TaxTMI 
TaxTMI 
2023 (10) TMI 867
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....us or any other appropriate writ, order or direction directing the Respondents to effect transfer of the leasehold rights of Plot Nos. 1 to 7 in Phase-III of Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh (measuring 14,846 square meter) in favour of the petitioner. 2. FACTUAL MATRIX: 2(i). M/s Jaimurthy Minerals & Chemicals Pvt Ltd (hereinafter referred to as the Original Lessee), entered into two lease deeds on 17th October, 2003 and 23rd August, 2004, Annexure P-1 and Annexure P-2, with the State Government, through General Manager, District Industries Centre, Nahan, District Sirmaur for leasing out its Industrial Plots No 1 to 7, in Unit-II, measuring 14846 square meters, in Phase-III, Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh. Consequent upon the execution of lease deeds, the Original Lessee decided to raise finances from Bank of Baroda, for which he deposited both these lease deeds and mortgaged these Industrial Plots with the Bank. Thereafter the Bank-secured creditor advanced loan to the borrower-Original Lessee as aforesaid. 2(ii). Due to the default in payment of loan by the Original Lessee, the secured ....
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.... with the request to issue the No Objection Certificate and to transfer the lease hold rights in favour of the petitioner. In response to Annexure P-6, the Respondent No 1, gave a reply to the petitioner on 7/11.10.2022, Annexure P-7, enclosing a copy of the letter dated 7.10.2022, directing the petitioner to deposit an additional sum amounting to Rs. 46,06,175/-(Fourty Six Lakh Six Thousand One Hundred Seventy Five Only) and GST @ 18% of Rs. 8,29,112/- on account of the unearned premium i.e. the differential amount of Industrial Plot which existed at the time of execution of initial lease deed vis-à-vis the market value existing on the date of auction/ sale. Surprisingly, in this letter, a condition No 7 was inserted for the first time whereby, the permission for transfer of Lease Holds Rights of these plots was given in favour of petitioner-auction purchaser without prejudice to the rights of the State Excise and Taxation Department (H.P) to recover its outstanding dues either from the secured creditor or from successful auction purchaser or from original lessee who had mortgaged the lease holds rights in favour of the Bank-secured creditor. In compliance to Annexure P-7, ....
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....r the withdrawal or for exemption of condition No 7 was not tenable in view of Clause 2(vi)(a) of the lease deed when, the petitioner having stepped into the shoes of the Original Lessee-M/s Jaimurthy Minerals & Chemicals Pvt. Ltd, who had an outstanding tax liability of Rs. 17,19,96,478/- i.e. (Seventeen Crore Nineteen Lakh Ninety Six Thousand and Four Hundred Seventy Eight Only) towards the State Excise and Taxation Department as mentioned in the communication dated 24.05.2019 Annexure R-5 and Annexure R-6 and the petitioner cannot escape the liability; and (v) the writ petition was stated to be not maintainable for non-joinder of necessary parties. In this background, the respondents have prayed for the dismissal of the writ petition. 4. We have heard Ms. Shilpa Sood, learned counsel for the petitioner and Mr. Anup Rattan, learned Advocate General assisted by Mr. I.N. Mehta, learned Senior Additional Advocate General for the respondent- State and have perused the pleadings. 5. The following questions arise for determination in this case:- (i) Whether the petitioner being bonafide auction purchaser of the secured assets {Industrial Plots} under SARFAESI Act could b....
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....f the Security Interest (Enforcement) Rules, 2002. Notably, once the Bank had specifically represented to the general public that "no encumbrances known to the bank existed" then, any post-sale confirmation encumbrance, cannot be fastened or enforced against the petitioner. 6(ii). The second objection that petitioner-auction purchaser had been negligent as he had not shown diligence and had not made discreet inquiry from the Government functionaries regarding encumbrances, lien, charge, dues, taxes etc. as per condition No 16 of sale notice dated 10.12.2021, Annexure P-3, is without any substance. In this context, it is pertinent to note that firstly, once the Bank had clearly represented in the sale-notice dated 10.12.2021, Annexure P-3, that "there were no encumbrances known to bank" as per mandate of Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002 then, the condition No 16 mentioned in sale notice cannot be applied/invoked in such a situation, as in the instant case ; secondly, the condition No 16 could only operate in a situation where the Bank was not aware of the encumbrances i.e. lien, charges dues, taxes etc over the scheduled property ; thirdly, the c....
