MANU/MH/0627/2014

Equivalent Citation: 2014(5)ABR417, IV(2014)BC 305(Bom.), 2014(4)BomC R833, [2015]188C ompC as605(Bom), (2014)271C TR(Bom)233

IN THE HIGH COURT OF BOMBAY

Writ Petition No. 2722 of 2013
Decided On: 06.05.2014
Appellants: Canara Bank
Vs.
Respondent: Debts Recovery Appellate Tribunal and Ors.
Hon'ble Judges/Coram:
S.J. Vazifdar and B.P. Colabawalla, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Mr. Prathamesh Kamat and Mr. N.K. Kamat
For Respondents/Defendant: Ms. N.G. Thakkar, Senior Counsel, Mr. M.K. Shah and
Mr. G.C. Mohanty, i/b M/s. Mohanty & Associates, Mr. Mihir C. Naniwadekar, Amicus
Curiae
JUDGMENT
S.J. Vazifdar, J.
1. The petitioner has challenged the order dated 10th September, 2013 passed by the
Debt Recovery Appellate Tribunal and sought a declaration that it is entitled to
commission at the rate of 3% of the value of the guarantees issued by it in favour of
the Prothonotary and Senior Master at the request of M/s. Shah Thakur and Sons.
2 . Respondent Nos. 2 and 3 are M/s. Manish Estate Private Limited and M/s. Shah
Diagnostics Institute Private Limited Respondent Nos. 4 to 7 (in the title through
inadvertence two respondents have been arrayed as respondent No. 4) are individuals
who had guaranteed the amounts due and payable by respondent No. 3 to the
petitioner. Respondent No. 2 was the owner of an immovable property in Mumbai.
The property was mortgaged with the petitioner as security for repayment of the
facilities sanctioned by the petitioner to respondent No. 3. Respondent No. 3 is the
sister concern of respondent No. 2.
3. The question of law raised by the petitioner admits of no difficulty. The question,
if answered in the petitioner's favour, would have the most alarming effect on the
provisions of The Recovery of Debts Due to Banks and Financial Institutions Act,
1993 (hereinafter referred to as the "RDDB Act") and, in turn, on the provisions of
the Income Tax Act, 1961. We have, therefore, dealt with the issue in detail.
4. It would be useful to preface the judgment with a summary.
(A) The petitioner's O.A. was allowed in the sum of Rs. 1.67 crores. The petitioner
initiated recovery proceedings. A party, in whose favour an award was passed,
instituted execution proceedings. The property in question was sold by the Debts
Recovery Tribunal, pursuant to orders in the execution proceedings. The recovery
certificate and the award stood satisfied from the sale proceedings, leaving a balance

