9911796707
TMI Blog2023 (7) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... der Article 226 of the Constitution of India, quite peculiarly is filed by three petitioners. Petitioner nos. 1 and 2 are auction purchasers in an auction held by petitioner no. 3- a non-banking financial institution under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "SARFAESI Act"). 2. The question which falls for determination in the present proceedings is whether petitioners nos. 1 and 2 who are auction purchasers in a securitization auction held by petitioner no. 3, are liable to discharge the sales tax dues, for the recovery of which, the property as purchased by them, was attached by the Sales Tax Department prior to the auction; and/or whether petitioner nos. 1 and 2 have purchased an encumbered property ? B] Facts:- 3. The facts are required to be noted in some detail:- One Taurus Auto Dealers Pvt. Ltd. had borrowed an amount of Rs. 7,71,00,000/- from petitioner no. 3. Also, there were borrowings by the Directors of the said Company namely Shri Rajiv Shambhunath Malviya and Mrs. Samata Rajiv Malviya and its associate concern M/s. International Tyres (for short "borrowers"). The Loan Agreements were da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er were concerned, the Deputy Commissioner of Sales Tax issued a demand notice dated 14 March 2018 to petitioner no. 3, inter alia recording that there is a lien on the property for recovery of the sales tax dues. Petitioner no. 3 was accordingly directed not to transfer the said property, as the same would be in violation of Section 38 of the MVAT Act. In such notice, the Deputy Commissioner recorded that the borrower/dealer had not paid the sales tax dues despite follow up, and various notices issued by the Sales Tax Department, hence, a recovery action as per the provisions of Maharashtra Land Revenue Code, 1966 (for short "MLRC") was already initiated against the borrowers. It was stated that the said property was already attached and the order of attachment in Form IV dated 11 August, 2017 was issued. The notice also recorded that section 37 of the MVAT Act was being applied, which ordained that liability under MVAT Act, shall be the first charge over the property of the dealer/borrower. 10. Being aggrieved by the said notice dated 14 March, 2018 of the Deputy Commissioner, petitioner no. 3 approached this Court by filing Writ Petition No. 4860 of 2019. In such Writ Petition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Bankruptcy Act, 1993 (for short "RDB Act") and Section 26-B to Section 26-E of the SARFAESI Act, observed that by virtue of the provisions of the Central Act (SARFAESI Act), any priority or charge created in favour of any party, shall prevail, so as have the first charge of the secured creditor. This for the reason that Section 37 of the MVAT Act when commences with a non-obstante clause, it recognizes, that the same shall be subject to any provision regarding creation of the first charge under any Central Act. The Court observed that similar was the position under Section 31B of the RDB Act, which was introduced by an amendment in the year 2016, with effect from 2 September, 2016, by virtue of which priority was accorded to secured creditors with respect to the secured assets. The Division Bench also rejected a contention as urged on behalf of the Sales Tax Department, that Chapter IVA inserted in the SARFAESI Act comprising Sections 26-B to 26-E warrants record to be made in the Central Register by Central Registry creating a security interest and unless such security interest is recorded in the Central Register, the priority of interest contemplated by Section 26E would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the same was contrary to the order dated 10 January, 2020 passed by this Court in Writ Petition No. 4860 of 2019 filed by petitioner no. 3, wherein this Court had held that petitioner no. 3's right to proceed against the secured assets takes precedence over the recovery of sales tax dues. Petitioner no. 3 also recorded that it had every right to sell and dispose off the secured assets and appropriate the net sale proceeds and such transaction will be in accordance with the provisions of the SARFAESI Act and not in contravention of the MVAT Act. 14. It appears that petitioner no. 3 on the backdrop of the orders dated 10 January 2020 passed on its writ petition, proceeded to issue an auction proclamation dated 11 February, 2021, as per the provisions of the SARFAESI Act for recovery of an outstanding amount of Rs. 12,64,12,240.47 due and payable by the borrowers. Such proclamation came to be published in the local newspaper on 13 February 2021. In the said proclamation, petitioner No. 3 specifically set out the known encumbrances namely encumbrances of Assistant Deputy Commissioner