Court’s Decision
The Kerala High Court, in a judgment delivered by Justice Mohammed Nias C.P., dismissed a writ petition challenging an auction sale conducted by the Recovery Officer under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDB Act”). The Court held that Rule 68B of the Second Schedule to the Income Tax Act, 1961—which prescribes a three-year limitation for sale of attached property—has no mandatory application to proceedings under the RDDB Act, and that the petitioners’ challenge filed nearly nine years after the sale was hopelessly delayed and barred by laches. The Court also rejected the plea that the auction was void ab initio, observing that even if a sale suffers from procedural illegality, it does not become null unless there is total absence of jurisdiction.
Facts
The petitioners had availed a loan of ₹5 lakh from the respondent bank, which was later enhanced to ₹20 lakh as an Overdraft-Cash Credit (OD-CC) facility, with additional loans availed by one co-obligant under agricultural and Kisan credit schemes. The liabilities were secured by mortgaging properties owned by the petitioners (27 and 28 cents) and another co-obligant (3 acres). Upon default, the bank initiated recovery proceedings before the Debts Recovery Tribunal (DRT), Ernakulam, leading to a Recovery Certificate dated 11 January 2012 for ₹76,90,252.22.
The Recovery Officer issued a sale proclamation on 24 May 2016, including a property measuring 5 acres 2 cents allegedly not covered under the original Recovery Certificate. The auction was held on 25 July 2016, where two purchasers acquired properties for ₹75.6 lakh and ₹30.2 lakh respectively. Possession was later handed over through an Advocate Commissioner on 11 April 2025.
The petitioners contended that the sale was barred by limitation under Rule 68B of the Second Schedule to the Income Tax Act, as the three-year period from the financial year ending 31 March 2012 had expired on 31 March 2015. The sale conducted in July 2016, according to them, was void and violative of Article 300A of the Constitution, which protects the right to property.
Issues
- Whether Rule 68B of the Second Schedule to the Income Tax Act, 1961 applies to recovery proceedings under the RDDB Act, thereby rendering the sale void for being conducted beyond the prescribed period of three years.
- Whether the auction sale, assuming it violated the limitation, was void ab initio or merely irregular.
- Whether the petitioners could challenge the sale after an unexplained delay of nearly nine years.
Petitioners’ Arguments
The petitioners argued that Rule 68B is mandatory and restricts the Recovery Officer from selling any immovable property beyond three years from the end of the financial year in which the Recovery Certificate was issued. As their certificate was dated 11 January 2012, the period expired on 31 March 2015, and the sale proclamation of May 2016 and auction of July 2016 were void.
They relied on:
- Ratheesh M.N. v. DRT (Kerala & Lakshadweep) [2019 (2) KHC 134], where the Division Bench held that sales conducted beyond Rule 68B limitation are illegal.
- C.N. Paramsivam v. Sunrise Plaza [2013 (9) SCC 460], where the Supreme Court ruled that sales violating statutory provisions are nullities.
- Rajasthan State Industrial Development & Investment Corporation v. Subhash Sindhi Cooperative Housing Society [(2013) 5 SCC 427], which stated that acts void ab initio have no legal effect and can be ignored even collaterally.
They asserted that since Rule 68B applies to debt recovery by virtue of Section 29 of the RDDB Act, which incorporates the Second Schedule of the Income Tax Act “as far as possible,” the sale and all subsequent actions, including mutation and transfer to auction purchasers, must be declared void.
Respondents’ Arguments
The respondent bank opposed the petition, arguing that it was not maintainable as the Federal Bank is a private entity and not “State” under Article 12 of the Constitution, relying on Federal Bank Ltd. v. Sagar Thomas [(2003) 10 SCC 733].
It further contended that the petitioners had unsuccessfully litigated the matter before every available forum — DRT, DRAT, and the High Court — and their belated reliance on Rule 68B was an afterthought.
The bank cited:
- K. Kutaguptan v. Canara Bank [MANU/KE/0834/2009], affirmed by Division Bench in [MANU/KE/1860/2017], which held that Rule 68B does not govern DRT recovery.
- Geevarghese P. John v. Federal Bank [2024 KHC 7312], holding that RDDB Act recoveries are governed by Article 136 of the Limitation Act and not Rule 68B.
- Balvant N. Viswamitra v. Yadav Sadashiv Mule [(2004) 8 SCC 706] and Rafique Bibi v. Sayed Waliuddin [(2004) 1 SCC 287], to assert that procedural irregularities do not render a decree void.
The auction purchaser also submitted that the petitioners’ delay of nine years was fatal and that substantial investments had been made in improving the property post-sale. They relied on State of M.P. v. Nandlal Jaiswal [1986 KHC 708] and Acre Polymers Pvt. Ltd. v. Alphine Pharmaceuticals Pvt. Ltd. [2021 KHC 6783], arguing that equitable relief cannot be granted to litigants who sleep over their rights.
