Janata Sahakari Bank Ltd v. Tax Recovery Officer Vii,Income Tax Department,Company Range Iv

Janata Sahakari Bank Ltd.,Represented by its authorized signatory,Umesh Khanderao Kokil,1444, Shukrawar Peth,Thorale Bajirao Road,Pune – 411 002. ...Petitioner vs Tax Recovery Officer VII,Income Tax Department,Company Range IV,121, M.G.Road,Chennai – 600 034. ...Respondent Petition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari, calling forthe records of letter of the respondent bearing referenceT.R.No.N.23/2007-08 dated 27.12.2007 and quash the same. The writ on hand is filed questioning the validity of theproceedings dated 27.12.2007 passed by the respondent. CONTENTION OF THE PETITIONER: 2.The impugned proceedings reveals that it was issued forrecovery of income tax arrears in the case of M/s.NEPC AgroFoods Limited and its Directors Shri.Raj Kumar Khemka, Shri.RaviPrakash Khemka and Shri.Thirupathy Kumar Khemka. The respondenthad noticed from the advertisement published in the dailynewspaper 'Dinamalar' on 20.12.2007 that the Bank has taken https://hcservices.ecourts.gov.in/hcservices/ possession of the property at Plot No.83 at Ambattur IndustrialEstate, Chennai-53 for the loan amount of Rs.28,89,35,552/- duefrom M/s.NEPC Agro Foods Ltd., and its Directors Shri.Raj KumarKhemka, Shri.Ravi Prakash Khemka and Shri.Thirupathy KumarKhemka. 3.The impugned order further proceeds that the abovedefaulters M/s.NEPC Agro Foods Ltd. and its Directors Shri.RajKumar Khemka, Shri.Ravi Prakash Khemka and Shri.Thirupathy KumarKhemka are in tax arrears to the Income Tax Department as below: 1.M/s.NEPC Agro Foods Ltd. Rs.20,37,11,2652.Shri.Raj Kumar Khemka Rs. 51,08,2893.Shri.Ravi Prakash Khemka Rs. 2,11,52,0084.Shri.Thirupathy Kumar Khemka Rs. 59,35,011 4.In this connection, the respondent informed that theproperty mentioned in the newspaper, i.e. Plot No.83, AmbatturIndustrial Estate, Chennai-53 was already attached in Form ITCP16 by the Income Tax Department on 18.06.2003 and the same wasserved to the defaulter assessee company on 18.06.2003. A copyof the Form ITCP 16 also enclosed along with the impugned orderwhich was communicated to Shri.A.S.Bapalt, the AuthorisedOfficer, Janatha Sahakari Bank Ltd., Pune [the petitionerherein]. 5.The petitioner Janata Sahakari Bank Ltd., made asubmission that the attachment was made against M/s.NEPC AgroFoods Ltd. and they are neither a proper nor necessary partysince the petitioner Bank was under lawful possession of thesubject property since from 19.12.2007 which was affirmed by theDebt Recovery Tribunal, Debt Recovery Appellate Tribunal and theMadras High Court. 6.The petitioner states that M/s.NEPC Agro Foods Ltd.originally entered into a loan agreement dated 31.03.1999 withthe petitioner bank for a sanctioned amount of Rs.12,80,00,000/-@ 18% interest per annum. As security for the said loan,M/s.NEPC Agro Foods Ltd. mortgaged its property at plot No.83,Ambattur Industrial Estate, Chennai – 53 admeasuring 02.00 acrestogether with all buildings and superstructures thereoncomprised in S.No.14, 15, 16(part), 18, 19, 20 bounded on theNorth by land covering S.No.12, 13 South by New Avadi road, Eastby compound wall of Spheroidal Industries and West by NallikanamStreet, within the sub registration of Ambattur, and theRegistration district of Chingelpet, Madras. NEPC India Ltd, theparent company, stood as corporate guarantor of the loan. 7.The petitioner states that the borrower, NEPC Agro foodsLtd and the corporate guarantor NEPC India Ltd both defaulted onthe repayment of loan as per the payment schedule given in theloan agreement. This default https://hcservices.ecourts.gov.in/hcservices/ constrained the petitioner to classify the loans as C-100 underthe NPA classification rules as mandated by the Reserve Bank ofIndia. 7.The petitioner states that the borrower, NEPC Agro foodsLtd and the corporate guarantor NEPC India Ltd both defaulted onthe repayment of loan as per the payment schedule given in theloan agreement. This default https://hcservices.ecourts.gov.in/hcservices/ constrained the petitioner to classify the loans as C-100 underthe NPA classification rules as mandated by the Reserve Bank ofIndia. 8.Before the Cooperative Court, NEPC Agro foods Ltd andNEPC India Ltd, admitted their joint liability and entered intoduly recorded consent award dated 15.2.2007, wherein they agreedto repay a sum of Rs. 15,51,00,000/- on or before 15.3.2007 asfull and final settlement of dues. It was an expressed term ofthe consent award that failing repayment the petitioner couldproceed with its remedies under the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act [SARFAESI Act], 2002. Both NEPC Agro foods Ltd andNEPC India Ltd defaulted on the terms of the consent award andno payments were made. 9.The said default by these two Companies forced thepetitioner to proceed and take possession of the property on19.12.2007 in continuation of the action already initiated underthe SARFAESI Act, 2002. It is contended that since 2007 thePetitioner is in possession of the schedule mentioned property. 