Bombay High Court
M/S. Sonoma Management Partners ... vs Bank Of Maharashtra, Through ... on 22 November, 2016
Bench: S.C. Dharmadhikari
wp.4188.2014.dated.08.11.2016 (Colabawalla).doc
dik
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 4188 OF 2014
1. M/s Sonoma Management Partners ]
Pvt. Ltd. incorporated under the Companies Act ]
I of 1956 having its registered office at 4th floor ]
Plexus Complex (above the World of Titan) ITI ]
road Aundh, Pune 411 007, Maharashtra ]
2. Mr Pravin Jain, Chief Executive Officer ]
and Managing Director, 128 Sindh Society, ]
Aundh, Pune 411 007, Maharashtra
ig ] ...Petitioners
vs
1. Bank of Maharashtra
]
through its Chairman & Managing ]
Director, Lokmangal, 1501, Shivajinagar ]
Pune 411 005, Maharashtra ]
2. Bank of Baroda, through its Chairman ]
& Managing Director, Baroda Corporate ]
Centre, C-26, G-Block, Bandra-Kurla ]
Complex, Bandra (East) Mumbai 400 051 ]
And ]
Baroda House, Mandvi, Vadodara 390 006 ]
3. State of Maharashtra, through its ]
Secretary, Revenue Department, ]
Mantralaya Mumbai 400 032 ]
4. The Sales Tax Department through ]
its Deputy Commissioner Vikrikar Bhavan ]
178/A, Pavai Naka, Raviwar Peth, Satara ]
- 415 001 ] ...Respondents.
.....
Mr. Rafique Dada, Sr. counsel along with Mr Ravi Kadam, Sr.
Counsel a/w Dr. Birendra Saraf, Mr Jai Chhabria & Ms Ayushi
Anandpara i/b M/s Federal & Rashmikant for the Petitioners.
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Mr. Karl Shroff a/w Mrs Hema Desai, Mr Vijay L. Hinge i/b
Singhi & Co. for Respondent Nos.1 and 2.
Ms Sushma Bhende AGP for Respondent No.3.
Mr Ashok Kotangle, Spl. Counsel for Respondent No.4.
.....
CORAM : S. C. DHARMADHIKARI &
B.P.COLABAWALLA, JJ.
Reserved On : 20th October, 2016.
Pronounced On : 22nd November, 2016.
JUDGMENT [ PER B. P. COLABAWALLA J ]:
1. Rule. Respondents waive service. By consent of parties,
rule is made returnable forthwith and heard finally.
2. By this Writ Petition under Article 226 of the Constitution
of India, the Petitioners have sought a writ of mandamus or any other
appropriate order or direction against Respondent Nos.1 and 2 to pay
over to Respondent No.3 or Respondent No.4 the sale proceeds of the
property, more particularly described in Exh "B" to the Petition (for
short "the said property") and direct Respondent Nos.3 and 4 to
issue a "no claim certificate" and or "discharge certificate" to the
Petitioners. The Petitioners have also sought a mandamus directing
Respondent Nos.3 and 4 to forbear and refrain from, in any manner,
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asserting any charge on the property more particularly described in
Exh "B" to the Petition and/or from taking any coercive steps in
respect of said property for recovery of any Sales Tax dues of one M/s
Weiler International Electronics Pvt. Ltd. (for short "the Defaulter
Company"). At the very outset, we must mention that though these
directions have been sought in the Petition, Mr Dada, learned Sr.
Counsel appearing on behalf of the Petitioners, pressed only prayer
clause (b) of the Petition, namely, that Respondent Nos.3 and 4 be
directed to refrain from asserting any charge on the property more
particularly described in Exh "B" to the Petition and from taking any
coercive steps against the said property for the recovery of any
alleged Sales Tax dues.