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....he original allottee prior to the issuance of the sale certificate; thirdly, in the aforesaid matter(s), auction purchaser had executed agreement that they shall bear the past liability of encumbrances, dues, taxes, etc. which factors are absent in the present writ petition; fourthly, in the aforesaid matters, the State of Maharashtra had also informed the secured creditor-Bank about the creation of charge, passing of attachment orders, outstanding encumbrances and these facts were reflected in the sale notice and in sale certificate whereas all these material aspects are absent in the instant petition; fifthly, the condition No 16 can neither be attracted nor invoked dehors the mandate of Rule 8(7)(a) which came into force w.e.f. 18.10.2018 in the Security Interests (Enforcement) Rules, 2002 ; sixthly, this condition cannot apply or operate to the disadvantage of petitioner ; seventhly, in the aforesaid matter, the provision of Section 26 B (4) of SARFAESI Act which came into force w.e.f. 24.1.2020 was not in issue ; and in view of the above discussion, the plea of the respondents in the reply is not tenable on facts and in law. 6(iv). The fourth objection in the reply that as ....
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....ttributable to the business of the original lessee for the period from 2012 to 2015; thirdly, there was no express covenant in original lease deed(s) that the transferee of secured assets-Industrial Plots will bear the "liability arising out of or accruing from and connected with and solely attributable to the business of the original lessee"; fourthly, the petitioner-auction purchaser had purchased the immovable property i.e. Industrial plots and not the business concern of the original lessee M/s Jaimurthy Minerals & Chemicals Pvt. Ltd. In view of the above discussion, the respondents cannot fasten the business liability of original lease on the petitioner-auction purchaser and the condition No 7 imposing the liability of the original leasee on the petitioner does not conforms to law and is otherwise also unreasonable and arbitrary is set aside qua the petitioner. 6(v). The fifth objection in the reply that the petition is bad for non-joinder of parties is without merit, when the petitioner being the dominus litis has challenged the imposition of condition No. 7 as contained in the letter(s) dated 11.10.2022, Annexure P-7 and dated 13.12.2022, Annexure P-9, issued by responden....
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....0, that the non-obstante clause in Section 26E of SARFAESI Act shall prevail over the MSMED Act and even in case a non-obstante provision exists in two enactments then also, keeping in view the object of the SARFAESI Act, the non-obstante clause in the subsequent enactment would prevail over the earlier enactments in view of Section 35 of the SARFAESI Act. That being so, the dues of secured creditors shall prevail over the dues, taxes or cesses payable to the Central government or the State Government or local authority. In this background, the Hon'ble Apex Court has held as under:- "26. The short question which is posed for the consideration of this Court is whether the MSMED Act would prevail over the SARFAESI Act? The question is whether recovery proceedings / recoveries under the MSMED Act would prevail over the recoveries made / recovery proceedings under provisions of the SARFAESI Act? 27. It is the case on behalf of respondent No. 1 that in view of Section 24 of the MSMED Act which provides that the provisions of Sections 15 to 23 of the MSMED Act would have overriding effect and shall have effect notwithstanding anything inconsistent therewith contained in....
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....itor -financial institution. Therefore, in absence of any specific provision for priority of the dues under MSMED Act, if the submission on behalf of respondent No. 1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment/SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No. 1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26 E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. 33. Even otherwise the Naib Tehsildar was not at all justified in not taking possession of the secured assets / properties as per order dated 24.09.2014 passed by the District Magistrate under Section 14 of the SARFAESI Act. The order passed by the Naib Tehsildar refusing to take possession of the secured assets / properties despite the order passed under Section 14 of the SARFAESI Act on the ground that recovery certificates....
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....gee or pledgee of goods or a Secured Creditor." 47. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors. (2007) 8 SCC 353, while adjudicating a similar matter, this Court has held as under: "18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant-bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the ....
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....tained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 54. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q (2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944". (Underlining Ours....
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....f Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529 A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the States statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14¬A of the Workmen's Compensation....
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....efore, the contention of the Revenue built on a claim of right over properties fails, without any further requirement for expatiation; corollarily, enjoining me to consider if the provisions of the KGST Act/KVAT Act would still grant to the Revenue the First Right to proceed against it for recovery of the tax arrears. 40. It is here that the specific provisions of Section 26E of the SARFAESI Act and Section 31B of the RDB Act become necessary for a detailed evaluation. 41. As has been extracted above, Section 26E of the SARFAESI Act provides that the debts due to any secured creditor shall be paid in priority over all other debts and all revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. Section 31B of the RDB Act takes this one step forward and elevates the right of the secured creditors to realise their debts, by sale of the secured assets, to enjoy priority and then re-affirms that such debts will be paid in priority over the revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. It is thus irrefragable and in fact, expressly conceded to by th....
