TaxTMI 
TaxTMI 
2022 (9) TMI 163
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.... petitioners in WP/2935/2018. Mr. 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....
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....ecured asset' [as defined in section 2(1)(zc) of the SARFAESI Act], in view of the 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 wor....
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....I Act. 7. Challenges to the constitutional validity of the RDBFI Act were laid before the Delhi 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 (herea....
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....rge, viz. the Workmen's Compensation Act, 1923, the State Financial Corporations Act, 1951, the Employees 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 ....
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....of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge 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 t....
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....e that the new legal regime envisages transfer of secured assets to private companies. 127. The definition of 'secured creditor' includes securitisation/reconstruction company and 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, financi....
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....his Court held that by virtue of the provisions contained in the DRT Act or the Securitisation Act, first charge has been created in favour of banks, financial institutions, etc. Not only this, the Court was neither called upon nor 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 ....
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....us recovery of loans of banks and financial institutions. Presently, there are approximately seventy thousand cases pending in Debts Recovery Tribunals. Though the Recovery of Debts due to Banks and Financial Institutions Act provides for a period of 180 days for disposal of recovery 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 power....
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....nsolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 16. Although a new chapter, i.e., Chapter IV-A, was sought to be introduced in the SARFAESI Act by the 2016 Amending Act, it was not immediately given effect. 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 principa....
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....uch attachment order with particulars of the assessee and details of tax or other Government dues from such date as may be notified by the Central Government, in such form and manner as may be prescribed. (5) If any person, having any claim against any borrower, obtains orders for attachment of property from any court or other authority empowered to issue attachment order, such person may file particulars of such attachment orders with Central Registry in such form and manner on payment 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 u....
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....ured creditor, or the department of the government concerned, would have the 'Priority of Charge' over the mortgaged property in question, with regard to the tax and other dues. b) As to the status and the rights of a third party purchaser of the mortgaged property in question.' 2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, *** 3. There is thus, no doubt that the rights of a secured creditor 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....
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....ntention. 22. Before proceeding further, it would be apposite to note section 37 of the MVAT Act. It reads: "Section 37: Liability under this Act to be the first charge:- (1) Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person. (2) The first charge as mentioned in 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 favo....
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....rusal of section 31B of the RDDB Act would evidence the fact that even de hors registration of security interest under the SARFAESI Act, and even prior to section 26E of the SARFAESI Act coming into force on 24th January 2020, the claims of the secured creditors had priority with respect to payment of their dues, over all other debts and government dues, including revenues, taxes, cesses and rates due to the Central Government, State Government or local authorities on and from 1st September 2016, being the date on which the said provision of law was brought into effect. 27. The further contention has been that section 31B of the RDDB Act will apply even to cases where proceedings under 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 purp....
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.... behalf the secured creditors, to the extent we found them to be relevant, we now proceed to record the submissions advanced on behalf of the State Government and its departments. 29. First, the arguments advanced by Mr. Sonpal, learned special counsel for the respondents 6 to 9 in W.P. No.436 of 2021 may be noticed. 30. According to Mr. Sonpal, section 26E was inserted on 1st September 2016 and made effective from 24th January 2020; however, conspicuously, section 26E does not create 'first charge' in favour of the secured creditors. It only provides for 'priority' of payment to secured creditors over other creditors. Referring to the decision in Central Bank of India (supra), he contended that the Supreme Court in paragraph 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 h....
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.... section 26E has Item 45 of List I as its source whereas Item 54 of List II is the source of existence of section 37 of the MVAT Act. Hence, there cannot be operation of nonobstante clause against one another in different fields of legislation. 33. Next, Mr. Sonpal argued that section 26E having come into force on 24th January 2020 and not on 1st September 2016, it denotes that the Central Government did not intend to bring the provisions of section 26E in force till 24th January 2020 and hence the provisions of section 26E are not retrospective but prospective in the absence of any provision in the 2016 Amending Act to make the amendment retrospective. The charge under the section attaches to the properties of dealer, mortgaged or 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 cont....
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....of the dealer which the sales tax authorities are entitled to enforce by exercising the right to attach and sell the same for recovery of its outstanding dues notwithstanding introduction of section 26E in the SARFAESI Act and section 31B in the RDDB Act. (ii) Section 26E of the SARFAESI Act and section 31B of the RDDB Act do not create any charge in favour of the secured creditor but merely provide for 'priority' in payment. More importantly, such provisions do not negate or nullify the statutory charge created under the MVAT Act or the MLR Code. (iii) Provisions inserted by amendment in the RDDB Act are not attracted where no recourse has been taken to the DRT thereunder. Section 31B of the RDDB Act has to be read in the context of the scheme 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 Tribuna....
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....08, as applicable in Maharashtra pursuant to the Maharashtra Amendment Act, 2010, throws light on at least one way in which a diligent purchaser of property would acquire notice of the statutory charge. (viii) The amendments in the RDDB Act and the SARFAESI Act would only apply prospectively and cannot affect rights crystallized in favour of the State prior to such amendments being brought into force. Section 26D expressly refers to forfeiture of right of a secured creditor to exercise the rights of enforcement of securities under Chapter III if the security interest is not registered. This provision in clear terms ordains that the bar to invoke Chapter III in the absence of a registration would start from the commencement of the provisions of Chapter IV-A. Harmoniously read with section 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 deemi....
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....VAT Act is levied on every 'dealer' on account of sales transacted by the dealer in the particular year. As such, the tax is on the sale amount and is over and above the sale price. The 'dealer' recovers the amount from the 'transferor' of goods or the ultimate purchaser. As such, the 'dealer' recovers the amount of tax from a third person and keeps it with him for payment to the Government. It can, thus, be seen that the amount of tax under the MVAT Act is held in custody by the 'dealer' as a trustee for the Government. Such an amount is having very high ranking as compared to mortgage dues, which are the result of commercial transaction. In case of commercial transaction with mortgage as a kind of security, the success of the security depends upon due performance by the parties. No third-party funds are involved. 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....
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....it appropriate to formulate the following substantial questions of law for answers: a. Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant department of the Government [under the BST Act/MVAT Act/MGST Act] to appropriate the amount realized by the sale of a secured asset? b. Whether, despite section 26E in the SARFAESI Act or section 31B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of 'first charge' created over any property by operation of law (viz. the legislation in force in Maharashtra) giving such dues precedence over the dues of a secured creditor? c. Are the provisions, inter alia, according 'priority' in 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 ....