Analysis of the Law
The Court examined the legislative intent behind the RDDB Act and Section 29, which incorporates certain provisions of the Second Schedule to the Income Tax Act “as far as possible” and “with necessary modifications.” Justice Nias held that such incorporation is only procedural, meant to ensure fairness and structure in recovery, not to import substantive limitations that could obstruct the very purpose of the Act — speedy recovery of debts due to banks and financial institutions.
Rule 68B, referring to terms like “financial year,” “Section 245-I,” and “Chapter XX,” is peculiar to tax recovery and alien to debt recovery proceedings. The RDDB Act, being a self-contained code, prescribes its own mechanism for adjudication and recovery, and there is no statutory basis for applying a strict three-year bar.
The Court held that even assuming Rule 68B applied, its time limit is directory, not mandatory, since it imposes an administrative duty on the Recovery Officer but creates no substantive right in favour of the debtor. The absence of any prescribed consequence for delay further supports this interpretation.
Precedent Analysis
- C.N. Paramsivam v. Sunrise Plaza (2013) 9 SCC 460 – Cited by petitioners to argue for nullity of sales violating statutory provisions, but the Court held it inapplicable since RDDB proceedings differ fundamentally from tax recoveries.
- K. Kutaguptan v. Canara Bank (2009) – The Kerala High Court earlier held that the three-year limitation under Rule 68B cannot apply to DRT recoveries; this view was affirmed by a Division Bench and consistently followed thereafter.
- Geevarghese P. John v. Federal Bank (2024) – Recently reiterated that recovery under the RDDB Act is governed by Article 136 of the Limitation Act and not Rule 68B.
- Rafique Bibi (2004) 1 SCC 287 and Balvant N. Viswamitra (2004) 8 SCC 706) – Clarified that a decree passed by a competent authority, even if erroneous or irregular, remains binding unless set aside through due process; such actions cannot be collaterally attacked as void.
- Celir LLP v. Sumati Prasad Bafna (2024) – The Supreme Court reaffirmed the principle of constructive res judicata, holding that issues which could have been raised earlier cannot be revived in subsequent proceedings.
Court’s Reasoning
The Court concluded that importing Rule 68B into the RDDB framework would “stultify and defeat” its objective of expeditious recovery. Section 29 incorporates procedural provisions only “as far as possible,” not to create new substantive rights for defaulters. Delays caused by administrative or procedural circumstances beyond the bank’s control cannot invalidate recovery actions.
On the plea that the sale was void, the Court observed that illegality does not equal nullity — a decree becomes void only if the authority lacked inherent jurisdiction. Since the Recovery Officer had jurisdiction to conduct the sale, any procedural error could only make it irregular, not void.
Further, the Court found that the petitioners’ writ, filed nine years after the auction, suffered from gross delay and laches, and allowing it would prejudice bona fide auction purchasers who had made substantial investments. The Court held that finality in litigation is a fundamental principle and barred the petition under constructive res judicata, as the same issues had been repeatedly litigated before DRT, DRAT, and the High Court.
Conclusion
The Kerala High Court dismissed the writ petition, holding that:
- Rule 68B of the Second Schedule to the Income Tax Act does not apply to recovery under the RDDB Act, and even if applicable, it is directory and not mandatory.
- The auction sale, even if procedurally irregular, was not void, as the Recovery Officer had jurisdiction.
- The challenge was barred by delay, laches, and constructive res judicata.
The judgment reinforces the principle that debt recovery proceedings must not be derailed by technical objections or belated claims, especially after auction purchasers have acquired rights.
Implications
This decision affirms the finality and integrity of debt recovery auctions conducted under the RDDB Act. It underscores that borrowers cannot reopen settled proceedings on hyper-technical grounds or after unreasonable delay. The ruling also clarifies that Rule 68B’s limitation applies exclusively to tax recovery, not to debts owed to financial institutions, thereby ensuring consistency and certainty in banking recovery law.
FAQs
1. Does Rule 68B of the Income Tax Act apply to bank recovery under the RDDB Act?
No. The Court held that Rule 68B applies only to tax recovery proceedings. Under the RDDB Act, recovery actions are governed by the Act’s own framework and the Limitation Act, 1963.
2. Can a borrower challenge a DRT auction after several years?
Not ordinarily. Delay and laches bar such challenges, particularly when third-party rights have arisen and properties have been improved by auction purchasers.
3. Is a sale under DRT automatically void if limitation under Rule 68B is breached?
No. Even if such limitation applied, it is only directory. Procedural errors make a sale irregular, not void, and can only be corrected through statutory appeals, not collateral writ petitions.