Notice of Motion No.2332 of 2007,Notice of Motion No.2983 of 2007,IN Suit No.1627 of 2007

16th October, 2009

Petitioner Counsel: Mr. M. S. DOCTOR and NIMAY DAVE
Respondent Counsel: Mr. V. R. DHOND with Mr. VINOD KOTHARI, Mr. P. C. MANKAD with Mr. PRAVIN D. KADAM, Mr. AVINASH JOSHI with Mr. VIPUL BILVE and Mr. K. TAMHANE

Cases Cited:
Keshrimal J. Shah Vs. Bank of India, 2004(4) Bom.C.R. 842 [Para 1,3,6,25]
Dr. Anil Nandkishor Tibrewala Vs. Jammu & Kashmir Bank Ltd., 2006(5) ALL MR 676 [Para 1,4,6,7,27]
Dhulabhai Vs. State of Madhya Pradesh, AIR 1969 S.C. 78 [Para 6,21]
Raja Ram Kumar Bhargava Vs. Union of India, (1988)1 S.C.C. 681 [Para 6,22]
Tax Recovery Officer II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade, (1998)6 SCC 658 [Para 6,23,26,30]
Allahabad Bank Vs. Canara Bank, 2000(3) ALL MR 475 (S.C.) =(2000)4 SCC 406 [Para 6,7,17,19,30]
United Bank of India Vs. The Debts Recovery Tribunal, 1999(2) ALL MR 570 (S.C.) =(1999)4 SCC 69 [Para 11,20]
N. K. Chauhan Vs. State of Gujarat, (1977)1 SCC 308 [Para 25]
P. Mohanreddy Vs. Debts Recovery Appellate Tribunal, Mumbai, AIR 2004 A.P. 94 [Para 25]

JUDGMENT

FERDINO I. REBELLO, J.:- A learned single Judge of this Court noticing an apparent conflict with the views taken in Keshrimal J. Shah Vs. Bank of India, 2004(4) Bom.C.R. 842, the judgment in Dr. Anil Nandkishor Tibrewala Vs. Jammu & Kashmir Bank Ltd. & Ors., in Writ Petition No.1684 of 2006 decided on 11th July, 2006 : [2006(5) ALL MR 676] on the one hand, and the view taken in Sarvadaman M. Joshi & Ors. Vs. The Recovery Officer & Ors., Writ Petition No.5405 of 2005, accordingly directed the Registry to place the matter before the learned Chief Justice under Rule 28 of the Rules of the High Court of Judicature, Bombay, Original Side, for consideration by a Larger Bench. The questions referred are :

1. Whether in view of the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 read with Rules 11(1) and 11(6) of the, Second Schedule of the Income Tax Act, 1961 a person against whom an order is passed is entitled to institute a suit in a civil Court, or whether the said order can only be challenged by way of an Appeal under Section 30 of the Act?

2. Whether the provisions of Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are only restricted to those cases in which the property of the judgment-debtor is sought to be recovered in terms of Rule (4) of the second schedule of the Income Tax Act, 1961 ?

3. What is the remedy available to a party, who is not a party in proceedings before the Debts Recovery Tribunal, but, whose property has been declared by the Tribunal to be validly mortgaged in favour of a financial institution ?

2. The main question which we are called upon to answer is whether in fact there is a conflict in the views taken in the judgments referred to.

3. We may firstly refer to the judgment in Keshrimal J. Shah (supra). Bank of Maharashtra had filed a suit in this Court which on coming into force of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the RDB Act") was transferred to the Tribunal constituted under the RDB Act. The Original Application was decreed ex-parte and in consequence thereof a recovery certificate was issued by the Tribunal. The bank had earlier obtained a temporary injunction restraining the original defendant from alienating or transferring the immovable property. Inspite of the injunction, the respondent No.2 therein transferred the rights in favour of the petitioner No.2 therein which document was registered on 29th August, 2000. It was the case of the petitioners that on coming to know on 8th October, 2000 that the property was put up for auction by Recovery Officer of D.R.T. II, Mumbai,they moved an Application for intervention which was heard by the Recovery Officer and rejected. An appeal was preferred which was dismissed. The petitioners preferred Misc. Appeal before the Debt Recovery Appellate Tribunal (DRAT). That appeal was dismissed. Against that order a Writ Petition came to be filed before this Court. The learned Judge took a view that the transfer was void being in contravention of the order of injunction dated 6th March, 1998 and also that the petitioners had failed to substantiate by proof, that they are bonafide purchasers without notice. This order was challenged before the Appellate Bench of this Court. This Court framed two questions for consideration, which were :

"(i) Is transfer of an immovable property in contravention of a prohibitory or injunction order of a Court illegal or void;

(ii) Whether and to what extent, the procedure under Rule 11 of Second Schedule to Income Tax Act, 1961 is applicable in execution of a recovery certificate issued under Section 19(7) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short RDB Act)."

