Bombay High Court
Punjab National Bank vs Assistant Commissioner Of State ... on 24 March, 2023
Bench: R.D. Dhanuka, M. M. Sathaye
WPL 21538 of 2022 aw WPL 20484 of 2022.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) No.20484 OF 2022
Punjab National Bank, )
a body corporate constituted under )
the Banking Companies (Acquisition )
and Transfer of Undertakings) Act, )
1970, having its head office at )
Plot No.4, Sector 10, Dwarka, )
New Delhi- 110075 and a branch )
office at Zonal Sastra Centre- )
Mumbai, 181-A1, 18th Floor, "E" Wing )
Maker Tower, Cuffe Parade )...Petitioner
Versus
1. Assistant Commissioner of )
State Tax (D-815), Nodal )
Division-1, Mazgaon, Mumbai )
2. Bokadia Spinning Mills (P) Ltd ) Deleted as per Order dated
01.03.2023
577/579, Om Shanti Bhawan, )
2nd Floor, JSS Road, Mumbai )
also at Gandhare Village, )
Next to MSEDC Sub Station, )
Post Wada, Dist. Thane )
3. Vedanta Spinning Mills )
Pvt. Ltd. )
577/579, Om Shanti Bhawan, )
2nd Floor, JSS Road, Mumbai )
4. Shankarlal Lalchand Jain )
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181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
5. Bhawridevi Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
6. Jitendra Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
7. Sudhir Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
8. Jayantilal Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
9. Priya Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
10. Pinky Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
11. Purvangi Jain )
181 & 182, Jolly Maker 2, )
Cuffe Parade, Mumbai )
12. Sonoo Menghani )
73, Sneha Sadan Building, )
SBS Road, Opp. Colaba Post )
Office, Mumbai - 400 005 )
13. Hemlata Menghani )
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73, Sneha Sadan Building, )
SBS Road, Opp. Colaba Post )
Office, Mumbai - 400 005 )...Respondents
WITH
WRIT PETITION (L) No.21538 OF 2022
1. Sonoo Sobhraj Mengani )
73, Sneh Sadan Building, )
SBS Road, Opp. Colaba Post )
Office, Mumbai - 400 005 )
2. Hemlata Sonoo Menghani )
73, Sneh Sadan Building, )
SBS Road, Opp. Colaba Post )
Office, Mumbai- 400 005 )...Petitioners
Versus
1. Punjab National Bank )
a body corporate constituted )
under the Banking Companies )
(Acquisitions and Transfer )
of Undertakings) Act, 1970 )
having its head office at Plot )
No.4, Sector 10, Dwarka, )
New Delhi 110075 and a branch )
office at Zonal Sastra Centre )
Mumbai, 181-A1, 18th Floor, )
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"E" Wing, Maker Tower, )
Cuffe Parade, )
2. Abhilasha Premises Cooperative )
Society Ltd. )
Jolly Maker No.2, C.S. NO. 627, )
Plot No. 94, Cuffe Parade, )
Mumbai- 400 005 )
3. Assistant Commissioner of )
State Tax (D-815) Nodal )
Division -1, Mazgaon, Mumbai )
4. State of Maharashtra )
Through Government Pleader )...Respondents
Ms. Savita Nangare i/by M/s. Law Focus for the Petitioner in
WPL/20484/2022 and Respondent No.1 WPL/21538/2022,
Mr. Vinod Nagula i/by Ms. Pooja Kharat for the Petitioner in WPL /
21538/2022 and Respondent Nos.12 and 13 in WPL/20484/2022
Mr.V.A. Sonpal, Special Counsel along with Mr. Himanshu Takke, AGP
State for the Respondent Nos.3 and 4 in WPL/21538/2022
Mr. Himanshu Takke, AGP, State for the Respondent No.1 in
WPL/20484/2022
Mr. Manish Doshi a/w. Ms. Isha Thakur, i/by M/s. Vimadalal and Co. for
the Respondent No.2 in WPL/21538/2022
CORAM:- R.D. DHANUKA &
M.M. SATHAYE, JJ.
RESERVED ON : 2ND MARCH, 2023
PRONOUNCED ON : 24TH MARCH, 2023
JUDGMENT [PER R.D. DHANUKA, J.]
1. Rule. Ms. Savita Nangare waives service on behalf of
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Respondent No. 1 in WPL 21538 of 2022. Mr. Vinod Nagula waives
service for Petitioner in WPL 21538/2022 and Respondent Nos. 12 and
13 in WPL 20484 of 2022. Mr. V.A. Sonpal waives service for
Respondent Nos. 3 and 4- State in WPL 21538 of 2022. Mr. Himanshu
Takke, AGP waives service for Respondent No.1 State in WPL 20484 of
2022. Mr. Manish Doshi waives service for Respondent No.2 in WPL
21538/2022. Rule is made returnable forthwith. By consent of the
parties, both the Writ Petitions are heard together and are being
disposed of by a common order.
2. Petitioner-Punjab National Bank (hereinafter referred to as
"Petitioner Bank") has filed the Writ Petition (L) No. 20484 of 2022, inter
alia, praying for a writ of Certiorari for quashing and setting aside the
attachment order dated 22nd April, 2022 passed by the Assistant
Commissioner of State Tax (hereinafter referred to as "Authority"). The
Petitioner in Writ Petition (L) No. 21538 of 2022 has prayed for a writ of
Certiorari for quashing and setting aside the attachment order dated
22nd April, 2022 passed by the Authority and further seeks an order and
direction against Respondent No.2 Society to issue NOC to the
Petitioners for effecting the transfer of the Secured Assets in its name,
without any requirement of making payment of the dues of the
Respondent No.3 and/or NOC of Respondent No.3.
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Facts and Submissions in Writ Petition (L) 20484 of 2022
3. It is the case of the Petitioner Bank that during the period
between 2004 and 2009, Respondent Nos. 2 to 11 (hereinafter referred
to as "Borrowers") availed various credit facilities from the Petitioner
Bank to an aggregate extent of Rs. 3944.85 lacs, as set out in
paragraph 4 of the Writ Petition. Respondent Nos.4 to 8 have created
equitable mortgage of residential Flat No. 182, 18 th Floor, along with
two open parking spaces at Abhilasha Premises Co-operative Housing
Society Ltd., Jolly Maker Apartment No.2, Opposite World Trade Centre,
94, Cuffe Parade, Mumbai- 400 005 (hereinafter referred to as "the
Secured Asset") in favour of the Petitioner Bank. The said mortgage
was extended/ revised/renewed to secure credit limits granted to
Respondent Nos.2 to 11.
4. It is the case of the Petitioner Bank that sometime in the
year 2010, the said credit facilities granted to the borrowers turned
irregular. Accordingly, the loan accounts of the borrowers were
classified as non-performing asset (NPA) in accordance with RBI
guidelines. The Petitioner Bank recalled the said credit facilities and
issued a notice under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short "the said "SARFAESI Act") to the borrowers,
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calling upon them to pay a sum of Rs.21,40,92,734.30 as on 31 st
August, 2011, together with interest at the contractual rate within the
period of 60 days from the date of the said notice.
5. It is the case of the Petitioner Bank that since the
borrowers failed and neglected to clear the outstanding dues to the
Petitioner Bank, on 26th November, 2011, the Petitioner Bank issued a
notice calling upon the borrowers to hand over possession of the
secured asset on or before 14th December, 2011 and took symbolic
possession of the secured asset on 21st March, 2012. The said
possession notice was published in Free Press Journal and Navshakti
newspapers.
6. In the meanwhile, on 30th March, 2012, the Petitioner Bank
registered mortgage of Secured Asset with Central Registry of
Securitization Asset Reconstruction and Security Interest of India
(hereinafter referred to as "the said CERSAI"). The said CERSAI report
which shows that the Security Interest of the Petitioner Bank was
registered with CERSAI on 30th March, 2012.
7. On 23rd January, 2013, the Chief Metropolitan Magistrate
(CMM) Mumbai passed an order under Section 14 of the SARFAESI Act
to take physical possession of the secured asset. On 19 th September,
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2019, the physical possession of the secured asset was taken by the
Petitioner Bank. The Petitioner Bank thereafter published various e-
auction notices. The last e-auction notice was published on 19 th
February, 2022 in Free Press Journal for sale of the secured asset at
reserve price of Rs.7.54 crore. The e-auction was conducted on 10 th
March, 2022.
8. The Respondent Nos.12 and 13 (hereinafter referred as
"auction purchasers") participated in the said e-auction and submitted
a bid of Rs.7.55 crore along with 10% Earnest Money Deposit of Rs. 75
lacs. On 10th March, 2022, the Petitioner Bank confirmed the auction
purchasers as highest bidder. The auction purchasers paid 25% EMD
of Rs.1,88,75,000/- They requested for grant of extension of time until
30th April, 2022 for payment of balance 75% of the bid amount. The
Petitioner Bank granted extension vide letter dated 25th March, 2022.