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....e recorded that the parties did not claim retrospective operation of the amended provisions; even otherwise, perusal of the amended provisions did not show the same and, thus, the same were found to apply prospectively. The learned judge was of the further view that property already attached towards recovery of State dues cannot be nullified by a subsequent legislation when the amending provisions had not been given retrospective effect. A contention was raised before the learned Judge that the decision in Central Bank of India (supra) had been rendered prior to the amendments incorporated in the SARFAESI Act and the RDDB Act; hence, the same would have no application to cases covered by the amended provisions. The learned Judge, upon consideration of the decision in Central Bank of India (supra), held as follows: " ***** 27. Learned Senior Counsel appearing for the petitioner-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 give....
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....ver a bench of the Madhya Pradesh High Court at Indore had before His Lordship a challenge by the petitioning bank to a sale proclamation dated 17th July 2017 issued by the Commercial Tax Officer. Such proclamation was the result of action initiated to recover commercial tax dues from a company which was a debtor of the petitioning bank. The learned Judge considered the provisions contained in section 31B of the Madhya Pradesh Value Added Tax Act, 2022 creating first charge on the property to the dealer and, thereafter, opined as follows: "***** In the considered opinion of this Court, the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provision (Amendment) Act, 2016 came into force w.e.f. 01.09.2016 and by virtue of the said amendment, the right of secured creditors to realise the secured dues and debts dues, which are payable to the secured creditors by sale of assets 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 ....
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....ct and section 38 of the Kerala Value Added Tax Act. After considering various decisions, the learned Judge recorded as follows: "33. A close survey of the afore judgments thus renders it beyond contest that the words `First Charge' and 'priority in payment of debts' are virtually synonymous and means the same, except for its semantic variation on account of differing phraseology. In both events, the holder obtains the privilege of recovery before anyone else and hence, whether it is the `First Charge' or the right to claim `priority' in recovery, the ultimate effect and consequence is the same. 34. Thus, even though the KGST Act/KVAT Act creates a `First Charge' in favour of the Revenue to recover the arrears of tax, the afore provisions of the SARFAESI Act and RDB Act make the secured dues entitled to be paid in priority over such taxes and in fact, elevates the rights of the secured creditor, to recover such dues, also to a position of priority. 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 Re....
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.... in priority over the revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. It is thus irrefragible (sic, irrefragable) and in fact, expressly conceded to by the learned Additional Advocate General that the Banks/Financial Institutions have the First Right to have their debts extinguished; but, as has been recorded above, the Revenue merely claims that they have right to sell the property first. This argument again is flawed because the 'First Charge' creating no right over the property, the Revenue cannot claim a First Right to proceed against it either in the face of the provisions of the SARFAESI Act or RDB Act with which we are dealing in this case. *****. 47. The above cited judgments certainly support my views as afore and it axiomatically becomes justified for me to hold that Section 26E of the SARFAESI Act and Section 31B of the RDB Act create a `First Charge' by way of a priority to the Banks/Financial Institutions to recover and 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 conclusi....
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....ed. 55. We have noted that the decision in Kalupur Commercial Co-operative Bank Ltd. (supra) was rendered on 23rd September 2019, i.e., prior to enforcement of section 26E of the SARFAESI Act. This decision supports the contentions of the secured creditors before us. We, however, wish to consider the law laid down in paragraph 57 of the decision at a later part of this judgment. 56. In the decision of the Division Bench of this Court in ASREC (India) Limited (supra), the controversy arose as to who between the petitioner and the Sales Tax Officer would be entitled to the proceeds of sale of the subject property in a sum of Rs. 8.02 crore, which was fetched upon the same being sold in terms of the liberty granted by the Division Bench. The State of Maharashtra and the Sales Tax Officer, respondents 1 and 2, respectively, relied upon the statutory charge created in favour of the sales tax department under section 37 of the MVAT Act. On behalf of the petitioner, it was contended that section 37 itself records that it would be subject to any Central legislation creating first charge and highlighted that the RDDB Act being the Central legislation and section 31B thereof having acc....
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....ch was inserted in SARFAESI 2002 comprising Sections 26B to 26E warrants a record to be made in the Central Register by the Central Registry creating a security interest. As per learned Counsel as per Sub-section (2) of Section 26B which is a part of Chapter IVA a secured creditor has to ensure that the security interest is recorded in the record of the Central Registry. The argument therefore was that unless this is done, the priority of interest contemplated by Section 26E would not be applicable. 21. The argument is without any substance because the law declared in the four opinions above referred to is that if any Central Statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the Value Added Tax of the State. But we note the fact that the security interest has been entered in the record of the Central Registry." 61. What follows from a reading of the aforesaid paragraphs (20 and 21) is that the contention advanced by the respondents 1 and 2 regarding mandatory registration of the security interest with the Central registry prior to invocation of section 26E of the SARFAESI Ac....
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.... petitioning bank were liable to be rejected. 63. The Division Bench, after considering various provisions of the SARFAESI Act as well as section 31B of the RDDB Act, proceeded to observe in paragraphs 34 and 35 as follows: "34. In our considered view the facts in the case at hand being similar to the facts in the case of ASREC (India) Limited (Supra) that decision would squarely be applicable to the facts of this case that if any Central statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the value added tax of the State. Therefore, in our view what becomes relevant in the facts of this case is the issue of priority of charge on the said assets of secured debt over tax dues and not whether the charge is first or not in time. 35. In this view of the matter, though it would not be necessary for us to deal with the contention of the Respondents relating to the date of effectiveness of Section 26-E of the SARFAESI Act, however we are of the view that even if Section 26-E was effective only prospectively from 24th January, 2020 and not applicable to the facts at hand, tha....
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....ither express, implied or constructive or the prior existence of such charge is shown to have been within the knowledge of the transferee. Section 55 of the ToP Act was further referred to. The Division Bench held that such provision creates an obligation upon every seller to disclose to the buyer any material defect in the property or his title, of which he is aware and which the buyer cannot, with ordinary care, discover and pay all public charges and discharge all encumbrances on the property then existing. The Division Bench then proceeded to consider how the Supreme Court in its decision reported in (2009) 4 SCC 486 (A. I. Champdany Industries vs. Official Liquidator and Anr.) had given meaning to the word "encumbrances" in relation to the words "immovable property" and quoted the following paragraph: - "18. *****. There cannot, thus, be any doubt or dispute that a provision of law must expressly provide for an enforcement of a charge against the property in the hands of the transferee for value without notice to the charge and not merely create a charge." Then followed certain observations in paragraphs 28 and 30, which we quote below: - "28. The language of....