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of about Rs. 42 crores. The petitioner then made an application for payment of
amounts allegedly due to it as commission for guarantees issued by it at the
respondents request from out of the balance sale proceeds. This claim, which was
denied by the respondents, had not been adjudicated upon by any Court, Tribunal or
authority. Nor had the petitioner filed any proceedings to have it adjudicated. The
respondents, therefore, contended that the Recovery Officer is not entitled to
adjudicate claims in execution/recovery proceedings.
(B) The question that falls for consideration in this petition is whether under the
RDDB Act, the Recovery Officer is entitled to utilize the balance proceeds from the
sale of a property in execution of a recovery certificate towards the satisfaction of any
unadjudicated claim of any party, including of the holder of the recovery certificate.
The question, in other words, is whether the Recovery Officer is entitled to adjudicate
the unadjudicated claims himself in the recovery/execution proceedings and to utilize
the balance amounts to satisfy the claims so adjudicated by him.
(C) Section 29 of the RDDB Act makes the provisions of the Second Schedule to the
Income Tax Act applicable as far as possible and with necessary modifications. Rule 8
of the Second Schedule deals with the power of the Tax Recovery Officer (TRO)
regarding the disposal of proceeds from the sale of the assessee's assets. The
petitioner contends that once there is a recovery certificate before him, the TRO is
entitled to utilize the balance sale proceeds for the satisfaction of any other claim of
the Revenue i.e. claims other than those arising from the recovery certificate as also
the claims of third parties even if such claims have not been assessed or adjudicated
upon. For this purpose, the TRO is himself entitled to adjudicate upon such claims.
We have answered the question in the negative, against the petitioner.
5(A). In the year 1990, National Bank for Agriculture And Rural Development
(NABARD) filed Suit No. 1495 of 1989 against M/s. Shah Thakur and Sons for specific
performance of an agreement which involved the construction of 532 flats. NABARD
was directed by this Court to deposit Rs. 20 crores in this Court. M/s. Shah Thakur
and Sons were allowed to withdraw a sum of Rs. 2.5 crores by furnishing a guarantee
of a nationalized bank in that sum. Accordingly, the petitioner issued a guarantee in
the sum of Rs. 2.5 crores in favour of the Prothonotary and Senior Master, and at the
instance of M/s. Shah Thakur and Sons, the said property was furnished as a
collateral security for the said guarantee.
By an order dated 11th December, 1991, the Supreme Court modified the order of
this Court by permitting M/s. Shah Thakur and Sons to withdraw 50% of the balance
deposited by NABARD in this Court on furnishing a bank guarantee for the principal
amount withdrawn together with interest thereon at the rate of 30% p.a. from the
date of withdrawal till further orders. Pursuant to the said order, M/s. Shah Thakur
and Sons withdrew a sum of Rs. 4,14,49,377.50 by furnishing another guarantee
issued by the petitioner in favour of the Prothonotary and Senior Master.
(B). By an internal Circular dated 18th March, 1995, the petitioner directed all its
branches to increase the commission charge to 3% in respect of guarantees issued
with effect from 1st April, 1995. Prior thereto, the petitioner had been charging
commission at 0.75%. Correspondence ensured between the petitioner and M/s. Shah
Thakur and Sons in the course of which M/s. Shah Thakur and Sons requested the
petitioner to restrict the commission to 0.75%.
6(A). The petitioner had filed Suit No. 42 of 1998 against respondent Nos. 2 and 3 in

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this Court. The suit was transferred to the Debt Recovery Tribunal (DRT) and
numbered as O.A. No. 1347 of 2000. The O.A. was allowed. The respondent Nos. 2 to
7 were directed to pay the petitioner a sum of Rs. 1,67,00,000/- together with
interest at the rate of 15% p.a. compounded quarterly and costs of Rs. 1 lakh.
(B)(i) In the year 2004, one Camra Finance Investment Ltd. instituted proceedings in
this Court for the execution of an arbitration award and initiated the process of the
sale of the suit property. The petitioner intervened in those execution proceedings.
This Court directed the Recovery Officer of the DRT to sell the suit property.
(ii) On 27th October, 2004, the petitioner filed an application/affidavit before the
Recovery Officer to protect its claim arising on account of it having issued the said
guarantees. By the said affidavit, the said petitioner sought necessary orders for
protecting its right in respect of the contingent liability that may have arisen on
account of the said guarantee as the said property was given as collateral security,
even in respect of any liability arising on account of the petitioner having furnished
the guarantee.
(C). On 10th February, 2005, the said property was sold by the Recovery Officer for
Rs. 42.01 crores in Recovery Proceedings No. 466 of 2003.
7 . The said guarantees issued by the petitioner were not invoked. There was,
therefore, no claim in that regard. The petitioner's claim in the O.A./Recovery
Proceedings No. 466 of 2003 and the claim of the said Camra Finance Investment Ltd.
were satisfied from the amount received pursuant to the sale of the said property.
8. By an affidavit dated 25th August, 2005, the petitioner raised claims in respect of
the amounts guaranteed by the said guarantees as well as for commission. The
guarantees having been discharged without being invoked and without any amount
having been paid thereunder, the present claim of the petitioner is restricted only to
the commission claimed by it for furnishing the guarantee. We are not concerned in
this writ petition with the quantum of the amount claimed towards commission.
9 . This brings us to the orders passed in the Recovery Proceedings before the DRT
which have led to the present writ petition.
(A) By an order dated 26th October, 2005 the Recovery Officer of the DRT-I held the
petitioner to be entitled to commission at the rate of 1.5% per annum upto the year
2003-04 and at the rate of 1.7% per annum for the year 2004-05 till the date of the
sale of the property. On this basis, the Recovery Officer directed the release of Rs.
83,25,217/- in favour of the petitioner from the balance sale proceeds.
(B) The petitioner and respondent No. 2 filed cross appeals against the order of the
Recovery Officer dated 26th October, 2005-the petitioner seeking an enhancement in
the rate of the commission and the respondents challenging the grant of any amount
towards commission. By an order dated 25th July, 2007, the Presiding Officer, DRT-I
dismissed the appeals.
(C) The petitioner and respondent No. 2 filed appeals against the order dated 25th
July, 2007 before the Debt Recovery Appellate Tribunal. By an order dated 1st June,
2011, The Debt Recovery Appellate Tribunal dismissed the appeal filed by respondent
No. 2 and allowed the appeal filed by the petitioner. The only issue that was decided
by the DRAT was the rate at which the petitioner was entitled to the commission. The
DRAT held that the petitioner was entitled to commission at 3% p.a. on the said

