REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. OF 2010 (Arising out of SLP(C) No.10145 of 2010) <ORG> ...Appellant Versus <NAME> and others ...Respondents JUDGMENT

1. Leave granted.

2. With a view to give impetus to the industrial development of the country, the <ORG> and State Governments encouraged the banks and other financial institutions to formulate liberal policies for grant of loans and other financial facilities to those who wanted to set up new industrial units or expand the existing units. Many hundred thousand took advantage of easy financing by the banks and other financial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading <ORG> to pass orders of injunction against the steps taken by banks and financial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular Courts could not accomplish the task of expeditiously adjudicating the cases instituted by banks and other financial institutions for recovery of their dues. As a result, several hundred crores of public money got blocked in unproductive ventures. In order to redeem the situation, <ORG> constituted a committee under the chairmanship of <NAME> to examine the legal and other difficulties faced by banks and financial institutions in the recovery of their dues and suggest remedial measures. <ORG> noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. <ORG> also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon <ORG> for expeditious execution of orders made by adjudicating bodies. The issue was further examined by <ORG> headed by <NAME>. In its First Report, <ORG> also suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions.

After considering the reports of the two Committees and taking cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by public sector banks and 304 cases filed by financial institutions were pending in various Courts for recovery of debts, etc. amounting to Rs.6000 crores, the <ORG> enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, `the DRT Act '). The new legislation facilitated creation of specialised forums i.e., <ORG> and <ORG> for expeditious adjudication of disputes relating to recovery of the debts due to banks and financial institutions. Simultaneously, the jurisdiction of <ORG> was barred and all pending matters were transferred to the <ORG> from the date of their establishment.

An analysis of the provisions of the DRT Act shows that primary object of that Act was to facilitate creation of special machinery for speedy recovery of the dues of banks and financial institutions. This is the reason why the DRT Act not only provides for establishment of the <ORG> and the Appellate <ORG> with the jurisdiction, powers and authority to make summary adjudication of applications made by banks or financial institutions and specifies the modes of recovery of the amount determined by the <ORG> or the Appellate <ORG> but also bars the jurisdiction of all courts except <ORG> and <ORG> in relation to the matters specified in Section 17 . The <ORG> and the Appellate <ORG> have also been freed from the shackles of procedure contained in the Code of Civil Procedure. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of the dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of Civil Courts for frustrating the proceedings initiated by the banks and other financial institutions.

For few years, the new dispensation worked well and the officers appointed to man the <ORG> worked with great zeal for ensuring that cases involving recovery of the dues of banks and financial institutions are decided expeditiously. However, with the passage of time, the proceedings before the <ORG> became synonymous with those of the regular <ORG> and the lawyers representing the borrowers and defaulters used every possible mechanism and dilatory tactics to impede the expeditious adjudication of such cases. The flawed appointment procedure adopted by the <ORG> greatly contributed to the malaise of delay in disposal of the cases instituted before the <ORG>.

The survey conducted by <ORG>, <ORG> revealed that as in 2001, a sum of more than Rs.1,20,000/- crores was due to the banks and financial institutions and this was adversely affecting the economy of the country. Therefore, the <ORG> asked <ORG> to suggest measures for expediting the recovery of debts due to banks and financial institutions. In its Second Report, <ORG> noted that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee noted that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of that the economy could not reap full benefits of the reform process. The Committee made various suggestions for bringing about radical changes in the existing adjudicatory mechanism. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues. <ORG> constituted by <ORG> for examining banking sector reforms also considered the need for changes in the legal system. Both, the <ORG> and <NAME> Committees suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. The <ORG> accepted the recommendations of the two committees and that led to enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act , 2002 (for short `the SARFAESI Act '), which can be termed as one of the most radical legislative measures taken by the <ORG> for ensuring that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take steps for recovery of their dues without intervention of the <ORG> or <ORG>.

3. Section 13 of the SARFAESI Act contains detailed mechanism for enforcement of security interest. Sub-section (1) thereof lays down that notwithstanding anything contained in Sections 69 or 69-A of the Transfer of  Property Act , any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. Sub-section (2) of Section 13 enumerates first of many steps needed to be taken by the secured creditor for enforcement of security interest. This sub-section provides that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non- performing asset, then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice with an indication that if he fails to do so, the secured creditor shall be entitled to exercise all or any of its rights in terms of Section 13(4) . Sub-section (3) of Section 13 lays down that notice issued under Section 13(2) shall contain details of the amount payable by the borrower as also the details of the secured assets intended to be enforced by the bank or financial institution. Sub-section (3-A) of Section 13 lays down that the borrower may make a representation in response to the notice issued under Section 13(2) and challenge the classification of his account as non-performing asset as also the quantum of amount specified in the notice. If the bank or financial institution comes to the conclusion that the representation/objection of the borrower is not acceptable, then reasons for non- acceptance are required to be communicated within one week. Sub-section (4) of Section 13 specifies various modes which can be adopted by the secured creditor for recovery of secured debt. The secured creditor can take possession of the secured assets of the borrower and transfer the same by way of lease, assignment or sale for realising the secured assets. This is subject to the condition that the right to transfer by way of lease, etc. shall be exercised only where substantial part of the business of the borrower is held as secured debt. If the management of whole or part of the business is severable, then the secured creditor can take over management only of such business of the borrower which is relatable to security. The secured creditor can appoint any person to manage the secured asset, the possession of which has been taken over. The secured creditor can also, by notice in writing, call upon a person who has acquired any of the secured assets from the borrower to pay the money, which may be sufficient to discharge the liability of the borrower. Sub-section (7) of Section 13 lays down that where any action has been taken against a borrower under sub-section (4), all costs, charges and expenses properly incurred by the secured creditor or any expenses incidental thereto can be recovered from the borrower. The money which is received by the secured creditor is required to be held by him in trust and applied, in the first instance, for such costs, charges and expenses and then in discharge of dues of the secured creditor. Residue of the money is payable to the person entitled thereto according to his rights and interest. Sub-section (8) of Section 13 imposes a restriction on the sale or transfer of the secured asset if the amount due to the secured creditor together with costs, charges and expenses incurred by him are tendered at any time before the time fixed for such sale or transfer. Sub-section (9) of Section 13 deals with the situation in which more than one secured creditor has stakes in the secured assets and lays down that in the case of financing a financial asset by more than one secured creditor or joint financing of a financial asset by secured creditors, no individual secured creditor shall be entitled to exercise any or all of the rights under sub-section (4) unless all of them agree for such a course. There are five unnumbered provisos to Section 13(9) which deal with pari passu charge of the workers of a company in liquidation. The first of these provisos lays down that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of Section 529-A of the Companies Act, 1956. The second proviso deals with the case of a company being wound up on or after the commencement of this Act. If the secured creditor of such company opts to realise its security instead of relinquishing the same and proving its debt under Section 529(1) of the Companies Act, then it can retain sale proceeds after depositing the workmen's dues with the liquidator in accordance with Section 529-A . The third proviso requires the liquidator to inform the secured creditor about the dues payable to the workmen in terms of Section 529-A . If the amount payable to the workmen is not certain, then the liquidator has to intimate the estimated amount to the secured creditor. The fourth proviso lays down that in case the secured creditor deposits the estimated amount of the workmen's dues, then such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited with the liquidator. In terms of the fifth proviso, the secured creditor is required to give an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Sub-section (10) of Section 13 lays down that where dues of the secured creditor are not fully satisfied by the sale proceeds of the secured assets, the secured creditor may file an application before the <ORG> under Section 17 for recovery of balance amount from the borrower. Sub-section (11) states that without prejudice to the rights conferred on the secured creditor under or by this section, it shall be entitled to proceed against the guarantors or sell the pledged assets without resorting to the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets. Sub-section (12) of Section 13 lays down that rights available to the secured creditor under the Act may be exercised by one or more of its officers authorised in this behalf. Sub-section (13) lays down that after receipt of notice under sub-section (2), the borrower shall not transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice without prior written consent of the secured creditor. In terms of Section 14 , the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor.

