rayed merchant vs STATE BANK OF INDIA on 16 October 2026

ORDER

In

APPEAL NO. 16 OF 2023

(Delivered on 16.10.2026)

Rayed Merchant

... Applicant/s

Versus

State Bank Of India

... Respondent/s

Advocate Gaurang Kinkhabwala a/w Adv. Puneet Gogad a/w Adv. Radhika Chamaria for the Appellant.

Advocate Akbar Rizvi for the Respondent.

Advocate Charles De Souza a/w Adv. Aarti Suvarna a/w Adv. Merlyn Monterio for the Respondent No. 6.

ORDER

1. Appellants have presented this appeal u/s 30 of RDB Act and Financial Institutions Act against the order dated 19.07.2023 by Ld. Recovery Officer in R.P No. 593 of 2016, arising in O.A No. 213 of 2010 rejecting the Intervention Application filed by them, challenging the notice for sale proclamation dated 23.12.2022 issued by Ld. Recovery Officer. The order of Ld. RO dated 19.07.2023 is with respect to the premises as:-

Gala No. 35/H, Laxmi Industrial Estate, New Link Road, Andheri (West), Mumbai 400058, hereinafter stated as the subject property.

2. The averments in the appeal in brief are as follows:- "The premises herein which was originally mortgaged with respondent/bank by Certificate Debtor No. 2 in R.P No. 593 of 2016, for the debt of CD No. 1, was released by the bank, on it being replaced by another property at Rajkot. In the recovery proceedings, RO issued a demand notice, calling upon the certificate debtors to pay the outstanding dues as per the judgement and decree in O.A No. 213 of 2010, on which the recovery proceedings were pending. After the release of subject property, CD No. 2 gifted the property to his wife under gift deed dated 29.06.2007 which was got registered subsequently by a supplementary gift deed dated 17.10.2014. The donee, mortgaged the property in 2017 in favour of Tata Capital Housing Finance Ltd. Even after inviting objections by effecting publication, R1/bank never asserted any subsisting charge or mortgage over the property. Appellants purchased the subject property from the said donee in the gift deed on 29.01.2019 for consideration, after getting the Tata Capital loan discharged. All original title deeds of the premises were handed over to the appellants. The appellants were in open and lawful possession of the subject premises since 29.01.2019 as absolute owners and the premises were given out on licence to third party, by the appellants. The appellants came to be aware of recovery proceedings, on receipt of notice dated 23.12.2022 for proclamation of sale, and then had moved the petition before Ld. RO, asserting their independent right over the subject property, which was rejected by the Ld. RO as per order dated 19.07.2023. The said order of Ld. RO is improper and illegal and is to be set aside."

3. Respondent/bank as R1 filed reply with the following averments:- "On the judgement and decree in the O.A 213 of 2010 the Ld. RO had issued notice to the certificate debtors in the recovery certificate wherein CD No. 2 alone had appeared. It is true that, the subject property was earlier released, but in view of the huge dues which remained unpaid by the certificate debtors to R1/bank, the subject property belonging to CD No. 2, was got attached by order of Ld. RO, on 04.07.2014. The attachment warrants were served through RPAD, pasted and published in the newspaper. Subsequent to the serving of attachment warrant, the donee in the gift deed filed an intervention application before Ld. RO, and after hearing the said petition was dismissed by Ld. RO. Pending hearing on the intervention petition, the subject property was assigned by the said donee to the appellants. The appellants, CD No. 2 and his wife as the donee are now colluding with one another to delay the recovery proceedings by R1/bank. Appellants are not the lawful owners of the subject premises as the assignment in their favour is void as per Rule 16 of Income

Tax Act. So the order passed by the Ld. RO is perfectly legal and the appeal is to be dismissed."

4. The auction purchaser as R6 filed a reply raising the following averments:- "R6 being the successful auction purchaser has paid the total sale price of Rs.1,46,00,000/- (Rupees One Crore Forty-Six Lakhs Only) and the poundage fee. He has also obtained the physical possession of the subject property on 07.08.2024. Sale certificate is registered in favour of R6, relevant stamp duty and registration fee are paid on 29.01.2024. The reliefs now prayed for by the appellants against the order of Ld. RO, are for those grounds which are already implemented. The objection of the appellants as intervenors in the recovery proceedings are disposed off by the Ld. RO. So now the appeal filed by the appellants cannot be entertained as the order of Ld. RO does not suffer from any infirmity."

5. Heard all sides.

6. The only points that arise for consideration are:-

1. 1) Whether the order of Ld. RO dated 19.07.2023 warrants any interference by this Tribunal?

2. 2) Relief and costs?

A handwritten signature or mark, possibly a stylized 'V' or 'Y' shape, located at the bottom center of the page.