3. The aforesaid directions are sought by the Petitioners, in
view of the fact that the Petitioners have purchased the said property
pursuant to a sale conducted by Respondent Nos.1 and 2
(Nationalized Banks) under the provisions of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short the "SARFAESI Act") and the rules
framed thereunder. In a nutshell, it is the case of the Petitioners that
the alleged Sales Tax dues of the Defaulter Company were never
disclosed to the Petitioners by Respondent Nos.1 and 2 whilst
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conducting the sale and in fact even the 7/12 extract relating to the
said property, only reflected the dues of the sales tax to the extent of
Rs.18,38,709/-. This amount, without prejudice to its rights and
contentions, the Petitioners are willing to pay. It is the case of the
Petitioners that the alleged Sales Tax dues of the Defaulter Company
amounting to approximately Rs.28 Crores was brought to their notice
long after they had already purchased the said property under the
provisions of the SARFAESI Act.ig It is in these facts and
circumstances, that it is the contention of the Petitioners that the
Sales Tax Authorities cannot enforce their alleged charge on the said
property purchased by the Petitioners, and if at all the Sales Tax
have any charge, it would have to be recovered from the sale
proceeds which lie in the hands of Respondent Nos.1 and 2. It is in
this backdrop, that the present Writ Petition has been filed.
4. The brief facts giving rise to the present controversy are
as under:-
(a) Petitioner No.1 is a Private Limited Company
incorporated under the provisions of the Companies Act,
1956 and has purchased the said property. Petitioner
No.2 is the CEO and Managing Director of Petitioner No.1.
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For the sake of convenience, they are collectively referred
to as the Petitioners. Respondent No.1 is the Bank of
Maharashtra and Respondent No.2 is the Bank of Baroda,
who had both granted financial assistance to the
Defaulter Company. Respondent No.3 is the State of
Maharashtra and Respondent No.4 is the Sales Tax
Department, through the Deputy Commissioner, Satara.
It is the case of Respondent No.4 that the Defaulter
Company has huge Sales Tax dues outstanding to the
extent of approximately Rs.28 Crores.
(b) It is not in dispute that the Defaulter Company had taken
financial assistance from Respondent Nos.1 and 2. Since
the Defaulter Company could not repay the financial
assistance taken, the authorized officer of Respondent
No.1 (leader of the consortium along with Respondent
No.2) issued a Public Notice dated 14 December, 2009
declaring that Respondent Nos.1 and 2 had taken
physical possession of the said property, belonging to the
Defaulter Company, in exercise of powers under Section
13(4) of the SARFAESI Act. Thereafter, Respondent No.1
issued a Public Auction Notice dated 31 December, 2009
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inviting offers for sale of the said property on "as is
where is basis". The reserve price fixed for sale of the
said property was at Rs.12 Crores and the Earnest Money
Deposit was fixed at Rs.1.02 Crores. As no bids were
received pursuant to the aforesaid notice, another Public
Notice dated 20 February, 2010 was issued for sale of the
said property. However, now the reserve price was fixed
at Rs.11 Crores.
ig No bids were received even with
reference to this Public Notice.
(c) It is thereafter averred in the Petition that in the third
week of August 2010, the Petitioners learnt that the said
property of the Defaulter Company was in the process of
being sold by Respondent Nos.1 and 2 under the
provisions of SARFAESI Act. Accordingly, on or about 26
August, 2010, the representatives of the Petitioners met
with the Authorized Officer of Respondent No.1 to
conduct an inquiry and ascertain the facts with regard to
sale of the said property. It was at this time the
Petitioners were informed that earlier the sale of the said
property had failed and the banks were once again in the
process of auctioning the same and the reserve price was
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fixed at Rs.11 Crores and the bids for the auction were to
be submitted to the Authorized Officer on or before 1
September, 2010.
(d) Considering that Respondent Nos.1 and 2 have taken
physical possession of the said property, the Petitioners
inquired from Respondent Nos.1 and 2, whether there
was any encumbrance on the said property. It is stated in
the Petition that the Authorized Officer categorically
informed the Petitioners' representative that only the
secured assets of the Defaulter Company were to be sold
and not the Defaulter Company's dues. It was further
assured to the Petitioners that except the mortgage in
favour of Respondent Nos.1 and 2, there were no
liabilities or other encumbrance on the said property
whatsoever. The Petitioners were also furnished with a
valuation Report carried out for the purposes of the
auction sale. This valuation indicated the market value of
the said property and the reserve price was fixed without
any liability or encumbrances attached to it. It is, on the
basis of these representations, that the Petitioners
decided to participate in the auction sale and bid for the
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said property.