4. Section 17 speaks of the remedies available to any person including borrower who may have grievance against the action taken by the secured creditor under sub-section (4) of Section 13 . Such an aggrieved person can make an application to the <ORG> within 45 days from the date on which action is taken under that sub-section. By way of abundant caution, an Explanation has been added to Section 17(1) and it has been clarified that the communication of reasons to the borrower in terms of Section 13 (3-A) shall not constitute a ground for filing application under Section 17(1) . Sub-section (2) of Section 17 casts a duty on the <ORG> to consider whether the measures taken by the secured creditor for enforcement of security interest are in accordance with the provisions of the Act and the Rules made thereunder. If the <ORG>, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that the measures taken by the secured creditor are not in consonance with sub-section (4) of Section 13 , then it can direct the secured creditor to restore management of the business or possession of the secured assets to the borrower. On the other hand, if the <ORG> finds that the recourse taken by the secured creditor under sub-section (4) of Section 13 is in accordance with the provisions of the Act and the Rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor can take recourse to one or more of the measures specified in Section 13(4) for recovery of its secured debt. Sub-section (5) of Section 17 prescribes the time-limit of sixty days within which an application made under Section 17 is required to be disposed of. The proviso to this sub-section envisages extension of time, but the outer limit for adjudication of an application is four months. If the <ORG> fails to decide the application within a maximum period of four months, then either party can move the Appellate <ORG> for issue of a direction to the <ORG> to dispose of the application expeditiously. Section 18 provides for an appeal to the Appellate <ORG>.

5. Section 34 lays down that <ORG> shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a <ORG> or Appellate <ORG> is empowered to determine. It further lays down that no injunction shall be granted by any <ORG> or other authority in respect of any action taken or to be taken under the SARFAESI Act or the DRT Act . Section 35 of the SARFAESI Act is substantially similar to Section 34(1) of the DRT Act. It declares that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

6. However, effective implementation of the SARFAESI Act was delayed by more than two years because several writ petitions were filed in the High Courts and this Court questioning its vires. The matter was finally decided by this Court in <CITATION>  and the validity of the SARFAESI Act was upheld except the condition of deposit of 75% amount enshrined in Section 17(2) . The Court referred to the recommendations of the <ORG> <ORG> on the issue of constitution of special tribunals to deal with cases relating to recovery of the dues of banks etc. and observed:

"One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the assets without intervention of the court and for reconstruction of assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amounts of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of <ORG>, yet another Committee was constituted headed by Mr. <NAME> for bringing about the needed steps within the legal framework. We are, therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy."

(emphasis supplied) This <ORG> then held that the borrower can challenge the action taken under Section 13(4) by filing an application under Section 17 of the SARFAESI Act and a civil suit can be filed within the narrow scope and on the limited grounds on which they are permissible in the matters relating to an English mortgage enforceable without intervention of the <ORG>. In paragraph 31 of the judgment, the <ORG> observed as under:

"In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before <ORG>. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of the economy of the country and welfare of the people in general which would subserve the public interest."

(emphasis supplied)

7. In the light of the above, we shall now consider whether <ORG> of <ORG> was justified in restraining the appellant from proceeding under Section 13(4) of the SARFAESI Act against the property of respondent No.1.

8. A perusal of the record shows that the appellant sanctioned a term loan of Rs.22,50,000/- in favour of <ORG> [through its proprietor <NAME> (respondent No.2)] some time in November, 2004. Respondent No.1 gave guarantee for repayment of the loan and mortgaged her property bearing House No. 752/062, Bakshi Khurd, Daraganj, Pargana and Tehsil Sadar, District Allahabad by deposit of title deeds. She also submitted an affidavit dated 28.12.2004 and executed agreement of guarantee dated 29.12.2004 making herself liable for repayment of the loan amount with interest.

9. After one year and six months, the appellant sent letter dated 6.5.2006 to respondent Nos.1 and 2 pointing out that repayment of loan was highly irregular. After another one year, the account of respondent No.2 was classified as Non- Performing Asset. On 19.7.2007, the appellant sent separate letters to respondent Nos. 1 and 2 requiring them to deposit the outstanding dues amounting to Rs.23,78,478/-. Thereupon, respondent No.1 deposited a sum of Rs.50,000/- and gave written undertaking to pay the balance amount in instalments. However, she did not fulfil her promise to repay the remaining amount. This compelled the appellant to issue notice to respondent Nos.1 and 2 under Section 13(2) requiring them to pay Rs.23,22,972/- along with future interest and incidental expenses within 60 days. Upon receipt of the notice, respondent No.1 offered to pay a sum of Rs.18 lakhs for settlement of the loan account, but the appellant did not accept the offer and filed an application under Section 14 of the SARFAESI Act, which was allowed by District Magistrate/Collector, Allahabad vide his order dated 25.8.2008. Thereafter, the appellant issued notice dated 21.1.2009 to respondent Nos.1 and 2 under Section 13(4) of the SARFAESI Act.

10. Faced with the imminent threat of losing the mortgaged property, respondent No.1 filed C.M.W.P. No.55375 of 2009 and prayed that the appellant herein may be restrained from taking coercive action in pursuance of the notices issued under Section 13(2) and (4) and order dated 25.8.2008 passed by District Magistrate/Collector, Allahabad. She pleaded that the notices issued by the appellant for recovery of the outstanding dues are ex facie illegal and liable to be quashed because no action had been taken against the borrower i.e., respondent No.2 for recovery of the outstanding dues.

11. In the counter affidavit filed on behalf of the appellant, it was pleaded that action initiated against respondent No.1 was consistent with the provisions of SARFAESI Act and writ petitioner (respondent No.1 herein) was bound to discharge her obligations to pay the outstanding dues and there was no merit in her challenge to the notices issued under Section 13(2) and 13(4) or the order passed under Section 14 . It was further pleaded that the writ petition is liable to be dismissed because an alternative remedy is available to the petitioner under Section 17 of the SARFAESI Act.

12. <ORG> of <ORG> did not even advert to the appellant's plea that the writ petition should not be entertained because an effective alternative remedy was available to the writ petitioner under Section 17 of the SARFAESI Act and passed the impugned order restraining the appellant from taking action in furtherance of notice issued under Section 13(4) of the SARFAESI Act. The reason which prompted <ORG> to pass the impugned interim order and operative portion thereof are extracted below:

"Learned counsel for the petitioner has urged that the loan was taken by respondent No.4 for opening a colour lab at 50/43, Raj Complex, K.P. Kakkar Road, Allahabad, but the loan has not been repaid by respondent No.4 and the bank is proceeding against the petitioner who is the guarantor of the loan. It is not clear from the documents produced by learned counsel for the bank as to what steps have been taken by the bank against the borrower of the loan and merely issuance of notice under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act , 2002 against the borrower is not sufficient. The bank should have proceeded against the borrower and exhausted all the remedies against him and thereafter the bank could have proceeded against the guarantor.