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.... what is there is' basis, would mean that the property was being had by the auction purchaser, with all its rights, obligations and liabilities, whatsoever they may be, which would include, all dues, impositions, restrictions as may have been imposed upon the same and consequent to acquiring title to the property, cannot be permitted to quibble out of it, on the alleged plea of not being noticed about any such liability/imposition. In case the auction purchaser, did not want to have the property, with its liabilities, he ought to have insisted on having the same free of all encumbrances, altogether, before bidding for the same. That apart, it is equally a duty of the auction purchaser, before bidding for the same, to make inquiries about the impositions upon the property, so that he can have it free of any encumbrances. After acquiring title to the property, the auction purchaser cannot be heard to say that he will have the rights associated with the property and not the liabilities. He takes it lock, stock and barrel, with everything. 37. ***** Thus the obligation to deliver the property to the auction purchaser free from encumbrances known to the secured creditor include....
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....of their security interest; and vi. Right to inspect the particulars of securitisation, reconstruction and creation of security interest transactions by any person. 71. Section 26A was inserted in Chapter IV of the SARFAESI Act by an amendment w.e.f. January 15, 2013. It provided for rectification by the Central Government in matters of registration, modification and satisfaction, etc. of the registered transactions. 72. Sections 20A and 20B were inserted in Chapter IV by the 2016 Amending Act w.e.f. September 1, 2016. While the former was intended to integrate registration systems with the Central Registry, the latter pertained to delegation of powers. 73. The 2016 Amending Act also introduced a fresh chapter (Chapter IV-A) in the SARFAESI Act adding four more sections thereto, i.e., sections 26B to 26E. The object that the Parliament had in mind while incorporating Chapter IV-A in the SARFAESI Act seems to be clear as crystal. The dominant theme of the additions in the statute were intended to emphasize upon the need to register transactions of securitisation, reconstruction and creation of security interest with the Central registry (hereafter "CERSAI", for bre....
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....In such a situation, the purchaser would be chased by the lending bank and necessarily to bear the brunt of its efforts geared towards recovery of its dues. Instances were also not rare of more than one loan being sanctioned by different banks on the strength of mortgage of a single property without one bank knowing of a prior mortgage with another bank. This brewed multiple funding in respect of one property, making it difficult for lenders to recover debts and consequent breeding of non-performing assets. Notwithstanding the concept of principal mortgagee and a puisne mortgagee, the minimum requirement of the mortgagee having the means to gauge and assess the worth and status of the property mortgaged before creation of mortgage for any mortgage transaction to be termed proper had to be achieved. We are inclined to the view that the Parliament, to curb such problems and other undesirable consequences, designed Chapter IV-A in such a manner to include provisions which, on the one hand, would disable any secured creditor to exercise the right of enforcing security interest under Chapter III of the SARFAESI Act without the CERSAI registration (section 26D) and, on the other, enable ....
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....hat section 169 of the MLR Code provides. For facility of appreciation, all such provisions are quoted hereunder: Section 212 of the Mumbai Municipal Corporation Act, 1888: "212. Property taxes to be a first charge on premises on which they are assessed Property taxes due under this Act in respect of any building or land shall, subject to the prior payment of the land revenue, if any, due to the State 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 goods and chattels, 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 goods and chattels, if any, found within or upon such building or land and belonging to the person liable for such taxes." Section 141 of the Maharashtra Municipal Corporations Act, "141. Property taxes to be a first charge on premises on which they are assessed. (1) Property taxes due under this Act in respect of any building or land shall,....
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....ate Government consisting of one or more persons not connected with the Planning Authority or any authority subordinate to it or with the person by whom the sum is alleged to be payable which the tribunal shall, after making such inquiry as it may deem fit and after giving to the person by whom the sum is alleged to be payable, an opportunity of being heard, decide the question; and the decision of the tribunal thereon shall be final and shall not be called in question in any court or before any other authority. (4) The procedure to be followed by the tribunal in deciding questions referred to it under sub-section (2) shall be such as may be prescribed by the State Government." Section 169 of the MLR Code: "169. Claims of State Government to have precedence over all others (1) The arrears of land revenue due on account of land shall be a paramount charge on the land and on every part thereof and shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage, judgment-decree, execution or attachment, or otherwise howsoever, against any land for the holder thereof. (2) The claim of the State Governmen....
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.... but the word 'priority', such 'priority' cannot have precedence over 'first charge' created by the State legislations. 83. However, notwithstanding that section 169(1) of the MLR Code is the dominant legislation and does not expressly say that it would be subordinate or subservient to any Central Act creating 'first charge', nothing really turns on it. The express language of section 26E of the SARFAESI Act and section 31B of the RDDB Act, wherever applicable, is sufficient to off-set the 'paramount charge' created by sub-section (1) of section 169. Similarly, even if there were no express intendment in the relevant provisions of the BST Act (section 38C) and the MVAT Act (section 37) to the effect that such provisions would be subordinate to any Central Act creating 'first charge', the same would obviously have to be read, invoked and exercised subject to section 26E of the SARFAESI Act and section 31B of the RDDB Act, wherever applicable. 84. The fact that the BST Act and the MVAT Act, which are under consideration, expressly make it subordinate or subservient to any Central legislation creating first charge cannot be ignored. The 2016 Amending Act being of recent origin, ....
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....) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., p. 386) - 'It seems a government debt in India is not entitled to precedence over a ....
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....f Property Act in relation to a company, which has undergone liquidation, shall stand obliterated. 45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him on a par with an unsecured creditor. The logical sequitur of such an inference would be that even unsecured creditors would be placed on a par with the secured creditors. This could not have been the intendment of the legislation." 88. Bare perusal of the 2016 Amending Act would show that the dues of the Central/State Governments were in the specific contemplation of the Parliament while it amended the RDDB Act and the SARFAESI Act, both of which make specific reference to debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority and ordains that the dues of a secured creditor will have 'priority', i.e., t....
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....is subordinate to the former, in our view, is misconceived. If enforced, 'first charge' would ultimately lead to priority in payment only. Where the end result is the same, mere change in expression would not make the provisions different. While agreeing with the opinion of the learned Judge of the Kerala High Court in State Bank of India vs. State of Kerala (supra), we reject such contention. 92. In view of the foregoing discussion, we have no hesitation to hold that the dues of a secured creditor (subject of course to CERSAI registration) and subject to proceedings under the I & B Code would rank superior to the dues of the relevant department of the State Government. ANSWER TO QUESTION (c) 93. There are more reasons than one for which we are inclined to answer the question in the affirmative. 94. That the intention of the Legislature, at the first instance, has to be gathered from the language employed by it in the statute in question, is beyond any doubt. 95. Section 1(2) of the 2016 Amending Act states that the same shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. Insofar as the date of coming in....
