Case Note & Summary
The petitioner, a judgment debtor in recovery proceedings, challenged the order of the Debts Recovery Appellate Tribunal (DRAT) which had upheld the rejection of her application under Rule 60 of the Second Schedule to the Income Tax Act, 1961, to set aside an auction sale of her property. The property was auctioned by the secured creditor, State Bank of India, to recover dues, and a sale certificate was issued in favour of respondent no.3, the auction purchaser, on 6 July 2011. The petitioner had earlier moved an application before the Recovery Officer to set aside the sale, depositing only a penalty amount of Rs.41,900, but not the full amount mentioned in the proclamation of sale along with interest as required under Rule 60. The Recovery Officer rejected the application on 4 July 2011. The petitioner then filed an appeal before the Debts Recovery Tribunal (DRT), which was dismissed on 24 January 2012, holding non-compliance with Rule 60. The DRAT maintained the DRT's order. Thereafter, the petitioner and the bank entered into a One Time Settlement (OTS) on 20 October 2011, accepting Rs.18,50,000 against total dues of over Rs.2.22 crore. The petitioner argued before the High Court that the OTS rendered the proclamation amount irrelevant, and literal compliance with Rule 60 was not required. The auction purchaser opposed the petition, contending that the sale certificate had created vested rights, and the OTS after the sale could not defeat those rights. The High Court noted that the OTS was reached more than three months after the sale certificate was issued, and the orders rejecting the application under Rule 60 were passed prior to the OTS. The court relied on the Supreme Court's decisions in U. Nilan v. Kannayyan and Ram Karan Gupta v. J.S. Exim Ltd., but distinguished them, holding that a subsequent compromise between the decree holder and judgment debtor cannot override the rights of the auction purchaser or relax the mandatory requirements of Rule 60. The court found no jurisdictional error or perversity in the concurrent orders of the lower authorities and dismissed the writ petition, with no order as to costs.
Headnote
A) Debt Recovery - Auction Sale Setting Aside - Rule 60, Second Schedule to Income Tax Act, 1961 - Requirements for setting aside sale - The petitioner judgment debtor applied to set aside auction sale under Rule 60 but did not deposit the amount mentioned in the proclamation of sale along with interest, only paying a penalty amount of Rs.41,900. The Debts Recovery Tribunal and DRAT rejected the application for non-compliance. The High Court held that strict compliance with Rule 60 is mandated and the deposit of the penalty sum alone was insufficient to set aside the sale (Paras 5-6, 9, 13). B) Debt Recovery - Rights of Auction Purchaser - One Time Settlement After Sale - Sale certificate issued - After the auction sale was confirmed and a sale certificate issued to the auction purchaser (respondent no.3), the secured creditor (respondent no.1) and the judgment debtor entered into a One Time Settlement. The High Court held that the subsequent compromise cannot override the vested rights of the auction purchaser; acceptance of OTS after confirmation of sale cannot defeat the auction. The remedy under Rule 60 is for the judgment debtor and does not permit the decree holder to take steps to the prejudice of the auction purchaser (Paras 10-14).
Issue of Consideration
Whether the Debts Recovery Appellate Tribunal erred in maintaining the rejection of the petitioner's application under Rule 60 of the Second Schedule to the Income Tax Act, 1961, to set aside an auction sale, given that a subsequent One Time Settlement was reached between the judgment debtor and the secured creditor?
Final Decision
Petition dismissed; no order as to costs. Concurrent orders of lower authorities upheld as no jurisdictional error or perversity found.
Law Points
- Strict compliance with Rule 60 of Second Schedule to Income Tax Act is mandatory for setting aside auction sale
- subsequent One Time Settlement between decree holder and judgment debtor after confirmation of sale and issuance of sale certificate does not affect auction purchaser's vested rights
- remedy under Rule 60 is for judgment debtor and does not permit decree holder to prejudice auction purchaser
- sale becomes absolute upon confirmation subject to appeal
