TaxTMI 
TaxTMI 
2022 (9) TMI 163
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....Shakib Dhorajiwala a/w Mr. Rushab Chopra i/b. Vidhi Partners for the petitioners in WP/3197/2019. Mr. Venkatesh Dhond-Senior Advocate with Mr. Sanjeev Sawant, Mr. Murlidhar Kale, Ms. Garima Joshi, Ms. Juhi Bhogle, Ms Vinodini Shrinivasan Mr Pratik Pansare i/b. OM Gujar Law Chambers for the petitioners in WP/436/2021. Mr. Ranbir Singh a/w Mr. Nahush Shah i/b. Nahush Shah Legal for the petitioners in WPL/939/2020. Dr. Birendra Saraf-Senior Advocate a/w Mr. Vaibhav Charalwar a/w Mr. Sachin Chandarana a/w Mr. Vijayendra Purohit i/b M/s. Manilal Kher Ambalal & Co. for the petitioners in WPL/7999/2021. Mr. Nitin Deshpande for Petitioner in W.P.No.2720/2021. Mr. J. P. Sen, Sr. Advocate a/w. Mr. Nikhil Rajani, Mr. Apoorva Kulkarni, Mr. Rupak Sawangikar i/b. M/s. V. Deshpande and co for Petitioner in W.P.No.2336/2021. Mr. Charles De'Souza a/w. Mr. Nikhil Rajani, Mr. Apoorva Kulkarni, Mr Rupak Sawangikar i/b. M/s. V. Deshpande and Co. for Petitioner in W.P.No.3553/2021 and W.P.No.3120//2021. Mr. Nikhil Rajani a/w Mr. Apoorva Kulkarni a/w Mr. Rupak Sawangikar i/b M/s. V. Deshpande and Co. for Petitioner in WP/2248/2021 and WP/2251/2021. Mr. Charles De Souza a/w Priyansh Jain i/b. M/s.....
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....extant laws, is the broad question that we are tasked to decide. This question, in turn, raises certain other substantial questions of law, which would also call for answers and we propose to answer them too. 3. The parties have, in course of their arguments, referred to the provisions of the Maharashtra Land Revenue Code, 1966 (hereafter "MLR Code", for short), the Maharashtra Value Added Tax Act, 2002 (hereafter "MVAT Act", for short), the Bombay Sales Tax, 1959 (hereafter "BST Act", for short) and the Maharashtra Goods and Services Tax Act, 2017 (hereafter "MGST Act", for short), more particularly sections 37 and 38C of the MVAT Act and the BST Act, respectively. These similarly worded sections, starting with non-obstante clauses, provide that any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person shall be the first charge on the property of the dealer or the person, as the case may be, subject to any provision regarding creation of first charge in any Central Act for the time being in force. Section 82 of the MVAT Act is similarly worded, except that creation of such first charge would be subject to any Central Act fo....
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....lhi High Court, the Gauhati High Court and the Karnataka High Court. Such challenges succeeded. However, the Supreme Court by its decision reported in (2002) 4 SCC 275 (Union of India vs. Delhi High Court Bar Association) overruled the judgment and order impugned before it and upheld the provisions of the RDBFI Act. 8. In due course of time, recourse taken by the lenders to the DRTs under the RDBFI Act on a large scale coupled with other reasons, which we need not discuss here, led to the perception that the desired results were not being achieved. This led to constitution of various committees to suggest ameliorative measures keeping in view the changing times and the economic situation for overcoming old and conventional methods of financing and recovery of dues. Based on the suggestions that were received and after thorough deliberations, the Parliament enacted the SARFAESI Act and made it applicable throughout the country three days short of the eighth birthday of the RDBFI Act, on 21st June 2002, to be precise. Securitisation of debts, classification of NonPerforming Assets (hereafter "NPA", for short) and evolving means for faster recovery of dues without judicial interventi....
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....es Provident Fund and Miscellaneous Provisions Act, 1952, the Estate Duty Act, 1953, the Companies Act, 1956, the Mines and Minerals (Regulation and Development) Act, 1957 and the Gift Tax Act, 1958. 12. It would be profitable for us to reproduce below the relevant paragraphs from the said decision, which learned counsel for the parties referred to and relied upon. Such paragraphs read thus: "108. The DRT Act and the Securitisation Act were enacted by Parliament in the backdrop of recommendations made by the Expert Committees appointed by the Central Government for examining the causes for enormous delay in the recovery of dues of banks and financial institutions which were adversely affecting fiscal reforms. *** 110. The DRT Act facilitated establishment of two-tier system of tribunals. The tribunals established at the first level have been vested with the jurisdiction, powers and authority to summarily adjudicate the claims of banks and financial institutions in the matter of recovery of their dues without being bogged down by the technicalities of the Code of Civil Procedure. The Securitisation Act drastically changed the scenario inasmuch as it enabled banks, financial i....
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....harge in favour of the secured creditor. 114. By enacting various provisos to sub-section (9) of Section 13, the legislature has ensured that priority given to the claim of workers of a company in liquidation under Section 529-A of the Companies Act, 1956 vis-à-vis the secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) 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. This and other provisos do not create first charge in favour of the worker of a company in liquidation for the first time but merely recognise the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to sub-section (9) of Section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up. 115. It is thus clear that provisos referred to above are only part of the distribution mechanism evolved by the legislature and are intended to protect and preserve the rig....
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....any other trustee holding securities on behalf of bank/financial institution. The definition of 'securitisation company' and 'reconstruction company' in Sections 2(1)(za) and (v) shows that these companies may be private companies registered under the Companies Act, 1956 and having a certificate of registration from Reserve Bank under Section 3 of the Securitisation Act. Evidently, Parliament did not intend to give priority to the dues of private creditors over sovereign debt of the State. 128. If the provisions of the DRT Act and the Securitisation Act are interpreted keeping in view the background and context in which these legislations were enacted and the purpose sought to be achieved by their enactment, it becomes clear that the two legislations, are intended to create a new dispensation for expeditious recovery of dues of banks, financial institutions and secured creditors and adjudication of the grievance made by any aggrieved person qua the procedure adopted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. 129. If Parliament intended to give priority to....
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.... it decided competing priorities of statutory first charge created under Central legislation(s) on the one hand and State legislation(s) on the other nor it ruled that statutory first charge created under a State legislation is subservient to the dues of banks, financial institutions, etc. even though statutory first charge has not been created in their favour. ** 158. On the basis of the above discussion, we hold that the DRT Act and the Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors and the provisions contained in Section 38-C of the Bombay Act and Section 26-B of the Kerala Act are not inconsistent with the provisions of the DRT Act and the Securitisation Act so as to attract non obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the Securitisation Act. 159. Another argument of some of the learned counsel for the appellants is that the prior charge created in favour of the bank would prevail over the subsequent mortgage created in favour of the State. *** 175. The argument of learned counsel for the appellants that the State legislations creating first charge cannot be given....
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....applications, the cases are pending for many years due to various adjournments and prolonged hearings. In order to facilitate expeditious disposal of recovery applications, it has been decided to amend the said Acts and also to make consequential amendments in the Indian Stamp Act, 1899 and the Depositories Act, 1996. 2. The amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are proposed to suit changing credit landscape and augment ease of doing business which, inter alia, include (i) registration of creation, modification and satisfaction of security interest by all secured creditors and provision for integration of registration systems under different laws relating to property rights with the Central Registry so as to create Central database of security interest on property rights; (ii) conferment of powers upon the Reserve Bank of India to regulate asset reconstruction companies in a changing business environment; (iii) exemption from stamp duty on assignment of loans by banks and financial institutions in favour of asset reconstruction companies; (iv) enabling non-institutional investors to inves....
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....ct. Effect was given as late as on 24th January 2020. The entirety of Chapter IV-A, titled 'Registration by Secured Creditors and Other Creditors', is reproduced hereunder: "26-A. Rectification by Central Government in matters of registration, modification and satisfaction, etc.- (1) The Central Government, on being satisfied- (a) that the omission to file with the Registrar the particulars of any transaction of securitisation, asset reconstruction or security interest or modification or satisfaction or such transaction or; the omission or misstatement of any particular with respect to any such transaction or modification or with respect to any satisfaction or other entry made in pursuance of Section 23 or Section 24 or Section 25 of the principal Act was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors; or (b) that on other grounds, it is just and equitable to grant relief, may, on the application of a secured creditor or asset reconstruction company or any other person interested on such terms and conditions as it may seem to the Central Government just and expedient, direct that the time for ....
