TMI Blog2021 (2) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... or Local Authority. This Section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. The SARFAESI Act, is obviously a Central Statute, and therefore any priority of claim for debts due to a secured creditor, which is created by any provision, as contained therein (Section 26-E in this case), will prevail over any First Charge, which may have been created by Section 37 (1) of the MVAT Act, 2002, in view of the language used in Section 26-E of the SARFAESI Act which states that such a claim by a 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 . The priority created by virtue of Section 26-E of the SARFAESI Act, also takes precedence over any crown debt, which is due or payable to the Central Government, State Government or local authority. Thus, creation of any priority for any debts due, to the secured creditor, under Section 26-E of SARFAESI Act would prevail over any charge created for payment of a liability, on account of tax etc., which is due or payable to the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is where is and whatever there is basis'. In case the petitioner discharges the aforesaid dues of the respondent no.2, it would then be entitled to a no dues certificate from the respondent no.2 - the petitioner is not entitled to the reliefs as claimed in the petition. Petition dismissed. - WRIT PETITION NO.7971/2019 - - - Dated:- 18-2-2021 - SUNIL B. SHUKRE AND AVINASH G. GHAROTE, JJ. Mr. Ritesh R. Dawda, Advocate for petitioner Ms. N.P. Mehta, AGP for respondent nos.1 and 2 Mr. M.Y. Wadodkar, Advocate for respondent no.3 JUDGMENT (PER : AVINASH G. GHAROTE, J.) 1. Heard. Rule. Rule made returnable forthwith. 2. The present petition raises a challenge to the action on the part of respondent no.1/ District Industries Centre in refusing to transfer the property in its record, in favour of the petitioner, unless the liability of the respondent no.2/Sales Tax Department, claiming earlier dues against M/s. Wood Stock Holdings, a Company which was owning the immovable property, attached and auctioned by the respondent no.3/Bank, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E of the SARFAESI Act, the property stood transferred to the petitioner free from encumbrances and any charge which may be claimed by the respondent no.2 on account of arrears of sales tax under Section 37 of the Maharashtra Value Added Tax Act, 2002 (for short, MVAT Act, 2002 hereinafter), would be subservient to the provisions of Section 26-E of the SARFAESI Act, due to which the action on part of the respondent nos.1 and 2 of not issuing the NOC for transfer of the land in favour of the petitioner, on account of the so called dues claimed by the respondent no.2, was clearly not in consonance with law and therefore illegal. (H) It is further contended that no notice whatsoever of any charge was given to the petitioner by the respondent nos.2 and 3 and therefore, the petitioner in absence thereof was not liable for payment of any dues of the respondent no.2 as the charge was not enforceable against the petitioner, who was an auction purchaser, without any notice of the charge. (I) The provisions of the SARFAESI Act and the Rules made thereunder, make it obligatory upon the respondent no.3/Bank to have found out the encumbrances upon the said property, and made them known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which reason, the sale was not free from encumbrances but was on As is where is and whatever there is basis , which was reflected from the sale certificate issued in favour of the petitioner, in view of which the petition was liable to be dismissed. 6. The respondent no.3/Bank has contended that it was not aware about any claim by the Sales Tax Department and therefore non-disclosure of something of which the Bank itself was unaware of, could not be laid at the doorstep of the Bank. Reliance was further placed on Section 26-E of the SARFAESI Act to oppose the claim by the respondent no.2. Reliance is placed on Mahendra Mahato and another Vs. The Central Bank of India, W.P. No.38111(W) of 2013, decided on 29/8/2014 by a learned Single Judge of the Calcutta High Court. 7. We have heard the learned Counsels for the parties at length. In our considered opinion, the issue about priority of dues, inter se between the respondent nos.2 and 3, is no longer res integra but is covered by the judgment of the Full bench of the Madras High Court in The Assistant Commissioner (CT) Vs. The Indian Overseas Bank and another, in W.P. No.2675/2011 and connected matters decided on 10/11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, 2019 SCC OnLine Bom 9527, which holds as under : 1. On 1st September, 2016 the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act) was amended by a Central Legislation vide Act No. 44 of 2016. Section 26E was inserted in the statute book. It reads as under:- 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. 