I.A. 50, it was pointed out that the Judicial Committee of the Privy Council in dealing with Order XXI, Rule 2 of CPC had held that adjustment between the decree-holder and the judgment-debtor at any time before the confirmation of an execution sale cannot nullify the decree by taking away the very foundation of the Court's power to execute the decree viz. the existence of decree capable of execution.
23. Another case relied upon by the learned counsel for the appellant is that of Padma Ben Banushali v. Yogendra Rathore, 2006 (4) SCALE 546, in which the scope and ambit of Sec. 47 and Order XXI, Rule 2 of CPC was considered and it was held that a purchaser of property at a sale in execution of a decree shall be deemed to be a party to the suit in which the decree is passed and all questions relating to the delivery of possession of such property to such purchaser or his representative shall be deemed to be questions relating to the execution, discharge or satisfaction of the decree within the meaning of Sec. 47 of CPC which relates to the questions to be determined by the Court executing the decree. The thrust of the argument of the learned counsel for the appellant is that the Recovery Officer had come to the right conclusion and Pratap could not go for an indirect way to nullify the finally issued recovery certificate in the execution of which it (Riya) was held to be the highest bidder for Rs. 14.60 crores, by approaching the DRT purportedly under Sec. 26 (2) of the RDDBFI Act.
24. Yet another decision of the Tribunal in Punjab National Bank v. Rama Fibres Ltd., II (2008) B.C. 51 (DRAT), has been relied upon to emphasize that under Sec. 26 (2) of the RDDBFI Act the power of Presiding Officer is confined to correct clerical or arithmetical mistakes only in the recovery certificate.
25. Per contra, the submission of the learned counsel for Pratap is that before the confirmation of auction sale, no right came to the vested in favour of the auction purchaser Riya and it had no locus whatsoever to question these compromise arrived at by Pratap with CH-FIs and other financial institutions/banks.
26. It may significantly be pointed out that the RDDBFI Act is a special statute providing suitable mechanism for the recovery of the dues of the banks/financial institutions without delay. It aims at implementing financial sector reforms. Broadly speaking, the Act has three-fold objects. The first is to provide a speedy legal mechanism for the recovery of debts due to the banks and financial institutions. The second is not to cause unnecessary harm or distress to the debtor in the recovery process. The third, which, in a sense, is related to the second, is to ensure that unscrupulous elements in the society do not indirectly manage to grab the property of the debtors put to auction at throw-away price by forming cliques or cartels by manipulation of manoeuvring, though as coloured specious at the first sight. The DRT and DRAT, as provided by Sec. 22 (1) of the RDDBFI Act, are not bound by the procedure laid down by CPC. It is only with regard to the matters enumerated at serial numbers (a) to (h) of subsection (2) of Sec. 22 that the DRT and DRAT for the purposes of discharging the functions under the Act are vested with the same powers as with a Civil Court under CPC. Chapter V of the RDDBFI Act relates to the procedure adoptable for the recovery of debt determined by the Tribunal. It comprises Secs. 25 to 30. Modes of recovery of debt are provided under Sec. 25. On receipt of copy of the recovery certificate, the Recovery Officer has to proceed for the recovery of the amount specified in the recovery certificate by following the modes prescribed under the said section. Attachment and sale of immovable properties of CDs is one of them. The provision of Sec. 25 aforesaid is somewhat different from Order XXI, Rule 10 of CPC where the holder of a decree has to apply to the Court for the execution of the same. Under the RDDBFI Act the Recovery Officer proceeds to make the recovery without any application from CH. He has to act judiciously at every stage to ensure transparency and to guard against arbitrariness. It is to be ensured that the procedure has properly been followed in publication and conduct of sale regularly in accordance with law.
27. It is obvious that the provisions of CPC cannot be engrafted with all their rigour and implications onto a matter of recovery under the RDDBFI Act. It is pertinent to find that there is no provision in the RDDBFI Act parallel to Order XXI, Rule 2 of CPC. Instead, Sec. 26 of the RDDBFI Act deals with validity of certificate and amendment thereof. It is reproduced below in extenso for the sake of clarity:
"26. Validity of certificate and amendment thereof.-(1) It shall not be open to the defendant to dispute before the Recovery Officer the correctness of the amount specified in the certificate, and no objection to the certificate on any other ground shall also be entertained by the Recovery Officer.
(2) Notwithstanding the issue of a certificate to a Recovery Officer, the Presiding Officer shall have power to withdraw the certificate or correct any clerical or arithmetical mistake in the certificate by sending an intimation to the Recovery Officer.
(3) The Presiding Officer shall intimate to the Recovery Officer any order withdrawing or cancelling a certificate or any correction made by him under sub-section (2)."
28. Since there is no provision under the RDDBFI Act parallel to Order XXI, Rule 2 of CPC, the two decisions of the Hon'ble Supreme Court cited by the learned counsel for the appellant would not be helpful. Instead, an enquiry would be necessary into this aspect of the matter whether Riya, by virtue of being the highest bidder for Rs. 14.60 crores at auction sale held on 4th July, 2005, had acquired an indefeasible right for confirmation of sale in its favour and as such could validly object to the withdrawal of the recovery certificate by the Presiding Officer through the impugned order because of a settlement having been arrived at between Pratap and CH- FIs with regard to which an order had been passed by the Hon'ble Rajasthan High Court in S.B. Civil Writ Petition No. 8336/2005 on 28th February, 2006. The question whether the auction also in favour of Riya was in order entitling it for confirmation of sale under Rule 63 of the Second Schedule of the Income-tax Act or it suffered from material irregularity would be examined a little later.