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....ning of the Hon'ble High Court of Kerala that after coming into force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/ Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory "first charge" in favour of the Revenue. 26. It is also necessary to take note of one fact that though Section 26E of the SARFAESI Act has come into force from 24.01.2020, yet the same will not have any effect on the issue of the Banks/Financial Institutions having first charge on the property of the dealer, as the provisions of Section 31B of the RDB Act shall override the provisions of Section 26 of the HP VAT Act, 2005, especially in view of the observations contained in the judgment of Hon'ble Supreme Court in Central Bank of India's case (supra). 36. Therefore, this Court has no hesitation in holding that the petitioners being "Secured Creditors" have preference over the respondent- State with regard to the debts due from respondent No. 4. Accordingly, this writ petition is allowed by quashing Annexure P-10, dated 24.06.2017 and by holding that the respond....
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....o (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant-bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of....
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....aving regard to the provision contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 44-46...xxx...xxx... 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions....
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....to register the Sale Certificate dated 15.01.2021, Annexure P-3, and to carry out the Mutation thereof, in favour of Respondent No. 6-Auction Purchaser, amounts to not only frustrating the statutory provisions of Section 26E of SARFAESI Act, enacted in the year 2016 but also amounts to curtailing or defeating the rights accruing to the Auction Purchaser-Respondent No. 6 herein, under the SARFASEI Act and the dictum of law laid down by the Hon'ble Apex Court, in case of Punjab National Bank and Kotak Mahindra Bank (supra) and the judgment of the Coordinate Bench of this Court in LPA No. 156 of 2021 (supra), and, therefore, the impugned order(s) passed by the State Authorities in disallowing registration of Sale Certificate and the consequential mutation etc. being dehors the provisions of SARFAESI Act and the mandate of law, referred to above, are illegal and unsustainable." 8. LEGAL POSITION: RIGHTS OF BONAFIDE AUCTION PURCHASER UNDER SARFAESI While dealing with the rights of an auction purchaser in the context of the object and regime of the SARFAESI Act and Rules issued thereunder, the Hon'ble Apex Court has held in Authorised Officer, State Bank of India vs. C. Natarajan &....
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....earing the glasses of misplaced sympathy. Law is well settled that a result flowing from a statutory provision is never an evil and that a court has no power to ignore that provision to relieve what it considers a distress resulting from its operation. The statute must, of course, be given effect to whether a court likes the result or not. This is the statement of law in the decision of this Court in Martin Burn Ltd vs The Corporation of Calcutta...". (Underlining ours) 8(i). The issue of sanctity of public auctions and the rights of an auction purchaser which had fructified on issuance of the sale certificate cannot be nullified, defeated, obstructed, frustrated, restricted nor curtailed, whittled down or extinguished in any manner has been approved by the Hon'ble Apex Court in the case of K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple & Ors, (2002) 5 SCC 710. The relevant observations are reproduced below: "14. Once the appellant was found to be the highest bidder in a public auction in which 45 persons had participated and thereafter when the sale was confirmed in his favour and even the sale deed was executed, unless and until it was fou....
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....e on the basis of such frivolous and irresponsible representations made by such persons then the sanctity of a public auction would be frustrated and the rights of a genuine bidder would be adversely affected." (Emphasis supplied) 8(ii). The Hon'ble Apex Court in Shakena & Anr versus Bank of India & Ors, (2019) 11 SCALE 59, has been held that after incorporation of amended Section 13(8) of the SARFAESI Act, 2002 w.e.f. 1.9.2016 that the rights of an auction purchaser crystallize on issuance of sale certificate and registration of such certificate is not essential and the borrower can only redeem its mortgaged property before the date of the publication of sale notice by depositing amount and such right was not available thereafter when the rights title and interest of the auction purchaser-subsequent purchaser have matured. Paras 5, 6, 24 and 29 are reads as under:- "5. The highest bidder (respondent No 3) in the meantime had complied with all the terms and conditions of sale as a result of which the sale was confirmed in his favour. In that, he paid the entire sale consideration of Rs. 42,51,000/ (Rupees Forty Two Lacs Fifty One Thousand Only) by 4th January, 2006. ....