2. The Maharashtra Value Added Tax Act, 2002 which came into force on 1st April, 2005. Vide Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iament under List-I Entry 45, and is a Central Act, as against which, the MVAT Act, 2002 has been enacted by the State Legislature under List-II Entry 54. For the purposes of ready reference these provisions are reproduced as under : MVAT ACT, 2002 SARFAESI ACT, 2002 37. Liability under this Act to be the first charge. (1) 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 . (2) The first charge as mentioned in sub-section (1) shall be deemed to have been created on the expiry of the period specified in subsection (4) of section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount. Section 26-E. Priority to secured creditors. - Notwithstanding anything contained in any other law for the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of the language as used in Section 37 (1) of the MVAT Act, 2002, would demonstrate that the non-obstante clause which is notwithstanding anything contained in any contract to the contrary speaks of a contract and is not in respect of any law enacted by the Parliament or the Legislature of a State. A contract as is obvious, is a bilateral agreement between two parties to do something, on terms and conditions as agreed to, between them. The purpose and effect of a non-obstante clause is to override the effects of any other legal provisions contrary to the one, in relation to which it is used. A non-obstante clause, when it is used, not in relation to or in context of any law, but in relation to or in context of any contract, will obviously not have the effect of overriding any law contained in any other Statute. In Union of India and another Vs. G.M. Gokil and others, 1984 (Supp) SCC 196 , in respect of a non-obstante clause it has been held as under :- It is well-known that a non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at such a claim by a 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 . The priority created by virtue of Section 26-E of the SARFAESI Act, also takes precedence over any crown debt, which is due or payable to the Central Government, State Government or local authority. Thus, creation of any priority for any debts due, to the secured creditor, under Section 26-E of SARFAESI Act would prevail over any charge created for payment of a liability, on account of tax etc., which is due or payable to the State Government under the provisions of the MVAT Act, 2002. 15. Though it is contended that Section 26-E of the SARFAESI Act, has been brought into force w.e.f. 1/9/2016, however, the language of Section 37 (1) of the MVAT Act, 2002, to the effect, but subject to any provision regarding creation of first charge in any Central Act for the time being in force would thus make it clear that the charge for any dues under the MVAT Act, 2002, has to give way to the claim for dues/debts by a secured creditor under the SARFAEST Act and the dictum in The Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all property of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wishes to do so it makes appropriate provisions in the Act in that behalf. -------. Solidaire India Ltd. (supra) has been followed in Sharat Babu Digumarti v. Govt. (NCT of Delhi), (2017) 2 SCC 18. 17. The above position is reiterated by the Hon'ble Apex Court in S. Vanitha Vs. Deputy Commissioner, Bengaluru Urban District and Others, 2020 SCC Online SC 1023, while considering the effect of non-obstante clauses in two Statutes, as under :- 35.----- Principles of statutory interpretation dictate that in the event of two special acts containing non obstante clauses, the later law shall typically prevail. In the present case, as we have seen, the Senior Citizen's Act 2007 contains a non obstante clause. However, in the event of a conflict between special acts, the dominant purpose of both statutes would have to be analyzed to ascertain which one should prevail over the other. The primary effort of the interpreter must be to harmonize, not excise. (emphasis supplied) 18. In the instant case, the provisions of Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 (for short, the RDB Act, 1993 hereinafter) and those of Section 26-E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner had no notice of the Charge created in favour of the respondent no.2, and in absence of such a notice, the charge was not enforceable upon the petitioner. Section 100 of the Transfer of Property Act (T.P. Act, hereinafter for short), is pressed into service, in support of this contention. Reliance is also placed upon Section 55 of the T.P. Act to contend that a charge being an encumbrance, notice of the same ought to have been given to the petitioner, in absence of which the petitioner cannot be held liable for any dues of the respondent no.2. 22. A Charge , under the general law is defined in Section 100 of the Transfer of Property Act, 1882 (T.P. Act hereinafter for short) as under :- Section 100. Charges.- Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained [which apply to a simple mortgage shall, so far as may be, apply to such charge]. Nothing in this section applies to the charge of a trustee on the trust-property for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, however, rejected. This Court held that while constructive notice was sufficient to satisfy the requirement of notice in the proviso to Section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. [Ibid., at SCC pp. 765-66 (para 12) : AIR pp. 1207-08(para 8) ] In other words, this Court held that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras 3 4) : AIR 1971 SC 1201, 1202-04(para 3)] has been correctly applied in a sales tax case similar to the present case. [ CTO v. R.K. Steels, (1998) 108 STC 161 (Mad)] 22. In the present case, firstly, no provision of law has been cited before us that exempts the requirement of notice of the charge for its enforcement against a transferee who had no notice of the same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice - actual or constructive - of the charge. . Thus for a 'Charge' as defined is Section 100 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enforcement and what is meant by an encumbrance, had held as under :- 12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The word encumbrance in relation to the word immovable property carries a distinct meaning. It ordinarily cannot be assigned a general and/or dictionary meaning. 