Case Note & Summary
The appellant, M/s. Connectwell Industries Pvt. Ltd., purchased a property in a public auction conducted by the Recovery Officer of the Debt Recovery Tribunal (DRT) on 28.09.2004. The property had been mortgaged by Biowin Pharma India Ltd. (BPIL) to Union Bank of India in 2000. The DRT passed a recovery order against BPIL in 2002, and the property was attached by the DRT Recovery Officer on 29.11.2002. A sale certificate was issued to the appellant on 14.01.2005, and possession was handed over on 25.01.2005. However, the Tax Recovery Officer (Income Tax Department) had issued a notice under Rule 2 of Schedule II to the Income Tax Act on 11.02.2003 and attached the property on 17.06.2003. The Maharashtra Industrial Development Corporation (MIDC) refused to transfer the property to the appellant due to the Income Tax attachment. The appellant filed a writ petition in the Bombay High Court seeking a direction to MIDC to issue a 'No Objection' and to restrain the Tax Recovery Officer from enforcing the attachment. The High Court dismissed the petition, holding that the transfer after the notice under Rule 2 and attachment under Rule 48 was void under Rule 16 of Schedule II. The Supreme Court allowed the appeal, holding that the charge over the property was created much prior to the Income Tax notice, and therefore the sale by the DRT was not void. The Court directed MIDC to issue a 'No Objection' certificate and restrained the Tax Recovery Officer from enforcing the attachment.
Headnote
A) Income Tax - Recovery of Tax - Rule 16 of Schedule II to the Income Tax Act, 1961 - Attachment - The defaulter or his representative cannot transfer property after notice under Rule 2, but a prior secured charge created before such notice prevails over Crown debt - Held that a sale pursuant to a DRT order on a property already charged prior to the Income Tax notice is not void under Rule 16(2) (Paras 8-10). B) Crown Debt - Priority - Secured Creditor - Government debt does not have precedence over a prior secured debt unless a statute expressly provides - Held that the dues of a secured creditor have preference over Crown debts (Para 8).
Issue of Consideration
Whether a bona fide purchaser of property in a DRT auction sale is entitled to have the property transferred in its name despite a subsequent attachment by the Income Tax Department under Schedule II of the Income Tax Act, 1961.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court judgment, directed MIDC to issue a 'No Objection' certificate to the appellant, and restrained Respondent No.4 (Tax Recovery Officer) from enforcing the attachment order dated 17.06.2003.
Law Points
- Crown debt priority
- secured creditor preference
- Rule 16 Schedule II Income Tax Act
- 1961
- DRT recovery proceedings
- attachment voidness