10.The SARFAESI action initiated by the Petitioner Bank waschallenged before the DRT-I, Chennai but the original stay wasvacated by the High Court. On remand, DRT dismissed S.A. No. 68of 2008. An Appeal was made before the Debts Recovery AppellateTribunal, which was also dismissed. At the time of filing ofthe writ petition, no proceedings were pending relating to theloan agreement entered into between the petitioner bank and theNEPC Agro Foods Ltd. It is contended that the petitioner bankinitiated winding up proceedings before the Madras High Courtagainst M/s.NEPC Agro Foods Ltd. in C.P.No.247 of 2008.Meanwhile, the petitioner bank reeived the notice dated27.12.2007 consequent to the advertisement dated 20.12.2007 inthe Dinamalar newspaper from the respondent informing thepetitioner of an Income Tax attachment by the respondent on thesame schedule property vide Form ITCP6 dated 18.06.2003. 11.The petitioner states that the encumbrance certificateissued by the Inspector General of Registration reflects thecharge created by the respondent vide Form ITCP 16 bearingreference No.T.R.No.130/CEN.I(1)/2003-04 dated 18.06.2003. Theattachment was registered and started reflecting on theencumbrance certificate from 31.12.2007 as other charge afterpossession of the property was undertaken under SARFAESI Act bythe petitioner. The petitioner bank's charge has beenregistered as a mortgage since 16.10.2002. 12.Based on the above facts as narrated, the learned seniorcounsel appearing on behalf of the petitioner has stated that,even before attachment by the Income Tax Department, the https://hcservices.ecourts.gov.in/hcservices/ mortgage was in existence from 16.10.2002 onwards. However, itis clarified that the mortgage was registered between thepetitioner and M/s.NEPC Agro Foods Ltd. on 11.12.1998 and thesaid mortgage was reflected in the encumbrance certificate also.Thus the petitioner bank holds priority over the charge andtherefore the impugned order passed by the respondent is nulland void. 12.Based on the above facts as narrated, the learned seniorcounsel appearing on behalf of the petitioner has stated that,even before attachment by the Income Tax Department, the https://hcservices.ecourts.gov.in/hcservices/ mortgage was in existence from 16.10.2002 onwards. However, itis clarified that the mortgage was registered between thepetitioner and M/s.NEPC Agro Foods Ltd. on 11.12.1998 and thesaid mortgage was reflected in the encumbrance certificate also.Thus the petitioner bank holds priority over the charge andtherefore the impugned order passed by the respondent is nulland void. 13.The learned senior counsel for the petitionerstrenuously contended that the actions of the Income TaxDepartment is absolutely untenable and not in consonance withthe terms of priority as contemplated under the SARFAESI Act andDebt Recovery Tribunal Act. The learned senior counsel made asubmission that M/s.NEPC Agro Foods Limited is an independententity and absolutely unconnected with M/s.NEPC India Limited,who was the income tax defaulter as per the respondent. Thusthe mortgage between the petitioner and the M/s.NEPC Agro FoodsLimited is no way responsible for the income tax arrears due tothe Department. The subject property mortgaged belongs to theM/s.NEPC Agro Foods Limited which is a separate entity and acompany registered and therefore, the very initiation ofproceedings under the Income Tax Act is untenable. The learnedsenior counsel in support of the said contention cited thejudgments wherein the priority of the mortgage was upheld. Thelearned senior counsel cited the judgment of the Hon'ble FullBench of this Court dated 10.11.2016 in W.P.No.2675 of 2011[Assistant Commissioner (CT), Anna Salai-III Assessment Circlevs. The Indian Overseas Bank], wherein the Hon'ble Full Benchmade an observation as under: “2.We are of the view that if there was at allany doubt, the same stands resolved by view of theEnforcement of Security Interest and Recovery ofDebts Laws and Miscellaneous Provisions (Amendment)Act, 2016, Section 41 of the same seeking tointroduce Section 31B in the Principal Act, Whichreads as under:- “31B. Notwithstanding anything contained inany other law for the time being in force, therights of secured creditors to realise secureddebts due and payable to them by sale of assetsover which security interest is created, shall havepriority and shall be paid in priority over allother debts and Government dues including revenues,taxes, cesses and rates due to the CentralGovernment, State Government or local authority.Explanation:-for the purposes of this Section, itis hereby clarified that on or after thecommencement of the insolvency and bankruptcy Code,2016, in cases where insolvency or bankruptcyproceedings are pending in respect of securedassets of the borrower, priority to secured creditors in payment of debt shall be subject tothe provisions of that code.” 3.There is, thus, no doubt that the rights ofa secured creditor to realise secured debts due andpayable by sale of assets over which securityinterest is created, would have priority over alldebts and Government dues including revenues,taxes, cesses and rates due to the CentralGovernment, State Government or Local Authority.This Section introduced in the Central Act is with“notwithstanding” clause and has come into forcefrom 01.09.2016. 4.The law having now come into force,naturally it would govern the rights of the partiesin respect of even a lis pending. 5.The aforesaid would, thus, answer question(a) in favour of the financial institution, whichis a secured creditor having the benefit of themortgaged property. 