Loot (India) Pvt. Ltd And Others vs Pancard Clubs Limited And Others

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the following order:-

a) For quashing of the order dated December 21, 2016 in the matter of M/s Pancard Clubs Limited passed by the Recovery Order under Section 28A

of the SEBI Act, 1992 in so far as it attaches the immovable property of which the appellants alleges to be its rightful owner.

b) Order dated January 23, 2018 passed by the Recovery Officer whereby the appellants representation for releasing the properties which have been

attached by order dated December 21, 2016 has been rejected with a further prayer for payment of mesne profit from money recovered by Securities

and Exchange Board of India (“SEBIâ€​ for convenience).

c) Order dated March 05, 2018 wherein the Recovery Officer has directed the appellants and M/s Pancard Clubs Limited and its directors from

directing not to take any action including proceedings in respect of the said premises contravening or contradicting the attachment order dated

December 21, 2016.

The facts leading to the filing of the present appeal is, that the appellants are owners of premises at Mahim measuring 5100 Sq. Ft. and 300 Sq. Ft.

Two separate agreements for sale dated June 27, 2011 duly registered was executed by the appellant in favour of M/s Pancard Clubs Limited

(“PCL†for convenience) for Rs. 7,46,50,000/- and Rs. 42,50,000/-. PCL paid an amount of Rs. 1,86,62,500/- and Rs. 10,62,500/- ie, a total

amount of Rs. 1,97,25,000/- in part payment. The balance amount, namely, Rs. 5,91,75,000/- was required to be paid at the time of completion of the

sale and execution of the sale deed.

The said premises was mortgaged on account of a loan taken by the appellants from the State Bank of India (“SBI†for convenience) and the

original title deeds was deposited with the SBI as collateral security for the loan availed by the appellants. In the agreement for sale, the appellants

were required to obtain a No Objection Certificate within the stipulated period. This did not happen as a result of which pursuant to the minutes of a

meeting between the appellants and PCL on October 25, 2011 the appellants handed over the possession of the premises in question to PCL on

November 21, 2011 and, on the other hand, PCL was required to keep the balance sale consideration of Rs. 5,91,75,000/- in a Fixed Deposit with SBI

till such time the appellant obtained a No Objection Certificate from the SBI and executed the sale deeds.

Without going into the details, the appellant did not comply with the tacit terms and conditions contained in the agreement for sale and did not obtain

the No Objection Certificate within the stipulated period. The appellants failed to perform their part of the obligation under the terms set out in the

agreement to sale. On the other hand, SBI initiated recovery proceedings for recovery of the loan given to the appellants under the Securitization and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Actâ€). The SBI initiated proceedings for taking

possession and issued a possession notice dated September 18, 2013 and for recovery of Rs. 43.12 crores. An order dated January 19, 2015 was

passed by the Chief Magistrate, Esplanade, Mumbai directing the Court Commissioner to take possession of the property. It was at this stage that

PCL on February 03, 2015 withdrew the Fixed Deposit with SBI after about three years from the date of the agreement.

The appellants at this stage entered into a one-time settlement with SBI and, on June 22, 2015 upon payment of Rs. 8.25 crores, settled the matter

with SBI. SBI accordingly issued a no due certificate on October 15, 2015 and the charge on the property was released and the original title deeds

were given backnto the appellants.

By an order dated February 29, 2016 SEBI directed PCL to refund the money mobilized from the investors under the Collective Investment

Scheme (“CISâ€) and restrained them from alienating any of their properties except for the purpose of refunding the money to its investors. PCL

challenged the order of SEBI dated February 29, 2016 by filing an appeal before this Tribunal which was dismissed by judgement dated May 12, 2017.

In the meanwhile, recovery proceedings were initiated and vide order dated December 21, 2016 the Recovery Officer attached the assets of PCL in

which the properties in question were also attached.

The appellants on coming to know of the attachment of its properties by the Recovery Officer filed a representation on July 17, 2017 praying that

the property was not liable for attachment as PCL had failed to perform its obligations pursuant to the agreements and, therefore, requested the

Recovery Officer to release the property from the attachment and handover possession of the property along with mesne profit recovered by SEBI.

The appellants also issued a legal notice dated June 23, 2017 to PCL for referring the dispute between the parties to arbitration and for appointment

of a person as a sole arbitrator.