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....aw is undoubtedly retrospective if the law says so expressly but it is not always necessary to say so expressly to make the law retrospective. There are occasions when a law may be held to be retrospective in operation. Retrospection is not to be presumed for the presumption is the other way but many statutes have been regarded as retrospective without a declaration. Thus it is that remedial statutes are always regarded as prospective but declaratory statutes are considered retrospective. Similarly sometimes statutes have a retrospective effect when the declared intention is clearly and unequivocally manifest from the language employed in the particular law or in the context of connected provisions. It is always a question whether the Legislature has sufficiently expressed itself. To find this one must look at the general scope and purview of the Act and the remedy the Legislature intends to apply in the former state of the law and then determine what the Legislature intended to do. This line of investigation is, of course, only open if it is necessary. In the words of Lord Selborne in Main v. Stark, (1890) 15 AC 384 at 388, there might be something in the context of an Act or be c....
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....ct including measures to take over possession of the secured asset prior to Chapter IV-A becoming operational, i.e., without CERSAI registration of the security interest sought to be enforced, could be challenged as ultra vires the SARFAESI Act itself. If such a challenge were to succeed, there could be sort of a cloudburst of complications. A reading that Chapter IV-A applies prospectively would, however, save all such exercises of enforcement of unregistered security interest, thereby not being liable to interdiction on the ground of absence of registration of the security interest upon a challenge being thrown by a defaulting borrower. 102. We, thus, agree with the decisions in Bank of Baroda (supra) and ASREC (INDIA) Ltd. (supra) and answer the question by holding that the provisions of Chapter IV-A of the SARFAESI Act would have application prospectively from the date the same was brought into force, i.e., January 24 2020. ANSWER TO QUESTION (d) 103. We are left with no option but to answer this question in the negative based on settled principles of law. 104. An enlightening passage on how statutes are to be interpreted is found in the decision of the Supreme Cour....
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....g our attention to such section, it would not be inapposite to consider how a statutory provision beginning with a non-obstante clause ought to be construed. 109. In the decision reported in AIR 1984 SC 1022 (Union of India vs. G.M. Kokil), a non-obstante clause has been held to be a legislative device, which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found in the same enactment or in some other enactment, that is to say, to avoid the operation and effect of all contrary provisions. 110. The Supreme Court in its decision reported in AIR 1987 SC 117 (Chandavarkar Sita Ratna Rao vs. Ashalata S. Guram), while considering the provisions in section 15A of the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947, had the occasion to hold as follows: "68. A clause beginning with the expression 'notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract' is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of confli....
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....of this Court reported (2008) 6 Mah LJ 941 (FB) (Mohd. Riyazur Rehman Siddiqui vs Deputy Director of Health Services), where it has been held that the wide meaning of the nonobstante clause and the enacting words following it may not be curtailed when the use of wide language accords with the object of the Act. 114. The text of section 31B of the RDDB, beginning with a non-obstante clause, has been noticed above. Also, bearing the principles laid down in the aforesaid authorities with regard to the effect or impact of a non-obstante clause, the conclusion is inescapable that section 31B cannot be pressed into service in all cases where a secured creditor seeks enforcement of a security interest by taking recourse to the SARFAESI Act. The non-obstante clause in section 31B would kick in should there be proceedings before the DRT and in furtherance of orders passed therein, a process is initiated for recovery of the dues of the secured creditor. We are inclined to be restrictive in our view that in such cases only, where the proceedings originate in the DRT under the RDDB Act, would the non-obstante clause in section 31B override all other provisions whereunder interest in respect....
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....others, without the intervention of courts. That special manner, inter alia, includes a prior CERSAI registration. In such view of the matter, enforcement of security interest under the SARFAESI Act by any other method is, if not expressly, impliedly barred. The provision of section 31B of RDDB Act cannot be invoked to undo the disability that is expressly imposed by section 26D of the SARFAESI Act, more so when both these provisions have been brought on the respective statute books by the same 2016 Amending Act (notwithstanding that the two sections were made operative on different dates). 117. Thirdly, we need to remember that both the enactments, i.e., the RDDB Act and the SARFAESI Act, are special enactments laying down special but separate schemes for recovery of money from defaulting borrowers. One cannot be permitted to take a part of a special scheme and apply it to a separate special scheme. It could not have been the legislative intent that a secured creditor, faced with the disability arising out of an absence of a CERSAI registration after having illegally taken recourse to Chapter III of the SARFAESI Act, would be permitted to shift track and claim a priority in pay....
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....tion 26E are not a mirror image of the latter. Section 31B ordains that "the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts" (underlining ours). Section 26E neither refers to a right of the secured creditor nor to debts "due and payable". This is because in an action under Chapter III of the SARFAESI Act, which culminates in sale of a secured asset, there may not be intervention by courts in all cases. A secured creditor's statutory right to enforce a security interest under the SARFAESI Act is normally not interfered till such time possession of the secured asset ~ physical or symbolic ~ is taken. The debt due to the secured creditor also does not invariably become payable upon a determination by the DRT under section 17 of the SARFAESI Act. If a borrower chooses not to approach the DRT, the second creditor may set the process in motion by initiating action under rule 8 of the 2002 Rules. However, the situation is different in an action under section 19 of the RDDB Act. The secured creditor acquires a right to be paid in pr....
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....iced. While placing reliance on similar provisions of a different statute to decipher the real legislative intent behind a certain provision of a given statute may be permissible in certain cases where the context of both the statutes match, but such an exercise would surely not be permissible if the contexts vary. Here, section 31B of the RDDB Act has to be seen in the context of the original proceedings instituted before the DRT and a determination having been obtained from the DRT in such proceedings. The SARFAESI Act being a statute which permits lenders to take possession of secured assets without judicial intervention, a greater degree of protection against arbitrary action by lenders and a corresponding higher standard of care to be taken by such lenders has now been prescribed. This position, emerging from section 26D of the SARFAESI Act, underscores the importance of CERSAI registration of security interest and makes the legislative intent behind promoting CERSAI registration of security interest more conspicuous than the other provisions. We have not been shown any principle of interpretation following which the consequences of violation of a mandatory provision of any gi....
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.... and payable (in section 31B) as distinguished from the debts due (in section 26E). (c) section 31B of the RDDB Act being a substantive provision, it cannot be invoked by a secured creditor faced with the disability posed by section 26E of the SARFAESI Act; and (d) without recourse having been taken to the procedure envisaged in the RDDB Act for recovery of its dues and without there being a determination of its claim by the DRT to the effect that any sum due from the borrower is payable to it, a secured creditor is not entitled to invoke the provisions of section 31B. ANSWER TO QEUSTION (e) 129. The entire scheme of Chapter IV-A of the SARFAESI Act, as introduced by the Amending Act of 2016, leaves no manner of doubt that the object for its introduction is salutary. We have, in fact, discussed the noble objects that introduction of Chapter IV-A of the SARFAESI Act intends to achieve. The drastic power made available to a secured creditor by provisions contained in section 13 and the other provisions of the SARFAESI Act to dispossess the borrower/guarantor from the secured asset without intervention of Courts but necessarily upon compliance with the procedur....