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....ayment of such fee as may be prescribed. 26-C. Effect of the registration of transactions, etc.- (1) Without prejudice to the provisions contained in any other law, for the time being in force, any registration of transactions of creation, modification or satisfaction of security interest by a secured creditor or other creditor or filing of attachment orders under this Chapter shall be deemed to constitute a public notice from the date and time of filing of particulars of such transaction with the Central Registry for creation, modification or satisfaction of such security interest or attachment order, as the case may be. (2) Where security interest or attachment order upon any property in favour of the secured creditor or any other creditor are filed for the purpose of registration under the provisions of Chapter IV and this Chapter, the claim of such secured creditor or other creditor holding attachment order shall have priority over any subsequent security interest created upon such property and any transfer by way of sale, lease or assignment or licence of such property or attachment order subsequent to such registration, shall be subject to such claim: Provided that no....
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....ditor to realise secured debts over which security interest is created due and payable by sale of assets over which security interest is created would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government or Local Authority. This section introduced in the Central Act is with 'notwithstanding' clause and has come into force from 01.09.2016. 4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 6. Insofar as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of section 31B, as it includes 'secured debts due and payable to them by sale of assets over which security interest is created'. 7. We, thus, answer the aforesaid reference accordingly." 18. Several other judgments of this Court....
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.... sub-section (1) shall be deemed to have been created on the expiry of the period specified in sub-section (4) of section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount. (emphasis ours) 23. Notwithstanding that section 37 of the MVAT Act begins with a non-obstante clause, it is explicit that such provision is subject to the creation of a first charge in a Central Act. It has been submitted that the secured debt of the secured creditors would have priority over any first charge created by the MVAT Act in favour of the relevant department of the Government. This is because the statutory priority accorded to secured creditors is the same as creation of first charge and the very enactment under which the department claims its right, recognizes the primacy of provisions in Central Acts regarding creation of priority in charge. 24. Similar argument has been advanced in respect of section 38C of the BST Act, which is similarly worded as sub-section (1) of section 37 of the MVAT Act. Section 38C of the BST Act reads as follows: "38-C. Liability under this Act to be first charge.- Notwithstanding anything contained in any contract to the contrary....
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.... the RDDB Act have not been preferred by secured creditors for the following reasons: (i) The said section is contained in Chapter VI titled 'MISCELLANEOUS' and is therefore not in relation to cases where a recovery certificate may have been issued by the DRT under the provisions of, and on proceedings initiated under the RDDB Act, which is dealt with in the independent chapters preceding Chapter VI. (ii) The explanation contained in section 31B clarifies that for the purposes of the said section, after the commencement of the Insolvency & Bankruptcy Code, 2016 (hereafter "I & B Code", for short), in cases where insolvency or bankruptcy proceedings are pending in respect of the secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. In other words, when the legislature intended to restrict the application of the said section in relation to proceedings taken under a different piece of legislation, i.e., the I & B Code, the legislature clarified its position explicitly by way of adding an explanation to section 31B. In the absence of such a clarification or explanation with respect to steps taken un....
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....aph 95 referred to various enactments and their provisions, viz. the BST Act, the Kerala Sales Tax Act, 1963, the Workmen's Compensation Act, 1923, the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, the Estate Duty Act, 1953, the Mines and Minerals (Regulation and Development) Act, 1957, and the Gift Tax Act, 1958, and noticed that these enactments use the words 'first charge'. According to him, in paragraph 129 of the said decision, it has been held that if Parliament intended to give priority to the dues of banks, financial institutions, and other secured creditors over the 'first charge' created under State legislations, then provisions similar to those contained in section 14-A of the Workmen's Compensation Act, section 11(2) of the Employees' Provident Funds and Miscellaneous Provisions Act, section 74(1) of Estate Duty Act, section 25(2) of the Mines and Minerals (Regulation and Development) Act, section 30 of the Gift Tax Act, and section 529-A of the Companies Act would have been incorporated in the RDDB Act and the SARFAESI Act. 31. Mr. Sonpal further contended that the 2016 Amending Act does not, either in the RDDB Act or the SARFAESI Act, consciously....
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.... not, immediately on transaction of sale, although payment of such tax is deferred till 21st day of the next month. Hence, in other words, charge under section 37 of the MVAT Act clings to the property on the occasion of sale though due date of payment can be on a later date. Thus, once the charge is created on incident of sale, it cannot be destroyed by subsequent amendment coming into force on a subsequent date. Therefore, on that count also, he contended that section 37 of the MVAT Act is not affected by section 26E of the SARFAESI Act. 34. Moving further, Mr. Sonpal contended that the language of section 26E of the SARFAESI Act and section 37 of the MVAT Act is germane for interpretation of scope and effect of the two sections. Whereas the language of section 37 of the MVAT Act speaks of creation of 'first charge', subject to creation of 'first charge' by a Central Act, section 26E of the SARFAESI Act speaks of payment of proceeds (without using the word 'proceeds') in priority to secured creditors. It implies that whenever the occasion for payment arises, it shall be first paid to the secured creditors and not others who may have independent right to receive first over others....
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....of the relevant enactment, which relates to recovery through proceedings conducted in accordance with the provisions of the RDDB Act by the DRTs. The long title of the RDDB Act would reveal the object and purpose thereof, which is establishment of DRTs, inter alia, for expeditious adjudication and recovery of debts due to banks and financial institutions. (iv) Chapter IV of the RDDB Act titled 'Procedure of Tribunals' and Chapter V titled 'Recovery of Debt Determined by Tribunal' contain provisions for determination by the DRTs of the causes brought before it by secured creditors and the mode of recovery of debts, respectively. Section 31B, inserted in Chapter VI titled 'MISCELLANEOUS', is an overarching provision which could be attracted to those proceedings for adjudication of a claim under Chapter IV or even at the appellate stage under the same chapter or at the time of recovery under Chapter V, when any amount found due and payable is sought to be recovered by sale of the property mortgaged. However, what is significant is that the debt must be due and payable, after which the rights of the secured creditor to have its debt paid in priority to those of the other creditors is....
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....26E, the conclusion is inescapable that section 26E does not apply retrospectively. (ix) Registration of mortgage under the Registration Act cannot be deemed to be a registration with the Central registry by virtue of section 20A of the SARFAESI Act. Such a contention advanced on behalf of the petitioner in W.P. 2935 of 2018 fails to take into consideration the fact that the deeming provision under the said section, i.e., section 20A, comes into effect only after the integration of certain registration systems with the Central registry. This integration has to be notified by the Central Government. As on date, there is no notification in respect of integration of the Registration Act system with the Central registry. In the circumstances, registration under the Registration Act is not sufficient and the benefit of the deeming provision in section 20A is not available to the petitioner. She prayed for disposal of the writ petitions taking into consideration the aforesaid contentions. 38. Mr. Samant, learned Addl. Govt. Pleader appearing for the respondents in quite a few of the writ petitions contended that though section 31B of the RDDB Act is a substantive provision, it is app....
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..... As such, the tax collected by a MVAT 'dealer' is having a class of its own, and the State Legislature has considered this aspect while giving 'first charge' to dues under the MVAT Act. Such, 'fist charge' is a status which is not given to all types of taxes, for e.g., Income Tax dues which is based on income earned and which is not having the status of 'first charge' and is having the status of unsecured dues. 42. On the question as to whether restrictions put under section 100 of the ToP Act regarding charge dilute the 'first charge' under the MVAT Act, Mr. Samant contended that two alternative arguments are possible here. First, the MVAT Act being a special enactment and the ToP Act being a general enactment, the 'first charge' under the MVAT Act should be held to prevail over the provisions of the ToP Act. Therefore, it can be argued that requirements of knowledge of third party or person dealing in the property about existence of 'first charge' becomes irrelevant. It can be further argued that the authorities under the MVAT Act are not bound to give notice to the world at large. It can also be argued that giving such notice is practically not possible. In the alternative, ev....
