Gujarat High Court
Jitendra Prakashchandra Shah vs State Of Gujarat on 27 January, 2025
Author: Nikhil S. Kariel
Bench: Nikhil S. Kariel
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 12873 of 2019
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JITENDRA PRAKASHCHANDRA SHAH
Versus
STATE OF GUJARAT & ORS.
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Appearance:
MRS PRAGATI PAHWA FOR THAKKAR AND PAHWA ADVOCATES(1357) for
the Petitioner(s) No. 1
MR NIKUNJ KANARA ASSISTANT GOVERNMENT PLEADER for the
Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 2,3
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CORAM:HONOURABLE MR. JUSTICE NIKHIL S. KARIEL
Date : 27/01/2025
ORAL ORDER
1. Heard learned Advocate Mrs. Pragati Pahwa on behalf of the
petitioner and learned Assistant Government Pleader Mr. Nikunj Kanara on
behalf of respondent- State.
2. Rule returnable forthwith. Learned AGP waives service of notice of
rule on behalf of respondent- State.
3. With the consent of the parties, the petition is taken up for final
disposal today.
4. By way of present petition the petitioner has payed for following
reliefs:-
(A) YOUR LORDSHIPS may be pleased to issue a writ of mandamus or any
other appropriate writ, order or direction, directing the respondents to cancel the
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Entry No.7577 dated 28.5.2014 and Entry No. 11925 dated 20.09.2017 creating
charge of Sales Tax Department on the subject property purchased by the
petitioner i.e. land bearing Survey no. 1575/A, T.P. S. No.4, F.P. No.57 paiki
west side sub-plot near Prakash Motors, Near Chikodara Over Bridge, Anand
admeasuring 352.50 sq. meters together with all building and structures
constructed or erected thereon, all plant and machinery attached to the earth
permanently fastened to anything attached thereto, and further be pleased to
direct the respondents to enter the name of petitioner in the revenue record as
owner of the subject property, in the interest of justice;
(B) YOUR LORDSHIPS may be pleased to direct the respondents to enter the
name of petitioner in the revenue record as owner of the subject property,
pending the admission, hearing and final disposal of this petition;
5. It is the case of the petitioner that he has purchased the land bearing
Survey no. 1575/A, T.P. S. No.4, F.P. No.57 paiki west side sub-plot near
Prakash Motors, Near Chikodara Over Bridge, Anand admeasuring 352.50
sq. meters together with all building and structures constructed or erected
thereon, all plant and machinery attached to the earth permanently fastened
to anything attached thereto (hereinafter referred to as 'the subject
property), by way of registered Sale Deed dated 19.01.2018.
6. The subject property was mortgaged by erstwhile owner Sada
Motors Private Limited (for short the "Borrower Company") which had
availed financial facility by way of loan from Federal Bank, Ahmedabad (for
short "the Bank"). The Borrower Company could not repay the loan
amount and therefore, the Bank initiated proceedings for recovering its dues
as a secured creditor by issuing notice dated 25.07.2013 under Sec. 13(2) of
the SARFAESI Act calling upon the Borrower Company to repay the
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outstanding loan amount within 60 days. The Borrower Company failed to
repay the loan and therefore, proceedings u/s. 13(4) of the Act were
initiated and the subject land was attached and possession was taken over by
the Bank on 24.12.2013.
7. The Bank thereafter issued Sale Notice dated 31.12.2014 under
Section 13(4) of the Act read with Rule 8 of SARFAESI Rules inviting the
public to submit offer with a minimum reserve price of Rs. 1,50,00,000/-.
8. In response to the Sale Notice, the petitioner submitted his offer and
being the highest bidder, the Bank issued Sale Certificate dated 22.6.2015 in
favour of the petitioner and the possession thereof was handed over to the
petitioner. The Sale Deed was executed by Bank in favour of petitioner
which was registered on 19.01.2018.
9. The petitioner approached the office of City Surveyor for mutating
his name as owner of the subject property by virtue of registered Sale Deed
dated 19.01.2018. However, the petitioner was informed that the subject
property was under attachment of Sales Tax Department, Ahmedabad and
entry of attachment was in existence vide Entry No.7577 dated 28.05.2014
as the Sales Tax dues were unpaid by the Borrower Company.