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....arise in G. M. G. Engineers and Contractor Pvt. Ltd. (supra) and in Bank of Baroda (supra) at all. Interestingly, the Division Bench itself noted in paragraph 20 of the decision in ASREC (India) Ltd. (supra) that the said point had not been raised before any of the other High Courts. In the setting of such a factual position, it seems to us that rejection of the contention, as if law had been declared in the 4 (four) opinions of the High Courts, occasioned either through an oversight or a misreading of the said decisions. 131. In our considered opinion, on the face of the express provisions in sections 26D and 26E of the SARFAESI Act and in the absence of any discussion on the object of introduction of Chapter IV-A of the SARFAESI Act by the Division Bench in ASREC (India) Ltd. (supra), we are constrained to hold that a law has been declared which runs clearly contrary to the statutory mandate and, therefore, paragraph 21 of such decision does not represent the correct position of law. 132. The other Division Bench in State Bank of India vs. State of Maharashtra (supra) may not have considered sections 26D and 26E of the SARFAESI Act in such great depth in the absence of prop....
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....or revised return has been furnished without full payment thereof shall be paid forthwith. (ii) The amount of tax which it becomes necessary to pay on account of the reduction in set-off because of any contingency specified in the rules, shall be paid at the time prescribed for making payment of tax for the period in which such contingency occurs. (b) (i) The amount of tax due as per any order passed under any provision of this Act, for any period, less any sum already paid in respect of the said period; and (ii) the amount of interest or penalty or both, if any, levied under any provision of this Act; and (iii) the sum, if any, forfeited and the amount of fine, if any, imposed under the Act or rules; and (iv) the amount of tax, penalty and interest demanded in the context of excess availment of incentives or availment of incentives not due; and (v) any other amount due under this Act, shall be paid by the person or dealer or the person liable therefor into the Government treasury within thirty days from the date of service of the notice issued by the Commissioner in respect thereof: Provided that, the Commissi....
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....as to when a person can be said to have notice. It is provided therein as follows: "3. *** 'a person is said to have notice' of a fact when he actually knows that fact, or when but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it. Explanation I.-Where any transaction relating to immovable property is required by law to be and has been effected by a registered instrument, any person acquiring such property or any part of, or share or interest in, such property shall be deemed to have notice of such instrument as from the date of registration or, where the property is not all situated in one sub-district, or where the registered instrument has been registered under subsection (2) of Section 30 of the Indian Registration Act, 1908 (XVI of 1908) from the earliest date on which any memorandum of such registered instrument has been filed by any Sub-Registrar within whose sub-district any part of the property which is being acquired, or of the property wherein a share or interest is being acquired, is situated: Provided that- (1) the instrument has been registered and its r....
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....as arrears of land revenue, - (i) the Commissioner of Sales Tax shall have and exercise all the powers and perform all the duties of the Commissioner under the Maharashtra Land Revenue Code, 1966 (Mah. XLI of 1966); (ii) the Additional Commissioner of Sales Tax shall have and exercise all the powers and perform all the duties of the Additional Commissioner under the said Code; (iii) the Joint Commissioner of Sales Tax shall have and exercise all the powers and perform all the duties of the Collector under the said Code; (iv) the Senior Deputy Commissioner and the Deputy Commissioner of Sales Tax shall have and exercise all the powers (except the powers of confirmation of sale and arrest and confinement of a defaulter in a civil jail) and perform, all the duties of the Assistant or Deputy Collector under the said Code; (v) the Assistant Commissioner and the Sales Tax Officer shall have and exercise all the powers (except the powers of confirmation of sale and arrest and confinement of a defaulter in a civil jail) and perform all the duties of the Tahsildar under the said Code. (2) Every notice issued or order passed in exercise o....
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....articulars of the assessee and details of tax or other Government dues from such date as may be notified by the Central Government, in such form and manner as may be prescribed. 149. Although the said provision demands compliance by the Central Government, any State Government and any local authority entrusted with recovery of tax to file with the Central Registry any attachment order issued by it, avoidance of such compliance was attempted by referring to the fact that the form and manner of filing attachment orders have not yet been prescribed by rules framed under the SARFAESI Act and, therefore, sub-section (4) has still not been made operative. 150. The contention that rules are yet to be framed for making sub-section (4) of section 20B operational is wholly incorrect. By a notification dated 24th January 2020 issued by the Department of Financial Services in the Ministry of Finance, Govt. of India, published in the Gazette of India of even date, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) (Amendment) Rules, 2020 were duly notified whereby amendments were incorporated in the Securitisation and Reconstr....
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....beating of drum and such other mode as specified in section 192 of the MLR Code and rule 11(2) of the 1967 Rules before the property attached is sold. 154. We are of the considered opinion, on facts and in the circumstances, that unless attachment of the defaulter's immovable property is ordered in the manner ordained by the MLR Code and as prescribed by the MRLR Rules and due proclamation thereof is made, even the creation of charge on such immovable property may not be of any real significance, not to speak of demonstrating with reference to evidence that the transferee had actual or constructive notice of such charge. If there has been an attachment and a proclamation thereof has been made according to law prior to 24th January 2020 or 1st September 2016, i.e., the dates on which Chapter IV-A of the SARFAESI Act and section 31B of the RDDB Act, respectively, were enforced, the department may claim that its dues be paid first notwithstanding the secured dues of the secured creditors; but in the absence of an order of attachment being made public in a manner known to law, i.e., by a proclamation, once Chapter IV-A of the SARFAESI Act or section 31B, as the case may be, has been....
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....chaser to know the nature and value of the property. Sub-rules (7), (8) and (9) of rule 9 of the 2002 Rules lay down that: "(7) Where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him: Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of the money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days from the date of finalization of the sale. (8) On such deposit of money for discharge of the encumbrances, the authorized officer shall issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured cre....