(e) Accordingly, on 1 September, 2010, the Petitioners
placed their bid for purchasing the said property at a
price of Rs.11,00,29,000/- and submitted their EMD of
Rs.1.10 Lacs. Since, the Petitioners were the highest
bidders, they were declared as the successful bidder and a
formal 'letter
ig of acceptance' was also issued by
Respondent No.1. This acceptance letter called upon the
Petitioners to make a further payment of 25% of the said
price (Rs.2,75,07,250/-) immediately. Further, the EMD
was to be adjusted against this amount of
Rs.2,75,07,250/-. It is not in dispute that the Petitioners
have duly complied with the aforesaid directions by
depositing the aforesaid amount.
(f) Thereafter, Respondent No.1, by its letter dated 15
September, 2010, requested the Petitioners to make the
balance payment of Rs.8.25 Crores on or before 30
September, 2010. This letter further states that on
payment of full consideration, a Sale Certificate in terms
and in the form prescribed by the SARFAESI Act would be
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issued by Respondent No.1 in favour of the Petitioners. In
compliance with the requisitions contained in this letter,
the Petitioners, on 22 September, 2010, made the balance
payment of the purchase price. On receiving the the full
consideration, Respondent No.1 (on behalf of itself and
Respondent No.2) also executed a Sale Certificate on "as
is where is basis" and "what is where is basis" in
favour of the Petitioners.
(g) The Petitioners thereafter requested Respondent Nos.1
and 2 to execute the conveyance in their favour. The
draft conveyance was deliberated upon and finally the
conveyance was duly executed and registered in the
office of the Sub-Registrar, Khandala on 10th March,
2011. It is, at the time of this registration, that the
Petitioners for the very first time perused the 7/12
extract of the said property and learnt that there was an
encumbrance of the Sales Tax to the extent of
Rs.18,38,709/-. Though this encumbrance was not
disclosed to the Petitioners and they contemplated taking
legal steps against Respondent Nos.1 and 2, the
Petitioners finally decided that keeping in mind the
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magnitude of the investment already made, they would
accept the conveyance with the encumbrance of the Sales
Tax to the extent of Rs.18,38,709/-.
(h) After execution of the conveyance, the Petitioners
legitimately expected their names to be mutated in the
property and revenue records. It is at this time the
Petitioners learnt of certain property tax dues amounting
to Rs.10.05 Lacs. To avoid further complications the
Petitioners also cleared these property tax dues, without
prejudice to their rights and contentions. Despite this,
the Petitioners' name was still not mutated in the 7/12
extracts or revenue records of the said property. The
Petitioners, therefore, caused an inquiry to be made with
the Talathi's office. The Talathi's Office informed the
Petitioners that in order to have their name mutated in
the 7/12 extract, the Petitioners would have to obtain a
"no claim certificate" from Respondent No.4 (Sales Tax
Department). Accordingly, the Petitioners addressed a
letter dated 26 August, 2011 to Respondent No.4 setting
out the material facts and seeking a "no claim certificate".
It is, at this stage, that the Petitioners were shocked to
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learn about the claim of Respondent No.4 amounting to
Rs.28 Crores. Thereafter, the Petitioners made several
applications under the Right to Information Act, 2005
without any success.
(i) In these circumstances, the Petitioners initiated
appropriate proceedings before the Revenue Authorities
for recording their names in the revenue record without
the aforesaid liability. These proceedings finally
culminated in an order passed by the Talathi's Office
wherein the Petitioners' application was allowed and the
Petitioners' name was entered in the 7/12 extract subject
to the encumbrance of Rs.18,38,709/- of the Sales Tax
Department.
