TaxTMI 
TaxTMI 
2025 (6) TMI 175
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....orporation 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 the facts and circumstances of the case, including costs, in the ends of justice a....
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.... 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 the balance consideration. In furtherance of the sale certificate being issued, neither the Saraswat ....
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....hat; 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 in WP No. 22272 of 2012 are concerned, the Income Tax Department was not a party to the said proceedings. Recovery proce....
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....ty 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 12.01.2007, the details of the borrowal have not been furnished. 15.4. The sale in favour of the purchasers occurred between May 2009 to July 2009. Recovery proceedings were....
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....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 Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money. (2) Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any....
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....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 Article 226 of the Constitution. The right of Sri. Mohan Kumar over the property, the right of Sri. G. Bhadraradhya in the property, the right of Smt. Archana Anand Kumar in the property would have to be determined in an appropriately instituted suit. 15.13. The question of the exer....
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....n 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 reject the registration of a sales certificate issued by the State Bank of Patiala after having conducted an auction, the registration shall be subject to the attachment order passed. 17. Answer to Point No. 3: Whether the sub-registrar would have refused to register the sales certificate on acc....
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....e, 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 therewith contained in any other law for the time being in force. These are the rights of secured creditor under the Act. To put in one word - the right of the secured creditor is "unstoppable" except if it is interdicted by any order of a Court of law, which is admittedly absent in the case at hand. There is no proceeding initiated by the borrowers before any ....
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....tated 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) Section 34 and 40.- that the Registering Officer is not satisfied as to the right of a person appearing as representative, assignee or agent, so to appear; (xi) Section 35.- that execution is denied by any person purporting to be an executing party or by his agent; Note,- When a Registering Officer is satisfied that an executant is purposely keeping out of the way with a view to evade registration of document or has gone to a distant place and is not likely to return to admi....
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....r 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 the properties would not arise". In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. 43. 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)], while dealing with a similar issue, has held that : (SCC OnLine Mad paras 25-26) "25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special ....
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....na 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 law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a secured creditor." (emphasis supplied) 47. Further, in Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. [Central Bank of India v. Siriguppa Sugars & Chemicals Ltd., (2007) 8 SCC 353 : (2007) 2 SCC (L&S) 919], while adjudicating a similar matter, this Court has held as under : (SCC pp. 360-61, para 17) "17. Thus, going by the principles governing the matter propounded by this Court there cannot be any doubt that the rights of the appellant Bank o....
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....ors 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) 49. An SLP (No. 12462/2008) against the above judgment of the Bombay High Court stands dismissed by this Court on 17-7-2009 [Union of India v. Krishna Life Style Technologies Ltd., 2009 SCC OnLine SC 1952] by relying upon the judgment in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121], wherein the question involved was "Whether realisation of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under : (SICOM case [Union of India v. SICOM Ltd., (2009) 2 SCC 121], SCC p. 126, para 9) "9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Cr....
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....riding 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. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with. 53. Further, the contention that in the present case, the confiscation proceed....
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....s 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 the one hand and Section 71 of the Registration Act read with Rule 171 of the Karnataka Registration Rules, 1965 (hereinafter referred to as 'the Registration Rules'). On considering the interplay, this Court by applying the decision of the Hon'ble Apex Court in Punjab National Bank V/s Union of India and Others, reported in 2022(7) SCC 260, has held that the Sub-Registrar can act only within the four corners of the Registration Act and Registration Rules. If none of the circumstances under Rule 171 of the Rules are found to be applicable, the sub-registrar has no jurisdiction to refuse registration of a document. It is not the case of the Sub-Registrar that the sale certificate which has been issued does not comply with the requirement of Rule 171 or Section 71 of the Registration Ac....
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....t 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 established in those proceedings, then the attachment order would continue. 18.3. Be that as it may, in those pending proceedings, an opportunity would have to be given to the Petitioner to be represented and place its say on record and which would needless had to be considered by the arbitrator and by the Tax Recovery Officer. 18.4. As regards the amount lying with respondent No. 1-State Bank of Patiala, after adjustment of its dues, these amounts would necessarily be available to be considered as regards the claim of respondent No. 2-Saraswat Co-operative Bank and respondent No. 3-Tax Recovery Officer. The title that may be conveyed by the State Bank of Patiala cannot be said to be free from all encumbrances. 18.5. The auction having taken place on as is where is basis, an auction purchaser would only be e....