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....re is basis". Having so participated, the prospective purchaser cannot wriggle out of the consequences and claim that the other dues are not payable by him if he cannot disprove constructive notice of the charge created on the property put up for auction sale. If indeed the department of the Government fails to act in terms of section 26B of the SARFAESI Act read with the 2011 Rules, consequences are bound to follow which have to be accepted by such department. 161. We, therefore, answer this question by observing that notwithstanding the duty of the authorized officer to indicate in the sale advertisement inviting bids the encumbrance(s) attached to the immovable property, i.e., the secured asset, as known to the secured creditor, if at all any detail in regard to such encumbrance(s) is not indicated but the sale is expressly made on "as is where is, whatever there is basis", the transferee shall be duty bound to deposit money for discharge of the encumbrance(s) provided, of course, that such liability may be overcome if he is in a position to disprove the claim of the department that he had no constructive notice of the charge, far less actual notice. 162. Having answered t....
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....e secured creditor to enforce the security interest. 168. In the affidavit in reply on behalf of the respondents 6 to 9, the action is sought to be justified on the ground that the secured asset stands in the name of the respondent no.2, the director of the respondent no.1, and under section 44(6) of the MVAT Act the directors are jointly and severally liable to pay the tax dues. A notice was issued to the directors on 15th January 2019 calling upon them to show cause as to why action under section 44(6) of the MVAT Act should not be initiated. As none appeared to show cause, an order came to be passed on 30th January 2019 holding the respondents 2 and 3, the directors of the respondent no.1, jointly and severally liable to pay the sales tax dues of the respondent no.1. 169. It would be contextually relevant to note that the petitioner had registered the security interest over the secured asset with the Central Registry on 17th February 2015. A copy of the search report evidencing registration in CERSAI portal came to be filed along with the additional affidavit dated 23rd November, 2021. 170. Evidently, the respondent no.1, the dealer is not the owner of the secured asset....
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....A of the SARFAESI Act was brought into force. 174. Conversely, there is no material to show that the secured asset was attached in accordance with law and the said attachment was followed by proclamation, prior to section 26E of the SARFAESI Act being enforced, thereby denuding the secured creditor of the preferential right under section 26E. 175. To sum up, the respondent no.6 as of date of the enforcement of Chapter IV-A of the SARFAESI Act was content with determination of the liability of the directors of the respondent no.1 and no action to enforce the liability so as to dislodge the superior claim of the secured creditor was taken. 176. We are thus inclined to allow the writ petition with the following orders: (a) The letter dated 9th March, 2018 addressed by respondent no.6 to the respondent no.5 stands quashed and set aside. (b) It is further declared that the order dated 30th January 2019 passed under section 44(6) of MVAT Act by the respondent no.6 against the respondents 2 and 3 does not constitute an embargo on the right of the petitioner to enforce the security interest in accordance with the provisions of the SARFAESI Act and the Rules. (c) ....
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....tes that the security interest was registered with CERSAI on 25th October 2017. The said registration would enure to the benefit of the secured creditor the moment Chapter IV-A of the SARFAESI Act was brought into force w.e.f. 24th January 2020 and the priority in payment thereunder would get cemented. 184. As noted above, the respondent no.1 professed to create a charge on the secured asset by recording an entry in the record of rights of the secured asset. Evidently, the said entry No.1211 was recorded on 20th March 2022, post enforcement of Chapter IV-A of the SARFAESI Act. Consequently, the said exercise does not displace the superior claim of the secured creditor with the enforcement of section 26E of the SARFAESI Act, on 24th January 2020. Even otherwise, the claim of the respondent no.1 partakes the character of a crown debt. 185. We have already noted that a crown debt enjoys no priority over the secured debt. Since the Income Tax Act, 1961 does not contain a provision like the one in section 37 of the MVAT Act, in a strict sense, there does not seem to be any scope for conflict between competing claims based on statutory provisions. 186. A factor which, however, a....
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.... be at the peril of the department. Mere recording of the purported charge in the record of right of the secured asset, in the absence of the registration with CERSAI, in our considered view, cannot be to the detriment of the auction purchaser, though the auction sale was on "as is where is and as is what is basis". 192. Mr. Sen, learned senior advocate appearing for the petitioner submitted that in the event the Court is persuaded to allow the writ petition, it is necessary to extend the time to adjudicate the stamp duty on the sale certificate and register the same. There are provisions in the Maharashtra Stamp Act, 1958 (sections 31 and 32) and the Registration Act, 1908 (sections 23 and 25) which stipulate the time for tendering the instrument for adjudication, determination of stamp duty thereon and registration of the instrument from the date of its execution. Since the petitioner had instantaneously lodged the sale certificate for adjudication, we are inclined to direct that the time commencing from the lodging of the said sale certificate till the decision of this writ petition, be excluded from consideration in computing the statutory period for adjudication of the stam....
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....s on 9th November 2017 under section 13(4) of the SARFAESI Act. At that stage, the petitioner found the attachment order dated 19th August 2017 pasted on the concerned premises. Upon inquiry, it transpired that the respondent no.3, Assistant Commissioner of Sales Tax, had proceeded to attach the assets of the company in liquidation for the alleged sales tax dues. Representation of the petitioner to the respondents 1 to 3 to remove the said attachment did not yield any response from them. The attachment dated 19th August 2017 constitutes an unjust impediment in the petitioner's endeavour to enforce the security interest by sale of the secured assets. Hence, this writ petition. 198. On the touchstone of the legal position, which we have attempted to expound hereinabove, we found that the security interest was registered with CERSAI in respect of Flat No.1002 on 24th April, 2017, and in respect of Flat Nos.1003 and 1004 on 22nd June, 2012 and, thus, with the enforcement of Chapter IV-A of the SARFAESI Act, the petitioner's right to have priority in payment stood crystalized on 24th January 2020. In paragraph no.154, we have specifically observed that if the immovable property of th....
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....2019, when the officers of the petitioner visited the secured asset, a notice for purported recovery of the sales tax dues of Rs.2,75,70,303/- was found pasted thereon. Respondents 3 and 4, directors of M/s. Global Gallarie Agencies Pvt. Ltd., were stated to be in arrears of the sales tax to the tune of Rs.2,75,70,303/- and, thus, the said property was attached. It further transpired that the secured asset was put up for auction sale on 23rd April 2019 by the Sales Tax Authorities by publishing the auction proclamation notice dated 8th March, 2019 (Exhibit H). Petitioner addressed a communication on 16th April 2019 to the respondent no.2 inter alia claiming right of priority in payment and asserted that it has also instituted proceedings, i.e., O.A.(L) No.396 of 2018 before the DRT for grant of recovery certificate. As the respondent No.2 did not remove the attachment, the petitioner was constrained to institute this writ petition seeking to quash the attachment order dated 1st December 2018 and the auction proclamation notice dated 16th March 2019. 205. Mr. Shah, learned counsel for the petitioner, submitted that the petitioner has registered the security interest with CERSAI o....