13. We may, however, notice some dictionary meanings of the said word as reliance thereupon has been placed by Mr Sibaji Sen. In Stroud's Judicial Dictionary of Words and Phrases, 5th Edn., encumbrance is defined as: being, a claim, lien, or liability, attached to property ; and this definition is wide enough to cover the plaintiff's claim, which was, as assignee for value of a reversionary interest, against a person coming in under a subsequent title . In Supreme Court on Words and Phrases it is stated that the word encumbrance means a burden or charge upon property or a claim or lien upon an estate or on the land . In Advanced Law Lexicon, encumbrance is defined as: An infringement of another's right or intrusion on another's property. In Black's Law Dictionary encumbrance is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation was indisputably not a preferential creditor and its dues would not even otherwise come within the purview of the crown debt, which also could be discharged only after the secured creditors stand discharged, the claim of the Municipality for its tax was rejected. 26. It is correct that in the instant case, there is nothing on record, to show that any charge created on the property and that the same stood attached by the respondent no.2, was brought to the notice of the petitioner. In fact, the reply on part of the respondent no.3/Bank indicates that the respondent no.3/Bank itself was not aware of any charge upon the said property, or that it stood attached, as claimed by the respondent no.2. Thus, the petitioner as an auction purchaser, could not have had any notice of any such charge or attachment, in view of the language of Section 100 of the T. P. Act, and the charge would thus be unenforceable as against the petitioner, on this count. 27. The above would be a correct position, if we were faced with a situation where a charge was created by virtue of Section 100 of the T.P. Act; by a written document between parties inter se or by a statutory provision contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, for any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable under the MVAT Act 2002. Though the dues of the Bank as a secured creditor, in light of the language of Section 26-E of the SARFAESI Act, which has now been brought into force w.e.f. 1/9/2016, will have priority, that does not have the effect of wiping out the dues payable under any Central/State/Local Act, where, for the recovery of such dues, a first charge has been created on the property by such statute, which in the case of the MVAT Act, 2002, has been so created. It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever's hands the property goes. 29. Thus the notice of such a statutory charge on the property, is always presumed in law, to one and all and none can claim ignorance of the same. In AI Champandy Industries Limited (supra) itself the Hon'ble Apex Court has made a distinction between an encumbrance as it is understood in the general parlance and an encumbrance which is a charge on the property and runs with the property and has held that if by reason of the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in respect of any encumbrance or a charge, for that matter, of the respondent no.2, due to which, the petitioner having any knowledge or notice of any such encumbrance, did not arise at all. 32. The position in this regard, was considered in Dr. Jayesh Kumar Jha (supra), relied upon by Mr. Dawda, learned Counsel for the petitioner, where, though the provisions of Section 26-E of the SARFAESI Act, were not under consideration, however, the issue of dues in respect of Municipal rates and taxes, was under consideration. The sale in that case was also conducted on as is where is and as is what is basis . The Court considered the obligation of the Authorised Officer under Rule 8(7)(a) (f), 9(7), 9(9) and 9(10) of the Security Interest (Enforcement) Rules, 2002, the meaning of the word 'encumbrance', the duty of the seller to disclose details of encumbrance known to the creditor and transferring the property free from any encumbrances and held that on account of such non-disclosure of pre-sale property tax dues which was a charge on the land and building on the secured asset, it had failed to discharge its statutory obligation and after completion of sale and deliv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset and its advantages and disadvantages, and thus could not be permitted to wriggle out of the confirmed bid. 35. We feel that the rulings in Punjab Urban Planning and Development Authority (supra) and Mahendra Mahato (supra) are more apt in the facts of the present matter, though the Dr. Jayesh Kumar Jha (supra) also spells out the need for the respondent no.3/ Bank, to make a proper enquiry as to the encumbrances, which we will consider hereinafter. 