What did the High Court hold?

The High Court held that the DRT has limited jurisdiction for recovery of dues and cannot entertain applications from third parties regarding properties offered as security. However, the Income-Tax Act rules, made applicable, allow for claims to be investigated by the Recovery Officer.

The petitioner sought to be impleaded as a party in a debt recovery proceeding, claiming her joint family property was offered as security for a loan without her consent. Her application to the Debts Recovery Tribunal (DRT) was rejected.

What were the issues?

Whether a third party can be impleaded in a debt recovery proceeding to raise objections about a property offered as security, and if so, through which mechanism.

Ms Ashwini Shetty vs Allahabad Bank | Karnataka High Court 2015

- 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 7th DAY OF DECEMBER 2015

BEFORE

THE HON’BLE MR.JUSTICE ANAND BYRAREDDY

WRIT PETITION NO.54413/2015(GM-DRT)

Between :

Ms. Ashwini Shetty Wife of Mr. Sujith Shetty Aged about 25 years Residing at No.W-377, East Main Road, Anna Nagar West Extension, Chennai – 600101.

... Petitioner

(By Sri R.L.Patil, Senior Counsel for Ajay Shankar, Advocate)

AND

Allahabad Bank A Body Corporate Constructed under the Banking Companies (Acquisition and Transfer of Undertakings) Act,1970, Having its Head Office at #2, Netaji Subhas Road, Kolkata-700 001, With one of its Industrial Finance Branch Office at N603, Manipal Center, #47, Dickenson Road,

- 2 - Bangalore-560 042. (previous address) And presently at #1/32, Ulsoor Road Cross, Ulsoor Road, Bangalore-560 042. Represented by its Chief Manager

SSJV Projects Private Limited (A Company incorporated under the Companies Act,1956) Having its registered/controlling office at 12th Floor , SN Towers 25/2, M G Road, Bangalore-560 001. Represented by its Managing Director.

SSJV Projects Private Limited (a company incorporated under the Companies Act, 1956) having its corporate office at: Terrace Floor, Vainatheya New No.64, I Main ST Bed, Koramangala Bangalore-560 034 Represented by its Managing Director.

Mr Manohar Shetty Residing at No.861 13th Main, 3rd Block, Koramangala Bangalore-560 034.

The Managing Director M/S. Dronagiri Farms Private Limited H.No.8-3-222/7/B/35,36 D-92 and 93, Flat No.304,

- 3 - Sri Ramana Enclave, Madhura Nagar, S.R.Nagar Post, Hyderabad-500-038.

The Managing Director M/S. Mandaragiri Greenfields Private Limited Flat No.102, Dhanunjaya Nest Rajiv Nagar, Yousufguda, Hyderabad-500-045.

The Managing Director M/s. Ghataprabha Agro Farms Private Limited, Plot no.392, HMT Hills, 2nd Venture, Opp.JNTU Collage, Kukkatpally Hyderabad-500-072.

... Respondents

This Writ Petition is filed under Articles 226 and 227 of the Constitution of India praying to Quash the Impugned Order dated 27.11.2015 on I.A.No.4079/2015 (Annexure-A hereto) passed by the Debts Recovery Tribunal, Bangalore and consequently allow I.A.No.4079/2015 filed by the Petitioner to implead herself as a party defendant in O.A.No.636/2013 pending on the file of the Debts Recovery Tribunal, Bangalore.

This Writ Petition coming on for Preliminary hearing this day, the Court made the following:

ORDER

The petitioner is before this court in the background that certain joint family properties were said to have been offered as security for a loan borrowed by the respondent No.2 and the

- 4 - respondent No.2 having defaulted in repayment of the loan, the bank has initiated proceedings for recovery and the property that was offered as security has been directed to be attached for the debt to be recovered. In this background, the petitioner had approached the Debt Recovery Tribunal to contend that the petitioner’s right in the property has been jeopardized as the same has been offered as security without the consent or knowledge of the petitioner and therefore, sought to be impleaded as a party to the proceedings. That application having been rejected, the present petition is filed.

On a very reading of the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (‘the Act, 1993’ for short), particularly, the provisions under jurisdiction, power and authority of the Tribunal, the Tribunal is conferred with the limited jurisdiction of addressing applications from the banks and financial institutions for recovery of dues due to such banks and the procedure

- 5 - prescribed is of a summary nature, which does not extend to addressing the application of third parties in respect of the properties, which may have been offered as security for the debts created. However, the scheme of the Act requires the Rules provided under the Income-Tax Act, 1961, being made applicable to the further procedure, which is not provided for under the Act, 1993. The Rules, particularly, Rule 11, under the Second Schedule of the Income-Tax Act, 1961 provides for recovery of tax. If this is made applicable to proceedings before the Debt Recovery Tribunal, it would require the Recovery Officer, who in the present case on hand before the Tribunal is required to investigate any claim or objection raised in respect of the property, which is attached and brought to sale. Therefore, the petitioner would have an opportunity of approaching the Recovery Officer of the Debt Recovery Tribunal to stake her claim and raise an objection as to the property, insofar as the share of the petitioner is concerned, being brought to sale. And it would be for the Recovery Officer

- 6 - to address such a claim and pass appropriate orders before proceeding further in respect of the property. Therefore, if there is any move before the Debt Recovery Tribunal, particularly through the Recovery Officer to bring the property to sale, the petitioner is enabled to approach the said officer with a claim and such claim shall be addressed in accordance with law by the said officer before proceeding with the sale.

Since the petitioner apprehends that the property may be brought to sale even before the petitioner could take steps to approach the Recovery Officer, further proceedings before the Recovery Officer are stayed for a period of two weeks to enable the petitioner to approach the Recovery Officer with an appropriate claim. With the above observations, the petition stands disposed of.

Sd/-

JUDGE nd/-

MS ASHWINI SHETTY vs. ALLAHABAD BANK

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