Karnataka High Court
M/S Vpp Agri Tech Private Limited vs State Of Karnataka on 9 February, 2022
Bench: S.Sunil Dutt Yadav
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF FEBRUARY 2022
BEFORE
THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV
WRIT PETITION No.1398/2022 (T-RES)
BETWEEN:
M/S. VPP AGRI TECH PRIVATE LIMITED
A COMPANY REGISTERED UNDER THE
COMPANIES ACT 2013
HAVING ITS REGISTERED OFFICE AT
#1776/82, S.S. LAYOUT, 'A' BLOCK,
DAVANGERE, KARNATAKA - 577 006
REPRESENTED BY ITS DIRECTOR
MR.SUDHEENDRA BABU S.S.,
S/O SHESHA CHALA RAO
AGED ABOUT 41 YEARS ... PETITIONER
(BY Smt. ANUPARNA BORDOLOI, ADVOCATE)
AND:
1. STATE OF KARNATAKA
DEPARTMENT OF COMMERCIAL TAXES
VANIJYA THERIGE KARYALAYA
KALIDASA MARG, GANDHI NAGAR,
BENGALURU,
KARNATAKA - 560 009
REP. BY ITS COMMISSIONER.
2. DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (AUDIT 1)
VANIJYA THERIGE BHAVANA
DEVRAJ URS EXTENSION 'A' BLOCK
KARNATAKA
DAVANGERE - 577 001.
2
3. DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (AUDIT 2)
VANIJYA THERIGE BHAVANA
DEVRAJ URS EXTENSION 'A' BLOCK
KARNATAKA
DAVANGERE - 577 001.
4. M/S. CANARA BANK
REPRESENTED BY ITS CHIEF MANAGER
HAVING OFFICE AT ARM BRANCH - I,
2ND FLOOR, SPENCER TOWERS
86, MG ROAD, BENGALURU,
KARNATAKA - 560 001.
5. THE COMMISSIONER,
CITY MUNICIPAL COUNCIL
HARIHARA MUNICIPALITY
HARIHARA
DAVANGERE DISTRICT - 577 601.
6. M/S. ANJANAYA AGRO TECH PRIVATE LIMITED
HANAGWADI, APMC LINK ROAD
GANGANAGAR, HARIHARA
DAVANGERE - 577 001
REP. BY ITS MANAGING DIRECTOR
MR. A.K. PRASHANTH. ... RESPONDENTS
(BY SRI HEMA KUMAR, AGA FOR R1 TO R3;
SRI. VIGNEESH SHETTY, ADV. FOR R4;
SRI. SWAROOP SRINIVAS, ADV. FOR R6)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 &
227 OF CONSTITUTION OF INDIA, PRAYING TO SET ASIDE
ATTACHMENT ORDER DATED 10.08.2018 ISSUED BY R-2 AND
DATED 10.08.2018 ISSUED BY R-3 RESTRAINING R-6 FROM
SELLING OR ALIENATING THE PROPERTY BEARING
NO.SY.NOS.80/1P1, 80/1P3, 80/1P4 AND 80/1P2 TOTALLY
MEASURING 15 ACRES 21 GUNTAS SITUATED IN
MAHAJENAHALLI VILLAGE, HARIHAR TQ., DAVANAGERE
DISTRICT, KARNATAKA AND SY.NOS.11/4, 11/5 AND 11/6
TOTALLY MEASURING 3 ACRES 17 GUNTAS SITUATED IN
HANAGAVADI VILLAGE, HARIHAR TQ., DAVANAGERE DISTRICT
IN THE STATE OF KARNATAKA VIDE ANNEXURES-A AND A1 AND
ETC.
3
THIS WRIT PETITION COMING ON FOR ORDERS THIS DAY,
THE COURT MADE THE FOLLOWING:
ORDER
The petitioner is stated to be an auction purchaser of
property and has obtained Sale Certificate in the auction
conducted by the respondent no.4-Bank and has sought for
issuance of writ of certiorari to set aside the attachment
order dated 10.08.2018 issued by the respondent no.2 and
the order dated 10.08.2018 issued by the respondent no.3
restraining the respondent no.6 from selling or alienating
the property bearing Sy.No.80/1P1, 80/1P3, 80/1P4 and
80/1P2 measuring 15 Acres 21 Guntas, situated at
Mahajenahalli Village, Harihar Taluk, Davangere District and
also as regards Sy.No.11/4, 11/5 and 11/6, totally
measuring 3 Acres 17 Guntas situated at Hanagavadi
Village, Harihar Taluk, Davangere District. The impugned
orders are at Annexure-'A' and 'A1'.
2. The petitioner has also sought for issuance of writ
of mandamus seeking declaration that action of respondent
nos.2 and 3 in passing declaratory orders restraining
respondent no.6 from alienating the schedule property as
being illegal and without authority of law. The petitioner
has sought issuance of writ of mandamus directing the
respondent nos.2 and 3 to consider the representation
dated 21.12.2021 of respondent no.4 Bank and to remove
the entries relating to the attachment order to enable the
petitioner to transfer the Katha with respect to the schedule
property.
3. The petitioner has also sought for issuance of writ
of mandamus seeking directions to respondent nos.2 and 3
to consider the representation dated 21.12.2021 issued by
the petitioner and further sought for issuance of writ of
mandamus to direct the respondent no.5 to issue Katha
Certificate with respect to the schedule property.
