2016 (9) TMI 350 - SC - Indian Laws

Sale of the mortgaged properties set aside - orders of Debts Recovery Tribunal - HC refusing to set aside the sale of the mortgaged properties - Held that - The offset price was fixed on the basis of a report of the Valuation Officer and in the fixation of the said price the respondents were associated being party to the proceedings before the DRT. That apart the said grievance of the respondents-borrowers must be considered in the light of the fact that the respondents-borrowers had persistently failed either to liquidate the dues or to bring a willing purchaser who could offer a reasonable price for the mortgaged properties. Insofar as the Second Schedule of Income Tax Rules, 1961 are concerned, nothing has been brought to our notice which can be construed as imposing a restriction on the Bank from participating in the bid/auction once the invitation to bid did not result in any response from any interested bidder. Rule 17 of the Second Schedule of Income Tax Rules, 1961 to which reference has been made by the High Court, in our considered view, does not impose such a restriction inasmuch as it is the Recovery Officer on whom such an embargo has been placed. In this regard the provisions of Rule 59 of the Second Schedule of Income Tax Rules, which permit the Assessing Officer to take part in the auction would be of a particular significance. In the light of the above, the conclusion of the High Court that the auction sale in favour of the Bank is vitiated on account of violation of the Rule 17 of the Second Schedule of Income Tax Rules, 1961, cannot be accepted. Both the grounds relied upon by the High Court to come to the impugned conclusion not having been found to be acceptable, these appeals have to be allowed. We, accordingly, set aside the order of the High Court.

Summary

Issues:
Challenge against High Court order setting aside sale of mortgaged properties and remanding the matter to DRT for fresh consideration.

Detailed Analysis:

1. Opportunity for Respondents-Borrowers in Fixation of Offset Price:
The High Court reversed the orders of DRT and DRAT primarily due to the lack of opportunity for the respondents-borrowers in determining the offset price. However, upon review, it was found that the offset price was set based on a Valuation Officer's report, and the respondents were involved in the proceedings before DRT. Moreover, the respondents had consistently failed to pay off the dues or find a suitable buyer for the properties. Therefore, the grievance regarding lack of opportunity in determining the offset price was deemed unfounded.

2. Violation of Income Tax Rules - Rule 17:
The second ground for the High Court's decision was the alleged violation of Rule 17 of the Second Schedule of Income Tax Rules, 1961, by allowing the Bank to participate in the auction and purchase the properties. However, upon examination, it was clarified that Rule 17 does not restrict the Bank from participating in the auction if there were no other interested bidders. Rule 59 of the same schedule allows the Assessing Officer to take part in auctions, which is significant in this context. Consequently, the High Court's conclusion that the auction sale to the Bank was flawed due to Rule 17 violation was deemed incorrect.

3. Conclusion and Decision:
Since both grounds relied upon by the High Court were found to be invalid, the Supreme Court allowed the appeals, setting aside the High Court's order dated 11.08.2014. The judgment emphasized that the auction sale to the Bank was valid, and necessary actions following this decision were directed to be taken.