29. So far as the attempt of the learned counsel for the appellant to derive support from the Court's decision in Punjab National Bank v. Rama Fibres Ltd. is concerned, I find after going through the said decision that it is sought to be torn out of the context. The said decision is sought to be strained beyond permissible limits. The facts of that case were on a different footing. The bank had made an application praying for suitable amendment in the recovery certificate along with the amendment of relief clause of the judgment and the order passed by the DRT. It was held in the said decision that the recovery certificate has to abide by the final order passed in the O.A., and that there was no clerical or arithmetical mistake in the final order passed in the O.A. according to which the Recovery Officer had been prepared. In that context, it was observed that the Presiding Officer could correct any clerical or arithmetical mistake in the recovery certificate which had occurred owing to some accidental slip or omission. It was pointed out that the appellant (Punjab National Bank) was aggrieved of the final order passed in the O.A. It had the right to prefer an appeal thereagainst, but it could not pray for upturning the central core of judgment under the garb of seeking correction of clerical or arithmetical nature. It is to be kept in mind that the words "the Presiding Officer shall have power to withdraw the certificate" or "correct any clerical or arithmetical mistake in the certificate" have been used disjunctively. Thus, there may be a situation warranting withdrawal of the recovery certificate. The discharge of the liability is one of such eventualities whereby the execution proceedings are put to an end. If the liability is discharged before an order of confirmation of sale is made, then there would never arise an occasion or necessaity to consider the confirmation of sale in favour of the auction purchaser. No doubt, Pratap did not prefer any objection under Rule 60 or Rule 61 of the Second Schedule to the Income-tax Act, but the right of the auction purchaser to get the sale confirmed could be placed out of the line by adopting other legitimate means and discharge of the decree was one of them. Under Sec. 27 of the RDDBFI Act, notwithstanding a certificate has been issued to the Recovery Officer for the recovery of any amount, the Presiding Officer may grant time for the payment of the amount and thereupon the Recovery Officer shall stay the proceedings until the expiry of the time so granted. That is, the Presiding Officer can give time for the payment of the amount under the recovery certificate even after the process of recovery has started.
30. It is to be taken note of that no vested right is created in favour of the auction purchaser before the confirmation of sale. Certain uncertainties and vagaries, depending upon the facts and circumstances of the individual case, are always there when one goes to purchase property in auction sale. The auction purchaser cannot insist that the auction should invariably be confirmed in his favour after the expiry of statutory period of 30 days under Rule 63 (1) of the Second Schedule to the Income- tax Act. There cannot be an automatic confirmation of sale. The short distance between the cup and the lip is not smooth. Rather, it is beset with speed-breaker, 'Ifs' and 'buts' do the rounds till the auction sale reaches the stage of finality. And all this is in the contemplation of an ordinarily prudent auction purchaser.
31. In the present case, a shareholder (Mr. Jitender Kumar Lakhotia) of Pratap had obtained stay order against the confirmation of sale on 27th July, 2005 in Writ Petition No. 5592/2005 filed in Hon'ble Rajasthan High Court. The present appellant Riya had even applied for vacation of stay order in that writ petition, but the prayer was declined on 19th October, 2005. This stay order was in operation when a new development took place whereby Pratap and CH-FIs reached a settlement, made an application for recording the same in the S.B. Civil Writ Petition No. 8336/2005 filed by Pratap before the Hon'ble Rajasthan High Court. Therein, the Hon'ble Single Judge ordered for recording the compromise and directed that the liabilities and obligations under order dated 24th February, 2004 passed by the DRT would stand modified in its terms. Thus, a situation arose warranting withdrawal / cancellation of the recovery certificate with the application of Sec. 26 (2) of the RDDBFI Act. The liability having been discharged, there was not to arise an occasion in future for the confirmation of sale in favour of Riya. This development took place before the embargo on confirmation of sale was lifted. As I said, Riya tried for the vacation of the stay on confirmation of sale in S.B. Civil Writ Petition No. 5592/2005, but could not succeed and the order dated 19th October, 2005 declining vacation of stay was not further challenged before any higher forum. The benefit of the stay order passed in S.B. Civil Writ Petition No. 5592/2005 filed by Mr. Jitender Kumar Lakhotia (shareholder of Pratap) enured in favour of Pratap inclusive of entire set of shareholders. As a matter of fact, before the disability as to the confirmation of sale was lifted, there was discharge of the decree concerning liability of Pratap whereafter there could be no question of the auction purchaser - Riya insisting for the confirmation of sale in its favour in consequence of sale held on 4th July, 2005. Before the occasion could arise for the confirmation of sale, owing to settlement arrived at between Pratap and CH-FIs, the dues of the latter were paid as per the terms of settlement and there remained no liability of Pratap. There could hardly be the question of proceeding any further.
32. An important decision of the Hon'ble Rajasthan High Court in the case of Mohan Wahi v. Commissioner, Income-tax, Varanasi, (2001) 4 SCC 362, is suggestive that in suitable situation the sale may be refused to be confirmed and may be set aside. To stay in other words, the confirmation of sale is not inevitable in each and every case. Riya did not have any indefeasible right for the confirmation of sale in its favour on the premise of having been declared a highest bidder at the auction held on 4th July, 2005 even if it is taken for the sake of argument that sale in its favour was in order, not suffering from any irregularity. It has been ruled in that case that when the demand of tax, for the recovery of which the certificate was issued, was reduced to nil by higher authorities before confirmation of sale, an order confirming the auction sale could not be passed.
33. The facts of Mohan Wahi's case were these: There were four co- sharers in a house property. Two of them entered into a partnership. Subsequently the firm closed its business and the partners migrated elsewhere. Pursuant to the assessments of the partnership firm, which were made ex parte for AYs 1967-68 to 1970-71 recovery certificates were issued in 1973-74, pursuant whereto the house property was attached. On 3rd December, 1979 a proclamation for sale of the property was issued setting out a demand of Rs. 30,82,000/-and upset price at Rs. 1,70,000/-. On 11th January, 1980, at the public auction, the bid of respondent No. 3 to purchase the house property for Rs. 1,70,000/- was accepted by the officer conducting the sale. Respondent No. 3 deposited the 1/4th amount i.e. Rs. 42,500/- immediately and the remaining amount of Rs. 1,27,500/- on 25th January, 1980. One of the other two co-sharers meanwhile died. On 9th January, 1980, at the instance of his widow, the Civil Judge by an interim order stayed the confirmation of the auction-sale. The said interim order remained in operation till 12th January, 1998. The assessee firm approached the hierarchy of the IT Department. Pursuant to ITAT's finding that the assessee had not been served with the demand notice and consequent remand, the several demands against the assessee firm were reduced in the year 1989 to nil. This fact was in the notice of the ITO as well as CIT. The assessee firm also brought this fact to the notice of the Tax Recovery Officer (for short "TRO") on 22nd November, 1996. The assessee firm thereafter requested the ITO to ensure that all the recovery certificate issued against it were withdrawn. Despite all this, on 25th March, 1998 the TRO confirmed the auction-sale. After unsuccessfully approaching the departmental authorities and the High Court, one of the partners of the assessee firm approached the Supreme Court. The following two questions arose in that appeal:
(i) whether the TRO could have confirmed the sale on 25th March, 1998 when the relevant demands that ceased to exist; and
(ii) what was the effect of non-service of a notice of demand under Sec. 156 of the Income-tax Act on the assessee, on the auction- sale in question
34. Answering both the questions in favour of the assessee and allowing the appeal, the Supreme Court held:
"(1) The term "reduced" in Sec. 225 (3) of the Income-tax Act would include a case where the demand consequent upon an appeal or any proceedings under the Income-tax Act has been reduced to nil also. The TRO is obliged to give effect to such reduction in demand and accordingly amend or cancel the certificate.