3.There is, thus, no doubt that the rights ofa secured creditor to realise secured debts due andpayable by sale of assets over which securityinterest is created, would have priority over alldebts and Government dues including revenues,taxes, cesses and rates due to the CentralGovernment, State Government or Local Authority.This Section introduced in the Central Act is with“notwithstanding” clause and has come into forcefrom 01.09.2016. 4.The law having now come into force,naturally it would govern the rights of the partiesin respect of even a lis pending. 5.The aforesaid would, thus, answer question(a) in favour of the financial institution, whichis a secured creditor having the benefit of themortgaged property. 6.In so far as question (b) is concerned, thesame is stated to relate only to auction sales,which may be carried out in pursuance to the rightsexercised by the secured creditor having a mortgageof the property. This aspect is also covered by theintroduction of Section 31B, as it includes“secured debts due and payable to them by sale ofassets over which security interest is created. 7.we, thus, answer the aforesaid referenceaccordingly.” 14. On behalf of the petitioners, the judgments deliveredby the Hon'ble Single Judges of the Madras High Court withreference to the priority issue are relied upon. In this regard,the Courts have formed an opinion that the Bank gets priorityover the other charges. Relying on the said judgments, it iscontended that in the present case, both the SARFAESI Act andDRT Act contemplates priority in favour of the petitioner andtherefore, the first charge is for the petitioner's Bank andtherefore, the action of the respondents are in violation of theprovisions of the Statutes. 15.The learned senior counsel appearing for the petitionerrelied on the recent judgment of this Court dated 21.04.2021 inW.P.No.27409 of 2019, wherein the similar issue was consideredby this Court and this Hon'ble Court considered Section 281 ofthe Income Tax Act as well as Section 26E of the SARFAESI Act.Considering the provisions, this Court held that the mortgage bythe bank holds priority over the claim of the Income TaxDepartment and accordingly, attachment proceedings of the IncomeTax Department was set aside. The judgment relied was deliveredby the Hon'ble Single Judge in the case of Sancheti Leasing https://hcservices.ecourts.gov.in/hcservices/ Company Ltd. vs. Income Tax Officer [2018 SCC Online Hyd 441],wherein Justice R.Jayasimha Babu made an observation as follows:“6.Section 281(1) of the Act had been reliedupon by the Income-tax Officer. That sectiondeclares certain transactions as void. Thesection, however, does not vest the authority inthe Income-tax Officer to make such a declaration. 7.Before a transaction involving immovableproperty can be declared as void, all therequirements of law must necessarily be satisfied.The fact that a statute provides for such adeclaration being made, if the conditionsmentioned in the statute are satisfied, does notimply that an officer exercising powers under theprovisions of the statute can assume to himselfthe power and jurisdiction to declare what isotherwise a legally valid transaction as void.Adjudication is the function of the courts. Anydeclaration of a transaction being void must besought in the civil court. The Income-tax Officermoreover in this case is an interested party as itis in the interests of the Revenue to make such adeclaration and proceed to recover the vendor'sarrears of tax from such person. 7.Before a transaction involving immovableproperty can be declared as void, all therequirements of law must necessarily be satisfied.The fact that a statute provides for such adeclaration being made, if the conditionsmentioned in the statute are satisfied, does notimply that an officer exercising powers under theprovisions of the statute can assume to himselfthe power and jurisdiction to declare what isotherwise a legally valid transaction as void.Adjudication is the function of the courts. Anydeclaration of a transaction being void must besought in the civil court. The Income-tax Officermoreover in this case is an interested party as itis in the interests of the Revenue to make such adeclaration and proceed to recover the vendor'sarrears of tax from such person. 8.The Supreme Court of India in its recentdecision rendered in the case of TRO v. GangadharViswanath Ranade (Decd.) [1998] 234 ITR 188 hasheld that if the Department finds that theassessee has transferred a property to a thirdparty with the intention to defraud the Revenue,the Revenue will have to file a suit under Rule 11(6) of Schedule II to the Income-tax Act to havethe transfer declared void under Section 281 ofthe Income-tax Act.” 16.Relying the said judgment, the learned senior counsel isof an opinion that Section 26E commences with a non-obstanteclause and states that priority shall be accorded to the debtspayable to secured creditors notwithstanding anything in anyother law for the time being in force including the Income TaxAct. The only exception is that as per explanation to section26E, cases pending under the Insolvency and Bankruptcy Code,2016 in the case of secured creditors where a prior valid chargeexist as in the present case where the mortgage has been createdon 10.02.2014, the provisions of section 281 of the Income TaxAct would not serve to disturb the same. 17.In the case cited supra, the facts considered by thisCourt was that the mortgage was well prior to the attachmentmade by the Income Tax Department. In such circumstances, theCourt formed an opinion that as per Section 26E of the SARFAESI https://hcservices.ecourts.gov.in/hcservices/ Act the Bank holds priority over the charge and therefore, thesubsequent attachment made by the Income Tax Department is notvalid. Even the judgment in the case of Sancheti LeasingCompany Limited, this Court held that “the fact that a statuteprovides for such a declaration being made, if the conditionsmentioned in the statute are satisfied, does not imply that anofficer exercising powers under the provisions of the statutecan assume to himself the power and jurisdiction to declare whatis otherwise a legally valid transaction as void”. Theconsideration was whether the Income Tax Authority has got powerunder the Income Tax Act to issue a declaration declaringcertain civil transactions as void, more specifically, themortgage or otherwise. The Court held that any declaration oftransaction being void must be sought in the Civil Court. 18.This Court has no quarrel or any contra opinion withreference to the principles settled in the said case. TheIncome Tax authorities have no powers under the Act to issue anysuch declaration, declaring the civil transactions as null andvoid and such a power is vested with the competent Civil Courtof Law. 19.Under these circumstances, this Court is bound toexamine the scope of Section 281 of the Income Tax Act as wellas the priority conferred in favour of the Bank under theprovisions of the SARFAESI Act and Debt Recovery Tribunal Act.The principles settled in the case of Corporation Bank vs. TheCommissioner, Income Tax Department and others in W.P.No.27409of 2019 dated 21.04.2012 is not in dispute and this Court isbound to consider the facts circumstances independently and thescope of the relevant provisions with reference to theprovisions of the Income Tax Act. 19.Under these circumstances, this Court is bound toexamine the scope of Section 281 of the Income Tax Act as wellas the priority conferred in favour of the Bank under theprovisions of the SARFAESI Act and Debt Recovery Tribunal Act.The principles settled in the case of Corporation Bank vs. TheCommissioner, Income Tax Department and others in W.P.No.27409of 2019 dated 21.04.2012 is not in dispute and this Court isbound to consider the facts circumstances independently and thescope of the relevant provisions with reference to theprovisions of the Income Tax Act. 20.In this regard, it is relevant to rely on the judgmentof the Hon'ble Three Judges Bench of the Supreme Court of Indiain the case of Official Liquidator vs. Dayanand and others,reported in 2008 (10) SCC 1, wherein the Apex Court in anunambiguous terms held that “there have been several instancesof different Benches of High Court not following thejudgments/orders of co-ordinate and even larger Benches”. Insome cases, High Courts were gone to the extent of ignoring thelaw laid down by this Court without any tangible reason.Therefore, if there are factual differences or the reasons orconflicting decisions, then the reasons must be considered inclear terms for the purpose of distinguishing the judgment orotherwise. Thus, it is not as if every judgment produced by therespective learned counsels appearing on behalf of the partiesto the lis is to be followed as it is. The Courts are bound toapply the facts and circumstances of each case and distinguishthe principles if necessary with reference to the provisions ofthe statute as well as the Rules. Conflicting decisions are https://hcservices.ecourts.gov.in/hcservices/ common in our Country. The duty of the Courts are to ensurethat such conflicting judgments are taken into consideration forthe purpose of dealing with the facts, which all are placedbefore the Courts. Even in some circumstances, certaininterpretation of the provisions, which all are not consideredor not interpreted in its letter and spirit, then also theCourts are bound to look into those aspects. Ultimately, whilefollowing the principles laid down, independent application ofmind by the Courts are of paramount importance and it is not asif every judgment is to be followed in a routine and mechanicalmanner. This exactly is the principle reiterated by the ApexCourt on several occasions. Thus, this Court has to considerthe provisions as well as the judgments. CONTENTIONS OF THE RESPONDENTS: 21.The learned senior standing counsel made a submissionthat factually there are certain disputes which all are to beadjudicated, and High Court cannot venture into the adjudicationof such disputed facts and in this regard, the Income Tax Actprovides an avenue for the aggrieved person to prefer an appealbefore the Tax Recovery Officer under Schedule II Rule 11,wherein the factual adjudications can be made. Thus thepetitioner has to approach the Tax Recovery Officer underSchedule II Rule 11 of the Income Tax Act for clarifying certainaspects which all are made available. Contrarily, a writproceedings need not be entertained as adjudication of facts inthe present case is vital. 