AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 1115
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....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 property was also handed over to the petitioner on 29/3/2017 by the respo....
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....r, 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.N. 2254 of 2019, dated 3/9/2019 by the learned Division Bench of the Calcutta High Court. 4. The respondent no.1 has not filed any submissions, however reliance has ....
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.... 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 Government, 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, in cases where Insolvency or B....
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.... 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 charge created by the Central Legislation which in the instant case would be SARFESI Act, 2002. 4. Thus, we hold that the Petitioner, Co-operative Bank, would have the first lien over the sale proceeds realised by selling the secured assets. If there is any surplus, the same would be credited to the account....
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.... 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 Section 2(8) means any person who buys or sells goods. 'Capital asset', as defined in Section 2(5) for the purposes of the present petition, means property of any kind held by the Dealer, except jewellery held for personal use or property not connected with the business. Section 3 lays down the incidence and levy of tax. Section 32 provides....
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....ion 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 a 'law' has a statutory force being enacted by the exercise of the power vested in the Union or the State under the Constitution of India, and has a binding force, over all, those who are subject thereto, and the question of any volition of the parties in that regard does not arise. Thus, the user of the above phrases, to our mind, creates a categori....
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....2, 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 the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fair growth Financial Services Ltd. [(1997) 89 Comp Cas 547 (Special Court)] it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this contention, the Special Court had come to the conclusion ....
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.... 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 one construction leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of b....
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....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 the express provisions as contained in Section 529-A of the Companies Act, under which priority is given to the dues of the secured creditor (which the petitioner therein was) and of the workers, over statutory charge claimed by the State, held that the Bank had a priority claim over the statutory dues claimed by the Sales Tax department. Section 26-E of the SARFAESI Act, was not under consideration of the Court in Axis Bank (supra), though it w....
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....yas 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)] (hereinafter "Ahmedabad Municipal Corpn."). In this connection, we may refer to the latter judgment, which is particularly relevant for the present case. 21. Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] was a case where a person was in arrears of property tax, due under the Bombay Provincial Municipal Corporation Act, 1949. Consequently, the Municipal Corporation created a charge over the property of the defaulter. Howev....
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....tes 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 the sale, the interest on all encumbrances on such property due on such date, and, except where the property is sold subject to encumbrances, to discharge all encumbrances on the property then existing". Section 55 of the T.P. Act, thus creates an obligation upon every seller to disclose to the buyer any material defect in the property or his title, of which he is aware of and which the buyer could not, with ordinary care discover and to pay all public charges and discharge all encumbrances on the property then existing. Th....
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.... 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 capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realisation of their dues from the sale proceeds." Considering the specific language defining 'Charge', in Section 100 of the Transfer of Property Act, relying upon The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenbhai (1971) 1 SCC 757, it was held that :- "18. ---------. There cannot, thus, be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against....
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....own 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 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. 10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force ....
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....he 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 Section 37(1) of the MVAT Act, 2002, being a statutory charge on the property, would also be recoverable by sale of the property, and that puts a liability upon the auction purchaser, who, in case he wants an encumbrance free title, will have to clear such dues. 31. The next contention is that since the property was purchased in auction on "as is where is and what is there is" basis, the petitioner was not liable to pay anything else than the purchase price. The sale certificate issued in favour of the petitioner, as placed on record, dated 29/3/2017, contains the following endorsements :- "The sale of the schedule property was made free from all encumbrances kn....
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....art 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 were not liable to pay interest, penal interest on account of delayed payment of installments, on the principle of estoppel. 34. Mahendra Mahato (supra) relied upon by Mr. Wadodkar, learned Counsel for the respondent no.3/Bank, was a case in which the sale was on 'Ás is where is & As is what is basis', which was mentioned in the sale certificate as issued to the auction purchaser, who consequent to the same, having requested the Bank to provide vacant possession, which request was not acceded to, had filed a writ petition seeking a direction for delivery of physical and vacant possession. The petition was contested by the Bank, on the plea that the sale was on 'Ás is where is & As is what is basis....
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....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 :- "Rule 8. Sale of immovable secured assets. (7) Every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include - (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b)..... (c).... (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. 9. Time of sale, issue of sale certificate and delivery of possession, etc - (1)..... (2).... (7) Where the immovable property sold is subject to any encumbrances, the autho....
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....s 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 to contain all the other terms and conditions which the authorised officer considers it necessary for a bidder/purchaser to know the nature and value of the property, which would obviously include information about any charge, lien or other imposition upon the property. Thus, information and details regarding any encumbrances upon the property which is the security interest, which are easily obtainable from the statutory authorities, ought to be so obtained by the secured creditor as well as the authorised officer, which then needs to be entered in the notice of sale under Rule 8 (7) (a) of the SI (E), Rules, 2002, which would result in bringing the information about any encumbrance to the knowledge of the prospective bidders. In absence of any such information, an auction purchaser may in the facts of the given case, raise a claim that the purchase by him was without not....
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....on 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, easily available to a bidder, however the same is easily accessible to a secured creditor. It needs to be kept in mind that the secured creditor and the authorities under various statutes which have dues payable to them from the sale of the same property, are not competitors or at loggerheads, but are instrumentalities of either the Statutes or are controlled by Statutes. Thus they should not function as competitors, but as facilitators and protectors of each others interests, which viewed with a birds eye, are in fact one. This is supported from the provisions of section 13(7) of the SARFAESI Act, which reads as under:- "Section 13 (7)- Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto,....
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....istrar 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 and in case such dues are found, to mention the same in the public notice to be published inviting bids, so that the bidder, is made aware of the liability and encumbrance, which the property carries with it. (ii) where the secured creditor, has taken symbolic possession and is not in physical possession of the property, the public notice must indicate the nature of such possession and if the Secured creditor is unable to secure actual possession, the reason for not getting such possession (whether there is a tenant/licensee/family member/encroacher etc in occupation of the property, so that the bidder, is consciously made aware of the situation in which the property is and makes a conscious offer/bid. (iii) Where the secured creditor, is aware of Statutory dues the payment of which is a charge upon the property, the same could be included in the reserve price, for sale of the property or got deposited from the bidder separatel....