7. Point No. 1

The appellants, R1/bank and R6/auction purchaser urge their contentions in tune with their averments filed by them. The point that the subject property which was got released by CD No. 2, was again attached by RO, remains as an admitted fact. The dispute is on the point, as to whether the gift deed effected in favour of Kashmira by CD No. 2 had given any bonafide right over the subject property to the donee Kashmira which according to R1 and R6, was effected after the issuance of demand notice and warrant of attachment by Ld. RO for the subject property.

8. The property involved in the gift deed, alleged to be effected in favour of Kashmira by CD No. 2 being a secured premises as according to R1 and R6, the validity of the said deed has to be considered by DRT. The question to be decided now is, whether the assignment of the subject property by donee Kashmira, which, as according to R1, is a secured extent, in favour of appellants on 29.01.2019, was proper or not.

9. The appellants contend that, after release of the subject property it cannot be continued to be treated as a secured asset available for execution of recovery certificate in the OA 213 of 2010. Ld. RO had failed to consider the documents evidencing the independent right of the appellants over the subject property, and so the action of Ld. RO of issuing proclamation of sale, conducting auction, issuance of sale certificate for the same are all without jurisdiction.

A handwritten signature or mark, possibly initials, consisting of a stylized 'V' or 'W' shape with a diagonal line extending from the bottom left.

10. The appellants contend that, the order of Ld. RO rejecting the application of appellants holding that, it is hit by resjudicata, that they have no locus, and the transfer of the subject property to them is non-est cannot be entertained, as Ld. RO is not empowered to pass such observations. Applicants contend that, the Ld. RO erred by treating himself as a court and adopting the proceedings u/s 11 of Civil Procedure Code. The principle of Rejudication is not applicable to Ld. RO, to have a finding against the appellants. Appellants were not party to the proceedings initiated by Kashmiri, the donee in the gift deed in the intervention petition filed by her before Ld. RO.

11. It is to be noted that, the proceedings for application of resjudication, the parties must be one and the same. Here, the appellants were not parties to the earlier proceeding by Kashmiri-donee even though the subject property was one and the same. In the earlier intervention petition filed by the donee-Kashmiri, the issue was with respect to her exclusive right over the subject property. In the intervention petition filed by appellants, the issue was of them having exclusive right over the subject property. However, it is seen that the underlying point which is directly and substantially in issue is one and the same in both the petitions.

12. The next contention urged by the appellants is that, the finding of Ld. RO that, there is no locus for them, is not correct. According to appellants, Rule 11 to Second Schedule of Income Tax Act, is to the effect that, the aggrieved party has to prove that, he has the some kind of interest and he is in possession of the premises. On the date of filing of the intervention application, by appellants, they were in possession of the subject property.

13. This contention of appellants is unacceptable. Rule 11 (3)(a) directs that, in case of immovable property, the aggrieved person must show that, on the date of issuance of notice, appellants must show the existence of any interest for them on the subject property. It is the admitted case of appellants that, they are in possession of the premises herein only after 29.01.2019, whereas the notice is issued by Ld. RO on 26.02.2013, and warrant of attachment was issued on 04.07.2014. Nothing is offered by appellants to show that, they were having any interest in the subject property either on 26.02.2013 or on 04.07.2014. So the finding of Ld. RO on that point is found to be proper.

14. Section 123 of Transfer of Property Act and 17(1)(a) of Registration Act mandate that gift of immovable property can only be effected via registered instrument signed by the donor and attested by at least two witnesses. U/s 49 of Registration Act an unregistered gift deed carries no legal validity and does not transfer the title or ownership of the property. Here in this case the gift of the secured extent of property in favour of Kashmiri made on 29.06.2007 is got registered only on 17.10.2014.

15. The subject property was attached vide warrant of attachment dated 04.07.2014. It is first to be decided as to, whether Rule 16 r/w Rule 51 and Rule 2 of Second Schedule of Income Tax Act are applicable in this case. There is no doubt to the position that, the donee Kashmiri had transferred her rights to appellants on 21.09.2019, which is subsequent to the issuance of demand notice dated 26.02.2013 for the subject property.

16. In this context Rule 16 to Income Tax Act is to be considered. Rule 16 of Second Schedule to Income Tax Act is as follows:-

1. 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. 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.

17. The contention of the appellants that, Ld. RO had acted without proper jurisdiction cannot be accepted. Section 29 of the RDB Act directs that, Second Schedule to Income Tax 1961 shall apply to the proceedings for recovery of debt. The recovery proceedings herein are seen to have been initiated in the year 2012. Demand notice is seen issued by the Ld. RO on 26.02.2013 under Rule 2 of the Second Scheduled to Income Tax Act.

