TaxTMI 
TaxTMI 
2023 (3) TMI 1066
X X X X Extracts X X X X
X X X X Extracts X X X X
....2022 and Respondent Nos. 12 and 13 in WPL 20484 of 2022. Mr. V.A. Sonpal waives service for Respondent Nos. 3 and 4- State in WPL 21538 of 2022. Mr. Himanshu Takke, AGP waives service for Respondent No.1 State in WPL 20484 of 2022. Mr. Manish Doshi waives service for Respondent No.2 in WPL 21538/2022. Rule is made returnable forthwith. By consent of the parties, both the Writ Petitions are heard together and are being disposed of by a common order. 2. Petitioner-Punjab National Bank (hereinafter referred to as "Petitioner Bank") has filed the Writ Petition (L) No. 20484 of 2022, inter alia, praying for a writ of Certiorari for quashing and setting aside the attachment order dated 22nd April, 2022 passed by the Assistant Commissioner of State Tax (hereinafter referred to as "Authority"). The Petitioner in Writ Petition (L) No. 21538 of 2022 has prayed for a writ of Certiorari for quashing and setting aside the attachment order dated 22nd April, 2022 passed by the Authority and further seeks an order and direction against Respondent No.2 Society to issue NOC to the Petitioners for effecting the transfer of the Secured Assets in its name, without any requirement of making payment o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Petitioner Bank which shows that the Security Interest of the Petitioner Bank was registered with CERSAI on 30th March, 2012. 7. On 23rd January, 2013, the Chief Metropolitan Magistrate (CMM) Mumbai passed an order under Section 14 of the SARFAESI Act to take physical possession of the secured asset. On 19th September, 2019, the physical possession of the secured asset was taken by the Petitioner Bank. The Petitioner Bank thereafter published various eauction notices. The last e-auction notice was published on 19th February, 2022 in Free Press Journal for sale of the secured asset at reserve price of Rs.7.54 crore. The e-auction was conducted on 10th March, 2022. 8. The Respondent Nos.12 and 13 (hereinafter referred as "auction purchasers") participated in the said e-auction and submitted a bid of Rs.7.55 crore along with 10% Earnest Money Deposit of Rs. 75 lacs. On 10th March, 2022, the Petitioner Bank confirmed the auction purchasers as highest bidder. The auction purchasers paid 25% EMD of Rs.1,88,75,000/- They requested for grant of extension of time until 30th April, 2022 for payment of balance 75% of the bid amount. The Petitioner Bank granted extension vide letter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, 2022. The auction purchasers vide their letter dated 21st March, 2022 requested Petitioner Bank to grant extension of time until 30th April, 2022 for payment of balance 75% of the bid amount. 14. It is the case of the auction purchasers that on 11th March, 2022, the flat purchasers visited the office of the Respondent No.2 (for short "the society") for understanding the transfer formalities and were informed that there there were pending dues on the Secured Asset towards society maintenance and electricity dues. On 25th March, 2022, the auction purchasers approached the Petitioner Bank about the outstanding dues of the society and the sales tax dues as informed to them by the society. The Petitioner Bank accordingly addressed a letter dated 25th March, 2022 to the Society informing about the sale of the Secured Asset to the auction purchasers and also informed that under Section 26E of the SARFAESI Act, the Petitioner Bank requested to issue No Objection Letter to the auction purchasers. 15. On 28th March, 2022, the society informed the Petitioner Bank about the pending society dues of Rs.23,21,452/- and also informed about the claim of Sale Tax Department of Rs.4,24,89,31....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia praying that the Petitioner Bank be restrained from forfeiting the 25% EMD amount deposited by the flat purchasers. The said application is pending before the DRT-I. On 6th July, 2022, the auction purchasers preferred this Writ Petition for various reliefs. In this petition filed by the Auction Purchasers, the Petitioner Bank and the said Society filed affidavits. Submissions on behalf of the Petitioner Bank 20. Ms. Savita Nangare, learned counsel for the Petitioner Bank invited our attention to various documents annexed to the writ petition filed by her client, Affidavit in Reply filed by the Respondent No.1 Authority and also the Additional Affidavit filed by the Petitioner Bank. She submitted that admittedly, the Secured Asset was mortgaged in favour of the Petitioner Bank by the borrowers, who had availed various credit facilities from the Petitioner Bank to an aggregate extent of Rs. 3944.85 lacs during the period between 2004 and 2009 and became defaulters and the Petitioner Bank had already taken symbolic possession of the Secured Asset on 21st March, 2022. 