The learned Bench answered the 1st question in the affirmative and thereafter went on to proceed to answer the second question. In answering the second question this is what the learned Bench observed :

"The Parliament does not make it mandatory nor compulsory for the Recovery Officer to apply the Second and Third Schedule of I.T. Act and 1962 Rules, advisedly because the Legislature has provided safeguards after investigation of claims and obligations by Recovery Officer. This investigation can be challenged in appeal under Section 30 of the Act, which has been substituted with effect from 17th January, 2000. Even proceedings in such appeal are not final because section 20 of R.D.B. Act provides for a further appeal by person aggrieved against any order made or deemed to have been made by a Tribunal under R.D.B. Act. Such an appeal lies to the Debt Recovery Appellate Tribunal. To compel banks or financial institutions to either institute or defend proceedings after all this before a Civil Court is defeating and frustrating the Legislative Intent completely. Investigation and adjudication cannot be endless. That apart, the remedy to approach this Court in appropriate cases by invoking its jurisdiction under Articles 226 and 227 of the Constitution of India is always available. Hence, question No.2 is answered in these terms that it is not obligatory to apply Second and Third Schedule of I.T. Act and 1948 Rules while investigating a claim or objection to attachment and sale during the course of execution of recovery certificate under R.D.B. Act."

Thus, the Court did not hold that the jurisdiction of the Civil Court was barred but held that it is not obligatory to apply the Second and Third Schedule of I.T. Act and 1948 (1961) Rules, while investigating a claim or objection to attachment and sale during the course of execution of the recovery certificate under the R.D.B. Act.

4. We next examine the judgment in Dr. Anil Nandkishor Tibrewala [2006(5) ALL MR 676] (supra). The petitioner therein had moved the D.R.T. under the provisions of Section 19(25) of the R.D.B. Act. The Jammu & Kashmir Bank Ltd., had taken out proceedings before D.R.T., against the respondent Nos.2 to 10 in O.A. No.305 of 2002. That application was allowed which included a prayer that Flat No.902 was validly mortgaged in favour of Jammu and Kashmir Bank Ltd. A further direction granted was that on failure to pay the amount to the bank the bank was entitled to sell the flat. The Recovery Officer issued a certificate. The Jammu and Kashmir Bank moved an application for enforcement of recovery certificate by way of attachment of flat No.902. That application as allowed. The petitioners had applied for stay of attachment, which was not considered and consequently the petition. An Appeal was filed by the petitioners challenging the order dated 30th May, 2006 passed by the Recovery Officer. This Court framed the following questions for consideration :-

"What is the remedy available to a party, who is not a party in proceedings before the Debts Recovery Tribunal, but, whose property has been declared by the Tribunal to be validly mortgaged in favour of a financial institution ?

After considering the scheme of the Act, this Court arrived at a finding that in a case like that before it, the remedy under Section 20 would not be an effective remedy. The remedy under Section 30 in a case where deduction was raised would be an elusive and non-effective remedy. Section 29 in that case was held not to be available to a party. This Court posed a further question as to whether the Act provides a remedy to a person like the petitioner. In that context the Court observed that if a remedy is not available under the Act a party may have a remedy at Civil Court. This Court then considered Section 19(25) of the RDB Act which reads as under :

"19(25).The Tribunal may make such orders and give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice."

After considering this provision this Court observed that in those cases where the Recovery Officer cannot go beyond the certificate a party like the petitioner who claims title in the property or interest in the property can move the Tribunal by invoking its jurisdiction under Section 19(25), and in such cases if a prima facie case is disclosed before the Tribunal, the Tribunal is bound to consider the application so moved and dispose it according to law, after giving an opportunity to all parties before it. This Court in view of the nature of the proceedings taken out did not consider the provisions of Section 29 of the RDB Act, as what was being considered was, whether there was power under Section 19(25) of the R.D.B. Act. This judgment has also not taken the view that the jurisdiction of the Civil Court is barred. This Court specifically noted that it will not be open to the Investigating Officer in execution to go beyond the Certificate. In other words in proceedings in execution it was not open to the Executing Officer to go into the merits of the order passed by the Tribunal. This Court did not take a view that in proceedings in execution under second and third schedule of the I.T. Act and 1961 Rules against the order of the Recovery Officer rejecting an objection in execution a Civil Suit could not be filed by the objector.

5. The third Judgment for consideration is in the case of Sarvadman M. Doshi (supra). The issue before this Court in the Writ Petition was an order by the Recovery Officer confirming sale of plant and machinery in execution of the recovery certificate and orders passed by D.R.T., and by the Appellate Tribunal in Appeal. In that case the Bank of India had instituted a suit for recovery of dues against a company by the name of Mansukh Industries Ltd. That company was ordered to be wound up by order dated 20th December, 1999, and the Official Liquidator took the possession of the property on 18th January, 2001. On 9th May, 2001 the application filed by the bank was allowed in the sum of Rs.13,31,71,362/- together with interest at the rate of 18% per annum. The Tribunal held that the bank was entitled to execute the decree by the sale of movable and immovable assets as they held a valid charge which was registered with the Registrar of Companies in 1994. In execution of the recovery certificate, a warrant of attachment was issued on 31st August, 2002 in respect of the properties. The plant and machinery were put up for sale, which was confirmed on 9th March, 2005. The possession was handed over to the respondent in that petition. Appeal filed by the petitioners was dismissed. That order was confirmed by the Appellate Tribunal. While considering the issue as to whether this Court should exercise its extra-ordinary jurisdiction this Court noted that in view of the provisions of law that held the field, the remedy which is available to the petitioner is to institute a suit challenging the sale of the plant and machinery. This Court considered the provisions of the Second and Third Schedules to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962. This Court further observed that the view formed in regard to the necessity of relegating the petitioners to the institution of a suit is supported in the facts of the case as well, by the nature of the controversy which arose between the parties. The petitioners contention was that the property did not belong to the company in liquidation but constituted the assets of the partnership. Though the petitioner had filed the objections before the Recovery Officer for raising the warrant of attachment the property came to be sold without the objections being dealt with. Considering the controversy as to the title to the property and the nature of the evidence that would have to be adduced this Court took the view that it would be a fit case where liberty be granted to institute a suit in the Court of Competent jurisdiction. This Court, therefore, took the view that from proceedings in execution rejecting the claim of the objector, such party could file a suit for determining his title to the property.