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....n payment of dues to a secured creditor for enforcing its security interest under the provisions of the SARFAESI Act prospective? d. Whether section 31B of the RDDB Act can be pressed into service for overcoming the disability that visits a secured creditor in enforcing its security interest under the SARFAESI Act upon such creditor's failure to register the security interest in terms of the amendments introduced in the SARFAESI Act? e. Whether the priority of interest contemplated by section 26E of the SARFAESI Act could be claimed by a secured creditor without registration of the security interest with the Central Registry? Depending on the answer to this question, whether correct proposition of law has been laid down (extracted infra) in paragraph 21 of the Division Bench decision reported in 2020 (2) Bom. C. R. 243 (OS) [ASREC (India) Limited vs. State of Maharashtra and Ors.] and in paragraph 35 of the Division Bench decision, reported in 2021 (2) Mh. LJ 721 (State Bank of India vs. the State of Maharashtra and Ors.)? f. When, and if at all, can it be said that the statutory first charge under the State legislation, viz. the BST Act, the MVAT Act and the MGST Act, as the....
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....ioner-company submits that Section 26E of the amended Act gives priority to the secured creditor against all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured creditor. It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as provided in Workmens' Compensation Act, Employees' Provident Fund Act, etc. 28. The State dues may be without a provision of first charge and in that situation, the secured creditors would have priority over the State dues and, accordingly, amended provision is to be given interpretation. It cannot, however, nullify a provision for first charge on the property. The first charge on the property creates right even as per the Act of 1882. It has already been observed that if intention of the Central Government was to nullify first charge, the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank o....
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....ts over which security has been created, is having priority over all other debts and government dues including revenue, taxes, ceases and rates due to Central Government, State Government and local authorities. Not only this, it is having overriding effect over all other enactment including the provisions of MP VAT Act, Central Sales Tax Act, Entry Tax Act and any other Tax Act. Though, an attempt has been made by the State Government to demonstrate before this Court that the amendment will not dis-entitle to recover the dues by them as the dues are outstanding since 2012. Nothing prevented the State Government to recover the dues since 2012 and the State Government woke up from plumber only after the amendment has come into force and by virtue of the amendment in the Central Act, this Court is of the considered opinion that by no stretch of imagination, the State Government can be permitted to auction the property in question as the Bank of Baroda is having priority in the matter in light of the amendment which has been quoted above. *****" 49. What is significant is that no argument was advanced on behalf of the sales tax authorities that section 31B of the RDDB Act may ....
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.... 36. Irrefragibly, when the secured creditors have a right in priority to have their debts extinguished, obviously, their right to proceed against the property would also rank high than that is claimed by the Revenue. The assertion of the Revenue that their `Charge' will continue over the property until it is sold by them, hence, is rendered without forensic support to stand on. 37. That so said, the next question that arises is whether Section 26E of the SARFAESI Act and Section 31B of the RDB Act create an overriding and first right in favour of the Banks/Financial Institutions to recover their dues, over and above the right of the Revenue created through the KGST Act/KVAT Act. In fact, this enquiry has been rendered relatively easy for this Court because, in Central Bank of India v. State of Kerala (2009) 4 SCC 94, the Hon'ble Supreme Court considered the right of the Banks/Financial Institutions as regards recovery of their dues prior to the afore two provisions being introduced in the SARFAESI Act and in the RDB Act. The conclusions of the Hon'ble Supreme Court are unequivocal worded that, in the absence of these provisions in the respective Statutes, the Banks/Financial Ins....
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.... satisfy their debts, notwithstanding any statutory 'First Charge' in favour of the Revenue under the KGST Act/KVAT Act. It is so declared. 49. The above conclusions of the Hon'ble Court certainly places a lid on this argument made on behalf of the Revenue and in any event of the matter, they themselves concede that Section 31B of the RDB Act has been notified. Hence, even assuming and is taken that Section 26E of the SARFAESI Act cannot apply for want of notification, it would be of no avail to the Revenue, because the provisions of Section 31B of the RDB Act clearly place the right of the secured creditor to proceed against the property as well as their right to recover the secured debts in a position of priority over all tax arrears claimed by the Revenue." 52. The dicta in State Bank of India vs. State of Kerala (supra) is clear. It supports the contention that in view of section 31B of the RDDB Act and section 26E of the SARFAESI Act, first charge in favour of the banks/financial institutions is created for recovery/realization of their dues in priority to the dues of a department of the Government. 53. A Division Bench of the Gujarat High Court, in its decision reported i....
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....ubject to any Central legislation creating first charge and highlighted that the RDDB Act being the Central legislation and section 31B thereof having accorded first priority in favour of the secured creditor over and above the Government dues, including revenues, taxes, etc. and also because section 31B of the RDDB Act is not restricted to any sale conducted under the provisions of such legislations only and it would operate in respect of sale conducted under any other mechanism, including provisions of the SARFAESI Act, it was immaterial whether section 26E of the SARFAESI Act had not been brought into force. 57. Reliance was placed by the petitioner on the decisions in Assistant Commissioner (CT) (supra), G. M. G. Engineers and Contractor Pvt. Ltd. (supra), Bank of Baroda (supra), and Kalupur Commercial Cooperative Bank Ltd. (supra). 58. On the contrary, the respondents 1 and 2 contended that since section 26E of the SARFAESI Act had not been brought into force and notwithstanding section 31B of the RDDB Act being in force, for the purposes of action taken under the SARFAESI Act, the charge created by section 37 of the MVAT Act shall prevail. 59. In paragraph 12, the Court ob....
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....atory registration of the security interest with the Central registry prior to invocation of section 26E of the SARFAESI Act was, in the opinion of the Division Bench, an "argument without substance". 62. Another Division Bench of this Court had the occasion to consider a somewhat similar point in State Bank of India vs. the State of Maharashtra and Ors. (supra). The petitioning bank, the secured creditor challenged attachment of a plot under the provisions of section 32 of the MVAT Act and proceedings initiated by the Deputy Commissioner of Sales Tax, respondent no. 2, for recovery of Value Added Tax dues of the respondent no. 3 under the MLR Code. The petitioning bank was claiming priority of charge on the said plot as secured creditor in respect of the debt owed by the respondent no. 3 to such creditor over the sales tax dues payable by the respondent no. 3 to the respondent no. 2. An original application under the RDDB Act had been filed by the petitioning bank to recover dues of Rs. 2.49 crore from the respondent no. 3. While the said application was pending adjudication before the DRT, Pune, the petitioning bank invoked the provisions of the SARFAESI Act by issuing a demand ....
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....6-E was effective only prospectively from 24th January, 2020 and not applicable to the facts at hand, that would not make any difference; as according to us Section 31-B of the RDB Act itself would be sufficient to give priority to a secured creditor over the Respondent's charge for claiming tax dues." (underlining in original) 64. While dealing with Central Bank of India (supra), the Division Bench opined that the said decision would be of no application since section 31B of the RDDB Act not being on the statute book then, the impact of such a provision did not come up for consideration before the Supreme Court and also that the decision was prior to the amendments introduced in the RDDB Act and the SARFAESI Act by the 2016 Amending Act. Reliance was also placed by the Division Bench on paragraphs 16 and 17 of the decision in Kalupur Commercial Cooperative Bank Ltd. (supra) for holding that the decision in Central Bank of India (supra) was of no assistance to drive home the point raised by the respondents 1 and 2. 65. The decision in ASREC (INDIA) Ltd. (supra) and State Bank of India vs. the State of Maharashtra (supra) would engage our further attention while we answer the que....
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....bservations in paragraphs 28 and 30, which we quote below: - "28. The language of Section 37(1) of the MVAT Act 2002, has to be viewed in that contextual background. Section 37(1) of the MVAT Act, 2002, creates a 'First Charge on the property of the dealer', or as the case may be, person, for any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable under the MVAT Act 2002. Though the dues of the Bank as a secured creditor, in light of the language of Section 26-E of the SARFAESI Act, which has now been brought into force w.e.f. 1/9/2016, will have priority, that does not have the effect of wiping out the dues payable under any Central/State/Local Act, where, for the recovery of such dues, a first charge has been created on the property by such statute, which in the case of the MVAT Act, 2002, has been so created. It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever's hands the property goes. 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 w....
