Non-Deposit of Mandatory Sums Under Rule 60, Second Schedule of Income Tax Act Vitiates Application to Set Aside Sale

The petitioners (borrowers/guarantors) defaulted on bank dues, leading to an ex-parte certificate in O.A. No. 13 of 2006.

Recovery proceedings (R.P. Case No. 44 of 2009) were initiated by the Recovery Officer (RO) of the Debts Recovery Tribunal (DRT). The mortgaged property was auctioned to Respondent No. 1 for ₹23.61 lakhs

Petitioners 3 and 4 challenged the sale before the RO on grounds of undervaluation under Section 22(2)(e) and (g) of the Recovery of Debts and Bankruptcy Act, which was dismissed on January 10, 2012

After multiple rounds of litigation and remands between the DRT and the Debts Recovery Appellate Tribunal (DRAT), the DRT-3 set aside the sale on October 5, 2020. Respondent No. 1 appealed this to the DRAT, which, on June 22, 2023, reversed the DRT’s decision and restored the RO’s order confirming the sale

The petitioners challenged this DRAT order in the present civil revision.

1. Whether the application to set aside the auction sale was maintainable given the non-compliance with the mandatory deposit requirements under the Second Schedule of the Income Tax Act

2. Whether the auction sale was vitiated by undervaluation or procedural irregularity

The Court applied Section 22 and Section 29 of the Recovery of Debts and Bankruptcy Act, 1993, which makes the Second Schedule of the Income Tax Act, 1961, applicable to recovery proceedings

Specifically, Rule 60 and 61 of the Second Schedule require a mandatory deposit of the debt amount and interest for setting aside a sale

The Court relied on Hotel Paras Garden v. Central Bank of India, holding that a defaulter must show diligence and cannot "fence-sit" until proceedings are over to unsettle a sale

It also referenced C.N. Paramasivam v. Sunrise Plaza regarding the mandatory nature of recovery rules

The Court observed that the petitioners had litigated for 23 years without repaying the loan

Regarding maintainability, the Court agreed with the DRAT that the petitioners failed to make the mandatory deposit required under Rule 60 of the Second Schedule of the Income Tax Act, which is a condition precedent for challenging a sale

The Court rejected the argument that a pre-deposit made during an appeal could be equated to the statutory deposit required to set aside a sale, noting the former was a smaller, belated amount

On the merits of valuation, the Court found the auction price of ₹23.61 lakhs (2010) was nearly double the then-valuation of ₹12.65 lakhs, despite the petitioners' claim of a ₹33 lakh valuation in 2003; the depreciation was justified by an 80% increase in tenancy

The Court concluded the petitioners deliberately avoided proceedings despite sufficient opportunity

The Court held that the petitioners’ conduct was aimed solely at stalling recovery

The authority was directed to complete the sale process and hand over possession to the auction purchaser (Respondent No. 1) within sixty days