6. With that background let us now consider the arguments advanced at the bar on behalf of the parties to answer the question raised. On behalf of the plaintiffs it is submitted that there is no finding in any of the judgments Keshrimal T. Shah (supra) or Dr. Anil Nandkishor Tibrewala, [2006(5) ALL MR 676] (supra)to the effect that third party whose property has been declared by the D.R.T. to be validly mortgaged in favour of a bank and/or financial institution and properties attached and sold in execution, from an order rejecting his objections are prevented or precluded by any provisions contained in the R.D.B. Act from filing a suit in the Civil Court to enforce his rights with regard to such property and as such there is no conflict whatsoever in the view taken by the aforesaid judgments. Learned Counsel has placed reliance on the judgment of the Supreme Court in Dhulabhai Vs. State of Madhya Pradesh & Anr., AIR 1969 S.C. 78 and the judgment in Raja Ram Kumar Bhargava Vs. Union of India, (1988)1 S.C.C. 681. Reference is then made to the provisions of Sections 17 and 18 of the R.D.B. Act to contend that the bar of jurisdiction as set out under Section 18 applies only to application from banks and financial institutions for recovery of dues of such banks and financial institutions. It is also pointed out that Rule 11(6) of the Second Schedule of the Income Tax Act by reference has been incorporated into the R.D.B. Act. The R.D.B. Act has expressly reaffirmed the right of such third party to institute a Civil Suit to establish his right to the property and making the orders passed by the Recovery Officer subject to the result of such suit. For the scope of Rule 11(6) reliance is placed on the judgment in Tax Recovery Officer II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade, (1998)6 SCC 658 where the Court observed that the procedure there is not meant to decide intricate questions of law as to title to the property. Our attention is also invited to the judgment in Allahabad Bank Vs. Canara Bank and Anr., (2000)4 SCC 406 : [2000(3) ALL MR 475 (S.C.)], to contend that the judgment nowhere has taken the view that the jurisdiction of Civil Court has been ousted. It is, therefore, pointed out that the suit as instituted by the Plaintiffs is maintainable and the jurisdiction of the Civil Court is not expressly barred.

7. On the other hand on behalf of the Defendant No.1 - Union Bank of India their learned Counsel has made the following submissions :-

Such a suit in law is barred as the jurisdiction of the Civil Court is expressly and/or by necessary implication or impliedly excluded. The R.D.B. Act, is a self contained Code which provides a remedy for such persons and ousts the jurisdiction of the Civil Courts to entertain such suits. The R.D.B. Act, is a common code for adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. Considering the provisions of RDB Act one important fact has to be appreciated is that the Civil Court in exercising jurisdiction will have to hold that the declaration, by the Tribunal of the factum of a mortgage, was erroneous. The only and inevitable consequence of holding that such a civil suit can lie, is to permit a civil court to review the correctness of the decision of the Debt Recovery Tribunal.

The learned Counsel has also taken us through the statement of Objects and Reasons of the RDB Act 1993 and the Amendment Act of 1991 and placed reliance on the judgment in Allahabad Bank [2000(3) ALL MR 475 (S.C.)] (supra) to contend that the jurisdiction of the Civil Court is clearly excluded. It is next submitted that the arguments advanced on behalf of the Plaintiffs does not take into consideration the specific provisions of Section 17 or 18 of the RDB Act. The claims of third parties, it is submitted, considering the judgment of this Court in Dr. Anil Nandkishor Tibrewala [2006(5) ALL MR 676] (supra) would be under the RDB Act and this Court whilst interpreting the provisions of Rule 11(6) will have to take into consideration the serious consequences or mischief that will follow if a view is taken that the orders of the Tribunals are left open for challenge before the Civil Court. Even in respect of objections raised by third party an appeal would lie, as the nature of the objections would be to the mode of recovery.

8. In answering the issue we will have to consider the provisions of the RDB Act including Section 29 which by incorporation has made applicable the provisions of the Second and Third Schedules to the Income Tax Act as also the Income Tax (Certificate Proceedings) Rules, 1962 as in force from time to time. These provisions, shall as far as possible apply with modifications as if the said provisions referred to a debt due under this Act instead of Income Tax Act.

9. To understand the various contentions, let us firstly consider the background to the enactment of the RDB Act, 1993 and the Amendment Act 1 of 2000. The Act as its preamble discloses seeks to provide for the establishment of Tribunals, for expeditious adjudication and recovery of debts due to Banks and Financial Institutions. We may gainfully refer to the Statement of Objects and Reasons of the RDB Act, which read as under:

"Statement of Objects and Reasons :-

1.Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the bans and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the financial system headed by Shri. M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri. T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a long felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September 1990, more than fifteen lakhs of cases fled by the public sector banks and about 304 cases filed by the financial institutions were pending in various Courts, recovery of debts involved more than Rs.5662 Crores in dues of Public Sector Banks and about Rs.391 Crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of the funds for the development of the country.