In view of the fact of the reduction of the demand against the assessee to nil being within the knowledge of the Department and the communication made to the TRO, he could not have confirmed the sale on 25th March, 1998. Rule 56 in the Second Schedule of the Income-tax Act, 1961 is neither a redundant nor a formal provision. It casts an obligation on the TRO to pass an order confirming the sale consciously and with due application of mind to the relevant facts relating to sale by public auction which is to be confirmed. Under Rule 63, confirmation of sale is not automatic. An order confirming the sale is contemplated to make the sale absolute. Ordinarily, in the absence of an application under Rules 60, 61 or 62 having been made, or having been rejected if made, on expiry of 30 days from the date of sale the TRO shall pass an order confirming the sale. However, between the date of sale and the actual passing of the order confirming the sale if an event happens or a fact comes to the notice of the TRO which goes to the root of the matter, the TRO may refuse to pass an order confirming the sale. The fact that sale was being held for an assumed demand which is found to be fictitious or held to have not existed at all, in fact or in the eye of the law, is one such event which would oblige the TRO not to pass an order confirming the sale and rather annul the same. The High Court clearly fell in error in not allowing relief to the appellant- petitioner by setting aside the sale."
35. In the present case, confirmation of sale was incapable of being considered because of the stay order in S.B. Civil Writ Petition No. 5592 / 2005 and before an occasion could arise for considering the question of confirmation of sale, a development took place whereby the liability of Pratap was discharged. Therefore, no dues remained to be paid for which sale/ confirmation of sale could be necessary.
36. It is also relevant to point out that the theory of OTS was not a new one which might have been propounded by Pratap to defeat the auction purchaser. It was there right from the beginning. The matter of Pratap was there before BIFR for about eight years. In the proceedings before BIFR the Operating Agency was IDBI (one of the applicants in O.A.). Pratap had made proposal for rehabilitation and settlement, but the same failed and BIFR ultimately recommended winding up of the company on 3rd September, 1996. The appeal carried by Pratap before AAIFR did not meet with any better luck. Then Pratap filed Writ Petition No. 3662/1997 in Hon'ble Rajasthan High Court in which one of the reliefs claimed was to the following effect:
"(ii) by a writ of mandamus or any other appropriate writ, order or direction in the nature thereof, the BIFR may be directed to reconsider the matter of revival and rehabilitation of the sick company and be further directed to accept the revival scheme as submitted by the petitioners before the AAIFR and be further pleased to direct the operating agency IDBI to accept the proposal for one time settlement made by the petitioners in their supplementary affidavit."
37. The Hon'ble Rajasthan High Court, by order dated 21st July, 1997 stayed the operation BIFR's order of winding up. So, attempt for OTS was there right from the beginning. In the said writ petition filed by Pratap, IDBI and IFCI (which filed the O.A. the passing of the final order and issuance of recovery certificate wherein was the foundation of the recovery proceedings), amongst others, were respondents. On the dismissal of Pratap's application under Sec. 21 of the RDDBFI Act for exemption from pre-deposit on 28th July, 2005 resulting in dismissal of the appeal by this Tribunal, it (Pratap) filed S.B. Civil Writ Petition No. 8336/2005 in which averments as to OTS were reiterated and prayer (iv) was couched as under:-
"by an appropriate writ, order or direction in the nature thereof, the respondent Nos. 1 to 5 be directed to properly consider the OTS proposal submitted by the petitioner No. 1 company for its rehabilitation/revival. Alternatively the entire proceedings in pursuance of the judgment and certificate dated 24th February, 2004 passed by the DRT, Jaipur be kept in abeyance till the final disposal of the Writ Petitions Nos. 3662/1997 and 2131/2001".
38. The point I wish to make is that it was not so that all of a sudden after the auction sale held on 4th July, 2005, Pratap coined the theory OTS. Rather, it was consistently being pressed and pursued and in continuation of the same another proposal was given on 4th August, 2005 which succeeded, resulting in settlement with all the financial institutions, including IDBI and IFCI which had filed the O.A. and for the recovery of whose dues the recovery certificate was issued on final order having been passed in the O.A. The other banks and financial institutions were Standard Chartered Bank, ICICI and LIC of India whose dues were also satisfied.
39. On threadbare analysis, it comes to the fore that Sec. 26 (2) of the RDDBFI Act was perfectly attractable to the present case.
40. To decide the controversy completely and finally, it should now be considered whether auction sale dated on 4th July, 2005 in favour of Riya deserved to be confirmed on ignoring the settlement arrived at by Pratap with banks and financial institutions and assuming that Sec. 26 (2) of the RDDBFI Act could not apply in the present case. Naturally, the decision on this aspect of the matter would turn on answer of this question whether the auction sale in favour of Riya was in order or the conduct/publishing of sale suffered from material irregularity, vitiating it. It hardly needs to be reiterated that the auction must be conducted in a fair manner.
41. Procedure for the recovery of debt determined by DRT is provided in Chapter V of the RDDBFI Act, from Secs. 25 to 30. As per Sec. 29, the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Procedure) Rules, 1962 apply to the recovery process as far as possible. Rule 2 of the Second Schedule to the Income-tax Act provides for issuance of a notice, which reads as under:-
"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 15 days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule."