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....ecured asset) and thereby created a valid security interest therein, in favour of the petitioner. 213. As the respondents 4 and 5 as borrowers committed default in repayment of the installments, the accounts were declared NPA on 5th August 2016. A notice under section 13(2) of the SARFAESI Act was addressed to the respondents 4 and 5 on 16th September 2016. While the action for enforcing the security interest was underway, the petitioner noticed that on 18th November 2017, a letter was addressed by the Deputy Commissioner of Sales Tax, respondent no.1, to the Talathi, Tal. Baramati, Pune, to the effect that M/s. Hi-tech Engineering Corporation India Pvt. Ltd. owed a huge amount of Rs.10,12,38,061/- for the years 2010-11 to 2016-17 towards the sales tax dues and the arrears were likely to increase and, therefore, an encumbrance be noted on the land bearing Gut No.247 (the secured asset), which was the property of Mr. Sanjay J. Awate and Mr. Rajendra C. Ingawale (respondents 4 and 6), directors of M/s. Hi-tech Engineering Corporation India Pvt. Ltd. The said communication was followed by letter dated 29th December 2017. It seems vide Mutation Entry No.35661 dated 23rd December 201....
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.... for a sum of Rs.1,70,75,972/-; the order dated 2nd December 2015 granting installments for payment for the tax then due for the period 1st April 2013 to 31st March 2014, and the Assessment Order dated 31st March 2018 for 1st April 2013 to 31st March 2014 levying the demand of Rs.21,99,74084/-, which are annexed to the affidavit in reply. 219. In the light of the view which we are persuaded to take, we do not deem it expedient to delve deep into the aspects of the quantum of sales tax arrears and the period for which they were due. The materials on record, prima facie, indicate that M/s. Hi-Tech Engineering Corporation India Pvt. Ltd., of which the respondents 4 and 5 are the directors, was in arrears of huge amount towards sales tax since prior to advancement of the loan in question. A deed of simple mortgage dated 4th May 2016 under which the security interest came to be created in the secured asset, indicates that Hi-Tech Engineering Corporation India Pvt. Ltd. was one of the guarantors to the term loan of Rs.5 crore advanced to Mr. Sanjay Awate, its director. The assets of the dealer, Hi-Tech Engineering Corporation India Pvt. Ltd., enlisted in Schedule II were also mortgage....
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.....1878 of 2013. However, since the auction notice dated 26th May 2013 was not acted upon, the petitioners were allowed to withdraw the said writ petition. Petitioners claimed to have taken possession of all the five flats on 10th February, 2015. In response to a public possession notice issued by the petitioner no.1, the respondent no.1 raised objection to the action of taking over possession of the immovable property of Om Sai Auto World claiming the State had first charge thereon for recovery of sales tax dues under section 37 of the MVAT Act. 228. Amidst raging controversy over competing claims in respect of the secured assets, the petitioner no.1 claimed to have sold Flat Nos.601, 602 and 502, and issued auction notices to sell the secured assets, twice. Respondent no.1, on its part, issued auction notice to sell Flat No.503 on 1st January 2018 and Flat No.501 on 9th January 2018. The sale proclamation notice was issued on 17th January 2018 scheduling the sale on 22nd February 2018. 229. On 23rd January 2018, the respondent no.1 addressed a communication to the Chairman/Secretary of Omkareshwar Co-op. Housing Society Limited (in which the secured assets are situated) direc....
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....ed the subject flat for an amount of Rs.92,09,814/- which appears to be the reserve price for one flat only. 233. We deem it superfluous to delve into the thickets of facts. In the order dated 7th August 2019 the Division Bench recorded that the sale of the subject assets took place during the pendency of this writ petition, without taking prior permission of this Court. In that context, the Court declined to accept the prayer of the petitioners to retain the amount of Rs.92,09,814/- subject to furnishing an undertaking that the amount would be brought back, along with interest, in the event the writ petition is dismissed, and instead directed the petitioners to deposit the amount realized on the sale of the secured assets i.e. Rs.92,09,814/- with the registry. The said amount has, accordingly, been deposited. 234. For the determination of the controversy in this writ petition, in the backdrop of the questions of law which we have answered above, it would suffice to note that answers to question nos. (e) and (f) would govern the facts of the case. Undisputedly, the petitioners do not claim to have registered the security interest with CERSAI. The contention of Mr. Narula that....
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....the MRLR Rules. 238. In the backdrop of the materials brought on record by the respondents, especially in the form of the valuation reports issued by Archimage Designers (Annexures A and B to the affidavit in reply), which indicate that the distress sale value of Flat No.501 was shown at Rs.97,94,400/- and that of Flat No.503 at Rs.1,01,20,000/-, the sale of the secured assets for the purported reserve price of Rs.92,09,814/-, which in a sense, amounts to transfer by the right hand to the left, also leaves much to be desired. 239. In our view, the petitioners do not deserve any relief. 240. Since the subject flats were purchased by the petitioners during the pendency of this writ petition, without permission of the Court, we annul the sale and direct that the sale certificates in favour of the petitioners shall stand cancelled. Further, the amount of Rs.92,09,814/- deposited by the petitioners be returned to them along with interest accrued thereon. Also, it is needless to observe that the rights and liabilities of the parties shall be governed by the law which we have clarified. 241. Subject to the above, the writ petition stands dismissed. WRIT PETITION NO.3553 OF ....
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....avit. 247. At the outset, we may note that the averments in the writ petition remained uncontroverted. Facts seem to be rather incontrovertible. 248. In view of the registration of the security interest with CERSAI on the day Chapter IV-A of the SARFAESI Act was brought into force, the right of the secured creditor to have priority in payment stood reinforced. The State Tax authorities, as is evident, were content with addressing letters to the revenue authorities and the secured creditor to take note of its dues. It was on 5th October 2020, well past nine months of the enforcement of Chapter IV-A of the SARFAESI Act, the Assistant Commissioner of Sales Tax issued demand notice under section 178 read with section 267 of the MLR Code, warrant of attachment and order of attachment, in one stroke. 249. Since the predecessor-in-interest of the petitioner had initiated steps for enforcement of security interest under section 13 of the SARFAESI Act in the year 2013 and the right to enforce security interest got further fortified with the enforcement of Chapter IV-A, with effect from 24th January 2020, the subsequent action of the respondent no.1 does not supplant the right of pr....
