State Bank Of India vs The State Of Andhra Pradesh
2021 Latest Caselaw 33 AP

        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.

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

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

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

(2015) 2 Supreme Court Cases 1

(2019) 411 ITR 518

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:

"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

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

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

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

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

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

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,

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

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

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.

* 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 :