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....of the 2002 Act which has come into force w.e.f. 1st September, 2016, will now stare at the face of the appellants. As per the amended provision, stringent condition has been stipulated that the tender of dues to the secured creditor together with all costs, charges and expenses incurred by him shall be at any time before the "date of publication of notice" for public auction or inviting quotations or tender from public or private deed for transfer by way of lease assessment or sale of the secured assets. That event happened before the institution of the subject writ petitions by the appellants." 8(iii). The deprivation or curtailment of rights and benefits which have accrued to an auction purchaser has been deprecated by the Hon'ble Apex Court in Sadashiv Prasad Singh vs. Harender Singh & Ors, (2014) 1 SCALE 230, and the relevant paras read as under:- 12. Learned counsel for the auction purchaser Sadashiv Prasad Singh, in the first instance vehemently contended, that in terms of the law declared by this Court, property purchased by a third party auction purchaser, in compliance of a court order, cannot be interfered with on the basis of the success or failure of partie....
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.... (Emphasis is Ours) 15. At the time of hearing, we were thinking of remanding the matter to the Recovery Officer to investigate into the objection of Harender Singh under Rule 11 of the Second Schedule to the Income Tax Act, 1961. But considering the delay such a remand may cause, we have ourselves examined the objections of Harender Singh and reject the objections for a variety of reasons. Firstly, the contention raised at the hands of the respondents before the High Court, that the facts narrated by Harender Singh (the appellant in Special Leave Petition (C) No. 26550 of 2010) were a total sham, as he was actually the brother of one of the judgment-debtors, namely, Jagmohan Singh. And that Harender Singh had created an unbelievable story with the connivance and help of his brother, so as to save the property in question. The claim of Harender Singh in his objection petition, was based on an unregistered agreement to sell dated 10.1.1991. Not only that such an agreement to sell would not vest any legal right in his favour; it is apparent that it may not have been difficult for him to have had the aforesaid agreement to sell notarized in connivance with his brother, for....
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....aving purchased the property in furtherance of a duly publicized public auction, interference by the High Court even on ground of equity was clearly uncalled for. For the reasons recorded hereinabove, we are of the view that the impugned order dated 17.5.2010 passed by the High Court allowing Letters Patent Appeal No. 844 of 2010 deserved to be set aside. The same is accordingly set aside. The right of the appellant Sadashiv Prasad Sinha in Plot No. 2722, Exhibition Road, P.S. Gandhi Maidan, patna, measuring 1289 sq.ft. is hereby confirmed. In the above view of the matter, while appeal preferred by Sadashiv Prasad Sinha stands allowed, the one filed by Harender Singh is hereby dismissed." (Underlining ours) 8(iv). LEGAL POSTION: EXTINGUISHING RIGHTS OF AUCTION PURCHASER ONLY IN EVENT OF COLLUSION OR FRAUD While dealing with the rights of an auction Purchaser, who had purchased the assets of company in liquidation, it has been held that after issuance of the letter of confirmation of sale, the rights which accrue in favour of the auction-purchaser cannot be defeated, curtailed or extinguished except in case of fraud or collusion, as held by the Hon'ble Apex C....
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....le certificate, in the context of the scheduled immoveable property i.e. the industrial plots purchased by him in the E-auction under SARFAESI Act cannot be nullified, defeated, obstructed, frustrated, restricted, curtailed, tinkered with or extinguished in any manner either by the Bank or State Authorities and the petitioner has every right to get benefit of such property for all intends and purposes, by getting the said immoveable property entered in revenue records as lessee in the instant case {or as an owner in other cases, as the case may be}. Accordingly, the action of Respondents-State Authorities in imposing the condition no 7, in the impugned orders dated 11.10.2022 and 13.12.2022, Annexures P-7 and P-9, which extinguishes or curtails or restricts the accrued and vested rights, interests and benefits acquired by the petitioner auction purchaser amounts to defeating the object and sanctity of auction under the SARFAESI Act and the Rules and therefore, the impugned orders-action, in fastening the business liability of the Original Lessee (or the erstwhile owner as the case may be generally), does not stand the test of judicial scrutiny and these impugned are accordingly set....