9. It is the case of the Petitioner Bank that as on 15 th
June,2022, the total outstanding dues recoverable by the Petitioner
Bank was Rs.1,04,49,933.76 due and payable by the borrowers and
further interest at the contractual rate. It is the case of the Petitioner
Bank that in the meantime, the Respondent No.1 Authority passed the
impugned order on 22nd April, 2022 attaching the said Secured Asset.
It is the case of the Petitioner Bank that since at the time of filing of this
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Writ Petition, the Petitioner Bank could not file the said CERSAI report
and under bonafide belief, created a new registration entry in haste.
10. On 4th May, 2022, the society intimated the Petitioner Bank
and the auction purchasers that the society would issue NOC for
transfer of secured asset subject to clearance of the society dues and
sale tax dues. The Authority registered its encumbrance with the
concerned sub-registrar of the said secured asset. As a result whereof,
the auction purchasers are unable to procure no objection certificate
from the society. The Petitioner Bank, therefore, filed this petition on 28 th
June, 2022.
11. On 4th November, 2022, the Petitioner has filed an
Additional Affidavit, placing on record the copy of CERSAI Report
downloaded from the CERSAI website showing that the security
interest of the Petitioner Bank was registered under the CERSAI on
30th March, 2012. This Writ Petition is opposed by the Authority by filing
Affidavit in Reply on 6th January, 2023.
Facts and Submissions in Writ Petition (L) 21538 of 2022.
12. The Petitioner Nos. 1 and 2 (for short "the auction
purchasers") came across a paper publication made by the Petitioner
Bank on 19th February, 2022 in Free Press Journal newspaper for sale
of the Secured Asset at Reserve Price of Rs.7.54 crore. They
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participated in the said e-auction and submitted a bid of Rs.7.55 crore
and deposited Rs.75.5 lacs towards 10% Earnest Money Deposit
(EMD). Pursuant thereto, on the same day i.e. 10 th March, 2022, the
Petitioner Bank confirmed the auction purchasers as highest bidder.
13. On 11th March, 2022, the auction purchasers paid
Rs.1,88,75,000/- towards 25% EMD of bid amount. As per the said
email of confirmation dated 10th March, 2022, the auction purchasers
were required pay 100% bid amount to the Petitioner Bank towards
purchase of the Secured Asset by 15th April, 2022. The auction
purchasers vide their letter dated 21st March, 2022 requested Petitioner
Bank to grant extension of time until 30th April, 2022 for payment of
balance 75% of the bid amount.
14. It is the case of the auction purchasers that on 11 th March,
2022, the flat purchasers visited the office of the Respondent No.2 (for
short "the society") for understanding the transfer formalities and were
informed that there there were pending dues on the Secured Asset
towards society maintenance and electricity dues. On 25th March,
2022, the auction purchasers approached the Petitioner Bank about the
outstanding dues of the society and the sales tax dues as informed to
them by the society. The Petitioner Bank accordingly addressed a
letter dated 25th March, 2022 to the Society informing about the sale
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of the Secured Asset to the auction purchasers and also informed that
under Section 26E of the SARFAESI Act, the Petitioner Bank requested
to issue No Objection Letter to the auction purchasers.
15. On 28th March, 2022, the society informed the Petitioner
Bank about the pending society dues of Rs.23,21,452/- and also
informed about the claim of Sale Tax Department of Rs.4,24,89,312/-.
On 8th April, 2022, the Petitioner Bank addressed a letter to the Society,
reiterating that the Petitioner Bank has priority over the said Secured
Asset being the Secured Creditor under Section 26E of the SARFAESI
Act and requested the Society to issue No Objection Letter to the
auction purchasers for registration of the said Secured Asset. The
auction purchasers have shown their willingness to pay the society
dues, so as to get Secured Asset registered in favour of the flat
purchasers.
16. On 21st April, 2022, the auction purchasers addressed a
letter to the Petitioner Bank that the title of the Secured Asset being
not clear, the same cannot be transferred to the auction purchasers
nor can the auction purchasers avail loan on the Secured Asset and
therefore requested the Petitioner Bank to arrange for a clear title of the
Secured Asset, failing which the auction purchasers requested the
Petitioner Bank to refund the amount deposited by them. On 25 th April,
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2022, the auction purchasers addressed a letter to the Petitioner Bank
that the society refused to issue No Objection Letter to them stating
that the Sales Tax Department had prohibited the Society from
effective transfer of the Secured Asset and requested the Petitioner
Bank to extend time for payment of the balance bid amount till end of
May, 2022 or such till time that the Sales Tax matter is resolved.
17. On 4th May, 2022, the Petitioner Bank informed the auction
purchasers that as they have failed to deposit the balance bid amount
on due date i.e. on 30 April, 2022, the competent authority of the
Petitioner Bank had advised to forfeit the amount of 25% Earnest
Money Deposit of Rs.1,88,75,000/- and hence the said amount paid by
the auction purchasers stood forfeited.
18. On 13th May, 2022, the auction purchasers raised
objections to the unilateral action of forfeiture of the EMD by the
Petitioner Bank and informed the Petitioner Bank that they were willing
to make payment of the balance 75% of the bid amount and also
reserves its right to take possession of the said Secured Asset,
provided that the issue of the Sales Tax dues was resolved and clear
title of the said Secured Asset is passed onto the auction purchasers.
19. The auction purchasers thereafter preferred a Securitization
Application under Section 17 of the SARFAESI Act before the Debts
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Recovery Tribunal I, Mumbai , inter alia praying that the Petitioner Bank
be restrained from forfeiting the 25% EMD amount deposited by the flat
purchasers. The said application is pending before the DRT-I. On 6 th
July, 2022, the auction purchasers preferred this Writ Petition for
various reliefs. In this petition filed by the Auction Purchasers, the
Petitioner Bank and the said Society filed affidavits.
Submissions on behalf of the Petitioner Bank
20. Ms. Savita Nangare, learned counsel for the Petitioner
Bank invited our attention to various documents annexed to the writ
petition filed by her client, Affidavit in Reply filed by the Respondent
No.1 Authority and also the Additional Affidavit filed by the Petitioner
Bank. She submitted that admittedly, the Secured Asset was
mortgaged in favour of the Petitioner Bank by the borrowers, who had
availed various credit facilities from the Petitioner Bank to an aggregate
extent of Rs. 3944.85 lacs during the period between 2004 and 2009
and became defaulters and the Petitioner Bank had already taken
symbolic possession of the Secured Asset on 21st March, 2022.
21. In pursuance to the action initiated by the Petitioner Bank
under Section 14 of the SARFAESI Act, the Chief Metropolitan
Magistrate passed an order for taking physical possession of the
Secured Asset in favour of the Petitioner Bank. The Petitioner Bank has
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taken physical possession on 19th September,2019. It is submitted by
the learned counsel for the Petitioner Bank that the security asset was
subsequently sold by the e-auction on 10 th March, 2012 in which the
auction purchasers was found to be successful bidder and also paid
25% Earnest Money Deposit of Rs.1,88,75,000/- to the Petitioner Bank.
22. It is submitted by the learned counsel for the Petitioner
Bank that the Petitioner Bank has already registered the mortgage of
the Secured Asset with Central Registry of Securitization Asset
Reconstruction and Security Interest of India (CERSAI) on 30 th March,
2012. She relied upon a copy of the CERSAI Report downloaded from
the CERSAI website on 30th March, 2022 showing that the Petitioner
Bank had complete the procedure of Security Interest with CERSAI on
30th March, 2012. She submitted that since the Petitioner Bank could
not find the CERSAI Report earlier and under a bonafide belief the
Petitioner Bank created a new registration in haste, which is of no
consequence in view of Petitioner Bank completing the procedure for
registering the security interest with CERSAI as far as back on 30 th
March, 2012.
23. It is submitted by the learned counsel for the Petitioner
Bank that Section 26A was introduced in the SARFAESI Act, by 2016
Amending Act which provided for for rectification by the Central
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Government in the matters of registration, modification and satisfaction,
etc. and also, registration by secured creditor or other creditors. She
submitted that Section 26A of the said provision also declares that a
secured creditor who has registered the security interest or other
creditor who has registered the attachment order in its favour, shall
have priority of claims over subsequent security interest created over
the property in question, and any transfer by way of sale, lease,
assignment or license of such property or attachment order subsequent
to such registration. The Petitioner Bank accordingly registered the
mortgate of the said secured asset with the CERSAI.
24. Since the borrowers had committed default in repayment of
the loan, the loan accounts of the borrowers were declared as Non-
Performing Asset. The Petitioner Bank has already taken physical
possession of the secured asset. The auction sale was successful and
the auction purchasers were declared as successful bidder in the said
e-auction conducted by the Petitioner Bank. She invited our attention to
the impugned order dated 22nd April, 2022 passed by the Authority and
submitted that the impugned order prohibiting an amount of transfer of
secured asset, was passed on the premise that there were outstanding
of Rs.4,62,27,317/- against M/s.Tuff Enterprises. She submitted that
the said Tuff Enterprises was not a borrower of the Petitioner Bank.