18. It is stated in Rule 16 that, after service of notice under rule 2, neither the defaulter nor his representative in interest, shall be competent to mortgage, charge or lease the property concerned, without consent of the tax recovery officer nor shall any civil court issue process against such property in execution of a decree for the payment of money. Rule 16(2) states that where an attachment has been made under the Schedule, any private transfer or delivery of property attached or of any interest therein and any payment to the defaulters of any debt, dividend or other money contrary to such attachment, shall be void as against all claims enforceable under the attachment.

19. The reason for this delay of seven years for registration can be explained only by the donee in the gift deed. But she is not a party in the appeal. A gift deed by husband to wife is a compulsorily registerable record u/s 123 of Transfer of Property Act and 17(1)(a) of Registration Act. Here the registration deed dated 17.10.2014 states that, it was delayed due to ignorance of law and oversight. An excuse of ignorance of law and oversight in complying due provision of law cannot be accepted as a valid reason. Law strictly bars such delayed registration meaning it cannot relate back to the execution date.

20. The aforesaid rules become relevant as the CD No. 2 is stated to have transferred the subject property to Kashmiria, after issuance of demand notice on 26.02.2013 and warrant of attachment. Kashmiria is seen to have transferred the subject property to appellants on 29.01.2019 which also is hit by the fact that the said assignment was subsequent to demand notice dated 26.02.2013 and warrant of attachment dated 04.07.2014. The statutes provide a maximum window of eight months to register a document. A seven year delay cannot be condoned by Sub-Registrar. Section 23 A states that a document must be presented for registration within 4 months from its date of execution.

21. Further the order dated 04.05.2022 by Ld. RO and the order of this Tribunal on 20.06.2024 holding that Kashmiria has no right over the subject property are seen accepted by her as no appeal is preferred by her on either of these orders. So the claim of independent right by appellants over the subject property, which is seen to be the secured extent by bank, cannot be accepted. This is because of the fact that, their assignor Kashmiria, was not having any right over the secured extent, at the time of her alleged assignment to them on 29.01.2019, in view of Rule 16, as the said assignment was after service of notice on CD No. 2 on 26.02.2013.

22. The appellants again contend that, they had filed a petition under Rule 11 of Income Tax Act. Rule 11 reads as follow:-

1. 1) Where any claim is preferred to ,or any objection is made to the attachment or sale of any property in execution of a certificate, on the ground that such properties not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection:

"Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed."

2) ....

3) The claimant or objector must adduce evidence to show that-

- a) (in the case of immovable property) that the date of the service of the notice issued under this Schedule to pay the arrears, or

- b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of , the property in question.

4) ....

23. It is the admitted case of the appellants that they are third parties to the proceeding. Their application under rule 11 must be stated to be not in accordance with the Second Schedule stated above. Rule 11(3) specifies that, the claimant must show that, he was having some interest in, or was possessed of the property at the date of service of notice issued to pay arrears. So as admitted by appellants themselves, they were not having any right over the secured interest at the time of issuance of notice by Ld. RO in this case. After a total of eight months from the date of execution of the deed, the authorities have no statutory power to accept or register the document. Ignorance of law is not an excuse. The Ld. Counsel for appellants contends that, the Tribunal is to consider that the penalty on stamp duty had been paid.

A handwritten signature in black ink, consisting of several overlapping strokes and a long horizontal line extending to the right.

24. Much arguments are offered by Ld. Counsel for appellants, to show that Kashmira, the alleged assignor of appellants was having valid rights over the secured interest as the subject property. It is to be noted that, the forum is not going into the existence of a valid right for donee Kashmira in the gift deed or is considering the validity of gift deed. As the subject property involved in the gift deed is the secured extent now claimed by R1, the question as to whether the donee in the gift deed was having independent and exclusive right, overriding the security interest for R1 is to be an aspect to be considered by DRT. This is more, so as the gift deed stated to be executed on 29.06.2007 is registered only on 17.10.2014, much after the issuance of demand notice by Ld. RO on 26.02.2013 and issuance of attachment warrant for the said secured extent on 04.07.2014.

25. Paying penalty stamp duty after seven years will not relate the registration back to the date of execution. Section 47 of Registration Act states that a registered document operates from the date of its execution rather than its registration date. This relating bank rule applies only if the document was legally registered within the permitted statutory time lines i.e., within 4-8 months. Since Sub-Registrar cannot legally register a document after 7 years, the original 7 year old deed remains a permanently unregistered deed piece of paper with no legal standing. Paying penalty as is now urged by Ld. Counsel for appellants cannot revive it.