36. Thus the purchase of the property on 'as is where is and what is there is ' basis, would mean that the property was being had by the auction purchaser, with all its rights, obligations and liabilities, whatsoever they may be, which would include, all dues, impositions, restrictions as may have been imposed upon the same and consequent to acquiring title to the property, cannot be permitted to quibble out of it, on the alleged plea of not being noticed about any such liability/imposition. In case the auction purchaser, did not want to have the property, with its liabilities, he ought to have insisted on having the same free of all encumbrances, altogether, before bidding for the same. That apart, it is equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. Thus the obligation to deliver the property to the auction purchaser free from encumbrances known to the secured creditor includes the responsibility to make reasonable enquiries about the encumbrances and liabilities and to include such liabilities in the notice inviting the bids, or if that is not done, in the reserve price, fixed for sale of the security interest, so that the encumbrances can be taken care of. This is also spelt out from Rule 9(7) and (8) of the Security Interest (Enforcement) Rules, 2002, 38. The property, which is a security interest, under Section 13 (6) of the SARFAESI Act, consequent to the transfer of the secured asset after taking possession thereof, either physical or symbolic, by the secured creditor, vests in the transferee with all rights in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her properties available, of the company/person, so far so good. If not, then the statutory authorities are left with an unrealised claim for their dues. It is due to the above reason that the position has to be reconciled, so that, as far as possible, the debts of the Bank as a secured creditor, as well as, those of the other statutory authorities which have a charge upon the property, for their dues, are realised. 40. A lot many cases and litigation arises due to the auction notice not containing the requisite details about the dues on and the situation of, the property put to auction. When the property is sold on 'as is where is' and 'as is what is' basis, though it would also be for the bidder, to make reasonable enquiries about the encumbrances/dues upon the property put to auction, including the status as to availability of vacant possession, however, the mere mention of 'as is where is' and 'as is what is', basis or any such phrase, should not absolve the secured creditor of its obligation to make proper enquiries about other dues/encumbrances upon the property, to obtain information about which, the secured creditor has the means and where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney received by the secured creditor, by sale of the security interest, is to be applied, the residue after discharge of the debts of the secured creditor, has to be held in trust and paid to the person entitled thereto in accordance with his rights and interests, which in this case, would be the dues under the MVAT Act, 2002. It would thus be proper for the secured creditor, to ensure that all encumbrances, be known before hand; the amount to be received by auction of the property, should be sufficient to cover the costs, charges and expenses and discharge of the dues of the secured creditor and also discharge of the encumbrances upon the property. 41. The secured creditor under the SARFAESI Act, therefore must in all cases ensure : (a) that the property offered as a security interest is free from any encumbrance whatsoever, at the time when it is so offered initially, to avail financial credit by the owner/s; (b) in all such cases, a title verification certificate, by a lawyer, at the penalty of cancellation of his license to practice, in case such certificate is found to be false, should be a must, which certificate should also contain a statement that the lawyer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law, to make a full and candid disclosure as to the dues and encumbrances in respect of the property put to auction and the status as to possession of the property, for which it has to make reasonable enquiries, which should be demonstrable from the record. The secured creditor cannot be heard to say that it was for the bidder to obtain such information, for the reason, that being a lender, it is already holding the documents of the borrower, which confer upon it a right to obtain such information. 42. What we have stated above, is nothing new, but the statutory obligation of the secured creditor, as the owner of the property under Section 13(6) (7) of the SARFAESI Act, read with Rules 8 (7) (a) and (f), Rules 9 (7) (9) and (10) of the SI (E) Rules, 2002 with a liability to transfer a clear and marketable title, as the seller. 43. Mr. Dawda, learned Counsel for the petitioner, further invites our attention to the judgment of the Hon'ble Apex Court in the case of The Maharashtra State Co-operative Bank ltd. / Babulal lade ors. 2020(2) SCC 310 , to contend that the respondent no.3/ Bank, would be liable to pay the dues of the respondent no.2, from and out of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