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....interest was created upon an immoveable asset then, the method and the procedure for its enforcement has been prescribed in Rule 8 & 9 of the Enforcement Rules. The provisions of Section 2(z)(c), Section 2(z)(f) of SARFAESI Act and Rules 6, 7, 8 and 9 of the Security Interest Enforcement Rules, read as under:- Section 2(z)(c) of the Act: "secured asset" means the property on which security interest created ; Section 2(z)(c) of the Act: "security interest" means right, title or interest of any kind, other than those specified in section 31 upon property created in favour of any secured creditor and includes. 6. Sale of movable secured assets: (1) The authorized officer may sell the moveable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets, to be so sold : (a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or (b) inviting tenders from the public; or (c) holding public auction including through e-auction mode; or (d) b....
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....in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality. (6) .....xxx... xxx....xxx (7) Every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorized officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include ; (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price of the immovable secured assets below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. (8) Sale by any methods other than public auction or public tender, shall be on such terms....
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....roperty or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. (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 money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from 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 ....
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....thirdly, the Bank had neither created charge, right, title or interest on moveable property, including business of the original lessee nor was such business liability disclosed or made known to the bidders in the sale notice; fourthly, the petitioner had never purchased the business liability of the original lessee; fifthly, there was no express covenant in the lease deeds that the subsequent purchaser-petitioner will be liable for the outstanding liability of business intangible assets etc which had accrued and were connected with and were solely attributable to the business of original lessee; sixthly, the petitioner had nowhere participated in the E-auction for the sale of moveable assets of Original Lessee and lastly, when, the petitioner had only participated in the E-auction for the sale of scheduled assets-immoveable property as detailed in the sale notice issued by the Bank. Thus, once the petitioner has only purchased the Industrial Plots-Immovable Properties, which had been leased out to the Original Lessee by department of industries and the petitioner has never purchased the past or ongoing business of the original lessee therefore, the petitioner-auction purchaser c....
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....ready paid, shall be refunded within a period of three months. In other respects, the order made by the High Court shall remain undisputed. The appeal is disposed of accordingly.' The decision, therefore, was rendered in the facts of that case. The issue with which we are directly concerned did not arise for consideration therein. The Court also did not notice the binding precedent of Dena Bank as also other decisions referred to hereinbefore." 21. A harmonious reading of the judgments in Macson and SICOM would tend us to conclude that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that he would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there is a specific provision in the Statute, claiming "first charge for the purchaser". As far as Central Excise Act is concerned, there was no such specific provision as noticed in SICOM as well. Proviso to Section 11 is now added by way of amendment in the Act only w.e.f. 10.9.2004. Therefore, we are eschewing our discussion re....
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....ure. This fine distinction is not taken note at all by the High Court. 10(v). While discussing the ambit of recovery of dues of the original lessee from the transferee dealer under the Karnataka Sales Tax Act, which is akin to Section 39 of the Himachal Pradesh Value Added Act, 2005, it has been held by Hon'ble Apex Court that the subsequent purchaser can be held liable if "the ownership of business is transferred to such auction purchaser and not otherwise, in view of the mandate laid down by the Hon'ble Apex Court in the case of, State of Karnataka vs. Shreyas Papers (P) Ltd. & Ors, (2006) 1 SCC 615 and operative part reads as under:- "15. A careful reading of Section 15(1) of the KST Act shows that the consequences contemplated therein, namely, foisting of the liabilities of the defaulting transferor on to the transferee, would come into effect only if the "ownership of the business" is transferred. Although, Mr. Hegde strenuously urged that "business" could not be separated from the assets of the business, we are unable to accept this contention. Business is an activity, directed with a certain purpose, more often towards producing income or profit. Ownership of ass....
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....section (1), any creditor including the secured creditor may file particulars of transactions of creation, modification or satisfaction of any security interest with the Central Registry in such form and manner as may be prescribed. (3) A creditor other than the secured creditor filing particulars of transactions of creation, modification and satisfaction of security interest over properties created in its favour shall not be entitled to exercise any right of enforcement of securities under this Act. (4) Every authority or officer of the Central Government or any State Government or local authority, entrusted with the function of recovery of tax or other Government dues and for issuing any order for attachment of any property of any person liable to pay the tax or Government dues, shall file with the Central Registry such 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 empo....