of Sales Tax for Rs. 10,31,38,003/- and the encumbrances of Parshwanath Nagri Sahkari P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property in your name and shall bear the expenses thereof. * All the formalities under this offer shall be completed within 15 days from the date of receipt of this letter failing which the offer shall stand withdrawn and the Cholamandalam Investment and Finance Company Limited shall be at full liberty to forfeit the Earnest Money Deposit and any other amount paid by you. * The movable, household goods etc. inside the construction standing thereon are not offered for sale or available. As regards completion of the legal formalities for transfer of the schedule property in our name and execution of documents for the same, you are requested to contact us after you have made complete payments of the above mentioned amounts to Cholamandalam Investment and Finance Company Limited. Kindly acknowledge the receipt of this Letter." (emphasis supplied) 16. In or about 5 March, 2021, as per the terms and conditions of the auction sale, petitioner nos. 1 and 2 paid an amount of Rs. 1,75,00,000/- (25% of bid amount) to petitioner no. 3. Thereafter in or about 1 April, 2021, petitioner nos. 1 and 2 deposited the agreed amount of Rs. 7 crores with petitioner no. 3. In pursuance theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property subject to the charge of the Sales Tax Department of Rs. 10.31 crores, as the property was auctioned on "as is where is basis", "as is what is basis" and "whatever there is basis" as set out in the auction notice. It was further recorded that petitioner nos. 1 and 2 have purchased an encumbered property and for such reason, petitioner nos. 1 and 2 would be responsible to clear all the pending MVAT dues, which was also a condition of sale as declared by petitioner no. 3 in the auction notice. The relevant contents of the said letter of the Deputy Commissioner of Sales Tax are required to be noted, which reads thus: "But it is observed from the auction proclamation notice by Cholamandalam published in News paper dt. 11/02/2021, that the Cholamandalam Investment and Finance Company Ltd has mentioned the encumbrance of Sales Tax Department of Rs. 10,31,38,003/-(where as the current dues are of Rs. 157797893/-) on the said above mentioned property and also clearly mentioned that the property is being sold by them on "As is Where is Basis", "Whatever is There is Basis" and further it is also mentioned that the bidder is responsible and obliged to exercise full due diligenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gally duty bound to clear the said dues attached to the said property. In view of all above facts and deliberations this office is directing you to pay the MVAT Dues pending against the said property within 15 days from the receipt of this letter. Failing which, appropriate action will be taken against you. Now therefore, you are directed not to do any acts such as demolish, sell, lease, construct or modify in any way the present condition of the property, failing which you will be liable for appropriate legal action/prosecution which please note. Your prompt payment in this regard will be highly appreciated." 19. Petitioner nos. 1 and 2 responded to the above letter of the Deputy Commissioner of Sales Tax by their letter dated 5 August 2021 inter alia setting out in detail that the contentions of the Sales Tax department were not untenable. They referred to the order dated 10 January, 2020 passed by this Court in the writ petition filed by petitioner no. 3, stating that by virtue of the said order they have purchased the said property free from all the encumbrances. Accordingly, the Deputy Commissioner was called upon to withdraw the notice dated 26 July, 2021 as also the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated 18.08.2021, annexed as Exhibit "T" to this Petition issued by the respondent no. 3 herein. c) This Hon'ble Court may be pleased to issue a writ of certiorari or any other writ, order, direction in the nature of writ of certiorari thereby, quashing and setting aside the Attachment Order dated 11.08.2017 passed by the Respondent No. 3 bearing No. DCST/LTU/E-601/RECOVERY/ 27080000389V / C / B- 204 PUNE, being Exhibit "C" to this Petition in respect of land bearing CTS No. 91/59, Final Plot No. 425/59, TMV Colony, Village Gultekdi, Taluka Haveli, District: Pune-411-037 admeasuring 7600 Sq. ft. with the entire bungalow standing thereon and allied construction; d) This Hon'ble Court may be pleased to hold and declare that the Attachment Order dated 11.08.2017 passed by the Respondent No. 3 bearing No. DCST /LTU/E- 601/RECOVERY/27080000389V/C/B-204 PUNE, being Exhibit "C" to this Petition in respect of land bearing CTS No. 91/59, Final Plot No. 425/59, TMV Colony, Village