21. In pursuance to the action initiated by the Petitioner Bank under Section 14 of the SARFAESI Act, the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....session of the secured asset. The auction sale was successful and the auction purchasers were declared as successful bidder in the said e-auction conducted by the Petitioner Bank. She invited our attention to the impugned order dated 22nd April, 2022 passed by the Authority and submitted that the impugned order prohibiting an amount of transfer of secured asset, was passed on the premise that there were outstanding of Rs.4,62,27,317/- against M/s.Tuff Enterprises. She submitted that the said Tuff Enterprises was not a borrower of the Petitioner Bank. Learned counsel invited our attention to the impugned attachment order date 22nd April, 2022 issued by the Authority. 25. Learned counsel for the Petitioner Bank placed reliance on various paragraphs of the judgment delivered by the Full Bench of this Court on 30th August, 2022 in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai and Anr. in Writ Petition No. 2935 of 2018 and batch of Petitions. He submitted that the Petitioner Bank came to know about the alleged encumbrance on the secured asset only after the sale was conducted in respect of the secured asset in favour of the auct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra). It is submitted that the Respondent No.1 Authority had issued a notice under Section 33(1) of the Maharashtra Value Added Tax Act, 2002 to the IDBI Bank in respect of Flat No.181. No such notice under Section 33(1) of the MVAT Act was issued to the Petitioner Bank in respect of the flat No. 182. 29. Learned counsel invited our attention to the notice dated 9th July, 2015 issued by the Respondent No.1 Authority upon the society in respect of Flat No.181 to not to transfer the said flat without No Objection from the Respondent No.1 Authority. Admittedly, no such notice was issued by the Respondent No.1 Authority upon the society in respect of Flat No.182 i.e. the secured asset. It is submitted that even the said order of attachment dated 16th December, 2017 was passed in respect of Flat No.181 and not passed in respect of Flat No.182. 30. It is submitted that the Petitioner Bank had already informed the society on 8th February, 2022 about the Mortgage of the said secured asset with the Petitioner Bank and also about the physical possession thereof with the Petitioner Bank. Petitioner Ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o.1 Authority. Learned counsel submitted that consequent upon the registration of the security interest by the Bank in the year 2012 itself, the right of the Bank as secured creditor to be paid in priority crystalized on 24th January, 2020, the day Chapter IV-A of the SARFAESI Act was brought into force. 34. Learned counsel placed reliance on paragraph 256 of the judgment delivered by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra.) and submitted that this Court has considered the identical facts where 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, prior to rights of the Bank as secured creditor, who had registered the security interest with CERSAI, were crystallized. 35. Learned counsel for the Petitioner Bank placed reliance on the judgment in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra), and more particularly paragraph 299 and 300 of the said judgment and submitted that the Respondent No.1 Authority did not claim that they had registered the charge/attachment order with the CERSAI to adhere to the mandate contained in Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... registered at any point of time with CERSAI. He relied upon paragraphs 177 and 185 to 199 of the judgment delivered by the Full Bench in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra) and submitted that when the auction purchasers had visited the office of the society, as also secured asset i.e. Flat No.182, the Society did not inform them about the so called claim/charge of the Respondent No.1 Authority against the borrowers or any lien or attachment in respect thereof on the date of such period. 39. Learned counsel relied upon the averments made by the Society in its Affidavit dated 28th December, 2022 and also the Additional Affidavit filed by the auction purchasers. He submitted that the auction purchasers had visited the secured asset on four occasions. He relied upon the Affidavit filed by Rahul Kapoor, residing in the same building, in which the said secured asset is situated. He averred in the said Affidavit that when he had visited the secured asset, along with the auction purchasers, he could not see any notice of the State Tax Department or any other Government from time to time over the secured asset, intimating lien/charge on the secured asset. The socie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce of NOC by the Respondent No.1 Authority. He placed reliance on various paragraphs of the judgment delivered by the Full Bench of this Court. 