TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 188
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.... Writ Petition, with appropriate directions and declarations. The Parties: 3. The attachment impugned in this Writ Petition has been issued by the State's sales tax authorities due to which the Deputy Commissioner of Sales Tax (GST) ("DCST") has been arraigned as Respondent No. 1. Encore Asset Reconstruction Company Private Limited ("Encore ARC"), the asset reconstruction company is Respondent No. 2. Kallappanna Ichalkaranji Janta Sahakari Bank Ltd. ("Lender Bank"), the original lender to a set of borrowers, is Respondent No. 3. The loans and the attendant security interests have been assigned by the Lender Bank to Encore ARC. Factual Matrix: 4. The factual matrix relevant for purposes of adjudicating this Writ Petition is set out below:- A) Between 31st May, 2010 and 31st January, 2013, the Lender Bank sanctioned various credit facilities to: (i) See Megh Industries ("SMI"), a partnership firm of which Mr. Bharat Yeshwant Shah ("Bharat") and Mrs. Seema Bharat Shah ("Seema") are partners; (ii) See Megh Industrial Electricals Private Limited ("SMIEPL"); and (iii) See Ram Industries ("SRI"), a proprietorship firm of Seema; B) The aforesaid facilities were secured by va....
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....r the Secured Assets under Section 371 of the Maharashtra Value Added Tax Act, 2002 ("MVAT Act") owing to tax dues owed by SMI; M) On 23rd August, 2017, a notice under the Maharashtra Land Revenue Code, 1966 ("MLRC") prohibiting transfer of identified moveable properties and identified immovable properties was issued by the DCST. This notice included the Walkeshwar Flat, although identified as belonging to Mrs. PY Shah; N) A warrant for taking possession of the Secured Assets was issued by the DCST to a sales tax inspector on 8th October, 2017. On 9th October, 2017, the process of triggering recovery proceedings under the MLRC was initiated against the Secured Assets (including the Walkeshwar Flat shown as owned by Mrs. PY Shah). The tax defaulter for the enforcement was SMI. Bharat was identified as the owner of SMI; O) On 8th November, 2017, an order of restraint (attachment) was passed by the DCST in respect of the Secured Assets (including the Walkeshwar Flat identified as owned by Mrs. PY Shah); P) On 13th November, 2017, the Lender Bank wrote to the DCST asserting its priority by way of a mortgage over the Walkeshwar Flat. The Lender Bank also asserted that the Walkes....
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....T have asserted as specifically therein first priority over the Walkeshwar Flat. 6. In our opinion, this conflict stands resolved by operation of Chapter IVA of the SARFAESI Act, which was brought into force on 24th January, 2020. Multiple judgments have now declared the law contained in the provisions of Chapter IVA. We believe such declared position of the law puts a quietus to this protracted battle. Demise of Mrs.PY Shah: 7. Before analysing the law, it is important to deal with the demise of Mrs. PY Shah, the mortgagor. Mrs. PY Shah, the mother of Bharat, provided third-party security on behalf of SMI, the partnership firm of which Bharat and Seema are partners. Due to the mortgage, there is direct privity between Mrs. PY Shah (and her estate after her demise) and the Lender Bank (and thereby Encore ARC). As regards the DCST, the right to recover tax dues from Bharat is due to the statutory joint and several liability of Bharat as a partner of SMI, the partnership firm. It is common ground that Mrs. PY Shah was not a partner of SMI. The DCST does not have or assert any statutory right to move against a person providing third-party security to lenders, or to move against par....
