Non-Reportable IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1919 OF 2010 M/s. Connectwell Industries Pvt. Ltd. Appellant(s) Versus Union of India Through Ministry of Finance & Ors. Respondent(s) JUDGMENT L. NAGESWARA RAO, J. 1. Appellant filed Writ Petition in High Court of Judicature at Bombay seeking restraint order against Tax Recovery Officer, Range 1, Kalyan - Respondent No.4 for enforcing attachment made under Income Tax Act, 1961 (hereinafter referred to as Act) for recovery of dues. Writ Petition was dismissed by High court, aggrieved by which Appeal has been filed. [1] 2. Biowin Pharma India Ltd. (hereinafter referred to as BPIL)- Respondent No.5 herein obtained loan from Union Bank of India. Property situated in Plot No.D- 11 admeasuring 1000 sq. mtrs. situated at Phase-III, Dombivli Industrial Area, MIDC, Kalyan along with plant machinery and building was mortgaged as security to Union Bank of India-Respondent No.5 herein. Respondent No.-5 filed OA No.1836 of 2000 before Debt Recovery Tribunal III, Mumbai (hereinafter referred as DRT) for recovery of loan advanced to BPIL. DRT allowed OA filed by Respondent No.5 and directed BPIL to pay sum of Rs.4,76,14,943.20/- along with interest at rate of 17.34% per annum from date of application till date of payment and/or realisation. recovery certificate in terms of order passed by DRT was issued and recovery proceedings were initiated against BPIL. Recovery Officer, DRT III (Respondent No.2) attached property on 29.11.2002. Respondent No.2 issued proclamation of sale of said property on 19.08.2004. public [2] auction was held on 28.09.2004. DRT was informed that there were no bidders except Appellant. offer made by Appellant to purchase property for amount of Rs.23,00,000/- was accepted by Respondent No.2. On 14.01.2005, certificate of sale was issued by Respondent No.2 in favour of Appellant. possession of disputed property was handed over to Appellant on 25.01.2005 by Respondent No.2 and certificate of sale was registered on 10.01.2006. 3. Maharashtra Industrial Development Corporation (hereinafter referred to as MIDC) informed Respondent No.2 that it received letter dated 23.03.2006 from Tax Recovery Officer, Range 1, Kalyan, Respondent No.4 herein stating that property in dispute was attached by Respondent No.4 on 17.06.2003. Appellant requested Regional Officer, MIDC by letter dated 10.04.2006 to transfer property in dispute in its favour in light of Sale Certificate issued by DRT on 25.01.2005. As MIDC [3] failed to transfer plot in name of Appellant, Appellant filed Writ Petition before High Court seeking direction for issuance of No Objection in respect of plot and to restrain Respondent No.4 from enforcing attachment of said plot, which was performed on 11.02.2003. 4. question posed before High Court is whether Appellant who bona fide purchased property in auction sale as per order of DRT is entitled to have property transferred in its name in spite of attachment of said property by Income Tax Department. Relying upon Rule 16 of Schedule II to Act, High Court came to conclusion that there can be no transfer of property which is subject matter of notice. High Court was also of view that after order of attachment is made under Rule 16(2), no transfer or delivery of property or any interest in property can be made, contrary to such attachment. High Court held that notice under Rule 2 of Schedule II to Act was issued [4] on 11.02.2003, and property in dispute was attached under Rule 48 on 17.06.2003, whereas sale in favour of Appellant took place on 09.12.2004 and sale certificate was issued on 14.01.2005. Therefore, transfer of property made subsequent to issuance of notice under Rule 2 and attachment under Rule 48, is void. submission made on behalf of Appellant that sale in favour of Appellant was at behest of DRT and not defaulter i.e., BPIL was not accepted by High Court. In view of above findings, High Court dismissed Writ Petition. 