44. It is submitted that there is no charge created or lien in respect of the said Flat No.182 by the Respondent No.1 Authority in records of the society. He submitted that the Respondent No.1 Authority had levied attachment on the secured asset only after auction of the secured asset by the Petitioner Bank in respect of which the Auction Purchasers were found as the successful bidders. The attachment has to be levied in accordance with the provisions of the Maharashtra Land Revenue Code which in this case are not complied by the Respondent No.1 Authority before levying the impugned attachment of the secured asset. It is submitted that right of the auction purchasers is based on the rights of the Petitioner Bank and thus knowledge of the auction purchasers about the sales tax dues, if any, is of no significance. 45. Mr. Sonpal learned Special Counsel for the Respondent No.1 Authority, invited our attention to the prayers in both the Writ Petitions. He submitted that auction of the writ property was admittedly held on 10 March, 2022 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The question of property claimed by the Petitioner Bank under attachment of assets of dealer did not arise. There is no cause of action in favour of the Petitioner Bank in as much as Respondent No.1 Authority has not acted, without prejudice to their rights to take the action, claiming priority in respect of sale proceeds of the writ flat No.182 or claimed sale proceed of the Petitioner Bank. 50. It is submitted by the learned special counsel that the issue whether there is mortgage or not or valid mortgage has to be adjudicated in trial in the suit to be filed against all the borrowers especially, when there is no defence taken by the borrowers at any stage. The auction purchasers has failed to pay balance consideration of the Sale to the Petitioner Bank. The Petitioner Bank has acted in terms of Rule 9 of the Securitization (Enforcement of Security Interest) Rules and forfeited the Earnest Money Deposit made by auction purchasers. He submitted that Petitioner Bank has forfeited Earnest Money Deposit, therefore, the Petitioner Bank does not have any power to revoke forfeiture and only option that remains with the Petitioner Bank is to re-advertise sale and enforce Security Inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... thus can be granted in favour of either the Petitioner Bank or the auction purchasers. 55. It is submitted that though the Petitioner-Bank is admittedly aware of the encumbrance of the society dues intimated to it, did not even disclose the arrears in the Advertisement, speaks volumes of malafide intention of the Petitioner Bank. He submitted that since the Petitioner Bank in the Advertisement for auction-sale has claimed default in payment of advance to business entities, therefore the Auction purchasers were duty bound to ascertain tax dues which they have failed to and therefore, constructive notice is with the auction purchasers and therefore, they can not avoid discharge of such Tax liability. 56. It is submitted by the learned special counsel for the Respondent No.1 Authority that Section 26E of the Securitization Act only provides for the distribution of the sale proceeds in priority to secured creditors and does not adversely affect the encumbrances capable of being enforced against the buyers of the property. He submitted that the Auction Purchaser never made any inquiry before bidding for sale with the society or tax authorities to ascertain the dues of the Respond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d June, 2022 i.e. just before filing of the Writ Petition and filed the report of new registration entry annexed at Exhibit-D to the Petition showing proof of registration of Security Asset of the CERSAI of the Petitioner Bank on the said Secured Asset. 61. Learned Counsel invited our attention to CERSAI Search Report annexed at Exhibit 'A' to the Additional Affidavit and submitted that the said report would clearly indicate that SI Creation date in filing was 26th March, 2004 and SI registration date in CERSAI Portal was 30th March, 2012 at 18:04. 62. Insofar as submission made by the learned special counsel for the Respondent No.1 Authority that the Petitioner Bank had forfeited the earnest money deposited by the auction purchasers and others and auction sale in favour of the flat purchasers by the Petitioner Bank stood cancelled is concerned, the Petitioner Bank through their Advocate's letter dated 29th June, 2022 addressed to the auction purchaser had clearly informed that, the Petitioner Bank had filed Writ Petition (L) No. 20484/2022 before this Court for lifting the attachment of the Respondent No.1 Authority and to seek necesary direction against the Respondent No.1 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the rights of the secured creditors are not affected even if there is any scheme in respect of the tax dues of the dealer payable to the Sales Tax Department. She submitted that the Petitioner Bank is not required to sell the mortgage property which is a secured asset in favour of the Petitioner Bank with a view to claim priority from the said property. 