J. Sagar Associates (“JSA”) represented Connectwell Industries Pvt Ltd. (“Connectwell”) in a Civil Appeal before the Hon’ble Supreme Court challenging an order of dismissal of a writ petition passed by the Bombay High Court whereby the Bombay High Court had permitted the Tax Recovery officer to enforce the attachment made under the Income Tax Act and rules(“the Act”) in respect of the property in question. The question before the High Court was whether Connectwell, a purchaser of a mortgaged property in an auction sale conducted as per the orders of the DRT is entitled to have the property transferred in its name in spite of the attachment of the property by the Income Tax Department.
The Hon’ble Bombay High Court was of the view that there can be no transfer of a property once a notice is issued by the Income Tax Department. The High Court was also of the view that after an order of attachment is made under Rule 16(2), no transfer or delivery of the property or any interest in the property can be made and the transfer of the property subsequent to the issuance of the notice under Rule 2 and the attachment under Rule 48, is void.
The Hon’ble Supreme Court while allowing the Civil Appeal, considered the provisions of Rule 2 of Schedule II of the Act which provides for a notice to be issued to the defaulter requiring him to pay the amount specified in the certificate, in default of which steps would be taken to realize them. The crucial provision for adjudication by the Hon’ble Supreme Court in the Civil Appeal was Rule 16 of Schedule II of the Act. According to Rule 16(1), a defaulter or his representative cannot mortgage, charge, lease or otherwise deal with any property which is subject matter of a notice under Rule 2. Rule 16(1) also stipulates that no civil court can issue any process against such property in execution of a decree for the payment of money. The Hon’ble Supreme Court noted that the High Court has failed to take into account the fact that the sale of the property was pursuant to the order passed by the DRT with regard to the property over which a decree had already been passed and the mortgage created much prior to the issuance of notice under Rule 2. Further the Recovery Officer had taken no steps to make parties aware of the notice and allowed the property to be sold. Further as the mortgage over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act, the attachment was not proper, and the Supreme Court directed that the Tax Recovery Officer be restrained from enforcing the attachment. Further directions were also issued to the state authorities to transfer the suit property in favour of Connectwell.
JSA Team comprised of Partner – Farid Karachiwala, Principal Associate – Sneh Parikh and Senior Associate – Anjali Anchayil