(j) Being aggrieved by this, Respondent No.4 challenged the
same by way of appellate proceedings and a stay order
was obtained before the Additional Collector, Satara. In
the aforesaid appellate proceedings, that the Sales Tax
Department submitted a list of documents including the
correspondence addressed by Respondent No.4 to
Respondent No.1. This entire list of documents was
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furnished to the Petitioners only on 5 June, 2013 and
which is set out by the Petitioners in paragraph 4 (xvi) of
the Petition.
(k) Faced with this situation, the Petitioners were forced with
no option but to run from pillar to post and try and sort
out the issue with Respondent Nos.1 and 2. However,
without attempting to set right the wrong, Respondent
Nos.1 & 2 purported to foist the responsibility of paying
the sales tax upon the Petitioners. To make the matters
worse, Respondent No.4 purported to issue another notice
to the Defaulter Company dated 7 December, 2013 inter
alia informing that a further amount of Rs.6.65 Crores
was due as an arrears of sales tax and payable by the
Defaulter Company. The notice inter alia stated that in
the event of non-payment, appropriate steps under the
Maharashtra Land Revenue Code, 1966 would be
initiated against the Defaulter Company.
5. In this factual background, Mr Dada, learned Sr. Counsel
appearing on behalf of the Petitioners submitted that the chronology
of the aforesaid facts clearly disclose that the Petitioners had no
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notice or knowledge of the alleged sales tax dues to the extent of
Rs.28 Crores. He submitted that the alleged dues of the sales tax
were never disclosed to the Petitioners either by Respondent No.1
and or Respondent No.2. Mr Dada submitted that these
encumbrances would have a vital bearing on the market value of the
property. He submitted that the market value of the property was
approximately Rs.11 Crores and it would be absurd to make the
Petitioners to pay an additional sum of Rs.28 Crores to the Sales Tax
Department to ensure that the alleged encumbrances on the said
property are removed. At the highest, Mr Dada submitted that the
Petitioners would be liable for the sales tax dues to the extent of
Rs.18,38,709/- and which was reflected in the 7/12 extract annexed
to the conveyance. Admittedly, the dues of the sales tax to the extent
of Rs.28 Crores was disclosed for the first time to the Petitioners
much after they had already purchased the property and the
conveyance had been executed in their favour. This being the factual
position, Mr Dada submitted that the Sales Tax Authorities cannot
enforce their alleged charge against the said property which has been
legitimately purchased by the Petitioners without notice of the
alleged dues of the Sales Tax Department and/or their statutory
charge under Section 38C of the Bombay Sales Tax Act, 1969 ("BST
Act"). In support of the aforesaid propositions, Mr Dada relied upon
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the following decisions:
(i) M/s National Steel and Agro Industries Ltd. Vs.
The State of Maharashtra and Ors.1 and
(ii) Sherwood Resorts Pvt. Ltd. & Anr. Vs The State
of Maharashtra.2
6. For all the aforesaid reasons, Mr Dada submitted that the
Sales Tax Department (Respondent No.4) be directed to refrain from
recovering its dues by enforcing its alleged charge on the said
property legitimately purchased by the Petitioners and without any
notice of the dues of Sales Tax Department.
7. On the other hand, Mr Kotangle, Special Counsel
appointed for Respondent No.4, submitted that Respondent No.4 was
fully justified in enforcing its charge against the said property. Mr
Kotangle, submitted that the terms of sale of the said property would
indicate the same was done on an "as is where is and whatever is
basis". It is not as if said property vested in the Petitioners, free from
all encumbrances. If the vesting was with encumbrances and
continued, then it was not open for the Petitioners, to contend that
the Sales Tax Authorities could not recover their dues by enforcing
their charge on the said property. Mr Kotangle invited our attention
1 Writ Petition No.2608 of 2014 decided on 12 February, 2015
2 Writ Petition No.2086 of 2015 decided on 16 October, 2015.
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to Sections 38(4), 38(5), 38C of the BST Act. Relying upon the
aforesaid provisions, Mr Kotangle submitted that once the sales tax
dues were in arrears and they were always payable, then it is a
charge on the properties of the dealer or any other person within the
meaning of Section 38C of BST Act. This would enable the Sales Tax
Department to go after the properties of the Defaulter Company and
recover the sales tax dues.
