MRS K ANNAPURNA vs FEDERAL BANK on 20 March 2025

ORDER

This appeal was, in fact, filed on 27.09.2023 tmder sub-section (1) ofS.30 ofthe Recovery of Debts and Bar*ruptcy Act, 1993 (as amended liom time to time) - for short 'the Act' - praying to set aside the order dated 26.05.2023 passed by the Recovery Officer with a direction to him to release 25Vo of the sale consideration ({40,25,000/-) deposited by the appellants. The appellants are nonc other than the default bidders in the sale conducted by the Recovery Officer on 24.02.2023 in respect of the schedule immovable ploperty in the proceedings in execution of the rccovery certificate bearing No.l0l 17.

2. The case set out by the appellants/default bidders in the appeal in brief is as followsi The schedule immovable propedy was put lbr sale on 24.02.2023 by issuing a sale notice dated 10.01.2023 in the proceedings in DCP No.l0l17/20t6 by the Recovery OfIicer. The app€llants participated in the e-auction and was declared as the successful bidder ofthe schedule immovable property for a sale consideration ofthe sum of{161 lakhs. The appellants remitted 2570 of the sale consideration, i.e the sum of 440.25 lakhs. But the balance payment ofthe 75% of the sale consideration could not be remifted within the stipulated time as the appellants were in quarantine due to covid-lg virus affection. Though the appellants requested the Recovery Olficer for time to remit the balance sale consideration by 31.03.2023 by way of letter dated 06.03.2023, the request was tumed down vide order dated 24.03.2023. The appellants again filed a memo along with an affidavit on 25.05.2023 to the Recoveiy Officer requesting to extend the time to pay the balance sale consideration of 75% ofthe sale price or to release 2570 of the amount deposited, but the Recovery Officer rejected the request and hence the appeal.

App€al r,202:r DRC l0lIIiioANo590120II I

3. The l't respondent/certificate holder filed a memo stating as follows:- Thc schedule immovable property was put for sale vide sale notice daled 10 01 2023 in the proceedings in execution of the recovery certilicate bearing No.l0117/2016 The appellants participated in the e-auction sale and was declared as the successl'ul bidder and they remitted 25yo of the sale consideration. The appellants could not remit the balance 75yo of the sale consideration due to ill health as they were affected by covid-19 virus. Subsequently, the Recovery Officer has auctioned the schedule immovable property on 24.04.2024 for {212 lakhs. Since the amount deposited by the appellants has nothing to do with this respondent it would bejust and proper to rcfund the same.

4. Respondents 2 and 3/certificate debtors were duly served with notice but they never appeared nor were they represented in the proceedings and thus they were declared ex-parte on 22.07.2024.

5. The only point arises for consideration is as to whether the appellants/ default bidders are entitled to the reliefprayed for?

6. The Point:- The l'1 respondent/certilicate holder bank on 25.05.2011 hled OA 590/2011 under S.l9(1) of the Act for recovery ofthe sum of 183,32.736.40 due undei cash credivoverdraff account with interest thereon @14.15% pq annum with monthly rests fiom the defendants and by sale of A schedule mongaged immovable property and B schedule hypothecated plant and machinery. The OA was allowed and defendants I and 2 (certificate debtors)jointly and severally werc directed to pay the sum of 183,32,736.40 with interest thereon @14.7570 per annum with monthly rests from the date of the OA till rcalisation along with costs to the lsr respondent/certificate holder bank failing which the bank was entitled to realise the same by sale ofA and B schedule propedies as per the final order dated 19.10.2015 passed by this Tribunal. Pusuant thereto a recovery certificate bearing No.lol17 was issued to the Recovery Ollicer for recovery ofthe certificate amount.