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....from encumbrances known to the secured creditor includes the responsibility to make reasonable enquiries about the encumbrances and liabilities and to include such liabilities in the notice inviting the bids, or if that is not done, in the reserve price, fixed for sale of the security interest, so that the encumbrances can be taken care of. This is also spelt out from Rule 9(7) and (8) of the Security Interest (Enforcement) Rules, 2002." This was followed by directions in paragraph 41, which every secured creditor under the SARFAESI Act was required to ensure. 67. Learned advocates for the parties have placed before us orders of the Supreme Court in appeals that have been carried from the decision in Medineutrina Pvt. Ltd. (supra). While the directions contained in paragraph 41 have been stayed by the Supreme Court by an order dated 9th April 2021 in an appeal carried by Kotak Mahindra Bank, a non-party to the proceedings before the Division Bench, the appeal carried from Medineutrina Pvt. Ltd. (supra) by the writ petitioner has been dismissed by an order dated 18th November 2021 on a ground different from those assigned in the judgment and order under challenge. ANALYSIS OF THE....
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.... and, accordingly, provisions were made to make such registration mandatory for a secured creditor or other creditor to avail the benefits flowing therefrom, as we would presently proceed to notice. 74. Section 26B enables creditors [apart from secured creditors as defined in section 2(1)(zd)] to file the particulars of creation, modification or satisfaction of any security interest in their favour with the Central Registry, while making it explicit that such creditors shall not be entitled to exercise any right of enforcement of securities under the SARFAESI Act. The provisions therein also enable any person who has obtained an order for attachment of property, to file particulars of such attachment orders with the CERSAI in the form and manner as may be prescribed. 75. Section 26C providing for the effect of registration of transactions for creation, modification or satisfaction of security interest declares that such registration would constitute public notice thereof. The said provision also declares that a secured creditor who has registered the security interest or other creditor who has registered the attachment order in its favour, shall have priority of claims over subse....
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.... creditor, if it has the CERSAI registration, to claim priority over all other debts and all revenues, taxes, etc., in the matter of payment of the debts due to it (section 26E). 77. The plain reading of section 26D reveals that it has the effect of stripping a secured creditor of its right of enforcement of security interest under Chapter III in the absence of a CERSAI registration. Beginning with a non-obstante clause, section 26D has overriding effect qua any other law that is inconsistent therewith and underscores the importance of a CERSAI registration. Promotion of a CERSAI registration of a security interest being at the forefront of the legislative intent, the same has to be honoured. 78. Section 26E, also beginning with a non-obstante clause, is unambiguous in terms of language, effect, scope and import. A 'priority' in payment over all other dues is accorded to a secured creditor in enforcement of the security interest, if it has a CERSAI registration, except in cases where proceedings are pending under the provisions of the Insolvency and Bankruptcy Code, 2016. 79. The disabling provision in section 26D and the enabling provision in section 26E, both begin with non-ob....
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....to the provincial Government thereupon, be a first charge, in the case of any building or land held immediately from the Government, upon the interest in such building or land of the person liable for such taxes and upon the moveable property, if any, found within or upon such building or land and belonging to such person; and, in the case of any other building or land, upon the said building or land and upon the moveable property, if any, found within or upon such building or land and belonging to the person liable for such taxes. Explanation.- The term 'property tax' in this section shall be deemed to include charges payable under section 134 for water supplied to any premises and the costs of recovery of property taxes as specified in the rules. (2) In any decree passed in a suit for the enforcement of the charge created by sub-section (1), the court may order the payment to the Corporation of interest on the sum found to be due at such rate as the Court deems reasonable from the date of the institution of the suit until realisation, and such interest and the cost of enforcing the said charge, including the costs of the suit and the cost of bringing premises or movable prope....
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....er all unsecured claims against any land or holder thereof." Section 331(1)(iii)(b) of the MLR Code: "331. Certain provisions to apply to alienated villages (1) The provisions of section 68 and of Chapters V, VI, VII, VIII and IX shall be applicable to all alienated villages and alienated shares of villages, subject to the following modifications, that is to say-- (i) ***** (ii) ***** (iii) on the introduction of a settlement under Chapter V or VI in any such village or share, the holder or holders of such village or share shall, in proportion to his share in the rent or revenue of the village or share, be liable to pay-- (a) ***** (b) the costs of the levy of a cess under sections 144, 151 and 152 of the Maharashtra Zilla Parishads and Panchayat Samitis Act, 1961; ***" 82. Each of the aforesaid several legislations operate in their particular field. Pertinently, wherever the legislature of the State intended the particular provision to be the dominant legislation or subordinate or subservient to any other legislation, it has expressed such an intention in no uncertain terms. Section 169(1) of the MLR Code is the dominant legislation providing that the arrears of....
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....rtment of the Central/State Government? The reply cannot but be in the affirmative. The next query that would obviously follow is: whether the word 'priority' appearing in section 26E of the SARFAESI Act, i.e., "... 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" (italics for emphasis by us), was used without a purpose? This reply has to be in the negative. 85. Priority means precedence or going before (Black's Law Dictionary). In the present context, it would mean the right to enforce a claim in preference to others. In view of the splurge of 'first charge' used in multiple legislation, the Parliament advisedly used the word 'priority over all other dues' in the SARFAESI Act to obviate any confusion as to inter-se distribution of proceeds received from sale of properties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31 B and section 26E, that the dues of the secured cr....
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.... While enacting a statute, Parliament cannot be presumed to have taken away a right in property. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property. The provisions of the Transfer of Property Act provide for different types of charges. In terms of Section 48 of the Transfer of Property Act claim of the first charge-holder shall prevail over the claim of the second charge-holder and in a given case where the debts due to both, the first charge-holder and the second charge-holder, are to be realised from the property belonging to the mortgagor, the first chargeholder will have to be repaid first. There is no dispute as regards the said legal position. 42. Such a valuable right, having regard to the legal position as obtaining in common law as also under the provisions of the Transfer of Property Act, must be deemed to have been known to Parliament. Thus, while enacting the Companies Act, Parliament cannot be held to have intended to deprive the first charge-holder of the said right. Such a valuable right, therefore, must be held to have been kept preserved. [See Workmen v.....
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....he secured creditor for payment of its dues. 89. The effect of using the word 'priority' in section 26E of the SARFAESI Act, according to us, is this. The rights accorded to 'first charge' holders by Central as well as State legislation having been known to the Parliament, in such a situation, what the Parliament intended by exercising its legislative power by introducing amendments in the SARFAESI Act, more particularly by incorporating section 26E therein, was to explicitly make the valuable right of the 'first charge' holder subordinate to the dues of a second creditor. The rights of such of the first charge holders accorded by several legislations enacted by the State, having regard to the language in which section 26E is couched, would rank subordinate to the right of the secured creditor as defined in section 2(1)(zd) subject, of course, to compliance with the other provisions of the statute. Acceptance of the contra-arguments of learned counsel for the State/respondents would undo what the Parliament has chosen to do. 90. We may answer the question from a different angle. The RDDB Act and the SARFAESI Act are Central Acts. If any provision therein is discerned to be seemin....
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....take effect and make it operational. On 26th December 2019, the Department of Financial Services in the Ministry of Finance, Government of India issued a notification appointing 24th January 2020 as the date on which sections 17 to 19 of the 2016 Amending Act would come into force. Section 18, which is relevant for the present purpose, was brought into force from 24th January 2020 and, thus, Chapter IV-A became operational with effect from that date. Surely, if the Parliament had intended that the provisions of Chapter IV-A were to be made applicable from a previous date, the notification would have said so. Therefore, on the face of it, the 2016 Amending Act has not been made applicable retrospectively but has taken effect from the date notified by the Central Government. 96. There is one other perspective from which the matter could be viewed. The Statement of Objects and Reasons as contained in the Bill for the 2016 Amending Act introduced in the Lok Sabha have been noted above. A reading thereof leads to the inference that the amendment was proposed to bring about a substantive change in the law, inter alia, by (i) denuding secured creditors of their rights of enforcement of....