Until further orders of this court, the respondents are restrained from proceeding under section 13(4) of the Act 2002 with regard to petitioner's property who was the guarantor of the loan. However, if any possession has been taken by the bank then the property shall not be sold to any one else and the petitioner shall be continued in possession of the property."

13. We have heard learned counsel for the appellant and perused the record. Normally, this Court does not interfere with the discretion exercised by <ORG> to pass an interim order in a pending matter but, having carefully examined the matter, we have felt persuaded to make an exception in this case because the order under challenge has the effect of defeating the very object of the legislation enacted by the <ORG> for ensuring that there are no unwarranted impediments in the recovery of the debts, etc. due to banks, other financial institutions and secured creditors.

14. The question whether the appellant could have issued notices to respondent No.1 under Section 13(2) and (4) and filed an application under Section 14 of the SARFAESI Act without first initiating action against the borrower i.e., respondent No.2 for recovery of the outstanding dues is no longer res integra. <CITATION> (1969) 1 SCR 620, this Court considered and answered in affirmative the question whether the bank is entitled to recover its dues from the surety and observed:

"It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down."

<CITATION> , this Court held that the decree-holder bank can execute the decree against the guarantor without proceeding against the principal borrower and then proceeded to observe:

"The execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decree-holder. The question arises whether a decree which is framed as a composite decree, as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier. There is nothing in law which provides such a composite decree to be first executed only against the [principal debtor]."

<CITATION> , this Court again held that the liability of the guarantor and principal debtor is co-extensive and not in alternative and the creditor/decree-holder has the right to proceed against either for recovery of dues or realization of the decretal amount.

15. In view of the law laid down in the aforementioned cases, it must be held that <ORG> completely misdirected itself in assuming that the appellant could not have initiated action against respondent No.1 without making efforts for recovery of its dues from the borrower - respondent No.2.

16. The facts of the present case show that even after receipt of notices under Section 13(2) and (4) and order passed under Section 14 of the SARFAESI Act, respondent Nos.1 and 2 did not bother to pay the outstanding dues. Only a paltry amount of Rs.50,000/- was paid by respondent No.1 on 29.10.2007. She did give an undertaking to pay the balance amount in installments but did not honour her commitment. Therefore, the action taken by the appellant for recovery of its dues by issuing notices under Section 13(2) and 13(4) and by filing an application under Section 14 cannot be faulted on any legally permissible ground and, in our view, <ORG> of <ORG> committed serious error by entertaining the writ petition of respondent No.1.

17. There is another reason why the impugned order should be set aside. If respondent No.1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14 , then she could have availed remedy by filing an application under Section 17(1) . The expression `any person' used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14 . Both, the <ORG> and the Appellate <ORG> are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. Unfortunately, <ORG> overlooked the settled law that <ORG> will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., <ORG> must keep in mind that the legislations enacted by <ORG> and <ORG> Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, <ORG> must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.

18. While expressing the aforesaid view, we are conscious that the powers conferred upon <ORG> under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any <ORG>, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which <ORG> is bound to keep in view while exercising power under Article 226 of the Constitution. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why <ORG> should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance. It must be remembered that stay of an action initiated by the <ORG> and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by <ORG> would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, <ORG> should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions carved out in <CITATION> AIR 1969 SC 556, <CITATION>  and <CITATION>  and some other judgments, then <ORG> may, after considering all the relevant parameters and public interest, pass appropriate interim order.

19. <CITATION> (1964) 6 SCR 654, <ORG> considered the question whether <ORG> should have entertained the writ petition filed by the appellant under Article 226 of the Constitution questioning the order passed by the Commissioner of Taxes under the Assam Sales Tax Act, 1947. While dismissing the appeal, the Court observed as under:

"The jurisdiction of <ORG> under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in the Articles. But the exercise of the jurisdiction is discretionary: it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain self- imposed limitations. Resort that jurisdiction is not intended as an alternative remedy for relief which may be obtained in a suit or other mode prescribed by statute. Ordinarily the Court will not entertain a petition for a writ under Article 226 , where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy. Again <ORG> does not generally enter upon a determination of questions which demand an elaborate examination of evidence to establish the right to enforce which the writ is claimed. <ORG> does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, <ORG> normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up."

20. <CITATION> , a three-Judge Bench considered the question whether a petition under Article 226 of the Constitution should be entertained in a matter involving challenge to the order of the assessment passed by the competent authority under the Central Sales Tax Act , 1956 and corresponding law enacted by the State legislature and answered the same in negative by making the following observations:

"Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before <ORG> under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the <ORG> under sub-section (3) of Section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of <ORG> under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by <NAME>, J. in <ORG> v. <NAME> in the following passage:

"There are three classes of cases in which a liability may be established founded upon statute. . . . But there is a third class, viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. . .the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to."

The rule laid down in this passage was approved by <ORG> in <NAME> v. <ORG> and has been reaffirmed by <ORG> in Attorney-General of Trinidad and Tobago v. <ORG> and <CITATION> has also been held to be equally applicable to enforcement of rights, and has been followed by this <ORG> throughout. The High <ORG> was therefore justified in dismissing the writ petitions in limine."

21. The views expressed in <CITATION> (supra) were echoed in <CITATION>  in the following words:

" Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill- suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters. We can also take judicial notice of the fact that the vast majority of the petitions under Article 226 of the Constitution are filed solely for the purpose of obtaining interim orders and thereafter prolong the proceedings by one device or the other. The practice certainly needs to be strongly discouraged."

22. <CITATION> , this Court considered the question whether a petition under Article 227 of the Constitution was maintainable against an order passed by the Tribunal under Section 19 of the DRT Act and observed:

"5. In our opinion, the order which was passed by the <ORG> directing sale of mortgaged property was appealable under Section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short "the Act"). <ORG> ought not to have exercised its jurisdiction under Article 227 in view of the provision for alternative remedy contained in the Act. We do not propose to go into the correctness of the decision of <ORG> and whether the order passed by the <ORG> was correct or not has to be decided before an appropriate forum.

6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the court under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where <ORG> should not have entertained the petition under Article 227 of the Constitution and should have directed the respondent to take recourse to the appeal mechanism provided by the Act."

23. <CITATION> . , the Court reversed an order passed by the Division Bench of Orissa High Court quashing the show cause notice issued to the respondent under the Orissa Sales Tax Act by observing that <ORG> had completely ignored the parameters laid down by this Court in a large number of cases relating to exhaustion of alternative remedy.

24. <CITATION> , the Court highlighted the parameters which are required to be kept in view by <ORG> while exercising jurisdiction under Article 226 of the Constitution. Paragraphs 29 and 30 of that judgment which contain the views of this Court read as under:-

"29. In our opinion, <ORG> while exercising its extraordinary jurisdiction under Article 226 of the Constitution is duty-bound to take all the relevant facts and circumstances into consideration and decide for itself even in the absence of proper affidavits from the <ORG> and its instrumentalities as to whether any case at all is made out requiring its interference on the basis of the material made available on record. There is nothing like issuing an ex parte writ of mandamus, order or direction in a public law remedy. Further, while considering the validity of impugned action or inaction the <ORG> will not consider itself restricted to the pleadings of the <ORG> but would be free to satisfy itself whether any case as such is made out by a person invoking its extraordinary jurisdiction under Article 226 of the Constitution.

