State Bank of India vs M/s. Poonam Distributors & 9 Ors. on 9 February 2026

**JUDGMENT**

1. 1. This Appeal is filed by the Appellant Bank under Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the Act"), challenging the order dated **24.07.2007** passed by the Ld. Recovery Officer in **R.P. No.181**, whereby the application filed by the Appellant Bank for setting aside the sale transaction dated 25.01.2006 was rejected.

2. 2. The Appellant Bank is a statutory corporation constituted under the State Bank of India Act, 1955 and is engaged in the business of banking. In this case, Debts Recovery Tribunal issued a **Recovery Certificate dated 15.05.1997** for an amount of ₹49,64,174.92 against the Respondents (Certificate Debtors) in Civil Suit No.20 of 1993. The Respondents were liable to pay the said amount along with interest, costs, charges and expenses. Despite issuance of the Recovery Certificate, the Respondents have deliberately and malafidely avoided payment.

3. 3. It is further submitted by the Appellant that Debts Recovery Tribunal passed an oral judgment vide Exh. 41, wherein it was observed that the Bank is entitled to recover the said amount by sale of the mortgaged property situated at Surat as well as the personal immovable properties situated at Navsari owned by the Respondents.

Thus, the final order and Recovery Certificate created an implied charge over the personal as well as mortgaged properties of the Respondents.

1. 4. It is further submitted that during the recovery proceedings in **R.P. No.181**, the Appellant Bank made sincere efforts to recover its dues by sale of the mortgaged and personal properties of the Respondents. However, due to deliberate and fraudulent obstacles created by the Respondents, the recovery could not be materialised. During the pendency of recovery proceedings, the Respondents sold the personal immovable property situated at Navsari to a third party purchaser by executing a **Registered Sale Deed bearing Registration No.613 dated 25.01.2006** for a consideration of **₹47,80,000/-**, without the knowledge or consent of the Appellant Bank.

2. 5. It is further submitted that in T./NV/Ex. Pt. No.20 of 1993 filed against M/s. Poonam Distributors and others, a **Recovery Certificate was issued on 15.05.1997**. The Respondents further frustrated the recovery process by illegally substituting tenants in the subject properties. Consequently, the Recovery Officer issued Garnishee Notices to the tenants directing them to deposit rent amounts with the Appellant Bank. Neither the tenants nor the Respondents complied with the said orders till date.

3. 6. It is further submitted that in view of the continuous fraudulent acts and omissions of the Respondents, which seriously affect recovery of public funds and undermine the authority of the Hon'ble Tribunal, the Appellant Bank filed an application vide Exh. H-64 before the Ld. Recovery Officer seeking setting aside of the fraudulent sale transaction dated 25.01.2006.

4. 7. It is further submitted that the Ld. Recovery Officer, after hearing the Advocates for the Appellant Bank and the third party purchaser, rejected the said application vide order dated 24.07.2007, and further observed that the Appellant Bank may enter into a compromise with the third party purchaser/tenant. The findings

recorded by the Ld. Recovery Officer are contrary to law, violative of principles of natural justice, and erroneously based on Rule 68 of the Income Tax Act, holding that attachment became infructuous due to limitation. Being aggrieved by the said order dated 24.07.2007, the Appellant Bank preferred the present Appeal on the following grounds.

- (a) That the order dated 24.07.2007 passed by the Ld. Recovery Officer is ex-facie illegal, arbitrary, and violative of principles of natural justice, and therefore deserves to be quashed and set aside.

- (b) That the Ld. Recovery Officer has gone wrong in holding that attachment becomes infructuous after expiry of limitation. Once an attachment order is passed, it continues to operate till satisfaction of the Recovery Certificate. The impugned finding is contrary to settled law and the object of the DRT Act, which aims at recovery of public money.

- (c) That the Ld. Recovery Officer failed to consider that the statements made in the sale deed by the third party purchaser regarding payment of principal dues to the Bank are false, vague and misleading. No amount whatsoever has been paid either by the Respondents or the third party purchaser to the Appellant Bank. This material aspect has been completely ignored.

8. Per contra, the Respondents supported the impugned order and submitted that the Appellant Bank failed to sell the property within the prescribed period.