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Learned counsel invited our attention to the impugned attachment
order date 22nd April, 2022 issued by the Authority.
25. Learned counsel for the Petitioner Bank placed reliance on
various paragraphs of the judgment delivered by the Full Bench of this
Court on 30th August, 2022 in case of Jalgaon Janta Sahakari Bank
Ltd. and Anr. Vs. Joint Commissioner of Sales Tax Nodal 9,
Mumbai and Anr. in Writ Petition No. 2935 of 2018 and batch of
Petitions. He submitted that the Petitioner Bank came to know about
the alleged encumbrance on the secured asset only after the sale was
conducted in respect of the secured asset in favour of the auction
purchasers. The attachment of the secured asset took place only after
the auction of the secured asset. The auction purchasers were
informed about such charge alleged to have been created by the
Respondent No.1 Authority upon the secured asset from the society
much later. She submitted that in view of the impugned order passed
by the Respondent No.1 Authority, the Petitioner Bank could not recover
the balance 75% amount of the sale proceeds and could not confirm
the sale in favour of the auction purchasers.
26. Learned counsel for the Petitioner Bank invited our
attention to the correspondence exchanged between the Petitioner
Bank and the society and also the auction purchasers and the society.
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She submitted that when the Petitioner Bank had sent an email on 12 th
August, 2022 informing about the possession taken by the Petitioner
Bank in respect of the secured asset, Society did not inform about the
alleged dues of the owners of the secured asset who are members of
the society. The Petitioner Bank had accordingly called the society to
inform the society's charges. Even at that stage, the society did not
inform the Petitioner Bank about the claim, if any, of the Respondent
No.1 Authority over the said secured asset. She submitted that though
the auction purchasers had visited the premises of the society and also
secured asset, the society did not inform the auction purchasers about
the dues, if any, of the State Government recoverable from the
borrowers.
27. It is submitted that when the said secured asset was put to
auction by the Petitioner Bank, for realizing their dues, no objection
was raised by the sales tax department. No due notice was earlier
issued by the sales tax department upon the Petitioner Bank in respect
of the secured asset. Learned counsel for the Petitioner Bank invited
our attention to the stand taken by the Respondent No.1 Authority in
the Affidavit in Reply and submitted that the Respondent No.1 Authority
has contended for the first time about the dues of taxes under MVAT
Act. Liability under Section 37 of this Act to be the first charge;
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notwithstanding anything contained in any contract to the contrary, but
subject to any provision regarding creation of first charge in any Central
Act for the time in force.
28. It is submitted that this stand taken by the Respondent No.1
Authority is contrary to the principles laid down by the Full Bench of this
Court in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra).
It is submitted that the Respondent No.1 Authority had issued a notice
under Section 33(1) of the Maharashtra Value Added Tax Act , 2002 to
the IDBI Bank in respect of Flat No.181. No such notice under Section
33(1) of the MVAT Act was issued to the Petitioner Bank in respect of
the flat No. 182.
29. Learned counsel invited our attention to the notice dated
9th July, 2015 issued by the Respondent No.1 Authority upon the society
in respect of Flat No.181 to not to transfer the said flat without No
Objection from the Respondent No.1 Authority. Admittedly, no such
notice was issued by the Respondent No.1 Authority upon the society
in respect of Flat No.182 i.e. the secured asset. It is submitted that
even the said order of attachment dated 16 th December, 2017 was
passed in respect of Flat No.181 and not passed in respect of Flat
No.182.
30. It is submitted that the Petitioner Bank had already
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informed the society on 8th February, 2022 about the Mortgage of the
said secured asset with the Petitioner Bank and also about the physical
possession thereof with the Petitioner Bank. Petitioner Bank informed
that it was in a process of sale of the said secured asset under the
provisions of the SARFAESI Act and requested the society to inform
the pending society's dues as on the date of the said letter and the
charges of transferring the property. She submitted that even at that
stage the society did not inform about the alleged encumbrance upon
the secured asset.
31. Learned counsel for the Petitioner Bank invited our
attention to the averments made by the society in the Affidavit in Reply
filed in Writ Petition (L) No. 21538 of 2022, filed by the auction
purchasers, stating that the as per the records of the Society, the said
Flat No. 182 and Flat No.181 are joint and have a common entrance.
She submitted that even in the said Affidavit in Reply filed by the
Society, it is contended that prior to the impugned order dated 22nd April,
2022, the Respondent No.1 Authority had not raised any claims or
registered any charge in respect of the said Flat No.182, which is the
subject matter of the present Petition filed by the auction purchasers
and also the Petitioner Bank. However, out of abundant caution and in
view of the fact that the said Mr. Shankarlal Jain was a common co-
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owner of the said Flat No.181 and the Flat No.182 and the said Flat
No.181 and the said Flat No.182 are joint, having a common entrance
and joint use even prior to the passing of the impugned order, the
Society had informed the Authority about the claims of the Sales Tax
Department.
32. It is submitted by the learned counsel for the Petitioner
Bank that Section 26E was inserted into SARFAESI Act in September,
2016, however, it came into effect on 24th January, 2020. It is submitted
that under Section 26E of the SARFAESI Act, a charge was required to
be registered. The charge was registered by the Bank with CERSAI
prior to March, 2020. The Respondent No.1 Authority did not register
their charge under the said provision prior to the date of registration of
the charge of the Bank in respect of the secured asset. The
attachment of the said secured asset leveled by the Respondent No.1
Authority after sale of the secured asset by the Petitioner Bank is thus
ex-facie, illegal and without authority of law.
33. The attachment order has to be passed in accordance with
the provisions of the MLR Code in accordance with the procedure
prescribed, which was not followed by the Respondent No.1 Authority.
Learned counsel submitted that consequent upon the registration of
the security interest by the Bank in the year 2012 itself, the right of the
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Bank as secured creditor to be paid in priority crystalized on 24 th
January, 2020, the day Chapter IV-A of the SARFAESI Act was brought
into force.
34. Learned counsel placed reliance on paragraph 256 of the
judgment delivered by the Full Bench of this Court in case of Jalgaon
Janta Sahakari Bank Ltd. and Anr. (supra.) and submitted that this
Court has considered the identical facts where the State Tax Authorities
had not ordered the attachment of the secured asset in the manner
known to law and followed it up with a proclamation, prior to rights of the
Bank as secured creditor, who had registered the security interest with
CERSAI, were crystallized.
35. Learned counsel for the Petitioner Bank placed reliance on
the judgment in case of Jalgaon Janta Sahakari Bank Ltd. and Anr.
(supra), and more particularly paragraph 299 and 300 of the said
judgment and submitted that the Respondent No.1 Authority did not
claim that they had registered the charge/attachment order with the
CERSAI to adhere to the mandate contained in Section 26B(4) of the
SARFAESI Act. Non-registration of the claim and/or order of
attachment entails the consequences envisaged by sub-section (2) of
Section 26C of the SARFAESI Act. She submitted that the Petitioner
Bank thus cannot be deprived of the right of priority under Section 26E
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of he SARFAESI Act. Since the Petitioner Bank has already registered
the security interest with the CERSAI and since the Respondent No.1
Authority had failed to register its claim and/or order of attachment, the
claim of the Respondent No.1 Authority becomes subservient to the
right of the Petitioner Bank as secured creditor.
36. Learned counsel for the Petitioner Bank relied upon
paragraphs 197,198 and 199 of the said judgment delivered by the Full
Bench and submitted that since the said secured asset of the defaulters
have not been attached in accordance with law, prior Chapter IV-A of
the SARFAESI Act or Section 31B of the Recovery of Debts Due to
Bank and Financial Institution Act, 1993 ( for short "RDDB Act") would
not get attracted. Learned counsel invited our attention to paragraphs
267 to 271 of the said judgment delivered by the Full Bench and
submitted that since the impugned order of attachment was passed,
post section 26E of the SARFAESI Act having been brought into force,
the right of the Petitioner Bank to have priority in payment of the
secured debt, over all other debts, revenue and taxes, would crystalize.
Subsequent action of attachment of the secured asset purportedly in
exercise of the right under Section 37 of the MVAT Act would not
dislodge the superior claim of the secured creditor.
37. It is submitted by the learned counsel for the Petitioner
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Bank that the rights of the auction purchasers are based on the rights
of the Petitioner Bank. She submitted that the impugned order passed
by the Respondent No.1 Authority having been passed contrary to the
principles laid down by the Full Bench in case of Jalgaon Janta
Sahakari Bank Ltd. and Anr. (supra.), thus deserves to be quashed
and set aside.
Submissions of the Auction Purchasers and the Society in Writ
Petition (L) No. 21538 of 2022 filed by the Auction Purchasers.