42. In the present case, no notice as per Rule 2 of the Second Schedule to the Income-tax Act was served on Pratap. The Recovery Officer, as pointed out earlier also, had held deemed service of demand notice. But the same was challenged by Pratap before the DRT through Appeal No. 7/2006 under Sec. 30 of the RDDBFI Act. The DRT, by order dated 16th June, 2006, held that demand notice had not been served on JD-Pratap. However, the order of the Recovery Officer dated 16th June, 2005 holding deemed service of demand notice was found to be of no relevance in view of the fact that JD- Pratap and CH-FIs had by then reached a settlement and execution proceedings were over. So, the first irregularity in the auction held on 4th July, 2005 was that no demand notice as per Rule 2 of the Second Schedule to the Income-tax Act has been served on JD-Pratap.
43. Secondly, there was also the requirement of attachment and service of notice of attachment on the defaulter as per Rules 48 and 49 contained in Part III of the Second Schedule to the Income-tax Act. Further, the order of attachment has to be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary mode and a copy of the order has to be affixed on a conspicuous part of the property and on the notice board of the office of the Recovery Officer, as provided by Rule 50 of the said Schedule. Nothing of the kind was done by the Recovery Officer before proceeding to issue sale proclamation and sale notice in newspaper for auction on 4th July, 2005. It is to be pointed out that as per the definition of 'debt' contained in Sec. 2 (g) of the RDDBFI Act, 'debt' means any liability, whether secured or unsecured. To say in other words, even the loan secured by mortgage of immovable property is covered under the definition of 'debt' and the Recovery Officer has to attach the mortgaged immovable property with service of notice of attachment on the defaulter before proceeding ahead for the sale of the same by issuance of proclamation of sale and sale notice. In the instant case, the issuance of demand notice under Rule 2 of the Second Schedule to the Income-tax Act and of attachment of immovable property in question as per Rules 48 to 50 of the said Rules were given a complete go-by. Thus, the auction sale dated 4th July, 2005 suffered from vital defect.
44. Thirdly, the immovable property in question was not properly described in the proclamation of sale and the sale notice in "Rajasthan Patrika' newspaper dated 26th June, 2005. As per Rule 53 of the Second Schedule to the Income-tax Act, proclamation of sale of immovable property is to be drawn up specifying as fairly and correctly, as possible, the property to be sold. Such description, amongst others, is a necessary requirement. In the present case, however, it was not adhered to. Rather, it was violated. In the proclamation of sale and the sale notice published in 'Rajasthan Patrika' dated 26th June, 2005, the property was described as "Land & Building Pratap Rajasthan Copper Foils & Leminaters Ltd., R.D.P.L. Road No. 11, V.K. 1 Area, Jaipur". That was not. the immovable property - subject matter of auction sale. Neither area/measurement of the property nor any description/details of the structure had been given. Actually, the immovable property which was the subject-matter of auction sale was Plot No. S-818 at Road No. 14, RIICO Vishwa Karma Industrial Area, Jaipur, measuring 56444.78 sq.mtrs. as described in the sale deed dated 24th May, 2006 executed by Pratap in favour of Om.
45. The learned counsel for the appellant contended that a demand notice had been sent by the applicants of O.A. to the borrower Pratap before the filing of the O.A. Further, in the final order dated 24th February, 2004 passed by the DRT in the O.A., three months time had been given to pay the amount adjudged to be due. The same, according to him, constituted a sufficient demand notice on the borrower Pratap and there was no necessity of any fresh demand notice to be served as per Rule 2 of the Second Schedule to the Income-tax Act. He urged that there was no necessity for fresh attachment also because the immovable property has already been mortgaged with the CH-FIs. This is skewed logic. It is not possible to accept this contention. If the things pass smoothly without any hassles, it is fine. But if a dispute arises, then the Court has to dispassionately examine whether the statutory law/rules have been followed and the inevitable consequences flowing therefrom would be determinative of the validity of the auction or otherwise. The Privy Council ruled as back as 1936 in the case of Nazir Ahmad v. King-Emperor reported in A.I.R. 1936 P.C. 253 that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all.
46. As regards the deficiency in properly describing the immovable property in the sale proclamation and sale notice published in the newspaper. The learned counsel for the appellant argued that all those present at the auction understood the property which was actually the subject-matter of auction, and no prejudice was caused by any one. He urged that from the side of Pratap unnecessary hair-splitting was resorted to for attacking the auction sale.
47. In my opinion, the submission of the learned counsel for the appellant does not hold water. The Hon'ble Punjab and Haryana High Court has ruled in the case of Kishan Chand Aggarwal v. Union of India, 1975 (100) I.T.R. 496, that a sale conducted in pursuance of a proclamation with vague and misleading description of property is nothing but a farce and must seriously prejudice the judgment debtor and cannot be allowed to stand. The gist of what the Hon'ble Bombay High Court held in the case of Jaikisandas Balchand Pamnani v. Municipal Corporation of Greater Bombay, A.I.R. 1991 Bom. 341 and Satyapal Uttamchand Chowdhary v. Rukayyabai Huseinbhai Bandukwala, A.I.R. 1993 Bom. 203 , is that when there is misdescription of the property in the sale proclamation, the sale stands vitiated.
48. It is also to be taken note of that general notice for auction was published on 26th June, 2005 in the newspaper 'Rajasthan Patrika' for the auction to be conducted eight days alter on 4th July, 2005. It should justifiably be inferred that only ritual of publishing of auction notice was observed in a mechanical manner ignoring the real purpose required to be served by publishing such a notice. The publication of general notice of auction only eight days before the actual date of auction could not be construed as sufficient time to get on the buyers unless there had been pooling or cartelization. Needless to say, prospective buyers should be given sufficient time for participating in the auction if they so desire. There does not appear to be any. plausible explanation as to why the issuance of sale notice in the newspaper was so delayed. It would be recalled that the publication of notice also did not contain correct details of the immovable property to be sold. The measurement of area comprised in the immovable property as well as the details of the extent of structures were also missing. Leaving apart what could be privately known to the participating bidders, sale proclamation and the publication of notice were deficient in requisite and essential details.
49. It has been held by the Hon'ble Supreme Court in the case of LICA (P) Ltd. v. Official Liquidator, (1996) 85 Comp. Cas. 788 (S.C.), that the purpose of an open auction is to get the most remunerative price and it is the duty of the Court to keep openness of the auction so that the intending bidders would be free to participate and offer higher value. If that path is cut down or closed, the possibility of fraud or to secure inadequate price or underbidding would loom large. The Court would, therefore, have to exercise its discretion wisely and with circumspection and keeping in view of the facts and circumstances of each case, the steps for conduct the sale would be moulded.