10. Thereafter, the petitioner applied and obtained copy of relevant
abstract from the office of City Survey and was shocked to learn that the
Sales Tax Officer, Zone-1, Anand by order dated 01.09.2017 directed
respondent no.3 to register the charge of Sales Tax Department and
accordingly, an entry no.11952 dated 20.09.2017 was made in the City
Survey record.
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11. Learned Advocate Ms. Pragati Pahwa on behalf of the petitioner
submits that the action of respondent no. 2 directing the Revenue
Authorities to register the charge of respondent no. 2 Department on the
subject property is in clear violation of the provisions contained in Section
26E of the SARFAESI Act. Relying upon the said provision, it is urged on
behalf of the petitioner that the charge of the Bank would override the
charge of respondent no. 2.
12. Learned Advocate Ms. Pragati Pahwa on behalf of the petitioner
submits that the priority of charge of the Bank would override the
charge/attachment by the Authority under various statutes including the
Sales Tax Law. This issue is already decided by this Court through many
judicial pronouncements. Leaned Advocate places reliance on recent
decision of the Division Bench of this Court in case of Partners of
Siddheshwar Tax Fab & Ors. vs. State of Gujarat 7 Ors. rendered in Special
Civil Application No. 2527 of 2023 on 26.07.2024. Learned Advocate also
placed reliance upon a decision dated 04.01.2024 rendered by a Coordinate
Bench of this Court in Special Civil Application No.9565 of 2023 and allied
matters. These decisions in turn consider various judgments of Hon'ble
Apex Court and also the judgments of this Court including the High Court
of Bombay on the priority of charge of the Bank as against the charge of the
Authority. Learned Advocate therefore submits that the impugned action of
respondent no.2 in directing respondent no.3 and other revenue authorities
to record an entry of attachment in the revenue records is liable to be set
aside. Learned Advocate further seeks directions that by virtue of the
provisions contained in Section 135-C of the Gujarat Land Revenue Code,
the revenue authorities be directed to mutate an entry with respect to the
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subject property in his name on the basis of the registered Sale Deed.
13. Learned AGP on behalf of respondent - State has vehemently
opposed the present petition and has contended that there are crown dues
of the department on the subject property and therefore, the attachment is
registered in the revenue records. In fact, Gujarat VAT Authority has passed
first attachment order on 06.05.2014 and revenue entries are being M.E. No.
7577 dated 28.5.2024 and M.Ε. Νο. 1925 dated 20.9.2019 are also made. It
is the obligation of the purchaser to first settle the outstanding statutory
dues before requesting to lift the attachment from the subject property in
the revenue records. Learned AGP therefore submits that the present
petition is liable to be summarily rejected.
14. It is undisputed that the petitioner is a bonafide purchaser who has
purchased the subject property through auction held under the provisions of
the SARFAESI Act. The issue raised by the petitioner is no more res-integra
and is settled by various judicial pronouncements of this Court and other
High Courts.
15. A reference is made to the judgment rendered by Division Bench of
this Court in the case of Kalupur Commercial Cooperative Bank Limited vs.
State of Gujarat, reported at 2019 (0) ALJEL-HC 241135, wherein it is held
as under:-
"30. We are conscious of the fact that in the case on hand there is no
conflict between two special statutes enacted by the Parliament. The
conflict is with the State Act and the Central Act. We are trying to
understand the true purport and effect of Section 26E of the SARFAESI
Act which came to be enacted later in point of time and also the effect of
Section 31B of the RDB Act which came to be enacted later in point of
time. In other words, what necessitated the introduction of the two
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provisions in the two enactments and what object the two provisions
would subserve.
31 We may, at the outset, clarify that the Government of India, Ministry of
Finance, notified the provisions of Section 26(E) on 1 st September 2016.
The copy of the Notification issued by the Government of India,
published in the Official Gazette Part-II, Section 3, at Serial No.2142 dated
1st September 2016 has been placed on record. The Notification reads as
under:
"MINISTRY OF FINANCE
(Department of Financial Services)
NOTIFICATION
New Delhi, the 1st September, 2016
S.O. 2831 (E).-In exercise of the powers conferred by sub-section (2) of
section 1 of the Enforcement of Security Interest and Recovery of Debts
Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016),
the Central Government hereby appoints the 1st day of September, 2016 as
the date on which the following provisions of the said Act shall come into
force, namely:-
Sr. No. Sections
1. Sections 2 and 3 (both inclusive);
2. Sections 4 [ except clause (xiii)];
3. Section 5 and 6 ( both inclusive);
4. Sections 8 to 16 ( Both inclusive);
5. Sections 22 to 31 (both inclusive);
6. Sections 33 to 44 ( both inclusive).
[F.No. 3/5/2016 DRT)
ANANDRAO VISHNU PATIL, JL. Secy."