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....al vs. N.C. Budharaj), the Supreme Court has clarified that 'substantive law' is that part of the law which creates, defines and regulates rights in contrast to what is called adjective or remedial law which provides the method of enforcing rights. 99. Applying these tests to Chapter IV-A, coupled with the express provision in section 26D regulating the exercise of power by secured creditors by barring them to take recourse to Chapter III of the SARFAESI Act without the CERSAI registration, there could be little hesitation to hold that section 26E of the SARFAESI Act would apply prospectively. 100. Pertinently, in the cases that we have in hand, the newly incorporated provisions cast certain mandatory duty and obligation on secured creditors. If they seek to invoke the provisions of Chapter III of the SARFAESI Act and enforce the security interest, the same needs to have a CERSAI registration. Such creditors would be entitled to seek 'priority' in terms of section 26E only after the security interest is registered and other provisions of the SARFAESI Act are complied with. Provisions in Chapter IV-A cannot be construed in a manner so as to disturb, impair or divest the State of i....
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....can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. ***" In the light of the above, a statute has to be construed after ascertaining the legislative intent and in the context and scheme of the enactment. 105. We have noticed the legislative intent behi....
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....braced in the non obstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this Court in South India Corpn. (P) Ltd. v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207 at p.215. 69. It is well settled that the expression 'notwithstanding' is in contradistinction to the phrase 'subject to', the latter conveying the idea of a provision yielding place to another provision or other provisions to which it is made subject. ***." 111. One finds reiteration of the same legal position in the decision reported in (2005) 9 SCC 129 (State of Bihar & Ors. vs. Bihar Rajya M. S. E. S. K. K. Mahasangh). The Court held that: "47. Normally the use of a phrase by the legislature in a statutory provision like 'notwithstanding anything to the contrary contained in this Act' is equivalent to saying that the Act shall be no impediment to the measure (see Law Lexicon words 'notwithstanding anything in this Act to the contrary'). Use of such expression is another way of saying that the provision in which the non obstante clause occurs usually would prevail over other provisions in the Act. Thus, non obstante clauses are not alway....
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....ion of Mr. Narula, resting on Transcore (supra), is that action under the RDDB Act can be abandoned and recourse taken to the SARFAESI Act and, therefore, the converse is also permissible. It is indeed permissible for a secured creditor to abandon steps taken by it under Chapter III of the SARFAESI Act because of any legal disability to carry the action forward and to initiate original proceedings under the RDDB Act for recovery of dues, but Mr. Narula's contention would not commend further acceptability for us to hold that whenever a secured creditor is faced with the disability posed by sections 26D and 26E of the SARFAESI Act, it can overcome the same by invoking section 31B of the RDDB Act. 115. Secondly, it is well settled that where a statute provides for a thing to be done in a particular manner, then it has either to be done in that manner or not at all. We may draw useful guidance from the relevant passage in the decision reported in (2014) 2 SCC 401 (J. Jayalalithaa v. State of Karnataka) where the Court applied the maxim expressio unius est exclusio alterius and held: "34. There is yet an uncontroverted legal principle that when the statute provides for a particular p....
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....ntroduction of Chapter IV-A in the SARFAESI Act would get frustrated and be rendered futile. 118. That apart, a provision similar to that of section 31B of the RDDB Act is already there in the SARFAESI Act, 2002 in the form of section 26E can hardly escape notice. The Parliament definitely did not intend to render the provisions of section 26D otiose and superfluous by inserting section 26E immediately after section 26D in the same chapter by the same Amending Act. Both were intended to be and have to be read together; both have to be respected and given effect to, in the context of the situation that may be obtaining at the material point of time. In such view of the matter, relying on a similar provision of a different statute in order to undo the effect of another statute would amount to doing exactly that, which the other statute does not permit. 119. Section 26D, or for that matter, the entirety of Chapter IV-A, we repeat, was introduced in the SARFAESI Act with a purpose. The said chapter was introduced to address the myriad problems that arose post equitable mortgage that tricked and troubled both general people and the bankers alike (as exemplified hereinabove). Such purp....
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....rashtra (supra), the Division Bench held that the contention was largely irrelevant as section 31B of the RDDB Act alone was sufficient to accord priority to secured creditors. Learned counsel for the secured creditors have heavily relied on the same. 122. For the foregoing reasons, we regret our inability to agree with such decision. 123. Our attention was also drawn to the decision in Kalupur Commercial Cooperative Bank (supra), in particular paragraph 57 which reads as follows: "57. While it is true that the Bank has taken possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31B of the RDB Act, being a substantive provision giving priority to the 'secured creditor', the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase 'secured creditors' to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act wa....
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....bling provision under section 26E, as earlier noticed, begin with non-obstante clauses. Thus, while those secured creditors who register the security interest can legitimately claim 'priority' whereas those who do not, are denuded of any power to enforce the security interest by taking recourse to Chapter III of the SARFAESI Act. A secured creditor who fails to register the secured asset in terms of the provisions of section 26B of the SARFAESI Act with the CERSAI and faces the disability to obtain the benefit that section 26E envisages, cannot be rewarded by relieving it of the statutory obligation created on it to get such registration by allowing it the benefit envisaged by section 31B of the RDDB Act. If it is so done, such secured creditor would be placed in a happy or more comfortable position than a secured creditor who obeys the command of law and applies for registration of the secured asset. Adherence to and obedience of the law should be obvious and necessary in a system governed by the rule of law. 127. These important aspects do not appear to have been brought to the attention of the Bench deciding Kalupur Commercial Cooperative Bank (supra) and, therefore, we express....
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....tion with the CERSAI has been made a mandatory pre-condition for invocation of the provisions contained in Chapter III of the SARFAESI Act, the provisions relating to debts that are due to any secured creditor being payable to such creditor in priority over all other debts and revenue, taxes etc. is available to be invoked only after the registration of security interest. This being the text of section 26E, which is to be read in the context in which it is set, leads to the irresistible and inevitable conclusion that unless the security interest is registered, neither can the borrower seek enforcement invoking the provisions of Chapter III of the SARFAESI Act nor does the question of priority in payment would arise without such registration. 130. As has been noticed above, ASREC (India) Ltd. (supra) rejected the contention that section 26E of the SARFAESI Act cannot be invoked unless the security interest were registered with the CERSAI. The Division Bench, in the process of rejecting the said contention, referred to what according to it were previous decisions rendered by 3 (three) Division Benches of various High Courts and a decision of the Full Bench of the Madras High Court, ....
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....a (supra), as discussed above, on the question under consideration are not the correct exposition of law and, to that extent, stand overruled. Answer to question (f) 134. Much has been argued by the petitioners by referring to the decision in Assistant Commissioner (CT) (supra) where it was held that section 31B of the RDDB Act would govern rights even in respect of a pending lis. There is not much elaboration by assigning any reason in support of the said observation. That apart, it bears a mention that the parties have brought to our notice that the said decision has been carried in appeal to the Supreme Court and an order directing maintenance of status quo has been passed. Hence, with due respect to the Full Bench of the Madras High Court, we prefer to assign our own reasons for the conclusions. 135. A decision necessarily has to be rendered by us bearing in mind the State legislations under consideration vis-à-vis the RDDB Act and the SARFAESI Act for the same to be applicable in this State; hence, it would be appropriate to decide when exercise of the right by the department of the State can be said to be complete so as to avoid the rigours of section 31B and sectio....
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.... the tax, penalty or interest is payable within 30 days from the date of notice [section 32(4)(b)(i)-(v)]. Therefore, the charge would crystallize on the expiry of 30 days in respect of such amounts. 139. However, mere creation of charge is not enough. The expression 'charge' does not appear to have been defined in the MVAT Act. Nonetheless, this concept is well known in property law and we may draw guidance from section 100 of the ToP Act, where 'charge' is defined as follows: "100. Charges.- Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property, and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge 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 bee....
