THE HON'BLE SRI JUSTICE A.V.SESHA SAI
AND
THE HON'BLE SRI JUSTICE K.SURESH REDDY
WRIT PETITION Nos.44211 OF 2017 AND 20988 OF 2019
COMMON ORDER :
(Per AVSS, J.)
Since the cause of action for these two Writ Petitions is the
same, this Court deems it appropriate to dispose of these two
cases by way of this common order.
2. M/s. ABC Engineering Works, respondent No.9 in Writ
Petition No.20988 of 2019, availed credit facilities from State Bank of India, respondent No.1 in the said Writ Petition. In view of the default committed by the said company in payment of the loan amount, the Bank invoked the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ('SARFAESI Act') and conducted sale of the following properties, by way of e- auction on 14.06.2017 and 16.06.2017.
(i) Ac.0.13 cents out of Ac.0.56 cents with two storied R.C.C. building (D.No.9-264) in R.S. No.2197 of Kanur village, Penamalur mandal, Krishna district;
(ii) Ac.0.13 cents out of Ac.0.56 cents with two storied R.C.C. building (D.No.9-264) in R.S. No.2197 of Kanur village, Penamalur mandal, Krishna district;
(iii) Ac.0.50 ½ cents with one storied R.C.C. building and A.C.sheet roof shed, in R.S. No.239/7 (D.No.8-181) of Kanur village, Penamalur mandal, Krishna district. 2
In the said auctions, one Sri Madala Narendra Kumar and Smt. Chadalavada Mamatha emerged as successful bidders for item Nos. 1 and 2 for Rs.9,26,00,000/-, and petitioners in Writ Petition No.20988 of 2019 became successful bidders for item No.3 for Rs.13,61,00,000/-. Thereafter, the sales were confirmed and the Bank issued sale certificates also in favour of the successful bidders, including the petitioners in Writ Petition No.20988 of 2019. Subsequently, on the request made by the auction purchasers, the Bank authorities submitted the sale documents before the Sub Registrar, Patamata, Vijayawada, Krishna District (respondent No.5 in Writ Petition No.20988 of 2019 and respondent No.3 in Writ Petition No.44211 of 2017).
Vide proceedings TRC 283 & 284/AAFFA7383K/TRO/ VJA/2016-17, dated 13.10.2017, the Tax Recovery Officer, Income Tax, Vijayawada (2nd respondent in Writ Petition No.20988 of 2019), prohibited transfer of the said properties on the ground that the borrower M/s.ABC Engineering Works failed to pay a sum of Rs.2,51,27,117/- and communicated copy of the said proceedings to the Sub Registrar, Patamata. The Sub Registrar, Patamata, vide Letter C.No.1/2017, dated 20.10.2017, informed State Bank of India, Stressed Assets Management Branch, Secunderabad (petitioner in Writ Petition No.44211 of 2017), that the request for registration of the sale documents in respect of the subject properties, cannot be considered, while referring to the proceedings of the Tax Recovery Officer dated 13.10.2017 and the instructions of the Commissioner and Inspector General of Registration and 3 Stamps vide Circular Memo No.G3/12238/2014, dated 07.09.2015.
3. Counter affidavits have been filed by the Income Tax authorities, revenue authorities and M/s. ABC Engineering Works.
4. Heard Sri G.L.V.Ramana Murthy, learned counsel for the petitioner in Writ Petition No.44211 of 2017; Sri Gurram Ramachandra Rao, learned counsel for the petitioners in Writ Petition No.20988 of 2019; Sri P.Subhash, learned Government Pleader for Registration and Stamps; Smt. M.Kiranmayee, learned standing counsel for Income Tax Department and Sri E.V.V.S.Ravi Kumar, learned counsel for respondent No.9 in Writ Petition No.20988 of 2019, and Sri Ravi Cheemalapati, learned counsel for respondent No.10 in Writ Petition No.20988 of 2019, apart from perusing the material available on record.
5. It is contended by Sri G.L.V.Ramana Murthy and Sri Gurram Ramachandra Ro, who are sailing together, obviously for the same relief, that the Circular Memo dated 07.09.2015 of the Commissioner and Inspector General of Registration and Stamps, on which heavy reliance is sought to be placed by the Sub Registrar, cannot be made applicable, and clause (8) of the said Circular cannot be pressed into service for the purpose of denying the registration. It is also the submission of the learned counsel that having regard to the Endorsement bearing No.140 of 2018, dated 26.02.2018 of the Tahsildar, Penamalur 4 mandal, the question of verification of the pattadar pass books does not arise. It is also the submission of the learned counsel that the Income Tax Department cannot have preference over the debts contracted by M/s. ABC Engineering Works, since State Bank of India is a secured creditor and the auction purchasers purchased the subject properties in the public auction conducted under the provisions of the SARFAESI Act, 2002.