4. The petitioner submits that the 6th respondent had
taken a loan from the 4th respondent bank and had
mortgaged the properties which is the subject matter of the
present writ petition while availing term loan and financial
assistance from the 4th respondent bank in the year 2003.
It is submitted that the account of the borrower company
ie., respondent no.6 had become non-performing asset in
December, 2017 and accordingly auction was initiated by
the bank under the provisions of the SARFAESI Act, and
possession notice was issued as per Annexure-'Q' dated
15.06.2018 and symbolic possession of the property was
taken.
5. It is submitted that the property was put to auction
under the provisions of the SARFAESI Act through
Public e-action on 20.09.2021 and the petitioner was the
auction purchaser in such proceedings. It is submitted that
in light of certain dues by the 6th respondent, the
Department of Commercial Taxes had also initiated
proceedings and recovery notice was issued to the
6th respondent by notice dated 10.08.2018 and attachment
was also made of the immovable property by order dated
10.08.2018.
6. It is pointed out that in light of petitioner being a
bonafide purchaser for value and in light of provisions of
Section 26E of the SARFAESI Act, the secured creditor
would have over-riding charge even as regards dues by the
State. It is pointed out that amendment to Section 26E
having come into force in 2020 and the State not having
enforced its order of attachment is now subject to the rigor
of Section 26E of the SARFAESI Act which provides for
priority of the secured creditors even over the States dues
also.
7. The learned counsel for the State however would
point out that the charge under SARFAESI Act was not
notified and accordingly, the State was not aware even on
the date of attachment regarding the proceedings initiated
under the SARFAESI Act and charge not being known to the
State would be subject to the charge of the Department of
Commercial Taxes by virtue of Section 48 of the KVAT Act.
8. It is pointed out that Section 48 of the KVAT Act
provides that "Notwithstanding anything to the contrary
contained in any law for the time being in force, any
amount payable by a dealer or any other person on account
of tax, penalty or interest or any amount which a dealer is
required to pay or deduct from payment or for which he is
personally liable to the Government shall be a first charge
on the property of the dealer or such person, as the case
may be." Accordingly, it is submitted that the charge of
the State would be over-riding.
9. Heard both sides.
10. The respondent bank also adopts the same
contention of the petitioner.
11. The admitted facts being that the proceedings
under the SARFAESI Act were earlier in point of time. The
decision was taken on 15.06.2018 as per the Possession
Notice at Annexure-'Q'. The proceedings by the State were
subsequent in point of time and recovery notice by the
Department was issued on 01.08.2018 and the attachment
order was passed thereafter on 10.08.2018.
12. Section 26E of the SARFAESI Act reads as
hereunder:
[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.
Explanation.--For the purposes of this
section, it is hereby clarified that on or after the
commencement of the Insolvency and
Bankruptcy Code, 2016 (31 of 2016), in cases
where insolvency or bankruptcy proceedings are
pending in respect of secured assets of the
borrower, priority to secured creditors in
payment of debt shall be subject to the
provisions of that Code.]
The said provision was inserted by Act No.44/2016
with effect from 01.09.2016. This clearly provides that
after the registration of secured interest, debts of the
secured creditors 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.
13. The respondent bank lodged its creation of
security before the Central Registry of Securitisation Asset
Reconstruction and Security Interest of India as is
evidenced from the search result at Annexure-'AB' and 'AC'
with respect to the properties which is the subject matter of
present petition. The search result indicates the date of
search as 31.07.2018 which would imply that lodging of
creation of interest as regards the property by the bank was
prior to 31.07.2018 while the recovery notice by the State
was only subsequent to 01.08.2018 and the attachment
order was on 10.08.2018.
14. The Bombay High Court in the case of
Edelweiss Asset Reconstruction Co.Ltd. v. Tax
Recovery Officer, Income Tax Department and Others
in W.P.No.7964/2021 had an occasion to consider the said
aspect and has also considered the contention of the
Revenue that it was not aware of the charge in favour of the
petitioner in that case. It was observed that the question is
one of priority and has concluded that the secured creditor
would have over-riding charge even over the tax dues and
has referred to the judgment in the case of State Bank of
India v. State of Maharashtra and Others reported in
(2020 SCC Online Bom 4190. In the judgment of SBI v.
State of Maharashtra, it was observed that the issue was
one of priority of charge on the said assets of the secured
debtors over the tax dues and not whether charge is is prior
in point of time or not.
15. In the present case, it is clear that the charge
that would have a priority is that of the bank as it is prior in
point of time and also in light of Section 26E of the
SARFAESI Act.
16. It must be noted that as on date, the State not
having enforced its attachment under the provisions of
KVAT Act, Section 26E would be applicable and accordingly,
the rights of secured creditors would rank higher and
would over-ride the charge of the State that has been
created subsequently. Accordingly, the legal position being
clear as also the fact that the charge created under the
SARFAESI Act was prior in point of time, claim of the State
by virtue of its attachment order would have to give way to
the charge of the bank. Accordingly, the attachment order
made by the State as regards to the assets which are
subject matter of the Sale Certificate of the petitioner is set
aside. Insofar as transfer of revenue entries are concerned,
in light of the order passed respondents are to take suitable
action as per procedure applicable under law.
17. Needless to state that the present litigation is
concerned to the properties which are subject matter of the
sale certificate issued pursuant to the proceedings under
the SARFAESI Act, and the observations and findings are to
be construed accordingly.
18. Accordingly, the petition stands disposed off.
Sd/-
JUDGE
Np/-