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.... who is for the time being in actual possession thereof. Explanation III.-A person shall be deemed to have had notice of any fact if his agent acquires notice thereof whilst acting on his behalf in the course of business to which that fact is material: Provided that, if the agent fraudulently conceals the fact, the principal shall not be charged with notice thereof as against any person who was a party to or otherwise cognizant of the fraud." 143. The procedure for effecting recovery of unpaid tax now needs to be ascertained. Section 33(6) of the MVAT Act provides that unpaid tax is to be recovered as arrears of land revenue. Sub-section (6) reads thus: "(6) Subject to the provisions of sub-section (5), any amount of money which a person is liable to pay to the Commissioner, shall, under sub-section (1) read with subsection (4), if it remains unpaid, be recoverable as if it is a sum demanded under section 32 and accordingly any notice served under this section shall be deemed for the purposes of this Act to be a notice served under section 32 and the unpaid amounts shall be recoverable as arrears of land revenue." Therefore, a notice under section 32 to the person from whom....
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....the procedure for recovery of unpaid amounts as arrears of land revenue. Section 265 of the MLR Code (which is applicable only within the city of Bombay) confers precedence on the arrears of land revenue due on any land under the relevant chapter. 146. The exhaustive procedure that the MLR Code conceives relating to recovery of unpaid amounts as arrears of land revenue need not be examined in any great detail here. We may only refer to the decision of the Division Bench reported in 2004 SCC OnLine Bom 1247 (Satish Arjun Surve vs. State of Maharashtra), where the Court has noted the same. 147. However, what appears to be clear is that if there be a default and the defaulter does not pay what he owes to the relevant department of the Government, power is available under rule 17 of the Maharashtra Realization of Land Revenue Rules, 1967 (hereafter 'MRLR Rules', for short), framed under section 328 read with Chapter XI of the MLR Code, for the Tehsildar, on receipt of a requisition from such department, to proceed in accordance with the MLR Code and the 1967 Rules and cause the defaulter's immovable property to be attached and sold. Necessarily, prior to effecting a sale, a proclamat....
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....editor by sale of the immovable property being the secured asset mops up its secured dues. 151. However, there could be attachments orders which might have been issued much prior to giving effect to the 2011 Rules, as amended. In respect of such orders of attachment, we consider it appropriate to express our views. 152. The procedure to be followed in terms of the CPC when an immovable property is put up for auction sale to satisfy a decree of the court is to be found in Order XXI Rules 54 and 66 of the CPC. It is mandatory for the court executing the decree, to comply with the following stages before such property is sold in execution of a particular decree: (a) attachment of the immovable property; (b) proclamation of sale by public auction; (c) sale by public auction. At each stage of the execution of the decree, when a property is sold, it is mandatory that notice shall be served upon the person whose property is being sold in execution of the decree, and any property which is sold, without notice to the person whose property is being sold, is a nullity and all actions pursuant thereto are liable to be struck down/quashed. However, the proceedings before us do not co....
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.... the immovable property, being the secured asset, and no other property of the defaulting borrower, the concern of the department need not necessarily be confined only to the secured asset but could well spill over and any other asset of the defaulter in payment of State's dues could be put up for sale to realize such dues in terms of the MLR Code and the 1967 Rules. 156. The procedure for 'sale of an immovable secured asset' and 'time of sale, issue of sale certificate and delivery of possession', consequent upon measures taken by a secured creditor under sub-section (4) of section 13 of the SARFAESI Act, have been laid down in rules 8 and 9, respectively, of the 2002 Rules. 157. Provisions contained in sub-rule (7) of rule 8 of the 2002 Rules read thus: "(7) Every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorized 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) the secured debt for recovery of which the prop....
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.... 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. 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". 160. Till 24th January 2020, it may not have been possible for a secured creditor to know precisely all encumbrances in respect of the immovable property. With the insertion of section 26B in the SARFAESI Act read with the 2011 Rules, a secured creditor is expected to know some of such encumbrances if at all compliance of section 26B is resorted to by the Central Government, any State Government or a local authority, to whom money is owed by the defaulter being an owner of the property. Such a statutory mechanism for knowing the encumbrances in respect of the immovable property being put up for sale by auction not being available before 24th January 2020, the authorized officers were found to play it safe by inserting the "as is where is, whatever there is basis" clause in the sale advertisement. Once such clause is inserted in the advertisement and the prospective ....
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....August, 2016. When the petitioner moved the learned Chief Metropolitan Magistrate, Mumbai under section 14 of the SARFAESI Act, for possession of the secured assets, it transpired that an Execution Application No.765 of 2015 to execute an arbitral award dated 6th November 2014 against the respondent no.2 was filed in this Court. 165. Petitioner moved Chamber Summons No.993 of 2017 in Execution Application No.765 of 2015. This Court by an order dated 12th February 2018 ordered inter alia raising of the attachment on the secured asset and delivery of possession of the secured asset to the petitioner by the Court Receiver, who had been put in possession of the secured asset in the said execution proceedings. On 15th December 2018 after recording that the Court Receiver had delivered possession of the secured asset to the petitioner, the Chamber Summons came to be disposed of. 166. Petitioner published an e-auction notice dated 28th February 2018 to sell the secured asset. On 9th March 2018, the respondent no.6 addressed a communication to the respondent no.5 Society contending inter alia that M/s. Tornado Motors Private Limited, respondent no.1, was in arrears of Rs.5,49,68,048/- to....
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....nt the tax or other amount recoverable under the MVAT Act cannot be recovered from a private company, then its directors shall be jointly and severally liable for the payment of the dues, unless they are able to demonstrate that such nonrecovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in the management of the affairs of the said company. This provision enables the Sales Tax Department to proceed against the directors of a private company, in case of non-recovery, and casts burden on the directors to show that the non-recovery is not attributable to their acts or conduct. 172. In the case at hand, the material shows that the respondent no.6 initially gave a notice on 15th January 2019 calling upon the respondents 2 and 3 to show cause and, thereafter, by an order dated 30th January 2019 held the respondents 2 and 3 jointly and severally liable to pay the dues. Interestingly, even before such determination, the respondent no.6 had addressed the impugned communication dated 9th March 2018 to the respondent no.5 prohibiting the transfer of the secured asset without permission of the Sales Tax Department. 173. If the law which we have dec....
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.... adjudicate the stamp duty on the said sale certificate and to register the same. 179. Respondent No.2 refused to adjudicate the stamp duty on the count that the Tax Recovery Officer (15), respondent no.1, had attached the secured asset for non-payment of the income tax dues. It further transpired that the purported charge of the respondent no.1 was entered in the record of rights pertaining to the secured asset vide mutation entry no.1211, certified on 20th March 2020. Hence, this writ petition. 180. An affidavit in reply is filed by the Tahasildar, Tal. Wada, respondent no.4. The action of the respondents 4 and 5 was stated to be in conformity with the order passed by the Income Tax authority prohibiting transfer of the secured asset. 181. It would be necessary to note that the petitioner's assertion that he had addressed a letter to the Principal Commissioner, Income Tax (15), requesting the withdrawal of the recovery certificate No. ITCP-1 dated 11th January 2016 for AY 2012-13 enforced through Form No. ITCP-16 dated 24th December 2018 and there was no response thereto, is uncontroverted. 182. Consistent with the view which we have recorded, the primary question would be wh....
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....he Government fails to act in terms of subsection (4) of section 26B of the SARFAESI Act read with the 2011 Rules, the department concerned is bound to suffer the consequences. 189. In the case at hand, we have seen that the secured creditor had registered the security interest with CERSAI on 25th October 2017. Post enforcement of Chapter IV-A of the SARFAESI Act, under sub-section (4) of section 26B of the SARFAESI Act, the department of the Government which professes to recover any tax or other Government dues, is enjoined to register such claim with CERSAI. 190. It does not appear that the respondent no.1 registered its claim or attachment over the secured asset with CERSAI, post enforcement of Chapter IV-A of the SARFAESI Act. Sub-section (2) of section 26C provides that any attachment order subsequent to the registration of the security interest with CERSAI, shall be subject to such prior registered claim. 191. In our view, in the instant case, with the enforcement of Chapter IV-A of the SARFAESI Act, the claim of the respondent no.7 Bank, the secured creditor, was extolled to a higher pedestal and the subsequent act of recording a charge in the record of right of the secur....