50. In the case of Divya Manufacturing Co. (P) Ltd. v. Union of India, A.I.R. 2000 S.C. 2346, it has been held by the Hon'ble Supreme Court that it is the duty of the Court to see that the price fetched at auction is adequate price even though there is no suggestion of irregularity or fraud. Even the confirmation of sale by a Court at grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion.
51. A Division Bench of the Hon'ble Delhi High Court in case of A.K. Jain v. Canara Bank, has pointed out that distinction between provision governing the sale under the Companies Act and the provision governing the sale under the RDDBFI Act would not make any difference and the principle laid down in Divya's case is applicable to an auction by the Recovery Officer attached to DRT. It has been observed that when a property mortgaged with the bank is sold by the Recovery Officer on the basis of orders passed in the O.A., he (Recovery Officer) is the trustee of the property, who is selling the same for the benefit of the mortgagee bank as well as workers. Therefore, the public purpose, which was seen by the Hon'ble Apex Court while laying down the principle in Divya's case should be in the forefront in such sales conducted by the Recovery Officer as well.
52. Reference may also be profitably made to the decision of the Hon'ble Supreme Court in FCS Software Solutions Ltd. v. LA Medical Device's, 2008 (10) Scale 7 , wherein the principle laid down in Divyas case has been reiterated that even a confirmed sale can be set aside in an appropriate case and that it is the duty of the Court to see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. In that case, confirmed sale in favour of the appellant was set aside and the Hon'ble Supreme Court ratified such course of auction.
53. In the present case, after the auction on 4th July, 2005, the auctioneer Mr. Chetram Sharma, advocate, submitted report to the Recovery Officer. The auction statedly started on 4th July, 2005 at 10.30 a.m. A glance at the report of the auctioneer shows that there was ruckus during the course of the proceedings, so much so that police had to be called to restore peace and order. Some of the persons were shouting and asking for the bid to be made again. On the refusal of the auctioneer, one person had snatched some paper also from him. The stand taken by the auctioneer was that auction had already been properly knocked down at Rs. 14.60 crores in favour of Riya. Some of the bidders present even declined to sign the bid sheets. The same day some of the bidders (Mr. Hanuman Poonia, Mr. Manoharlal Anjana, Mr. Anil Jindal and Mr. Damodar Prasad) had even filed police complaint that auction had hurriedly and abruptly been closed though other bidders were willing to bid higher amount. Copy of such police complaint came to be filed with the counter-affidavit of Pratap. It may be pointed out that Mr. Hanuman Poonia who joined in making police complaint had offered the first bid in the auction as mentioned in the auctioneers report. As many as 14 objections had been filed against the auction before the Recovery Officer. The objectors were bidders, shareholders, workers and RIICO.
54. It is also relevant to point out that Mr. Hanuman Poonia was impleaded as party in the S.B. Civil Writ Petition No. 5592/2005 filed before the Hon'ble Rajasthan High Court by Mr. Jitender Kumar Lakhotia. Therein he filed an affidavit offering to purchase the immovable property for Rs. 18 crores.
55. The learned counsel for the appellant argued that Riya was declared as highest bidder at Rs. 14.60 crores and it was more than the reserve price. Suffice it to say in this regard that reserve price is only an indicative factor. Sale need not necessarily be settled in favour of one offering an amount higher than the reserve price. The best price is obtained at a public auction when auction is fairly held in pro-competitive atmosphere.
56. It is also a factor to be taken note of that even without creation of pro-competitive situation, Om came up and purchased this property for a much higher amount of Rs. 20.80 crores in whose favour sale deed was executed by Pratap on 24th May, 2006.
57. On global and cumulative consideration of all the above factors and circumstances, it comes to the fore that there was pooling and formation of syndicate by Riya in the auction held on 4th July, 2005. It was a fictitious bidding process. Actually, cartelization had been schemed to peg down the price and to grab the property at throw away price. Cartelization is a device of killing competition. There is a very strong circumstance suggestive of cartelization by Riya and its associates. The circumstance is that a short time after the auction dated 4th July, 2005 many of the bidders became shareholders/unsecured creditors of Riya. To name a few, Mr. Pramod Kumar Aggarwal, Mr. Ganesh Kumar Rana, Mr. Babulal Gurnani and Mr. Ashwani Kumar Gupta were such bidders. All these parties had struck an understanding before auction to share the booty, i.e., the property auctioned at Rs. 14.60 crores. It is not acceptable that competitors would have become thick friends within a short span of time after auction.
58. The learned counsel for the appellant countered the allegation of cartelization put forth by Pratap. He relied on the case of Gurumukh Singh v. Amar Singh, (1991) 3 S.C.C. 79. Attention has been invited to para 3 of the decision, the relevant portion of which reads as under:-
"......An agreement between A and B to purchase property at an auction sale jointly and not to bid against each other at the auction is perfectly lawful, though the object may be to avoid competition between the two. But if there is an agreement between all the competing bidders at the auction sale, be it of the Court sale or revenue sale, or sale by the Government of its property or privilege and formed a ring to peg down the price and to purchase the property at knock out price, the purpose or design of the agreement is to defraud the third party, namely, the debtor or Government whose property is sold out at the Court auction or revenue sale, or public welfare. The object or consideration of the contract, oral or written, to share such property is unlawful. There is also implied "injury to the debtor" within the meaning of Sec. 23. Thereby the contract was fraudulent. The contract thus is also opposed to public policy and is void. Take for instance four persons participated at an auction sale; pursuant to their previous agreement, they made a pretext of participation in the auction; bid up to an agreed price though the real value of the property is much more than what they had offered for. Here the design or object of their forming a ring is to knock out the property for a song to defraud the debtor or public "
59. The learned counsel for the appellant - Riya argued that the allegation of cartelization at the behest of Riya is wholly imaginary with no foundation at all. According to him, even if there was an agreement amongst some of the bidders not to compete against each other, then it did not amount to cartelization having regard to the law pronounced by the Hon'ble Supreme Court. The argument may sound to be attractive at the first blush, but it does not stand a close scrutiny having regard to the facts and circumstances of the present case.
