Limitation of Income Tax Rule 68B Not Applicable to Debt Recovery under RDDB Act: Kerala High Court [Read Order]

The Kerala High Court has clarified that the limitation period prescribed under Rule 68B of the Second Schedule to the Income Tax Act, 1961 does not govern recovery proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).

Justice MohammedNias C.P, held that Rule 68B has no mandatory application to recovery proceedings initiated pursuant to a Recovery Certificate under the RDDB Act, as the two legislations operate within distinct frameworks and purposes.

The first petitioner, as principal borrower, had obtained a loan of ₹5,00,000 from Federal Bank, later enhanced to ₹20,00,000 under an Overdraft-Cash Credit account. The second petitioner and others stood as co-obligants. Additional loans including an Agricultural Medium-Term Loan and a Federal Kisan Credit were also availed.

Upon default, the bank initiated proceedings before the Debt Recovery Tribunal (DRT), Ernakulam, which issued a Recovery Certificate on 11 January 2012 for ₹76.9 lakh. Subsequently, the Recovery Officer issued a sale proclamation on 24 May 2016, and the auction took place on 25 July 2016, wherein respondents 3 and 4 purchased the properties.

The petitioners contended that the sale was conducted beyond the three-year limitation prescribed under Rule 68B of the Second Schedule to the Income Tax Act. Since the financial year in which the Recovery Certificate was issued ended on 31 March 2012, they argued that the sale held after 31 March 2015 was time-barred and void.

Justice Nias examined the scope of Rule 68B and its relevance to RDDB Act proceedings. The Court noted that under Sections 19(22) and 25 of the RDDB Act, the Recovery Officer gains authority only after the recovery certificate becomes final. The concept of an “order giving rise to demand” in the Income Tax Act, to which Rule 68B is linked, does not correspond to the debt recovery mechanism under the RDDB Act.

The Court reasoned that Section 29 of the RDDB Act incorporates the Second and Third Schedules of the Income Tax Act only “as far as possible” and “with necessary modifications.” This indicates that the procedural framework of tax recovery may be adapted to debt recovery only to ensure fairness and structure, not to impose substantive restrictions that could impede recoveries.

The judgment emphasized that while Rule 68B serves to regulate timelines in tax recovery, where the Tax Recovery Officer functions under government authority—the RDDB Act operates in an adversarial setup between private financial institutions and borrowers. Holding banks responsible for administrative delays by Recovery Officers, the Court noted, would unjustly punish creditors and defeat the RDDB Act’s objective of expeditious recovery of debts.

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The bench also observed that the RDDB Act is a self-contained code that does not prescribe any specific limitation for sales, and importing Rule 68B’s restriction would contradict its legislative intent.

The Court further accepted the auction purchasers’ contention that the writ petition was barred by delay and laches. The sale took place in 2016, but the writ petition was filed only in May 2025. Referring to the case - State of M.P. v. Nandlal Jaiswal and Arce Polymers Pvt. Ltd., Justice Nias reiterated that discretionary jurisdiction under Article 226 cannot be invoked after an unexplained delay, especially when third-party rights have arisen through auction purchases and substantial investments.

Dismissing the writ petition, the Court held that Rule 68B of the Income Tax Act does not apply to recovery proceedings under the RDDB Act, and that the petitioners’ challenge to the auction sale was untenable both in law and on grounds of delay.

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