26. Section 25 states that if a document cannot be registered within 4 months due to an urgent necessity or unavoidable accident the District Registrar has the discretionary power to condone a further delay upto

4 additional months up on payment of a penalty fine (upto ten times the registration for)

27. The subsequent registration on 17.10.2024 is seen effected after the issuance of demand notice and warrant of attachment on the subject property which is the secured premises herein. As stated above the order of Ld. RO rejecting the independent right for the donee Kashmiri over the secured asset is seen accepted by her as no appeal is preferred by her on the said order.

28. As stated earlier, Section 123 of Transfer of Property Act dictates that, gift of immovable property is not complete or legally effective until it is a registered instrument. Section 47 of Registration Act makes the registered deed operative from execution date for priority and inter-party purpose, but when third party rights are to be considered, the effectiveness of an un-mutated or long delayed registration is questionable. Section 47 of the Registration Act does not dispense with the mandatory requirements governing registration. It cannot by itself validate a registration that was not legally permissible u/s 23 and u/s 25 of the Registration Act.

29. In this case, as there is no proper explanation for the delay of seven years in registering a gift deed executed in 2007, Section 47 of Registration Act cannot be taken as such. So the effect of the gift deed must be stated to have come in existence after issuance of warrant of attachment on 04.07.2014 and issuance of demand notice on 26.02.2013 by Ld. RO, which deed therefore cannot be taken to be a valid record. Primarily because it is effected for a secured extent and it is effected after issuance of recovery proceedings, for the said secured extent.

30. According to appellants, Ld. RO who gets authority from the RDB Act has gone beyond the powers conferred on him by proceeding against property which is not available for execution. Ld. RO was under statutory obligation to see that the property which is being proceeded against is actually belonging to the certificate debtor. Without even verifying the correct ownership of the subject property, Ld. RO had simply proceeded with the auction proceedings and had denied the right of the appellants in the subject property, which order should be set-aside.

31. The Certificate Holder/bank contends that, the warrant of attachment dated 04.07.2014 over the subject property was issued after getting confirmation from the Society as Sree Lakshmi Vijay Industrial Premises Co-op-Society Ltd, that the said property belongs to CD No. 2. The wife of CD No. 2 as Kashmiri filed an intervention petition on 14.11.2014, asserting her independent right over the subject property which was dismissed by Ld. RO on 04.05.2022. Pending the said intervention petition, filed by her, she had assigned the premises to appellants on 29.01.2019. Now the appellants are colluding with her and CD No. 2 to delay the recovery proceedings by R1/bank.

32. Apart from the above as stated earlier, the Ld. RO by order dated 04.05.2022 and this Tribunal on 20.06.2024 had observed that Kashmiri, the donee in the gift deed has no right over the subject property. The appellants are claiming exclusive right on the secured property on the basis of assignment by Kashmira on 29.01.2019 which is seen executed by her pending the hearing of her petition before Ld. RO to set aside the warrant of attachment filed by her on 14.11.2014 and which got dismissed. No appeal is seen preferred by her on the said order which has therefore attained finality.

33. So it is seen that the Kashmira the alleged predecessor in interest of the appellants had no right over the secured interest as the subject property at the time of alleged assignment to appellants. Primarily because she had not challenged the order of this Tribunal on 20.06.2024 observing her lack of right over the premises and secondly as she had accepted the order of Ld. RO in dismissing her attempt to set up independent right over the secured extent as the subject property by filing a petition to set aside the warrant of attachment. Further the transfer of the property subsequent to the issuance of attachment order by Ld. RO is hit by Section 16(2) of the Second Schedule to Income Tax Act.

34. Here, admittedly no notice is issued to appellants herein by Ld. RO. The notice issued by Ld. RO demanding payment on 26.02.2013 and warrant of attachment on 04.07.2014 are not directed to appellants. They were not having any right or interest in the property on either of those dates as they claim to be having interest only on and after 29.01.2019, that too by an assignment by a person who did not have any right over the secured interest as the subject property, at any point of time. The said assignment is seen to be in violation to Rule 16(2) of Second Schedule to Income Tax Act.

35. It is also to be noted that the confirmation of sale in favour of R6, the sale certificate issued to him are not challenged by the appellants. The right of R6 in the premises are not seen challenged. The sale has now become complete and so the appeal now filed by appellants, cannot be entertained and has to be dismissed. No discrepancy is brought out in the order of Ld. RO warranting interference by the Tribunal. The point is found against appellants.

36. Point No. 2

The contention of the applicant cannot be entertained and is being dismissed. Parties to suffer costs. In the result, the Appeal 16 of 2023 is dismissed. Parties to suffer costs.

(Dictated to my Stenographer, transcribed by her corrected and signed by me and pronounced in open forum on 16.10.2026)

Date: 16.10.2026

Presiding Officer Debts Recovery Tribunal, Mumbai-I (Sreekala Suresh)