AppeJ 1rl0l3 inl)RC l0ll7 i oANo5e0l0ll I

7. ln the prcceedings in executjon of the recovery certificate bearing No.lOl17, the schedule immovable property was proclaimed for sale by the Recovery Officer on 24.02.2023 vide proclamation of sale dated 10.01.2023 issued by him as against a reserve price of { 160 lakhs. The appellants participated in the auction sale and were declared as the successfii bidders as against the bid of {16l lakhs. They were directed to pay the sum of {24.25 lakhs on or before 27.02.2023 and a further sum of t1,20,75,000/- besides poundage l'ee of {1,61,010/- on or before 10.03.2023 as per the notice dated 24.02.2023 issued by the Recovery Officer to them. But the appellants could pay only the sum of {24.25 lakhs on 27.02.2023 and they could not comply with the payment of the balance arnount and they issued a letter dated 06.03.2023 rcquesting for extension of time to pay the balance 75%o of the sale price till 31 .03.2023. But the request was rejected by the Recovery Offrcer as per the order dated 24.03.2023, which reads as below:- "The auction purchaset requested lot dn erteL\ion of ti etopal75%of sale ptice ih the sai.l auction. Snt K Annapuma and R NMda Kunat Nai.h \|ete o su.cest bid.lel in this sai.l uuction fot al6l lauls. They hoye paid {16 la*h\ 6 EMD on 20.A1.2023 and rcst I5% a21.25 lalhr \|ar .leposited on 27.02.2023. The renaining 75% a1,20,75,000/- ir^t due on 10.03.2023 hut got JAiled hy the auction pwchaser They h6'e rcqueste.l to ertend the tine giren ta him titl 31.03.2023 on the gomde 4 ill heahh. As pet Incone-t& Act, the Second Schetule 5.57(2) elaborutes 'The full anount of purchase noney payable sha be paid by the pwchaser to 7 at Recoyery Ofricer on .t befarc the t 5'h day lron the dare of the sale of property and 5.58 of tncanellr Rule delines in defa h of paynent vr'ithin the period nentioned in the prcceding rule the deposit nd, be fotened b the Cowrnnent and the property shall be resold. Recovery Ofiicer has no pover for extension of tine to pcJ 75% ofsale anount which sot expirc.) on 14.03.2023. Hence, duction purchaset requestingfur ertension oftine to pay 750^ olsale anount v,hich got erpirc.l o 10.03.2023. Hence, auction purchas rcquestinglbt ertereion a{tine is dxnisse.l.

8. The Recovery Olficer issued a letter dated 03.04.2023 to the Branch Manager, Canara Bank, Lavelle Road Branch, Bengaluru 560001 to keep the amount of <16 lakhs and {24.25 lak}N deposited by the appellants/default purchasers respectively on 20.01.2023 eJtd 27.02.2023 in separate fixed deposits for thirty days with auto renewal. The appellants/del'ault puchasers vide memo filed on 26.05.2023 along with an atlidavit accompanying th€ same requested the Recovery Officer to pass an order extending the time to remit the balance sale consideratio[ or to release the 2570 of the amount deposited

I App€al 7/2021 in DRC l0ll7 inOANo 59011011 5 on the ground of ill health due to covid 19 virus affection. The said request also was rejected by the Recovery OIIicer as per the order dated 26.05.2023, which reads as below:- "Sale notirc dated 21.02.2023 the e-auctian condacted in DCP No.10117/2016 in OA No.59A/201I bet een the Fedetal Bank and M/s Atjun Prckoging anl Othets. ln the sditl duction Shri R Nanda Kuhat Naidu akd Sht K Ankdp thd dectated 6 srccessr4ll bi. ers lor schedule plope4y fot < I 6 I laLhs. As per auction terns auction purchaser deposite.l EMD amount t@,10% ? 16 lakhs oh 2A.01.2023 an 1 rest I5% {21.25 lakhs was deposhed on 27.02.2a23, the renaining anount a1,20,75,00a/ anda1.6l,al0/- as poundage lee to be rcnitted on ot before I 0.03.202 3. but got failed b) the duction purchater Cou^el ol auction putcherer fled ne o ond auction purchaser dlso liled alJidavit rcquertinE k) hibunal to pass an oftler extending time to remit the balance contidetution of {1,20,75,0A0/-, i.e 75% of sale coksidetation a ount ot ordet to rclnndhelease the 25% oI the sale considerutioh, i.e aa.25 latll' As per Income-ta\ Act Second Schedule 5.57(2) elaborutes 'the full dnount of purchaser noney payable sha be pdid by the purchaset to Ta, Recowry Ollicer on or belbrc the I5'h da, ton the date of the sale of the pruperty and 5.58 of tncouel$ Second S&edale of tncanelax Act, l96f in delault d payment vtithin the petiod nentioned in the prccedinA rule, the deposit nay be forfeited b the Go|ernnent and the property shall be rcsold. There is na provision.for extension al time on any groutld. Rtcowry Ofricer has no powet for exlension of line to pay 75% oI sale anount v,hich sot expired on 10.U.2423. Hence, auction pwch&'er rurluesting fu extefu'ion of iten ot refind ol the ldle co$iderution is