8.
In addition to the aforesaid argument, Mr Kotangle
submitted that the dues of the sales tax were brought to the notice of
the 1st Respondent bank on 11 August, 2010. This was before the sale
of the said property was conducted by it and therefore, the Sales Tax
Authorities had acted with due diligence and cannot be faulted for not
bringing to the notice of the concerned persons that huge amounts of
Sales Tax dues were outstanding by the Defaulter Company. In
support of his submissions, Mr Kotangle relied upon a decision of the
Supreme Court in the case of Central Bank of India Vs. State of
Kerala and Ors.3
9. Mr Shroff, learned Counsel appearing on behalf of
Respondent Nos.1 and 2 (the Nationalized Banks) submitted that the
3 (2009) 21 VST 505 (SC)
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banks have sold the said property to the Petitioners on "as is where
is and whatever is basis". He submitted that this being the position,
the Petitioners ought to have made their own inquiry to ascertain
whether there were any encumbrances on the said property. Not
having done so, the Petitioners today cannot contend that the claim
of the Sales Tax Authorities cannot be enforced against the said
property.
10. We have heard the learned counsel at length and have
perused the papers and proceedings in the Writ Petition along with
the annexures thereto. We have also given our anxious
consideration to the relevant provisions. The SARFAESI Act is an
Act which enables regulation of securitisation and reconstruction of
financial assets and enforcement of security interest or matters
incidental thereto. The term 'debt' is defined in section 2(ha) and the
term "security interest" is defined under Section 2(zf) to mean right,
title and interest of any kind whatsoever upon property, created in
favour of any secured creditor and includes a mortgage, charge,
hypothecation, assignment other than those specified in Section 31.
The term "secured asset" is also defined in Section 2(zc) to mean the
property on which the security interest is created. In turn, the words
"secured debt" is defined in Section 2(ze) to mean a debt which is
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secured by any security interest. The term "secured creditor" is also
defined in Section 2(zd) and it is not in dispute that Respondent
Nos.1 and 2 are the secured creditors as defined under the
SARFAESI Act. Thereafter, Section 13 of the SARFAESI Act provides
for enforcement of security interest and measures by which
enforcement is permissible including upon failure of the borrower to
discharge its liability in full of the secured creditor within the period
specified under Section 13(2) by taking possession of the secured
assets and transferring the same either by way of lease, assignment
and/or sale. Section 13(6) stipulates that any transfer of secured
assets (after taking over the possession) by the secured creditor shall
vest in the transferee all rights in, or in relation to the secured asset
transferred as if the transfer had been made by the owner of such
secured asset. Looking to all these provisions, what becomes clear is
that a secured creditor (Respondent Nos.1 and 2 in the present case)
to realise their dues, can sell the secured assets without intervention
of the Court and subject to other stipulations set out in the SARFAESI
Act. It is on the basis of exercising powers under the provisions of
the SARFAESI Act that Respondent No.1 (as leader of the consortium
with Respondent No.2) issued a possession notice as well as a sale
notice in respect of the said property. It is pursuant to this sale
notice that the Petitioners have purchased the said property from
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Respondent Nos.1 and 2.
