TaxTMI 
TaxTMI 
2022 (7) TMI 527
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 197/2A1 and S.F.No.197/1A1B admeasuring 30 feet situated at Panchetty Village, Ponneri Taluk, Chengalpattu District, was originally in possession and enjoyment of one Pramad Kumar Saraf, who mortgaged the said property with the second respondent Bank during the year 2008 for securing loan for and on behalf of M/s. DDS Steel Rolling Mills Private Limited. Since the borrower committed default in payment of the loan amount, the second respondent bank took possession of the secured assets on 09.07.2010 in exercise of the powers conferred under Section 13 (4) of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, "the SARFAESI Act"). Thereafter, the second respondent bank conducted an auction sale, in which, the first respondent became the successful bidder and a sale certificate dated 23.01.2012 was also issued to them. Subsequently, at the request of the first respondent, a Corrigendum to the sale certificate came to be issued on 29.06.2017 by including the right over the pathway leading to the property purchased in the auction sale. After obtaining the sale certificate, the first respondent approached the office of the Sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e issued to all the Central Excise/Customs/Service Tax authorities. Similarly, notice dated 14.12.2010 was also issued to the District Collector, Thiruvallur District and Inspector General of Registration, with a copy marked to the Sub-Registrar, Red Hills requesting not to entertain any instruments relating to sale/lease/mortgage in respect of the properties morefully set out in the annexure to the letter dated 14.12.2010. Subsequently, notice under Section 142 (1) (C) (i) of The Customs Act was issued on 10.01.2011 to the District Collector, Thiruvallur indicating recovery of the Government dues from M/s. Jai Bhawani Steel Enterprises Limited for Rs.11,63,19,227/- and M/s. SDS Steels Private Limited for Rs.4,58,43,507/-. At this stage, the first respondent herein claimed to have purchased the land measuring 4.25 acres in Survey Nos. 199/1, 199/2 and 199/3 in an auction sale conducted by the second respondent bank and requested the appellant to lift the attachment raised over the same. By order dated 20.07.2018, the appellant rejected the request of the first respondent stating that the dues of the department are sovereign dues which have to be recovered from the defaulters. Stati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the charges of the secured creditor shall be borne by the purchaser. Therefore, the first respondent was well informed about the arrears of revenue payable over the property brought under auction and they ought to have refrained from purchasing the same. The sale of the property in question by the first respondent would amount to purchasing the same with encumbrance. Above all, the second respondent bank conducted the auction sale only on 22.12.2011 and issued the sale certificate on 23.01.2012. However, the appellant made a charge over the same property by issuing a letter dated 14.12.2010 to all the instrumentalities of the Government including the Registration Department. While so, the learned Judge ought not to have allowed the writ petition and directed the appellant to lift the attachment over the property purchased by the first respondent. With these submissions, the learned counsel prayed to allow this writ appeal by setting aside the order of the learned Judge. 7.The learned counsel for the first respondent would contend that the first respondent was a bonafide purchaser of the property in question in the auction sale conducted by the second respondent bank and they we....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... necessary for the purchaser to more perfectly assert a right over the property, but such disclosure will not operate as a lien or any charge over the asset in favour of the appellant. 8.2. The learned counsel for the second respondent Bank further proceeded to contend that Section 142 of the Customs Act, 1962 does not provide specific provision for creation of first charge. Merely because in the sale notice the bank has referred to the claim of the appellant, it will not be a ground for the appellant to insist the auction purchaser to pay the amount due and payable to them as it would amount to forcing the purchaser to make dual payment, one to the Bank and the other to the appellant. It is also submitted that the secured assets are not bonded goods; the claim of the appellant under Section 142 of the Customs Act, 1962 is not against M/s. DDS Steel Rolling Mills Private Limited, in which account, the properties were sold; and the claim of Rs.2 crores of the appellant is towards penalty imposed on the guarantor on account of statutory dues in respect of the two other companies namely SDS Steels and Jai Bhavani Steels. In any event, SARFAESI Act has an overriding effect over othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent as well as the second respondent submitted that the hypothecation and mortgage were created by the second respondent in respect of the property in question on 26.12.2006 for the loan availed by M/s.DDS Steel Rolling Mills Pvt Ltd. The second respondent Bank initiated the SARFAESI proceedings by raising a demand on 16.04.2010 and took symbolic possession of the secured asset on 09.07.2010 and physical possession on 27.08.2011. The first respondent was a bona fide purchaser of the property in question in the auction sale conducted by the second respondent Bank and they were issued with a sale certificate dated 23.01.2012. Though the claim of the appellant was mentioned in the sale certificate, the mortgage created over the property in question has priority over the claim of the appellant, which is in respect of the alleged penalty imposed on the guarantor by name, Pramod Kumar Saraf, on account of the statutory dues payable by two companies viz., SDS Steels and Jai Bhavani Steels. Therefore, the order of the learned Judge, directing the appellant to lift the attachment over the property, does not require any interference at the hands of this court. 13.On a reading of the mater....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iruvallur District. During the search of the office premises of these importers by the Special Intelligence & Investigation Bureau, Custom House, Chennai, a list of documents pertaining to the land registration at 2/220B & 2/221, GNT Road, Panjetty Village, Ponneri Taluk-601 204 in favour of the Directors of the said companies viz., M/s.Jai Bhavani Steels Enterprises Ltd. & M/s.SDS Steels P. Ltd. were recovered and the same have been listed within the survey Nos. as noted in Annexure-I (copy attached) 4.In the meantime, it is requested that your office may issue necessary directions to respective field formations not to entertain any sale / lease/ mortgage/ transfer / power of attorney / attachment of the properties mentioned in the list falling under the list of Survey Nos. enclosed herewith without prior consent of this office in order to safeguard the customs duty and interest recoverable from the said importers." That apart, be it noted, the first respondent claimed that the property in question is situated adjoining the land of the importers and the same was wrongly mentioned in the list of survey numbers appended to the said communication. Hence, the preferential ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s High Courts, one among which was the order of the Full Bench of this court in UTI Bank Limited (supra) referred to by the learned Judge in the order impugned herein and the same was confirmed by the Hon'ble Supreme Court vide order dated 12.09.2009 in Civil Appeal No.3627 of 2007. The relevant paragraphs of the said decision of the Hon'ble Supreme Court are usefully extracted below: "40.Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise Department, the High Court in the impugned judgment has held that "In view of the matter, the question of first charge or second charge over the properties would not arise." In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. 41. A Full Bench of the Madras High Court in the case of UTI Bank Ltd. Vs. Dy. Commissioner Central Excise [2006 SCC Online Madras 1182], while dealing with a similar issue, has held that: "25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under: "10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor." (emphasis supplied) 45.Further, in Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. [(2007) 8 SCC 353], while adjudicating a similar matter, this Court has held as under: "18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant - bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India v. SICOM Ltd. Reported in [(2009) 2 SCC 121], wherein the question involved was "Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under: "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 Aiyear (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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sent case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with. 51. Further, the contention that in the present case, the confiscation proceedings were initiated almost 8 - 9 years prior to the charge being created in respect of the very same properties in favour of the bank is also inconsequential. The fact that the charge has been created after some time period has lapsed post the initiation of the confiscation proceedings, will not provide legitimacy to a confiscation order that is not rooted in any valid and existing statutory provision. 52. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was n....