By TIOL News Service

AHMEDABAD, AUG 10, 2017: THE ISSUE BEFORE THE COURT IS - Whether Tax Recovery Officer can prevent a Bank as a secured creditor from realizing its unpaid dues through sale of secured assets, if neither the assessment nor the income tax dues of the borrower was finalised at the time of mortgage of property. NO is the verdict.

Facts of the case:

The Petitioner is a nationalized bank. One Anmol Baidkumar Agarwal i.e., a borrower, had obtained credit facility in his favour through his firm M/s. A A& Brothers, a proprietary concern in the year 2010 with a cash credit limit of Rs.5 crores from the petitioner bank. For such purpose, the borrower had created security interest in an immovable property near Girdharnagar, Shahibaug, Ahmedabad, by executing an equitable mortgage and was also duly registered before the registering authority. The proprietary concern was later on converted into a limited company in the year 2012. The borrower however, could not repay the principal sum with accumulated interest and therefore owed a sum of Rs.17,14,14,614/- to the bank. The bank therefore issued a notice u/s 13(2) of SARFAESI Act, 2002, indicating that the bank proposed to take further action in terms of Section 13(4) against the said property of the borrower and other properties of the guarantors mentioned in the notice, if the dues remained unpaid. Subsequently, the bank also proceeded against the said property and took possession thereof u/s 13(4). After public auction, the property was sold for a sum of Rs.99 lakhs, for which, sale certificate was issued. In the meantime, the Tax Recovery Officer issued an order of attachment against the original borrower in purported exercise of powers u/s 222 of the I-T Act on the ground that he had failed to pay a sum of Rs.8,99,69,620/- along with interest, for which, a certificate has also been issued by the Tax Recovery Officer. The borrower therefore was prohibited from transferring or charging the said property in any manner.

On appeal, the HC held that,

++ it is seen that the borrower had created security interest in an immovable property by executing an equitable mortgage for availing cash credit facility from the petitioner bank. At that time, neither the assessment nor the income tax dues of the borrower were in picture. The dues which the Revenue now seeks to recover through the property in question, we are informed, pertain to assessment year 2012-13. In that view of the matter and in view of section 31B of the Recovery of Debts and Bankruptcy Act 1993, the Revenue cannot prevent the petitioner bank as a secured creditor from realizing its unpaid dues through sale of secured asset.

(See 2017-TIOL-1525-HC-AHM-IT)