In support of his submissions and contentions, they placed reliance on the following decisions.
(a) in Bombay Stock Exchange v. V.S.Kandal Gaonkar & others1;
(b) in ICICI Bank Limited v. Tax Recovery Officer-I, Income Tax Department & others2.
6. On the other hand, it is contended by Sri E.V.V.S.Ravi Kumar, learned counsel for M/s. ABC Engineering Works, that against the proceedings C.No.1/2017, dated 20.10.2017 of the Sub Registrar, Patamata, there is a statutory remedy of appeal and without availing the same, the present Writ Petitions came to be filed before this Court under Article 226 of the Constitution of India, and as such, the present Writ Petitions are not maintainable. It is the further submission of the learned counsel that failure on the part of the writ petitioners to question the Memo dated 07.09.2015 issued by the 1 (2015) 2 Supreme Court Cases 1 2 (2019) 411 ITR 518 5 Commissioner and Inspector General of Registration and Stamps, is fatal to their case.
7. In the above back ground, the following two issues arise for consideration of this Court under Article 226 of the Constitution of India.
1) Whether the Sub Registrar, Patamata, Vijayawada is justified in keeping the sale document pending, showing the proceedings of the Tax Recovery Officer dated 13.10.2017 and the instructions of the Commissioner and Inspector General of Registration and Stamps, vide Circular Memo No.G3/12238/2014, dated 07.09.2015 ?
2) Whether non-filing of appeal provided under the provisions of the Registration Act, 1908 against the proceedings of the Sub Registrar, Patamata, Vijayawada dated 20.10.2017, is fatal to the case of the petitioners ?
8. ISSUE No.1:
Whether the Sub Registrar, Patamata, Vijayawada is justified in keeping the sale document pending, showing the proceedings of the Tax Recovery Officer dated 13.10.2017 and the instructions of the Commissioner and Inspector General of Registration and Stamps, vide Circular Memo No.G3/12238/2014, dated 07.09.201 ?
Copy of Circular Memo No.G3/12238/ 2014, dated 07.09.2015 issued by the Commissioner and Inspector General of Registration and Stamps, is filed along with the Writ Petition as material paper. For the purpose of deciding the issue on hand, it is pertinent to refer to clause (8) of the Circular, which reads as under:
6
"Therefore, all the District Registrars are requested to instruct all the Sub Registrars under their control to verify the Pattadar Pass books and Title Deeds even in villages included in ULB's if the extent of the property in the document is more than 10 cents and even if the party declares it as open plot instead of agricultural land."
While referring to the above said clause, the impugned action is sought to be justified stating that as per the said clause, verification of pattadar pass books and title deeds is highly essential before taking up the process of registration.
9. It is absolutely not in dispute that the Andhra Pradesh Rights in Land and Pattadar Pass Books Act, 1971 stipulates issuance of pattadar pass books and title deeds. The said Legislation covers only agricultural lands. In the instant case, it is the submission of the learned counsel for the writ petitioners that the subject lands are in urban agglomeration of Vijayawada, and as such, the question of maintenance of pattadar pass books and title deeds for the subject lands does not arise and the same would be very much evident from the Endorsement bearing No.140 of 2018, dated 26.02.2018 issued by the Tahsildar, Penamalur Mandal. In this context, it is highly appropriate to refer to the Endorsement bearing No.140 of 2018, dated 26.02.2018 issued by the Tahsildar, Penamalur mandal. As per the said Endorsement, nature of the subject lands has already undergone change from agriculture to house sites, and in the village adangals also, the subject lands are mentioned as house sites. Since the subject lands have been 7 included in urban agglomeration and having regard to the above referred Endorsement of the Tahsildar, the question of issuance of pattadar pass books and title deeds in respect of the subject lands would not arise, and as such, verification of the same also does not arise. Therefore, the reason mentioned by the Sub Registrar, Patamata, Vijayawada in the impugned proceedings dated 20.10.2017 with regard to verification of pattadar pass books and title deeds is not tenable.