32 Section 31B has been inserted in the Recovery of Debts and Bankruptcy
Act, 1993 (herein after referred to as "the RDB Act") by the Enforcement
of Security Interest and Recovery of Debts Laws and Miscellaneous
Provisions (Amendment) Act, 2016, w.e.f. 1.9.2016, which contains a non-
obsante clause and which expressly provides that the secured debts shall be
paid in priority over all other debts and Government dues including the
State taxes.
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33 Apart from the fact that Section 31B of the RDB Act is a later
enactment, the language of the said provision also clearly indicates the
intention of the Parliament to give precedence even over the Government
dues notwithstanding anything to the contrary in any other law.
34 We are sure of one thing that there exists no repugnancy in the two
legislations. The intention of the Parliament could not be said to nullify the
State enactment providing the first charge on the property. The legislations
have been made by the Central Government and the State respectively
under Entries I and II of the Schedule and not of the Concurrent List. The
amendment made by the Parliament is to give priority to the secured
creditors vis-a-vis the State dues without speaking about the first charge.
This aspect was duly considered by the Supreme Court in the case of
Central Bank of India (supra). The amended provision, Le. Section 26E of
the SARFAESI Act and Section 31B of the RDB Act, would have been
different as indicated by the Apex Court in the case of Central Bank of
India (supra).
35 While it is true that the Bank has taken over the possession of the
assets of the defaulter under the SARFAESI Act and not under the RDB
Act, Section 31B of the RDB Act, being a substantive provision giving
priority to the "secured creditors", the same will be applicable irrespective
of the procedure through which the recovery is sought to be made. This is
particularly because Section 2(la) of the RDB Act defines the phrase
"secured creditors" to have the same meaning as assigned to it under the
SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly
provides that the provisions of the SARFAESI Act shall be in addition to,
and not in derogation of inter-alia the RDB Act. As such, the SARFAESI
Act was enacted only with the intention of allowing faster recovery of
debts to the secured creditors without intervention of the court. This is
apparent from the Statement of Objects and Reasons of the SARFAESI
Act. Thus, an interpretation that, while the secured creditors will have
priority in case they proceed under the RDB Act they will not have such
priority if they proceed under the SARFAESI Act, will lead to an absurd
situation and, in fact, would frustrate the object of the SARFAESI Act
which is to enable fast recovery to the secured creditors.
54 In view of the aforesaid discussion, We have no hesitation in coming to
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the conclusion that the first priority over the secured assets shall be of the
Bank and not of the State Government by virtue of Section 48 of the VAT
Act, 2003."
16. Reliance is placed on the decision rendered by this Court in the case
of Madhaviben Jitendrabhai Rupareliya Versus State Of Gujarat in Special
Civil Application No.9565 of 2023 and allied matters dated 04.01.2024
wherein it is observed as under:
"8.1 It is a well settled doctrine that the respective Banks which are
Secured Creditors and are having charge over the subject property,
their charge over the property would prevail over the Unsecured
Creditor i.e. Sales Tax Department (Crown's Debt) and hence, the
claim of Secured Creditor would prevail over the claim of
Unsecured Creditor. According to the petitioner, in view of Section
26 E of the SARFAESI Act, this is the settled proposition of law
and, therefore, all these petitions are covered by the aforesaid
proposition of law.
8.2 That in case of Surendrabhai & Company and another V.
State of Gujarat and others, 1985 GLH (U.J.) 53, this Court has
held that the State cannot claim any right of preference in respect of
its unsecured claim or a secured debt and to the extent of Section
137 of the Gujarat Land Revenue Code is declared to be void.
That this view was again confirmed by this Court in the case of
Dahod Urban Cooperative Bank v. State of Gujarat in Special Civil
Application No. 3585 of 2008. Therefore, in view of this settled
legal position, the petitioners have purchased the property in
question by way of public auction as a bonafide purchaser from a
Secured Creditor, the refusal of the respondents to mutate the name
of the petitioners in the revenue entry in revenue record is contrary
to law and hence, illegal.