Gultekdi, Taluka Haveli, District: Pune-411-037 admeasuring 7600 Sq. ft. with the entire bungalow standing thereon and allied construction is null and void against the Petitioners in view of the same being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not quashed, hence the attachment of the said property for the recovery of the sales tax dues had subsisted. It is next contended that in fact, this Court had directed petitioner no. 3 to pay to the Sales Tax Department, any surplus amounts after sale of the property and consequent thereto, the Deputy Commissioner of Sales Tax had demanded the said amounts from petitioner no. 3, by his letter dated 16 March, 2021. It is next contended that issuance of the notices to the petitioners was in accordance with law, as also, the order of attachment dated 11 August, 2017 was in accordance with law and in consonance with Sections 32, 34 and 37 of the MVAT Act, and fully within the powers of the respondents to recover the sales tax dues, hence, the recovery as initiated cannot be said to be without jurisdiction or illegal. 25. The reply affidavit further states that the assertion in the letter dated 17 February, 2020 addressed by the Deputy Commissioner to petitioner no. 3 was post the order passed by this Court on 10 January, 2020, so as to positively make known to petitioner no. 3 that there were dues of the sales tax department, against the dealer (borrower), so as to enable petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to the charge of the State Government to recover the sales tax dues. It is thus contended that petitioner nos. 1 and 2 have taken the decision to purchase subject property despite knowing the outstanding dues of the Sales Tax Department. 27. It is next contended that the Full Bench of this Court in the case of Jalgaon Janta Sahakari Bank Ltd. & Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai, & Anr. Writ Petition No. 2935 of 2018 decided on 30 August, 2022 has held that although the secured creditor would have the first charge over the government dues, however when the property of the defaulters of sales tax is sold on "as is where basis, as is what basis", the auction purchaser is liable to pay the dues of the State Government as the charge of the State Government on the property would continue to operate. It is contended that for such reasons, the recovery proceedings taken by respondents against petitioner nos. 1 and 3 are sustainable in law and hence the reliefs as prayed for in the petition, cannot be granted. It is hence contended that the petition be dismissed. D] Submissions on behalf of the Petitioners :- 28. Mr. Godbole, learned senior counsel for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbrances or charge on the property. (iv) It is submitted that once the defaulter's property is auctioned by the secured creditor, the said property will no longer remain as the property of the defaulter, the State, therefore, cannot make any claim against the property. The priority does not mean that if the property is auctioned at the maximum value then it will again be re-auctioned with the second creditor in line. It is submitted that such proposition as canvassed by the respondents will create an anomalous situation where the property will continuously get re-auctioned and there will not be any end to the said position. (v) It is next submitted that the respondents' contention that even after the auction of the subject property, the State Government's charge on the property would nonetheless remain under Sections 37 and 38 of the MVAT Act and the purchaser, who acquires the property under such auction, if he is aware of the charge of the State, he would still be liable to pay and discharge the liability towards the dues of the State Government, is a misconceived proposition. In this context, it is submitted that firstly, the provisions of the SARFAESI Act overrides the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021 issued to petitioner nos. 1 and 2, petitioner no. 3 reiterated that the existing liabilities, if any, and the liabilities which may arise in future in respect of the dues of all concerned authorities for transfer of the schedule property were payable by the auction purchasers. It is submitted that the sale certificate reiterates that the bungalow with construction thereon is sold on 'as is where is basis', 'as is what is basis' and 'as is whatever is basis'. It is hence submitted that petitioner nos. 1 and 2 were fully aware and were put to notice that they were purchasing the property with all encumbrances. Further petitioner no. 3 in putting the said property for auction, had taken all precautions that for a complete discharge of the said property from the lien/ charge of the State Government, all the pending dues were required to be paid by them (purchasers) by providing for the appropriate disclosures, as required by the Security Interest (Enforcement) Rules, 2002. Hence, for such reason, petitioner no. 1 and 2 cannot contend that they are not liable for discharge of the liabilities. 