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guarantees issued by it from 18th March, 1995. Both the appeals were disposed of
accordingly.
(D) Respondent No. 2 challenged the order of the DRAT by filing Writ Petition No.
1570 of 2011. The Writ Petition was disposed of by an order and judgment dated 3rd
October, 2011. It was observed that respondent No. 2 had questioned the jurisdiction
of the Recovery Officer to entertain the claim of the respondent relating to the
commission on the two bank guarantees. It was also noticed that neither the DRT nor
the DRAT had dealt with this issue. The Division Bench, accordingly, set aside the
orders and remitted the proceedings to the DRT for fresh consideration with a
direction to render a specific finding on the question of jurisdiction raised by the
respondent No. 2.
10. On remand, DRT-I by an order dated 15th November, 2012, set aside the order
of the Recovery Officer holding that he had no jurisdiction to allow the petitioners
application. The petitioner challenged the order before the DRAT. By the impugned
order dated 10th September, 2013, the DRAT dismissed the appeal.
11. The petitioner, therefore, sought to recover the amount claimed by it towards
commission in respect of the said guarantees from the balance sale proceeds lying
with the DRT. This claim has never been adjudicated upon by any Court, Tribunal or
authority. The petitioner has not even filed an action to have it adjudicated.
12. Mr. Kamat, the learned counsel appearing on behalf of the petitioner submitted
that the petitioner was nevertheless entitled to recover the guarantee commission
from the balance sale proceeds after having it adjudicated upon by the Recovery
Officer in the execution proceedings. He submitted that the Recovery Officer was
entitled to adjudicate the petitioners claim in this regard in view of section 29 of
RDDB Act, read with Rule 8 of the Second Schedule to the Income Tax Act, 1961.
Section 29 of the RDDB Act reads as under:
2 9 . Application of certain provisions of Income-tax Act.-The provisions of
the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1061)
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:
Provided that any reference under the said provisions and the rules
to the "assessee" shall be construed as a reference to the defendant
under this Act.
Rule 8, as amended by the Direct Tax Laws (Amendment) Act, 1987, which came into
force with effect from 1st April, 1989, is applicable to cases under The Recovery of
Debts Due to Banks & Financial Institutions Act, 1993 (hereinafter referred to as
"RDDB Act"), and reads as under:
8 . Disposal of proceeds of execution.--(1) Whenever assets are realised by
sale or otherwise in execution of a certificate, the proceeds shall be disposed
of in the following manner, namely:--
(a) they shall first be adjusted towards the amount due under the
certificate in execution of which the assets were realised and the

