Kishor K. Mehta and Rajesh K. Mehta v. Recovery Officer, Debts Recovery Tribunal and HDFC Bank Ltd.

8. Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (the Act of 1993) provides for an application to the DRT by a bank or financial institution to recover the debt. Upon the final order being passed by the DRT under section 19(2), the Presiding Officer of the DRT shall issue a certificate of recovery along with final order for payment of debt with interest under his signature to the Recovery Officer for recovery of the amount of debt specified in the certificate. The Recovery Officer, under Chapter-5 of the Act 1993, deals with the recovery of debt as determined by the DRT. Under section 25, the Recovery Officer, on receipt of a copy of the recovery certificate, can proceed to recover the amount of debt specified in the certificate in one or more modes specified. Section 25 reads thus:

25. Modes of recovery of debts. The Recovery Officer shall, on receipt of the copy of the certificate under sub-section (7) of section 19, proceed to recover the amount of debt specified in the certificate by one or more of the following modes, namely:-- (a) attachment and sale of the movable or immovable property of the defendant; (aa) taking possession of property over which security interest is created or any other property of the defendant and appointing receiver for such property and to sell the same; (b) arrest of the defendant and his detention in prison;

(c) appointing a receiver for the management of the movable or immovable properties of the defendant;

(d) any other mode of recovery as may be prescribed by the

Central Government. The modes specified are thus attachment and sale of movable or immovable property, taking possession of the assets and appointing Receiver, appointing Receiver for the management of the properties, arrest of the defaulter and his detention in the prison and any other mode of recovery as may be prescribed by the Central Government. Under Section 28(4-A), the Recovery Officer may, at any stage of execution of the certificate of recovery, require any person to declare the particulars of assets on affidavit.

9. Section 29 of the Act of 1993 states that the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall as far as possible, apply with necessary modifications. Rules 73 to 80 of the Second schedule of the Income Tax Act lay down the procedure for issuing the order of arrest and detention in prison of a defaulter. Rule 73 is of importance which reads thus:

73. Notice to show cause. (1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied— (a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Tax Recovery Officer, dishonestly transferred, concealed, or removed any part of his property, or (b) that the defaulter has, or has had since the drawing up of the certificate by the Tax Recovery Officer, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. (2) Notwithstanding anything contained in sub-rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer. (3) Where appearance is not made in obedience to a notice issued and served under sub-rule (1), the Tax Recovery Officer may issue a warrant for the arrest of the defaulter. (3A) A warrant of arrest issued by a Tax Recovery Officer under sub-rule (2) or sub-rule (3) may also be executed by any other Tax Recovery Officer within whose jurisdiction the defaulter may for the time being be found. (4) Every person arrested in pursuance of a warrant of arrest under this rule shall be brought before the Tax Recovery Officer issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey): Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him. Explanation.—For the purposes of this rule, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.” Therefore, under Rule 73(1) arrest can be ordered when the defaulter has, with the object or effect of obstructing the execution of the certificate, dishonestly transferred, concealed or removed any part of the property or the defaulter has the means to pay the arrears or substantial part and refused or neglected to pay. Therefore, if the Recovery Officer is satisfied that the Petitioners, with the object of obstructing execution, have dishonestly concealed any part of their properties then the Recovery Officer can order the arrest. Also if the Tax Recovery Officer is satisfied that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction a warrant for the arrest of the defaulter may be issued.

10. Section 30 of the Act of 1993 provides a remedy of appeal to any person aggrieved by the order passed by the Recovery Officer under the Act to be filed within thirty days. Under section 30-A of the Act of 1993, where an appeal is preferred against any order of the Recovery Officer under section 30 by any person from the amount of debt due to the bank and financial institution or a consortium, such appeal is not to be entertained by the Tribunal unless such person deposits 50% of the amount of debt due as determined by the Tribunal.