38. Learned counsel for the auction purchasers opposed the
submissions made by the learned counsel for the Petitioner Bank and
made additional submissions. He submitted that the charge of the
Respondent No.1 Authority, if any, was not registered at any point of
time with CERSAI. He relied upon paragraphs 177 and 185 to 199 of
the judgment delivered by the Full Bench in case of Jalgaon Janta
Sahakari Bank Ltd. and Anr. (supra) and submitted that when the
auction purchasers had visited the office of the society, as also secured
asset i.e. Flat No.182, the Society did not inform them about the so
called claim/charge of the Respondent No.1 Authority against the
borrowers or any lien or attachment in respect thereof on the date of
such period.
39. Learned counsel relied upon the averments made by the
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Society in its Affidavit dated 28 th December, 2022 and also the
Additional Affidavit filed by the auction purchasers. He submitted that
the auction purchasers had visited the secured asset on four occasions.
He relied upon the Affidavit filed by Rahul Kapoor, residing in the same
building, in which the said secured asset is situated. He averred in the
said Affidavit that when he had visited the secured asset, along with the
auction purchasers, he could not see any notice of the State Tax
Department or any other Government from time to time over the
secured asset, intimating lien/charge on the secured asset. The society
never informed the auction purchasers about the charge or dues of the
Sales Tax or any Government department on the secured asset.
40. It is submitted by the learned counsel that the auction
purchasers relied upon the Search Report submitted by Mr. Rakesh P.
Mali stating that he had taken search in the office of the Sub-Registrar
in respect of the Secured Asset from 2008 to 2022 and found NIL
encumbrance. He also relied upon the Search Report submitted by Mr.
S.G. Angchekar, Search Clerk from 2003 to 2022 and found that during
the said period from 2003 to 2022, there was no encumbrance on
record and that from 2003 to 2012 the records were partly torn.
41. Learned Counsel relied upon the correspondence
exchanged between the auction purchasers and the society and also
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with the Petitioner Bank. He submitted that the auction purchasers
never informed about the alleged claim of the Respondent No.1
Authority in respect of the secured asset and only after the auction took
place, the auction purchasers had taken steps required for due
diligence before purchasing the secured asset.
42. Learned counsel for the society, on the other hand,
submitted that the said Flat Nos. 181 and 182 in the building of the
Society are jointly owned by Mr. Shankarlal Jain. He invited our
attention to the correspondence exchanged between the society and
auction purchasers, with the Petitioner Bank and also with the
Respondent No.1 Authority. He submitted that prior to 22 nd April, 2022,
the Respondent No.1 Authority had not raised any claim or charge in
respect of the secured asset i.e. Flat No. 181. However, out of
abundant caution and in view of the fact that Mr. Shankarlal Jain was
common co-owner of the said Flat No. 181 and the said Flat No.182
and having a common entrance and joint use even prior to the passing
of the impugned order, the Society had informed the Petitioner Bank
about the claims of the Sales Tax Department.
43. It is submitted that the Respondent No.1 Authority never
raised any dues in respect of Flat No. 182 i.e. secured asset. He
submitted that the Society is ready and willing to issue the requisite No
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Objection Certificate for transfer of the said Flat No. 182 in favour of
the auction purchasers subject to the satisfaction of its dues in respect
of the said Flat No. 182 and the raising/discharge of the impugned order
dated 22nd April, 2022 and issuance of NOC by the Respondent No.1
Authority. He placed reliance on various paragraphs of the judgment
delivered by the Full Bench of this Court.
44. It is submitted that there is no charge created or lien in
respect of the said Flat No.182 by the Respondent No.1 Authority in
records of the society. He submitted that the Respondent No.1
Authority had levied attachment on the secured asset only after
auction of the secured asset by the Petitioner Bank in respect of which
the Auction Purchasers were found as the successful bidders. The
attachment has to be levied in accordance with the provisions of the
Maharashtra Land Revenue Code which in this case are not complied
by the Respondent No.1 Authority before levying the impugned
attachment of the secured asset. It is submitted that right of the
auction purchasers is based on the rights of the Petitioner Bank and
thus knowledge of the auction purchasers about the sales tax dues, if
any, is of no significance.
45. Mr. Sonpal learned Special Counsel for the Respondent
No.1 Authority, invited our attention to the prayers in both the Writ
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Petitions. He submitted that auction of the writ property was admittedly
held on 10 March, 2022 whereas Security Interest was registered by
Petitioner Bank with CERSAI on 23 June, 2022. He submitted that on
the date of effecting Sale of the writ property, the security interest of the
Petitioner Bank was not registered with CERSAI. Thus, Petitioner Bank
cannot claim any priority of its claim over the sale proceeds of the said
property above the Respondent No.1 Authority.
46. Learned Special Counsel invited our attention to the
Section 37 of the Maharashtra Value Added Tax Act and submitted that
Respondent No.1 Authority has first charge on the property of the
dealer/borrower i.e. Respondent No. 4, which is crystalized on the 30 th
day of the dealer having committed default. He submitted that even
according to the Petitioner Bank, account of Respondent Nos. 2 to 11
are classified as NPA. The loan against Respondent No.4 dealer, there
was a housing loan of Rs.2,07,00,000/- and the additional loan of
Rs.20,00,000/-. The account of the borrowers were declared as NPA in
the year 2010. The Petitioner Bank, however, continued to advance
loan against Flat No. 182 even thereafter which speaks volumes for its
conduct.
47. It is submitted that the cause of action have thus had arisen
in favour of the Petitioner-Bank to file appropriate proceedings for
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recovery of dues from the Respondent Nos.2 to 11 in the year 2010.
Notice invoking Section 13(2) of the Securitization Act, was issued on 6
September, 2011. On 26 November, 2011 possession Notice was
given. The sale was effected further only on 10 March, 2022 when the
Securities made by the Petitioner Bank was barred by limitation against
Respondent Nos.2 to 11.
48. Learned Special Counsel for the Respondent No.1
Authority submits that the impugned order passed by Respondent No.1
Authority is in accordance with the jurisdiction vested in him under
Section 32(5) read with Section 34 and 37 of the MVAT Act. The
challenge to the said order by the Petitioner Bank cannot be sustained
as the said order is passed in accordance with law, especially when
there is no challenge to the jurisdiction for violation of principles of
natural justice, indication for violation of fundamental or statutory rights.
49. It is submitted that there are dues pending in respect of
the dealer i.e. Shankarlal Jain, Proprietor of Tuff Enterprises and as per
procedure provided under MVAT Act, the Respondent No.1 Authority
has taken action. The question of property claimed by the Petitioner
Bank under attachment of assets of dealer did not arise. There is no
cause of action in favour of the Petitioner Bank in as much as
Respondent No.1 Authority has not acted, without prejudice to their
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rights to take the action, claiming priority in respect of sale proceeds of
the writ flat No.182 or claimed sale proceed of the Petitioner Bank.
50. It is submitted by the learned special counsel that the issue
whether there is mortgage or not or valid mortgage has to be
adjudicated in trial in the suit to be filed against all the borrowers
especially, when there is no defence taken by the borrowers at any
stage. The auction purchasers has failed to pay balance consideration
of the Sale to the Petitioner Bank. The Petitioner Bank has acted in
terms of Rule 9 of the Securitization (Enforcement of Security Interest)
Rules and forfeited the Earnest Money Deposit made by auction
purchasers. He submitted that Petitioner Bank has forfeited Earnest
Money Deposit, therefore, the Petitioner Bank does not have any power
to revoke forfeiture and only option that remains with the Petitioner
Bank is to re-advertise sale and enforce Security Interest.
51. It is submitted by the learned Special Counsel that under
Rule-9(4)(5) of the Security (Enforcement of Security Interest) 2002, if
the auction purchasers committed default in payment in respect of
purchase price, even if, any extension can be granted by Petitioner
Bank for payment of balance amount, such extension would not be
beyond the period of three months. He submitted in this case auction
purchasers have not paid balance amount within a period of three
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months from the date of auction, and the Petitioner-Bank having
forfeited Earnest Money Deposit, the entire sale transaction stands
cancelled. The question of Petitioner Bank claiming any priority in
respect of the sale proceeds of the writ property does not arise.
52. Learned Special counsel for the Respondent No.1 Authority
invited our attention to the advertisement issued by the Petitioner Bank
and submitted that it was made clear in the said advertisement that
the sale was on "as is where is, as is what is and whatever there is
basis." It is submitted that, it was also made clear in the said
advertisement that the statutory liability has to be paid by the auction
purchasers and regarding encumbrances known to secured creditors,
it was stated in the last column of the table that "Not known".