30. The <ORG> while exercising its jurisdiction under Article 226 is duty-bound to consider whether:

(a) adjudication of writ petition involves any complex and disputed questions of facts and whether they can be satisfactorily resolved;

(b) the petition reveals all material facts; (c) the petitioner has any alternative or effective remedy for the resolution of the dispute; (d) person invoking the jurisdiction is guilty of unexplained delay and laches; (e) ex facie barred by any laws of limitation; (f) grant of relief is against public policy or barred by any valid law; and host of other factors.

The <ORG> in appropriate cases in its discretion may direct the <ORG> or its instrumentalities as the case may be to file proper affidavits placing all the relevant facts truly and accurately for the consideration of the <ORG> and particularly in cases where public revenue and public interest are involved. Such directions are always required to be complied with by the <ORG>. No relief could be granted in a public law remedy as a matter of course only on the ground that the <ORG> did not file its counter-affidavit opposing the writ petition. Further, empty and self-defeating affidavits or statements of Government spokesmen by themselves do not form basis to grant any relief to a person in a public law remedy to which he is not otherwise entitled to in law."

25. <CITATION> , the Court was dealing with the issue whether the alternative statutory remedy available under the Foreign Exchange Management Act , 1999 can be bypassed and jurisdiction under Article 226 of the Constitution could be invoked. After examining the scheme of the Act, the Court observed:

"31. When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case <ORG> is a statutory forum of appeal on a question of law. That should not be abdicated and given a go-by by a litigant for invoking the forum of judicial review of <ORG> under writ jurisdiction. <ORG>, with great respect, fell into a manifest error by not appreciating this aspect of the matter. It has however dismissed the writ petition on the ground of lack of territorial jurisdiction.

32. No reason could be assigned by the appellant's counsel to demonstrate why the appellate jurisdiction of <ORG> under Section 35 of <ORG> does not provide an efficacious remedy. In fact there could hardly be any reason since <ORG> itself is the appellate forum."

26. <CITATION> , the Court held that where the remedy was available under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, <ORG> was not justified in entertaining a petition under Article 226 of the Constitution.

27. It is a matter of serious concern that despite repeated pronouncement of this Court, <ORG> continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future <ORG> will exercise their discretion in such matters with greater caution, care and circumspection.

28. Insofar as this case is concerned, we are convinced that <ORG> was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under Section 13(4) of the Act.

29. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.

[G.S. Singhvi] ........................................J.

[<NAME>] New Delhi July 26, 2010.


JUDGMENT <NAME>, J.

There are certain common questions of law which have been referred to us by the <ORG>, at the instance of the revenue, arising out of the assessment of the assessee for the two assessment years 1975-76 and 1976-77, and the questions of law referred read as under:

"1. Whether, on the facts and in the circumstances of the case, <ORG> is correct in law in holding that the Commissioner had not validly assumed jurisdiction under section 263 of the Income Tax Act and, accordingly, in cancelling the order made for the assessment years 1975-76 and 1976-77 ?

2. Whether, on the facts and in the circumstances of the case, <ORG> is justified in law in holding that inasmuch as tile assessment was made under section 143(3) , read with section 144B on the basis of the directions given by the Inspecting Assistant Commissioner, the order. made cannot be subject-matter of revision by the Commissioner under section 263 ?

3. Whether, <ORG> view that there was no clear finding in the order passed by the Commissioner of Income-tax under section 263 regarding the items allowed by the Income Tax Officer which could be termed as prejudicial to the interest of the revenue is sustainable in law and is reasonable on the facts obtaining in this case ?"

2. The questions relate to the jurisdiction of the Commissioner under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The assessee is a public limited company. The assessments for the assessments years 1975-76 and 1976-77 were completed by the Income Tax Officer under section 143(3) , read with section 144B , of the Act. The Commissioner on perusal of the records of the assessee for the two assessment years noticed that the orders were erroneous and prejudicial to the interest of the revenue and, accordingly, show-cause notices were issued to the assessee requiring to show cause as to why the orders of assessment made by the assessing officer should not be set aside with a direction to the assessing officer to consider that points contained in the show-cause notices. In the show-cause notices as many as 15 items have been considered to be erroneous and prejudicial to the interest of the revenue insofar as the assessment year 1975-76 is concerned and 24 items were considered to be erroneous and prejudicial to the interest of the revenue as far as the assessment year 1976-77 is concerned. The assessee sent a detailed reply and stated that the proposal to revise the orders of assessment is based on assumptions and not any material. The assessee has also dealt with each individual item and submitted that all the points have been considered by the Inspecting Assistant Commissioner (<NAME>) at the time of finalisation of draft assessment and, therefore, the revision proceedings initiated by the Commissioner should be dropped. The Commissioner found that the Income Tax Officer had not considered the points while completing the assessment and, therefore, overruled the objections raised by the assessee. He found certain instances wherein the assessment orders showed that they were erroneous and prejudicial to the interest of the revenue. After noticing some of those items, he came to the conclusion that those items represent various issues covered in the show-cause notices and many of them could be considered after the examination of the books of the assessee. He, therefore, held that the orders of assessment were erroneous and prejudicial to the interest of the revenue and in that view of the matter, set aside the orders of assessment for the two assessment years 1975-76 and 1976-77 and remitted the matter to the assessing officer to examine other issues also contained in the showcase notices and take appropriate action.

3. The assessee challenged the order of the Commissioner before <ORG>. <ORG> held that the Commissioner had no jurisdiction to revise the orders of assessment made in pursuance of the directions of the Inspecting Assistant Commissioner on the ground that, there was a statutory merger of the order of the Income Tax Officer with that of the Inspecting Assistant Commissioner. The <ORG> recorded a finding that the order of the Commissioner was not a speaking order and the Commissioner has not given any clear finding that any of the items listed in the order was erroneous and prejudicial to the interest of the revenue. According to the <ORG>, the Commissioner has not considered the objections of the assessee. The <ORG> also held that there is no material to show the assessments were made in a hurry, especially when the procedure prescribed under section 144B had been followed, and the higher authority had been associated in making the orders of assessment. The <ORG> also held that the Commissioner had surrendered his judgment to the audit party and delegated his discretion to the assessing officer. The <ORG>, therefore, held that the procedure adopted by the Commissioner would vitiate the order of the Commissioner and cancelled the order passed by the Commissioner and allowed the appeal preferred by the assessee. The <ORG>, on the basis of the directions of this <ORG>, has stated a case and referred the questions of law set out earlier for the two assessment years in question.