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 costs incurred in the course of such execution;
(b) if there remains a balance after the adjustment referred to in
clause (a), the same shall be utilized for satisfaction of any other
amount recoverable from the assessee under this Act which may be
due on the date on which assets were realised; and
(c) the balance, if any, remaining after the adjustments under
clauses (a) and (b) shall be paid to the defaulter.
(2) If the defaulter disputes any adjustment under clause (b) of sub-rule (1),
the Tax Recovery Officer shall determine the dispute.
13. Mr. Kamat submits as follows: The words "any other amount recoverable" in Rule
8(1)(b) includes any amount claimed and not merely amounts which have been
determined or adjudicated upon by authorities under the Income Tax Act. Rule 8
authorizes the Tax Recovery Officer to adjust the surplus against any tax dues, even
if not assessed. In view of sub-rule (2) the TRO is entitled to assess the tax dues
himself and proceed thereafter to make the adjustments contemplated under Rule 8
even if the same are disputed. Once there is a recovery certificate in respect of a
particular demand/claim under the Income Tax Act, the TRO is entitled to decide all
other claims of the Revenue under the Income Tax Act himself whether
assessed/adjudicated or not. He is entitled to decide all disputes in regard thereto.
He further submitted that in view of section 29 of the RDDB Act, the Recovery Officer
appointed under the RDDB Act, has similar powers. Once there is a recovery
certificate before him for execution, he is entitled to adjudicate upon the dues of any
creditor whether adjudicated upon or not and upon adjudication, adjust and pay the
balance amounts lying with him pursuant to the sale of the property of the judgment
debtor.
14. We requested Mr. Mihir Naniwadekar to appear as amicus curiae. Before going
further, we would like to express our appreciation for his assistance in the matter.
With his assistance, we have had the benefit of going through the relevant provisions
to Income Tax Act which was necessary for dealing with the matter. We have
accepted all the submissions advanced by Mr. Naniwadekar.
15. Mr. Naniwadekar rightly submitted that Rule 8 of Schedule II does not permit the
TRO to assess or adjudicate the tax dues of an assessee under the Income Tax Act,
1961. His powers under Rule 8 are limited to the disposal of the assets realised by
sale or otherwise in execution of a certificate. This, as he rightly submitted, is clear
from an examination of the steps that precede the exercise of powers under Rule 8.
He invited our attention to sections 156, 220 and 222 of the Income Tax Act, which
read as under:
156. Notice of demand.
When any tax, interest, penalty, fine or any other sum is payable in consequence of
any order passed under this Act, the Assessing Officer shall serve upon the assessee
a notice of demand in the prescribed form specifying the sum so payable:
Provided that where any sum is determined to be payable by the assessee or
by the deductor under sub-section (1) of section 143 or sub-section (1) of
section 200A, the intimation under those sub-sections shall be deemed to be

