[Case Brief] Sadashiv Prasad Singh v/s Harender Singh & Others, 2014

Case NameSadashiv Prasad Singh v/s Harender Singh & Others
Case NumberCivil Appeal No 141 of 2014
CourtSupreme Court of India
BenchJustice AK Patnaik and Justice Jagdish Singh Khehar
Author of the judgmentJustice Jagdish Singh Khehar
Decided On January 08, 2014
Relevant Act/Sections1) Constitution of India- Article 226 & Article 136

2) Income Tax Act, 1961 - Section 29

3) the Income Tax (Certificate proceedings) Rules, 1962- Rule 11
Author of the Case BriefSheena Malhotra

Brief Facts and Procedural History:

  • A loan of Rs 12.70 lakhs was sanctions to M/s. Amar Timber Works, a partnership firm, by the Allahabad Bank (‘Bank’) in the year 1989.
  • This partnership firm comprised of three partners, Jagmohan Singh, Payam Shoghi and Dev Kumar Sinha.
  • Certain properties were mortgaged by the partners to secure the loan amount.
  • The loan amount was not repaid by the partnership firm in accordance with the commitment made by the partnership firm and thus the bank initiated application before the Debt Recovery Tribunal for the recovery of the dues.
  • The tribunal accordingly issued a direction for the recovery of Rs. 75,75,564/- from the partnership firm and subsequently the recovery proceedings were initiated by the bank.
  • During the pendency of the recovery proceedings, Jagmohan Singh (one of the partner), died.
  • The recovery officer attached the property in possession of Jagmohan Singh after his death.
  • Harender Singh, brother of Jagmohan Singh, raised an objection stating that the said property was not to be realized by the bank in order to satisfy the dues since it was purchased by him from his brother Jagmohan Singh by executing a sales agreement which was duly notarized but not registered
  • This contention was not accepted and the recovery officer passed an order for the sale of the property through a public auction. The reserve price was fixed at Rs 12.92 Lakhs.
  • At the auction, Sadashiv Prasad Singh being the highest bidder the property was ordered to be handed over to him. Since no objection was raised here, the sale was confirmed by the Recovery Officer. The physical possession of the property was also taken over by Sadashiv Singh.
  • In furtherance, a mutation case was also preferred by Sadashiv Singh by which a land in question was mutated in favour of the auction purchaser. Here no objection was raised by or on behalf of Harender Singh.
  • In the year 2009, a writ petition a writ petition was filed by Harender Singh in the Patna High Court which challenged the order of the Recovery Officer to sell the property through public auction. This petition was dismissed by the single judge bench of the High Court on the grounds that the facts require no interference and the petitioner has not approached well within the time-limit.
  • Against this order of the single judge, a letters patent appeal was filed by Harender Singh. At this stage, Harender Singh offered a sales consideration of Rs 39 Lakhs to Sadashiv Singh. Since the parties were not able to resolve the matter amicably, the appeal was disposed of on merits.
  • The letters patent bench while deciding on merits referred to Section 29 of the Income Tax Act along with Rule 11 of the Income Tax (Certificate Proceedings) Rules and concluded that Rule 11(2) has not complied with the recovery officer and thus the objections of Harender Singh has not been adjudicated upon.
  • Thus the High Court set aside the proceedings conducted by the Recovery Officer, including the sale of the property by public auction. However, on the basis of equity, the High Court asked Harender Singh to compensate the auction purchaser, Sadashiv Singh by depositing 17Lakhs primarily and then Rs 32 Lakhs subsequently. Only after the amount is paid by Harender Singh, the recovery office will hand over the possession of the property back to him.
  • Both Sadashiv and Harender Singh challenged this order through a special leave petition. Accordingly, it was contended by Sadashiv that he is deprived of the property received by him through public auction; while it was contended on behalf of Harender Singh that he is liable to pay only Rs 17Lakhs and the order to pay a further sum of Rs 32 Lakhs is unsustainable in law.
  • The leave was granted by the Supreme Court.

The ratio of the Court:

It is to an established principle of law that a third party auction purchaser’s interest in the auction property continues to be protected notwithstanding that the underlying decree is subsequently set aside or otherwise. The only exception to this said rule can be carved out if such a purchase is made on the grounds of fraud or collusion.

In the present case, the dispute is between the Allahabad bank and the Partnership firm. Sadashiv Singh is not a party to the proceedings before Debt Recovery Tribunal or before the Recovery Officer. Since there is no instance of fraud or collusion determined in the instant case, the High Court has clearly erred in setting aside the auction ordered in favour of Sadashiv Singh. Accordingly, the High Court has ignored the equitable rights vested in Sadashiv and subjected him to grave injustice by depriving him of the property which he had genuinely and legitimately purchased at a public auction.

Additionally, the court ruled against Harender Singh for the following reasons:

  • The facts stated by him were a total sham and they were made in order to save the property in question.
  • The claim of Harender Singh was based on an unregistered agreement to sell.
  • Harender Singh had abandoned his right to object by not appearing for more than two years thereafter before the Recovery officer when the order for sale through a public auction was made.
  • The High Court cannot entertain the letters patent appeal by virtue of section 30 of the Act.

Therefore the Court concluded that Harender Singh had lost all interest in the property.

Decision Held:

For the reasons stated above, the decision given by the appellate bench of the High Court was set aside and the right of Sadashiv with regards to the said property was upheld.