4. The learned counsel for the revenue submitted that the order of the <ORG> is erroneous in law as the <ORG> proceeded on the assumption that the order of the Commissioner was not a speaking order. He submitted that under the provisions of section 263 of the Act, the Commissioner has wide powers to remit the matter to the assessing officer and it is for the Commissioner to pass such orders thereon as the circumstances of the case would justify. He also submitted that the <ORG> was not correct in holding that the Commissioner had surrendered his jurisdiction in favour of the audit party and the report of the audit party would constitute a material for the Commissioner to exercise his revisional jurisdiction under section 263 . The submission of the learned counsel for the revenue was that the circumstances relied on by the Commissioner would clearly show that the orders of the assessment were erroneous and they were not in accordance with law and tile Commissioner has jurisdiction to exercise the powers conferred under section 263 . The learned counsel for the assessee, on the other hand submitted that it is the duty of the Commissioner to record his final conclusion on the matters raised in the show-cause notices, especially when the assessee in his reply has pointed out that there were no mistakes or errors in the orders of assessment passed by the assessing officer. The learned counsel for the assessee further submitted that the Commissioner had not exercised the jurisdiction conferred upon him properly, as the Commissioner after setting out the objections raised by the audit party and the reply submitted by the assessee set aside the orders of assessment with a direction to the assessing officer to complete the assessment. According to the learned counsel, the Commissioner should have determined the question whether the orders of assessment were erroneous and prejudicial to the interest of the revenue and it is not open to the Commissioner to remit the matter for the purpose of further investigation. The learned counsel for the assessee relied upon the decision of <ORG> in the case of <ORG> v. CWT (1970) 77 ITR 6 and the decision of <ORG> in the case of Jeewanlal (1929) <CITATION> . CIT (1977) 108 ITR 407, in support of his submission that the Commissioner cannot exercise the power on the basis of the report of the audit party. The learned counsel for the assessee also placed reliance on the decision of this Court in the case of <CITATION> ( 1987) 163 ITR 129/30 Taxman 528 and submitted that the procedure contemplated in section 263 is prejudicial to the income-tax administration as a whole. Reliance was placed by the learned counsel for the assessee on the decision of <ORG> in the case of <CITATION> . (1993) 203 ITR 108, wherein <ORG> held that the Commissioner could not direct the Income Tax Officer to re-examine the question, where the Commissioner after initiating the revision proceedings did not decide that the claim of the assessee was erroneous and the expenditure claimed was not revenue in nature, but capital in nature. He, therefore, submitted that on the same analogy the Commissioner had not exercised powers of revision conferred upon him. The learned counsel foil lie assessee also submitted that the orders of the Income Tax Officer should not only be erroneous but the order should have resulted in prejudice to the interests of the revenue and unless the two conditions prescribed in section 263 are satisfied, the Commissioner has no power to revise the orders of the Income Tax Officer. The learned counsel placed reliance on the decision of <ORG> in the case of a <CITATION> (1975) 98 ITR 422 in support of his above submission.

5. Insofar as the second question of law that has been referred to us I or our consideration is concerned, there is no dispute that the issue raised in the second question is covered against the assessee in view of the decision of this Court in <CITATION> . 1090 of 1980, dated 7-1-1997), wherein this Court held that the Commissioner has the jurisdiction under section 263 to interfere with the order passed by the Income Tax Officer as per 1 he directions given by the Inspecting Assistant Commissioner under section 144B of the Act. We are in respectful agreement with the reasoning and the view expressed by the Bench of this Court and, accordingly, the second question referred to us is answered in the negative and in favour of the revenue. The remaining questions, viz., question Nos. 1 and 3 are considered together.

6. Section 263 empowers the Commissioner to call for and examine the record of any proceeding under the Act and if he considers that any order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the revenue he may, after complying with the principles of natural justice pass such orders thereon as the circumstances of the case require including an order enhancing or modifying the assessment or cancelling the assessment and directing the fresh assessment. <ORG> in the case of <CITATION> (1997) 143 CTR 406 held that the revisional powers conferred on the Commissioner under section 263 is of wide amplitude and it enables the Commissioner to call for and examine the record of any proceeding under the Act. <ORG> held that section 263 empowers tile Commissioner to make or cause to be made such enquiry as the deems necessary in order to find out if the order passed by the Income Tax Officer was erroneous in so far as it is prejudicial to the interest of the revenue. The decision of <ORG> makes it clear that the powers of the Commissioner are very wide in exercising the powers of revision under section 263 . The only limitation on his power is that he must have some materials which would enable him to form a prima facie opinion that the order passed by the Income Tax Officer was erroneous insofar as it is prejudicial to the interests of the revenue. Once he comes to the conclusion on the basis of the material that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the the Commissioner is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to the assessment and direct a fresh assessment. The Commissioner is fully empowered to adopt any one of the three courses indicated the provisions of section 263 and the Commissioner's power cannot be faulted because he cancelled the assessment and directed a fresh assessment. In the instant case, the order of the Commissioner shows that he has gone through the records of the Income Tax Officer and he considered the order to he erroneous and prejudicial to the interests of the revenue on several matters for both the assessment orders. The Commissioner also found that the records do not show that the Income Tax Officer has considered the points on which the revision was made while completing the assessment. He also gave detailed reasons with reference to some of the items for both the assessment years and he held that they were representatives of the various issues covered in the show-cause notices. On the above basis, the Commissioner came to the conclusion that the order of the Income Tax Officer wits erroneous and prejudicial to the interests of the revenue and set aside the orders of the Income Tax Officer with the direction to the Income Tax Officer to consider the points in detail. It is not a case where he simply sets aside the assessment order to verify the correctness of the accounts seeking clarification the assessee as was done in the case of <CITATION> (1998) 230 ITR 695 (Mad.), wherein it was held that the Commissioner cannot simply set aside the order unless he finds the order was erroneous. On the other hand, in the instant case, the Commissioner has found that the records do not show that the Income Tax Officer had considered the points on which revision proceedings were initiated, which indicate that there was a lack of proper enquiry. Not content with the above conclusion, the Commissioner examined the matter and found that some of the items claimed and allowed were erroneous which shows that the order was erroneous. The <ORG>, in our opinion, was not correct in holding that the order passed by the Commissioner was not a speaking order.

7. The contention of the learned counsel for the assessee that the Commissioner should have examined the issue and recorded a clear finding that the findings of the Income Tax Officer on all the points were erroneous and, therefore, the Commissioner had lacked jurisdiction is bereft of any force. It is no doubt true that for making a valid order under section 263 , it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interests of the revenue. In the instant case, the Commissioner had recorded such a finding and with reference to some of the items he positively found that the orders were erroneous and prejudicial to the interests of the revenue. But in our opinion, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The above position of law is well-settled by the decision of <ORG> in the case of Addl. <CITATION> . (1978) 111 ITR 312, wherein <ORG> held as under:

"... Now, even on this question, we find that there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the Income Tax Officer to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the Income Tax Officer, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points." (p. 325)

8. The further question that arises is whether in the absence of the final conclusion of the Commissioner on all the points raised in the show-cause notices, can it be said that the Commissioner has not exercised the jurisdiction properly? We are of the opinion that it would all depend upon the facts of each case to decide whether the Commissioner had exercised the powers properly or not. In the instant case, the Commissioner found that the Income Tax Officer was not correct in granting relief to some of the items considered in the original assessment proceedings and from the instances or specimen of some of the cases examined by him, he came to the conclusion that the Income Tax Officer had not completed the assessment by following the procedure expected of him. In our opinion, it is not necessary for the Commissioner to examine each item in detail and record a clear finding that. the order passed by the Income Tax Officer was erroneous and not in accordance with law. Some of the typical illustrations were noticed by the Commissioner to find out how the assessment proceedings were proceeded with by the officer and how the orders were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the Commissioner directing fresh assessment without any material. The order of the Commissioner clearly shows that he had enough materials and on that basis, he exercised the powers of, revision under section 263 , set aside the order and ordered to make fresh assessment. The decision of this Court in the case of <CITATION> (1996) 220 ITR 657/88 Taxman 526, makes it clear that the Income Tax Officer is expected to make an enquiry before taking the particular item of income or before granting deduction of particular item of expenditure and if he does not make such an enquiry as expected, that would be a ground for the Commissioner to interfere under section 263 . In our opinion, the decision of this Court in the above case is applicable to the facts of the present case, as the order of the Commissioner indicates that the Income Tax Officer had not called for the details atleast with reference to some of the items, and granted deduction without verification of the claim. The Commissioner has pointed out in the orders of revision that there were certain glaring mistakes in the orders of assessment made by the assessing officer and the Commissioner after examining the records held that the Income Tax Officer had not considered the points raised in the show-cause notice and we are of the opinion that the Commissioner had properly exercised the jurisdiction under section 263 .