11. What is important to note is that this entire purchase was
done by the Petitioners before the alleged dues of the Sales Tax
Authorities was brought to their notice. The chronology of events set
out above clearly indicates that the Petitioners placed their bid for
purchasing the said property on 1 September, 2010 along with their
earnest money deposit. Thereafter, the sale was confirmed in favour
of the Petitioners on 15 September, 2010, once the sale was
confirmed the Petitioners on 22 September, 2010 paid the balance
purchase price and thereafter a Sale Certificate was also issued in
favour of the Petitioners on 23 September, 2010. Thereafter, a Deed
of Conveyance was executed by Respondent No.1 in favour of the
Petitioners in respect of the suit property and which was registered
with the Registrar of Assurances on 10 March, 2011. It is, at the
time of execution and registration of this Deed of Conveyance, that
the Petitioners for the first time perused the 7/12 extract relating to
the suit property and learnt that there was an encumbrance of the
Sales Tax Department to the extent of Rs.18,38,709/-. As mentioned
earlier, these dues of the Sales Tax, the Petitioners would have to pay
/ liquidate, if not already done so. As far as the dues of the Sales Tax
to the extent of Rs.28 Crores are concerned, the same was brought to
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the notice of the Petitioners much thereafter. It is not even the case
of the Sales Tax Department that the Petitioners had either informed
or had constructive knowledge of their dues, save and except to the
extent of Rs.18,38,709/-. This being the factual position, we find
considerable force in the argument of Mr Dada that the Sales Tax
dues (save and except to the extent of Rs.18,38,709/-) cannot be
recovered by enforcing their alleged charge under Section 38C of the
BST Act against the said property, legitimately purchased by the
Petitioners and without having any notice of the alleged dues of the
Sales Tax Authorities.
12. What is also important to note is that, it is not even the
case of Sales Tax Authorities that the Petitioners are a dealer within
the meaning of provisions of the BST Act or that the Petitioners have
taken over the business of the dealer who is the defaulter of the Sales
Tax Authorities. In fact, on a careful perusal of Section 19(4) of the
BST Act, it is clear that where a dealer who is liable to pay tax under
the BST Act, transfers or otherwise disposes of his business in whole
or in part or effects any change in the ownership thereof, in
consequence of which he is succeeded in the business or part thereof
by any other person, the dealer and the person succeeding, shall
jointly and severally be liable to pay the tax including any penalty
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and interest due from the dealer. This is admittedly not the case
before us. The Petitioners are not the successor in business of the
Defaulter Company. It has, in fact, merely purchased the said
property which originally belonging to the Defaulter Company and
which was mortgaged with Respondent Nos. 1 and 2. Since, the
Defaulter Company did not pay its dues to Respondent Nos.1 and 2,
they, exercising their rights under the provisions of the SARFAESI
Act, sought to enforce their security interest and sell the secured
asset (the said property) to the Petitioners. It is in these
circumstances that the Petitioners have purchased the said property.
They can by no stretch of the imagination be termed as a successor of
the business of the Defaulter Company to enable the Sales Tax
Authorities to recover their dues from the Petitioners by enforcing
their alleged charge against the said property purchased by the
Petitioners under the provisions of the SARFAESI Act.
13. In the view that we have taken, we are supported by a
decision of the Supreme Court in the case of State of Karnataka &
Anr Vs. Shreyas Papers Pvt. Ltd.4 On the issue of enforcement of
charge, the Supreme Court at paragraphs 18 to 21 thereof (of the
SCC report) opined thus:
4 2006 (1) SCC 615 : AIR 2006 SC 865
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"18. The next limb of Mr Hegde's arguments was that since Section
13(2)(i) of the KST Act creates a charge on the property of the
defaulting company, the charge would continue on the properties,
even if it changes hands by transfer.
19. While the expression "charge" is not defined by the KST Act, this
concept is well known in property law and has been defined by
Section 100 of the Transfer of Property Act, 1882 (hereinafter "the
TP Act"). Here "charge" is defined as:
"100. Where immovable property of one person is by act of
parties or operation of law made security for the payment of
money to another, and the transaction does not amount to a
mortgage, the latter person is said to have a charge on the
property, and all the provisions hereinbefore contained which
apply to a simple mortgage shall, so far as may be, apply to
such charge.
Nothing in this section applies to the charge of a trustee on
the trust property for expenses properly incurred in the
execution of his trust, and, save as otherwise expressly
provided by any law for the time being in force, no
charge shall be enforced against any property in the
hands of a person to whom such property has been
transferred for consideration and without notice of the
charge."
