TaxTMI 
TaxTMI 
2023 (9) TMI 310
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....Bank, Asset Recovery Management Branch. The 2nd respondent had purchased the land and building together with plant, machineries, accessories etc., belonging to M/s.Tamil Nadu Sponge Limited, pursuant to the sealed tender invited by DRT, Coimbatore in TA.No.995/2002, which was filed by ICICI Bank Limited, IDBI and IFCI. The DRT, Coimbatore had received 16 tenders and out of which the 2nd respondent-Company was declared as highest bidder and on remittance of entire sale price, the DRT, Coimbatore issued sale certificate on 30.09.2003 in favour of the 2nd respondent. 3. The sale certificate was duly registered as Document No.566/2004 SRO, Omalur in favour of the 2nd respondent, in respect of the properties morefully described in the affidavit filed in support of the writ petition. 4. The 2nd respondent-Company had availed various credit facilities from the petitioner-Bank from time to time in order to run its business operations on the aforesaid property and the last credit facilities, namely, cash credit facility, working capital demand loan, term loan (9Nos) LG, LC and A & E were extended by the petitioner-Bank for Rs. 241.52 Crores and in order to secure the aforesaid credit ....
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....ing the dues to the other creditors does not arise at all. 7. The 1st respondent being an un-secured creditor does not have precedent over the secured creditor in the light of Section 26-E of the SARFAESI Act and Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993. 8. As per Section 142-A of the Customs Act, the petitioner is entitled to have first charge over the debts and knowing the fact that the 1st respondent, being an unsecured creditor, the attachment was made by the 1st respondent and therefore, the present writ petition is to be considered. 9. The petitioner states that in the absence of specific provisions in the Central Excise Act as well as in Customs Act, the claim of secured creditor will prevail over Crown's debts. The petitioner-Bank being a secured creditor, the Deputy Commissioner of Central Excise is not entitled to bring the property in auction. The petitioner-Bank had sent letters to the 1st respondent to lift the attachment on the secured property. But the first respondent refused to do so. Thus, the petitioner is constrained to move the present writ petition. 10. The learned counsel, appearing on behalf of the petitioner, mainly con....
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....laim of others. (iii) Since there is no specific provision claiming "first Charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditors viz. the Petitioner Bank. (iv) In the absence of much specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts". ii) Civil Appeal No. 2196 of 2012, Punjab National Bank Vs. Union of India and others. The Hon'ble Apex Court reiterated aforesaid position against the Central Excise Department. iii) As per Section 142A of the Customs Act(came into force by Section 51 of the Finance Act, 2011) which runs as follows. "Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person, under this Act, shall, save as otherwise provided in Section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation....
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....e are Two other Respondents along with the 1st Respondent, the main lis to be decided is between the Petitioner and the 1st Respondent i.e., the Assistant Commissioner of Central Excise and Service Tax. All the averments in the Affidavit accompanying the Writ Petition alleges cause of action against the 1st Respondent only. Similarly, the Grounds raised in the Writ Affidavit are only against the 1st Respondent. The 2nd Respondent is not a necessary party as the property belonging to them has already been sold by the Petitioner under SARFAESI Act. There are no averment or grounds raised against the 2nd Respondent. The 3rd Respondent is only a formal party and there is no real lis/ dispute between the Petitioner and the 3rd Respondent. There are no averment or grounds raised against the 3rd Respondent. 4. Wrong fora Since the main lis in this Writ Petition is between the Petitioner and the 1 Respondent, mandatory procedure has not been followed. The Petitioner is a Nationalised Bank and owned by the Government of India and the 1st Respondent is a Department of the Central Government. Whenever Two departments of the Central Government or through its....
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....ood that the SKM Animal Feds and Foods (India) Private Limited was the successful bidder for LOT I having property ID IOBA15510003 for Rs. 105,35,08,000/- against the reserve price of Rs. 92, 15,08,000/-. i) At this juncture, this Respondent is unable to understand as to how LOT I was further split and that Two different Sales Certificates were issued to the successful bidder, one for Movable and another for Immovable. j) It is pertinent to note that LOT I nowhere uses the word "movable" and it is also pertinent to note that the reserve price for LOT I is for all three items in that LOT and there is no independent split up for each Item under LOT 1. k) Though the reserve price for LOT I Is for all three item together and that no Independent break up has been given for each item, it is required to take note that the alleged sale of movables fetched Rs. 65 crores approximately and the sale of immovable i.e., land and building fetched only Rs. 39 crores approximately. This means movable realized 26 approximately than the sale of immovable. This peculiar fact appears very strange as normally/ generally sale of immovables such as land and building would fetch ....
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....on that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to he secured creditor or not. Even going by the Petitioner's own Sale Certificate bearing Stamp Paper No. CU 330007, the Petitioner himself admits and enlists this Respondent as 'known encumbrance' for Rs. 30,24,15,407/-. Once the Petitioner himself admits the same in the Sale Certificate that there is encumbrance, this Respondent fails to understand how this Writ Petition is maintainable, more particularly when the prayer is to remove the encumbrance. 8. Registration of Sale certificate, not mandated by law Registration of Sale Certificate is not compulsory under Law - Bell Tower Enterprises LLP vs. State of Tamilnadu & Ors 2022(5)CTC 454. 9. Judgments relief by Petitioner, not precedent Judgments relied by the Petitioner not binding precedent. Judgments hit by rule of Sub-Silentio. Municipal Corporation of Delhi vs. Gauram Kaur AIR 1989 SC 38. All judgment quoted by the Petitioner does not pertain to issuance of Sale Certificate. They are with respect to a situation pertaining sale notice or situation before confirmation of Sale. ....