9. In the case of <CITATION> (1986) 157 ITR 112, this Court held that the Commissioner had jurisdiction under section 263 where the Income Tax Officer had granted certain relief without verifying the facts and the order passed by the officer was held to be prejudicial to the interests of the revenue. This Court also held that the Commissioner has the power to set aside a portion of the order of the assessing authority which is against the revenue or he may remit the matter to the Income Tax Officer for further enquiry after setting aside the relief given by the assessing officer. Therefore, the Commissioner, in our opinion, had set aside the orders of the Income Tax Officer insofar as they relate to the matters which were the subject-matters of revision. The learned counsel for the assessee strongly placed reliance on the decision of this Court in the case of <ORG> (supra), wherein this Court held that the prejudice contemplated under section 263 must be prejudicial to the income-tax administration as a whole and section 263 cannot be invoked as a jurisdictional corrective or as a review of a subordinate's order in exercise of the supervisory power. We are of the opinion that the above decision has no application as the words 'prejudicial to the interests of the revenue' as held by <ORG> in <ORG> case (supra) have wide impact and where it was found that the assessing officer failed to apply his mind in proper perspective and where the officer had completed the assessment without conducting or making the enquiry that is necessary for the purpose of deciding the issue before him, the order passed in such circumstances can be said to be erroneous and prejudicial to the interests of the revenue in the sense that the order is not in accordance with law, and once such a conclusion is reached by the Commissioner, the Commissioner would have necessary power to invoke his jurisdiction under section 263 . We have already held that the mere fact that a higher authority like Inspecting Assistant Commissioner was associated in the draft assessment proceedings would not render the orders of the assessment immune from the revisional proceedings. The Commissioner is expected to examine the orders of assessment to find out whether there is any error resulting in prejudice to the interest of the revenue and in that process the question as to who participated, in the assessment proceedings or made the order of assessment is an immaterial consideration.

10. The learned counsel also placed reliance on the decision of <ORG> in the case of <ORG> (supra). The decision of <ORG> has no application to the facts of the case. In the decision before <ORG>, it was found that the Commissioner noticed that the order of the Income Tax Officer did not contain discussion with regard to the allowability of the claim for deduction. The Commissioner, therefore, came to the conclusion that the claim of the assessee required examination as to whether the expenditure in question was allowable as a revenue expenditure or not allowable as a capital expenditure. In the factual situation, the Court held it is not open to the Commissioner to re-examine the matter and he has no power to set aside the orders of assessment and direct the Income Tax Officer to re-examine the issue. On the other hand, on the facts of the case, it was found by the Commissioner that the Income Tax Officer had not conducted the enquiry which was expected of him and also found that some of the items allowed by the Income Tax Officer were not allowable and warranted by the provisions of the Act. The Commissioner here has recorded a finding that the orders of the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, the decision of <ORG> cited supra has no application to the facts of the case.

11. There is no quarrel over the proposition of law laid down by <ORG> in the case of <NAME> (supra), wherein <ORG> held that the twin conditions prescribed in section 263 , viz., the order must be erroneous and prejudicial to the interests of the revenue should be satisfied.

12. The learned counsel also relied upon the decision of <ORG> in the case of <ORG>'s (supra) and the decision of <ORG> in <ORG>' case (supra) and submitted that the Commissioner, in the instant case, had exercised the powers of revision on the basis of report of audit party and, therefore, the Commissioner had no jurisdiction to invoke his jurisdiction under section 263 . The decision of <ORG> in <ORG>'s case (supra) has no application as the Commissioner there had surrendered his jurisdiction and authority to <ORG> in deciding the questions which were sought to be raised by the company in the revision application. On the other hand, the Commissioner occupies a unique position in the administrative set-up of the department. He is the head of the department in the administrative side and he is also given the power of quasi-judicial nature under section 263 to exercise the powers of revision. There is no dispute that there is no right of appeal to the department against the orders of the assessing authority, to the first appellate authority, and jurisdiction to reopen or to rectify the mistake is subject to the fulfilment of statutory conditions to reopen the assessment or to rectify the mistake in the order. The internal audit party on going through the records of the assessment of the assessee had pointed out certain mistakes in the orders passed by the Income Tax Officer. The report of the audit does not in any way bind the Commissioner but nonetheless, the Commissioner is empowered under section 263 to make such enquiry and to find out that the order of the Income Tax Officer is erroneous and prejudicial to the interests of the revenue. If after such investigation, the Commissioner comes to the conclusion that the order is erroneous and prejudicial to the interests of the revenue, he can pass any orders as he thinks fit, but where the materials are already available on record, there is nothing which precludes the Commissioner from taking into consideration already available materials, on record. <ORG> in the case of <ORG> (supra) has laid down the above proposition that it is open to the Commissioner to take into account the materials which come into existence subsequent to the completion of the orders of the assessment made by the Income Tax Officer. The report of the internal audit party does not have any binding effect on the Commissioner and the order passed by the Commissioner shows that he has applied his mind independently to the errors pointed out by the internal audit party and then came to the conclusion that the orders passed by the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the action initiated by the Commissioner on the binding circular issued by the higher authorities, nor it is a case of surrender of jurisdiction in favour of any other authority, but it is a case where the ' Commissioner had exercised the powers of revision after applying his mind in considering the question whether the orders were erroneous and prejudicial to the interest of the revenue, in the revisional proceedings. Consequently, we hold that the Commissioner had exercised the powers and assumed the jurisdiction properly and the <ORG> was not correct in holding that the Commissioner lacked the jurisdiction under section 263 .

13. In the result, we answer the questions 1 and 3 also in the negative, and in favour of the revenue. The revenue will be entitled to costs of Rs. 1,000 one set.


<NAME>, J.

1. <NAME>, in whose favour a mortgage had been executed under a document, dated 25th June 1884, with respect to the properties to which the present appeal relates, brought a suit (Original Suit No. 172 of 1887) on that mortgage and having obtained a decree brought the property to sale in 1890 and purchased certain of the items of property while others were bought by <NAME>. Of the several items of property thus purchased Nos. 8 to 12 were sold by the purchasers to the brother of <NAME> and <NAME>, the first and second respondents, while items 13 and 14 were sold by <NAME> to <NAME> and by him to the father of the third respondent. The first, second and the father of the third respondent were duly put in possessions of the items of property purchased by them. In 1897 <NAME>, the present appellant, brought a suit (No. 267 of 1897 on the file of the District Munsif of Kumbakonam) on a mortgage document, dated the 8th July 1884, which had been executed in his favour with respect to certain of the properties entered in the mortgage-deed of the 25th June 1884 in favour of <NAME>. The present first and second respondents were respectively the twelfth and thirteenth defendants in that suit while the father of the third respondent was the sixteenth defendant. The plaintiff (present appellant) obtained a decree in which it was directed, inter alia, that the present respondents Nos. 1, 2 and 3 should pay him a sum of over Rs. 1,500 and that in default of payment items 8 to 14 of the property mentioned in the mortgage document of the 25th June 1884, together with other properties should be sold subject to the prior charge of Rs. 1,500 together with interest on the land under that mortgage. The present appellant having purchased the land at the sale held in execution of the decree attempted to get possession, but was obstructed by the first, second, third and fourth respondents. He accordingly presented a petition to the District Munsif under Sections 318 and 335, Civil Procedure Code. The District Munsif having dismissed his petition and the District Judge having on appeal declined to interfere, this appeal against the appellate order has been preferred here.