(emphasis supplied)
20. As the section itself unambiguously indicates, a charge may not
be enforced against a transferee if she/he has had no notice of the
same, unless by law, the requirement of such notice has been waived.
This position has long been accepted by this Court in Dattatreya
Shanker Mote v. Anand Chintaman Datar [(1974) 2 SCC 799, 811
(para 18)] and in Ahmedabad Municipal Corpn. of the City of
Ahmedabad v. Haji Abdulgafur Haji Hussenbhai [(1971) 1 SCC 757,
759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)]
(hereinafter "Ahmedabad Municipal Corpn."). In this connection,
we may refer to the latter judgment, which is particularly relevant
for the present case.
21.Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras
3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] was a case where a
person was in arrears of property tax, due under the Bombay
Provincial Municipal Corporation Act, 1949. Consequently, the
Municipal Corporation created a charge over the property of the
defaulter. However, the property was sold in execution of a
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mortgage decree. When the Municipal Corporation purported to
exercise their charge over the property, the purchaser in court-
auction filed a suit for a declaration that he was the owner of the
property and that the arrears of municipal taxes due by the
transferor were not recoverable from him by proceeding against the
property purchased in the auction. In the appeal before this Court,
the Municipal Corporation's main argument was that where the local
law provided for the creation of a charge against a property for
which municipal taxes were due, transferees of such properties were
imputed with constructive knowledge of any charge created against
the properties that they had purchased. This argument was, however,
rejected. This Court held that while constructive notice was sufficient
to satisfy the requirement of notice in the proviso to Section 100 of
the TP Act, whether the transferee had constructive notice of the
charge had to be determined on the facts and circumstances of the
case. [Ibid., at SCC pp. 765-66 (para 12) : AIR pp. 1207-08(para 8)]
In other words, this Court held that there could be no fixed
presumption as to the transferee having constructive notice of the
charge against the property. In fact, the principle laid down
in Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras
3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] has been correctly
applied in a sales tax case similar to the present case. [CTO v. R.K.
Steels, (1998) 108 STC 161 (Mad)]
(emphasis supplied)
14. In the facts of the present case and considering this
authoritative pronouncement of the Supreme Court, we have no
hesitation in holding that the Petitioners, having no knowledge
(either actual or constructive) of the dues of the Sales Tax
Authorities before they purchased the said property, the Sale Tax
Authorities cannot recover their dues from the Petitioners by
enforcing their charge against the said property.
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15. Faced with this situation, Mr Kontagale submitted that
the ratio of the aforesaid Supreme Court decision cannot be applied to
the facts of the present case as the provisions under consideration
before the Supreme Court were that of the Karnataka Sales Tax Act,
1957 and not of the Bombay Sales Tax Act, 1959. On this ground, he
sought to distinguish the judgment of the Supreme Court in the case
of Shreyas Papers Pvt. Ltd.4 We find absolutely no merit in this
contention.
Firstly, the expression "charge", just like in the
Karnataka Sales Tax Act, 1957 is also not defined in the Bombay
Sales Tax Act, 1959. Thus, on the issue of enforcement of the charge,
the Supreme Court, while considering the provisions of Section 100
of the Transfer of Property Act, 1882, gave its findings in paragraph
Nos.18 to 21 thereof. These findings are binding on us and we cannot
distinguish the aforesaid decision on the specious ground that the
same is rendered in the context of the provisions of the Karnataka
Sales Tax Act, 1957. Secondly, even otherwise we find that this very
judgment of the Supreme Court (Shreyas Papers Pvt. Ltd.4) has
been relied upon by a Division Bench of this Court in the case of M/s
National Steel and Agro Industries Ltd. Vs. The State of
Maharashtra and Ors.1 to which one of us (S. C. Dharmadhikari, J)
4 2006 (1) SCC 615 : AIR 2006 SC 865
1 Writ Petition No.2608 of 2014 decided on 12 February, 2015
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was a party. This decision was rendered in the context of the
Bombay Sales Tax Act, 1959. We find that this exact argument was
canvassed before the Division Bench in the case of M/s National
Steel and Agro. Industries Ltd.1 and after relying upon the very
same paragraphs of the Supreme Court reproduced by us above, the
same was repelled by this Court in paragraphs 35 and 36 of its
decision
16. In fact, the decision of the Supreme Court in the case of
Shreyas Papers Pvt. Ltd.4 has been followed by another Division
Bench judgment of this Court in the case of Sherwood Resorts Pvt.