53. It is submitted that in view of the fact that sale was on "as
is where is basis or as is what is basis, whatever there is basis", the
auction purchasers cannot dispute the liability in respect of the writ
property of which the Respondent No.1 Authority is charged in respect
of the tax dues not paid by the Respondent No. 4 dealer. The sale of
Flat No.182 was of Commercial entities viz. Chandri and Allied
Products Private Limited, Bokadia Spinning Mills Private Limited and
its group. He submitted that the charge attached to the said property
Flat No. 182 continues to be of Section 100 of Transfer of Property Act.
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54. It is submitted by the learned counsel that as per
Securitization (Enforcement) Rules, 2002 under Rules 8 (6) (a) and (f),
9(7), 9(9) and 9(10) it is duty of the Petitioner Bank to disclose the
details of encumbrances known to the creditors and fact of knowledge
is governed by Section 3 and 100 of the Transfer of Property Act, which
can be ascertained in Trial in suit and the auction purchasers have
remedy to claim compensation by filing suit against Petitioner Bank. No
relief, thus can be granted in favour of either the Petitioner Bank or the
auction purchasers.
55. It is submitted that though the Petitioner-Bank is admittedly
aware of the encumbrance of the society dues intimated to it, did not
even disclose the arrears in the Advertisement, speaks volumes of
malafide intention of the Petitioner Bank. He submitted that since the
Petitioner Bank in the Advertisement for auction-sale has claimed
default in payment of advance to business entities, therefore the
Auction purchasers were duty bound to ascertain tax dues which they
have failed to and therefore, constructive notice is with the auction
purchasers and therefore, they can not avoid discharge of such Tax
liability.
56. It is submitted by the learned special counsel for the
Respondent No.1 Authority that Section 26E of the Securitization Act
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only provides for the distribution of the sale proceeds in priority to
secured creditors and does not adversely affect the encumbrances
capable of being enforced against the buyers of the property. He
submitted that the Auction Purchaser never made any inquiry before
bidding for sale with the society or tax authorities to ascertain the dues
of the Respondent No.1 Authority.
57. By letter dated 17th April, 2015, the Respondent No.1
Authority had already intimated to the Society to keep lien of the
Government on the property of the dealer. The Society was well aware
of the dues of the MVAT Department and either party to sale in auction
could have ascertained upon enquiry with the society under due
diligence encumbrances on the said flat. The learned special counsel
for the Respondent No.1 Authority placed reliance on the judgment of
Nagpur Bench of this Court delivered on 18th February, 2021 in Writ
Petition No. 7971 of 2019 in case of [Medineutrina Pvt. Ltd.
(Company) Vs. District Industries Centre (D.I.C.) and Ors.] and in
particular paragraph Nos. 28 to 30, 32, 36 to 41 and the status report of
the Special Leave Petition No. 10919/2021 registered on 19 th July, 2021
dismissing the Special Leave Petition filed by the Medineutrina Pvt. Ltd.
(Company) (Petitioner) before the Supreme Court.
58. Learned special counsel for the Respondent No.1 Authority
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also placed reliance on order passed by the Supreme Court on 18 th
November, 2021 in Civil Appeal No. 6350/2021 in [Kotak Mahindra
Bank Ltd. Vs. District Industries Centre (D.I.C.) & Ors.] and
submitted that there is first charge of the Respondent No.1 on the writ
property in respect of the statutory dues.
59. Ms. Nangare, learned counsel for the Petitioner Bank in
Writ Petition (L) No. 20484/2022 in her rejoinder argument invited our
attention to the additional affidavit filed by the Petitioner on 4 th
November, 2022 and submitted that only after sale of the secured asset,
the Petitioner received the impugned order dated 22nd April, 2022
passed by Respondent No.1 Authority attaching the said secured asset.
The Petitioner Bank, thereafter, had appointed Law Focus, Advocates
for filing this Writ Petition.
60. It is submitted that when the Petitioner Bank was unable to
locate the CERSAI Report dated 30th May, 2012 on the CERSAI
Website, but found a CERSAI Report for the same secured asset with
different borrower name i.e. 'Shantilal Jain', the Petitioner Bank
believed that the Petitioner Bank had made a mistake while registration
of Security Interest on CERSAI portal by mentioning borrower name as
'Shantilal Jain' instead of 'Shankarlal Jain'. Therefore, under this
bonafide belief, the Petitioner Bank created a new registration entry on
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CERSAI portal on 23rd June, 2022 i.e. just before filing of the Writ
Petition and filed the report of new registration entry annexed at
Exhibit-D to the Petition showing proof of registration of Security Asset
of the CERSAI of the Petitioner Bank on the said Secured Asset.
61. Learned Counsel invited our attention to CERSAI Search
Report annexed at Exhibit 'A' to the Additional Affidavit and submitted
that the said report would clearly indicate that SI Creation date in filing
was 26th March, 2004 and SI registration date in CERSAI Portal was
30th March, 2012 at 18:04.
62. Insofar as submission made by the learned special counsel
for the Respondent No.1 Authority that the Petitioner Bank had forfeited
the earnest money deposited by the auction purchasers and others and
auction sale in favour of the flat purchasers by the Petitioner Bank stood
cancelled is concerned, the Petitioner Bank through their Advocate's
letter dated 29th June, 2022 addressed to the auction purchaser had
clearly informed that, the Petitioner Bank had filed Writ Petition (L) No.
20484/2022 before this Court for lifting the attachment of the
Respondent No.1 Authority and to seek necesary direction against the
Respondent No.1 Authority to confirm the sale in favour of the
Petitioner subject to receipt of balance 75% bid amount immediately
upon passing of such direction.
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63. The Petitioner Bank advised the Auction Purchasers to
make necessary arrangement and keep the balance 75% bid amount
ready to pay the Petitioner Bank immediately upon passing of
directions of this Court in this Petition. She submitted that it is thus
clear that the Petitioner Bank agreed to accept the balance 75% of the
consideration amount from the auction purchaser on the attachment
levied by the Respondent No.1 Authority on writ property is lifted by this
Court.
64. It is submitted by the learned counsel that the mortgage of
the writ property in favour of the Petitioner Bank by the borrowers
and/or guarantors was much prior to the attachment levied by the
Respondent No.1 Authority on the writ property. She invited our
attention to to the prayer clause (a) of the Writ Petition filed by the
Petitioner Bank and submitted that by invoking of Section 13(2) of the
Securitization Act, the Petitioner Bank being a secured creditor is
allowed to sale the mortgage asset being a secured asset. She
submitted that the notice under Section 13(2) of the Securitization Act
was issued by the Petitioner Bank upon the borrowers as far as in
2011. The process for recovery of the dues of the Petitioner Bank from
the borrower and guarantors under the provisions of the SARFAESI
Act was started much earlier.
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65. It is submitted that the inquiry under Rule 9 (4) of the
Securitization (Enforcement) Rules 2022 cannot be within the scope of
inquiry in the writ petition filed by the Petitioner Bank, inter alia, praying
for certain attachment order levied by Respondent No.1 Authority. She
invited our attention to Section 17 of the Securitization Act and
submitted that Respondent No.1 Authority could have approached the
Debt Recovery Tribunal for stopping the process of auction initiated by
the Petitioner Bank and for a declaration that Respondent No.1
Authority had first charge over the property of the dealer. The
Respondent No.1 Authority, however, did not file any such proceeding
before DRT by invoking Section 17 of the Securitization Act.
66. Learned counsel for the Petitioner Bank relied upon
paragraph 200 and 201 of the judgment of the Full Bench in case of
Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.) and submitted that
the rights of the secured creditors are not affected even if there is any
scheme in respect of the tax dues of the dealer payable to the Sales
Tax Department. She submitted that the Petitioner Bank is not required
to sell the mortgage property which is a secured asset in favour of the
Petitioner Bank with a view to claim priority from the said property.
67. It is submitted by the learned counsel for the Petitioner
Bank that 25% consideration amount was already deposited by the
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auction purchaser under Rule 9(3) of the said Rules. She submitted that
the Petitioner Bank has right to withdraw or to press the order of
forfeiting the earnest money deposit. The Petitioner Bank did not press
the forfeiture order and approached for setting aside the attachment
order and agreed to accept the balance 75% amount from the auction
purchasers.
68. Learned counsel for the Petitioner Bank invited our
attention to notice dated 22nd April, 2022 addressed by Respondent
No.1 Authority to the Petitioner Bank informing that there were
outstandng Sales Tax dues to the tune of Rs.4,62,27,317/- againt M/s.
Tuff Enterprises and for recovery of the said amount, the Sales Tax
Department initiated recovery proceeding under Section 33 and 34 of
the Maharashtra Value Added Tax Act, 2002. In the said Departmental
Order, Respondent No.1 Authority invoked Section 37 and 38 of the
Maharashtra Value Added Tax,2002 and requested the Petitioner Bank
to prohibit any kind of transfer of property by way of sale, mortage, gift,
exchange or parts any possession of any of the assets of the dealer and
threatened to take appropriate action under the provisions of MVAT Act,
2002 invoking the provisions under the Indian Penal Code and Code of
Criminal Procedure against the Petitioner Bank.