2. In his petition to the District Munsif the appellant stated that the fourth respondent was in possession of a thatched house which belonged to the defendants Nos. 1 to 7 in Original Suit No. 267 of 1897, but which the fourth respondent was living in under a right obtained from them. It was alleged that these defendants had instigated the fourth respondent to prevent the appellant getting possession of the house. The fourth respondent did not appear before the District Munsif and the question as to the house which he is in possession of is not alluded to in his order. The District Judge held that the order relating to him must; be considered to have been passed under Section 335, Civil Procedure Code, and that there was consequently no appeal against that order. The District Judge appears to be right. The fourth respondent claims under an alienation made by the defendants Nos. 1 to 7 in Original Suit No. 267 of 1897 after the date of the decree in that suit; As this respondent is not a judgment-debtor and as it has not been shown that he has resisted the attempt of the appellant to get possession on behalf of any one of the judgment-debtors, it must be held that his case comes under Section 335 of the Civil Procedure Code and that there was consequently no appeal against the order of the District Munsif in so far as it related to him.

3. The District Judge has further held that there is no appeal against the order of the District Munsif in so far as it affects respondents Nos. 1, 2 and 3. I cannot uphold this decision. Even if the plaintiff, the purchaser of the lands, were not the decree-holder, I am decidedly of opinion that, following the decisions in <NAME> v. <NAME> L.R. 19 I.A. 166 : I.L.R. 19 Cal. 683, <NAME> v. <NAME> I.L.R. 24 Calc. 62 and <CITATION> . 26 Calc. 250, he must be held to be a representative of the judgment-creditor. In the present case the purchaser is the decree-holder, the plaintiff in the suit. It would be impossible to hold that having been a party to the decree, he ceased to be a party because he purchased the property at the sale held in execution. The only point therefore to be decided is whether the question as to which the parties to the present proceedings are at issue is one relating to the execution, discharge or satisfaction of the decree (Section 244, Civil Procedure Code). The present application being one by the purchaser of the lands to be put in possession must be held to be a step in aid of execution (vide <CITATION> . 19 All. 477, <NAME> v. Raj Kumar Boy I.L.R. 27 Calc. 709, and <NAME> v. Kannammal I.L.R. 24 Mad. 186 and such being the case the question at issue is clearly one relating to the execution of the decree and, as has already been pointed out, it is between the parties to the decree. The order of the District Munsif was therefore one passed under Section 244, Civil Procedure Code, and an appeal lay from it.

4. On the merits I agree with the District Judge. The direction n the decree in Original Suit No. 308 of 1897 was that the property should be sold subject to the prior charge on it of the amount due under the mortgage document of the 25th June 1884. It follows that the respondents Nos. 1, 2 and 3 cannot be ousted till the total amount due under that document is paid off. This second appeal is dismissed with costs.

<NAME>, J.

5. I am also of the same opinion. The decree-holder in execution of his decree which directed the sale of certain properties (mortgaged to him by defendants Nos. 1 and 3 and the ancestors of defendants Nos. 2, 4, 5, 6 and 7) subject to a prior charge thereon of Rs. 1,500 (together with interest) in favour of the twelfth, thirteenth and sixteenth defendants, became the purchaser and now seeks to recover possession of the properties purchased under Sections 318 and 334, Civil Procedure Code, from the twelfth and thirteenth defendants and the legal representatives of the sixteenth defendant. The question that is raised is whether, under the terms of the decree, he is entitled to be put into possession without paying the amount of the prior charge, the defendants dispossessed being left at liberty to "bring a separate suit for enforcing the charge in their favour. In my opinion the question thus raised between the decree-holder-purchaser and the said defendants relates, within the meaning of Section 244 (c), Civil Procedure Code, to the execution or enforcement of the decree against those defendants and the order appealed against is not the less an order under Section 244, because it is also passed under Sections 318 and 334 neither of which is specified in Section 588.

6. I am clearly of opinion that, according to the right construction of the decree, the decree-holder-purchaser cannot execute or enforce the decree against the defendants in possession by ousting them without redeeming the prior charge.


PETITIONER: <NAME> Vs. RESPONDENT: STATE OF BIHAR DATE OF JUDGMENT08/12/1976 BENCH: <NAME>, P.N. BENCH: <NAME>, P.N. GUPTA, A.C. SHINGAL, P.N. CITATION: 1977 AIR 1754 1977 SCR (2) 357 1977 SCC (1) 505 CITATOR INFO : F 1983 SC 67 (9) R 1990 SC 494 (4) ACT: Inherent powers of <ORG> to quash proceedings taking cognizance of the offence when the allegations set out in a complaint or the chargesheet do not constitute any offence--Criminal Procedure Code 1973 (Act 2 of 1974), s. 482 . HEADNOTE: Employing or permitting to employ any person under the age of 18 years or any woman in any part of the licensed premises and in contravention of s. 25 constitutes an of- fence u/s. 54(1)(a) of the Bihar and Orissa Excise Act 1915. Under s. 25(2) it is an offence when a woman is employed or permitted to be employed, by a person licensed to sell foreign liquor, and the employment of such woman should be in any part of the premises in which such liquor is consumed by the public. Section 57(c) of the Act provides a penal fine upto Rs.500/- for an action done by a licensed holder wilfully in breach of the conditions of the license for which no penalty is prescribed elsewhere in the Act. On a complaint from the Assistant Commissioner, Excise that the appellant at the time of the raid on the New Year Eve did not have any permission of the competent authority for conducting a cabaret dance in the premises of <ORG>, Patna (admittedly the holder of "OFF' foreign liquor licence), the SubDivisional Magistrate, Patna took cogni- zance of the offences complained, namely, violation of s. 54(1)(a) read with s. 25(a) and s. 57(c) of the Bihar and Orissa Excise Act 1915. A revision filed under s. 482 of the Criminal Procedure Code 1973 on the ground that the allegations in the complaint did not constitute any offence warranting the cognizance was dismissed in limine. On appeal by special leave to this Court, HELD: Where the allegations set out in the complaint or the charge-sheet do not constitute any offence, it is compe- tent to <ORG> exercising its inherent jurisdiction under s. 482 of the Code of Criminal Procedure 1973 to quash the order passed by the Magistrate taking cognizance of the offence. [359B] The instant case was clearly one where the allegations contained in the complaint did not constitute any offence and the Sub-Divisional Magistrate was in error in taking cognizance of it and <ORG> also ought not to have, in the circumstances, rejected the application of the appellant for quashing the order of the Sub-Divisional Magistrate. [360E] No offence under s. 54(1)(a) could be said to have been committed on the allegations contained in the complaint in the absence of specific allegation of the two essential ingredients of the offence under s. 54(1)(a) read with s. 25(2) and also for want of an averment that either of the two women who were performing the cabaret was employed or permitted to be employed by the <ORG> or that liquor was being consumed by the public in the part of the <ORG> in which the cabaret was being performed. [359D-F] The allegation contained in the complaint could not be said to constitute an offence under s. 57(c) , in the absence of an allegation as to which condition of the licence was broken by the <ORG> or the appellant in allowing a cabaret to be performed in the <ORG> premises and more so, when no such condition in the licence itself could be pointed out on behalf of the State. [360C-D] JUDGMENT:

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 203 1976.