Ltd. & Anr. Vs The State of Maharashtra.2 to which both of us were
parties. Over there also, exactly the same argument was canvassed
on behalf of the Sales Tax Authorities and was repelled by this Court
in paragraph 30 of the aforesaid decision. We, therefore, have no
hesitation in holding that the Sales Tax Authorities (Respondent
No.4) cannot recover the Sales Tax dues (except to the extent of
Rs.18,38,709/-) from the Petitioners by enforcing their charge on the
said property.
4 2006 (1) SCC 615 : AIR 2006 SC 865
2 Writ Petition No.2086 of 2015 decided on 16 October, 2015.
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17. Having held so, we shall now deal with the judgment
relied upon by Mr Kontangale in the case of Central Bank of India
Vs. State of Kerala and Ors.3 On a careful perusal of this decision,
we fail to see how the aforesaid decision supports the case of the
Sales Tax Department. The issue that was being decided by the
Supreme Court in the aforesaid decision was whether Section 38C of
the BST Act, Section 26B of the Kerala General Sales Tax Act, 1963
and similar provisions contained in other State Legislations, by
which a charge was created on the property of the dealer who was
liable to pay the sales tax, are inconsistent with the provisions
contained in the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 and the SARFAESI Act and whether these two
Central Legislations would have primacy over such State
Legislations. Whilst deciding this question, the Supreme Court inter
alia held that there being no provision in the SARFAESI Act
providing for a first charge in favour of the banks, Section 35 thereof
could not be held to override Section 38C of the BST Act, that
specifically stipulates that the liability under the BST Act shall have
first charge. We find that the reliance placed on the aforesaid
decision in the factual matrix before us is wholly inapposite. In any
event, this decision of the Supreme Court was rendered prior to the
3 (2009) 21 VST 505 (SC)
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Enforcement of Security Interest and Recovery of Debts Laws and
Miscellaneous Provisions (Amendment) Act, 2016. By virtue of this
Amending Act inter alia the provisions of the SARFAESI Act have
been amended and a specific section, namely, Section 26-E has been
inserted which gives priority to secured creditors subject to the
conditions and exceptions set out in said section. A similar provision
has also been inserted in the RDDB Act, namely Section 31-B. This
being the position, we find that the reliance placed on the aforesaid
decision by Mr Kontangale is wholly misplaced.
18. For all the aforesaid reasons, we hold that the Sales Tax
Authorities (Respondent No.4) cannot recover the dues of the
Defaulter Company from the Petitioners (save and except to the
extent of Rs.18,38,709/-) by enforcing their charge under Section
38C of the BST Act on the said property. However, it is clarified that
our order and direction does not mean that the Sales Tax Authorities
cannot proceed against the Defaulter Company (M/s Weiler
International Electronics Pvt. Ltd.). Equally, we must clarify that we
have not entered into any controversy regarding the priority the
Sales Tax Authorities may have on the sale proceeds received from
the sale of the said property to the Petitioners. The priority, if any, of
the Sales Tax Authorities is not in issue before us, and therefore, we
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should not be understood to have rendered any finding in that
regard. The issue of priorities between the Sales Tax Authorities and
Respondent Nos.1 and 2 shall be decided in appropriate proceedings
before the appropriate forum and in accordance with law. Rule is,
accordingly, made absolute in the aforesaid terms. However, in the
facts and circumstances of the case, we leave the parties to bear their
own costs.
( B. P. COLABAWALLA J. ) ( S. C. DHARMADHIKARI J )
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