By an order dated January 23, 2018 the Recovery Officer rejected the representation of the appellants contending that the properties were not

liable to be released in favour of the appellants.

It transpires that pursuant to the legal notice issued by the appellants to PCL, a sole arbitrator was appointed who issued notice to the parties as

well as to SEBI and directed the parties to deposit a certain amount towards arbitrators fee. This led to the passing of the order dated March 05, 2018

by the Recovery Officer directing the appellants, PCL as well as the arbitrator not to take any action including proceeding with arbitration proceedings

in respect of the said premises which may contradict or contravene the attachment order dated December 21, 2016.

The appellant being aggrieved has accordingly filed the present appeal.

We have heard Shri Subhash Jha, the learned counsel for the appellants and Shri Gaurav Joshi, the learned senior counsel for respondent no. 2.

The issue which arises for consideration in the present appeal is, whether an “agreement for sale†leads to transfer/ convey the title in the

property or otherwise.

In this regard, the short submission is, that by an agreement for sale, the title does not pass and that title in a property is passed only after

registration of a completed contract i.e. a sale deed/ conveyance which in the instant case was not done. In this regard, the appellant took recourse to

the provision of Section 54 of the Transfer of Property Act, 1882. For facility, Section 54 of the Transfer of Property Act, 1882 is extracted

hereunder:-

Sale"" defined

""Sale"" is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made: Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case

of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered

instrument or by delivery of the property. Delivery of tangible immovable property takes place when the seller places the buyer, or such

person as he directs, in possession of the property.

Contract for sale: A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled

between the parties.

It does not, of itself, create any interest in or charge on such property.â€​

In support of his contention reliance was made by the learned counsel in the matters of N. R. Shrinivasa v/s. Maduri Malla Reddy 2004 SCC

online AP 922, Suraj Lamp & Inds, v/s. Haryana 2012 1 SCC 656, Pr. Commissioner I. Tax v/s Talwarkars Fitness Club 2018 SCC online Bom 8876,

Konkana Ravinder Gaud v/s. Bhavanishri Co. Op. Hsg, Soc. 2003 SCC online AP 852, Babnulal v/s. Nathulal 2013 SCC online All 13469, Sunil

Kumar Jain v/s. Kishan (1995) 45 SCC 147, Balu Ganpat Borate v/s. Mah. 2018 SCC online Bom 7773, Durgawati Devi v/s. UOI SL PCC No.

37479/16D/on 4/10/19 and Kalia Perumal v/s. Rajgopal 2009 4 SCC 193.

In all these judgments, it has been held that an agreement of sale does not create any interest or charge on such property and that it is only on

registration of such completed contract under the Registration Act, 1908 that the title passes on to the purchaser. Further, even if an agreement for

sale is registered, it does not partake the character of the conveyance or a sale deed.

On the other hand, the contention of the respondent is, that in terms of Section 28A of the SEBI Act read with the Second and Third Schedule to

the Income-tax Act, 1961 and the Rules framed therein, the Recovery Officer has all the powers to recover the money from the assets of the

defaulter which in the instant case was PCL. It was contended that under the Second Schedule to the Income-tax Act and the Rules framed therein

immovable property would include such property which has been transferred in part performance by the transferor to the transferee based on which

the Recovery Officer would be justified in attaching that property and putting it up for auction. It was thus contended that the Recovery Officer was

justified in rejecting the representation of the appellants from releasing the properties.

Before we proceed further, it would be appropriate if we refer to certain provisions of the SEBI Act and the Income-tax Act and its Rules.

Section 28A provides for recovery of the amount from the movable and immovable property of a defaulter. For facility, Section 28A of the SEBI Act

is extracted hereunder:-

“Recovery of amounts.

28A. (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund

of monies or fails to comply with a direction of disgorgement order issued under section 11B or fails to pay any fees due to the Board, the

Recovery Officer may draw up under his signature a statement in the specified form specifying the amount due from the person (such

statement being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the amount specified in

the certificate by one or more of the following modes, namely:â€

(a) attachment and sale of the person's movable property;

(b) attachment of the person's bank accounts;

(c) attachment and sale of the person's immovable property;

(d) arrest of the person and his detention in prison;

(e) appointing a receiver for the management of the person's movable and immovable properties,

and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232, 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, in so far as may be, apply with necessary

modifications as if the said provisions and the rules made thereunder were the provisions of this Act and referred to the amount due under

this Act instead of to income-tax under the Income-tax Act, 1961.