(Appeal by Special Leave from the Judgment and Order dated 4-2-1976 of <ORG> in Crl. Misc. Peti- tion No. 441/76.) <NAME> and <NAME>, for the appellant. <NAME> and <NAME>, for the respondent. The Judgment of the Court was delivered by <NAME>, J. There is a club in Patna called <ORG>. The appellant is the Honorary Secretary of that Club. It appears that at about 10.25 p.m. on 31st December, 1975 when the New Year eve was being celebrated at the Club, a raid was carried out by the Assistant Commissioner of Ex- cise, Inspector of Excise and SubInspector (Excise) and it was found that two women and five men were singing and dancing in the club premises. The Excise Inspector filed a complaint against the appellant on 2nd January, 1976 charg- ing him with having committed offences under Section 54(1)(a) and Section 57 (c) of the Bihar and Orissa Excise Act 1915. The allegations on the basis of which the complaint was filed are material and we may set them out in extenso:

"A Cabaret dance with women was in progress at <ORG>, Patna. Two women and five men were singing and dancing. This dance was being performed inside the premises of <ORG>, Patna before a large gather-

ing of men and women. I asked Dr. <NAME>, Honorary Secretary and his Manager <NAME> to show the permission obtained from the District Magistrate or from any other authori- ty for organising the Cabaret dance because licence vending 'Off' foreign liquor is given to <ORG> in form 2. The validity period of licence is from 1-4-75 to 31-3-1976 and under Section 25 (2), conducting of Cabaret dances without obtaining the prior permission from any proper authority is ille- gal. Dr. <NAME> who is Honorary Secretary of Patna <ORG> did not show any permission of the District Magis- trate or of any other authority for conducting the Cabaret and he said that he had not ob- tained any such permission.

Therefore, Dr. <NAME>, Honorary Secretary is guilty of the aforesaid. offence. It is therefore, prayed that Dr. <NAME>, Honorary Secretary be prosecuted in a Court of law for violating Section 54(a) and Section 57(c) of the Excise Act for which I have been authorised to submit charge sheet to him by the District Magistrate, Patna".

These allegations according to the appellant did not con- stitute any offence and hence the appellant filed an appli- cation in <ORG> under Section 482 of the Code of Criminal Procedure for quashing the order passed by the Sub-Divisional Magistrate, Patna taking cognizance of the offences charged against the appellant. <ORG> by an order dated 4th February, 1976 summarily rejected the application. The appellant thereupon preferred an application to <ORG> for leave to appeal to this Court, but this application was also rejected by <ORG> on the ground that the allegations set out in the complaint made out a prima-facie case against the appellant. This led to the filing of the present appeal with special leave obtained from this Court.

It is now settled law that where the allegations set out in the complaint or the charge-sheet do not constitute any offence, it is competent to <ORG> exercising its inherent jurisdiction under Section 482 of the Code of Criminal Procedure to quash the order passed by the Magis- trate taking cognizance of the offence. The question which, therefore, arises for consideration is whether the allega- tions set out in the complaint constitute any offence against the appellant. The offences charged against the appellant are under Section 54(1)(a) and Section 57 (c) of the Act. Section 54(1) (a) provides that if any licensed vendor or any person in his employ and acting on his behalf, in contravention of Section 25 , employs or permits to be employed, in any part of his licensed premises referred to in that section any person under the age of 18 years or any women, he shall be liable to fine which may extend to Rs.500/-. It is an essential ingredient of this offence that the licensed vendor should employ or permit to be employed any women in any part of his licensed premises in contravention of Section 25 . Now there can be no doubt that <ORG> was a licensed vendor since it held an "OFF" licence in Form No. 2 given in the Bihar and Orissa Excise Rules. We will also assume for the purpose of argu- ment that the place where the cabaret was going on was a part of the licensed premises.. But in order that the al- leged cabaret should constitute an offence under Section 54(1) (a), it was necessary that the women who were perform- ing the cabaret should be employed or permitted to be em- ployed by the Club and moreover that should in contravention of Section 25 . Section 25 . sub-section (2) provides that no person who is licensed to sell foreign liquor for con- sumption on his premises shall, without the previous writ- ten permission of the Board, during the hours in which such premises are kept open for business, employ or permit to be employed, either with or without any remuneration, any woman, in any part of such premises in which such liquor is consumed by th.e public. It will be seen that this provi- sion also comes into play only when a woman is employed or permitted to be employed by a person licensed to sell for- eign liquor. Moreover, the employment of the woman should be "in any part of such premises in which such liquor is consumed by the public." It is therefore, obvious that there could be no offence under Section 54(1)(a) read with Section 25(2) unless it could be shown by the prosecution that the women who were performing the cabaret were employed or permitted to be employed by the Club and they were performing the cabaret in a part of the club premises in which liquor was being consumed: by the public. We may point out that it was contended on behalf of the appellant that subsection (2) of Section 25 can have no application in case of a person who is holding an "OFF" licence as distinct from an "ON AND OFF" licence in form No. 3 and since the appellant in the present case was 7--1546 SCI/76 holding an "OFF" licence, he could not be guilty of contra- vention of Section 25 , sub-sect/on (2) and hence no question of offence under Section 54(1)(a) could arise. But we will assume for the purpose of argument that the appellant was covered by Section 25 , subsection (2) and he was bound to obey the prohibition contained in that sub-section. But even so we find that the two essential ingredients of the offence under Section 54(1)(a) read with Section 25 sub- section (2) were not even alleged in the complaint. The complaint did not aver that either of the two women who were performing the cabaret was employed or permitted to be employed by the club or that liquor was being consumed by the public in that part of the club in which the cabaret was being performed. No offence under Section 54(1)(a) could in the circumstances be said to have been committed on the allegations contained in the complaint.

Equally, it is difficult to see how the allegations contained in the complaint could be said to constitute an offence under Section 57(c) That section provides that if any holder of a licence granted under the Act or any person in his employ or acting on his behalf wilfully does any act in breach of the condition of the licence for which a penalty is not prescribed elsewhere in the Act, he shall be liable to fine which may extend to Rs.500/-. The com- plaint does not allege as to which condition of the licence was broken by the club or the appellant in allowing a caba- ret to be performed in the club premises. Nor could the learned counsel appearing on behalf of the <ORG> point out any such condition of the licence. The allegations con- tained in the complaint manifestly did not constitute an offence under Section 57(c) .

This was, therefore, clearly a case where the allega- tions contained in the complaint did not constitute any offence and the Sub-Divisional Magistrate was in error in taking cognizance of it. <ORG> in the circum- stances ought not to have rejected the application of the appellant for quashing the order of the Sub-Divisional Magistrate.

We accordingly allow the appeal, set aside the order of <ORG> and quash the proceedings in Case No. 2(2) 76 Trial No. 285/76 pending in the Court in Mr. <NAME>, Executive Magistrate, Sadar Patna.

S.R. Appeal allowed.