69. It is submitted that in view of the said attachment order,
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levied on 22nd April, 2022 i.e. within the period of 3 months from the date
of which the auction purchasers are liable to pay the balance 75%
consideration amount i.e. on or before 10 th June, 2022, the said
property was already attached and thus, neither the Petitioner Bank
could recover the consideration amount nor the auction purchasers
could deposit the said balance consideration with the Petitioner Bank.
She submitted that Respondent No.1 Authority never raised any
demand notice on the flat bearing No. 182.
70. Learned counsel for the Petitioner Bank relied upon the
judgment of the Supreme Court in case of General Manager, Sri
Siddeshwara Cooperative Bank Ltd. And Anr. Vs. Ikbal and Ors.
[(2013) 10 Supreme Court Cases 83] and more particularly paragraph
19 and submitted that Rule 9 (1) of the said Judgment are for the
benefit of the secured creditors as well as borrower and same can be
lawfully waived by the parties. It is submitted that even if the provision
is mandatory, it can always be waived by the parties in whose favour
such provision has been made. It is submitted that the Petitioner Bank
has waived its right to enforce the forfeiting earnest money deposit,
Respondent No.1 cannot raise any objection in respect of such waiver
on the part of the Petitioner Bank.
71. Insofar as issue raised by Respondent No.1 Authority that
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the auction purchasers had constructive notice of the claims made by
Respondent No.1 Authority over the writ property is concerned, the
learned counsel for the auction purchasers submitted that Respondent
No.1 Authority has not produced any evidence to show that the Flat
No.182 was attached at any point of time. Respondent No.1 Authority
did not claim any lien in respect of the said Flat No.182 before the
society. He submitted that no Special Leave Petition has been filed by
the State Government against the judgment delivered by the Full
Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. &
Anr. (supra.)
72. Learned AGP for Respondent No.3 submitted that the
Society had communicated the claim of the Sales Tax Department to the
Auction Purchasers and Petitioner Bank and thus both of them had
notice of the prior claim of Respondent No.1 Authority against the dealer
in respect of the said property.
Reasons and Conclusions:
73. The question that fell for consideration of this Court is to
whether the Petitioner Bank having registered mortgage of the secured
asset with Central Registry of Securitization Asset Reconstruction and
Security Interest of India (CERSAI) will have priority to make its claim
over the claims/charge of the Sales Tax Department arising out of the
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dues under the Maharashtra Value Added Tax Act, 2002 (MVAT) against
the borrower to enforce the mortgaged writ property in favour of the
Petitioner and more particularly, when the Sales Tax Deparatment had
not registered its claim with CERSAI.
74. We have heard learned counsel for the parties in both the
Petitions and also the Respondents at length and have considered their
rival submissions in the later part of the judgment.
75. Some of the admitted facts are as under;
The borrowers and/or guarantors (Original Respondent Nos.2 to 11)
had availed various credit facilities from the Petitioner Bank since
2004. Respondent No.4 borrower/dealer had created equitable
mortgage on the writ property being residential Flat No. 182, 18 th Floor,
along with two open parking spaces at Abhilasha Premises
Cooperative Housing Society Ltd., Jolly Maker Apartment No.2,
Opposite World Trade Centre 94, Cuffe Parade, Mumbai - 400 005 in
favour of the Petitioner Bank. The said mortgage was extended to
secure extended / revised / renewed credit limits granted to Respondent
Nos. 2 to 11 by the Petitioner Bank. It is a common ground that
Respondent No.1 Authority did not register the claim/charge of any
nature whatsoever with the said CERSAI at any point of time.
76. It is also not in dispute that the Petitioner Bank had invoked
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the provisions of section 13(2) of the SARFAESI Act and had called
upon the Original Respondent Nos. 2 to 11 to pay substantial amount.
Since there was default on the part of the borrowers and guarantors,
the Petitioner Bank proceeded under Section 13(4) of the SARFAESI
Act. On 13th February, 2012, the Petitioner took symbolic possession of
the secured asset. The Chief Metropolitan Magistrate passed an order
under Section 14 of the SARFAESI Act on 23 rd January, 2013, on the
application filed by the Petitioner Bank for taking physical possession of
the secured asset.
77. It is placed on record by the Petitioner Bank as well as the
auction purchasers that the said property was put to an e-auction by
notice dated 19th September,2019. Respondent No.1 Authority did not
raise any objection in pursuance of the said notice dated 19 th
September, 2019 issued by the Petitioner Bank in conducting E-auction
of the writ property which was a secured asset in favour of the
Petitioner Bank. The Auction Purchasers participated in the said e-
auction on 10th April, 2022 and were declared as highest bidders.
78. Auction Purchasers also paid 25% EMD of
Rs.1,88,75,000/- to the Petitioner Bank and requested for grant of
extension of time until 30 April, 2022 for payment of balance 75% of the
bid amount, which was allowed by the Petitioner Bank. On 22 nd April,
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2022, Respondent No.1 Authority passed an order of attachment,
attaching the immoveable properties which are the secured asset of
the Petitioner Bank including the writ property. As per the said
impugned order, Respondent No.3 as a proprietor of M/s. TUFF
Enterprises had committed default in payment of Rs.4,62,27,317/-
towards Sales Tax Dues. Respondent No.1 informed the Petitioner
Bank vide letter dated 22nd April, 2022, and conveyed the said
impugned order to the Society on 4th May, 2022.
79. Under Section 32(5) of the MVAT Act, 2002, it is provided
that any tax, penalty, interest, fine or sum forfeited, which remains
unpaid after the service of notice under sub-section (4), or any
instalment not duly paid, or any amount due or payable under this Act,
shall be recoverable as an arrears of land revenue.
80. Under Section 37 of the MVAT Act, it is provided that
Liability under this Act to be the first charge- "Notwithstanding
anything contained in any contract to the contrary, but subject to any
provision regarding creation of first charge in any Central Act for the
time being in force, any amount of tax, penalty, interest, sum forfeited,
fine or any other sum payable by a dealer or any other person under
this Act, shall be the first charge on the property of the dealer or, as the
case may be, person."
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81. Section 37(2) provides that the first charge as mentioned in
sub-section (1) shall be deemed to have been created on the expiry of
the period specified under sub-section (4) of Section 32 for the
payment of tax, penalty, interest, sum forfeited, fine or any other
amount.
82. In the Affidavit in Reply filed by Respondent No.1 Authority,
it is admitted that the advances given by the Petitioner Bank to
Respondent Nos. 2 to 11 were between 2004-2009. The possession of
the flat No.182 was taken in 2011 and property was sought to be sold in
2022.
83. In the Additional Affidavit filed by the Petitioner Bank, the
Petitioner Bank has brought on record that the Petitioner Bank has
registered mortgage of the secured asset with CERSAI on 30 th March,
2012 and had completed the procedure of registation of security interest
with CERSAI on 30th March, 2012. A copy of the search report is
anenxed at Exhibit 'A' to the said Additional Affidavit of the Petitioner
Bank, notarized on 4th November, 2022. The registration of the
mortgage by the Petitioner Bank with CERSAI is thus admittedly much
before warrant of attachment levied by Respondent No.1 Authority on
the writ property. In the Affidavit in Reply dated 6 January, 2023 filed by
Respondent No.1 Authority, the alleged lacuna has not been disputed
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by Respondent No.1 Authority
84. Under Section 26-A of the SARFAESI Act, which provides
that - Rectification by Central Government in matters of
registration, modification and satisfaction, reads thus:- (1) The
Central Government, on being satisfied-
(a) that the omission to file with the Registrar the particulars of
any transaction of securitisation, asset reconstruction or security
interest or modification or satisfaction of such transaction or; the
omissino or mis-statement of any particular with respect to any such
transaction or modification or with respect to any satisfaction or other
entry made in pursuance of section 23 or section 24 or section 25 of
the principal Act was accidental or due to inadvertence or some other
sufficient cause or it is not of a nature to prejudice the position of
creditors; or
(b) that on other grounds, it is just and equitable to grant relief,
may, on the application of a secured creditor or asset reconstruction
company or any other person interested on such terms and conditions
as it may seem to the Central Government just and expedient, direct
that the time for filing of the particulars of the transaction for registration
or modification or satisfaction shall be extended or, as the case may
require, the omission or mis-statement shall be rectified.
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(2) Where the Central Government extends the time for the
registration of transaction of security interest or securitisation or asset
reconstruction or modification or satisfaction thereof, the order shall
not prejudice any rights acquired in respect of the property concerned
or financial asset before the transaction is actually registered.
85. The issue as to who will have priorty in view of Section 26E
of SARFAESI Act was referred to the Full Bench of this Court in case of
Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.). The Full Bench
of this Court considered the following questions:-
(a) Having regard to the statutory provisions under consideration,
does a secured creditor (as defined in the SARFAESI Act and the
RDDB Act) have a prior right over the relevant department of the
Government [under the BST Act/ MVAT Act/ MGST Act] to appropriate
the amount realized by the sale of a secured asset?