9. The lst respondent/certificate holder bank llled a memo on 01.06.2023 stating no objection for the release of the amount to the appellants/default purchasers, deliaying the costs incurred. The appellants filed another memo on 02.06.2023 praying for the same relief. The schedule immovable property was again proclaimed for sale as pe. the proclarnation of sale dated 01.12.2023 for sale of the same on 12.01.2024 as against a reserve price of the sum of {188.65 lakhs. As the samc was failed, another proclamation of sale dated 17.01.2024 was issued for sale of the schedule immovable property on 21.02.2024 as against a reserve price ofthe sum of a173 lakhs. As the same also was failed a fresh sale proclamation of sale dated 29.02.2024 was issued by the Recovery Officer for sale of the schedule immovable property on 24.04-2024 as against the reserve pdce of the sun of {160 lakhs. Accordingly the schedule immovable property was sold on 24.04.2024 lbr a sum of t212 lakhs. The successful bidder has paid the full amount and the sale was confirmed as per the order dated 12.06.2024 of the Recovery Officer. Pursuant thereto a certilicate of sale dated 12.06.2024 was issued bv thc Recovery Officer to the successlirl bidder in respect of the schedule immovable property, AAEaI 7/2021 m DRa l0l l1 in OA No 590rl0l I I which got registered vide registration No.B'tM-l-00668-2024-25 of the SRO, Jayalragar (BTM Layout), Bangalore. The physical possession of the schedule immovable property was harded over to him on 05.07.2024. The above things emerge from the records of the proceedings in execution ofthe recovery certificate beadng No.10117.

10. Aggrieved, the appeUants/default bidders came up with the present appeal before this Tribunal. S.29 ofthe Act says that the provisions ofthe Second and the Third Schedules to the Income Tax Act, 1961 (for short 'the Second Schedule' and 'the Third Schedule' respectively) and the Income Tax (Certificate Proceedings) Rules, 1962, as in force ftom time to time shall, as l'ar as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under the Act instead of to the lncome-tax. The proviso thereto says that any reference under the said provisions and the rules to the "assessee" shall be construed as a rel'erence to the defendant under the Act, and it reads thus:- "5.29. Applicarion of certuin Uovisions oI tnco e-tax Act The prurisians of the Secontl arul Third Schedules to the Incode-tt Act. 196l and the lncone-ta! (Certilicale Proceedings) Rules, 1962, as in force fron time to tine shal, as far as possible. apptt with nece.ssary no.lilicatioh' d' il the sdid ptovisions and the rules teferred to the ano"nt of.lebt due Mder this Act instead ofta the lncone-taa: Prclided that any reference under the said provisions and the tules to the "atse*ee shotl be co8tued as a rcfetence to the defentlant undet this Act."

11. R.57(2) of the Second Schedule says that th€ full amount of purchase money shall be paid to the Recovery Officer on or before the fifteenth day fiom the date ofsale ofthe propeny. and it reads thus:- ''57. Deposir by putchdsd and rcsale in .lef@h:- (l) On evty sale of inmowble prcpeiy. the person declared to be the purchaser shall pay, innediately olier such decldration, a deposit oft enty fNe pet cebt oh the anount ofhis pDchNe doney, to the ofr.et on conducting the sale, anl, in defa t oJ s ch deposit, the prcpedy shdl fotthwith be rcsold.

