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2016 (7) TMI 935 - DELHI HIGH COURT

2016 (7) TMI 935 - DELHI HIGH COURT - TMI - Attachment orders - Priority on debts - overriding effects - whether the notice issued under Section 13 (2) of the SARFAESI Act by IDBI tantamounts to an attachment and would get precedence over the attachment of the property in question by the ITD by its order dated 25th November 2013 - Held that:- In the present case, the notice issued by IDBI under Section 13 (2) of the SARFAESI Act was prior to the impugned order dated 25th November 2013 passed by .....

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oviso to Section 281 of the IT Act to prevent the registration of the sale deed executed in favour of the Petitioner in respect of the ground floor of the property in question. Its instructions to the contrary to Respondent No. 3 are, therefore, unsustainable in law. - Consequently, the attachment order dated 25th November 2013 issued by the ITD insofar as it relates to the ground floor of the property in question is hereby set aside. Respondent No. 3 will, within a period of not later than .....

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, Additional Standing Counsel with Mr. Naveen Jakhar, Advocate for R-3. O R D E R Dr. S. Muralidhar, J.: 1. The principal challenge in this writ petition, filed by Mr. Suresh Kumar Goyal, is to an order dated 25th November 2013 passed by Tax Recovery Officer ( TRO ), Respondent No. 4 to the extent it attches the ground floor of the property at Plot No. 84, Ground Floor, HU Block, Pitampura, New Delhi - 110088 measuring 207 square meters ( the property in question ). The other prayer is for a dir .....

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ground to the present petition is that one Mr. Shiv Sareen purchased the property in question on 25th January 2008. On 2nd March 2009, Mr. Sareen, through his proprietary concern M/s Krishna Designers, mortgaged the ground floor of the property in question to IDBI and sought a cash credit limit of ₹ 4.95 crores. Further on 28th May 2010, a credit limit enhancement was sought by additionally mortgaging the basement of the property in question, thereby taking the total loan exposure to ͅ .....

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ntimating the Sub-Registrar about the attachment. The Sub-Registrar was asked to not undertake any transaction qua the property in question. 5. On 30th May 2014, IDBI took possession of the property in question for initiation of recovery proceedings under the SARFAESI Act. On receiving information about the attachment of the property by the Income Tax authorities from Mr. Sareen, IDBI wrote a letter dated 10th September 2014 to the TRO seeking authentication of the impugned order. IDBI also appr .....

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rores, the reserve price for the entire basement was at ₹ 61 lakhs. A bidder had to deposit 10% of the bid amount together with the bid. The last date for submission of the bids was 25th February 2015. 7. Meanwhile, a further reminder was sent by the IDBI to the TRO, CITVII on 11th February 2015 pointing out that despite several reminders no response regarding the authenticity of the attachment order dated 25th November 2013 was received. 8. On 25th February 2015 the Petitioner submitted h .....

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same date the Petitioner paid an additional 15% of the bid amount, i.e., ₹ 23.10 lakhs by demand draft. 10. On 16th March 2015 a letter was written by the TRO, CIT-12 to the IDBI requiring the latter to send a demand draft (DD) in favour of the TRO for amount of ₹ 1,59,60,770 including interest and ₹ 10,06,080 for the arrears of tax dues of Mr Sareen for Assessment Years (AYs) 2009-10 and 2010-11 respectively. On 13th April 2015 the balance sale consideration of 75% of the bid .....

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mn List of encumbrances appearing in the sale certificate, it was stated: Nil as per knowledge of the authorized officer . However, by this time the IDBI was aware of the attachment order of the Income Tax Department (ITD) but failed to mention it. 12. On 30th April 2015 the Petitioner was handed over the original chain documents in respect of the ground floor of the property in question by the IDBI. On 22nd May 2015 the Petitioner and a representative of the IDBI approached Respondent No. 3 for .....

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seeking cancellation of the attachment order. 13. The Petitioner states that from 14th July 2015 to 18th August 2015 several letters were written to IDBI to either refund the money paid by him together with interest or get the sale deed registered in the Petitioner s name. On 29th July 2015 a letter was written by TRO, CIT-12 to the IDBI seeking explanation as to how the ground floor and basement of the property in question was sold by IDBI by public auction without following proper procedure. I .....

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ing to refund the money deposited by the Petitioner. On the very next day, i.e., 22nd August 2015 IDBI sent the Petitioner a copy of the attachment order issued by the TRO, CIT-12 which had been inadvertently not enclosed with the letter dated 21st August 2015. 15. The Petitioner made a representation on 26th August 2015 to the TRO, CIT-VII praying for removal of the attachment. On 26th September 2015 and 30th September 2015 representations were made by the Petitioner to the Finance Minister and .....

