Suraksha Properties vs Eastern Estate Projects Pvt Ltd on 30 December 2019

**FINAL ORDER**

1) This Appeal is filed by the Appellant who is auction purchaser who participated in the auction conducted by Recovery Officer-2 of DRT-2 on 23.07.2019 and became successful bidder for Rs.27.577 crore. As per the terms of auction, the Appellant paid a sum of Rs.6,89,92,500 i.e. 25% of the bid amount along with 1% of the poundage in time and for the balance 75% of the bid amount which was required to be paid on or before 06.08.2019, the Appellant approached the Recovery Officer by filing a memo dated 08.08.2019 seeking extension of time for a period of three months from 07.08.2019. The reasons stated for seeking time are that due to bad market condition, the Appellant could 3D.No.2537/2019

not arrange the balance 75% within short span of time. Upon hearing, the Recovery Officer on 08.08.2019 passed the impugned order rejecting the memo/application filed by the Appellant under Rule 57(2) of the I.T. Act under II Schedule stating that the Recovery Officer has got no power to extend the time period. Aggrieved of this, the Appellant preferred Writ Petition No.35574/2019 before the Hon'ble High Court of Karnataka and the Hon'ble High Court vide its order dated 20.08.2019 vide Annexure-A2, granted liberty for the Appellant to approach the Hon'ble Appellate Tribunal and directed the Recovery Officer-2 not to forfeit the amount paid by the Appellant. The Appellant thereafter filed appeal before the Hon'ble DRAT in AIR 318/2019 and the Hon'ble DRAT vide order dated 11.12.2019 vide Annexure-A3 granted liberty to approach this Tribunal. Appellant has thus filed the present appeal against the impugned order dated 08.08.2019 of the Recovery Officer for quashing and setting aside the same and also to pass an order for accepting the remaining sale consideration and issue sale certificate in favour of the 4D.No.2537/2019

Appellant. In the grounds of appeal, the Appellant has urged that the Recovery Officer erred in law in passing the impugned order; that the Recovery Officer ought to have granted extension of time when Clause-11(c) of the General Terms and Conditions had clearly provided that the balance 75% of purchase money shall be paid on or before fifteenth day from the date of sale or within such period as may be extended, for the reasons to be recorded by the Recovery Officer; the Appellant has legitimate expectation that the learned Recovery Officer shall in letter and spirit adhere to the Terms and Conditions of the auction and thus participated in the auction; that the Recovery Officer ought to have seen that he has the power to extend the time for payment of balance sale consideration as per Clause 11(c) stated supra and also ought to have appreciated Section 29 of the RDB Act which provides that application of certain provisions of the Income Tax Act i.e. the provisions of II and III Schedule to the Income Tax Act, 1961 (43 of 1961) and the Income Tax Certificate proceedings) Rules 1962, as in force 5D.No.2537/2019

from time to time shall as far as possible apply with necessary modifications, etc.; Recovery Officer erred to appreciate that having provided for extension of time under Clause 11(c) of General Terms and Conditions of auction sale, Recovery Officer is legally estopped from invoking Rule 57 of Income Tax Act, II Schedule.

2) The appeal came up for hearing on 18.12.2019 when Advocate Sri Chinmaya Mirzi undertook file vakalath for Respondent No.2 and Advocate Sri S. Shaker Shetty filed vakalath for Respondent No.3. The Learned Counsel for applicant sought dispensation of issuance of notice to Respondent No.1 who is Recovery Officer. Learned Counsel for Respondent No.3 sought time to file objections and hence the matter was posted to 23.12.2019 for objections by Respondent No.3 as well as hearing of the appeal. Learned Counsel for Respondent No.3 submitted on 23.12.2019 that Respondent No.3 is not filing objections as only legal issue is involved. Learned Counsel for Respondent No.2 submitted 6D.No.2537/2019