22.In order to substantiate the said contention, thelearned senior standing counsel contended that the assesseedefaulter is in arrears to the tune of Rs.34,52,12,985/-. Thefollowing demands were raised prior to 31.03.1999, the allegeddate of mortgage to the petitioner Bank. 22.In order to substantiate the said contention, thelearned senior standing counsel contended that the assesseedefaulter is in arrears to the tune of Rs.34,52,12,985/-. Thefollowing demands were raised prior to 31.03.1999, the allegeddate of mortgage to the petitioner Bank. 23.It is contended on behalf of the respondent that thedefaulter company had failed to pay the above demands. Thepetitioner M/s. JanataSahakari Bank Ltd, Pune claims that it hadsanctioned the term loan of Rs.12,80,00,000/- to the defaultercompany only on 31.03.1999 and the said loan were dispersedduring the financial year 1999-2000. Moreover, the Bank hadsanctioned the loan without verifying the tax arrears and it isthe bank’s obligation to verify the same. Considering the abovefacts, it is submitted that the department has the first chargewith respect to the tax dues which were created prior to https://hcservices.ecourts.gov.in/hcservices/ 31.03.1999 and it is clear that the liability of the said bankthat costs the encumbrance in the property located at Plot No.83, Ambattur Industrial Estate. Chennai-600053 admeasuring twoacres is void against the Income tax dues. 24.It is further contended that when the file was atChennai, the property belonging to the assessee-defaulter, NEPCAgro Foods Limited, located at D.No.83, MTH Road, AmbatturIndustrial Estate, Chennai-98 was attached by Tax RecoveryOfficer-I, Central, Chennai, vide ITCP 16 in T.R. Dated18.06.2003. A copy of the above ITCP 16 was served on18.06.2003 itself on the assessee-defaulter, NEPC Agro FoodsLimited. Later on, on 20.12.2007, the petitioner bankM/s/.Janata Sahakari Bank issued an advertisement in the tamildaily newspaper Dina Malar informing that the aforesaid propertyhad been taken possession by the petitioner-bank for default inpayment of the loan to the tune of Rs.28.89 crores by theassessee-defaulter and its directors. After the advertisement,the then TRO (TRO-VII, Company Range-IV, Chennai, issued aletter dated 27.12.2007 intimating the petitioner-bank that theaforesaid immovable property was already attached by the IncomeTax Department on 18.06.2003. This attachment is beingquestioned by the petitioner-bank by filing of writ petitionbefore the Hon'ble High Court of Madras W.P.No.15437 of 2014 andthe petitioner - bank is praying before the Hon'ble High Courtto quash the above letter dated 27.12.2007. 25.It is submitted that the property belonging to theassessee-defaulter, NEPC Agro Foods Limited, located at D.No.83,MTH Road, Ambattur Industrial Estate,Chennai-98 was attached byTax Recovery Officer, Central, Chennai, vide ITCP 16 inT.R.No.130/Cen.I(1)/2003-04, dated 18.06.2003. A copy of theabove ITCP 16 was served on 18.06.2003 itself on the assessee-defaulter, NEPC Agro Foods Limited. Once the ITCP 16 is issued,an assessee-defaulter is prohibited and restrained from the dateof the aforesaid notice until further order from the Income TaxDepartment, from transferring or charging the subject mentionedproperties, which are included in the property of the defaulterby virtue of the Explanation to sub-section (1) of the section222 of the Income-tax Act 1961 in any way and that all personsbe and they are prohibited from taking any benefit under suchtransfer or charge. Further, notices in ITCP 17 dated 12.01.2012was issued by the TRO, Tirupur, requesting the assessee-defaulter and its directors, copy of the notices were sent tothe Coimbatore and Chennai address of the assessee-defaulter andits directors, to bring to the notice of the department anyencumbrances, charges, claims or liabilities attaching to theabove said Ambattur Industrial Estate property. Against theaforesaid notice, the assessee-defaulter filed a writ petitionbefore the Hon'ble High Court of Madras which on 05.07.2012stayed further proceedings pursuant to the aforesaid notice (ITCP 17 dated 12.01.2012) pending disposal of the WP No.2361 /2012. It is seen from the records,the aforesaid WP is yet to bedisposed of. 26.It is further submitted that since the notice ofattachment [ITCP 16 in T.R. No.130/Cen.I(1)/2003—04,dated18.06.2003] of the aforesaid immovable property was served onNEPC Agro Foods Limited on 18.06.2003, the petitioner- JanataSahakari Bank cannot be said to be the lawful owner of theimmovable property from the later period of 19.12.2007. Whilethe petitioner-Janata Sahakari Bank is claiming to be inpossession of the said immovable property from the year 2007,the Income Tax Department had attached the said immovableproperty much earlier on 18.06.2003. Consequent to theadvertisement issued by the petitioner-Janata Sahakari Bank inthe tamil daily newspaper DINA MALAR dated 20.12.2007, the thenTRO-VI, Company Range-IV, Chennai, vide letter in T.R.No.23/2007-08, dated 27/12/2007, brought to the notice Of thepetitioner- Janata Sahakari Bank that the aforesaid immovableproperty had already been attached by the Income Tax Departmenton 18.06.2003 and the attachment notice in ITCP 16 was served onthe NEPC Agro Foods Limited on 18.06.2003. Whereas, as alreadymentioned in the comments for para 2, once the ITCP 16 isissued, an assessee-defaulter is prohibited and restrained fromthe date of the aforesaid notice until further order from theIncome Tax Department, from transferring or charging the undermentioned properties which are included in the property of thedefaulter by virtue of the Explanation to sub-section (1) of thesection 222 of the Income- tax Act 1961 in any way and that allpersons be and they are prohibited from taking any benefit undersuch transfer or charge. 