5. It was submitted by Mr. Basava Prabhu Patil, learned Senior Counsel and Mr. Amar Dave, learned counsel appearing on behalf of Appellant that property in dispute was mortgaged by BPIL in 2000 and recovery certificate was issued pursuant to order passed by DRT in 2002. They submitted that property was attached by Respondent No.2 on 29.11.2002, prior to issuance of notice by [5] Income Tax Officer under Rule 2 of Schedule II to Act on 11.02.2003. According to them, rigours of Rule 2 and Rule 16 of Schedule II are not applicable to instant case as charge over property was created prior to issuance of notice under Rule 2 of Schedule II to Act. It was argued that government debt in India is not entitled to have precedence over prior secured debt. 6. Mr. Arijit Prasad, learned Senior Counsel appearing for Union of India submitted that BPIL was in default of payment of income tax and penalty arose therefrom, due to which notice under Rule 2 of Schedule II to Act was issued on 11.02.2003 by following prescribed procedure. He submitted that no property which is subject matter of notice can be transferred after issuance of notice under Rule 2. Mr. Prasad also submitted that immovable property was attached in accordance with Rule 48 of Schedule II on 17.06.2003. Undisputedly, sale in favour of Appellant took place subsequent to [6] order of attachment dated 17.06.2003. He urged that Appellants are not entitled to any relief and High Court was right in dismissing Writ Petition as Crown debt is entitled to priority in view of provisions of Schedule II to Act and thus any transfer of property, which is subject matter of attachment under Rule 16(2) is void. 7. As Rules 2 and 16 of Schedule II to Act would fall for interpretation in this case, same read as under : Issue of Notice 2. When certificate has been drawn up by Tax Recovery Officer for recovery of arrears under this Schedule, Tax Recover Officer shall cause to be served upon defaulter notice requiring defaulter to pay amount specified in certificate within fifteen days from date of service of notice and intimating that in default steps [7] would be taken to realize amount under this Schedule. 16.1 Where notice has been served on defaulter under rule 2, defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with permission of Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of decree for payment of money. 8. It is trite law that, unless there is preference given to Crown debt by statute, dues of secured creditor have preference over Crown debts. [See:- Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Others1, Union of India & Ors. v. Sicom Ltd. & Anr.2, Bombay Stock Exchange v. V.S. 1 (2000) 5 SCC 694 2 (2009) 2 SCC 121 [8] Kandalgaonkar & Ors.3, Principal Commission of Income Tax v. Monnet Ispat and Energy Ltd.4] 9. Rule 2 of Schedule II to Act provides for notice to be issued to defaulter requiring him to pay amount specified in certificate, in default of which steps would be taken to realise them. crucial provision for adjudication of dispute in this case is Rule 16. According to Rule 16(1), defaulter or his representative cannot mortgage, charge, lease or otherwise deal with any property which is subject matter of notice under Rule 2. Rule 16(1) also stipulates that no civil court can issue any process against such property in execution of decree for payment of money. However, property can be transferred with permission of Tax Recovery Officer. According to Rule 16(2), if attachment has been made under Schedule II to Act, any private transfer or delivery of property shall be void as against all claims enforceable under attachment. 3 (2015) 2 SCC 1 4 (2018) 18 SCC 786 [9] 10. There is no dispute regarding facts of this case. property in dispute was mortgaged by BPIL to Union Bank of India in 2000 and DRT passed order of recovery against BPIL in 2002. recovery certificate was issued immediately, pursuant to which attachment order was passed prior to date on which notice was issued by Tax Recovery Officer- Respondent No.4 under Rule 2 of Schedule II to Act. It is true that sale was conducted after issuance of notice as well as attachment order passed by Respondent No.4 in 2003, but fact remains that charge over property was created much prior to notice issued by Respondent No.4 on 16.11.2003. High Court held that Rule 16(2) is applicable to this case on ground that actual sale took place after order of attachment was passed by Respondent No.4. High Court failed to take into account fact that sale of property was pursuant to order passed by DRT with regard to property over which charge was already [10] created prior to issuance of notice on 11.02.2003. As charge over property was created much prior to issuance of notice under Rule 2 of Schedule II to Act by Respondent No.4, we find force in submissions made on behalf of Appellant. 11. judgment of High Court is set aside and Appeal is allowed. MIDC is directed to issue No Objection certificate to Appellant. Respondent No.4 is restrained from enforcing attachment order dated 17.06.2003. J. [L. NAGESWARA RAO] J. [DEEPAK GUPTA] New Delhi, March 06, 2020. [11] Connectwell Industries Pvt. Ltd. v. Union of India