that it has no objection for allowing the appeal filed by the auction purchaser as the schedule property is being brought to sale right from 2015 onwards and the initial reserve price was Rs.47 crore when it fetched no buyer and subsequently the reserve price was brought down from time to time and on all occasion the sale did not go through including the just previous occasion prior to the present sale when reserve price was fixed at Rs.30 crore the sale failed for want of bidders. Hence, the reserve price was fixed at Rs.27 crore for the present sale and the Appellant who was the only bidder successfully participated and bid the property for Rs.27.577 crore. The Respondent No.2 also submitted that Respondent No.3 who is the defaulter to Respondent No.2 did not bring any offer in all these efforts for sale and have been obstructing realization of this very old NPA. Learned Counsel for Respondent No.3 relied on various citations by filing a memo and particularly relied on 2014 (5) SCC 660 between Vasu P Shetty v Hotel Vandana Palace and others wherein the Hon'ble Supreme Court held that waiver of mandatory 7D.No.2537/2019

requirement under Rules 8 and 9 of Security Interest (Enforcement) Rules, 2002 cannot be done. Per contra, Learned Counsel for the applicant relied on judgment of Division Bench of Hon'ble Madras High Court in the case of P.Kumaran vs DRAT and four others, particularly Para-21 thereof, in support of its contention that "Section 29 postulates that the II and III Schedules to the Income Tax Act and Income Tax (Certificate Proceedings) Rules should be followed while immovable property brought for sale, it also makes it clear that the rules are applicable as far as possible with necessary modification..... Such should be the interpretation of the provisions of Section 29 of the RDB Act and any other interpretation will render both the words "as far as possible" and "with necessary modification" without any meaning."

3) After hearing the above arguments, Learned Counsel for Respondent No.3 submitted that Respondent No.3 has got a purchaser for schedule property for Rs.30 crore which is 8D.No.2537/2019

above the auction sale price and vehemently sought time upto 30.12.2019 for deposit of Rs.30.00 crore by way of DD as auction purchaser for the said price is ready and waiting. Granting further time was opposed by the Appellant and Respondent No.2 who is the secured creditor. However, in the interest of justice, as the Respondent No.3 was confident that if time is granted upto 11.00 a.m. on 30.12.2019, Respondent No.3 would be in a position to demonstrate the bonafides of its contention by offering Rs.30.00 crore through its purchaser. Accordingly time was granted to Respondent No.3 till 11.00 a.m. on 30.12.2019.

4) When the matter came up for compliance of its undertaking to deposit Rs.30.00 crore by way of DD by Respondent No.3, Learned Counsel for Respondent No.3 appeared and sought further time as Respondent No.3 could not arrange DD for Rs.30.00 crore as undertaken on 23.12.2019.

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5) Granting of further time was strongly opposed by Learned Counsels for Appellant and Respondent No.2 as Respondent No.3 failed to bring any buyer for improved price on the earlier occasions as well as lastly undertaken before this Tribunal on 23.12.2019.

6) Perused records of the case and the arguments advanced by Learned Counsels appearing for all the parties. It is not in dispute that, the schedule property was being brought to sale from 2015 onwards and on all previous occasions, the auction sale did not fructify for want of bidders. It is only in the last e-auction held on 23.07.2019, the Appellant participated and was the only bidder who successfully bid for the property at Rs.27.577 crore. The Appellant deposited 25% of the auction price i.e. Rs.6,89,92,500/- with 1% poundage fee. As the Appellant could not pay the balance within fifteen days due to reasons stated in the appeal, it sought time by filing memo before Recovery Officer for grant of three months time in terms of 10D.No.2537/2019