27.The learned senior standing counsel to rebut thecontentions with reference to the judgments relied on by thepetitioner drawn the attention of this Court regarding thejudgment in the case of Abdul Jamil and others vs. Secretary,Income Tax Department and others [(1998) 101 Taxman 332(Madras)], wherein the scope of Section 281 of the IT Act wasconsidered by this Court and it was held as follows:-“In considering s. 281 of the said Act, thesaid provision is declaratory in nature. Itdeclares that the transfers effected by anyassessee with intent to defraud the Revenueduring the pendency of any proceedings under theAct shall be void against any claim in respect ofany tax or any sum payable by the assessee as aresult of the completion of the said proceedings". Therefore, the three requirements under thesection are :(i) that there must be a transfer of theproperty; (ii) that it should be during the pendency of aproceeding under the Act; and (iii) that the transfer must be with intent todefraud the Revenue and if these conditions are satisfied, then thetransfer shall be void in respect of any tax orsum payable by the assessee as a result of thecompletion of the proceedings during the pendencyof which the transfer was effected. The effect ofthe section is that, if such transfer with intentto defraud the Revenue has been made and anyclaim for tax arises after completion of theproceedings during the pendency of which thetransfer took place, such tax or other sum can berecovered by proceeding against the propertynotwithstanding the said transfer.” 28.The learned senior standing counsel further relied onthe judgment in the case of D.S.Senthilvel vs. Tax RecoveryOfficer [(2018) 405 ITR 202 (Madras)], wherein this Court madean observation as under: and if these conditions are satisfied, then thetransfer shall be void in respect of any tax orsum payable by the assessee as a result of thecompletion of the proceedings during the pendencyof which the transfer was effected. The effect ofthe section is that, if such transfer with intentto defraud the Revenue has been made and anyclaim for tax arises after completion of theproceedings during the pendency of which thetransfer took place, such tax or other sum can berecovered by proceeding against the propertynotwithstanding the said transfer.” 28.The learned senior standing counsel further relied onthe judgment in the case of D.S.Senthilvel vs. Tax RecoveryOfficer [(2018) 405 ITR 202 (Madras)], wherein this Court madean observation as under: “19.The learned counsel appearing for thepetitioners also emphasised that this Court shoulddefer to the decision rendered by the DivisionBench of the Gujarat High Court. But this Court isunable to agree with the said submission. It istrue that the Division Bench of this Court in thedecision reported in [1986]159 ITR 646 (Mad)observed that it is an acceptable principle in thematter of construction of an Indian statute as faras possible that there must be uniformity ofconstruction and if the provision of law whichfalls for consideration before the Court hasalready been construed by another High Court,normally that construction should be accepted. Butthen the Honourable Division Bench also added acaveat that if there are compelling reasons todepart from the view taken by the other HighCourt, the said construction need not be accepted.This Court is of the considered opinion that thereare compelling reasons to depart from the viewtaken by the Division Bench of the Gujarat HighCourt. Again as already pointed out, this Courttreading the path taken by the Hon'ble DivisionBench of the Punjab and Haryana High Court. 20.Yet the orders impugned in these writ petitionscannot sustained as such. The Hon'ble SupremeCourt in (1998)6 SCC 658 has held that it is thefunction of the civil court to declare atransactions to be null and void and that the TaxRecovery Officer cannot exercise the said function. Therefore, the respondent clearly erredin declaring the transactions to which thepetitioners are parties as null and void.Therefore, the orders impugned in these writpetitions stand quashed to that extent. It wouldcertainly be open to the petitioners herein toavail the remedy set out in Rule 11(6) of thesecond schedule of the Income Tax Act. If therespondent authority wants to have thetransactions nullified, it is the respondent whomust go to the civil court to seek declaration tothat effect. If the writ petitioners want theattachment to be lifted, it is for them to movethe civil Court and obtain relief as provided inRule 11(6) of the second schedule of the IncomeTax Act.” function. Therefore, the respondent clearly erredin declaring the transactions to which thepetitioners are parties as null and void.Therefore, the orders impugned in these writpetitions stand quashed to that extent. It wouldcertainly be open to the petitioners herein toavail the remedy set out in Rule 11(6) of thesecond schedule of the Income Tax Act. If therespondent authority wants to have thetransactions nullified, it is the respondent whomust go to the civil court to seek declaration tothat effect. If the writ petitioners want theattachment to be lifted, it is for them to movethe civil Court and obtain relief as provided inRule 11(6) of the second schedule of the IncomeTax Act.” 29.Relying on these judgments, the learned senior standingcounsel reiterated that even as per the petitioner, thecorporate guarantee was provided by the NEPC India Limited andthe directors of these two Companies, NEPC India Limited andM/s.NEPC Agro Foods Ltd. are one and the same and even as perthe impugned order, the tax arrears to the