11. Now we turn to the rival contentions. The Respondents have taken a preliminary objection regarding the entertainability of this petition, in view of statutory remedy of appeal. Answering this preliminary objection, the Petitioners contend that the writ petition should be entertained as the settled grounds on which the writ petition can be entertained despite the availability of the statutory remedy of appeal are made out in this case. According to the Petitioners, the order passed is on the application, which does not make out any jurisdictional facts and no opportunity was given to the Petitioners to meet the case is breach of principles of natural justice. Also, the impugned order is not based any jurisdictional fact; thus, the order being without jurisdiction, the remedy under Article 226 of the Constitution can be invoked. The second ground that the petition under the governing statute is that the remedy of appeal requires pre-deposit of the dues payable and that the Petitioners have no money whatsoever to make the deposit. Also, on the ground that the Petitioners have challenged the validity of Rule 73 of the Second Schedule to the Income Tax Act that mandates such pre-deposit.

12. The Petitioners contend, briefly, as follows. The impugned order passed by the Recovery Officer is on the application (Exhibit-82) filed by the Respondent- Bank. The impugned order specifically refers to the fact that the order disposes of the application filed by the Respondent- Bank vide Exhibit-82. The application filed by the Respondent- Bank gives no particulars whatsoever based on which it could be held that the ingredients of Rule 73 were satisfied. The application does not lay a foundation nor submits any details as to whether the Petitioners transferred, concealed or removed any part of the properties with an object of obstruction in the execution of the recovery certificate or that the Petitioners have no means to pay or have neglected to pay. The only averment is alleging contempt. This is a gross violation of principles of natural justice as the Petitioners have not been confronted with the grounds on which the impugned order is passed. If this course of action is adopted, every debtor can be arrested and detained in civil prison. The Respondent- Bank is not proceeding against mortgaged properties. Therefore, the Recovery Officer has travelled beyond the application of findings without giving an opportunity to the Petitioners and they are based on conjectures and the jurisdictional facts are not made. Therefore, the order being in gross violation of principles of natural justice and without jurisdiction, the writ petition ought to be entertained. Arrest and detention is a drastic measure; therefore, these factors assume more importance. The Petitioners have no means to pay and, therefore, the remedy of appeal, which requires pre-deposit of 25%, is illusory. The reliance is placed on the decision in the case of Satwant Singh Sawhney v.

13. The Respondents opposing the Petition in short contends as follows. The Petitioners have given no reason why they have not challenged the recovery certificate. Show cause notice was issued on 15 January 2018. Under section 25-B of the Act, the Recovery Officer is mandated to recover the amount pursuant to the recovery certificate; therefore, his powers are not restricted by any application of the creditor. The Petitioners were called upon to disclose their assets. They have suppressed various facts and whether the Petitioners have means to pay or not will have to be demonstrated by the Petitioners and this is a disputed question of fact for which an appeal is provided. Petitioner No.1 has not disputed that he is a Trustee of Lilavati Trust and that is not so disclosed in the disclosure affidavit. Petitioner No.1 has not 1 (1967) 3 SCR 525: AIR 1967 SC 1836 disclosed where he gets finance for foreign trips undertaken sometime after one year. Petitioner No.2 has not disclosed his financial worth. The ingredients of Rule 73 are fully satisfied and if the Petitioners are raising any contention regarding the findings rendered, then they would be subject matter of an appeal. Newspaper reports of November 2022 show that Petitioner No.1 and his wife are setting up a hospital of almost worth Rs.300 crore in Gujarat. The Recovery Officer, who is under the mandate to enforce the recovery certificate, had given an opportunity to the Petitioners to submit an affidavit of disclosure and the Petitioners have deliberately suppressed the material facts and therefore, as per Rule 73(1)(a), the Recovery Officer was right in concluding that the Petitioners have concealed their properties with an object and effect of obstructing the execution of the certificate. The Petitioners have not disclosed what the effect of Petitioner No.1 being the trustee of Lilavati Trust, and an adverse inference had to be drawn against Petitioner No.1 and similar position is in respect of Petitioner No.2 who is non-resident of India. The Respondent - Bank contends that the Petitioners are habitual defaulters against whom various proceedings are pending. They have not challenged the recovery certificate and have refused to pay the debt. The Petitioners are guilty of gross suppression of facts which is the ground on which civil arrest can be ordered. These grounds have been recorded in the order, so the impugned order cannot be considered without jurisdiction. As regards the inability to pay the amounts, ample material is placed on record to demonstrate that the Petitioners have financial means and, therefore, the argument that the Petitioners have no money to pay the outstandings or make the pre-deposit, is bogus and it is only to avoid deposit of any amount that writ jurisdiction is invoked. The reliance is placed on the decision in the cases of Authorised Officer, State Bank of Travancore v. Mathew K.C.2; United Bank of India v. Satyawati Tandon[3]; ICICI Bank Ltd. v. Umakanta Mohapatra[4]; and Narayan Chandra Ghose v. UCO Bank[5].

