2025 (6) TMI 175 - HC - Indian Laws

Bar for a mortgagee Bank to exercise powers under Sarfaesi Act for sale of the property on account of an attachment order passed by a Tax Recovery Officer - sale by way of auction conducted by the State Bank of Patiala wherein the Petitioner was declared successful bidder is void insofar as the Tax Recovery Officer is concerned - refusal to register the sales certificate on account of an attachment order issued by a Tax Recovery Officer and an attachment order passed in an Arbitration proceeding. Whether there is a bar for a mortgagee bank to exercise powers under Sarfaesi Act for sale of the property on account of an attachment order passed by a Tax Recovery Officer? - HELD THAT - In the present case Sri. G. Bhadraradhya is not the defaulter or representative in interest of the defaulter he had an independent right over the property under a sale deed in furtherance of which a mortgage was made in favor of State Bank of Patiala as regards which he had defaulted resulting in State Bank of Patiala having brought the property for sale. The contention of the learned counsel for the Tax Recovery Officer that the attachment order passed under Rule 2 would apply to the present facts and circumstances cannot be countenanced since there is no attachment order issued in respect to any dues of Sri. G. Bhadraradhya to the Income Tax Department. It is the default in payment of the dues of Sri. G. Bhadraradhya to the bank whose default of payment of mortgage amounts resulted in the property being brought for sale. The question of the exercise of rights by State Bank of Patiala under the Sarfaesi Act in the year 2012 when the sale has occurred in favor of Smt. Archana Anand Kumar on 15.07.2009 and there being a recovery proceeding initiated by the Tax Recovery Officer against Smt. Archana Anand Kumar on 02.03.2010 with the attachment order passed on 06.04.2010 before the sale on 14.05.2012 would have to be determined in appropriate proceedings. There is no bar for a mortgagee bank to exercise powers under Sarfaesi Act for sale of the property on account of an attachment order passed by a Tax Recovery Officer any exercise of such rights shall be subject to the rights of the Tax Recovery Officer all of which would have to be determined in an appropriately instituted suit. Whether the sale by way of auction conducted by the State Bank of Patiala wherein the Petitioner has declared successful bidder is void insofar as the Tax Recovery Officer is concerned? - HELD THAT - An order of attachment does not ipso facto operate as an injunction from sale or a restriction on the sub-registrar to register the sale. What the attachment order does is to secure the property in respect of the claim of the Tax Recovery Officer and any sale which occurs will be subject to the attachment and the sale or transfer would be void as against the claims enforceable under the attachment. This aspect has been brought to the notice of the Petitioner and the Petitioner is willing to take on sale the property subject to any of the rights of any third-party in as much as the sale according to the counsel for the State Bank of Patiala has been conducted on as is there is basis without any representation warranty or indemnity as regard the title of the property. The passing of an attachment order would not entitle the sub-registrar to reject the registration of a sales certificate issued by the State Bank of Patiala after having conducted an auction the registration shall be subject to the attachment order passed. Whether the sub-registrar would have refused to register the sales certificate on account of an attachment order issued by a Tax Recovery Officer and an attachment order passed in an Arbitration proceeding to put it in other words whether an order of attachment would entitle the Sub-registrar to refuse registration of a transfer of property? - HELD THAT - This Court has considered the interplay of the SARFAESI Act under Sections 26E and 35 of the SARFAESI Act on the one hand and Section 71 of the Registration Act read with Rule 171 of the Karnataka Registration Rules 1965 (hereinafter referred to as the Registration Rules ). On considering the interplay this Court by applying the decision of the Hon ble Apex Court in Punjab National Bank V/s Union of India and Others has held that the Sub-Registrar can act only within the four corners of the Registration Act and Registration Rules. If none of the circumstances under Rule 171 of the Rules are found to be applicable the sub-registrar has no jurisdiction to refuse registration of a document. It is not the case of the Sub-Registrar that the sale certificate which has been issued does not comply with the requirement of Rule 171 or Section 71 of the Registration Act 1908. The only contention of the sub-registrar is that there is an attachment order issued by a Tax Recovery Officer and there is an attachment order passed in an arbitration proceeding. Once an order of attachment is passed the attachment order goes along with the property and the property continues to remain attached entitling the person who is a beneficiary of the attachment to enforce such attachment in accordance with law. Thus by registration of the sale certificate the rights of the person or entity who has an attachment order in his favour is not taken away. The Petitioner being fully aware of such attachment orders would take the registration of the property subject to the attachment orders - there is no order that has been passed against the sub-registrar prohibiting the sub-registrar from registering the sale certificate. Because there is an attachment order the sub-registrar would not be conferred any authority to reject the registration of the sale certificate. A sub-registrar cannot refuse to register a sale certificate on account of an attachment order passed by the Tax Recovery Officer and/or an attachment order passed in an arbitration proceeding. The sub-registrar can refuse registration only if there is an order of injunction restraining the transfer and/or an order prohibiting the sub-registrar from registering a particular sale certificate sale deed or the like. Whether in the facts of this case the reliefs sought for by the Petitioner are required to be granted? - HELD THAT - The auction having taken place on as is where is basis an auction purchaser would only be entitled to the rights that State Bank of Patiala had as regards the said property if there are any other claims more particularly as regards respondent No. 2-Bank and respondent No. 3-TRO the same would have to be adjudicated in the pending proceedings. Conclusion - i) There is no bar for a mortgagee bank to exercise powers under Sarfaesi Act for sale of the property on account of an attachment order passed by a Tax Recovery Officer any exercise of such rights shall be subject to the rights of the Tax Recovery Officer all of which would have to be determined in an appropriately instituted suit. ii) The passing of an attachment order would not entitle the sub-registrar to reject the registration of a sales certificate issued by the State Bank of Patiala after having conducted an auction the registration shall be subject to the attachment order passed. iii) A sub-registrar cannot refuse to register a sale certificate on account of an attachment order passed by the Tax Recovery Officer and/or an attachment order passed in an arbitration proceeding. The sub-registrar can refuse registration only if there is an order of injunction restraining the transfer and/or an order prohibiting the sub-registrar from registering a particular sale certificate sale deed or the like. iv) The auction having taken place on as is where is basis an auction purchaser would only be entitled to the rights that State Bank of Patiala had as regards the said property if there are any other claims more particularly as regards respondent No. 2-Bank and respondent No. 3-TRO the same would have to be adjudicated in the pending proceedings. Respondent No. 1-the State Bank of Patiala is directed to revalidate the sale certificate to enable the Petitioner to present the same before the jurisdictional sub-registrar which shall be so done within 30 days from the date of receipt of a copy of this order - petition allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(i) Whether a mortgagee bank is barred from exercising powers under the SARFAESI Act for sale of a property due to an attachment order passed by a Tax Recovery Officer under the Income Tax Act;