2. The Bill seeks to provide for the establishment of Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions."

10. Similarly we may make gainful reference to the Statement of Objects and Reasons of the Amendment Act 1 of 2000, which read as under :

"Statement of Objects and Reasons :-

1. The Recovery of Debts due to Banks and Financial Institutions Act, 1993 was enacted on 27th August, 1993 to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto.

2. The legality and validity of the Act, was, however, challenged in the Delhi High Court. in the matter of Delhi High Court Bar Association Vs. Union of India (AIR 1995 Delhi 323), the Delhi High Court in its judgment and order dated the 10th March, 1995, while upholding the powers of the Central Government to constitute Tribunals other than the Tribunals constituted in exercise of powers under Articles 323-A and 323-B of the Constitution, declared the aforesaid Act unconstitutional and void on ground which inter alia include that -

(i) the Act does not contain provisions for set-off, counter claims or transfer of cases from one Tribunal to another;

(ii) the Act has placed the Tribunals on a pedestal higher than the High Court in respect of monetary jurisdiction; and

(iii) the judiciary has been given no role in the appointment of Presiding Officers.

3. In the Special Leave Petition, filed before it, the Hon'ble Supreme Court on 18th March, 1996, while dealing with Transfer Petitions (Civil) 659-667/95 directed that notwithstanding any stay order passed in any of the Writ Petitions sought to be transferred to the Supreme Court, the Debts Recovery Tribunals established under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 shall resume their functions. The Debts Recovery Tribunals have been functioning under the stay order granted by the Supreme Court for over fifty months. In subsequent hearings before the Hon'ble Supreme Court, a submission was made that the Central Government would consider amending the Act to address the legal anomalies while ensuring that the dedicated nature of the recovery system does not get diluted. In backdrop of the observation made by the Supreme Court, there was a possibility that the Supreme Court would vacate the stay order against the order of Delhi High Court. in such an eventuality, the Tribunals would cease to exist, all case which have been transferred to Debts Recovery Tribunals from the High Courts or have been freshly instituted before the Debts Recovery Tribunals would have to be transferred back to respective High Courts and all progress made by the Tribunals would be undone. The above circumstances necessitated that the purported amendments may be given effect by promulgation of an Ordinance. These amendments have been made to address the legal anomalies observed by the Hon'ble Court. It is now necessary that the Ordinance may be replaced by an Act.

4. Amendments to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are proposed to ensure expeditious adjudication and recovery of dues to banks and financial institutions, remove legal anomalies and strengthen the Recovery Tribunals. The main provisions of the Bill relate to -

(i) set-off and counter claims, appointment of Receivers and Commissioners by the Tribunal, transfer of cases from one Tribunal to another and appointment of more than one Recovery Officer in a Tribunal;

(ii) empowering the Tribunals to issue certificates for recovery of enhanced or reduced amount on the basis of the final order of the Appellate Tribunal;

(iii) empowering the Chairperson of the Appellate Tribunal to appraise the work of Presiding Officers of Tribunals and discharge functions of the Chairperson of another Appellate Tribunal;

(iv) the transfer of recovery certificates from one Tribunal to another Tribunal to facilitate recovery;

(v) empowering the Tribunals to distribute sale proceeds among the secured creditors in accordance with the provisions of Section 529-A of the Companies Act;

(vi) the laying of notifications issued under sub-section (4) of Section 1, section 2 and section 8 of the Act before the Parliament.

5. The Bill seeks to replace the said Ordinance."

11. As can be seen from the Statement of Objects and Reasons the Act was introduced to provide an alternative forum to the Civil Court by way of Tribunals to decide claims by financial institutions in respect of debts due to them by borrowers. The amendment Act, I of 2000, inter alia, sought to empower the Tribunals created and functioning under the RDB Act with (i) the power to entertain set offs and counterclaims; and (ii) the power to distribute sale proceeds of companies in liquidation, among secured creditors under Section 529-A of the Companies Act, 1956. Considering these objects the primary underlying object of the RDB Act and Amendment Act I of 2000 is the expeditious adjudication and recovery of dues of banks and financial institutions. In the case of United Bank of India Vs. The Debts Recovery Tribunal and Ors. [(1999)4 SCC p.69] : [1999(2) ALL MR 570 (S.C.)], the Hon'ble Supreme Court of India, observed as under :

"6. The Act and he relevant provisions will have to be construed bearing in mind the objects for which the Parliament passed the enactment. The prime object of the enactment appears to be to provide for the establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental."

12. Having considered the object behind enacting the RDB Act (including the 2000 Amendment), we may consider some provisions of the RDB Act :-

"Section 2(g) : "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application."

Section 17 : Jurisdiction, powers and authority of Tribunals. (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.

(2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act."

Section 18 : Bar of Jurisdiction : On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers of authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17.

Section 20 : "Appeal to the Appellate Tribunal. (1) Save as provided in sub-section (2), any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to an Appellate Tribunal having jurisdiction in the matter.

(2) No Appeal shall lie to the Appellate Tribunal from an order made by a Tribunal with the consent of the parties.