9. It was further contended that the third party purchaser is a bona fide purchaser and that the sale deed cannot be set aside at this belated stage.

10. I have heard the Ld. Counsel for Appellant and perused the records of this Appeal and also the records of RP No: 181/2009 arising out of **Original Application No: T/NV/Ext No: 20/1993**. In views of this Tribunal, following points of determination are necessary to be dealt with and decided for just and proper adjudication of this Appeal :

- (I) Whether the attachment of the subject property continued to exist on the date of execution of the sale deed dated 25.01.2006?

- (II) Whether the Recovery Officer was justified in holding that the attachment had become infructuous due to limitation?

- (III) Whether the sale transaction dated 25.01.2006 is legal and valid?

- (IV) Whether the impugned order dated 24.07.2007 warrants interference?

**POINT OF DETERMINATION NO: I and**

**POINT OF DETERMINATION NO: II**

**Whether the attachment of the subject property continued to exist on the date of execution of the sale deed dated 25.01.2006?**

**Whether the Recovery Officer was justified in holding that the attachment had become infructuous due to limitation?**

11. These two points of determination are co-related and it will be just and proper to deal with these points jointly. The main reason for not accepting the contention of the Appellant Bank for treating the registered Sale Deed in favour of the third party by the certified defaulter in this case is given by the Ld. Recovery Officer that the attachment order of the personal property dated 29-07-1998 was no more legally existing as the sale of the property was not done within three years from the date of attachment and according to the Ld. Recovery Officer is that **the Rule 68B of the Second Schedule of Income Tax Act** determines the period of limitation for sale of attached property as three years. For convenience, the Rule 68B is being reproduced as under :

**Rule 68 B :**

***"No sale of immovable property shall be made under this part after the expiry of three years from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum, for the recovery of which the immovable property has been attached, has become conclusive under the provisions of Section 245-1***

*or, as the case may be, final in terms of the provisions of Chapter XX: Provided that where the immovable property is required to be resold due to the amount of highest bid being less than the reserve price or under the circumstances mentioned in Rule 57 or Rule 58 or where the sale is set aside under Rule 61, the aforesaid period of limitation for the sale of the immovable property shall stand extended by one year."*

1. 12. But while holding this issue Ld. Recovery Officer has totally ignored two most important provisions of **Second Schedule of Income Tax Act** which are **Rule 16(1)** and **(2)** Rule 51 which are being reproduced as under :

*"Rule 16(1) 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.*

*"(2) 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 moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment."*

*"Rule 51 Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter".*

1. 13. Joint reading of these two rules makes it clear that from the date of notice under **Section-2 of Income Tax Rule**, 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 and where the attachment has been made under the second 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 moneys contrary to such attachment, it shall be void as against all claims enforceable under the attachment. Not only that whether any immovable property is attached under the schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter. Keeping these provisions of Income Tax Rule in mind, while examining the present case, it is an admitted fact that the property in question in this case was attached vide order dated 29-07-1998 and not only that in Original Application No: 20/1993, the judgement was passed and Recovery Certificate was issued on 15-05-1997 and by that judgement, it was made clear that to recover the certified amount the Certified Creditor/Appellant in this case was entitled to recover his dues from the charged property as well as from the personal properties of the certified defaulter.

1. 14. In these circumstances, there was no question of the attachment dated 29-07-1998 being barred by the period of limitation as the attachment of property for recovery of any certified dues is valid till the loan is entirely satisfied and if the certified defaulter has any intention to transfer the property by any mode, he was compulsively bound to seek permission from the Ld. Recovery Officer, which was not done in this case.

2. 15. This conclusion is based on observation made by the **Hon'ble Delhi High Court in W.P. (C) 2404/2019 and C.M. Nos: 11209-11210/2019** **Ms. Sujata Kapoor Vs Union Bank of India and Ors,** **AIRONLINE 2019 DEL 2185, 2020 (2) ADR 393.**

3. 16. Accordingly, this Tribunal found no legal justification in the impugned observation of the Ld. Recovery Officer that the attachment order was only valid for three years and after that it was barred by the law of limitation.