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....g Authority for entering the same in Book-I. Thus, for removal of attachment from the Encumbrance Certificate, such attachment should be lifted. Without lifting the attachment, if the Encumbrance is cleared, then it will project false information to the public in general. Such false information if allowed in the encumbrance certificate, there is a possibility of fraud, impersonation etc. Therefore, in terms of Section 22-B of the Registration Act, the attachment, if any, by the Central Government or State Government, is to be lifted and on production of such order, the Registering Authority would be in a position to remove such entries in the Encumbrance Certificate. The dispute between the petitioner-Bank and the 1st respondent is unconnected with the procedures to be followed by the Registering Authority under the provisions of the Registration Act, 1908. If the documents presented by the presentent is in consonance with the provisions of the Registration Act, then the Registering Authority would be in a position to follow the procedure and register the same or to make necessary entries in the encumbrance Certificate, which is consequential. Simply a request given by the Bank to ....
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....t has to settle the dues to the Commercial Tax Department, Omalur for Rs. 1,14,23,179/-, The Central Excise and Service Tax, Salem District for Rs. 30,24,15,407/- and the Tamil Nadu Electricity Board has claimed a sum of Rs. 10,35,65,898/- for power consumption to the company. All these Statutory dues are on one hand and the dues to the petitioner- Bank, who is the secured creditor holding first charge over the property is running to the extent of Rs. 714.39 Crores. 20. Thus the question arises, whether the procedures followed by the Bank under the provisions of the SARFAESI Act and Rules are proper or otherwise. 21. As rightly pointed out by the 1st respondent, there is no proof on record filed by the petitioner to show that the sale certificate was properly sent by the Authorised Officer to the 3rd respondent for making entries as contemplated under Section 89(4) of the Registration Act. In the absence of any such proof, the relief as such sought for against the 3rd respondent is not entertainable and is pre-mature. The 1st respondent has further stated that the Writ of Mandamus is not maintainable since the entry in the Encumbrance certificate could be quashed but by merel....
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....s or further cost, expenses and interest as may be determined by him." ● Sub Rule (8) to Rule 9 states that "On such deposit of money for discharge of the encumbrances, the authorised officer may 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." ● Sub Rule (9) to Rule 9 denotes that "The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above." ● Sub Rule (10) to Rule 9 indicates that "The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not." 24. Pertinently, in the present case, the sale certificate issued by the authorised officer indicates that there are known encumbrances to Commercial Taxes Department, Omalur; Central Excise and Service Tax, Salem Division and Tamil Nadu Electricity Board. When, there are known encumbrances at the time of auctioning ....
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....ditors/ Banks. 28. On issuance of sale certificate under Sub Rule (6) to Rule 9, the purchaser may be allowed to deposit the money required to discharge the other encumbrances. On such deposit of money, the encumbrances may be cleared by the authorised officer. After clearing all the encumbrances, the authorised officer shall deliver the property to the purchaser free from any encumbrances. Sub Rule (10) to Rule 9 denotes that " The certificate of sale issued under Sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not." 29. Therefore, the secured creditors are empowered to make two kind of auction sales. Firstly they can auction the secured assets and issue sale certificate under the form given in Appendix-V of the Rules by indicating the other encumbrances. While indicating the other encumbrances, steps have to be taken by the secured creditors to clear the other encumbrances. Thereafter, under Sub Rule (9) to Rule 9, the authorised officer shall deliver the property to the auction purchaser, free from encumbrances. The process does not complete on issuance ....
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.... sale certificate cannot be registered under the Registration Act nor encumbrances made can be removed without lifting the same. 32. Question arises, whether the interest of the third party purchaser can be protected in such circumstances, when the sale certificate was issued with encumbrances? The simple answer is that the third party auction purchaser, knowing the encumbrances notified by the secured creditor, has purchased the property through public auction. When the purchaser is aware of the encumbrances, then he has to discharge the encumbrances and convert the sale free from encumbrances for the purpose of registering the sale certificate or for alienating the property. By Applying the principles of Caveat emptor, the third party purchaser, who purchased the property through public auction was made aware of the encumbrances. Once the purchaser has the knowledge about the encumbrances and purchased the property through auction, then it is his obligation to discharge the encumbrances and convert the encumbered property free from encumbrances. The Bank cannot file a writ petition so as to protect the interest of the third party, who has purchased the property knowing the fac....
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....emove the same. 36. Registering Authority, under the Registration Act is bound by the provisions of the Act. When the Sale Certificate was issued with known encumbrances and the auction purchaser purchased the property accepting the known encumbrances, the Registering Authority is empowered to refuse registration, so also he cannot remove encumbrances. 37. The auction purchaser is made aware of the known encumbrances by the secured creditors. The secured creditors, to cover up their misdeeds, cannot file a writ petition and seek a direction against the Registering Authority to remove the encumbrances, which would deprive the other non-secured creditors from realising their dues. Importantly, such directions, if issued to remove the encumbrances, the public in general would be misled on account of such entries in the public records and there is a possibility of fraud, misrepresentation or otherwise at the time of further alienation of properties. Further the non-secured creditors and the statutory creditors would loose their opportunity to recover their dues permanently. The principle of 'Buyer Beware' would be applicable in respect of the auction purchase made by the ....