60. It was not so that there was agreement amongst some of the bidders not to bid against each other, but actually an understanding had been arrived at before hand for pegging down the price so that it could be had at a price much lower than what it was worth of fetching. The fictitious show was accordingly a scheme and design at the auction held on 4th July, 2005 to achieve the desired goal. The conclusion is, therefore, reached that there was cartelization at the auction held on 4th July, 2005. Riya with its associates managed to get the property in question through fictitious bidding process at Rs. 14.60 crores.
61. The discussion made above on all the relevant facts of auction sale held on 4th July, 2005 leads to irresistible conclusion that there were material irregularities in publishing and conducting auction sale on 4th July, 2005. The auction was rigged and the price was pegged down as a result of cartelization and formation of syndicate by Riya and its associates. The auction held on 4th July, 2005 lacked transparency. The auction was completely vitiated. So, even ignoring the settlement arrived at by Pratap with banks and financial institutions and assuming that Sec. 26 (2) of the RDDBFI Act could not apply in the present case, it is found that there were material irregularities in publishing and conducting the sale. Relevant rules contained in the Second Schedule to the Income-tax Act were violated and there was cartelization. This being the scenario, there could be no question of confirmation of such a sale in favour of Riya. The property could, at the best, be re-auctioned with due observance of law and rules, if so needed. When the auction purchaser Riya is disentitled for confirmation of sale in its favour, it ceases to have any locus to contend that Pratap and CH-FIs could not arrive at a settlement.
62. It takes me to another argument of the learned counsel for the appellant that the property in question was sold by Pratap to Om in violation of the undertaking given to the Hon'ble Rajasthan High Court by Pratap in Writ Petition No. 3662/1997 as it was on the basis of such undertaking that operation of the order dated 3rd September, 1996 passed by BIFR was stayed on 21st July, 1997. This stay order, the learned counsel pointed out, remained in force till 22nd February, 2007. He urged that the sale deed executed by Pratap in favour of Om dated 24th May, 2006 in respect of the property in question violated this undertaking on the basis of which BIFR's order dated 3rd September, 1996 was stayed.
63. Suffice it to say in this regard that the understanding had obviously been given to safeguard the interest of IDBI, IFCI (applicants in O.A. - CH) and others arrayed as respondents in the said writ petition. Stretching it further, it could enure for the benefit of all the creditors of Pratap, workers of the Company and all others to whom Pratap owed money. Violation of the undertaking given to the Court could be objected by them to the Court concerned. Section 2 (b) of the Contempt of Courts Act, 1971 defines "civil contempt" as wilful disobedience to any judgment, decree, direction, order, writ or other process of a Court or wilful breach of an undertaking given to a Court. If there was any such wilful disobedience, then action could be prayed for to be taken by the Court concerned against Pratap. Riya - auction purchaser cannot fall back on such an undertaking to question the sale effected by Pratap in favour of Om in respect of the property by sale deed dated 24th May, 2006, particularly when auction sale in favour of Riya has been found to be vitiated because of material irregularities in publishing and conducting the sale as well as cartelization dealt with in detail above. The argument is accordingly rejected.
64. It has next been argued by the learned counsel for the appellant that Pratap had throughout been represented by Mr. Praveen Maheshwari, Director. The learned counsel contended that Pratap went everywhere, but did not disclose true facts. Civil writ petitions were filed suppressing and concealing material facts.
65. This aspect of the matter does not require a detailed discussion. Such a contention could be raised before the concerned High Court or Apex Court. SLP stemming from S.B. Civil Writ Petition No. 8336/2005 is still pending before the Hon'ble Apex Court. So far as this Appellate Court is concerned, the various writ petitions filed from the historical background and note has to be taken of the binding effect of various orders passed in the writ petitions.
66. The learned counsel for the appellant also placed reliance on certain decided cases which I wish to deal with briefly here. They are as follows:-
1. Shankar v. Jawaharlal, A.I.R. 1928 Nag. 265 (F.B.).
2. Nanhelal v. Umrao Singh, A.I.R. 1931 P.C. 33 .
3. Nidhpal Sharma v. Union of India, A.I.R. 1966 All. 360: (V 53 C 102).
4. Janak Raj v. Gurdial Singh, A.I.R. 1967 S.C. 608.
5. Janatha Textiles v. Tax Recovery Officer, III (2008) B.C. 372 (SC).
67. As per Shankar's case at serial No. 1, a private satisfaction of a decree certified in Court after the sale of immovable property has been held and before the confirmation of the sale is ordered, does extinguish the decree and prevent the Court from confirming the sale in favour of the auction purchaser, if he be the decree-holder himself, but it does not extinguish the decree and prevent the Court from confirming the sale, where a third person has purchased the property bona fide at the auction sale.
68. In Nanhelal's decision at serial No. 2, it was ruled with reference to Order XXI, Rule 2 of CPC that an adjustment between the decree-holder and judgment-debtor come at any time before confirmation of an execution sale cannot nullify the decree, by taking away the very foundation of the Court's power to execute the decree, viz. the existence of a decree capable of execution.
69. It was held by the Hon'ble Allahabad High Court in Nidhpal's case at serial No. 3 that though the auction purchaser has no absolute right of ownership or title to the immovable property sold till the confirmation of sale, but as a result of the sale he acquires an interest in the immovable property sold, which cannot be disregarded.
70. In Janak Raj's case at serial No. 4 above, the Hon'ble Supreme Court, referring to Sec. 65 of CPC, observed as under:-
".........Section 65 of CPC lays down that where immovable property is sold in execution of a decree and such sale has become absolute, the property shall be deemed to have vested in the purchaser from the time when it is sold and not from the time when the sale becomes absolute. The result is that the purchaser's title relates back to the date of sale and not the confirmation of sale. There is no provision in the CPC, 1908 either under Order XXI or elsewhere which provides that the sale is not to be confirmed if it be found that the decree under which the sale was ordered has been reversed before the confirmation of sale. It does not seem ever to have been doubted that once the sale is confirmed the judgment-debtor is not entitled to get back the property even if he succeeds thereafter in having the decree against him reversed. The question is, whether the same result ought to follow when the reversal of the decree takes place before the confirmation of sale. There does not seem to be any valid reason for making a distinction between the two cases. It is certainly hard on the defendant-judgment- debtor to have to lose his property on the basis of a sale held in execution of a decree which is not ultimately upheld. Once however it is held that he cannot complain after confirmation of sale, there seems to be no reason why he should be allowed to do so because the decree was reversed before such confirmation. The CPC, 1908 contains elaborate provisions which have to be followed in cases of sales of property in execution of a decree. It also lays down how and in what manner such sales may be set aside. Ordinarily, if no application for setting aside a sale is made under any of the provisions of Rules 89 to 91 of Order XXI, or when any application under any of these Rules is made and disallowed, the Court has no choice in the matter of confirming the sale and the sale must be made absolute. If it was the intention of the Legislature that the sale was not to be made absolute because the decree had ceased to exist, we should have expected a provision to that effect either in Order XXI or in Part II of the CPC, 1908 which contains Secs. 36 of 74 (inclusive).