10. The next point is attachment of the subject lands by the Income Tax Department. The said issue fell for consideration before the Hon'ble Supreme Court of India and the composite High Court of Andhra Pradesh. In case of Bombay Stock Exchange v. V.S.Kandal Gaonkar & others (1 supra), the Hon'ble Supreme Court, while referring to the earlier judgment in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694, held that the Government debts have precedence only over unsecured creditors, and also extracted paragraph No.10 of the judgment in the said case, which reads thus:
"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 for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crowns right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at 8 conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover 1832 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of bihar & Ors. AIR 1971 SC 1210, the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (T.L.L., Seventh Edition, p.386). 'It seems a Government debt in India is not entitled to precedence over a prior secured debt.' "
In paragraph No.39 of the judgment in Bombay Stock Exchange v. V.S.Kandal Gaonkar & others (1 supra), it is held thus:
"The first thing to be noticed is that the Income Tax Act does not provide for any paramountcy of dues by way of income tax. This is why the Court in Dena Bank's case (supra) held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles vs. Grover (1832) (131) English Reports 563 in which it has been held that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad and Anr. Vs. Central Bank of India and Anr. 1967 (3) SCR 855 after referring to various authorities held that the claim 9 of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore "law in force" in the territory of India before the Constitution and was continued by Article 372 of the Constitution (at page 861, 862)."
11. In ICICI Bank Limited v. Tax Recovery Officer-I, Income Tax Department & others (2 supra), a Division Bench of the composite High Court of Andhra Pradesh held thus: (paragraphs 34 to 38).
"It is by now well settled that wherever the statute does not create a first charge over the property, the crown's debt does not take precedence over the claim of the secured creditor. A useful reference can be made in this regard to the decision of the Full Bench of the Madras High Court in U.T.I. Bank Ltd., v. Deputy Commissioner of Central Excise.
35. In Central Bank of India v. State of Kerala, a Three Member Bench of the Supreme Court had an occasion to consider two questions (i) whether Section 36 C of the Bombay Sales Tax Act, 1959 and Section 26 B of the Kerala General Sales Tax Act, 1963, by which a first charge was created on the property of the dealer, are inconsistent with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, , 2002 (Securitisation Act); and (ii) whether by virtue of the non-obstante clauses contained in RDDB Act and Securitisation Act, the two Central Legislations will have primacy over State Legislations. Eventually, the Court held (i) that the RDDB Act, 1993 and Securitisation Act, 2002 do not create a first charge in favour of the secured creditor, (ii) that the relevant provisions of the Sales Tax 10 Laws AIR 2007 Madras 118 2009 21 VST 505 (SC) VRS, J & JUD, J W.P.No.33417 of 2018 are not inconsistent with the provisions of the Central Legislations, so as to attract the non obstante clause and (iii) that the charge created under the relevant Sales Tax Laws would prevail over the charge created in favour of the Bank.
36. But in a more recent decision in The Stock Exchange v. V.S.Kandalgoankar, a question arose as to whether a lien created by the operation of the Rules of the Stock Exchange, on the security provided by a member, would have precedence over the dues to the Income Tax Department. After quoting with approval the decision of the Supreme Court in Dena Bank v. Bhikabhai Prabhudas Parekh Co.. (2000 (5) SCC 694), the Supreme Court came to the conclusion that the Income Tax Act does not provide for any paramountcy of dues by way of income tax and that the Government dues have priority only over unsecured debts. In its decision in Stock Exchange, the Supreme Court went to the extent of holding that the lien possessed by the Stock Exchange made it a secured creditor and that irrespective of whether the lien was a statutory lien or a lien arising out of an agreement, the same made the holder of the lien a secured creditor, who would have priority over Government dues.
37. Therefore, in the light of the fact that the mortgage was created by the assessee much before a demand was made under Rule 2 and even before an order of assessment was passed and in the light of the fact that before the stage of issue of a certificate of recovery, the (2015) 2 SCC 1 VRS, J & JUD, J W.P.No.33417 of 2018 voidity under Section 281 (1) is not automatic, the petitioner-bank deserves to succeed.
38. Accordingly, the writ petition is allowed and the impugned order of attachment is set aside. The Sub- Registrar may proceed to register the sale certificate 11 issued by the Bank upon compliance with the necessary formalities. There shall be no order as to costs."
12. In the instant case also, admittedly, the subject properties were mortgaged long prior to the invocation of the provisions of the Income Tax Act, 1961 by the Income Tax authorities. State Bank of India declared the account of M/s. ABC Engineering Works as a non-performing asset on 01.12.2010 and auction of the secured assets was held on 14.06.2017 and 16.06.2017. State Bank of India is undoubtedly a secured creditor in view of the mortgage created in respect of the subject properties in its favour. It is also significant to note in this context that in the counter affidavit filed by the Income Tax Department, it is stated that M/s. ABC Engineering Works and State Bank of India assured the Department that the surplus sale proceeds, if any, would be adjusted towards the tax arrears of the said company, and in pursuance thereof, the attachment was withdrawn. In view of the above reasons and having regard to the principles laid down in the above referred judgments, this Court does not find any justification on the part of the respondent-authorities in not registering the sale documents.