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petition in which notice was issued on 25th April 2016. 16. No counter-affidavit was filed by the ITD despite four weeks time being granted. At the request of learned counsel for Respondents 1, 4 and 5, a final opportunity was granted on 1st June 2016. A counter affidavit of the ITD was handed over at the time of hearing. 17. This Court has heard the submissions of Mr. Prasouk Jain, learned counsel for the Petitioner, Mr. Ashok K. Manchanda, learned Senior standing counsel for Respondent No. 1, .....

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ITD. Relying on the decision in Transcore v. Union of India (2008) 1 SCC 125 he submitted that notice under Section 13 (2) of the SARFAESI Act tantamounted to an attachment and would get precedence over the attachment of the property by the ITD. Reliance was also placed on the decision of the Gujarat High Court dated 27th September 2011 in Special Civil Application No. 2447/2011 (Asset Reconstruction Company (India) Limited v. Commissioner of Income Tax). Learned counsel for the Petitioner subm .....

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supported the case of the Petitioner insofar as the main prayer for registering the sale deed in favour of the Petitioner. He submitted that the attachment resulting from notice under Section 13 (2) of the SARFAESI Act issued by the IDBI on 24th May 2012 would have precedence over the impugned attachment order dated 25th November 2013 issued by the TRO. 20. In the counter-affidavit filed on behalf of the ITD, it is stated that there was huge outstanding against the Assessee and therefore, the T .....

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of Respondent No. 4 to reply to IDBI s letters does not deem the attachment to nonauthenticated. It is submitted that bidding and auction took place in 2015, i.e., subsequent to the attachment of the property in 2013. IDBI and Respondent No. 3 had full notice of the attachment of the property in question. It is submitted that there was no breach of law. According to the ITD, the contention that SARFAESI Act being a special Act overrides the IT Act is an issue which is res integra. 21. The short .....

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and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-Section (4). xxxx xxxxx xxxxx 35. The Provisions of this Act to override other laws The provisions of this Act shall have .....

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mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the Assessee as a result of the completion of the said proceeding or otherwise : Provided that such charge or transfer shall not be void if it is made- (i) For adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without no .....

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d does not form part of the stock-in-trade of the business of the Assessee. 24.1 The question that arose for consideration before the Gujarat High Court in Asset Reconstruction Company (India) Limited v. Commissioner of Income Tax (supra) was similar to the one that arises in the present case. The Petitioner, Asset Reconstruction Company (India) Limited [ ARCIL ] had invoked 13 (2) of the SARFAESI Act and issued a notice dated 24th December 2009 to Mardia Steels Limited ( MSL ) upon failure by M .....

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was under attachment of the ITD and that ITD had already filed an affidavit of proof of debt before the Official Liquidator ( OL ) on 16th September 2009. The ITD claimed that its dues should be exhausted before the assets could be brought to sale by ARCIL. A writ petition was thereafter filed in the Gujarat High Court by ARCIL seeking a declaration that the claim of the ITD for priority of realization of the income tax dues was contrary to law. 24.3 To begin with, Gujarat High Court referred to .....

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lly the doctrine of first charge/priority of State will prevail over the private debt which is an unsecured debt. (d) In normal course, the doctrine of first charge/priority cannot prevail over secured debts, but if first charge of the State is over the secured debts, both debts being equal, the State can claim priority even over the secured debts, and (e) The secured debts under the Securitization Act or debt under the RDDB Act has no first charge and thereby cannot compete with first charge/pr .....

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11 (6) of the Second Schedule to the IT Act to have the transfer declared void under Section 281 of the IT Act. However as far as the case of the ARCIL was concerned, the Gujarat High Court concluded as under: It is declared that the claim put-forward by Respondent No. 1 Income Tax Department by way of attachment of assets covered by Section 13 (2) notice for priority over the Petitioner for realization of the income-tax dues is contrary to the settled position of law and illegal. It will be op .....

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n whether the ITD could require the Bombay Stock Exchange ( BSE ) to deposit the sale proceeds of the membership card of the deceased Assessee towards payment of the income tax dues. The BSE claimed that in terms of Rule 9 of the Bombay Stock Exchange Rules, Bye-laws and Regulations 1957 ( BSE Rules ), on the death or default of a member, his right of nomination ceases and vested in the BSE. Since BSE was the owner of the membership card, no amount of tax arrears of the deceased Assessee was pay .....

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that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, Collector v. Central Bank of India AIR 1967 SC 1831 after referring to various aut .....

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