14. In the context of the rival contentions, we now turn to the findings of the Recovery Officer in the impugned order. Some of the observations made by the Recovery Officer need to be reproduced. Petitioner No.1 is referred to as CD-2 and Petitioner No.2 as CD-3. CD-6 is not the Petitioner before us. These are as under:

15. Various options are available to the Recovery Officer under section 25 of the Act. Section 25 of the Act, referred to is reproduced earlier, states that the Recovery Officer shall recover the amount of debt specified in the certificate by one or more of the modes enumerated. These are: (a) attachment and sale of the movable or immovable property of the defendant; (aa) taking possession of property over which security interest is created or any other property of the defendant and appointing receiver for such property and to sell the same; (b) arrest of the defendant and his detention in prison;

(c) appointing a receiver for the management of the movable or immovable properties of the defendant;

(d) any other mode of recovery as may be prescribed by the Central Government.

Therefore, the arrest of the defaulter and his detention in civil prison is one of the modes. Though Section 25 does not indicates a hierarchy amongst the modes available and the Recovery Officer is free to choose the one suitable, the arrest and detention of a person in prison, considering consequences will be the most stringent measure available. This is not to say the arrest should be the mode of last resort. But considering the consequences, the Recovery Officer, if chooses to exercise the option “arrest and detention in prison of the borrower” as mode of recovery will have to carefully assess all the facts on record to ensure that ingredients of Rule 73 are established. The Recovery Officer has to satisfy himself that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Recovery Officer, dishonestly transferred, concealed, or removed any part of his property. He has to be further satisfied that the defaulter has, or had since the drawing up of the certificate by the Tax Recovery Officer, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. The Recovery Officer can issue a warrant of arrest against the defaulter, that, with the object of delaying the execution of recovery certificate, the defaulter is likely to abscond or leave the local limits of jurisdiction of the Recovery Officer. While arriving on this satisfaction and while taking the measure of arrest and detention in civil prison, the Recovery Officer must be on guard not be guided by general sentiments and conjectures. Equally a reasonable opportunity has to be given to the defaulter in such circumstances.

16. We have examined the application filed by the Respondent- Bank at Exhibit-84. In this application the Respondent- Bank has sought a direction from the Recovery Officer for civil arrest of the Petitioners and deposit of their passports. It is stated in the application that the securities mortgaged with the Respondent- Bank are insufficient to recover the dues. Then it is stated that in the affidavit of disclosure filed, there is no clear description of the properties and the Tribunal had directed to file a comprehensive report for disclosure of assets which order is not complied with and in view of non-compliance resulted in contempt and proceeding ought to have been taken against the Petitioners and thereafter relief is sought that the Petitioners be arrested and there is apprehension that they would flee the country leaving the bank remediless. There are no other debt.