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 a notice of demand for the purposes of this section.
The Proviso as it stands was inserted by the Finance Act, 2012, w.e.f. 1.7.2012. Prior
to that date, the Proviso was originally inserted by the Finance Act, 2008, w.e.f.
1.4.2008, and reads as under:
Provided that where any sum is determined to be payable by the assessee
under sub-section (1) of section 143, the intimation under that sub-section
shall be deemed to be a notice of demand for the purposes of this section.
...
Neither proviso makes a difference to the determination of the questions that fall for
our consideration.
220. When tax payable and when assessee deemed in default.
(1) Any amount, otherwise than by way of advance tax, specified as
payable in a notice of demand under section 156 shall be paid within
thirty days of the service of the notice at the place and to the person
mentioned in the notice:
Provided that, where the Assessing Officer has any reason to
believe that it will be detrimental to revenue if the full period
of thirty days aforesaid is allowed, he may, with the
previous approval of the Joint Commissioner, direct that the
sum specified in the notice of demand shall be paid within
such period being a period less than the period of thirty days
aforesaid, as may be specified by him in the notice of
demand.
...
(4) If the amount is not paid within the time limited under sub-
section (1) or extended under sub-section (3), as the case may be,
at the place and to the person mentioned in the said notice the
assessee shall be deemed to be in default.
222. Certificate by Tax Recovery Officer.
(1) When an assessee is in default or is deemed to be in default in
making a payment of tax, the Tax Recovery Officer may draw up
under his signature a statement in the prescribed form specifying the
amount of arrears due from the assessee (such statement being
hereafter in this Chapter and in the Second Schedule referred to as
"certificate") and shall proceed to recover from such assessee the
amount specified in the certificate by one or more of the modes
mentioned below, in accordance with the rules laid down in the
Second Schedule-
(a) attachment and sale of the assessee's movable property;
(b) attachment and sale of the assessee's immovable
property;

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 (c) arrest of the assessee and his detention in prison;
(d) appointing a receiver for the management of the
assessee's movable and immovable properties.
Explanation: For the purposes of this sub-section, the assessee's
movable or immovable property shall include any property which has
been transferred, directly or indirectly on or after the 1st day of
June, 1973, by the assessee to his spouse or minor child or son's
wife or son's minor child, otherwise than for adequate consideration,
and which is held by, or stands in the name of, any of the persons
aforesaid; and so far as the movable or immovable property so
transferred to his minor child or his son's minor child is concerned, it
shall, even after the date of attainment of majority by such minor
child or son's minor child, as the case may be, continue to be
included in the assessee's movable or immovable property for
recovering any arrears due from the assessee in respect of any
period prior to such date.
(2) The Tax Recovery Officer may take action under sub-section (1),
notwithstanding that proceedings for recovery of the arrears by any
other mode have been taken.
16. The petitioner's case is that the TRO is entitled, while exercising powers under
Rule 8, to utilize the balance for satisfaction of any other amount recoverable from
the assessee under the Act. The phrase "recoverable from the assessee under the
Act", according to Mr. Kamat, indicated that so long as the TRO comes to the
conclusion that any dues are recoverable under the Act, the balance sale proceeds
can be adjusted towards satisfaction/payment thereof. In other words, according to
him, the phrase "recoverable from the assessee under the Act" includes amounts
which have never been assessed or adjudicated upon by the authorities under the Act
to be due and payable.
17. The submission is contrary to the scheme of the Act itself as is evident from an
analysis of the above sections. A mere assessment order does not entitle the TRO to
start recovery proceedings. As demonstrated by Mr. Naniwadekar, Schedule II comes
into the picture only as a culmination of a series of orders and events. In other
words, the amount can be said to be recoverable from an assessee under the Act only
after the necessary orders are passed, steps are taken and events occur under
sections 156, 220 and 222 of the Income Tax Act.
18. Under section 156, a notice of demand can be issued only when any tax, interest,
penalty, fine or any other sum is payable "in consequence of any order passed under
this Act" (i.e. the Income Tax Act). It is, therefore, necessary for there to be an order
passed under the Income Tax Act before a notice of demand can be served by the
Assessing Officer upon the assessee.
Under section 220(1), the amount specified as payable in a notice under section 156
must be paid by the assessee within 30 days of the service of the notice. If the
amount specified in the notice under section 156 is not paid within the time
stipulated in section 220(1), "the assessee shall be deemed to be in default." Thus,
an assessee is not deemed to be in default merely upon the passing of an assessment
order. An assessee is deemed to be in default only if he does not pay within the time
stipulated in sub-section (1) of section 220, the amount specified in the notice issued