Income Tax Departmentwas fixed not only on NEPC Agro Foods Limited but also to itsDirectors who is having interest over the NEPC India Limitedalso. If at all M/s.NEPC Agro Foods Limited is an independententity and unconnected with NEPC India Limited, then it is forthe petitioner to adjudicate the same before the Tax RecoveryOfficer by filing an application under Schedule II Rule 11 ofthe Income Tax Act. This apart, the defaulter has not beenimpleaded as party respondent in the writ petition. Therefore,those facts are to be adjudicated and if at all the judgmentmade by the Income Tax Department is not in consonance with theIncome Tax Officer, then the petitioner may elaborate the samebefore the Tax Recovery Officer who in turn is competent to passan order either way by considering the merits and demerits ofthe case. Instead the High Court cannot go into those facts andcircumstances which all are to be established through certaindocuments which all are to be produced by the defaulter and thedefaulter being not a party to the writ petition, the petitionerBank cannot assume the role of the Income tax arrears defaultersand make certain submissions. Drawing inference on these lines,the learned senior standing counsel appearing for the Income TaxDepartment reiterated that even presuming the petitioner's caseis to be considered, the writ petition would not be anappropriate proceedings and the application before the TaxRecovery Officer under Schedule II Rule 11 of the Income Tax Actwould be an appropriate procedure for adjudication of thesefacts. Thus, the writ petition is to be rejected. ANALYSIS: ANALYSIS: 30.Let us now consider the scope of Section 281 of theIncome Tax Act. Chapter XXIII Section 281 of the Income Tax Actcontemplates certain transfers to be void. Sub-clause (1)enumerates that “where, during the pendency of any proceedingunder this Act or after the completion thereof, but before theservice of notice under rule 2 of the Second Schedule, anyassessee creates a charge on, or parts with the possession (byway of sale, mortgage, gift, exchange or any other mode oftransfer whatsoever) of, any of his assets in favour of anyother person, such charge or transfer shall be void as againstany claim in respect of any tax or any other sum payable by theassessee as a result of the completion of the said proceeding orotherwise". A close reading of the above provision would revealthat where during the pendency of any proceedings under this Actor after the completion thereof, but before service of noticeunder rule 2 of the Second Schedule, if any charge is created byan assessee in favour of any other person shall be void asagainst any claim in respect of any tax or any other somepayable by the assessee. Therefore, it is unambiguous that,during pendency of the proceedings if any charge is created,then such charge created by way of sale, mortgage, gift,exchange or any other mode of transfer whatsoever shall be void. 31.Schedule II Rule 11 of the Income Tax Act whichcontemplates investigation by Tax Recovery Officer. Sub-Clause(1) to Rule 11 states that "where any claim is preferred to, orany objection is made to the attachment or sale of, any propertyin execution of a certificate, on the ground that such propertyis not liable to such attachment or sale, the Tax RecoveryOfficer shall proceed to investigate the claim or objection". 32.Sub-clauses (5) and (6) to Rule 11 of the Income Tax Actreads as under: (5) Where the Tax Recovery Officer issatisfied that the property was, at the said date,in the possession of the defaulter as his ownproperty and not on account of any other person,or was in the possession of some other person intrust for him, or in the occupancy of a tenant orother person paying rent to him, the Tax RecoveryOfficer shall disallow the claim. (6) Where a claim or an objection ispreferred, the party against whom an order is mademay institute a suit in a civil court to establishthe right which he claims to the property indispute; but, subject, to the result of such suit(if any), the order of the Tax Recovery Officershall be conclusive. 32.Sub-clauses (5) and (6) to Rule 11 of the Income Tax Actreads as under: (5) Where the Tax Recovery Officer issatisfied that the property was, at the said date,in the possession of the defaulter as his ownproperty and not on account of any other person,or was in the possession of some other person intrust for him, or in the occupancy of a tenant orother person paying rent to him, the Tax RecoveryOfficer shall disallow the claim. (6) Where a claim or an objection ispreferred, the party against whom an order is mademay institute a suit in a civil court to establishthe right which he claims to the property indispute; but, subject, to the result of such suit(if any), the order of the Tax Recovery Officershall be conclusive. 