(b) Whether, despite section 26E in the SARFAESI Act or section
31B of the RDDB Act being attracted in a given case, dues accruing to
a department of the Government ought to be repaid first by reason of
'first charge' created over any property by operation of law (viz. The
legislation in force in Maharashtra) giving such dues precedence over
the dues of a secured creditor?
(c) Are the provisions, inter alia, according 'priority' in payment of
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dues to a secured creditor for enforcing its security interest under the
provisions of the SARFAESI Act prospective?
(d) Whether section 31B of the RDDB Act can be pressed into
service for overcoming the disability that visits a secured creditor in
enforcing its security interest under the SARFAESI Act upon such
creditor's failure to register the security interest in terms of the
amendments introduced in the SARFAESI Act?
(e) Whether the priority of interest contemplated by section 26E of
the SARFAESI Act could be claimed by a secured creditor without
registration of the security interest with the Central Registry?
Depending on the answer to this question, whether correct proposition
of law has been laid down (extracted infra) in paragraph 21 of the
Division Bench decision reported in 2020 (2) Bom. C.R. 243 (OS)
[ASREC (India) Limited vs. State of Maharashtra and Ors.] and in
paragraph 35 of the Division Bench decision, reported in 2021 (2) Mh.
LJ. 721 State Bank of India vs. the State of Maharashtra and Ors.
(f) When, and if at all, can it be said that the statutory first charge
under the State legislation, viz. the BST Act, the MVAT Act and the
MGST Act, as the case may be, stands displaced having regard to
introduction of Chapter IV-A in the SARFAESI Act from 24 th January,,
2020?
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(g) Whether an auction purchaser of a secured asset would be
liable to pay the dues of the department in order to obtain a clear and
marketable title to the property having purchased the same on "as is
where is and whatever there is basis"?
86. The Full Bench considered Section 26-C of the SARFAESI
Act and held that the proviso to Section 26-C also declares that a
secured creditor, who has registered the security interest or other
creditor who has registered the attachment order in its favour, shall
have priority of claims over subsequent security interest created over
the property in question, any transfer by way of sale, lease, assignment
or licence of such property or attachment order subsequent to such
registration.
87. This Court noted that since the equitable mortgage could
be created without registration, the transaction between the lender and
the borrower largely remained secret. There was no way anyone else
could get an inkling thereof, until the provisions of CERSAI registration
were enacted. This Court held that to curb such problems and other
undesirable consequences, the Parliament designed Chapter IV-A in
such a manner to include provisions which, on the one hand, would
disable any secured creditor to exercise the right of enforcing
security interest under Chapter III of the SARFAESI Act without the
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CERSAI registration (section 26D) and, on the other, enable the
secured creditor, if it has the CERSAI registration, to claim priority
over all other debts and all revenues, taxes, etc.
88. It is held that Section 26E, also beginning with a non-
obstante clause, is unambiguous in terms of language, effect, scope
and import. A 'priority' in payment over all other dues is accorded to a
secured creditor in enforcement of the security interest, if it has a
CERSAI registration, except in cases where proceedings are pending
under the provisions of the Insolvency and Bankruptcy Code, 2016.
This Court held that such registration would constitute public notice
thereof. The Full Bench of this Court has held that the dues of the
secured creditor shall have priority over all other debts and all
revenues, taxes, cesses and other rates payable to the Central
Government or State Government or local authority in view of Section
26E of the SARFAESI Act.
89. Full Bench of this Court also considered whether the
provisions of a statute, becomes a 'first charge' on the property, in view
of the plain language of Article 327 of the Constitution, must be held to
prevail over a Crown debt, which is an unsecured one. This Court held
that the rights of such of the first charge holders accorded by several
legislation enacted by the State, having regard to the language in
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which section 26E is couched, would rank subordinate to the right of the
secured creditor as defined in Section 2(1) (zd) subject, of course, to
compliance with the other provisions of the statute.
90. This Court held that Section 26E of the SARFAESI Act is a
subsequent legislation, as it was notified on 24th January, 2020. Subject
to compliance of the terms of Chapter IV-A, Section 26E of the
SARFAESI Act would, thus, override any provision in the MGST Act
and the BST Act in case of a conflict with the SARFAESI Act. This
Court held that Section 26D which also refers with a non-obstante
clause, prohibits a secured creditor from exercising the rights for
enforcement of security interest conferred by Chapter III, unless the
secured interest created in its favour by the borrower has been
registered with the CERSAI.
91. It has further held that not only therefore registration with
the CERSAI has been made a mandatory pre-condition for invocation
of the provisions contained in Chapter III of the SARFAESI Act, the
provisions relating to debts that are due to any secured creditor being
payable to such creditor in priority over all other debs and revenue,
taxes etc. is available to be invoked only after the registration of
security interest. It leads to the irresistable and inevitable conclusion
that unless the security interest is registered, neither can the borrower
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seek enforcement invoking the provisions of Chapter III of the
SARFAESI Act nor does the question of priority in payment would arise
without such registration.
92. Insofar as the judgment of the Division Bench of this Court
at Nagpur Bench in case of Medineutrina Pvt. Ltd. (Company)(supra)
relied upon by Mr. Sonpal, learned special counsel for Respondent No.1
Authority in Writ Petition (L) No.20484 of 2022 and for Respondent Nos.
3 and 4 in Writ Petition (L) No.21538 of 2022, is concerned, the
Respondent No.1 provides for guidelines as to what steps shall be
taken by the secured creditors under the SARFAESI Act to ensure that
the property over as a secured interest is free from any encumbrances
whatsoever at the time it is so offered initially, to avail financial credit by
the owners.
93. The Special Leave Petition filed against the said judgment
by the Petitioner Medineutrina Pvt. Ltd. (Company)(supra) in the said
writ petition came to be dismissed summarily. The Full Bench of this
Court has dealt with the said judgment of the Division Bench in the
case of Medineutrina Pvt. Ltd. (Company) (supra). The Full Bench of
this Court has taken a contrary view and thus, the principles laid down
by the Full Bench of this Court would be binding upon this Court and not
the judgment of the Division Bench. The reliance placed by the learned
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counsel for Respondent No.1 Authority on the judgment of the Division
Bench of this Court in case of Medineutrina Pvt. Ltd. (Company)
[supra] is misplaced.
94. Mr.Sonpal, learned Special Counsel for Respondent No.1
Authorty could not dispute that the equitable mortgage in favour of the
Petitioner Bank by the Original Respondent No.4 was registered with
CERSAI in the year 2012 itself. In our view, the registration of the
mortgage which was a secured asset in favour of the Petitioner Bank to
secure the loans and advances given to the original borrowers was a
public notice. The reliance placed on the provisions of Section 32, 35
and 37 of the MVAT Act, 2002 by the learned counsel for Respondent
No.1 Authority is of no assistance to Respondent No.1 Authority so as to
claim priority over the claim of the Petitioner Bank and more particularly
when the equitable mortgage in favour of the Petitioner Bank was
clearly registered with CERSAI much earlier.
95. In our view, the submissions advanced by the learned
Special Counsel for Respondent No.1 Authority is ex-facie, contrary to
the plain reading of Section 26E of the Securitization Act which is a
Central Act. Even if there is any inconsistency between the
Securitization Act and the MVAT Act, in view of Article 254 of the
Constitution of India, the provisions of the Securitization Act would
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prevail over the provisions of the MVAT Act which is a State enactment.
96. Insofar as the order of Supreme Court in case of Kotak
Mahindra Bank Limited Vs. District Industries Centre (D.I.C.) and
Ors. relied by Mr. Sonpal, learned Special Counsel for Respondent
No.1 Authority is concerned, the said Civil Appeal was arising out of
different orders passed by the High Court. The Supreme Court in the
facts of that case, in the said order opined that the findings recorded by
the High Court in paragraphs 26 and 27 of the judgment impugned in
the said Civil Appeal were not positive findings of fact in favour of the
Petitioner that the Petitioner had no constructive notice as such. The
Supreme Court in the said order did not decide any other issues as are
raised by the parties in these two petitions. The said order passed by
the Kotak Mahindra Bank Limited (supra) thus, would not advance
the case of Respondent No.1.
97. The Respondent No.1 Authority has raised an issue that in
the advertisement issued by the Petitioner Bank, the advertisement
itself had made it clear that the auction sale shall be on "as is where
is, as is what is, whatever there is basis" and thus the auction
purchasers are liable to pay all the statutory dues/attendant charges/
other dues including registration charges, stamp duty, taxes, statutory
liabilities, arrears of property tax, electricity dues etc. Such clauses in
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the advertisement would not confer any priority of the claim of taxes in
favour of Respondent No.1 contrary to Section 26E of the SARFAESI
Act. Be that as it may, the issue of similar clauses have been already
construed by the Full Bench of this Court in case of Jalgaon Janta
Sahakari Bank Ltd. & Anr. (supra.).