30. It is next submitted that the above proposition is supported by the decision of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale proceeds recognizing its first charge as the secured creditor. It is submitted that at that point of time, the judgment of the Full Bench was not available, which clearly holds that the purchasers (petitioner nos. 1 and 2) would nonetheless be liable to discharge the sales tax dues. 33. It is next submitted that a prayer to quash the attachment order cannot be granted as the attachment order is as per the jurisdiction and the provisions of Section 32(5) of the MVAT Act read with Sections 181, 182 and 185 of the MLRC Rules and there is no material to show any illegality in the attachment, which was done in accordance with law. It is thus submitted that the petition be dismissed. F] Reasons and Conclusion:- 34. On the above backdrop, we have heard learned Counsel for the parties. We have perused the pleadings and the record. 35. This is a case where the respondents / Sales Tax Department is asserting an attachment of the property in question as auctioned by petitioner no. 3 in favour of petitioner Nos. 1 and 2, inter alia contending that the attachment as made by the Sales Tax Department dated 11 August 2017, is legal and valid for recovery of an amount of Rs. 10,31,38,003/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof: Provided that, the Commissioner may, in respect of any particular dealer or person, and for reasons to be recorded in writing, allow him to pay the tax, penalty, interest or the sum forfeited, by instalments but the grant of instalment to pay tax shall be without prejudice to the other provisions of this Act including levy of penalty, or interest, or both. (5) Any tax, penalty, interest, fine or sum forfeited, which remains unpaid after the service of notice under sub-section (4), or any instalment not duly paid or any amount due or payable under this Act, shall be recoverable as an arrears of land revenue. (6) Notwithstanding anything contained in this Act or in any other law for the time being in force or in any contract, where any sum collected by a person by way of tax in contravention of section 60, is forfeited under section 29 and is recovered from him, such payment or recovery shall discharge him of the liability to refund the sum to the person from whom it was so collected. A refund of such sum or any part thereof can be claimed from the Commissioner by the person from whom it was realised by way of tax, provided such person has not resold the goods within a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the date of receipt of the application, in so far as he may, stating therein, the periods for which the returns have been filed or, as the case may be, have not been filed, assessments have been made, the status of pending proceedings, if any, and the amounts payable by the applicants, if any. (b) The Commissioner may, every year on the basis of the record, issue to every registered dealer a certificate regarding the amounts payable by him, as on the 1st April of that year, stating therein the periods for which returns have not been filed, the period-wise outstanding amounts of tax, penalty, interest and sum forfeited payable by the dealer including the amounts for which the due date of payment is not yet over, the amounts, the recovery of which has been stayed and the amounts under instalment The certificate shall in so far as it may be issued immediately after the 1st of April every year. (c) Nothing in the certificates issued under this sub-section shall be a bar on the Commissioner to initiate or continue any proceedings including recovery proceedings, if it is subsequently found that the certificates were issued on the basis of incomplete or erroneous information. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f rupees twenty-five thousand and the dealer], creates a charge on, or parts with the possession by any mode of transfer whatsoever, including sale, mortgage, gift or exchange of any of the assets of his business valued at rupees ten thousand or more in favour of any other person with intent to defraud revenue, then, notwithstanding anything contained in any Act or contract to the contrary such charge or transfer shall be void as against any claim in respect of any tax or other sum payable by the dealer as a result of the completion of such proceedings or otherwise: Provided that, such change or transfer shall not be void if made for adequate consideration and without notice of the pendency of the proceeding or of the liability to pay any sum on completion of any