33.A perusal of the entire Rule would reveal that it is notan appeal or Revision. It is an investigation by the TaxRecovery Officer, which is contemplated. Therefore, any thirdperson if involved in such transfer of property, which isdeclared as void under Section 281 of the Income Tax Act maysubmit an application for investigation by Tax Recovery Officer.Therefore, the statute does not assume that every third personis liable under the Income Tax Act. Schedule II Rule 11 of theIncome Tax Act is a beneficial provision in respect of theperson, who was otherwise cheated by any of the defaulter of taxarrears, who in turn can submit an application for furtherinvestigation in order to cull out the truth or genuinity withreference to the transactions or transfers. Therefore, the TaxRecovery Officer during the pendency found that the chargecreated in favour of the petitioner Bank is valid, then he canpass appropriate orders withdrawing the attachment made underthe provisions of the Act. If the Tax Recovery Officer is of anopinion that the attachment made under the provisions of the Actwas prior to the mortgage or otherwise, then he can passappropriate orders confirming the attachment. However, the saidRule is not relatable to declaration or in the form of an appealby any third person. It is only an enabling provision foreffective adjudication of the actual facts and to find out thegenuinity of certain transfers made during the pendency of theIncome tax proceedings and with reference to the provision underSection 281 of the Income Tax Act. 34.Looking into the provisions of the SARFAESI Act, morespecifically, Section 26E, which contemplates priority tosecured creditors which reads that "notwithstanding anythingcontained in any other law for the time being in force, afterthe registration of security interest, the debts due to anySecured Creditor shall be paid in priority over all other debtsand all revenues, taxes, cesses and other rates payable to theCentral Government of State Government or local authority". 35.Let us now consider Section 31B of the Recovery of Debtsand Bunkruptcy Act, 1993 and the said section Section 31B wasinserted by Act 44 of 2016 with effect from 01.09.2016. Thesaid provision also deals with priority to secured creditors,which reads that "notwithstanding anything contained in anyother law for the time being in force, the rights of securedcreditors to realise secured debts due and payable to them bysale of assets over which security interest is created, shallhave priority and shall be paid in priority over all other debtsand Government dues including revenues, taxes, cesses and ratesdue to the Central Government, State Government or localauthority". 36.It is necessary to consider the conflicting provisionsof the Income Tax Act, SARFAESI Act and Recovery of Debts andBunkruptcy Act, 1993. https://hcservices.ecourts.gov.in/hcservices/ 36.It is necessary to consider the conflicting provisionsof the Income Tax Act, SARFAESI Act and Recovery of Debts andBunkruptcy Act, 1993. https://hcservices.ecourts.gov.in/hcservices/ 37.On the one hand, the Income Tax Act states that, whereduring the pendency of any proceedings under the Income Tax Actor after completion thereof, any assessee creates a charge onor parts with the possession by way of mortgage, sale, etc.Shall be void against any claim in respect of any tax. So also,the SARFAESI Act states that Section 26E contemplates that thesecured creditors shall be paid in priority over all other debtsand all revenues, taxes, cesses and other rates payable to theCentral Government of State Government or local authority.Therefore, equal weightage is given in respect of the securedcreditors. So also Section 31B of Recovery of Debts andBunkruptcy Act, 1993 states that sale of assets over whichsecurity interest is created, shall have priority and shall bepaid in priority over all other debts and Government duesincluding revenues, taxes, cesses and rates due to the CentralGovernment, State Government or local authority. 38.Thus, conflicting provisions in these three independentstatutes are creating heart burning issues between the securedcreditors as well as the Tax Department. Some of the decisionsare in favour of the Tax Department and some of the decisionsare in favour of the Banks. With reference to Section 26E ofthe SARFAESI Act and Section 31B of the Recovery of Debts andBankruptcy Act, 1993, judgments are given in favour of the Banksin view of the fact that the said provisions contemplatespriority over the Government dues is to be given to the Banks.The tenor of Section 281 of the Income Tax Act whichcontemplates that any such transaction made during the pendencyof any proceedings under the Income Tax Act shall be void.Thus, the understanding would be that if the proceedings underthe Income Tax Act are pending at the time of creatingmortgage, sale, gift, etc., then Section 281 of the Income TaxAct would be pressed into operation. The next question is at thetime of creation of mortgage, sale, gift etc., the Income TaxProceedings are pending as contemplated under Section 281 of theIncome Tax Act, such transactions became void. Thus, it isunambiguous that the transactions or transfers made during thependency of the Income tax proceedings are void. This being thepurposive interpretation to be adopted, all transfers, mortgagesetc., made during the pendency of the Income tax proceedingsshall became void under Section 281 of the Income Tax Act. OnceSection 281 of the Income Tax Act was pressed into service andthe transactions or transfers became void, any mortgage,transfer etc., thereafter would be of no validity. In otherwords, the transfer or transactions made against the voidtransactions under the Income Tax Act are invalid in the eye oflaw. Therefore, even before invoking the provisions of theSARFAESI Act and DRT Act, Section 281 of the Income Tax Actintervenes and declares the transactions or transfers as void,if any such transactions or transfers are made during thependency of the Income Tax proceedings. In such circumstances, invokin