17. A reply was filed on behalf of the Petitioners to the application thereby the Respondent – Bank stating that they have no intention to breach the order. It was stated that the Bank was directed by order dated 3 November 2017 to submit due diligence report but it has not done so. It is stated by the Petitioners that pursuant to the order dated 19 November 2008 the Petitioners were directed to disclose their assets and file Income Tax Returns for three years which has been complied with. It is stated that the Petitioners are ready and willing to comply with the order. That Petitioner No.1 being 80 years old is suffering from various health issues and Petitioner No.2 is a non-resident Indian not required to file Income Tax Returns. The Petitioners have stated that they are not the directors of any company and the flat where the Petitioners were residing is now taken over by the Asset Reconstruction Company. It is also stated that the Tribunal has no jurisdiction to impound the passport.

18. The Recovery Officer observed that Petitioner No.1 had enclosed copy of the statement of account of the Bank of India, however, the salary of Rs.[6] lakh from the firm Lila Jewels Pvt. Ltd. is not reflected and as to in what capacity Petitioner No.1 is working in the said firm. Respondent No.2- Bank filed status of the mortgaged properties at Exhibit-84. The Petitioners filed their affidavit of assets. Petitioner No.1 had taken a stand that he has no movable or immovable properties. Petitioner No.2 had taken a stand that he being a non-resident of India not required to file Income Tax Return and even his address is of Antwerp, Belgium where he is stated to be staying on rental basis.

19. Thereafter the Recovery Officer framed three issues: whether the Petitioners are men of means and warrant of arrest be issued; second, whether the Recovery Officer has power to impound the passports of the Petitioners; and third, rather strangely, the issue whether the Petitioners are white collar criminals. In the discussion as reproduced above, the Recovery Officer was substantially impressed by the fact that the Petitioners have not disclosed that Petitioner No.1 is the trustee of Lilavati Trust. Reference is also made to the residence of the Petitioners. The Respondent - Bank had filed an application at Exhibit-50 to which it had enclosed copies of the letters to the secretaries of various residential societies. The Recovery Officer records that these properties are already mortgaged with other banks and notes that the Petitioners have not revealed about the ownership of the properties and if the owners are their relatives then they should have disclosed the sources of fund for the purchase of these properties. Then the Recovery Officer drew an inference that in order to avoid attachment, the Petitioners may have purchased the properties in the names of their near and dear. This inference may or may not be correct but cannot remain an remote inference as it is one of the foundations for ordering arrest. Secondly, the statement of the advocate of Respondent- Bank is that Petitioner No.1 is trustee of Lilavati Trust and Hospital and his ability to pay as he has excellent standing in the market. After recording the submission of the Respondent - Bank, the Recovery Officer observed that the Petitioners have formed various shell companies and these companies in a planned and systematic manner taking loans from various banks and have siphon off. It is stated that the Petitioners are incorrigible offenders who take loans from various banks and siphon off the money.

20. As regards Petitioner No.1 being the trustee of Lilavati Trust, based on the submission of the Respondent- Bank that this fact has not been disclosed, the Recovery Officer has concluded that the Petitioner No.1 has means to pay. As regards Petitioner No.2, the Recovery Officer has stated that Petitioner No.2 is a non-resident of India which would follow that he has means to pay. The question here is not means to sustain themselves or means to livelihood, but means of properties to satisfy the dues as on date and despite these means to satisfy the dues, whether deliberately the dues are not being paid. This inquiry would fall in a different ambit. The Recovery officer has needlessly framed an issue “whether the Petitioners are white collar criminals". Such an issue is outside the scope of Rule

73.

21. A copy of the reasoned impugned order was unavailable when the petition was filed. After that by way of amendment, the Petitioners incorporated various grounds. The Petitioners have stated that observations of the Recovery Officer in respect of flat No.15 and 36 at Usha Kiran, Carmichael Road are arbitrary as flat No.36 belongs to the wife of Petitioner No.1 and has already been attached and that the Petitioners are not concerned with flat No.15. The Petitioners state that if the Recovery Officer had given an opportunity, the Petitioners would have demonstrated these facts. Thereafter the Petitioners in the petition have given list of six properties and have given details of the same as they are either not the properties of the Petitioners or the financial institutions have taken over the physical possession. It is stated that the parties were before the Recovery Officer pursuant to the application filed by the Respondent- Bank and, therefore, all these observations were outside the scope of the application.