It is to be noted however that there may be cases in which, apart from the provisions of Rules 89 to 91, the Court may refuse to confirm a sale, as, for instance, where a sale is held without giving notice to the judgment- debtor, or where the Court is misled in fixing the reserve price or when there was no decree in existence at the time when the sale was held. Leaving aside cases like these, a sale can only be set aside when an applications under Rule 89 or Rule 90 or Rule 91 of Order XXI has been successfully made......."
71. In Janatha Textile's case at serial No. 5 above, the Hon'ble Supreme Court held that it is established principle of law that a third party auction purchaser's interest in auctioned property continues to be protected notwithstanding that the underlying decree is subsequently set aside or otherwise. Law makes a clear distinction between a stranger who is a bona fide purchaser of the property at auction sale and a decree holder purchaser at a Court auction. Strangers to decrees are afforded protection by the Court because they are not connected with decree. Unless protection is extended to them, Court sales would not fetch market value or fair price of property.
72. On consideration, I am of the definite view that even on applying the analogy of CPC the above rulings cited by the learned counsel for the appellant would be of no avail to Riya for the simple reason that it cannot claim itself to be a bona fide purchaser. Rather, the truth of the matter is that auction sale in its favour suffered from material irregularity as discussed in detail above. Not only this, there was complete lack of transparency in the auction sale held on 4th July, 2005. It was not at all conducted in a fair manner. The auction was rigged and the auction price was pegged down with the formation of syndicate and cartelizatioin. In the wake of the facts and circumstances of the present auction, Riya cannot claim protection under the umbrella of the above rulings.
73. Reference has also been made by the learned counsel for the appellant to a decision of this Court dated 27th April, 2009 in Appeal No. 238/2007 - Cosmique Global v. Intercraft. The learned counsel argued that in the said case auction sale in favour of bona fide purchaser at Rs. 2.72 crores was preferred, knocking down a compromise arrived at between CD and CH-FIs for Rs. 4 crores. He argued that the auction purchaser Riya also deserves to be protected in the like manner.
74. I have considered this submission of the learned counsel for the appellant and I find that the said decision of this Court cannot be extrapolated onto the present matter. There are striking distinctions between that case and the present one. In that case there was no prospective purchaser for a price higher than Rs. 2.72 crores for which the auction purchaser had been declared the highest bidder. The auction in favour of the auction purchaser did not suffer from any irregularity. It was perfectly in order. It was after the lapse of about two years that the CD had offered Rs. 4 crores to CH- IFCI, by way of alleged compromise on 28th February, 2007, against the outstanding dues of Rs. 15,94,06,141/- as on 25th January, 2005. Addition of interest component had further swollen the figure. The borrower - CD-1 was a closely held family company of the directors/guarantors. CDs had filed false affidavit that they had no movable or immovable property. They had concealed the reality and had presented a gloomy picture as if they had no means. The compromise had been struck against all principles of righteousness, legal ethics, morality and public policy. It was the outcome of evil design and manipulated scheming. There was collusion between CDs and the officers of CH-FI who brazenly went for the given compromise to great detriment of public interest. A fraud had been perpetrated owing to collusive combination of the CDs and officer of CH-FI. CH-FI which had alone been in favour of confirmation of sale suddenly change gears after more than two years, becoming friendly with the CD company. It was on these facts the bona fide purchaser for Rs. 2.72 crores was protected and the compromise was knocked down. It was observed that apart from the auction money of Rs. 2.72 crores CH-FI could appropriate the amount of Rs. 4 crores paid by the CDs towards the balance outstanding amount which was still to considerably fall short of the whole recoverable amount.
75. There is no similarity between Cosmique's case and the present one when Riya is not a bona fide purchaser. Rather, in an auction suffering from material irregularity it was hurriedly declared to be the highest bidder at Rs. 14.60 crores when others were there to offer higher price. One of them even filed an affidavit also in the Hon'ble High Court of Rajasthan in S.B. Civil Writ Petition No. 5592/2005 that he was prepared to purchase the said property for Rs. 18 crores. The auction lacked transparency. There was cartelization by Riya and its associates to peg down the price. It was not all of a sudden that Pratap struck a compromise with CH - FIs. In fact, such a stand was there right from the beginning, even when the matter was before BIFR. It was consistently pursued after the rejection of the reference by the BIFR on 3rd September, 1996. Prayer for directing the CH- FIs to accept the compromise was there in the Writ Petition No. 3662/ 1997 filed before the Hon'ble Rajasthan High Court against the orders of BIFR/AAIFR. It was again pressed in S.B. Civil Writ Petition No. 8336/ 2005 filed by Pratap before the Hon'ble Rajasthan High Court while challenging there the order dated 28th July, 2005 passed by this Appellate Tribunal rejecting the application under Sec. 21 of the RDDBFI Act and consequently the appeal against the final order passed in the O.A. OTS application was again made to IDBI on 4th August, 2005. Pratap, thus, ultimately succeeded in its OTS proposal which came to be accepted by all the banks and financial institutions and their dues came to be paid as per the settlement. After the rejection of pre-deposit application by this Tribunal on 28th July, 2005, Pratap could only avail of the writ remedy as there was no further forum of appeal after DRAT. The Hon'ble Rajasthan High Court, in exercise of plenary powers, passed the order dated 28th February, 2006 recording the compromise and directing modification of the liabilities and obligations of Pratap qua CH-FIs under order dated 24th February, 2004 passed by the DRT in the O.A. The DRT then allowed the application of Pratap under Sec. 26 (2) of the RDDBFI Act and withdrew the recovery certificate putting an end to the recovery proceedings. It is, thus, clear that there is no parity between Cosmiques case decided by this Court on 27th April, 2009 and the present one. As such, there is no question of Riya claiming benefit of protection as bona fide purchaser on the pattern of auction purchaser in Cosmiques case.