Explanation 1.- For the purposes of this sub-section, the person's movable or immovable property or monies held in bank accounts shall

include any property or monies held in bank accounts which has been transferred directly or indirectly on or after the date when the

amount specified in certificate had become due, by the person to his spouse or minor child or son's wife or son's minor child, otherwise than

for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or

immovable property or monies held in bank accounts so transferred to his minor child or his son's minor child is concerned, it shall, even

after the date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the person's

movable or immovable property or monies held in bank accounts for recovering any amount due from the person under this Act.

Explanation 2.- Any reference under the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax

(Certificate Proceedings) Rules, 1962 to the assessee shall be construed as a reference to the person specified in the certificate.

Explanation 3.- Any reference to appeal in Chapter XVIID and the Second Schedule to the Income-tax Act, 1961, shall be construed as a

reference to appeal before the Securities Appellate Tribunal under section 15T of this Act.

(2) The Recovery Officer shall be empowered to seek the assistance of the local district administration while exercising the powers under

sub-section(1).

(3) Notwithstanding anything contained in any other law for the time being in force, the recovery of amounts by a Recovery Officer under

sub-section (1), pursuant to non-compliance with any direction issued by the Board under section 11B, shall have precedence over any

other claim against such person.

(4) For the purposes of sub-sections (1), (2) and (3), the expression “Recovery Officer†means any officer of the Board who may be

authorised, by general or special order in writing, to exercise the powers of a Recovery Officer.â€​

Rule 4 of the Second Schedule to the Income-tax Act, 1961 provides various modes for recovery of the amount. For facility, Rule 4 is extracted

hereunder:-

“Mode of recovery.

If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer

may grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes :â€

(a) by attachment and sale of the defaulter’s movable property;

(b) by attachment and sale of the defaulter’s immovable property;

(c) by arrest of the defaulter and his detention in prison;

(d) by appointing a receiver for the management of the defaulter’s movable and immovable properties.â€​

A perusal of the aforesaid indicates that one of the methods for recovery of the amount is by attachment and sale of defaulter’s immovable

property.

Section 2(47) of the Income-tax Act, 1961 defines transfer. For facility, the same is extracted hereunder:-

“(47) “transferâ€​, in relation to a capital asset, includes,â€

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him,

such conversion or treatment; or

(iva) the maturity or redemption of a zero coupon bond; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a

contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association

of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or

enabling the enjoyment of, any immovable property.

Explanation.- For the purposes of sub-clauses (v) and (vi), “immovable property†shall have the same meaning as in clause (d) of

section 269UA.â€​

Sub-clause (v) of Section 2(47) indicates that transfer would include any transaction where possession of any immovable property has been taken or

retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. Explanation-1 to Section

2(47) of the Income-tax Act further provides that, the word “immovable property†would have the same meaning as provided in clause (d) of

Section 269UA.

Section 269UA (a) defines agreement for transfer as under:-

“(a) “agreement for transfer†means an agreement, whether registered under the Registration Act, 1908 (16 of 1908) or not, for the

transfer of any immovable property;â€​

Section 269UA (d) defines “immovable propertyâ€​ as under:-

“(d) “immovable propertyâ€​ means-

 (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred

together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also.

Explanation.- For the purposes of this sub-clause, “land, building, part of a building, machinery, plant, furniture, fittings and other

thingsâ€​ include any rights therein ;

(ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant,

furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any

transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of

persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of

such land, building or part of a building;â€​

Section 269UA (f) defines “transferâ€​ as under:-

“(f) “transferâ€​,-

(i) in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or

exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in

part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882).