12) rhe fult anount oI pwchase noney payable shal be paid by the putchNer to the Taa Recovety Olicet on or before thefleetuh day tron the date olthe sale ofthe prcpeq,. '

12. This rule is a[alogous to and in pari materia with O.2l R.85 of the Code ofcivil Procedure, 1908, which ieads as below:- "85. Time Ior payment in [uI of purchase noney.- The full onounr of purchase noner pdyable shall be paid by the purchaset into Court before the Coun closes on the lilieenth dcJ lion the sale of the t

13. The Hon'ble High Corun of Kerala in B !!S!g9 9lL\9!!l!-b!p9l!!!l i4 2015 (2) KLT 2041 has held that when provisions are in pari materia with each other interpretation of one provision can be taken to throw light on an analogous ptovision in another, and it ieads thus:- "Il can be stated withort feat of contmdiction that both the Panchayat Raj lct, 1991, anl the Kerula Municipality Act, 1991, haw the si ilat objecl, purpose and schene, in diding the civic adninistrution at different levels. Thus, the pruvisions arc in pati natetia *ith each other. It is d vell- knotrn cannot oI construction to take aid of the interptetation ofa pari noteria ptot'ision to thro|| light on an analogous ptorision in another cognate enactnent-"

14. Now, the question arises for consideration is as to what is the procedure in default ofpayment as stipulated under R.57(2) ofthe Second Schedule to the Income-tax Act, 1961. R.58 ofthe said Schedule deals with procedure in default of payment and it says that the prop€rty shall be resold, and it reads thus:- "58. Prcceturc in defautr of pq'nent- ]n deJA* oJ pdydent \9ithin the petio.l nentioned in the precedins rule, the deposit nay, iJ rhe Tc Recotery officer thin*:tit, aler deta',ins the erpenses ofthe sale, be forfeited to the CowmnenL and the property sha be rcsold, and the defaulting pwcha:et sha fotkit a clains to the propedy ot to any pa of the sum for which it may subsequeh y he sold.

15. This rule is analogous to O.21 R.86 of the Code. In the above circumsta[ces, in default of pafnent of full amount of purchase money on or before the fifteenth day from the date of sale, the Recovery Officer has no option but to conduct rc- sale of the property. Now, the question arises for consideration is as to whether the deposit made by the appellants/default bidders, if any, can be retumed to them or be forfeited to the Govemment or can be appropriated towards the certificate debt. R.l4 of the Second Schedule is also relevant here, which says that defaulting purchaser is answerable for the loss on re-sale, and it reads thus:- "t1. Defauhins purchass ane able fu bss on resale.- Any dertciencj of pricc which ncl hdppen ob a rcsale by rca.\on of the putchaset s defuuh, and all expenses attendins such resale, shotl be ceniJietl to the Tu Recorety Ofricet by rhe ofrcet holding the sale, and shall, dt the instance ofeither the Ta, Recovery ofrcet or the deJbubo, be recortabte fiod the .lefaultins purchaser under the prucedwe prctided by this Schedule. Prcvided that no such dpplication shall be entetained untess fled within fLlteen dats fron the

16. In the instant case, undisputedly, the appellants/defaulting purchasers have not complied with the mandatory stipulation as under R.57(2) of the Second Schedule to App€al7/2021'n DRC l0ll? ii oA No r90r20ll ! the Income-tax Act, 1961. Accordingly the schedule immovable property was sold on 24.04.2024 for a sum of {212 lakhs because of their default only. In the above circumstances, if re-sale is ordered in default of payment of the purchase money withil the permitted period, as per the language ofR.58 ofSecond Schedule, the retum or forfeit ofthe deposit made by the defaulting purchaser is at the pure discretion ofthe Rccovery Officer, which has to be exercised judiciously. But remember that, (i) any deficiency of price which may happen on a re-sale and the expenses incuned for the failed or default sale shall be defrayed and be paid to the certificate holder; (ii) the poundage lbe remitted, if any, shall be detayed and be remitted to the Govemment account. Balance, if any. after re-sale of the same property, can be refunded to the defaulting purchaser or be forfeited to the Govemment account at the discretion of the Recovery Officer. Undoubtedly, the schedule immovable property was sold on 24.04.2024 for t2l2 lakhs as against the sale price of {16l lakhs in the default sale. Therelbre, no deficiency of sale price has occurred on the re-sale of the schedule immovable property. At any mte, the said deposit being a third-party deposit cannot be appropriated towards the certificate debt unless and until waived so by the depositor. Ifthere is no privity of contract between the certilicate holder bank and the third-party default purchasers or in the absence ofany contmct of indemnity entered into between the mortgagor and the third-party default puchaser to appropriate the deposit made by him towards the certificate debt, the certificate holder bank is not entitled to invoke such a course of action. ln fact, the 1'r respondenrcertificate holder bank expressed no objection in witing for ref,md of the deposit made by the appellants/ del'ault purchasers.

