TaxTMI 
TaxTMI 
2025 (6) TMI 175
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....d by the petitioner-1 viz, property bearing Municipal Corporation No. 97, (PID No. 38-12-97) situated at 2nd main road, Coconut Garden, BBMP Ward No. 38, Nagarbhavi, Bangalore, measuring East to West 55 feet and North to South 75 feet on Eastern side and 69 feet on Western side comprising an area of 3960 square feet; c. The Respondent-2 Bank and the Respondent-3 may be directed that amount lying with the Respondent-1 bank may be attached by them to recover their dues and for recovering their dues they cannot attach the property which has been sold in public auction to the Petitioner herein, by the respondent-1 Bank. d. To quash the attachment orders passed by the Respondent-2 and the respondent-3 in respect of property purchased by the petitioner-1, viz., property bearing Municipal Corporation No. 97, (PID No. 38-12-97) situated at 2nd Main Road, Coconut Garden, BBMP Ward No. 38, Nagarbhavi, Bangalore. e. To direct the Respondent No. 1 State Bank of Patiala to convey good title to the Petitioner free from all encumbrances, as stated in the Rule 9 and Sale Certificate. f. And prays for such other reliefs as this Hon'ble Court deems fit to grant in....
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....n 13.03.2013. Thereafter, the Petitioner submitted the sale certificate to the jurisdictional Sub-registrar for registration. The Sub-registrar refused to register the same on the ground that the said property is subject to attachment by Respondents No. 2 and 3-herein, i.e., the Saraswat Co-operative Bank Limited and the Tax Recovery Officer of the Income Tax Department, and on request, a copy of the attachment order came to be furnished to the Petitioner. 7. The first attachment order was one which was passed in an Arbitration proceeding between Respondent No. 2-Saraswat Co-operative Bank Limited and Sun Agro Tech Inc. and Sri. G. Bhadraradhya and the second attachment order was one issued by Respondent No. 3-Income Tax Authority in terms of second Schedule of the Income Tax Act on account of income tax dues. It is in that background that the Petitioner is before this Court seeking for the aforesaid reliefs. 8. The submission of Sri.Paras Jain., learned counsel appearing for the Petitioner, is that; 8.1. The auction having been conducted by the State Bank of Patiala, a Co-ordinate Bench of this Court, having directed the issuance of the sale certificate after receiving th....
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....ubmission made by the Petitioner and Respondent No. 3. 11. Learned counsel for Respondent No. 3 would submit that; 11.1. A certificate under Section 222 of the Income Tax Act 1961 was drawn in the case of Smt. Archana Anand Kumar for recovery on 02.03.2010. Accordingly, a notice of demand in ITCP-1 under Rule 2 of Schedule-2 of the Income Tax Act 1961 (hereinafter for brevity referred to as "IT Act") was issued on 06.04.2010, which was served on the said Smt. Archana Anand Kumar by affixture on 29.04.2010. 11.2. The said attachment order, having been passed on 06.04.2010, was much prior to the public auction. Therefore, in terms of Rule 16 of the second Schedule of the IT Act, any transaction conducted after the attachment without the permission of Tax Recovery Officer shall be void as against the Tax Recovery Officer. 11.3. He submits that even as per the Petitioner, Sri. Mohan Kumar and Sri. G. Bhadraradhya had acted collusively and mortgaged the property to State Bank of Patiala. Sri. Mohan Kumar was assisted by Sri. G. Bhadraradhya, and on that background, it is contended that both of them had colluded to defraud the government. 11.4. Insofar as the orders passed....