Clause 11(c) of the General Terms and Conditions of auction sale. The said clause provides for grant of further time by recording reasons by the Recovery Officer. It is clear that the Recovery Officer has not considered the said terms and condition while rejecting the memo. Thus, the Recovery Officer was in error in passing the impugned order which is clearly in violation of the Terms and Conditions of e-auction sale notice. Further, the Learned Counsel for Appellant has also relied on the judgment of Division Bench of Hon'ble High Court of Madras in support of its argument that Section 29 of RDB Act which clearly provides that provisions of II and III Schedules to the I.T. Act 1961 and Income Tax (Certificate Proceedings) Rules, 1962 as in force from time to time are to be followed as far as possible with a necessary modification, gives discretion to the Recovery Officer to follow the same as far as possible. The Hon'ble High Court has in the aforesaid judgment observed that, the qualifying words, "as far as possible" should mean that the Recovery Officer should follow the rules under the Schedules to the Income Tax Act 11D.No.2537/2019

as far as possible keeping in mind the object of the Act for speedy recovery of the debt and by those words, the Recovery Officer though is expected to follow the rules as far as possible, he can do so with necessary modification. Thus, the judgment relied on by the applicant is applicable to the present case, particularly in view of the fact that General Terms and Conditions 11(c) of sale also provides for extension of time. Further, the subsequent enactment to the RDB Act i.e. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by which the secured creditor is empowered to exercise enforcement of security interest created by the secured debtor also provide under Security Interest (Enforcement) Rules, 2002, particularly Rule 9(4) as amended with effect from 04.11.2016, enables the auction purchaser or bidder to pay balance sale consideration of 75% on or before the 15^th day of confirmation of sale of immovable property or such extended period, as may be agreed upon in writing between the purchaser and secured creditor, in any case not 12D.No.2537/2019

exceeding three months. It is clear that, if the auction sale notice has provided for extension time under Clause 11(c), the same has to be followed by the Recovery Officer and the Recovery Officer ought not to have passed the impugned order.

7) The Learned Counsel for Respondent No.3 has relied on various judgments and during the course of hearing has admitted that none of the judgments he relied on is on the issue on hand i.e. Section 29 of the RDB Act, where auction purchaser has paid 25% of bid amount, and sought extension of time for payment of balance 75%. The nearest citation referred to in the case of Vasu P. Shetty v Hotel Vandana Palace is for enforcement of security interest under Rules 8 and 9 of Security Interest (Enforcement) Rules, 2002, by the secured creditor. Hence the said judgments relied on by the Respondent No.3 are found to be not applicable to the facts of the present case and therefore does not support Respondent No.3 in any case. It is also to be noted that 13D.No.2537/2019

Respondent No.3 has not raised any objections, except seeking time for bringing DD for Rs.30 crore today and has again failed to keep its promise of getting buyer for a better price. When the Respondent No.2 is a secured creditor who is making relentless efforts in recovery of huge NPA dues and has finally succeeded in getting a buyer in execution of Recovery Certificate on 23.07.2019 for Rs.27.577 crore, and such buyer who is the Appellant has already paid Rs.6,89,92,500/- way back on 23.07.2019, and is ready with the DD for balance amount of Rs.20,42,17,800/- for paying the balance 75% of sale price which was shown to the Tribunal, it will be a case of "chasing 2 birds in bushes by letting go a bird in hand" by granting further time to get improved offer through defaulter borrower, and which cannot be accepted in the present case for all the reasons stated supra. Hence, looking from all angles, I am convinced that the appeal filed by the Appellant who is the auction purchaser who has paid close to Rs.7 crore already and waiting with further Rs.20.42 crore deserves to be allowed as 14D.No.2537/2019

he cannot be asked to wait further by hearing the hollow promises made by the defaulter borrower who is Respondent No.3. I, therefore, pass following:

ORDER

In the result, D.No.2537/2019 is allowed, quashing and setting aside the impugned order dated 08.08.2019 in DRC No.107/2017 passed by the Recovery Officer. Consequently, the Recovery Officer is directed to accept the remaining sale consideration and issue sale certificate in favour of the Appellant forthwith.

There will be no order as to cost.

(Dictated to the Stenographer, after its transcription and necessary corrections, signed and pronounced by me in the Open Court on this 30^th day of December 2019)

**(K. RAVINDRAN NAIR)** Presiding Officer I/C DRT-II, Bengaluru

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