Bank can purchase auction property of borrower in absence of any response from bidder: SC

Rule 17 of the Second Schedule of Income Tax Rules, 1961 doesn’t impose any restriction on the Bank from participating and purchasing property in auction where invitation to bid did not result in any response from any interested bidder and it is the Recovery Officer on whom such an embargo has been placed.

Issue:

a) Whether a bank can purchase mortgaged property in auction sale from its own borrower where there is no show or invitation to bid doesn’t result in any response from bidder?

b) Whether Rule 17 of the Second Schedule of Income Tax Rules, 1961 imposes any restriction in permitting a Bank to take part in the public auctions?

Facts:

a) ICICI bank Ltd. approached DRT for enforcing security interest against loan. The DRT directed recovery officer to conduct a public auction after fixing offset price however, no bidder came forward to purchase property.

b) In such circumstances, the Bank itself had offered to purchase the properties and Bank’s o􀁹er was accepted and property were sold to Banks. The Bank gave an option to the respondents-borrowers to deposit the amount with interest however, the respondent borrowers did not acted upon.

c) The respondent-borrowers moved to DRT and later to DRAT against sale of the mortgaged properties to Bank however, the plea was dismissed by both the Tribunals.

d) On appeal, the High Court passed order setting aside order of DRT and DRAT and remanded matter to the DRT direction to decide in the matter of fixation of the offset price and also a􀁺er complying with the provisions of the Rule 17 of the Second Schedule of Income Tax Rules. Aggrieved by High Court’s order, the Bank approached Apex Court.

The Apex Court held as under:

1) Rule 17 of the Second Schedule of Income Tax Rules, 1961 doesn’t impose any restriction in permitting a Bank to take part in the public auction and to purchase the property as it is the Recovery Officer on whom such an embargo has been placed Thus, the High Court’s order concluding that the auction sale in favour of the Bank was vitiated on account of violation of the Rule 17 of the Second Schedule of Income Tax Rules, 1961 was liable to be set aside.

2) Where respondents-borrowers persistently failed either to liquidate dues or to bring a willing purchaser who could offer a reasonable price for the mortgaged properties, the respondent-borrowers’ grievance that lack of opportunity was provided in matter of fixation of offset price was to be rejected. - [2016] 73 taxmann.com 13 (SC)