(3) Every appeal under sub-section (1) shall be filed within a period of forty five days from the date on which a copy of the order made, or deemed to have been made, by the Tribunal is received by him and it shall be in such form and be accompanied by such fee as may be prescribed :

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty five days if it is satisfied that there was sufficient cause for no filing it within that period.

(4) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal, an opportunity to being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(5) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Tribunal.

(6) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose off the appeal finally within six months from the date of receipt of the appeal."

"Section 22(e) : reviewing the decisions.

Section 29 : "Application of certain provisions of Income Tax Act. The provisions of the Second and Third Schedules to the Income Tax Act, 1961 (43 of 1961) and the Income Tax (Certificate proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the income tax."

Section 30 : "Appeal against the order of Recovery Officer. (1) Notwithstanding anything contained in section 29, any person aggrieved by an order of the Recovery Officer made under this Act may, within third days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal.

(2)On receipt of an appeal under sub-section (1), the Tribunal may, after giving an opportunity to the appellant to be heard, and after making such enquiry as it deems fit, confirm, modify or set aside the order made by the Recovery Officer in exercise of his powers under sections 25 to 28 (both inclusive)"."

Section 34 : "Act to have overriding effect. (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporation Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act,1984 (62 of 1984), the Sick Industrial Companies (Special Provision) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)."

13. We may also refer to Rules 9 and 11 (to the extent required) of the Second Schedule to the Income-Tax Act, 1961 Rules 9 and 11 reads as under :-

"General bar to jurisdiction of civil Courts, save where fraud alleged :

9. Except as otherwise expressly provided in this Act, every question arising between the Tax Recovery Officer and the defaulter or their representatives, relating to the execution, discharge or satisfaction of a certificate or relating to the confirmation or setting aside by an order under this Act of a sale held in exclusion of such certificate, shall be determined, not by suit, but by order of the Tax Recovery Officer before whom such question arises : Provided that a suit may be brought in a civil court in respect of any such question upon the ground of fraud.

Rule 11 reads as under :

"Investigation by Tax Recovery Officer :

(1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection :

Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.

(2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.

(3) The claimant or objector must adduce evidence to show that -

(b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.

(4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.

(5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.

(6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive."

14. An informed and purposive reading of the RDB Act, would make it clear that the RDB Act is a self contained Code for all matters concerning the adjudication and 'recovery' of debts due to banks and financial institutions in respect of :

(i)'adjudication' of debts due to banks and financial institutions;

(ii)'recovery' of debts due to banks and financial institutions; and

(iii) all matters 'connected' or 'incidental' to (i) and (ii).

In other words, once there is an application made by a Bank or Financial Institution asserting that there is a debt due to it, the Tribunals constituted under the RDB Act alone can decide matters of 'adjudication'; 'recovery'; and matters connected or incidental thereto including counter claims and set off.

15. At this juncture before proceeding further we may consider one of the arguments advanced on behalf of the defendant that permitting a Civil Court to exercise jurisdiction would be permitting a review of the judgment and/or order of Authorities under the R.D.B. which have become final.

16. This argument, in our opinion, has to be rejected for the following reasons :-

a) An order which affects the rights of parties to which such parties were not parties would not bind such parties.

b) The RDB Act does not expressly contain any specific provision giving finality to the order passed by the D.R.T., though under Section 34(1) the Act has overriding effect subject to what is contained in Section 34(2).

c) The jurisdiction now exercised by Tribunals under the RDB Act was earlier exercised by the Civil Court under Section 9 of the Code of Civil Procedure, which is now excluded in matters covered by Section 17 of the RDB Act.

17. Let us now consider the judgment in Allahabad Bank Vs. Canara Bank [2000(3) ALL MR 475 (S.C.)] (supra).

The Supreme Court was considering the conflicting jurisdictional provisions of the RDB Act and the Companies Act, insofar as determination of priorities of rival claims was concerned. The rival claims which were considered by the Hon'ble Supreme Court were (i) claims by Banks and Financial Institutions; and (ii) claims by other creditors. It was contended before the Supreme Court that, under the Companies Act, 1956, in the case of a company in liquidation, the question of priorities was required to be determined by the Company Court/liquidator. It was contended that the machinery under the RDB Act was only for claims by banks and secured creditors whilst the provisions of the Companies Act covered all claims. After an exhaustive discussion of the provisions of the RDB Act and circumstances which led to its enactment, the Supreme Court held that the Debt Recovery Tribunal had exclusive jurisdiction to decide the issue of priorities of all claimants (including third parties), since claims by Banks and Financial Institutions were involved.

What falls from the decision would be the following propositions :-

i. the jurisdiction of the tribunals under the RDB Act is exclusive on matters of 'adjudication' and 'recovery'. In other words, even in matters of 'execution' of a Recovery Certificate, the jurisdiction is exclusive;

ii. the exclusive jurisdiction covers claims by third parties, as well and exclusivity cannot be restricted to Banks/Financial Institutions and the Defendant to the Original Application (OA) filed before the DRT. A totally independent third party creditor whose claim has no nexus with the claim of the Bank/Financial institution, is entitled to file objections before the Recovery Officer constituted under the RDB Act, because his claim potentially conflicts/impacts/affects the claim by the Bank/Financial Institutions;

18. Thus it will be clear that on consideration of the Statement of Objects and Reasons of the Act and the Amendment Act they inter alia seek to empower the Tribunals functioning under the RDB Act to adjudicate disputes between the Banks and Financial Institutions and their borrowers and in view of the Amendment Act 1 of 2000 also entertain set-off and counter-claims as also the power to distribute the sale proceeds of the companies in liquidation amongst secured creditors under Section 529-A of the Companies Act.