98. In paragraphs 188 to 192 of the said judgment, this Court
held that the non-registration of the claim and/or attachment order by
the Sales Tax Authority under Section 26B(4) of the SARFAESI Act,
can only be at the peril of the department. Mere recording of the
purported charge in the record of right of the secured asset, in the
absence of the the registration with CERSAI cannot be to the detriment
of the auction purchaser, though the auction sale was on "as is where
is and as is what is basis".
99. The auction purchaser have participated in the e-auction
conducted by the Petitioner Bank who had priority over the secured
asset in view of registration of the equitable mortgage under Section
26E of the Securitization Act with CERSAI. In our view, the Petitioner
Bank is not liable to take cognizance of the claim of Respondent No.1
over the secured asset in view of the Petitioner bank having priority
over the secured asset and thus, is not liable to pay any taxes or other
liabilities out of sale proceeds of the secured asset to the Respondent
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No.1. The Auction Purchasers' claim their rights from the Bank having
priority over the secured asset which was not liable to pay any taxes to
the Respondent No.1 Authority. The principles laid down by the Full
Bench on this aspect clearly applies to the facts of the present case.
We are unable to accept the submissions made by Mr. Sonpal, Learned
Special Counsel for Respondent No.1.
100. The Full Bench of this Court in the judgment of Jalgaon
Janta Sahakari Bank Ltd. & Anr. (supra.) has already dealt with
similar advertisement and has rejected similar contention of the
authority.
101. The Petitioner Bank as well as the auction purchasers have
produced on record the correspondence exchanged between the
Petitioner Bank, auction purchasers, Society and also between
Respondent No.1 Authority. The society has filed an Affidavit in Reply
in the Writ Petition (L) No. 21538 of 2022. It is clearly stated in the
Affidavit in Reply filed by the society that the Sales Tax Officer vide
letter dated 28 July, 2016, had informed the Respondent No.2 about its
intention to recover the Sales Tax dues from Mr. Jitendra Shankarlal
Jain.
102. It was stated that as the said Jitendra Shankarlal Jain is
the owner of the said Flat No. 181, Society was directed not to allow the
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said Jitendra Shankarlal Jain to sell or transfer the said Flat No.181
without the permission of the Sales Tax Officer's office. It is further
stated in the Affidavit in Reply filed by the Society that the Petitioner
Bank had addressed a letter to the Society on 8 February, 2022, inter
alia, informing that they were in process of selling the said flat No. 182
under the provisions of the SARFAESI Act,2002. The Respondent No.1
Authority also had informed the Society that the auction purchasers
were not declared as successful bidders of the Flat No. 182 by letter
dated 25 March, 2022 under the provisons of the SARFAESI Act, the
society was requested to provide its pending dues, if any in relation to
the Flat No. 182.
103. Learned counsel for the Society urged that as per Section
26E of the SARFAESI Act, 2002 , Respondent No.1 Authority had
priority over all other debts and all revenues, taxes, cesses, and other
rates payable to the Central Government or the State Government or
the local authorities. The Society informed the Petitioner Bank that
there was a claim of Sales Tax Department in respect of Flat No. 181
vide letter dated 28 March, 2022.
104. The learned counsel for the society during the course of his
argument vehemently urged that there is no attachment levied by the
Respondent No.1 Authority in respect of the Flat No. 182 which is the
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subject matter of the present Petition. However, out of abundant
caution and in view of the fact that the said Mr. Shankarlal Jain was a
common co-owner of the said Flat No.181 and the said Flat No.182,
and the said Flat No. 181 and 182 are joint, having a common entrance
and joint use even prior to the passing of the impugned order,
Respondent No.2 Society had informed to the Petitioner Bank about the
claims of the Sales Tax Department. Learned counsel submitted that the
Society was ready to issue No Objection Certificate for transfer of the
Flat No. 182 in favour of auction purchasers subject to the satisfaction
of its dues in respect of the said Flat No.182 and the raising/discharge
of the impugned order dated 22 April, 2022 and issuance of NOC by the
Sales Tax Department.
105. The Auction Purchasers also invited our attention to the
letter dated 28 March, 2022 from the Auction Purchasers to the
Petitioner Bank stating that during inspection, the auction purchaser had
observed notices pasted on the door of the said flat No.182 stating
over that the dues to be paid to the society. The society informed the
Petitioner Bank regarding the dues of the society recoverable in respect
of the said flat to the tune of Rs.22,00,000/- and about Rs. 50,000/-
towards electricity dues. The Auction purchasers considered the said
amount being reasonable and decided to bid and purchase the said
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property in auction.
106. Mr. Sonpal, learned Special Counsel for Respondent No.1
Authority could not point out any order of attachment on the writ
property i.e. Flat No. 182 even during the course of argument. The
only contention raised by the learned special counsel was that Flat Nos.
181 and 182 both belong to the same owner having a common entrance
of both the flats.
107. In our view, the stand taken across the bar that there is a
common entrance in respect of the two flats, the attachment, if any, in
respect of the Flat No.181 would also amount to attachment on Flat
182, is misconceived and deserves to be rejected. Insofar as
submission of Mr. Sonpal, learned Special Counsel for Respondent
No.1 Authority that Rule 9(4) of the Security Interest (Enforcement)
Rules 2002 provides with extension of time for payment to the auction
purchasers could not be beyond the period of three months and thus
the auction purchasers not having paid the balance amount within a
period of three months on or before issuance of confirmation stood
canceled is concerned, there is no merit in the submision made by the
learned Special Counsel for Respondent No.1.
108. Supreme Court in the case of General Manager, Sri
Siddeshwara Cooperative Bank Limited (supra) has interpreted Rule
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9(4) of the Securitization Interest (Enforcement) Rules, 2002 and held
that, the provisions of Rule 9(1) being for the benefit of the borrower
and the provisions contaned in Rule 9(3) and 9(4) being for the benefit
of the secured creditor (or for that matter for the benefit of the
borrower), the secured creditor and the borrower can lawfully waive
their right. These provisions neither expressly nor contextually indicate
otherwise. The interpretation by the Supreme Court in the case of
General Manager, Sri Siddeshwara Cooperative Bank Limited
(supra), clearly applies to the facts of this case. We are respectfully
bound by the said principles.
109. Perusal of the correspondence exchanged between the
Petitioner Bank and auction purchasers indicates that though at one
stage the Petitioner Bank had addressed a letter thereto, forfeiting the
earnest money deposit of 25%, the fact remains that in view of the
attachment order passed by the Respondent No.1 Authority before
expiry of three months, neither the Petitioner Bank could recover the
balance amount nor auction purchasers could pay any such amount.
The Petitioner Bank accordingly informed the auction purchasers by a
letter dated 29 June, 2022 that since the Petitioner Bank had filed this
writ petition before this Court to lift the attachment of the Sales Tax
Department, the Petitioner Bank seeks direction against the Sales Tax
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Department to confirm the sale in favour of the auction purchasers and
permit the balance 75% amount immediately upon passing of direction
of this Court in the said writ petition.
110. We are not inclined to accept the submission of the
learned special counsel for the Respondent No.1 Authority that the
Petitioner cannot waive their right to forfeit the earnest money deposit
and to accept the balance consideration amount subsequently,
depending upon the outcome of this petition filed by the Petitioner Bank.
In our view, there is no substance in the submission made by the
learned Special Counsel for Respondent No.1. If the Petitioner Bank
has waived its right to forfeit the Earnest Money Deposit which is
permissible in law, Respondent No.1 Authority cannot object to right of
Petitioner not to waive.
111. The auction purchasers had never received any actual
notice of the lien or constructive notice from the Respondent No.1
Authority in respect of the said writ property and thus is not liable to pay
any tax separately towards the tax dues of the dealer of Respondent
No.1 Authority.
112. We accordingly pass the following order:
(i) Writ Petition (L) No. 20484 of 2022 is made
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absolute in terms of prayer clause (a).
(ii) The Attachment Order dated 22 April, 2022
passed by the Respondent No.1 Authority is quashed and
set aside.
(iii) Writ Petition (L) No. 21538/2022 is made
absolute in terms of prayer clause (a).
(iv) If any application for NOC is made by the
auction purchasers in Writ Petition (L) No. 21538 of 2022,
the Society to issue such NOC in favour of such auction
purchasers for transfer of Secured Asset in their favour
without insisting for payment of the Sales Tax dues payable
by the dealer, if any, however, on compliance with all other
formalities, expeditiously. It is made clear that Respondent
No.1 Authority has right to recover its dues against the
dealer from any of their other assets.
(v) Rule is made absolute in both the petitions. No
order as to costs.
(vi) Parties to act on an authenticated copy of this
order.
(M.M. SATHAYE, J.) ( R.D.DHANUKA, J. )
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