67. It is submitted by the learned counsel for the Petitioner Bank that 25% consideration amount was already deposited by the auction purchaser under Rule 9(3) of the said Rules. She submitted that the Petitioner Bank has right to withdraw or to press the order of forfeiting the earnest money deposit. The Petitioner Bank did not press the forfeiture order and approached for setting aside the attachment order and agreed to accept the balance 75% amount from the auction purchasers. 68. Learned counsel for the Petitioner Bank invited our attention to notice dated 22nd April, 2022 addressed by Respondent No.1 Authority to the Petitioner Bank informing that there were outstanding Sales Tax dues to the tune of Rs.4,62,27,317/- againt M/s. Tuff Enterprises and for recovery of the said amount, the Sales Tax Department initiated re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No.182 before the society. He submitted that no Special Leave Petition has been filed by the State Government against the judgment delivered by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.) 72. Learned AGP for Respondent No.3 submitted that the Society had communicated the claim of the Sales Tax Department to the Auction Purchasers and Petitioner Bank and thus both of them had notice of the prior claim of Respondent No.1 Authority against the dealer in respect of the said property. Reasons and Conclusions: 73. The question that fell for consideration of this Court is to whether the Petitioner Bank having registered mortgage of the secured asset with Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) will have priority to make its claim over the claims/charge of the Sales Tax Department arising out of the dues under the Maharashtra Value Added Tax Act, 2002 (MVAT) against the borrower to enforce the mortgaged writ property in favour of the Petitioner and more particularly, when the Sales Tax Deparatment had not registered its claim with CERSAI. 74. We have heard learned counsel for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 22nd April, 2022, Respondent No.1 Authority passed an order of attachment, attaching the immoveable properties which are the secured asset of the Petitioner Bank including the writ property. As per the said impugned order, Respondent No.3 as a proprietor of M/s. TUFF Enterprises had committed default in payment of Rs.4,62,27,317/towards Sales Tax Dues. Respondent No.1 informed the Petitioner Bank vide letter dated 22nd April, 2022, and conveyed the said impugned order to the Society on 4th May, 2022. 79. Under Section 32(5) of the MVAT Act, 2002, it is provided that any tax, penalty, interest, fine or sum forfeited, which remains unpaid after the service of notice under sub-section (4), or any instalment not duly paid, or any amount due or payable under this Act, shall be recoverable as an arrears of land revenue. 80. Under Section 37 of the MVAT Act, it is provided that Liability under this Act to be the first charge- "Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 filing of the particulars of the transaction for registration or modification or satisfaction shall be extended or, as the case may require, the omission or mis-statement shall be rectified. (2) Where the Central Government extends the time for the registration of transaction of security interest or securitisation or asset reconstruction or modification or satisfaction thereof, the order shall not prejudice any rights acquired in respect of the property concerned or financial asset before the transaction is actually registered. 85. The issue as to who will have priorty in view of Section 26E of SARFAESI Act was referred to the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.). The Full Bench of this Court considered the following questions:- (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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attachment order in its favour, shall have priority of claims over subsequent security interest created over the property in question, any transfer by way of sale, lease, assignment or licence of such property or attachment order subsequent to such registration. 87. This Court noted that since the equitable mortgage could be created without registration, the transaction between the lender and the borrower largely remained secret. There was no way anyone else could get an inkling thereof, until the provisions of CERSAI registration were enacted. This Court held that to curb such problems and other undesirable consequences, the Parliament 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 the secured creditor, if it has the CERSAI registration, to claim priority over all other debts and all revenues, taxes, etc. 88. It is held that Section 26E, also beginning with a non-obstante clause, is unambiguous in terms of language, effect, scope and import. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tered, 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. 92. Insofar as the judgment of the Division Bench of this Court at Nagpur Bench in case of Medineutrina Pvt. Ltd. (Company)(supra) relied upon by Mr. Sonpal, learned special counsel for Respondent No.1 Authority in Writ Petition (L) No.20484 of 2022 and for Respondent Nos. 3 and 4 in Writ Petition (L) No.21538 of 2022, is concerned, the Respondent No.1 provides for guidelines as to what steps shall be taken by the secured creditors under the SARFAESI Act to ensure that the property over as a secured interest is free from any encumbrances whatsoever at the time it is so offered initially, to avail financial credit by the owners. 93. The Special Leave Petition filed against the said judgment by the Petitioner Medineutrina Pvt. Ltd. (Company)(supra) in the said writ petition came to be dismissed summarily. The Full Bench of this Court has dealt with the said judgment of the Division Bench in the case of Medineutrina Pvt. Ltd. (Company) (supra). The Full Bench of this Court has taken a contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bank Limited (supra) thus, would not advance the case of Respondent No.1. 97. The Respondent No.1 Authority has raised an issue that in the advertisement issued by the Petitioner Bank, the advertisement itself had made it clear that the auction sale shall be on "as is where is, as is what is, whatever there is basis" and thus the auction purchasers are liable to pay all the statutory dues/attendant charges/ other dues including registration charges, stamp duty, taxes, statutory liabilities, arrears of property tax, electricity dues etc. Such clauses in the advertisement would not confer any priority of the claim of taxes in favour of Respondent No.1 contrary to Section 26E of the SARFAESI Act. Be that as it may, the issue of similar clauses have been already construed by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.). 98. In paragraphs 188 to 192 of the said judgment, this Court held that the non-registration of the claim and/or attachment order by the Sales Tax Authority under Section 26B(4) of the SARFAESI Act, can only be at the peril of the department. Mere recording of the purported charge in the record of right of the secured as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of the SARFAESI Act,2002. The Respondent No.1 Authority also had informed the Society that the auction purchasers were not declared as successful bidders of the Flat No. 182 by letter dated 25 March, 2022 under the provisions of the SARFAESI Act, the society was requested to provide its pending dues, if any in relation to the Flat No. 182. 103. Learned counsel for the Society urged that as per Section 26E of the SARFAESI Act, 2002, Respondent No.1 Authority had priority over all other debts and all revenues, taxes, cesses, and other rates payable to the Central Government or the State Government or the local authorities. The Society informed the Petitioner Bank that there was a claim of Sales Tax Department in respect of Flat No. 181 vide letter dated 28 March, 2022. 104. The learned counsel for the society during the course of his argument vehemently urged that there is no attachment levied by the Respondent No.1 Authority in respect of the Flat No. 182 which is the subject matter of the present Petition. However, out of abundant caution and in view of the fact that the said Mr. Shankarlal Jain was a common co-owner of the said Flat No.181 and the said Flat No.182, and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eneral Manager, Sri Siddeshwara Cooperative Bank Limited (supra) has interpreted Rule 9(4) of the Securitization Interest (Enforcement) Rules, 2002 and held that, the provisions of Rule 9(1) being for the benefit of the borrower and the provisions contained in Rule 9(3) and 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right. These provisions neither expressly nor contextually indicate otherwise. The interpretation by the Supreme Court in the case of General Manager, Sri Siddeshwara Cooperative Bank Limited (supra), clearly applies to the facts of this case. We are respectfully bound by the said principles. 109. Perusal of the correspondence exchanged between the Petitioner Bank and auction purchasers indicates that though at one stage the Petitioner Bank had addressed a letter thereto, forfeiting the earnest money deposit of 25%, the fact remains that in view of the attachment order passed by the Respondent No.1 Authority before expiry of three months, neither the Petitioner Bank could recover the balance amount nor auction purchasers could pay any such amou....