(ii) Whether the auction sale conducted by the mortgagee bank, resulting in the petitioner being declared the successful bidder, is void as against the Tax Recovery Officer;

(iii) Whether the Sub-Registrar is entitled to refuse registration of a sale certificate issued under the SARFAESI Act on account of attachment orders passed by a Tax Recovery Officer and/or in arbitration proceedings;

(iv) Whether the reliefs sought by the petitioner, including direction to register the sale certificate and quash attachment orders, are to be granted;

(v) The appropriate order to be passed in light of the above issues.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Bar on mortgagee bank exercising SARFAESI Act powers due to Tax Recovery Officer's attachment order

The legal framework involves Section 13(4) of the SARFAESI Act, 2002 empowering secured creditors (banks) to auction secured assets upon default, and the provisions of the Income Tax Act, 1961, particularly Section 222 and the Second Schedule, which empower the Tax Recovery Officer to attach property for recovery of tax arrears.

Rule 16 of the Second Schedule prohibits the defaulter or his representative from dealing with the attached property without permission from the Tax Recovery Officer, and any private transfer without such permission is void against claims enforceable under the attachment.

The Court noted that the attachment order was issued against Smt. Archana Anand Kumar, not against Sri. G. Bhadraradhya, who was the borrower from the mortgagee bank and against whom SARFAESI proceedings were initiated. The attachment was thus in personam and not in rem against the property itself.

The Court held that the embargo under Rule 16 applies only to the defaulter or their representative, and since the bank's SARFAESI action was against Sri. G. Bhadraradhya (not the defaulter under the Income Tax Act proceedings), there is no bar on the bank exercising its powers.

However, the Court observed that the rights and interests of all parties, including the Tax Recovery Officer and purchasers under prior sale deeds, involve disputed facts requiring trial and cannot be decided in writ proceedings.

Conclusion: There is no absolute bar on the mortgagee bank exercising SARFAESI powers due to the attachment order; any rights of the Tax Recovery Officer or others must be adjudicated in appropriate proceedings.

Issue 2: Validity of auction sale vis-`a-vis Tax Recovery Officer's attachment order

The attachment order secures the property for recovery of tax dues but does not ipso facto prohibit sale or transfer. Rule 16 declares private transfers without permission void against claims enforceable under attachment but does not expressly prohibit sale or registration.

The Court held that the auction sale conducted by the bank is not void merely because of the attachment order. The sale is subject to the attachment, meaning the purchaser takes the property subject to the rights of the Tax Recovery Officer.

