BANK OF BARODA vs M/s. HRB Engineering Industries on 2 January 2026

**JUDGMENT**

1. 1. This Appeal is preferred by the Appellant against the order dated 02/11/2007 passed by Ld. Recovery Officer-I, DRT-II, Ahmedabad ("Ld. RO" for short) in Recovery Proceedings No.1425/200 in Original Application No.120/1999.

2. 2. The brief facts of the present Appeal, as averred by the Appellant, are that in pursuance of Recovery Certificate ^

issued by this Tribunal vide judgment and order dated 16/10/2002 against Respondent Nos.2 to 8 herein, Ld. RO issued Demand Notice dated 25/02/2003 to Respondent Nos.2 to 8 herein, which was served to Respondent Nos.2 to 8. After service of the Demand Notice, Ld. RO issued notice dated 22/11/2006 u/s 25(a) of RDB Act, 1993 directing to show cause as to why the disputed property should not be attached. Thereafter, the disputed property was attached by Ld. RO on 18/06/2007. Against the said action of attachment, Respondent No.1 Bank filed objections dated 22/01/2007 before Ld. RO stating therein that Respondent No.2 herein has created mortgage in favour of Respondent No.1 Bank over the disputed property on 27/08/2003. Ld. RO has observed that Respondent No.2 had purchased the disputed property after issuance of Recovery Certificate by this Tribunal on 16/10/2002 in OA No.120/1999 and therefore, the disputed property was not covered in the said Recovery Certificate. He has further observed that Respondent No.2 created mortgage in favour of the Respondent No.1 Bank for the financial assistance advance to her and therefore, Respondent No.1 Bank is a secured creditor in respect of the said property. Consequently, Respondent No.1 Bank has first right over the mortgaged property. ^Ld. ~~Ld.~~ R.O. further observed that considering the fact that Recovery Certificate ^issued was by this Tribunal on 16/10/2002, whereas the disputed property was purchased by Respondent No.2 on 02/11/2002 and the Appellant herein is not the mortgagee of the said property, Respondent No.1 Bank has better title and claim over the property.

1. 3. I have heard, Ld. Counsel for the Appellant Bank and perused the documents placed on record. The Appellant has also filed its Written Submissions vide Ex.A/15 and has

relied on certain judgmentst, which shall be referred at an appropriate stage in the course of this judgment.

1. 4. Ld. Counsel for the Appellant submitted that Ld. RO has seriously erred in allowing objections dated 21/02/2007 filed by Respondent No.1 Bank and withdrawing attachment levied on the disputed property. He submitted that Respondent No.2 created mortgage in favour of Respondent No.1 Bank on 27/08/2003 i.e., much after service of Demand Notice dated 25/02/2003 to her. Therefore, mortgage of disputed property by Respondent No.2 in favour of Respondent No.1 Bank is subject to first right of the Appellant Bank. Relying on Rule 16 of the Income Tax Rules, he has submitted that Respondent No.2 could not have created mortgage in favour of Respondent No.1 Bank after service of Demand Notice to her. In support of his submissions, he also placed reliance on following two judgments:

1. i. *K Basavarajappa vs. Tax Recovery Commissioner, Bangalore passed by Hon'ble Supreme Court of India (from Karnataka) (D.B.) dated 11-10-1996*

1. ii. *Sujata Kapoor vs. Union Bank of India &Ors. Passed by Hon'ble High Court of Delhi (D.B.) dated 12-12-2019*

1. 5. Considering the submissions of Ld. Counsel for the Appellant, it would be pertinent to reproduce Rules 16 of Income Tax Rules which reads as under:

**Rule 16: Private alienation to be void in certain cases:-**

1. i. Where a notice has been served on a defaulter under Rule 2, the defaulter or his

representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any Civil Court issue any process against such property in execution of a decree for the payment of money.

ii. Where an attachment has been made under this schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other money contrary to such attachment, shall be void as against all claims enforceable under the attachment.

6. In this connection, a reference deserves to be made to the following observations of Hon'ble Supreme Court in **K. Basavarajappa case's (supra)**:

"By entering into such an agreement to sell his property the defaulter had clearly committed breach of Rule 16 and had bypassed the procedure laid down therein for getting permission of the Tax Recovery Officer. In this connection Shri P.P. Rao, learned senior counsel for the appellant was right when he contended that such dealing with the property by the defaulter was not absolutely prohibited but it was subject to the permission of the Tax Recovery Officer while under sub-rule (2) of Rule 16 once attachment has been made under this sub-rule any private transfer or delivery of the property attached or any interest therein and any payment to the default of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment. However, this does not improve

*the situation for the appellant for the simple reason that once attachment was levied on 11th February 1988 by virtue of Rule 51 it related back to the date of the notice. that is, 3rd September 1973 and the appellant's agreement was in between. It was contended by Shri P.P. Rao relying on the judgment of the Kerala High Court in the case of M. Rajgopal (supra) that all that Revenue was concerned with was security of its dues and consequently even though any transaction which was hit by the provisions of Rules 16(1) and (2) the parties to such transaction would have sufficient interest to move an application under Rule 60 for setting aside the auction sale on offer to deposit full tax dues. It is not possible to countenance this submission. If a party with open eyes bypasses the statutory requirement of Rule 16(1) and gets an agreement to sell executed by the defaulter, it cannot on the basis of such an agreement claim to get the auction sale of defaulter's property set aside by depositing the amount after the property is put to auction for recovering the tax dues of the department. It would amount to circumventing statutory provisions of rule 16(1) and (2) read with Rule 51 and 48 of the Rules. It must, therefore, be held as rightly submitted by Shri Salve, learned senior counsel for respondent no.3 that the appellant had no locus standi to move the application dated 12th April 1988 for getting the auction sale set aside."*

1. 7. Applying the aforesaid law laid down by Hon'ble Supreme Court to the facts of the case on hand, Respondent No.2 was not entitled to mortgage or otherwise deal with any of her properties, except with the permission of this Tribunal. Therefore, this Tribunal is of the opinion that the Appellant Bank has got first charge over the disputed property of Respondent No.2 herein on the basis of Recovery Certificate issued by this Tribunal on 16/10/2002 in OA No.120/1999.

1. 8. In view of the aforesaid discussion, the impugned order dated 02/11/2007 passed by Ld. RO in RP No.1425/2003 in OA No.120/1999 is hereby quashed and set aside.

2. 9. Present Appeal accordingly stands allowed with no order as to quashed.

3. 10. The Appellant Bank is permitted to proceed against the disputed property for Recovery of its dues in terms of aforesaid Recovery Certificate, irrespective of alleged mortgage in favour of Respondent No.1 Bank.

File be consigned to record.

Pronounced in open Tribunal on this 2^nd day of January 2026 at Ahmedabad.

**(Pankaj Kumar Upadhyay)** **Presiding Officer** **DRT-II, Ahmedabad**

Saloni