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....ilable under Section 26B of SARFAESI w.e.f. 24.1.2020 and therefore, the condition so inserted to the disadvantage of petitioner is arbitrary and illegal. 10(viii). LEGAL POSITION: SECTION 26-E OF SARFAESI ACT AND SACTION 26 OF HP VAT ACT Even as per Section 26E of the SARFAESI Act, which came into force w.e.f. 01.09.2016, the debts due to the Bank shall have priority over other debts, dues, taxes payable to the government. At the sake of repetition, the provision of Section 26E of the SARFAESI Act reads as under:- 26E. Priority to secured creditors: Notwithstanding anything contained in any other law for the time being in force, after the registration of security, interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes cesses and other rates payable to the Central Government or State Government or local authority. Explanation: For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, prior....
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....tioner will be liable for the outstanding liability of business which had accrued and connected with and were solely attributable to the business of the original lessee. Unless an auction purchaser acquires the business of the original lessee-dealer in its name as per Section 39 of the HP VAT Act, 2005 then, the tax liability of erstwhile original lessee or erstwhile owner of business cannot be fastened on an auction purchaser. Further, once the Bank has not created any charge, right, title or interest on moveable property, including the business of the erstwhile Original Lessee then, his business liability cannot be fastened on an auction purchaser. Moreover, once the Bank has failed to disclose the known encumbrances of state taxes/dues of the original lessee in sale notice, despite knowledge, vide Annexure R-5 and R-6 and the Bank had acted contrary to Rule 8(7)(a) of the Security Interest Enforcement Rules which came into force w.e.f. 18.10.2018 and had also not complied with Rule 8(7)(f) of the Security Interest (Enforcement) Rules then, any such undisclosed liability cannot be fastened on an auction purchaser. Moreover, once the Respondents-State Tax Authorities have neith....
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....nnected with and were solely attributable to the business of M/s Jaimurthy Minerals and Chemicals (P) Ltd-Original Leasee for the period(s) from 2013- 2014 and 2015-2016 vide its letter dated 24.5.2019, Annexure R-6 and the Respondent No. 1 informed the Bank of the same on 30.5.2019, Annexure R-5, showing an outstanding liability of sales tax dues of Rs 17,19,96,478/-(Seventeen Crore Nineteen Lakh Ninety Six Thousand Four Hundred Seventy Eight Only) but despite the fact that the Bank had the knowledge of these outstanding/recoverable dues, the Bank has failed to disclose these known encumbrances in the sale notice dated 10.12.2021, Annexure P-3, as was mandatory required to be disclosed after the insertion of Rule 8 (7) (a) in the Security Interest (Enforcement) Rules applicable w.e.f. 18.10.2018. The Bank acted contrary to the Rules by remaining silent from date of knowledge of aforesaid liability in May 2019 till the issuance of the sale notice and till the issuance of the sale certificate on 1.1.2022 and therefore, the petitioner cannot be fastened with the liability or outstanding business dues of the original lessee, and any such condition will amount to giving a premium to th....
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....he Rules. Moreover, the debts of the secured creditor-Bank shall have priority over all other debts and all revenues, taxes, cesses and other rates payable to Central Government or State Government or local authority under Section 26-E of SARFAESI Act, which came into force w.e.f. 01.09.2016, vis-à-vis the dues or tax under the HPVAT Act, 2005. In view of the above discussion, we are of the considered view that any adversial condition, imposed, after the date of the issuance of the sale certificate as in the impugned orders, cannot nullify, frustrate or extinguish the rights, title and interest acquired by the auction purchaser except in case of fraud or collusion of an auction purchaser, which are non-existent and not borne out from the facts of the instant case. Accordingly, the impugned order and the adversial condition so imposed against the petitioner-auction purchaser, being illegal and arbitrary is set-aside. 12. ANALYSIS OF QUESTION No 3: 12(i). In order to appreciate Question No 3, is as to whether adversial condition, as in Question No (ii) supra, could be enforced against the petitioner- auction purchaser, when the Respondent-State tax authorities have a ....
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....b) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) delivery of goods on hire-purchase or any system of payment by instalments; (d) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and (f) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service, is for cash, deferred payment or other valuable consideration ; 2(k) "goods" means every kind of movable property (other than news-papers, actionable claims, stocks and shares and securities) and includes live stock, all materials, commodities and articles and every kind of property (whether as goods or in some other form) involved in the execution of a works contract, and all growing crops, grass, trees or things ....