Explanation.- For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms

shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and

the further term or terms for which it can be so extended is not less than twelve years;

(ii) in relation to any immovable property of the nature referred to in sub-clause (ii) of clause (d), means the doing of anything (whether by

way of admitting as a member of or by way of transfer of shares in a co-operative society or company or other association of persons or by

way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment

of, such property.â€​

In this regard Section 53A of the Transfer of Property Act, 1882 is also extracted hereunder:-

“53A. Part performance.-

Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the

terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has in part performance of the

contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in

part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to

perform his part of the contract, then, notwithstanding that, or, where there is an instrument of transfer, that the transfer has not been

completed in the manner prescribed there for by the law for the time being in force, the transferor or any person claiming under him shall

be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the

transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in

this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

From the aforesaid, it is clear that whereas Section 54 of the Transfer of Property Act, 1882 clearly provides that an agreement of sale does not

create any interest or charge on such property and it is only on registration of such completed contract under the Registration Act, 1908 the title

passes to the purchaser. In the instant case, admittedly there was no completed sale in terms of Section 54 read with the Registration Act, 1908 and,

therefore, the agreement of sale does not partake the character of a conveyance or sale deed. The title remains with the appellants.

However, the appellants executed an agreement for sale in favour of PCL and, in part performance, gave possession to PCL. The right conferred

under Section 53A is a right available to PCL to protect his possession, namely, that he is in possession though it does not create any title upon him. It

operates merely as a bar to the transferors, namely, the appellants asserting its title and it cannot be used as a weapon of attack. Rule 4 of the Second

Schedule provides for attachment and sale of defaulter’s immovable property. Immovable property has been defined under Section 269UA(d) to

mean any land or building which is transferred and, under Section 269UA(a), an agreement for transfer means an agreement whether registered or

not for transfer ofany immovable property. The word ‘transfer’ include transfer of such property by way of sale which includes possession of

such property taken or retained in part performance of a contract of a nature referred to in Section 53A of the Transfer of Property Act, 1882. The

same meaning has been referred to in Section 2(47) of the Income-tax Act.

From the aforesaid, it is clear that where possession of a property is given pursuant to an agreement for sale and possession has been taken in part

performance of a contract then such property for the purpose of Section 28A of the SEBI Act becomes the immovable property of the defaulter

which can be attached and put to auction. In this regard, Section 27(iiia) of the Income-tax Act may also be looked into which reads as under:-

(iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature

referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part

thereof ;

The aforesaid provision creates a deeming fiction, namely, that where a person is allowed to take possession in part performance of a contract of the

nature referred to in Section 53A of the Transfer of Property Act, the person shall be deemed to be the owner of the property. In this regard, rule 6 of

the Second Schedule is also extracted hereunder:-

“Purchaser’s title.

(1) Where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter

at the time of the sale, even though the property itself be specified.

(2) Where immovable property is sold in execution of a certificate, and such sale has become absolute, the purchaser’s right, title and

interest shall be deemed to have vested in him from the time when the property is sold, and not from the time when the sale becomes

absolute.â€​

The aforesaid provision indicates that where the attached property is sold the purchaser only will only get the right, title and interest of the defaulter at

the time of the sale.

In view of the aforesaid, we are of the opinion that the provision of Section 53 of the Transfer of Property Act, 1882 will not come in the way for

the Recovery Officer to attach or sell the property under Section 28A of the SEBI Act read with Second Schedule to the Income-tax Act. We are

consequently of the opinion, that the order of the Recovery Officer dated December 21, 2016 attaching the properties of the defaulter which also

included the property of the appellants was rightly attached and the representation of the appellants was rightly rejected by an order dated January 23,

2018.

In so far as the order dated March 05, 2018 is concerned, restraining the appellants and PCL from proceeding with the arbitration proceedings, we

are of the view, that the order of the Recovery Officer dated March 05, 2018 is without jurisdiction. The Recovery Officer cannot act as a writ court

prohibiting or restraining a party from proceeding in any arbitration proceedings nor can the Recovery Officer prohibit the arbitrator from not passing

an award. The directions given by the Recovery Officer is patently illegal and beyond the scope of Section 28A of the SEBI Act. We are of the

opinion, if any order is passed by the arbitrator or if any award is made by the arbitrator which is adverse to SEBI it would be always open to the

Recovery Officer / SEBI to challenge the said order or award as the case may be before the appropriate forum. Consequently, the order dated March

05, 2018 is without jurisdiction and cannot be sustained.

In view of the aforesaid, the appeal is partly allowed. The prayer for quashing of the orders dated December 21, 2016 and January 23, 2018

passed by the Recovery Officer is rejected. The order dated March 05, 2018 passed by the Recovery Officer is quashed. In the circumstances of the

case, parties shall bear their own costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.