17. Accordingly, this Tribunal holds that attachment order dated 29-07-1998 was very much validly in existence on date of execution of impugned Sale Deed dated 25-01-2006 by the Certified Debtor in favour of the third party purchaser and the Ld. Recovery Officer has completely misinterpreted the provision of law by holding that the said attachment dated 29-07-1998 has become infructuous due to expiry of period of limitation. **Point of Determination Nos: I & II are decided accordingly.**

**POINT OF DETERMINATION NO: III**

**Whether the sale transaction dated 25.01.2006 is legal and valid?**

18. Now the question arises that whether the impugned sale transaction dated 25-01-2006 is legal and valid. In the facts and circumstances of this case, the impugned sale in this case has been done in a vehement disobedience of the Recovery Certificate issued by this Debts Recovery Tribunal and also it was not in consonance with above mentioned Income Tax Rules. After any recovery certificate have been issued in favour of the Certificate Creditor all charged as well as personal properties of the certified defaulter are deemed attached and none of these properties can be sold by the defaulter until the outstanding dues is entirely recovered or permission of sale was obtained from Certified Creditor or Recovery Officer and in this case neither the loan was entirely recovered nor any permission was obtained from the Certified Creditor.

19. In this case, not only the borrower but the Purchaser was also very much aware that Recovery Certificate has been issued against the borrower because the evidence available on record goes to show that the Purchaser of the impugned property was the tenant of the certified defaulter and prior to the transaction of sale he has offered to pay the principal debt amount due with regard to this loan which the certified creditor has not accepted. Accordingly, it cannot be said that the purchaser in this case is a bonafide purchaser and the sale transaction dated 25-01-2006 is totally

illegal and void ab initio. **Point of Determination No: III is decided accordingly.**

**POINT OF DETERMINATION NO: IV**

**Whether the impugned order dated 24.07.2007 warrants interference?**

20. In this case, now the question arise that can Ld. Recovery Officer declare the sale which has been concluded by the execution of registered Sale deed, as void or illegal? Here, it should be kept in mind that any transaction of sale can be categorised in three categories (a) Valid Sale (b) Voidable Sale and (c) Void Sale. While there is no need or question of cancellation of any valid sale, the voidable sale can be declared void if there are legally justified reasons, on the Application/Suit of the owner or any person who has got any interest in that property. As far as void sale is concerned, a transaction which is void ab initio does not require any declaration in this regard. Simply, it is a transaction which can be totally ignored as being void. Accordingly, in this case there is no need to declare the impugned sale transaction as void because it will be considered has non-existent without having any legal force and the Ld. Recovery Officer in this case was not supposed to declare it void but he was supposed to consider the sale transaction as void and proceed to sale the property in question as being no valid sale deed has been executed. The suggestion of the Ld. Recovery Officer to the Certified Creditor to enter into compromise with the third party Purchaser/tenant is also not within the duties of the Ld. Recovery Officer. Accordingly, in this case, the impugned order passed by the Ld. Recovery Officer deserves to be set aside. **Point of Determination No: IV is decided accordingly.**

21. On the basis of Determination of Point Nos: I to IV, in the considered view of this Tribunal, the impugned order dated 24-07-2007 deserves to be set aside and the Ld. Recovery Officer deserves to be given direction to consider the impugned sale deed dated 25-01-2006 as void and proceed with the recovery proceeding in accordance with law.

**ORDER**

1. 1. The Appeal 1/2009 is hereby allowed without any order as to cost.

2. 2. The impugned order dated 24.07.2007 passed by the Ld. Recovery Officer, Debts Recovery Tribunal, Ahmedabad in R.P. No.181 is hereby set aside.

3. 3. The Ld. Recovery Officer is directed to consider the impugned sale dated 25-01-2006 as null and void and proceed further in the recovery proceeding, in accordance with law.

4. 4. Let a copy of this judgement be sent to the Ld. Recovery Officer for necessary compliance.

5. 5. Let the records of this file be consigned to records.

Pronounced in the Open Tribunal on **9^th February, 2026.**

**(PANKAJ KUMAR UPADHYAY) PRESIDING OFFICER, DRT-II, AHMEDABAD.**

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