8.3 That each of the petitioners are bonafide purchasers of the
property in question and they have purchased the property by way
of auction conducted under the provisions of law and more
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particularly, pursuant to the proceedings before the Debts Recovery
Tribunal and, therefore, after having invested huge amount and
after having succeeded in getting the Sales certificate, denial to
mutate the name of the petitioners in the revenue records would
amount to penalizing the petitioners.
20. The above referred judgments takes a categorical view that
the charge of the Secured Creditor will precede over the charge of
an Unsecured Creditor (Crowns Date). In the instant case, the
submission of learned AGP Mr. Trivedi that the State and its
authorities have rightly rejected the application for mutation of
entry of the petitioners in respect of the property in question
cannot be accepted. Further, as far as the submission of delay is
concerned, the same also cannot be accepted for the reason that the
petitioners are the bonafide purchasers of the property in question
by way of auction or from successful auction purchaser and they
have invested huge amount in the property, they have acquired the
title of the property by way of Sale Certificate, they are the holder
of the title in respect of property in question as on today. Reflection
of their names in the revenue record by way of mutation entry is
merely a consequential action based upon their title over the
property in question. When their title is unquestionable, as the
respective Banks have issued Sales Certificate in favour of
petitioners, the petitions cannot be thrown away on the ground of
alleged delay."
17. Reliance is placed on the decision rendered by this Court in Special Civil
Application No.20250 of 2023 on 6.8.2024. In the said judgment, it is
observed as under:-
"8. In light of the aforesaid, it is apposite to refer to Section 26E of
the SARFAESI Act, 2002, which reads thus:
"Section 26E: Priority to secured creditors. Notwithstanding
anything contained in any other law for the time being in force,
after the registration of security interest, the debts due to any
secured creditor shall be paid in priority over all other debts and all
revenues, taxes, cesses and other rates payable to the Central
Government or State Government or local authority."
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9. Section 26E of the SARFAESI Act, 2002, as referred above,
has an overriding effect on any other provision of any other law for
the time being in force. The aforesaid section provides that the
benefit of compliance of the provisions of Chapter IVA and
declares that after the registration of security interest, the debts due
to any secured creditor shall be paid in priority over; (a) all other
debts (b) revenues (c) cesses, and; (d) other rates, payable to the (i)
Central Government; (ii) State Government, or (iii) any local
authority. The section has carved out an exception to the common
law principle that a sovereign debt has priority over all other private
debts.
In the facts of the present case, the respondent No.3 sold the
aforesaid property to the petitioner by following due procedure
under the SARFAESI Act, 2002 and exercising the rights referred
to the Financial Institutions under Section 26E of the SARFAESI
Act, 2002."
17. In light of the position of law, as referred above and considering
Section 26E of the SARFAESI Act, 2002, as also considering the
undisputed facts, in the opinion of this Court, the charge of the
secured creditor shall precede over the charge of the unsecured
creditor. The petitioner herein being auction purchaser by auction
proceedings conducted under the SARFAESI Act, 2002 by the
respondent No.3-Bank, the respondent No.3- Bank being the
secured creditor shall have priority over all the debts and revenues,
taxes, cesses and other rates payable to the State Authorities."
18. Reliance is placed on another decision of the Division Bench of this
Court in the case of Partners of Siddheshwar Tax Fab (supraj. Some of the
observations made in the said decision are reproduced:-
"26. From the above analysis, it is discernible that the secured
creditor with a view to recover its dues after taking possession of
secured assets under Section 13(4) of the SARFAESI Act is
required to follow the procedure prescribed in Rule 8 and Rule 9 of
the Secularization Rules for conducting the auction sale. As per the
Clause (1) of Sub-Rule 7 of the Rule 8, the secured creditor is
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required to disclose as a part of terms and conditions which are
necessary for a purchaser to know the nature and value of the
property. The respondent no.6-Bank which is secured creditor is
therefore bound by the provision of Rule 8 (7)(1) of the Rules to
disclose the nature and value of the property. When there is a
statutory rule which provides for disclosure of nature of the
property, it would also include any subsisting charge over the
property which is put for auction sale. In absence of such disclosure
by the secured creditor made in the auction sale notice, as a part of
terms and conditions of the sale and only mentioning "as is where
is, whatever basis" is not sufficient so as to enable the participants
in the auction sale to put to notice about the charge subsisting on
the property which is put to auction sale.
27. In such circumstances, the auction purchaser who does not have
a constructive notice of any charge over the property cannot be
made liable to make the payment, assuming for a while that the
charge subsist on the property.