17. The sum of a16 lakhs and t24.25 lakhs deposited by the appellants/default purchaseN respectively on 20.01.2023 and 27.02.2023 are kept in separate fixed deposits for thirty days with auto renewal with Branch Manager, Canara Bank, l,avelle Road Branch, Bengaluru 560001 as per the direction of the Recovery Officer in his letter

ApF T/202r in DRC l0rl?roaNo590/2011 \ dated 03.04.2023. Canara Bank is nowhere in the pictue ofthe proceedings in execution of the recovery certihcate bearing No.10ll7 and it has no charge over the schedule immovable property. No amount is claimed to be due to it either from the borowers or from the appellantvdefaulting purchasers in DRC 10117. S.72 ofthe Contact Act, 1872 deals with unjust enrichment. On admitted facts and circumstances, the holding of such arnount by the Canara Bank even after resale of the schedule immovable property on 24.04,2024 arnounts to unjust enrichment to it only. R.58 ofthe Second Schedule conl'ers express power ofdiscretion on the Recovery Officer to forf'eit or not the deposit made by the def'aulting puchasem to the Govenrment. The words 'may' and 'thinls fit' only means that the Recovery Ofticer shall take a judicious decision and it is not mandatory for him to forfeit the deposit made by the defaulting purchasers in all cases but it is only his pure discretion. Such discretion should be used judiciously and expeditiously. The forfeit of the arnounts deposited by the del'aulting pulchasers to the GoverDnent account have to be done in exceptional circumstances only. What mandatory are (i) the property shall be resold and (ii) the defaulting purchaser shall forfeit all claims to the property or to any part ofthe sum for which it may subsequently be sold. The defaulting purchaser is prohibited from making any claim to the property and to the sale price in the resale of the property. It may be noted that there is no bar for refund of the amounts deposited by him save as the expenses. No doubt, lbd'eiture of the amount deposited by the defaulting purchasers is a result ofa br€ach ofobligation on their part in completing the agreement they have entered into. However, the legislatue has consciously used the words'may' and 'thinks fit' making it purely discretionary on the part of the Recovery Officer as deemed fit. Anyway, the object ofthe rule does not make it as a mandatory penalty. Such a harsh interpretation of R.58 would drive away all probable puchasers ofan immovable property in a sale conducted by operation of law. Only a reasonable amount can be forfeited. When an auction fails and a fiesh auction is required to be conducted in default App€ll 7/202r in DRC l0l I ? ii oA No 590/201 I l0 of the auction puchasers, there may come an uncertainty in the subsequent sale to the extent ol the bids that may receive as well as the sale price that may fetch. More often with the efflux of time, the value ofthe property may also be deteriorated because ofany policy decisions taken by the Govemment in respect of the area where the propefiy is situated. In such circumstances, it may be an option for the Recovery Officer to forfeit the deposits made by the defaulting purchasers in the extreme eventualities and the contingencies, which occuned due to the fault of the defaulting purchasers only. In the instant case, it is the case ofthe appellants/defaulting purchasers that they were unable to make the balance 75oZ ofthe payment as they were in quamntine due to covid 19 virus aflection.

