Rule 60 of Income Tax Act’s Second Schedule | Mandatory Deposit Prerequisite for Challenging Auction Sale : Calcutta HC

The Calcutta High Court has reaffirmed that procedural compliance under the Income Tax Act’s Second Schedule is not a mere technicality but a jurisdictional precondition for challenging auction sales conducted under the RDDB Act. The judgment underscores that courts cannot entertain objections to sale valuation when statutory deposit requirements are unmet, even where allegations of under-valuation are raised.

Background & Facts

The Dispute

The dispute arose from the recovery proceedings initiated by the State Bank of India (Respondent No. 2) against Rajesh Kumar Gupta and others (Petitioners), who had defaulted on a loan secured by mortgage of property located at 23/1-A, Barrackpore Trunk Road, Kolkata. The petitioners, including two guarantors (Nos. 3 and 4), failed to repay the debt despite multiple opportunities. The Bank obtained an ex-parte certificate from the Debts Recovery Tribunal (DRT-3) in O.A. No. 13 of 2006 and initiated recovery proceedings under R.P. No. 44 of 2009.

Key Facts

• The mortgaged property was valued at Rs. 33 lakhs in 2003 at the time of loan sanction.
• In 2009, a valuation report estimated the property at Rs. 12.65 lakhs due to increased tenancy (80% occupied).
• The auction was conducted on 25.10.2010, with Respondent No. 1 (auction purchaser) bidding Rs. 23.61 lakhs - nearly double the 2009 valuation.
• The petitioners did not appear before the Recovery Officer during any hearing between 2009 and 2010.
• On 04.10.2010, the Recovery Officer passed an order stating that if petitioners failed to pay Rs. 6 lakhs by 25.10.2010, the sale would proceed - a condition they did not meet.
• On 10.01.2012, the Recovery Officer confirmed the sale and directed transfer of possession.
• On 17.01.2012, Petitioners Nos. 3 and 4 filed an application under Section 22(2)(e) and (g) of the RDDB Act, 1993, challenging the sale on grounds of under-valuation.
• No deposit was made under Rule 60 of the Second Schedule of the Income Tax Act, 1961, as required for challenging auction sales.
• The Recovery Officer dismissed the application on merit on 10.01.2012 without addressing maintainability.
• The DRT-3 set aside the sale order on 05.10.2020, directing a fresh valuation and auction.
• The Debts Recovery Appellate Tribunal (DRAT) set aside the DRT-3 order twice (2014 and 2017), remanding for fresh adjudication.
• On 22.06.2023, DRAT finally held that the application was not maintainable due to non-compliance with Rule 60 and restored the Recovery Officer’s 2012 order.
• The petitioners filed Civil Revisional Application CO 2235 of 2023 before the Calcutta High Court.

Procedural History

• 2003: Property mortgaged to State Bank of India; valuation Rs. 33 lakhs.
• 2006: Bank obtained ex-parte certificate from DRT-3 in O.A. No. 13 of 2006.
• 2009: Property revalued at Rs. 12.65 lakhs.
• 25.10.2010: Auction conducted; Respondent No. 1 purchased property for Rs. 23.61 lakhs.
• 04.10.2010: Recovery Officer’s order: sale to proceed if Rs. 6 lakhs not paid by 25.10.2010.
• 10.01.2012: Recovery Officer confirmed sale and directed possession transfer.
• 17.01.2012: Petitioners filed application under Section 22(2)(e)(g) RDDB Act - no deposit under Rule 60 IT Act.
• 05.10.2020: DRT-3 set aside sale, ordered fresh valuation and auction.
• 28.04.2014: DRAT set aside DRT-3 order, directed fresh adjudication.
• 12.05.2017: DRAT again set aside DRT-3 order, remanded for fresh hearing.
• 22.06.2023: DRAT dismissed petitioners’ application on grounds of non-maintainability due to non-deposit under Rule 60, restored Recovery Officer’s 2012 order.
• 25.03.2026: Judgment reserved by Calcutta High Court.
• 04.05.2026: Judgment delivered dismissing revision.

The Parties' Positions

Petitioners (Borrowers and Guarantors):

• Argued that the application under Section 22(2)(e)(g) RDDB Act was maintainable regardless of nomenclature.
• Relied on Pepsi Food Limited v. Special Judicial Magistrate to assert that substance over form governs.
• Claimed Rs. 10 lakhs transferred by DRAT to DRT-3 constituted a valid deposit under Rule 60.
• Contended that DRAT ignored prior remand orders directing adjudication on merits.

Respondent No. 1 (Auction Purchaser):

• Argued that Rule 60 deposit under the Income Tax Act is mandatory and jurisdictional.
• Cited Hotel Paras Garden v. Central Bank of India to show that delay and fence-sitting defeat claims.
• Stated the amount transferred by DRAT was a pre-deposit under Section 21 RDDB Act, not a Rule 60 deposit.
• Emphasized petitioners’ failure to raise objections before sale, acquiescence in 2010, and deliberate non-appearance.