13. It is brought to the notice of this Court during the course of arguments, that the petitioners in Writ Petition No.20988 of 2019, who purchased item No.3 of the subject properties, did not present the document for registration so far. While referring to the contention advanced on behalf of the respondents, it is submitted by the learned counsel for the petitioner Sri Gurram Ramachandra Rao that in view of the 12 impugned action, non-submission of the sale document pertaining to the property purchased by the petitioners in Writ Petition No.20988 of 2019, is not fatal to the case of the petitioners. Therefore, issue No.1 is answered accordingly in favour of the petitioners and against the respondents.
14. ISSUE No.2:
Whether non-filing of appeal provided under the provisions of the Registration Act, 1908 against the proceedings of the Sub Registrar, Patamata, Vijayawada dated 20.10.2017, is fatal to the case of the petitioners ?
A perusal of the proceedings dated 20.10.2017 issued by the Sub Registrar, Patamata, Vijayawada clearly discloses that there is no order of rejection of registration so far, as such, the question of invocation of the provisions of law which enable filing of the appeal under the provisions of the Registration Act, 1908, does not arise. The contention contra advanced by the learned counsel for the respondent-M/s. ABC Engineering Works and the learned Government Pleader is liable to be rejected. Accordingly, this issue is also answered in favour of the petitioners.
15. For the above reasons, the Writ Petitions are allowed, setting aside the Letter C.No.1/2017, dated 20.10.2017 of the Sub Registrar, Patamata, Vijayawada and proceedings in TRC 283 & 284/AAFFA7383K/TRO/ VJA/2016-17, dated 13.10.2017 of the Tax Recovery Officer, Income Tax, Vijayawada. The respondent-registering authorities are directed to receive the documents pertaining to subject properties, 13 process and register the same in favour of the auction purchasers, subject to compliance of other requirements of law. The said exercise shall be completed within a period of two months from the date of receipt of a copy of this order.
16. It is needless to observe that if any balance of sale consideration amount is available after the loan of M/s. ABC Engineering Works, with interest and other charges, is satisfied, the same shall be made available to the Income Tax Department for adjustment of the Income Tax dues of M/s. ABC Engineering Works.
17. Claim of respondent No.10 in Writ Petition No.20988 of 2019 cannot be adjudicated in the present Writ Petition. However, it is open for the respondent No.10 to approach appropriate forum of law, if so advised, for redressal of her grievance.
No order as to costs of the Writ Petitions. Miscellaneous petitions, if any, pending in this Writ Petitions, shall stand closed.
_____________ A.V.SESHA SAI, J _______________ K.SURESH REDDY, J 07.1.2021 LR Copy to be marked.
BO DRK 14 THE HON'BLE SRI JUSTICE A.V.SESHA SAI AND THE HON'BLE SRI JUSTICE K.SURESH REDDY COMMON ORDER IN WRIT PETITION Nos.44211 OF 2017 AND 20988 OF 2019 7.1.2021 15 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI **** WRIT PETITION Nos.44211 OF 2017 AND 20988 OF 2019 Between:
State Bank of India
--- Petitioner
And
State of Andhra Pradesh & others ...Respondents
DATE OF ORDER PRONOUNCED : 07.01.2021
SUBMITTED FOR APPROVAL:
THE HON'BLE SRI JUSTICE A.V.SESHA SAI
AND
THE HON'BLE SRI JUSTICE K.SURESH REDDY
1. Whether Reporters of Local Newspapers may be allowed to see the order? Yes/No
2. Whether the copy of order may be marked to Law Reporters/Journals? Yes/No
3. Whether His Lordship wish to see the fair copy of the order? Yes/No ______________________________ A.V.SESHA SAI, J.
16* THE HON'BLE SRI JUSTICE A.V.SESHA SAI AND THE HON'BLE SRI JUSTICE K.SURESH REDDY + WRIT PETITION Nos.44211 OF 2017 AND 20988 OF 2019 % 21.01.2021 # Between:
State Bank of India
--- Petitioner
And
State of Andhra Pradesh & others ...Respondents
! Counsel for the Petitioners : Sri G.L.V.Ramana Murthy;
Sri Gurram Ramachandra Rao
^ Counsel for the Respondent :
Sri P.Subhash, GP for
Registration and Stamps
Smt. M.Kiranmayee, SC for
Income Tax
Sri E.V.V.S.Ravi Kumar &
Sri Ravi Cheemalapati.
< Gist:
> Head Note:
? Cases referred:
(2015) 2 Supreme Court Cases 1
(2019) 411 ITR 518
This court made the following :