18. The Hon'ble Supreme Court in Manilal Mohanlal Shah ahd othe$ v. Sardar Saved Ahmed Saued Mahmad and another lreoorted in AIR 1951 SC 319] has held that the fodeitule ofthe deposit made by the defaulting purchaser is discretion ofthe Court whereas resale of the property and fbrfeiture of all the claims on the property by the defaulting purchasers are imp€rative. The decision reads thus:- "The prorkion rcsa ins the deposil d 25 pet.enr by the purchaser other than the decree-holdet is non.latory 6 the lansuaqe ofthe tute su&sests. The lilq anount ofthe prrchase-money nu:t be paid within fiJicen days ron the .late ofthe sale but the decree-holder is entilled to the d&antdse ofa set alJ: The provisionfut payne t is, howevet, nandatoty. If the paynent k hot made within the petiad ofJilteen days, the Cou has the discretion 10 forfeit the deposit. and there the discretian ends but the ohliEation o[ the Cou to re-sell the ptoperry n inperutire. A furthet .onsequence o[non-pa],nent is that the dcfauking putchaset fo*its a clain to rhe property. ......Therc was default in deporiling 25 percent oI the purchase-money andJiliher therevas na payment o1thefull anomt ofthe putch. e no qt v,ithin ffiee days lron the date ofthe sdle. Both the deposit and the paynent of the purchase-maney being nandatory under the conbined efe.t oftules 81 an l 85, the Court ha' the dis.fttion ta forfei he deposit but it was bound to re sell the ropetrr '|ith the rcsuk that on deJauh the putcharer torleited a tlain to the I (untle i e br this Tribunal)

19. In th€ above facts and circumstances of the case and in vie14 of the discussion as above, it is manifestly clear that fodeiture of the deposit made by the defaulting purchaser is the pure discretion of the Recovery Officer whereas resale ofthe property and the forfeiture of any claim of the defaulting purchascr on the property or on the sale proceeds ofthe same in future are imperative. In view ofthe above, this Tribunal does not find any impediment in exercising the discretiolary power of the Recovery t1 Oltcer conferred upon him under R.58 of the Second Schedule. The Recovery Officer failed to exercise such rights judiciously on the requests made by the appellants/ defaulting purchasers, especially on the ground that the resale ofthe schedule immovable property has been made subsequently without any deficiency in the sale p ce. Therelbre, no prejudice would be caused to the l st respondenrcertificate holder bank in refunding such deposits to the appellants/defaulting purchaserc, but, of course, defraying the costs and expenses only.

20. In the result, appeal 7/2023 is disposed of with the following dircctions to the Recovery Officer:-

(i) the expenses incured for the failed or default sale shall be deftayed and be paid lo the I'r respondenr/cenilicate holder:

(ir) the poundage fee remitted, ifany, shall be deftayed and be remitted to rhe Govemment account;

(iii) the balance, if any, out ofthe proceeds ofthe sum of{16lakhs and {24.25 lakhs deposited by the appellants/default purchasers respectively on 20.01.2023 and 27.02.2023 which are kept in separate fixed deposits for thirty days with auto renewal with Branch Manager, Canara Bank, Lavelle Road Branch, Bengaluru 560001 as per the direction of the Recovery Officer vide his letter dated 03.04.2023 along with accrued interest shall be refunded to the appellants/defaulting purchasers within seven working days liom today. Intimate the Ld Recovery Officer, who has to act accordingly.

21. The parties shall suflbr their respective costs. [Dictated to ny PA. nanscibed by hin cotected atul pronounced by he ia the open Trihunal on this the 2Ut dq 01 t \ I IMTIAZ ALI ]

IN THE DEBTS RECOVERY TRIBUNAL - I. KARNATAKA AT BANGALORE PRESENT: Szu IMTIAZ ALI PRESIDING OFFICER Dated the 20$ day of March, 2025 Appeal7D023 (Aggtiere.l b)r the ode. llated 26.05.2023 ofLd Recowry Oficet in DRC 10117) IN ORIGINAL APPLICATION No.590/2011 Between Annapooma K, w/o R Nanda Kunar Naidu, 1527, 7th Main, 116 Cross, BTM 2"d Stage, Bengaluru, Kamataka - 560076 and another. .............Appellants/del'ault purchasers And The Federal Bank Limited, 3, 2nd floor. MSR West Park, Church Street, Bengaluru, Kamataka - 56000 I and two others. .... Respondents/certificate holder bank and certificate dehtors

ORDER

I,,,'