TaxTMI 
TaxTMI 
2021 (2) TMI 1115
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....ction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the SARFAESI Act" hereinafter) is made by the petitioner, who is the auction purchaser. Further relief is claimed against the respondent no.3/Bank to issue No Objection Certificate (NOC) and issuance of a fresh sale certificate, free from all encumbrances in favour of the petitioner. 3. The factual matrix of the matter and contentions of the petitioner, are as under :- (A) M/s. Wood Stock Holdings the owner of plot no.206, MIDC, Butibori, Pohi, Tah. Hingna, Distt. Nagpur along with the factory building constructed thereupon having a total built up area of 908.988 sq. meters had availed loan from the respondent no.3, on account of non-payment of which action under the SARFAESI Act was initiated by the respondent no.3/Bank, resulting in attachment of the above immovable property, which was put to auction. (B) On 14/3/2017, the petitioner being the highest bidder to the tune of Rs. 71,25,000/-, his offer was accepted. (C) On 29/3/2017, the respondent no.3/Bank issued a sale certificate in favour of the petitioner. The symbolic possession of the above said immovable prope....
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....dent no.3/Bank to have found out the encumbrances upon the said property, and made them known to the petitioner, so that a conscious decision could be taken to have the property or not. (J) Since the property was sold on "Ás is where is and what is there is basis", there was no question of the petitioner being liable for anything than payment of the purchase price. (K) Reliance is placed on :- (i) State of Karnataka and another Vs. Shreyas Papers (P) Ltd. And others, (2006) 1 SCC 615. (ii) AI Champdany Industries Limited Vs. Official Liquidator and another, (2009) 4 SCC 486. (iii) Punjab Urban Planning and Development Authority and others Vs. Raghu Nath Gupta and others, (2012) 8 SCC 197. (iv) Axis Bank Limited Vs. State of Maharashtra through the Office of the Assistant Commissioner of Sales Tax Investigation, Thane (West) 400 601 and another. (v) Punjab National Bank Vs. Maa Banbhori Steel Industry Private Limited and others, W.P. No.11018 of 2018 dated 29/10/2018 by a Division Bench of the Bombay High Court. (vi) The Corporation Bank and another Vs. Dr. Jayesh Kumar Zha in M.A.T. 291 of 2019 with C.A.....
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....Assistant Commissioner (CT) Vs. The Indian Overseas Bank and another, in W.P. No.2675/2011 and connected matters decided on 10/11/2016, where the question framed about priority of charge as follows :- "a) As to whether the Financial Institution, which is a Secured Creditor, or the Department of the Government concerned, would have the 'Priority of Charge' over the Mortgaged property in question, with regard to the tax and other dues ?." has been answered as under : "We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31-B in the Principal Act, which reads as under : "31-B. Notwithstanding anything contained in any other law for the time being in force, the rights of Secured Creditors to realise Secured Debts due and payable to them by sale of assets over which Security Interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central ....
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....e subject to the provisions of that Code." 2. The Maharashtra Value Added Tax Act, 2002 which came into force on 1st April, 2005. Vide Section 37 it was stipulated as under:- "37. Liability under this Act to be the first charge- Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person. 3. Suffice it to state that Section 26E of the SARFESI Act has a non obstante clause and so does Section 37 of the Maharashtra Value Added Tax Act, 2002, but notwithstanding the non obstante clause in Section 37 it is subject to any provision regarding creation of first charge in any Central Act. Meaning thereby, harmoniously read, a secured creditor would have a first charge over an asset and the charge created in favour of the State of Maharashtra under Section 37 of the Maharashtra Value Added Tax Act, 2002 would be subject to the first....
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....ding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation. - For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 10. The MVAT Act, 2002 deals with the levy and collection of Tax on the sale or purchase of certain goods in the State of Maharashtra. The relevant provisions of the MVAT Act 2002, would demonstrate that Tax, as contemplated, is payable on the turnover of sales and purchases, of goods, by a dealer, registered under the MVAT Act 2002. 'Goods' as defined in Section 2(12) are all movables; 'Sale' as defined in Section 2 (24) means the sale of goods; 'dealer' as defined in S....
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....either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions". 12. As against this, the language of Section 26-E of the SARFAESI Act is clear and speaks of "notwithstanding anything contained in any other law for the time being in force". Thus, as against the non-obstante clause in Section 37 (1) of MVAT Act 2002, which gives an overriding effect to the liability to pay any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person under the MVAT Act, 2002, over "any contract to the contrary", Section 26-E of SARFAESI Act gives an overriding effect to the claim for the debts due to any secured creditor, over "any other law for the time being in force". The distinction created by the user of the expression "any contract to the contrary", in Section 37 (1) of MVAT Act, 2002 and "any other law for the time being in force", in Section 26-E of the SARFAESI Act is telling. A contract can never be equated with a law. A 'contract' as stated above, stems from the volition of the parties and is subject to the laws as applicable in that regard, as against which ....