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under section 156. The notice under section 156, as we said earlier, can be issued
only when a sum is payable in consequence of any order passed under the Income
Tax Act.
Under section 222, when an assessee is in default, the TRO may draw up a certificate
under section 222. This certificate specifies the amount of arrears due from the
assessee. Only thereupon, can the TRO proceed to recover from the assessee, the
amount specified in the certificate in accordance with the rules laid down in Schedule
II. The Second Schedule to the Income Tax Act, therefore, comes into play only upon
the issuance of a certificate by the TRO under section 222.
19. In other words, a certificate under section 222 can only be issued in the case of
an assessee in default. Under section 220(4), an assessee can be deemed to be in
default only if he does not pay the amount specified in the notice of demand issued
under section 156 within the period stipulated in sub-section (1) of section 220. Till
an assessee is in default or is deemed to be in default, a certificate cannot be issued
by the TRO under section 222. Lastly, the notice of default itself cannot be issued
under section 156 unless there is an order passed under the Income Tax Act for the
payment of any tax, interest, penalty, fine or any other sum.
20. We mentioned earlier that an assessee cannot be said to be in default or deemed
to be in default merely because an order has been passed assessing the tax or
imposing interest, penalty, fine or any other sum. He would be deemed to be in
default only if he fails to pay the amount within the period of 30 days of the service
of the notice under section 156. This is clear from sub-sections (1) and (4) of section
220. There may, for instance, be assessment orders such as protective assessment
orders under which an amount is not payable merely upon the passing of the order.
21. Mr. Naniwadekar invited our attention to the judgment of a Division Bench of the
Calcutta High Court in the case of Calcutta Hardware And Iron Syndicate and Ors. v.
Union of India, MANU/WB/0120/1983 : 1984 145 ITR 115. The Division Bench held
as follows:
But, in our view, the fundamental mistake of the Commissioner lies in the fact
that he erroneously took the view that the recovery proceedings starts with
the demand. We, however, find that under the statute the recovery
proceeding can be initiated only when the assessee is in default and he is not
in default until he had failed to pay on the demand made. Every bona fide
assessee is expected to pay what is payable on a just and lawful assessment
and thus avoid a proceeding for enforced recovery thereof. In order to enable
the assessee to avail of that opportunity the demand is made. In that way
such demand is a part of the assessment proceedings and not the proceeding
for recovery. If the assessed amount be paid voluntarily on the demand
made, there would arise no case for recovery. Hence, we accept the
contention of Mr. Pal that the Commissioner went wrong in thinking that a
notice of demand under s. 29 of the old Act having been issued, a recovery
proceeding had already been initiated under that Act so that the recovery
must be made in accordance with the provision of that Act and not the new
Act of 1961. We further hold that the proceeding for recovery was yet to be
initiated as and when the assessee fails to pay in accordance with the
demand. The case, therefore, appropriately comes within the first part of cl.
(j) referred to hereinabove and, as such, the Revenue authorities were well
within their right to initiate a proceeding for recovery under the provisions of