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.... CERSAI on 30th May 2014. A copy of the security interest acknowledgment registration report is annexed to the said affidavit. 255. The averments in the writ petition are untraversed. The only document which appears to constitute a clog on the rights of the secured creditor is the extract of Mutation Entry No.1153. It was certified on 12th December 2019 based on an order passed by the Deputy Commissioner of Sales Tax, respondent no.3, on 6th July 2018, directing the revenue authorities to enter the encumbrance of the State for the sum of Rs.4,28,26,502/- towards the sales tax dues. 256. We have noted that mere creation of charge, in itself, is not enough. It does not appear that before the rights of the petitioner as a secured creditor, who had registered the security interest with CERSAI, were crystalized, with the enforcement of Chapter IV-A of the SARFAESI Act, the State tax authorities had not ordered the attachment of the secured asset in the manner known to law and followed it up with a proclamation. In the absence thereof, the priority created by section 26E of the SARFAESI Act operates with full force and vigor. Consequently, the writ petition deserves to be allowed. ....
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....etition. 263. Perusal of the record of right of the secured asset reveals that an encumbrance to the tune of Rs.3,62,33,272/- towards sales tax dues was entered in the other rights column at the instance of the Assistant Commissioner of Sales Tax, Aurangabad. Evidently, the respondents 2 and 3 do not seem to have initiated measures before the enforcement of Chapter IV-A of the SARFAESI Act, to enforce the first charge over the assets of the dealer by attaching the immovable property and putting up the same for sale in accordance with the provisions contained in MLR Code and the MRLR Rules. 264. In such circumstances, mere marking of encumbrance in the record of right of the secured asset does not advance the cause of the revenue. In the absence of such steps, and particularly with the enforcement of section 26E of the SARFAESI Act the right of the petitioner to have priority in payment deserves to be enforced in preference to the claim of the revenue. We are, thus, inclined to allow the writ petition. 265. The writ petition stands allowed and we order as follows: (a) Mutation Entry No.1132 recording encumbrance of sales tax dues in the record of right of the secur....
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....d that the security interest was duly registered with CERSAI on 12th March 2007. Copies of the general details of the security interest are annexed to the said affidavit. 270. The sales tax authority, respondent no.2, seems to have resorted to a two-pronged approach. First, it made an entry of encumbrance of the sales tax dues in the record of right of the secured asset. Next, it passed an order of attachment on 28th September 2020, i.e., after Chapter IV-A was introduced in the SARFAESI Act. 271. If we were to proceed on the basis of the additional affidavit dated 22nd November 2021, the writ petition would probably succeed. In the light of the view which we have recorded above, none of the measures is of any assistance to the revenue. A mere entry in the record of rights of the secured asset bereft of any order of attachment, followed by a proclamation in the manner known to law, is of no consequence. From the perusal of Mutation Entry Nos.1207 dated 7th January, 2015 and 1455 dated 23rd July, 2019, it becomes evident that the encumbrances were sought to be recorded merely on the basis of the communication addressed by the Sales Tax authorities. 272. As the order of atta....
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....immovable property, i.e., Amit Bungalow, situated at 2019, E-2, Ward K-37, 6th Lane, Rajarampuri, Kolhapur 416 008 (the secured asset) by depositing the title deed under letter dated 20th April 2009. 278. In view of the default in repayment of the loan amount, the petitioner initiated measures for enforcing the security under section 13 of the SARFAESI Act. Petitioner claimed to have eventually taken possession of the secured asset by publishing possession notice dated 17th March 2020. 279. In the intervening period, on 11th March 2020, the Deputy Commissioner of Sales Tax, respondent no.2, addressed a communication to the petitioner contending that the respondent no.4, was in arrears of sales tax dues to the tune of Rs.7,99,57,316/- and the department had already initiated process of recovery in the month of August 2017. As a part thereof, it was asserted, the secured asset was attached on 31st January 2018 and even possession thereof was taken on 28th March 2018 by publishing a notice in the daily Pudhari, Kolhapur. It was further contended that the copies evidencing the aforesaid action were already forwarded to the petitioner vide communication dated 16th October, 2018. Y....
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....2018 and that the possession notice was also published in the daily Pudhari, Kolhapur on 28th March 2018. Petitioner was further informed that a charge was noted in the record of right of the secured asset as well. Copies of the demand notice, order of attachment and possession notice published in the newspaper, were also forwarded along with the said communication dated 16th October 2018. 285. It is imperative to note that in the reply to the letter dated 11th March 2020, addressed on behalf of the petitioner, a stoic silence was maintained about the fact that vide communication dated 16th October 2018, the aforesaid facts were brought to the notice of the petitioner. What accentuates the situation is the fact that, in the said reply, an endeavour was made to demonstrate that Mrs. Maya Arvind Toley, respondent no.5, was not the director of the respondent no.4 and, therefore, the sales tax authorities were not entitled in law to attach the secured asset, which was the property of the respondent no.5. 286. We find that the said stand of the petitioner is in stark contrast to the substratum of the petitioner's claim that the respondent No.5 had furnished security in the capacit....
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....ved by sale of the secured asset. But as regards the buyer, the price paid would entitle the buyer to transfer of title in the secured asset free from any kind of lien either of the Bank or the State of Maharashtra. 3. Thus, we dispose of the Petition declaring that the unilateral assertion by the Sales Tax Officer in the letters dated 23rd June, 2016 and 7th July, 2016 that tax dues are the first charge on the property is void at this stage. 4. We permit the Petitioner to sell the secured assets but retain the sale value in a no lien account with it. 5. If the sale price satisfies the claim of the Petitioner as well as the State of Maharashtra that would be the end of the dispute. But if the sale price realized is less than the total dues of the Petitioner and the Respondent the issue could be sorted out at that stage by the Petitioner seeking a declaratory relief from this Court by way of a Writ Petition." 294. Petitioner claimed to have auctioned the secured asset and confirmed sale in favour of the successful bidder for a consideration of Rs.4,86,00,000/- and the said amount, according to the petitioner, does not cover even 50% of the outstanding a....
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....tioner was directed to take note of the 'first charge' and make a full disclosure to the prospective purchasers. It was further affirmed that on 30th June 2016, the department had informed the Chairman of the Heritage Co-op. Housing Society Ltd. as well to take note of the first charge and to not permit transfer of the secured asset, without NOC from the department. 299. The aforesaid correspondence emanating from the department, at best, shows that the department had levied a demand of the sales tax dues on the proprietor of K.K. Steel, the borrower, and asserted that under section 37 of the MVAT Act, the State had first charge on the asset of the assessee. In the two affidavits filed on behalf of the respondents, what is conspicuous by its absence is the assertion that the respondents had ordered attachment of the secured asset in conformity with the provisions of MLR Code and the MRLR Rules. No endeavour was made by the respondents to show that the warrant of attachment and order of attachment were issued and there was a proclamation of the attachment order. 300. Likewise, the Sales Tax Commissioners did not claim that they registered the claim with the CERSAI to adhere to th....