TMI Blog1986 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 'B' schedule property building bearing No. 6-2-26/1 situated at Innespeta, Rajahmundry, and the Official Receiver accepted the bid in her favour on September 8, 1977. On the date of the auction, the lst respondent filed Exhibit A-3. After the auction, the Income-tax Officer, i.e., the 1st respondent in the main I. P. impleaded the Official Receiver, East Godavari District, as the 1st respondent and the auction purchaser as the 2nd respondent and the insolvent as the 3rd respondent. The lst respondent filed I. A. No. 147 of 1977 in I. P. No. 4 of 1976 on September 28, 1977, under sections 68 and 4 of the Provincial Insolvency Act and section 151 of the Code of Civil Procedure to set aside the sale of the property described as item No. 2 of the B schedule property building bearing No. 6-2-26/1, Innespeta, Rajahmundry, held on September 8, 1977, by the Official Receiver in favour of the wife of Venkata Narasimha Raju. After contest, the learned Subordinate Judge found that the Income-tax Department filed a memo even on the date of sale. The Official Receiver who conducted the auction might have thought over the provisions contained in the income-tax recovery proceedings pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission to the petitioner to proceed with the attachment and sale of all the properties of the 3rd respondent, i.e., insolvent declared and shown in the schedules appended to the insolvency petition in accordance with the procedure laid down in the Second Schedule to the Income-tax Act, 1961. This petition also was contested and the learned Subordinate Judge permitted the Tax Recovery Officer to proceed further with the matter and sell the property and recover the tax arrears due to the Department. Against that order, A. S. No. 86 of 1980 was filed and the learned Second Additional District Judge found that the lower court committed an error in granting permission to the income-tax authorities to proceed with the sale of the property which is already vested in the Official Receiver. He allowed the appeal. Against that, C. R. P. No. 300 of 1983 was filed. The grounds that have been alleged in the revisions by the revision petitioners are one and the same. The contention of the Official Receiver is that he conducted the auction impartially and followed the procedure and rules and the property vested in him and he discharged the duties as entrusted to him under the Act and the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale nearly 18 days prior to the date of auction. It is only in exhibit A-3 that they mentioned about the price and they have not asked the Official Receiver to stop the sale and the request even according to the income-tax people in exhibit A-3 is that the upset price should be fixed at Rs. 1,50,000 and no reason has been given why the income-tax people did not file any memo to stop the sale. It is not as if the income-tax people have an opportunity to secure bidders or participate in the auction. The offer of the income-tax people that a higher amount could be fetched and that they may also participate subject to the approval of the Central Government cannot be accepted. Even right from 1970, after the raid was conducted in the house of the insolvent, the Department was taking steps for realising the tax and finally the notice was given with regard to the amount of Rs. 74,000 and odd as due under exhibit A-1, but no attachment has been made. As many as 14 bidders participated in the auction and the upset price was fixed at Rs. 40,000 and the sale was held in favour of the wife of the insolvent. The Official Receiver stated that, till the date of auction, he was not aware that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment for setting aside the sale or no steps have been taken for filing an application even before the auction to stop the sale on the ground that the lease is invalid and the price that is going to be fetched will be very low. The income-tax people have received the auction notice in advance and, for their fault of not moving the Subordinate Judge's court for stay of sale, we cannot find fault with the auction-purchaser who participated in the auction nor can we find fault with the official receiver who conducted the auction and accepted the highest bid and confirmed the sale. No doubt the insolvent has no right to create any charge on the property after the notice has been served, but the hands of the official receiver are tied. When the encumbrance has been shown in the income-tax records, it is the bounden duty of the official receiver to mention the same to the bidders who participated in the auction. If the official receiver failed to mention the same, we must construe that he failed in discharging his duties. The facts that are available with regard to the nature of the land and with regard to the encumbrances, whether legal or illegal, must be brought to the notice of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y subject to rule 16(1) or (2) of Schedule 11 of the Income-tax Act. I am unable to agree with the contention of learned counsel and there is no separate rule in the Income-tax Act providing safeguards in the, case of property vested in the official receiver or in the case of property sold by the official receiver after the same was vested in him by a competent court. When a competent court dealing with the provisions of the Insolvency Act entrusted the property to the official receiver and when there is no provision in the Income-tax Act for taking away the right of the official receiver which accrued by virtue of section 59 and other provisions of the Insolvency Act, I fail to understand how the petitioner was able to succeed on the ground that the official receiver was a representative-in-interest and so the official receiver is liable to surrender possession to the Income-tax Officer to facilitate him to make the sale as contemplated under rule 16. The lower court has considered the legal principles enunciated on different aspects contended by the parties and the same has been stated before me. The main aspect that has been placed before me is about the vesting and the limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy Act, 1920. Admittedly, by operation of law by passing the adjudication order, there is a vesting and the question of divesting the property under the guise of the notice that has been served in the year 1975 does not arise. It must be noted that there is no attachment by the income-tax people. It is only a notice and by their conduct, they allowed the property being vested in the official receiver and the vesting has taken effect by correctly implementing the provisions and by sale of the property for a reasonable amount. With regard to the upset price, the consistent finding of the two courts below is sound and it is not necessary for this court to repeat the same once again. In Sathar v. Official Assignee, [1972] 1 MLJ 393, the effect of rule 16(1) and (2) has been discussed. But once it has been found that, by operation of law, the vesting has taken place in the official receiver, I hold that the question of divesting the estate for purposes of sale under the Income-tax Act cannot be given effect to, particularly when the income-tax people themselves, by their conduct, allowed the auction to go on, in spite of the advance notice of 18 days given to them. It must be noted here ..... X X X X Extracts X X X X X X X X Extracts X X X X
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