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 the new Act of 1961.
(emphasis supplied)
22. The making of the assessment order does not entitle the TRO to start recovery
proceedings. We are in respectful agreement with these observations. Even the
issuance of a notice of demand does not entitle the TRO to commence recovery
proceedings under Schedule II. Till there is a certificate issued under sub-section (1)
of section 222, the Rules laid down in Schedule II are inapplicable. He is entitled to
invoke the rules under Schedule II only upon the issuance of a certificate under
section 222. The conditions precedent to the issuance of such a certificate have
already been mentioned by us. It follows, therefore, that where there is not even an
assessment order or any other order for the payment of any amount under the
Income Tax Act, there is no question of the operation of the Rules under the Second
Schedule.
23. This view is also supported by Rule 1 of Schedule II. Rule 1(a), (b) and (c) read
as under:
Definitions.
1. In this Schedule, unless the context otherwise requires.-
(a) "certificate", except in rules 7, 44, 65 and sub-rule (2) of rule
66, means the certificate drawn up by the Tax Recovery Officer under
section 222 in respect of any assessee referred to in that section;
(b) "defaulter" means the assessee mentioned in the certificate;
(c) "execution", in relation to a certificate, means recovery of arrears
in pursuance of the certificate;
24. Thus, what the TRO executes under Rule 8(1) is a certificate drawn up by the
TRO under section 222 in respect of an assessee referred to in that section. Section
222 refers to an assessee in default. "Defaulter" in Rule 1(b) means an assessee
mentioned in the certificate. Again, the assessee mentioned in the certificate under
section 222 is an assessee in default. An assessee is said to be in default if he does
not pay the amount demanded in the notice under section 156 within the time
stipulated in section 220(1). Thus, the words "any other amount recoverable from the
assessee under this Act" mean the amounts payable in consequence of any order
passed under the Act. The TRO cannot utilize the balance amounts for the satisfaction
of any amounts other than the amounts payable in consequence of any order passed
under this Act.
25. A view to the contrary, as Mr. Naniwadekar rightly submitted, would lead to the
most startling consequences. It would mean this. Once a recovery certificate is issued
under section 222(1) in respect of any amount, all the dues of the assessee under the
Income Tax Act for any assessment year even prior to the year in respect whereof the
certificate is issued must be computed by the TRO and not by the Assessing Officer.
26. Indeed, the submission on behalf of the petitioner, if accepted, would confer a
power upon the TRO to determine any amounts payable under the Act, including
under Chapter X. In that event, the TRO would be entitled to determine the arms
length price of international transactions, proceed to pass the assessment orders,
bypassing the entire procedure before the Disputes Resolution Panel, the

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Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal even
in respect of international transactions.
27. If Mr. Kamat's submission is accepted, the entire machinery for the assessment
of tax would have to be given a go-by to, once proceedings under Rule 8 commence.
This could never have been the intention of the Legislature. It was not. The plain
language of the Rules, including Rule 8 does not support such a construction.
28. Under Rule 8(1)(b), the balance that remains after the adjustment under Rule
8(1)(a) can be utilized for satisfaction of "any other amount recoverable from the
assessee under this Act" meaning thereby amounts recoverable from the assessee
pursuant to any order passed under the Income Tax Act. The TRO is not entitled to
pass an order determining whether an amount is recoverable from the assessee under
the Act. In other words, the TRO is not entitled to adjudicate upon the tax and other
dues of the assessee under the Income Tax Act.
2 9 . Mr. Kamat, however, relied upon sub-rule (2) of Rule 8 in support of his
submission. The dispute referred to in sub-rule (2) is not in relation to determination
of the tax liability or any other liability under the Income Tax Act. In other words, the
dispute under sub-rule (2) does not refer to whether an assessee is liable to pay any
amounts under the Income Tax Act. The adjustments under sub-clause (b) of sub-
rule (1) relate to purely arithmetical calculations, after giving credit for any amounts
to be adjusted such as refunds due to the assessee or part-payments made by the
assessee or amounts recovered from the assessee. The adjustments referred to in
clause (b) of sub-rule (1) of Rule 8 are not those arrived at after an adjudication by
the TRO of the liability per se. They are based on assessment orders and adjudication
already made by the competent authorities under the Income Tax Act.
30. On the basis of his submission with respect to Rule 8, Mr. Kamat had further
submitted that on a parity of reasoning, the Recovery Officer under the DRT Act was
entitled to adjudicate upon amounts that may be due by the judgment debtor in
respect of amounts other than those covered by the recovery certificate issued under
the RDDB Act. The contention based on a parity of reasoning cannot survive in view
of what we have held.
31. In any event, the scheme of Rule 8 it is apparent that it cannot apply to recovery
proceedings under the RDDB Act. Section 29 makes the second and third schedules of
the Income Tax Act applicable only "as far as possible" and "with necessary
modifications".
32. Firstly, clause (a) of sub-rule (1) of Rule 8 requires the amounts realised by sale
or otherwise in execution of a certificate to be first adjusted towards the amounts due
under the certificate in execution of which the assets were realised and the costs
incurred in the course of such execution. Priority is, therefore, fixed not merely in
favour of the revenue, but qua the certificate in execution of which the assets were
realised. Under Rule 8, the question of priority is irrelevant for the creditor is the
same-the Revenue.
33. Further, Rule (b) requires the balance amount to be utilized for the satisfaction of
any other amounts recoverable from the assessee under the Income Tax Act.
Assuming that the words "this Act" in Rule 8(1)(b) must be read as the RDDB Act in
respect of recovery proceedings under the latter Act, it would still be incongruous for
Rule 8 pertains only to the claims of one creditor viz. the Revenue and that too only
under the Income Tax Act. There is no provision entitling the TRO to entertain claims