28. In view of the above analysis made by the Full Bench of the
Bombay High Court, as stated in para 161 extracted herein above,
the auction purchaser shall not be duty bound to make any
payment, even if the charge subsist over the property, except what
is stated in the sale agreement or sale deed executed between the
parties.
29. In the facts of the case, it is also not in dispute that the
conditions stated in the sale deed only stipulates with regard to the
liability of the auction purchaser for payment of all rents, taxes,
assessment rates and dues which may be chargeable on the property
purchased in auction sale and all the Estate, right, interest,
possession, benefit, claim and demand whatsoever both at law and
intended or expressed so to be with their and every of their rights,
members and appurtenance unto and to the use and benefit of the
purchaser on "as is where is whatever there is basis" to the end
intent that the purchaser will be entitled to the said property as
owner and subject to the payment of all rents, taxes, assessments,
rates and dues in relation which may be chargeable at present or
hereafter be assessed and chargeable upon the same or become
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payable in respect here of State of Gujarat or any other local body
or bodies.
30. Except the above conditions stated in the sale deed, the
respondent State or secured creditor has not been able to point out
any other condition which is part of either the sale notice or the sale
deed to enable the auction purchaser to know about the charge
created by the State over the property in question. It is also
pertinent to note that once the property over which the charge is
created is sold in auction, the entire value of the property is realized,
and as such thereafter, no charge would subsist over the property.
31. It would be useful to refer to provisions of Section 100 of the
Transfer of Property Act as extracted herein above which provides
for the 'charge' which means that where immovable property of one
person is by act of parties or operation of law made security for
payment of money to another and transaction does not amount to a
mortgage, the latter person is said to have a charge on the property
and all the provisions would apply which applied to simple
mortgage would apply to the charge. Therefore, once the secured
creditor has realised its dues by sale of the property, then further
charge would not subsist over such property as the entire value of
the property would stand realised, In such circumstances, even the
charge of the respondent State cannot. be said to have subsisted,
and the auction purchaser would not be liable to make any payment
in satisfaction of the charge as the respondent auction purchaser
has purchased such property after payment of full consideration
and it cannot be said that the charge created on the property would
travel along with the property, when the respondent secured
creditor has already recovered the amount on sale of the property
by realizing its charge created over the property.
32. In such circumstances, the question, therefore would arise as to
whether the respondent State would be entitled to recover any
amount from the Bank, having the priority over the charge for sale
consideration which was realized on the sale of the property, as the
property once sold, then charge would be shifted to the sale
consideration realized and therefore it would be between the
respondent State and the secured creditor as to who will have first
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right to recover such sale consideration. It may happen that even
though the secured creditor may have the first charge over the
property and respondent State might have sold the property then in
that circumstances also the question would arise whether the
secured creditor would be entitled to recover such sale
consideration from the State Authority by virtue of first charge over
the property.
33. In such circumstances, as held by this Court in case of Kalupur
Commercial Cooperative Bank (Supra) and as per the decision of
the Court, the secured creditor would have the first charge in view
of the priority of the charge as prescribed in Section 26E of the
SARFAESI Act and Section 31B of the RBD Act as the case
maybe."
19. The case of the petitioner is squarely covered by the aforesaid
decisions. The petitioner being a bonafide purchaser in an auction held
under the SARFAESI Act, cannot be saddled with any liability of the sales
tax by virtue of priority of charge of the Banks over the charge imposed by
the Department of Sales Tax. Section 26E of the SARFAESI Act contains a
non-obstante clause and provides for priority to the secured creditors to the
security interest/ charge created by them over the secured assets.
Admittedly, the subject property was a secured asset over which Federal
Bank had a security interest. As such, the Bank would have priority over any
other charge in respect of any tax, cess or other dues claimed or payable to
the Central Government or State Government or a local authority. As such,
the charge created in the revenue records by the Department of Sales Tax
cannot be sustained in law.
20. In the circumstances, the petition is allowed. The charge of
respondent no.2 created on the subject property and as reflected in the
revenue records is set aside. The Respondent no.3 is hereby directed to
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mutate a revenue entry in respect of the purchase of the subject property by
the petitioner through registered Sale Deed. The respondent no.3 is directed
to undertake this action within a period of 4 weeks from today.
21. With the above observations and directions, the petition is allowed.
Rule is made absolute.
(NIKHIL S. KARIEL,J)
NIRU