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....ction 3 of the SARFAESI Act. The predecessors-in- interest of the petitioner, namely, the State Bank of India and Indusind Bank had extended credit facilities to M/s. Classic Diamonds (India) Ltd. (in liquidation) being the borrower, and the Official Liquidator, High Court, Bombay, has since been appointed to take charge of the affairs of the company in liquidation. To secure the financial facilities, security interest was created in the property, i.e., Flat Nos.1002, 1003 and 1004, Prasad Chambers, Opera House, Mumbai - 400 004 (secured assets) by way of an equitable mortgage. In the wake of default on the part of the borrower, the State Bank of India had instituted O.A.No.205 of 2013 and Indusind Bank had instituted O.A.No.198 of 2012 in the DRT, Mumbai, for grant of recovery certificates. 196. Under the Deeds of Assignment dated 19th March 2014 executed by the State Bank of India and 29th March 2014 executed by Indusind Bank in favour of the petitioner, it acquired all the right, title and interest in the facilities granted and security interest created by the assignors. Armed with those rights, the petitioner issued a notice under section 13(2) of the SARFAESI Act, on 25th May....
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....ing the order of attachment, cannot be countenanced. 201. The writ Petition, thus, deserves to be allowed and we hereby direct as follows: (a) It is hereby declared that the order of attachment dated 19th August 2017 will not affect the rights of the secured creditor to realize its debt by the sale of the secured assets. (b) The purported order of attachment dated 19th August 2017 passed by the respondent no.3 stands quashed and set aside. WRIT PETITION No.3197 of 2019 202. Petitioner, a banking company, had sanctioned a home loan of Rs.1.52 crore and mortgage insurance loan of Rs.3.88 crore to the respondent no.5. The home loan was sanctioned to finance the acquisition of a commercial premises, i.e., Office No.101, 1st Floor, Swastik High Point, Gloria, Devchand Housing Compound, next to Arihant Plaza, Ghodbunder Road, Ovale, Thane 400 615 (the secured asset). 203. To secure the repayment of the loan, the said property was mortgaged in favour of the petitioner by depositing the title deeds. Respondent No.5 committed default in repayment of the installments. Consequently, the account was declared NPA on 30th April, 2017. A notice under section 13(2) of the SARFAESI Act, wa....
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....adjudicating this aspect, yet, from the perusal of the auction proclamation notice dated 8th March 2019 (Exhibit H) it becomes abundantly clear that the notice was issued under section 178 read with section 267 of the MLR Code on 17th October 2018. The warrant of attachment was issued on 1st December 2018 followed by an order in Form No.4 under rule 11 of the MRLR Rules, dated 2nd January 2019. Prima facie, auction proclamation notice seems to be preceded by the action envisaged by the MLR Code and the MRLR Rules. 209. We are, therefore, of the view that the respondents 1 to 3 deserve an opportunity to meet the case sought to be urged by the petitioners lest the interest of the public exchequer may be prejudicially affected. 210. We deem it, in the fitness of things, to direct that this writ petition be re-notified for hearing before the appropriate Division Bench for decision in the light of determination of the questions of law in this judgment. 211. Ordered accordingly. WRIT PETITION NO.2720 OF 2021 212. Petitioner, a co-operative society, registered under the Multi-State Co-operative Societies Act, 2002 had advanced a loan of Rs.5 crore each to the respondents 4 and 5 in t....
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....nd 2. It is contended that Hi-tech Engineering Corporation India Pvt. Ltd. owes a huge amount of Rs.65,11,68,518/- to the respondents towards tax dues for the financial years 2010-11 to 2015-16. Under section 44(6) of the MVAT Act, the directors of a private company are jointly and severally liable for the tax dues. Thus, the respondents 1 and 2 had proceeded against the property of the respondents 4 and 5 by addressing communication to the revenue authorities on 18th November 2017 to enter encumbrance on the secured asset. Since the petitioner has assailed the said order dated 18th November 2017 and the resultant mutation recording the sales tax encumbrance, before the Sub-Divisional Officer, Baramati in RTS Appeal No.118 of 2019, this Court may not entertain the writ petition as the petitioner has an efficacious alternative remedy. 217. Respondents 1 and 2 have further contended that the underlying transaction of advancement of loan is fraudulent. Personal loans were advanced despite the fact that respondents 4 and 5 and Hi-Tech Engineering Corporation India Pvt. Ltd., were heavily indebted. Respondents 1 and 2 alleged collusion between the petitioner and the respondents 4 and 5....
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....ocieties Act, 1960 (hereafter "Cooperative Societies Act", for short). In August 2010, the petitioner had advanced a loan of Rs.6 crore to M/s. Om Sai Auto World, a partnership firm, of which Mr. Uday K. Shetty and Mr. Gangadhar S. Shetty were the partners. Under a deed of mortgage registered on 24th September 2010 and a deed of Modification dated 13th September 2012, five flats including Flat Nos.501 and 503 (the secured assets) owned by Mr. Uday Shetty and Mr. Gangadhar Shetty were mortgaged in favour of the petitioner no.1 to secure the said loan. 225. On account of default in repayment of the loan amount, the Deputy Registrar, Co-operative Societies, on 1st April 2013 issued a recovery certificate under section 101 of the Cooperative Societies Act. On 9th July 2013, the learned Chief Metropolitan Magistrate passed an order under section 14 of the SARFAESI Act, directing taking over of the possession of the secured assets and its delivery to the petitioner no.1. 226. In the meanwhile, the respondent no.2 passed orders prohibiting transfer of the secured assets and other flats owned by Mr. Uday Shetty and Mr. Gangadhar Shetty. On 26th May 2013 the respondent no.1 issued a publi....
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....ave resisted the writ petition by filing affidavits in reply. Even before the grant of recovery certificate under section 101 of the Cooperative Societies Act, the respondents contend, a demand notice was issued under section 34 of the MVAT Act on 31st August 2012, the warrant of attachment was issued on 27th September 2012 and the Sales Tax authorities took over possession of Flat No.501 on 15th March 2013, evidenced by the Panchanama dated 15th March 2013. An order of attachment was thereafter passed on 16th March 2013 in respect of the said flat. Respondents claimed to have, likewise, taken possession of Flat No.503 on 14th June 2013 and issued an order of attachment of even date. Petitioners' claim, if any, according to the respondents, was subservient to the first charge of the State under section 37 of the MVAT Act. Since the provisions contained in Section 26E of the SARFAESI Act were not brought into force earlier than 24th January 2022, the petitioners claim for priority in payment was also misconceived. 232. Respondents have further contended that the petitioners' conduct disentitles them from claiming any relief. Petitioners have suppressed material facts. As against th....
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....nless security interest is registered, neither can borrower seek enforcement invoking the provisions of Chapter III of the SARFAESI Act nor does the question of priority in payment arise without such registration. 236. If the submission of Mr. Narula is taken to its logical end and the rights and liabilities of the secured creditor are considered in the context of the statutory regime before the enforcement of Chapter IV-A of the SARFAESI Act, in our view, the dicta of the Supreme Court in the case of Central Bank of India (supra) that the RDDB Act and the SARFAESI Act do not contain provisions giving priority to the secured creditors over the first charge created under the State legislations, would govern the field. It would be contextually relevant to note that the petitioners cannot take refuge under the provisions of section 31B of the RDDB Act, for the reasons recorded above in answering question no.(d) in the negative. 237. In our view, even otherwise, the situation would be governed by the determination in paragraph 154 above as there is material to indicate that the action of sale proclamation initiated by the respondents was preceded by notice under section 178 of the ML....