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.... and the dictum in The Indian Overseas Bank (supra) that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending, would also govern the field. 16. Even if it is contended that the provisions as contained in Section 26-E of the SARFAESI Act, is inconsistent with that of Section 37 of the MVAT Act 2002, and both of them contain a non-obstante clause, even then the later law, which in this case is Section 26-E of the SARFAESI Act, will prevail, as indicated in Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. and others, (2001) 3 SCC 71 as under :- "9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. [(1993) 2 SCC 144] ; Sarwan Singh v. Kasturi Lal [(1977) 1 SCC 750 : (1977) 2 SCR 421] ; Allahabad Bank v. Canara Bank [(2000) 4 SCC 406] and Ram Narain v. Simla Banking & Industrial Co. Ltd. [AIR 1956 SC 614 : 1956 SCR 603]. 10. We may notice that....
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.... to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11(2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if on....
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....993" hereinafter) and those of Section 26-E of the SARFAESI Act, both give priority to the rights of the secured creditor, to realise secured debts, due and payable to them by sale of assets in which security interest is created, over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local bodies, which position, in fact also stands recognised and accepted under the MVAT Act 2002, by user of the expression "but subject to any provision regarding creation of first charge in any Central Act for the time being in force", as used in Section 37(1) therein and therefore the priority as created by Section 26-E of the SARFAESI Act, will prevail over the first charge as created by Section 37(1) of the MVAT Act, 2002. 19. Axis Bank (supra), upon which reliance has been placed by the petitioner was a case in which the Court was not considering the controversy regarding the priority as contemplated by Section 37 (1) of the MVAT, 2002 vis-a-vis Section 26-E of the SARFAESI Act, but was considering the position in view of Section 529-A of the Companies Act vis-a-vis Section 35 of the SARFAESI Act and in view of t....
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....e of a trustee on the trust-property for expenses properly incurred in the execution of his trust, [and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge" (emphasis supplied) 23. The expression "charge" came up for consideration before the Hon'ble Apex Court in Shreyas Papers (supra), where dilating upon the subject, in view of the provisions of Section 100 of the T.P. Act, vis-a-vis the charge created under the Karnataka Sales Tax Act, it was held as under :- "20. As the section itself unambiguously indicates, a charge may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chintaman Datar [(1974) 2 SCC 799, 811 (para 18)] and in Ahmedabad Municipal Corpn. of the City of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai [(1971) 1 SCC 757, 759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] (herei....
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....9;Charge' as defined is Section 100 of the T.P. Act, to become effective, it is necessary that the transferee, ought to have had prior notice of such ''Çharge", be it either express, implied or constructive or the prior existence of such "Çharge", is shown to have been within the knowledge of the transferee. 24. Section 55 of the Transfer of Property Act which spells out the rights and liabilities of buyer and seller, in respect of the liability of the seller, states as under :- "55. Rights and liabilities of buyer and seller.-In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold:- (1) The seller is bound- (a) to disclose to the buyer any material defect in the property [or in the seller's title thereto] of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover; ------ (g) to pay all public charges and rent accrued due in respect of the property up to the date of....
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....#39;s right or intrusion on another's property." In Black's Law Dictionary encumbrance is defined as: "Any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee...." Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of the Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance, thus, must be a charge on the property. It must run with the property. If by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance. 14. If the property tax was merely a statutory dues without creating any encumbrance on the property which had cast a duty upon all the auction-purchasers to make an investigation, it would mean that they must try to find out all the liabilities of the company in liquidation in their entirety. 15. The respondent municipality was an unsecured creditor. In that ....
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....reated by virtue of Section 100 of the T.P. Act; by a written document between parties inter se or by a statutory provision contained in any Central/State/Local law, in terms of which the charge was not on the property. There is always a difference between a charge created by contract and a statutory charge created by the provisions of a statute on the property, be it a Central/State/local law. A statutory debt/charge is also different from a Crown debt, and prevails upon a Crown debt, as has been held in Union of India and others Vs. SICOM Limited and another, (2009) 2 SCC 121, in the following words :- "9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the "debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors". [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.), p. 1147.] Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 th....
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....lance and an encumbrance which is a charge on the property and runs with the property and has held that if by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance. 30. As Section 37(1) of the MVAT Act, 2002, creates a charge on the property, a successful auction purchaser, thus would hold the property, upon which a statutory charge has been created, subject to such charge and the property would thus continue to be liable for any statutory charges created upon it, even in the hands of such auction purchaser, though for non disclosure of such charge by the secured creditor, the auction purchaser may sue the secured creditor and have such redress, as may be permissible in law. This is moreso for the reason that the priority given in Section 26-E of the SARFAESI Act, to the Banks, which is a secured creditor, would only mean that it is first in que for recovery of its debts by sale of the property, which is a security interest, the other creditors being relegated to second place and so on, in the order of their preference as per law and contract, if any, as the case may be. Thus the dues under Se....