Respondent No. 2 (Bank):

• Supported Respondent No. 1’s stance.
• Highlighted petitioners’ 23-year litigation delay and refusal to pay despite repeated opportunities.

Relief Sought

The petitioners sought:

• Setting aside of DRAT’s order dated 22.06.2023.
• Restoration of DRT-3’s order dated 05.10.2020.
• Direction for fresh auction with proper valuation.
• Costs against Respondent No. 1.

The Legal Issue

The central question was whether an application challenging the validity of an auction sale under the RDDB Act is maintainable when the applicant has failed to deposit the amount mandated under Rule 60 of the Second Schedule of the Income Tax Act, 1961, and whether such a deposit can be satisfied by funds transferred under Section 21 of the RDDB Act.

Arguments Presented

For the Petitioner

The petitioners contended that the nomenclature of the application - whether filed under Section 22(2)(e)(g) or otherwise - is irrelevant, relying on Pepsi Food Limited v. Special Judicial Magistrate to argue that courts must look at substance over form. They asserted that the Rs. 10 lakhs transferred by DRAT to DRT-3 during prior remands constituted a valid deposit under Rule 60, as the parties had waived objections to its applicability. They further argued that DRAT erred in ignoring its own prior directions to adjudicate the merits of the under-valuation claim, and that substantive rights should not be defeated on technical grounds, citing United Bank of India v. Naresh Kumar.

For the Respondent

The auction purchaser argued that Rule 60 of the Second Schedule of the Income Tax Act imposes a mandatory pre-condition for challenging auction sales. The deposit must be made at the time of filing the application, within 30 days of the sale, and must equal the full sale amount or a prescribed percentage - none of which were met. The amount transferred by DRAT was a pre-deposit under Section 21 RDDB Act, meant to stay appeal proceedings, not a Rule 60 deposit. The respondent relied on Hotel Paras Garden v. Central Bank of India, affirmed by the Supreme Court, to show that delay, non-appearance, and fence-sitting render challenges non-maintainable. They emphasized that petitioners had knowledge of the sale and valuation since 2010 but raised objections only after the auction concluded.

The Court's Analysis

The Court undertook a detailed review of the procedural history and statutory framework. It noted that the petitioners had been granted multiple opportunities to pay the debt, yet chose litigation over settlement. The Recovery Officer’s 2012 order was passed after full opportunity, with petitioners absent throughout.

"They must raise objections at the earliest possible opportunity and cannot take recourse to any roving tactics to indefinitely delay recovery forcing the buyer to back out."

The Court accepted the respondent’s argument that Rule 60 of the Second Schedule of the Income Tax Act is not a procedural formality but a jurisdictional requirement. The deposit must be made contemporaneously with the challenge, not years later through unrelated transfers. The Rs. 10 lakhs transferred by DRAT was clearly a pre-deposit under Section 21 of the RDDB Act, intended to secure appeal rights, and bore no relation to the quantum or timing required under Rule 60.

The Court distinguished Pepsi Food Limited, noting that case dealt with mislabeling of pleadings in criminal proceedings, not statutory pre-deposit mandates in recovery law. It held that the DRAT correctly identified the fatal flaw in maintainability and was under no obligation to proceed to merits when jurisdictional conditions were unmet.

The Court further observed that the auction price of Rs. 23.61 lakhs was nearly double the 2009 valuation and significantly higher than the original mortgage value, indicating transparency and fairness. The petitioners’ conduct - non-appearance, silence until after sale, and prolonged litigation - was characterized as dilatory and in bad faith.

The Verdict

The Calcutta High Court dismissed Civil Revisional Application CO 2235 of 2023. The DRAT’s order dated 22.06.2023, which set aside the DRT-3’s 2020 order and restored the Recovery Officer’s 2012 sale confirmation, was upheld. The Court directed that the sale process be completed and possession handed over to Respondent No. 1 within sixty days from the date of judgment. No costs were awarded to either party.

What This Means For Similar Cases

Statutory Deposit Is Jurisdictional, Not Technical

• Practitioners must ensure compliance with Rule 60 of the Second Schedule of the Income Tax Act before filing any application to set aside an auction sale under RDDB Act.
• Failure to deposit the prescribed amount at the time of filing renders the application non-maintainable, regardless of the merits of the under-valuation claim.
• Courts will not entertain belated challenges where the applicant has remained silent during the sale process.

Delay and Acquiescence Bar Relief

• Persistent non-appearance before recovery authorities and failure to object to valuation or sale proclamation constitute acquiescence.
• Litigation tactics aimed at delaying enforcement - especially after the auction concludes - will be viewed as abuse of process.
• Courts will prioritize the rights of bona fide auction purchasers over prolonged debtor litigation.

Pre-Deposit ≠ Rule 60 Deposit

• Funds deposited under Section 21 of the RDDB Act to stay an appeal cannot be substituted for Rule 60 deposits under the Income Tax Act.
• The two are distinct statutory mechanisms with different purposes, timelines, and thresholds.
• Practitioners must file separate deposits under Rule 60 if challenging a sale, even if an appeal is already pending under RDDB Act.