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....faesi Act and that the said auction was conducted on account of the dues of Sri. G. Bhadraradhya. It is further not in dispute that Sri. Mohan Kumar had sold the property to Sri. G. Bhadraradhya, who had borrowed the monies from the State Bank of Patiala and thereafter sale deeds were executed by Sri. G. Bhadraradhya and Sri. Mohan Kumar in favour of Smt. Shah Jayalakshmi Jitesh in the year 2009 on 08.05.2009, in favour of Smt. Shashikala M. Budhihal on 15.07.2009, in favour of Smt. Archana Anand Kumar on 15.07.2009, in favour of Smt. Anjana Ashok Kumar on 08.05.2009. 15.2. A gift deed came to be executed by Sri. Mohan Kumar in favour of Sri. Prashanth on 13.01.2011 and it is thereafter that the aforesaid purchasers had borrowed money from Union Bank of India and prior to that Sri. G. Bhadraradhya had borrowed money from State Bank of Patiala. 15.3. The claim of the Tax Recovery Officer is that the tax due of Smt. Archana Anand Kumar, as regards which recovery proceedings were initiated under Section 222 of the IT Act on 02.03.2010, and an attachment order was passed on 06.04.2010. The borrowal by Sri. G. Bhadraradhya was post 12.01.2007, Since he purchased the property on 12....
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.... (2) [The Tax Recovery Officer may take action under sub-section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.] 15.5. Rule 2 of the second Schedule under which the ITCP-1 that is the order of attachment was issued is reproduced hereunder for easy reference: Issue of notice: 2. When a certificate has been drawn up by the Tax Recovery Officer for the recovery of arrears under this Schedule, the Tax Recovery Officer shall causer to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule. 15.6. Rule 16 of second Schedule of the IT Act is reproduced hereunder for easy reference; Private alienation to be void in certain cases. 16. (1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Re....
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....der issued in respect to any dues of Sri. G. Bhadraradhya to the Income Tax Department. It is the default in payment of the dues of Sri. G. Bhadraradhya to the bank whose default of payment of mortgage amounts resulted in the property being brought for sale. 15.11. However, what would also have to be required to be considered is that by the time the auction was conducted, Sri. G. Bhadraradhya and Sri. Mohan Kumar had sold the property to the defaulter namely Smt. Archana Anand Kumar, inasmuch as the sale was executed in favour of Smt. Archana Anand Kumar by Sri. Mohan Kumar on 15.07.2009, who had already sold the property in favour of Sri. G. Bhadraradhya on 12.01.2007. Thus, the issue as regards the right, title and interest of Sri. Mohan Kumar in executing a sale deed in favor of Smt. Archana Anand Kumar would also have to be determined. 15.12. The above detailing of facts would indicate that though there are several admitted facts, there are several disputed facts also and these disputed facts being complicated would require oral evidence and trial, the same cannot be ex-facie determined by this court and as such cannot be gone into by this Court in a proceeding under Arti....
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....property. 16.4. The attachment order was issued on 06.04.2010 and will continue to be operational in respect of the property subject matter of the attachment irrespective of whether any sale carried out by State Bank of Patiala in favour of the Petitioner or not. 16.5. As afore-observed, an order of attachment does not ipso facto operate as an injunction from sale or a restriction on the sub-registrar to register the sale. What the attachment order does is to secure the property in respect of the claim of the Tax Recovery Officer, and any sale which occurs will be subject to the attachment, and the sale or transfer would be void as against the claims enforceable under the attachment. This aspect has been brought to the notice of the Petitioner and the Petitioner is willing to take on sale the property subject to any of the rights of any third-party in as much as the sale according to the counsel for the State Bank of Patiala has been conducted on as is there is basis without any representation, warranty or indemnity as regard the title of the property. 16.6. Thus, I answer point No. 2 by holding that the passing of an attachment order would not entitle the sub-registrar to....
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....itor 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, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." (Emphasis supplied) Section 26E mandates priority to secured creditors over any other law for the time being in force after the registration of security interest. Section 35 of the Act reads as follows: "35. The provisions of this Act to override other laws.-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." (Emphasis supplied) Section 35 of the Act mandates that the SARFAESI Act will have effect notwithstanding anything inconsistent there....
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....lterations which in the opinion of the Registering Officer require to be attested; (iii) Section 21(1) to (3) and Section 22.- that the description of the property is insufficient to identify it or does not contain the information required by Rule 15; (iv) Section 21(4).- that the document is unaccompanied by a copy or copies of any map or plan which it contains; (v) Rule 50.- that the date of execution is not stated in the document or that the correct date is not ascertainable or altered so as to make it unascertainable; (vi) Section 23, 24, 25, 26, 72,75 and 77.- that it is presented after the prescribed time; (vii) Section 32, 33, 40 and 43.- that it is presented by a person who has no right to present it; (viii) Section 34.- that the executing parties or their representatives, assigns, or agents have failed to appear within the prescribed time; (ix) Section 34 and 43.- that the Registering Officer is not satisfied as to the identity of a person appearing before him who alleges that he has executed the document or when an executant is not, identified to the satisfaction of the Registering Officer. (x) Sectio....