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of third parties for the purpose of utilizing the balance amounts towards payment
thereof. Section 29 makes Schedule II applicable to the RDDB Act "with necessary
modifications". To accept Mr. Kamat's submissions, Rule 8 would have to be not
modified, but totally re-written.
34. The Recovery Officer under the RDDB Act also cannot adjudicate upon the claims
of any party in proceedings instituted under the RDDB Act. That can only be done by
the Debt Recovery Tribunal. Under section 19 of the RDDB Act, a bank or financial
institution is entitled to make an application "to the Tribunal". Section 19 then
provides a detailed procedure for the adjudication of the claim filed under section
19(1) "to the Tribunal". Section 2(ja), (k) and (o) define the Presiding Officer and
Tribunal as follows:
2. Definitions.-In this Act, unless the context otherwise requires.-
...
(ja) "Presiding Officer" means the Presiding Officer of the Debts Recovery
Tribunal appointed under sub-section (1) of section 4;
(k) "Recovery Officer" means a Recovery Officer appointed by the Central
Government for each Tribunal under sub-section (1) of section 7.
...
(o) "Tribunal" means the Tribunal established under sub-section (1) of
section 3.
Sections 4 and 5 also draws a clear distinction between a Recovery Officer on the one
hand and the Presiding Officer/the Tribunal on the other. Even assuming that the Tax
Recovery Officer had the power to adjudicate the liability of an assessee under the
Income Tax Act, it would not follow that the Recovery Officer has the power to decide
the claims of parties even if such claims fall within the purview of the RDDB Act. The
RDDB Act draws a clear distinction between the Recovery Officer on the one hand and
the Presiding Officer/the Tribunal on the other. Under section 19 it is only the
Tribunal that has the power to adjudicate upon the claims and counter claims and not
the Recovery Officer. Section 5 prescribes the qualification of a Presiding Officer viz.
one who has been or is qualified to be a District Judge. No such qualification is
required for a Recovery Officer. It is difficult to imagine that the Legislature conferred
upon the Recovery Officer, functions to be discharged by the Tribunal/Presiding
Officer of the Tribunal although the Recovery Officer is not qualified to be a District
Judge.
35. The Writ Petition is dismissed. There shall be no order as to costs.
By an order dated 9th October, 2013, the impugned order was stayed pending
admission subject to the petitioner agreeing to pay interest from the date of the
order, in the event of it losing and in the event of the commission otherwise being
found to be not payable. By an earlier order passed by the Presiding Officer/DRT
dated 29th October, 2007, the petitioner was allowed to withdraw the amounts and
submit an undertaking for bringing back the amount as and when required alongwith
interest as per the bank rate. The money to be brought back is the amount which was
determined as being payable towards the commission and which we have held could
not have been determined by the Recovery Officer under Rule 8 of Schedule II. The

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rate of interest throughout is fixed at 10% per annum.
This order is stayed upto and including 31st July, 2014.
© Manupatra Information Solutions Pvt. Ltd.

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