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....f the dealer's gross turnover during any period which remains after deducting there from- (a) his turnover during that period on:- (i) the sale of goods declared tax free under section 9; (ii) sale or purchase of goods falling under section 58; and (iii) such other sales or purchases as may be prescribed; and (b) the amount of tax included in the gross turnover, 7. Levy of presumptive tax Notwithstanding anything contained in this Act, every registered dealer, whose turnover in any year does not exceed such amount as may be prescribed, shall, in lieu of the tax payable under this Act, pay presumptive tax on the entire taxable turnover of sales or purchases, as the case may be, at such rates, not exceeding the rates specified in section 6, as the State Government may, by notification, direct, and subject to such conditions and restrictions and in such manner as may be prescribed: Provided that no input tax credit shall be available to such dealer: Provided further that a registered dealer who imports goods for sale shall pay tax on the sale of such goods imported from outside the State on actual basis i....
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....ised return before the date prescribed for filing of next return, and (ii) in the case of annual return furnish a revised return within a period of sixty days from the last date prescribed for filing of annual return, and if the revised return shows a greater amount of tax to be due against the tax shown in the original return, it shall be accompanied with a receipt showing payment of extra amount in accordance with sub-section (4). (6) If a dealer fails without sufficient cause to furnish the returns by the prescribed date as required under sub-section (3), dealer shall be liable to pay, by way of penalty, a sum equal to Rs. 200/-per day till the default counties, but such penalty shall not exceed Rs. 25000/. Provided that where the dealer is filing monthly returns, a sum equal to Rs. 1000/- per day shall be charged as penalty till the default continues, but such penalty shall not exceed Rs. 50,000/-: Provided further that where a dealer has closed down his business or has left the business without getting his Registration Certificate cancelled, the Assessing Authority shall suspend his Registration Certificate immediately, and thereafter no fur....
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....the default continues. (2) If the amount of tax or penalty due from a dealer is not paid by him within the period specified in the notice of demand or, if no period is specified within thirty days from the service of such notice, the dealer shall, in addition to the amount of tax or penalty, be liable to pay simple interest on such amount at the rate of one percentum per month from the date immediately following the date on which the period specified in the notice or the period of thirty days, as the case continues: 25. Tax and penalty recoverable as arrears of land revenue: The amount of any tax and penalty imposed or interest payable under this Act, which remains unpaid after the due date, shall be recoverable as arrears of land revenue. 27. Special mode of recovery : (1) Notwithstanding anything contained in section 25 or any law or contract to the contrary, Commissioner, or any officer other than an Excise and Taxation Inspector, appointed under section 3 to assist the Commissioner, may, at any time or from time to time, by notice in writing (a copy of which shall be sent to the dealer at his last address known to the officer issuing....
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.... any statement or declaration in any of the documents specified in section 34 or section 35, as the case may be, which statement or declaration he knows or, has reasons to believe to be false; or (j) in any way is knowingly concerned in any fraudulent evasion or attempt at evasion or abetment of evasion of any tax payable in respect of the sale or purchase of any goods under this Act; or (2) Whosoever contravenes or fails to comply with, any of the provisions of this Act or the rules made there under, or any order or direction made or given there under, shall, if no other penalty is provided either under sub-section (1) of this section or under any other provisions of this Act for such contravention or failure, be liable to imposition of a penalty, not exceeding five thousand rupees, and where such contravention or failure is continuing one, to a daily penalty not exceeding two hundred rupees during the period of the continuance of the contravention or failure. (3) xxx... xxx... xxx... 53. Directors of defaulting companies to be liable to pay tax: Notwithstanding anything contained in any other law, where any tax assessed or penalty impo....
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....ability of the outstanding state taxes, which had accrued, were connected with and solely attributable to the business of the Original Lessee-Company and its Directors under the HP VAT Act on the petitioner-auction purchaser. Moreover, the business liability of the Original Leasee- Company cannot be fastened on the petitioner-auction purchaser when, the petitioner had nowhere purchased the business concern of the original lessee but had only purchased the secured scheduled immoveable assets- industrial plots. In the above backdrop, we are of the considered view that the Respondents-State Authorities had slept over the matter, remained negligent and failed to perform its statutory functions in neither taking steps for recovery of outstanding taxes, interest and penalty, {as in Annexure R-5 and Annexure R-6}, and nor in resorting to the criminal action against the Original Leasee-M/s Jaimurthy minerals and Chemicals Pvt Ltd and its Directors, in-accordance with the mandate of HP VAT Act and in these circumstances, the adversial condition no 7, contained in the letters dated 7/11.10.2022, Annexure P-7, and the letter dated 13.12.2022, Annexure P-9, cannot be permitted to operate so....