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....rusal of which will nowhere creates any impediment for the 2nd respondent/Sub-Registrar to register the said document. All the nuances necessary for registration have been complied with by the Petitioner. The reason for denial of registration by respondent No. 2 - Sub-Registrar is that the dues of the Income-Tax Department pending against the borrowers. In the considered view of this Court, in the light of Section 35 quoted supra of the SARFAESI Act, 2002 the said reason though not in writing could not have been projected by the Sub-Registrar to deny registration. The issue whether other statutory dues pending against the borrowers would entail non-registration of a document, need not detain this Court for long, or delve deep into the matter. 11. The Apex Court in the case of PUNJAB NATIONAL BANK v. UNION OF INDIA (2022) 7 SCC 260 has held as follows:- "42. Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise Department, the High Court in the impugned judgment has held [Punjab National Bank v. Union of India, 2008 SCC OnLine All 1576] that "In this view of the matter, the question of first charge or second charge over th....
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....], SCC OnLine SC para 1) "1. Having gone through the provisions of the Securitisation Act, 2002, in the light of the judgment of the Division Bench of this Court in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121], we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent Bank. In the circumstances, the civil appeal is dismissed with no order as to costs" (emphasis supplied) 45. Hence the reasoning given by the High Court stands strong and has been affirmed by this Court. 46. This Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to crown debt) shall have precedence over the right of the Bank to proceed against the property of the borrowers mortgaged in favour of the Bank, observed as under : (SCC p. 703, para 10) "10. However, the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common....
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....effect, as the provisions of the SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues. 20. Insofar as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared [Ed. : The reference appears to be to Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694] by the Supreme Court in the matter of priority of State debts as already discussed and the provision of Section 35of the SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] ." (emphasis supplied) ....
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....e 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 11-E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 51. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, will have an overriding effect on the provisions of the 1944 Act. 52. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of acceptance. ....
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....e priority over the dues of the Central Excise Department under the Central Excise Act. The Apex Court holds the provisions of the SARFAESI Act, 2002 will have overriding effect on the provisions of the Central Excise Act. If the Central Excise Act found in the judgment of the Apex Court is paraphrased with that of the Income-Tax Department/dues under the Income-Tax Act, the reasons so rendered by the Apex Court would become applicable to the facts of the case at hand as well. The Sub-Registrar, though not in writing, orally refused to register the document on the score that dues of the Income-Tax Department are pending against the borrowers, is a reason which is unavailable to the Sub-Registrar, even if it were to be in writing. 13. The Sub-Registrar can act only within the four corners of the Registration Act and the Registration Rules framed by the State. If none of the circumstances under Rule 171 of the Rules are found, the Sub-Registrar has no jurisdiction to refuse registration of a document; the document in the case at hand is the sale certificate." 17.2. This Court has considered the interplay of the SARFAESI Act under Sections 26E and 35 of the SARFAESI Act on....
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.... for by the Petitioner are required to be granted? 18.1. In view of my answers to point Nos.1 to 3, though there are numerous reliefs which have been sought for in the present proceedings, many of those reliefs do not survive for consideration. The State Bank of Patiala, having already issued a sale certificate, there being no requirement for the representative of the State Bank of Patiala to be present at the time of registration. There is no facilitation that is to be made by the State Bank of Patiala for such registration. However, the sale certificate had been issued long ago; it would be required for the State Bank of Patiala to issue a fresh sale certificate accompanied by a letter to the Sub-Registrar indicating as to why the representative of the State Bank of Patiala is not required to be present for registration. 18.2. Insofar as the claim that respondent No. 2-Bank and respondent No. 3 are required to be directed to raise an attachment order, such a direction cannot be issued since the same would be subject to the arbitration proceedings pending which is filed by respondent No. 2-Bank and the proceedings pending before the Tax Recovery Officer. If the claims are es....