22. The Recovery Officer has proceeded based on the application filed by the Respondent- Bank as the impugned order indicates. This application, as narrated earlier, gives no particulars. Though irrespective of the application, the Recovery Officer had the duty to enforce the recovery carefully. The Recovery Officer has proceeded based on presumption, the dominant one being nonexplanation of the properties, if at all held, by the Petitioners. Second, the trusteeship of Lilavati Trust is not disclosed. Third, that Petitioner No.2 being a non-resident of India would have sufficient means. The Respondent- Bank has proceeded on the basis that before the Recovery Officer that disclosure affidavit has not been filed which is a contempt and the Petitioners are likely to leave the country.

23. During the course of arguments, the Respondent- Bank has produced newspaper report and extract from website of November 2022 in the Financial Express. The newspaper report published on 19 November 2022 in a leading newspaper Financial Express referred to upcoming of the thirteen-floor Lilavati Hospital in Gujarat International Finance-tec City. The report states that the Trustees of the Lilavati Trust, who are actively involved in the functioning of Lilavati Hospital in Mumbai, will set up a 300-bed at Gujarat International Finance-tec City at an estimated cost of 300 crore. The report published on 24 November 2022 in Hindustan Times, under the caption of Brand Stories, states that Petitioner No.1 and his wife, the pioneers behind Lilavati Hospital, would open a new hospital in Gujarat. It is stated that Petitioner Nos.[1] and 2, along with Charu Mehta and Prashant Mehta, are the promoters of this project. The Petitioners objected to the newspaper report being cited and submitted that this Court should refuse to take cognizance thereof. The Respondent- Bank has not placed these facts on affidavit in this petition and calls upon this Court to take notice of the same as it is in public domain.

24. Though we do not draw any final conclusion that the position sought to be placed before us indicated in the newspapers cannot be taken into consideration, we observe it is needs to be placed before the Recovery Officer at the first instance for a factual enquiry. Merely on the premise that Petitioner No.1 is a trustee of well known Trust, from an inference based on general knowledge, conclusions cannot be drawn straightaway, more particularly in writ jurisdiction where enquiry based on disputed questions of facts is limited. An opportunity will have to be given to both the parties as to the implications thereof as regards Rule 73 is concerned. Same is regarding the status of Petitioner No.2 as non-resident Indian. This material produced by the Bank, would create a presumption in favour of the Respondent- Bank at this stage, however, the chance to rebut this presumption is required to be given to the Petitioners especially when the application based on which the impugned order was passed did not contain any of these details.

25. As regards the direction in the impugned order regarding the condition attached to the Petitioner traveling abroad and deposit of the passport, the learned Senior Advocate for the Petitioner sought to place reliance on the decision of the Division Bench of this Court in the case of Anurag v/s. Bank of India, through its Assistant General Manager and Ors.6. Relying on this decision, the learned Counsel contended that there was no power in the Recovery Officer to pass such order as such a direction in contravention of Article 21 of the Constitution of India and violation of the rights guaranteed under the said Article. The facts in the case of Anurag were entirely different. Here, an application was filed in the Debts Recovery Tribunal, Nagpur for the recovery of the amount against the Petitioner and the Directors of the Company therein and in that application the Respondent – Bank took out an application for interim relief to restrain the petitioners therein from traveling abroad and for impounding the passport. The Division Bench in the case of