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....arbitration proceedings. Physical possession of the Walkeshwar Flat too was taken on 5th January, 2017. 10. Be that as it may, the real question to answer is the position in law in terms of who among the DCST and the Lender Bank (thereby, Encore AMC) has priority over the Walkeshwar Flat. Jalgaon Janta and Consequent Judgements: 11. The law is well declared by a Full Bench of this Court in Jalgaon Janta Sahakari Bank & Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai & Anr. 2022 SCC OnLine Bom 1767 (Jalgaon Janta), which has been applied by various Benches of this Court to the facts before them. In studying how Jalgaon Janta has been applied, we need not look beyond a decision of a Division Bench of this Court in Union Bank of India vs. Deputy Commissioner of Sales Tax & Ors. 2024 SCC OnLine Bom 405 (Union Bank), as indeed two decisions by this very Bench in the case of Indian Overseas Bank vs. Deputy Commissioner of State Tax & Ors. 2024 SCC OnLine Bom 907 (Indian Overseas Bank) and in Bhushan Ramesh Bramgankar vs. State of Maharashtra & Anr. Judgement dated 30th April, 2024 in Writ Petition (L) No. 31816 of 2023 (Bhushan Bramgankar). 12. Even where multiple creditors ....
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.... Act, including physical possession. With a registration of security interest in favour of the Lender Bank, and the DCST having neither registered their attachment order u/s. 26-B(4) of the SARFAESI Act with CERSAI, nor having issued a proclamation of sale of the Walkeshwar Flat, a priority accrued to the Lender Bank on 24th January, 2020 over the DCST. 16. In Union Bank, another Division Bench dealt with a similar conflict between a secured creditor and the sales tax authorities. In that case, enforcement of the lender's security interests (created between 2008 and 2011) commenced in 2015. The registration with CERSAI had been effected in 2013. The sales tax authorities initiated attachment proceedings in February 2019. The lender conducted auctions in 2019 and its requests to the tax authorities to remove their attachments was not paid heed to. Citing copiously from Jalgaon Janta (Paragraphs 84 to 89; Paragraph 92; and Paragraphs 189 to 192 thereof), the Division Bench held that the Sales Tax Department cannot claim priority over the dues payable to the secured creditor. 17. Likewise, in Indian Overseas Bank, this Bench, also relying on Jalgaon Janta (Paragraphs 82 to 85; and P....
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.... There can be no claim whatsoever by the DCST against the Petitioner (the auction purchaser), or for that matter, against the Walkeshwar Flat (the Secured Asset that is already enforced against). 22. The aforesaid legal position in respect of priority of security interests is an integral element of any as-is-where-is; as-is-what-is; or whatever-there-is condition imposed as a term of the auction of the Walkeshwar Flat. The enforcing lender, the bidder, and the tax authorities are all bound by the law declared. Therefore, such a stipulation of such a condition in the auction (which is conventional in enforcement auctions under the SARFAESI Act), is of no relevance in the adjudication of this Writ Petition. 23. The DCST would indeed be free to chase other properties of SMI that are not the subject matter of a security interest registered ahead of them. If there are no assets left to chase, the DCST would still have the position of an unsecured creditor, with a right to continue proceedings to recover their dues from SMI and its partners, in accordance with law. Lender Bank's prior Writ Petition: 24. There is one other facet of the matter, to which we have given our anxious consid....
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....as led to the Petitioner having a free and marketable title free of the encumbrance claimed by the DCST; e) Consequently, any attachment sought to have been issued in respect of value added tax and central sales tax dues owed by SMI, insofar as it relates to the Walkeshwar Flat, is hereby quashed and set aside. The Petitioner is entitled to have the Walkeshwar Flat registered in his name and the DCST can have no objection to such registration; f) The DCST is entitled to any residual proceeds from the sale of the Walkeshwar Flat, after discharge of dues owed to Encore ARC, to the extent of Bharat's proportion of entitlement to the estate of Mrs. PY Shah. Towards this end, Encore ARC is directed to provide to the DCST, a statement of accounts in respect of the dues owed by the borrowers to Encore ARC, and the appropriation of sale proceeds by Encore ARC pursuant to the auction of the Secured Assets; and g) This judgment will not in any manner constrain the statutory right of the DCST to chase, in accordance with law, any other asset of SMI and its partners, to the extent that there is no conflicting priority enjoyed by any secured creditor pursuant to Chapter IVA of the SARFAES....