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....which was a charge on the land and building on the secured asset, it had failed to discharge its statutory obligation and after completion of sale and delivery of possession the auction purchaser could not be fastened with the liability to discharge such encumbrances. 33. In Punjab Urban Planning and Development Authority (supra) relied upon by Mr. Dawda, learned Counsel for the petitioner, the issue was regarding allotment of commercial plots by auction on "as is where is" basis, where the allegation was that the Punjab Urban Planning and Development Authority (PUDA), could not claim interest, penal interest, as well as penalty on account of the delayed payment of installments, for the reason that there was delay on its part in providing the basic amenities like parking, lights, roads, water, sewerage etc. in time. Refuting the above contention, it was held that since the commercial plots were allotted on "as is where is", basis, the allottees would have ascertained the facilities available at the time of auction and having accepted the commercial plots on "as is where is" basis they could not be heard to contend that since the basic amenities were not provided, the allottees w....
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....roperty, with its liabilities, he ought to have insisted on having the same free of all encumbrances, altogether, before bidding for the same. That apart, it is equally a duty of the auction purchaser, before bidding for the same, to make inquiries about the impositions upon the property, so that he can have it free of any encumbrances. After acquiring title to the property, the auction purchaser cannot be heard to say that he will have the rights associated with the property and not the liabilities. He takes it lock, stock and barrel, with everything. 37. Section 13 (6) of the SARFAESI Act reads as under :- "Section 13. Enforcement of security interest. - (1)...... (2)...... (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. Rules 8 (7) (a) and (f), Rule 9 (7) (9) and (10) of the Security Interest (Enforcement) Rules, 2002 read as under....
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....property, which is a security interest, under Section 13 (6) of the SARFAESI Act, consequent to the transfer of the secured asset after taking possession thereof, either physical or symbolic, by the secured creditor, vests in the transferee with all rights in the property transferred, as if the transfer had been made by the owner. The issue regarding the knowledge of the encumbrances known to the secured creditor, thus assumes significance. In so far as encumbrances on account of statutory/ Government / Municipal / Revenue dues are concerned, the responsibility of obtaining the details thereof is of the secured creditor. The knowledge of these encumbrances can easily be solicited, obtained from the authorities by the secured creditor. Thus, the secured creditor is clearly possessed of the wherewithal, to obtain the information about encumbrances of the above nature. This is necessary for the secured creditor, for the reason that these encumbrances, have to be mentioned in the notice of sale under Rule 8 (7) (a) of the Security Interest (Enforcement) Rules, 2002 [for short, SI (E), Rules, 2002" hereinafter]. So also, Rule 8 (7) (f) of the SI (E), Rules, 2002 requires the sale notice....
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.... 'as is what is', basis or any such phrase, should not absolve the secured creditor of its obligation to make proper enquiries about other dues/encumbrances upon the property, to obtain information about which, the secured creditor has the means and wherewithal and to disclose in the auction notice about such dues and also the situation about the possession of the property, so that the bidder is consciously made aware of all the pros and cons about the property, including the encumbrances/dues/possessory status and thereafter cannot be heard to raise a plea of not having been informed, afterwards. After all the money in the coffers of the Bank as a secured creditor is public money, as is the money, due and payable under the Central/State/Local statutes to the authorities. There is no reason why, the secured creditor and other statutory authorities, who have a charge upon the property for recovery of their dues, cannot act in tandem, so that the interest of one and all, and dues receivable by each one of them are realised. This is imminently possible in this digital world, where information is readily available. Though information about statutory dues, may not be, at times, ....
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....; (b) in all such cases, a title verification certificate, by a lawyer, at the penalty of cancellation of his license to practice, in case such certificate is found to be false, should be a must, which certificate should also contain a statement that the lawyer has also verified the suits filing register of the Court, within whose jurisdiction, the property is situated to ascertain, whether the same is the subject matter of any litigation and an affidavit from the borrowers that it is not so; (c) in all such cases, a valuation certificate, by a government approved, at the penalty of cancellation of his licence, in case such certificate is found to be false, should be a must; (d) immediately upon creation of security interest in its favour for payment of its dues, the bank must inform all the Central/State/Local Authorities regarding creation of such security interest, including the Sub-Registrar of documents and City Survey office concerned; (e) the bank/secured creditor, should before any property is attached and auctioned : (i) enquire with the Central/State/Local authorities regarding any dues on the property sought to be auctioned an....