76. There is no proof of any collusion between Pratap and CH-FIs in striking settlement. It is recited in the sale deed dated 24th May, 2006 executed by Pratap in favour of Om, selling immovable property in question for Rs. 20.80 crores that out of this amount, Om Metals Infra Projects Ltd. (the holding company of vendee - Om) had made payment of Rs. 20,09,83,782/- on behalf of Om towards sale consideration and the balance of Rs. 70,16,218/- was made by Om to Pratap through cheque No. 173903 dated 24th May, 2006 drawn on HDFC Bank Ltd., Sandoz House Branch, Dr. A.B. Road, Worli, Mumbai. There was nothing illegal in it. It may also be pointed out that the property in question was free from all encumbrances on 24th May, 2006, the date of execution of sale deed by Pratap in favour of Om. S.B. Civil Writ Petition No. 5592/2005 filed by Mr. Jitender Kumar Lakhotia (shareholder of Pratap) was dismissed as infructuous on 6th March, 2006. It was in this writ petition that stay of confirmation of sale was earlier ordered on 27th July, 2005. As repeatedly pointed out, Pratap had filed S.B. Civil Writ Petition No. 8336/2005 before the Hon'ble Rajasthan High Court against the order of this Tribunal dated 28th July, 2005 rejecting the pre- deposit application and dismissing the appeal. That writ petition also came on an end with the passing of the order dated 28th February, 2006 by Hon'ble Single Judge. On the basis of the order dated 28th February, 2006 passed by the Hon'ble Rajasthan High Court in S.B. Civil Writ Petition No. 8336/ 2005 an application was made by Pratap before the Recovery Officer to declare infructuous the auction proceedings held on 4th July, 2005. The Recovery Officer dismissed the said application on 27th March, 2006. Though Riya had filed Division Bench Special Appeal No. 309/2006 against the order dated 28th February, 2006 passed by the Hon'ble Single Judge in S.B. Civil Writ Petition No. 8336/2005, but in view of the order passed by the Recovery Officer on 27th March, 2006, the appeal was not pursued and the same was dismissed on 17th April, 2006. It was on 22nd May, 2006 that DRT withdrew the recovery certificate and directed for dropping all the proceedings. Later on, it was on 1st August, 2006 that an application for recall of the order dated 17th April, 2006 made by Riya was allowed by Division Bench of Hon'ble Rajasthan High Court and the appeal was restored which ultimately came to be decided by the Hon'ble Division Bench on 12th September, 2006 (against which an SLP is pending before the Hon'ble Supreme Court at the instance of Riya). What I wish to emphasize is that on 24th May, 2006 when Pratap sold the property to Om, neither stay order was in operation nor any proceeding was pending. The property was thus clearly free from all fetters. Attachment having not been effected as per the procedure prescribed in the Second Schedule to the Income-tax Act, there was no question of the property being 'custodia legis' at the time of execution of sale deed by Pratap in favour of Om.
77. In the present case, rather the bona fide purchaser is Om for adequate consideration of Rs. 20.80 crores, nearly 42.46% higher than the auction price of Rs. 14.60 crores offered by Riya. It is Om deserving to be legally protected.
78. The learned counsel for the appellant then urged that the objectors who filed objections under Rule 61 of the Second Schedule to the Income- tax Act against the auction sale dated 4th July, 2005 had actually been set up by the Pratap and the objections filed by many of them were completely identical. There were 14 objectors. They are bidders, shareholders/workers of Pratap and RIICO. The learned counsel for the appellant stressed the point that later on the objectors did not pursue their objections, as they were fighting proxy battle of Pratap.
79. I do not think any criticism can grow out of the fact that many of the objections were identical and that the objectors did not pursue the objections to their logical end. The own case of the appellant - Riya in para 7 of the memo of appeal is that depending upon the outcome of the objections before the Recovery Officer it (appellant) would be entitled to confirmation of auction held on 4th July, 2005. When a situation arose obviating the necessity of considering the confirmation of sale, there could hardly be any question of consideration of the objections of the objectors. The central core of the objections was that the auction held on 4th July, 2005 lacked transparency; the auction was rigged; there was cartelization to pag down the price; several bidders who were inclined to offer higher price were prevented from doing so and the auction was hurriedly hammered in favour of Riya for Rs. 14.60 crores. All the objectors had a common grievance and the appellant cannot score any point by arguing that they fashioned their objections almost identically, couched more or less in the same phraseology. So far as the question of their pursuing their objections to the logical end is concerned, it was their concern. It does not lie in the mouth of appellant - Riya to make it a point to support its appeal. The truth of the matter is that necessity did not remain at all to decide the objections of the objectors. Riya has been beating about the bush unnecessarily, fumbling for grounds to infuse life in this appeal which has no merit at all.
80. In compliance of the DRTs order dated 22nd May, 2006 withdrawing the recovery certificate, the Recovery Officer dropped the recovery proceedings on 26th May, 2006 and permitted the auction purchaser Riya to withdraw the amount deposited by it, withholding an amount of Rs. 50.11 lacs under orders of the Hon'ble High Court of Rajasthan in Company Petition No. 23/1997. There is an order of my predecessor dated 13th April, 2007 on record of the present appeal that the appellant - Riya could withdraw the money deposited by it pursuant to auction sale, which was lying with the Recovery Officer, with accrued interest without prejudice to its right to contest the matter on merits. During the course of arguments in this appeal copy of another order dated 5th June, 2006 passed by the Recovery Officer has been presented, saying that on 2nd June, 2006 the Hon'ble High Court of Rajasthan passed an order vacating this earlier order for withholding Rs. 50.11 lacs. The Recovery Officer has permitted the auction purchaser Riya to withdraw the said amount of Rs. 50.11 lacs also. Naturally, Riya must have withdrawn all his money. If for some reason it has not done so, it is at liberty to withdraw the same. So, the matter has come to an end and nothing remains to be done.
81. In view of the foregoing detailed discussion on all the relevant aspects of the controversy, I reach the conclusion that this appeal filed by the auction purchaser - Riya has no merit and is liable to be dismissed.
82. The appeal is hereby dismissed.
83. Copy of this order be supplied to the parties and another be sent to the Tribunal below.