19. The next question that will have to be considered is whether the judgment in Allahabad Bank [2000(3) ALL MR 475 (S.C.)] (supra) has concluded the issue as to the ouster of jurisdiction of the Civil Court. The Court had fixed as many as six points for consideration as set out in para.13. We are concerned with Point No.1 which reads as under :

"(1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres ?"

After considering the scheme of the Act the Court observed that it is not intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the banks/financial institutions should go to the civil court or the Company Court or some other authority outside the Act for the actual realisation of the amount. The Certificate granted under Section 19(22) has, to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Considering Section 34, the Court further observed that the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. It is, therefore, held that the jurisdiction of the Recovery Officer is exclusive. After having so said the Court noted as under :

"25.Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other court or authority much less the civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act."

Thus the adjudication of liability and the recovery of the amount by execution of certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said question relating to the liability and the recovery except as provided in the Act. Therefore, parties will have to seek remedies under the Act. It would thus be clear that even in respect of matters pertaining to execution it is the Recovery Officer alone who would have jurisdiction. That would be subject to the other provisions of the Act which would include Section 29 as also Rule 11 of the second Schedule to the Income Tax Act.

20. Earlier in United Bank of India Vs. The Debts Recovery Tribunal & Ors., 1999(4) SCC 69 : [1999(2) ALL MR 570 (S.C.)] the Court had observed that the Act and the relevant provisions will have to be construed bearing in mind the objects for which the Parliament passed the enactment. The prime object of the enactment appears to be to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Court then observed as under :

"In ascertaining the question whether any particular claim of any bank or financial institution would come within the purview of the tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint have to be looked into and then find out whether notwithstanding the specially created tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such tribunal is ousted."

21. The ouster of jurisdiction of the Civil Court to that extent will also have to be considered and we may gainfully refer to some of the conclusions arrived at by the Supreme Court in Dhulabhai etc. Vs. State of Madhya Pradesh and Anr., AIR 1969 S.C. 78. The following principles may be gainfully reproduced from the said judgment :

"The result of this inquiry into the diverse views expressed in this Court may be stated as follows :-

(1) Where the statute gives a finality to the orders of the special tribunals the Civil Courts jurisdiction must be held to be excluded if there is adequate remedy be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure.

(2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.

Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be devisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not.

(3).... (4).... (5)....

(6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular Act must be examined because it is a relevant equity.

(7)An exclusion of the jurisdiction of the civil Court is not readily to be inferred unless the conditions above set down apply."

22. These principles have been reiterated in Raja Ram Kumar Bhargava (Dead) by Lrs. Vs. Union of India, (1988)1 SCC 681. We may gainfully reproduce paragraph 19 which reads as under :

"19.But then, even if the right to claim interest on the refunds of excess profits tax could be said to have been preserved, the question yet remains whether a suit for its recovery is at all maintainable. The question runs on the scope of the exclusionary clause in the statute. The effect of clauses excluding the civil court's jurisdiction are considered in several pronouncements of the Judicial Committee and of this Court (see Secretary of State Vs. Mask & C., K. S. Venkataramkan & Co. Vs. State of Madras; Dhulabhai Vs. State of Madhya Pradesh, Premier Automobiles Ltd. Vs. Kamalakar Shantaram Wadke. Generally speaking, the broad guiding considerations are that wherever a right, not pre-existing in common law, is created by a statute and that statute itself provided a machinery for the enforcement of the right, both the right and the remedy having been created uno flatu and a finality is intended to the result of the statutory proceedings, then, even in the absence of an exclusionary provision the civil Court's jurisdiction is impliedly barred. If, however, a right pre-existing in common law is recognised by the statute and a new statutory remedy for its enforcement provided, without expressly excluding the civil Court's jurisdiction, then both the common law and the statutory remedies might become concurrent remedies leaving open an element of election to the persons of inherence. To what extent, and on what areas and under what circumstances and conditions, the civil court's jurisdiction is preserved even where there is an express clause excluding their jurisdiction, are considered in Dhulabhai case." (emphasis supplied).

23. Before proceeding to answer the issue, we may also refer to the scope of Rule 11 of the Second Schedule. The Hon'ble Supreme Court in Tax Recovery Officer II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade, (1998)6 SCC 658, was considering the scope of Rule 11. This Court had taken a view that the Tax Recovery Officer had no power under Rule 11 of the Second Schedule to the Income Tax Act to declare as void, transfer of property effected by the Respondent there during the pendency of proceedings against him under the Income Tax Act. The Court noted the provisions of Section 281 of the Income Tax Act and held that Section 281 merely declared what the law was. Section 281 did not prescribe any adjudicatory machinery for deciding any question which may arise under Section 281. As such the legislature had no intention to confer an exclusive power and jurisdiction upon the Income Tax Authorities to decide the questions arising under Section 281. The Court there was considering the question whether in a proceeding under Rule 11 of the Second Schedule to the Income Tax Act the Tax Recovery Officer can declare a transfer as void under Section 281. After considering the powers of the Tax Recovery Officer and Rule 11(4)(5) and (6) the Court observed that what the Tax Recovery Officer has to examine is who is in possession of the property and in what capacity. Such Officer cannot declare any transfer made by the assessee in favour of third party as void. If the department finds that the property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a suit under Rule 11(6) to have the transfer declared void under Section 281. The Court then proceeded to observe as under:

"12. In the light of this discussion about the provisions of Order 21, Rules 58 to 63, if we examine Rule 11(4) of the Second Schedule to the Income Tax Act, it is clear that the Tax Recovery Officer is required to examine whether the possession of the third party is of a claimant in his own right or in trust for the assessee or on account of the assessee. If he comes to a conclusion that the transferee is in possession in his or her own right, he will have to raise the attachment. If the Department desires to have the transaction of transfer declared void under Section 281, the Department being in the position of a creditor, will have to file a suit for a declaration that the transaction of transfer is void under Section 281 of the Income Tax Act."

24. Thus Rule 11 as incorporated in the provisions of the RDB Act specifically provides for third party objections. Sub-Rule (6) makes it specifically clear that where a claim or objection has been preferred the party against whom an order is made such party may institute a suit in the Civil Court to establish the right which he claims in the property in dispute, but subject to the result of such suit, if any, the order of the Tax Recovery Officer, shall be conclusive. For the Tax Recovery Officer we will have to read Recovery Officer. Assessee in terms of Section 29 shall be construed as the Defendant. Rule 9 of the Second Schedule would also indicate that dispute between the bank and the debtor the machinery would be under the RDB Act and not by way of suit. However, in respect of objections of third parties who have a claim it is the procedure under Rule 11 to the extent applicable which will have to be considered.

25. On behalf of the Defendants learned Counsel referred to the judgment in N. K. Chauhan & Ors. Vs. State of Gujarat & Ors., (1977)1 SCC 308 where the Supreme Court was considering the meaning of expression "as far as practicable". While considering the said expression the Supreme Court observed as under :

"In short 'as far as practicable' means, not interfering with the ratio which fulfills the interest of administration, but flexible provision clothing government with powers to meet special situations where the normal process of the government resolution cannot flow smooth. It is a matter of accent and import which affords the final test in the choice between the two parallel interpretations."

The expression as far as possible has also been considered by the learned Division Bench of this Court in Keshrimal J. Shah (supra) in the very context of this Act. This Court rightly noted that the provisions do not get themselves incorporated completely. They have to be read into as far as possible and subject to such modification as the context as well as object and purpose of the Act require. Similarly, a Division Bench of the Andhra Pradesh High Court in P. Mohanreddy & Ors. Vs. Debts Recovery Appellate Tribunal, Mumbai & Ors., AIR 2004 A.P. 94 had also occasion to consider the expression "as far as possible" in the context of Section 26. The learned Division Bench observed that the language employed is such that there is flexibility and it is not mandatory to follow the rules as they are. Section 29 does not impose an obligation on the Recovery Officer to meticulously follow the provisions of Second and Third Schedules.

26. In our opinion while considering the expression "as far as possible", the Court first will have to examine the power conferred under the provisions. Thereafter in exercise of the powers the Court will have to examine whether the plain or literal language of the provisions would be inconsistent with the provisions of the Act or the Rules and if it is so finds, then read it in a manner which will not make the Rule inconsistent. If so read then the expression "as far as possible" can be correctly understood. As an illustration in the Act itself the expression assessee has been referred to as the Defendant. This gives an indication of the intent of the Legislature as to how Section 29 has to be read. It cannot mean that Section 29 and second and third schedule and the Rules referred to are to be held otiose. A proper way of reading the said words would be to give an effective meaning to the language of the Second and Third Schedule of the Rules which prescribe a procedure for claims by third parties and which expressly under Rule 11(6) provides that when a claim or objection preferred has been rejected a party against whom an order is made may institute a suit in the Civil Court to establish his right in the property in dispute. This must be read in the context of the observations by the Supreme Court in G. V. Ranade (supra) that issues pertaining to title cannot be gone into by the Recovery Officer while considering the third party claim in proceedings in execution.

27. Having so considered it is clear that under Section 17 of the RDB Act the D.R.T. has exclusive jurisdiction to decide the application from banks and financial institutions for recovery of debts as defined under Section 2(g) of the Act. Section 18 makes it clear that in respect of such exclusive jurisdiction pertaining to debts conferred by Section 17 no Court or Authority shall have jurisdiction. This obviously would not include a third party claimant, who is not liable for any debt. The judgment in Dr. Anil Nandkishor Tibrewala, [2006(5) ALL MR 676] (supra) which considered Section 19(25) of the RDB Act will have to be considered in the context that where an order is passed which has the effect of amounting to an abuse of the process of the Court, then it may be open to the Tribunal to examine the issue to the extent that it can consider.

28. Chapter V deals and specifies the procedure in so far as recovery of debt already determined by the Tribunal. Section 25 provides the mode of recovery of debts. Section 26 makes it clear that the defendant cannot dispute the correctness of the amounts specified in the certificate and any other objection to the certificate. Section 27 amongst others confers a power to correct a clerical or arithmetical mistake in the Certificate by withdrawing the certificate. Section 27 is a power of granting stay. Section 28 provides other modes of recovery other than that provided under Section 25. Sections 25, 26, 27 and 28, therefore, deal exclusively with the recovery of amounts under a certificate issued under Section 19 and mode of recovery if the amounts set out in the certificate. Section 29 in the context of recovery of the amounts due under the certificate makes applicable the provisions of Income Tax Act and certificate proceedings Rules as set out.