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....Sales Tax Department for the dues owed by M/s. Maxwell Metallic Wires Pvt. Ltd., respondent no.2, in terms of an earlier communication dated 22nd October 2012. Another notice was addressed to the petitioner on 28th October 2015 inviting its attention to the arrears of the sales tax which the respondent no.2 was allegedly liable to pay with a request to take note of the said Government dues while carrying out auction sale of the secured assets. In another communication dated 30th September 2020, the Assistant Commissioner of Sales Tax apprised the petitioner that the dealer, respondent no.2, was liable to pay VAT to the tune of Rs.1,60,80,806/- for the period 2009-10 to 2011-12 and the petitioner was called upon to remit the said amount. 245. It further appears that on 5th October 2020, a demand notice was addressed to the respondent no.2 by the Assistant Commissioner of Sales Tax under section 178 read with section 267 of the MLR Code. Simultaneously, a warrant of attachment and an order of attachment in Form 4 under the MRLR Rules were issued on the very day. Hence, this writ petition. 246. In an additional affidavit filed on 24th January 2021, it is affirmed that the security i....
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....at Vadavali, Tal. Wada, Dist. Palghar (the secured asset). In the month of July 2011, further facilities were extended which were also covered by a composite deed of mortgage and hypothecation dated 6th July 2011. 252. In the wake of default, the assignor issued a notice under section 13(2) of the SARFAESI Act on 13th December 2013. In the meanwhile, by an order dated 10th November 2014 in Company Petition No.593 of 2012, M/s. Shree Ambe Metsteel Pvt. Ltd. was ordered to be wound up and the Official Liquidator came to be appointed to take charge thereof. Pursuant to an order passed by the District Magistrate, the petitioner took possession of the secured asset on 29th September 2015. O.A. No.1237 of 2016 was also instituted to recover the secured debt before the DRT - II, Mumbai, which awaits adjudication. 253. On 19th May 2021, the petitioner published e-auction notice. One of the prospective bidders brought to the notice of the petitioner that the respondents 2 and 3, State Tax authorities, have got entered encumbrance in the record of right of the secured asset vide Mutation Entry No.1153. Hence, this writ petition. 254. Petitioner has filed an additional affidavit on 24th No....
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.... petition under section 9 of the I & B Code, the Insolvency Resolution Professional came to be appointed on 22nd August 2017. By an order dated 12th April 2018, Yog Industries Limited was ordered to be liquidated. In a further order dated 10th April 2019, passed under section 52 of the I & B Code, the petitioner was permitted to exercise its option under clause (b) of sub-section (1) of section 52 thereof and realize its security interest in accordance with the provisions of the I & B Code. 260. In deference to the said order, the Official Liquidator delivered possession of the secured asset to the petitioner on 24th July 2019. While in the process of selling the secured asset, the petitioner learnt that the State Tax department has marked an encumbrance in the record of right of the secured asset vide Mutation Entry No.1132. Assailing the aforesaid action, the petitioner has invoked the writ jurisdiction of this Court. 261. Along with the affidavit filed on 10th March 2022, the petitioner has annexed a copy of the CERSAI search report, which indicates that the security interest over the secured asset was created on 2nd May 2017. 262. Respondents have not filed an affidavit in r....
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....oner claiming that the dealer, respondent no.4, was in arrears of VAT and CST aggregating to Rs.1,39,77,469/- and the State had the first charge under section 37 of the MVAT Act. Petitioner was thus called upon to hold the amount to the extent of the arrears of the sales tax for the respondents. The said communication was accompanied by an order of attachment in Form 4. 268. Upon enquiry, it transpired that the respondents 1 and 2 had also marked an encumbrance in the record of right of the secured asset. Mutation Entry No.1455 was certified by the respondent no.3 on the basis of a communication from the State Tax department on 22nd September 2019 for an amount of Rs.96,32,005/- as on 31st March 2019. It was noticed that on the basis of the communication dated 7th January 2015 addressed by the Sales Tax Officer, vide Mutation Entry No.1207, an encumbrance to the tune of Rs.33,76,440/- towards the arrears of sales tax had also been recorded in the record of right of the secured asset. As the communication to the respondents did not yield the desired result, this writ petition has been instituted. 269. In an additional affidavit filed on behalf of the petitioner on 22nd November 20....
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.... the respondents have chosen not to contest the factual assertions, we are of the opinion that the writ petition ought not to be decided without the date of the CERSAI registration being brought on record. 275. We, thus, direct that this writ petition be re-notified for hearing before the appropriate Division Bench for decision in the light of what has been recorded above in this judgment while answering the questions formulated. 276. Petitioner is granted liberty, within three weeks from date, to file a supplementary affidavit bringing on record the date of the CERSAI registration with supporting documentary proof. The respondents may file reply affidavit within two weeks thereafter. Liberty is given to the parties to seek circulation of the writ petition after six weeks. WRIT PETITION NO.2251 OF 2021 277. Petitioner No.1 is a Scheduled Bank registered under the Multi-State Co-operative Societies Act, 2002. In the month of March 2009, the petitioner had extended financial facilities to M/s. Delta Automobiles Pvt. Ltd., respondent no.4. In order to secure the credit facilities, Ms. Maya Arvind Toley, respondent no.5, the then director of the respondent no.4, had mortgaged an im....
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....red asset came to be attached in accordance with law, prior to Chapter IV-A of the SARFAESI Act being enforced. 283. On a careful perusal of the writ petition, it becomes abundantly clear that the petitioner claimed to have learnt about the claim staked by the Sales Tax authority in the month of March 2020, upon receipt of the communications dated 11th March 2020 and 18th March 2020. However, the fact that the petitioner has known about the said fact, much prior in point of time, is betrayed by prayer clause (a), whereby the petitioner seeks to quash and set aside the impugned demand notice and attachment order dated 30th January 2018 informed to the petitioner by the respondent no.2 along with the letter dated 16th October 2018, a copy of which is annexed to the writ petition at Exhibit A. 284. A perusal of the aforesaid letter dated 16th October 2018 indicates that the respondent No.2 had specifically brought to the notice of the petitioner that the respondent no.4 was in arrears of the sales tax and was served with a demand notice on 22nd August 2017; the attachment order in respect of immovable properties including the secured asset was passed on 30th January 2018 and that th....
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....ndia (supra), before the enforcement of Chapter IV-A of the SARFAESI Act. Thus, the petitioner does not deserve any relief. 290. Resultantly, the writ petition stands dismissed. WRIT PETITION (L) NO.939 OF 2020 291. This writ petition happens to be a second round of litigation between the parties before this Court, and obviously presents a different twist of facts when compared with the other writ petitions. 292. Aggrieved by the action of the Sales Tax authorities in laying attachment over Flat No.903, A and B, 9th Floor, Heritage Co-op. Housing Soc. Ltd., High Street, Hiranandani Garden, Powai, Mumbai - 400 076 (the secured asset), the petitioner had instituted Writ Petition (L) No.3041 of 2019. 293. The said writ petition came to be disposed of on 15th November 2019, with the following order: "2. Whether the State of Maharashtra would have a first charge on the subject property in terms of Section 37 of the Maharashtra Value Added Tax Act, 2002 or the Petitioner would be the first charge holder in terms of Section 26E of the SARFAESI Act, 2002 is the issue which needs to be decided with respect to disbursement of the amount received by sale of the secured asset. But as re....
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....ion 26E of the SARFAESI Act, i.e., till 9th July 2020. 297. A question that comes to the fore is whether the petitioner would be deprived of the right of priority in payment on account of the measures initiated by the respondents before the registration of the security interest with the CERSAI? 298. Two affidavits in reply are filed on behalf of the respondents. In the first affidavit filed by Mr. Pradeep G. Kadu, Joint Commissioner of State Tax, the claim of the petitioner is resisted on the ground that the department had lodged its claim with the petitioner bank before the 2016 Amending Act. In the affidavit in reply filed by Mr. Prasad Joshi, Joint Commissioner of State Tax, it is contended that a demand notice was issued to K.K. Steel on 29th February 2016, levying a demand of Rs.1,08,91746/- for the period 1st April 2010 to 31st March 2011. When it was noticed that the auction sale notice was published by the petitioner on 6th June, 2016, the department apprised the petitioner by a letter dated 7th July 2016 that K.K. Steel owed sales tax dues to the tune of Rs.1,62,58,945/- plus interest thereon. Petitioner was directed to take note of the 'first charge' and make a full dis....