Thus, the sale certificate issued by the bank is valid, but the property remains attached, and the purchaser's title is subject to the attachment claims.

Issue 3: Authority of Sub-Registrar to refuse registration on account of attachment orders

The Sub-Registrar refused registration of the sale certificate on the ground of attachment orders by the Tax Recovery Officer and in arbitration proceedings.

The Court examined the Registration Act, 1908, particularly Section 71 (grounds for refusal of registration) and the Karnataka Registration Rules, 1965 (Rule 171 specifying valid reasons for refusal). None of the statutory grounds for refusal applied in this case.

Further, the Court relied on Section 26E and Section 35 of the SARFAESI Act, which provide secured creditors priority over other claims and override inconsistent laws.

Precedents including the Apex Court's decisions in Punjab National Bank v. Union of India and others, UTI Bank Ltd. v. CCE, and Union of India v. SICOM Ltd. were extensively discussed. These establish that secured creditors' rights under the SARFAESI Act prevail over Crown debts or tax claims unless there is a specific statutory first charge in favor of the tax authority.

The Court held that the Sub-Registrar's refusal based on attachment orders is not justified as no injunction or court order restraining registration exists. Registration must proceed subject to existing attachments and claims.

The Court emphasized that the attachment orders travel with the property and do not extinguish the right to register the sale certificate. The purchaser takes the property subject to these attachments.

Issue 4: Grant of reliefs sought by the petitioner

The petitioner sought directions to facilitate registration, quash attachment orders, and direct the bank to convey good title free from encumbrances.

The Court observed that the bank had already issued the sale certificate and that no facilitation by the bank is necessary for registration, except issuance of a fresh revalidated sale certificate to comply with procedural requirements.

The Court declined to quash attachment orders or direct their lifting, as these relate to pending arbitration and tax recovery proceedings where the petitioner has the opportunity to contest claims.

The Court clarified that the petitioner's title is subject to all valid encumbrances and claims, including those of the Tax Recovery Officer and Saraswat Co-operative Bank.

Any excess funds lying with the mortgagee bank after satisfaction of its dues can be used to satisfy other claims.

Issue 5: Appropriate order

The Court partly allowed the writ petition, directing the mortgagee bank to revalidate the sale certificate within 30 days and the Sub-Registrar to register the sale certificate upon presentation without refusal on the basis of attachment orders.

The Court emphasized that the rights of all parties, including the Tax Recovery Officer and other claimants, must be adjudicated in appropriate forums.

3. SIGNIFICANT HOLDINGS

"There is no bar for a mortgagee bank to exercise powers under the SARFAESI Act for sale of the property on account of an attachment order passed by a Tax Recovery Officer, any exercise of such rights shall be subject to the rights of the Tax Recovery Officer, all of which would have to be determined in an appropriately instituted suit."

"An order of attachment does not ipso facto operate as an injunction from sale or a restriction on the sub-registrar to register the sale. What the attachment order does is to secure the property in respect of the claim of the Tax Recovery Officer, and any sale which occurs will be subject to the attachment, and the sale or transfer would be void as against the claims enforceable under the attachment."

"The Sub-Registrar can act only within the four corners of the Registration Act and the Registration Rules framed by the State. If none of the circumstances under Rule 171 of the Rules are found, the Sub-Registrar has no jurisdiction to refuse registration of a document."

"Section 26E mandates priority to secured creditors over any other law for the time being in force after the registration of security interest. Section 35 of the Act mandates that the SARFAESI Act will have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force."

"The rights of the respective parties would have to be determined in appropriately instituted proceedings. The registration of a sale certificate will, however, be subject to all the rights of the respective parties in the property."

Core principles established include:

• The SARFAESI Act confers an overriding and priority right to secured creditors over other claims, including tax recovery claims, unless expressly barred by court orders.
• Attachment orders by tax authorities secure property for recovery but do not prevent sale or registration of sale certificates issued under SARFAESI proceedings.
• The Sub-Registrar's power to refuse registration is limited to statutory grounds; attachment orders alone do not justify refusal.
• The purchaser at a SARFAESI auction acquires title subject to existing attachments and claims, and disputes over ownership or encumbrances require separate adjudication.

Final determinations:

• The mortgagee bank was entitled to proceed with sale under SARFAESI despite prior attachment orders.
• The auction sale and sale certificate issued are valid and not void due to attachment orders.
• The Sub-Registrar must register the sale certificate unless statutory grounds for refusal exist.
• The petitioner's relief to register the sale certificate was granted, subject to pending claims and attachments.
• Claims of tax authorities and other parties must be adjudicated in appropriate forums; no quashing of attachment orders was granted.