29. Section 30 as now substituted by Act 1 of 2000 begins with a non-obstante clause. A person aggrieved by an order of the Recovery Officer may within thirty days from the date on which a copy of the order is issued to him, prefer an appeal to the Tribunal. Under Sub-section (2) of Section 30 a power is given to set aside or modify an order made under Sections 25 to 28. Section 30 co-jointly with Section 29 would mean that irrespective of the Appellate remedy provided in Part VI of IInd Schedule (Rule 86) to the I.T. Act an Appeal would lie to the Tribunal in respect of orders made under the Second Schedule to the I.T. Act. We may clarify that considering the language of Rule 11(6) an appeal would not lie under Rule 86 of the Second Schedule. Therefore, under Section 30 even if an appeal as provided under Rule 86 is not available because of Rule 11(6) making the order of the Recovery Officer conclusive, nevertheless Section 30 of the Act provides a remedy by way of Appeal against the order passed under the IInd Schedule. We may clarify here that Section 20 is a provision for Appeal from an order of the Tribunal, when Section 30 is a provision for appeal against the order of the Recovery Officer.

29-A.If the Act itself provides a remedy is it open to a Court by a process of interpretation to deny to a party that remedy which is a remedy under the Act itself. Under Rule 9 of the Schedule II to the Income Tax every question arising between the Recovery Officer and the defaulter as set out has to be determined by the Recovery Officer and not by a suit. In other words the jurisdiction of the Civil Court in such matter is barred. Under Rule 11 when a claim or objection is preferred by a third party to the attachment or sale of property, under Rule 11(6) the party against whom an order is passed may institute a Civil Suit. This, therefore, is a remedy expressly provided by the Act itself. Thus in matters pertaining to execution of certificate, apart from the modes available under Sections 25 to 28, by virtue of Section 29, which by incorporation has made the provision of the Second and Third Schedule to the Income Tax Act and the Income Tax (Certificate Proceedings) Rules, 1962 as a part of Chapter V of the R.D.B. Act that mode is also available. Thus the R.D.B. Act itself in a matter pertaining to execution or enforcement of a certificate and objection claim by a third party to attachment or sale has provided the remedy of suit. Thus it would be clear that in such matters the jurisdiction of the Civil Court is not barred.

30. In our opinion, therefore, on a construction of the various contentions raised and even after considering the expression "as far as possible" it is not possible to hold that the jurisdiction of the Civil Court is totally ousted, in matters pertaining to third party claims regarding attachment or sale of property. execution. Thus it will be open to a party to take recourse to the remedy available under Section 30 if it has made its claim before the Recovery Officer and that is rejected. This is because the title to the property as explained by the Supreme Court in Gangadhar V. Ranade (supra) cannot be decided by the Recovery Officer under the Second Schedule of the I.T. Act and that has been left open for consideration by a Civil Court. The judgment in Allahabad Bank [2000(3) ALL MR 475 (S.C.)] (supra) in para.25, which we have referred to earlier, has also made this expressly clear when it uses the expression "except as provided under the Act".

31. It will, therefore, not be possible to hold that inspite of the specific provision of Rule 11(6) of the Second Schedule to the Income Tax Act, the jurisdiction of the Civil Court is expressly or impliedly barred. That would be rendering the Rule 11 otiose. Such a construction is not possible. When the Act itself has provided a remedy, that remedy cannot be defeated by an interpretative process that renders the statutory remedy otiose.

32. In our opinion considering the discussion in none of the three Judgments which have been considered, this Court has taken the view that the jurisdiction of the Civil Court is impliedly or expressly barred. The judgments of the Courts are not to be interpreted like a statute. The ratio has to be culled out from the facts and what was in issue. What has to be considered is the ratio of the judgment. It is, therefore, not possible to accept the contention that on the consideration of the judgments this Court has taken a view that the jurisdiction of the Court is expressly or impliedly barred.

33. In that context the question referred to for our consideration may now be answered.

(i) Question No.1 would have to be answered in the affirmative. The remedy of an Appeal provided under Section 30 would not oust the jurisdiction of the Civil Court in entertaining a Civil Suit as provided under Rule 11(6) of the Second Schedule to the I.T. Act.

(ii) Question No.2 will have to be answered with a clarification. Section 29 incorporates Schedule II of I.T. Act into the R.D.B. Act and provides another mode of recovery in terms of the certificate from the defaulter (judgment debtor). However, third parties who have a right or interest to the property sought to be attached or sold can considering Rule 11 of the Second Schedule to the Income Tax Act file their objections. With the above clarification the question is answered in the affirmative.

(iii) In so far as Question No.3 is concerned, the normal remedy of such a party could be to invoke the provisions of Rule 11 of the Second Schedule to the I.T. Act. It is also open to a third party aggrieved by a declaration in respect of a property in which such party claims a right or interest to apply under Section 19(25), if that provision is attracted.

(iv) The questions as referred are accordingly answered.

Ordered accordingly.