Anurag was not called upon to consider the fact situation where main application of the Creditor was finally allowed, a recovery certificate was issued and the Recovery Officer as a means to enforce the recovery certificate had passed an order restraining the travel. The Division Bench held that in the pending application before the Debts Recovery Tribunal, it had no power to issue an interim order restraining the borrower from traveling abroad. Section 25 of the Act of 1993 and Rule 73 of the Second Schedule of the Income Tax Act had not arisen for consideration of the Division Bench. Under Rule 73 the Recovery Officer, if he satisfied that the defaulter is likely to abscond, leave the jurisdiction of the officer, can detain the defaulter. This rule specifically empowers the Recovery Officer. If on the satisfaction that the defaulter is likely to leave the jurisdiction or abscond arrest can be ordered depriving all the freedom of movement, then lesser measure of conditional travel can always be ordered. Furthermore we find that a presumption raised in favour of the Respondent- Bank regarding financial ability of the Petitioners, at this stage, we are not inclined to stay or set aside the direction regarding restriction on travel and deposit of passports of the Petitioners in light of the order that we propose to pass.

26. It is the gravity of the consequences, that is arrest and detention, that has persuades us to grant an opportunity to the Petitioners. It is for that limited purpose we have entertained the writ petition, despite the alternate remedy of statutory appeal. Considering the facts and circumstances, the appropriate course of action would be to permit the Respondent- Bank to file additional submissions before the Recovery Officer placing on record such material as may be in possession of the Respondent- Bank including the newspaper items and the material that forms the basis of the same. Also to direct the Petitioners to file affidavits of disclosure within a time-bound period and to file affidavit in reply to the additional material. The impugned order will have to be treated as an interim direction and findings recorded in the impugned order by the Recovery Officer to be treated as prima facie findings subject to confirmation or otherwise of the interim order. Till the decision is taken thereupon, the interim order passed in this petition regarding stay of arrest shall continue. The interim order passed in this Petition is only regarding stay of order directing arrest and detention. As regards the direction on restriction on travel under the impugned order, the same shall continue till the disposal of proceedings before the Recovery Officer. According to us, this course of action would grant both, the Petitioners and the Respondent- Bank, an opportunity to put forth their case.

27. In the circumstances, the following order: a) The Application No. R.P. 709/2021 filed by the Respondent - Bank before the Recovery Officer stands restored to file. b) The impugned order dated 5 February 2020 passed by the Recovery Officer shall be treated as an interim order pending the application. c) The observations made in the impugned order dated 5 February 2020 shall be treated as prima facie findings of the Recovery Officer. d) The Recovery Officer shall, after giving an opportunity to the parties, as enumerated in the paragraph 20 (f), will decide as to whether confirm, modify or set aside the impugned order dated 5 February 2020 as per the time schedule stipulated in para 20(e) e) (i) The Petitioners and the Respondent- Bank will appear before the Recovery Officer on 8 March 2023.

(ii) Upon appearance of the parties, the Recovery

Officer will stipulate the period within which the Petitioners will file an affidavit of disclosure with documentation in reference of the properties including the one referred in the record of the writ petition annexing all necessary details. This period shall not be more than two weeks from the date of appearance.

(iii) The Recovery Officer shall grant the Respondent -

Bank an opportunity to file an additional affidavit/ application placing on record the material in support of the contention that a case under Rule 73 is made out against the Petitioners. This period shall not be more than four weeks.

(iv) The Recovery Officer shall direct the Petitioner to file reply affidavit to the additional application of the Respondent- Bank within a period of three weeks from the date the application so filed. If the reply affidavit is not filed within three weeks, the Petitioners will forfeit their rights to file reply affidavit and the Recovery Officer will be entitled to proceed in the matter on that basis.

(v) After the pleadings are complete as above, the

Recovery Officer will take final decision/steps on its merits within a period of three months. f) Till the decision is so taken, the ad-interim order granted in this petition on dated 13 February 2020 will continue. This protection is conditional upon the Petitioner following the mandate under para 20(e) as above.

28. Writ Petition is disposed of in above terms. (ABHAY AHUJA, J.) (NITIN JAMDAR, J.)

PRAKASH PAWAR