proceedings. (2) Where any person liable to pay tax or other sum payable under this Act has, during the pendency of any proceeding under this Act or after completion thereof, created a charge on or parted with possession by any mode of transfer including sale, mortgage, gift or exchange of any of his assets in favour of any other person and the Commissioner is of the opinion that such charge of transfer becomes void un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,- (a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in favour of the purchaser in the form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorised officer may, if the thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. (8) On such deposit of money for discharge of the encumbrances, the authorised officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) 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. ... .. ... APPENDIX V (See rule 9(6) SALE CERTIFICATE (For I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notices, and with the sanction of the State Government shall fix the costs recoverable from the defaulter as an arrear of revenue and direct by what officer such notices shall be issued. Section 267 - Notice of demand may be served after arrears due (1) If any land revenue is not paid, at or within, the time when it becomes payable the Collector may, on or after the day following that on which the arrears accrue due, cause a notice of demand to be served on the superior holder or on the person in possession, or on both. (2) Every person to whom any such notice is issued shall be chargeable in respect thereof with a fee not exceeding two rupees calculated according to the rates specified in this behalf in the table in Schedule F. Provided that, in no case shall the fee chargeable for any notice exceed the amount of the land revenue in respect of which the said notice is issued. (3) If the superior holder or person in possession as the case may be, shall, for the space of twenty days after service of written notice of demand of payment, fail to discharge the revenue due, it shall be lawful for the Collector to levy the same by (a) attachment and sale of the defaulter' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility under the MVAT Act, to be the first charge, is itself, subject to any provision regarding creation of first charge in any Central Act for the time being in force. This pre-supposes that when under a Central enactment there is a provision creating first charge, then in such case, the Sales Tax Department for the purpose of Section 37 shall not have the first charge. 40. Rule 11 of the Maharashtra Realisation of Land Revenue Rules, 1967 provides for the manner of attachment of immovable property which provides that the order shall take effect as against purchasers for value in good faith and against all other transferees from the defaulter from the date the said order is made as provided in sub-rule (3). 41. On a perusal of the order of attachment of the said property dated 11 August, 2017, it is seen that the attachment is made in pursuance of the demand notice issued under Section 178 read with Section 267 of the Maharashtra Land Revenue Code, 1966 read with Section 34 of the MVAT Act and referring to Rule 11 of the Maharashtra Realisation of Land Revenue Rules,1 967 as noted above. 42. The attachment is for recovery of an amount of Rs. 10,31,38,003/- being the sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the dealer, in asserting that there was a charge on the said property. It is in such context, following its earlier decision in ASREC's case (supra) the Division Bench allowed the said writ petition, thereby, setting aside the letter of the Deputy Commissioner of Sales Tax dated 14 March 2018 with a further observation that if there is any surplus amount available after the sale of the secured asset, the same shall be transmitted by the petitioner to Sales Tax Department, State of Maharashtra. This was implicit of the Court recognizing the immediate charge of the Sales tax department. 45. Thus, the consequence of the order dated 10 January 2020 passed by the Division Bench on petitioner No. 3's writ petition, was not of setting aside the attachment of the said property by the Sales Tax Department dated 11 August 2017, but merely recognizing petitioner No. 3's entitlement to have the first charge on the said property, being a secured creditor, by applying the provisions of Section 31-B of the Recovery of Debt and Bankruptcy Act, 1993 and interpreting the provisions of Section 37 of the MVAT Act, which recognized the liability under the MVAT Act, to be the first charge, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r terms and conditions, not only in the tender / auction notice, but also, in the bid confirmation letter dated 2 March 2021, petitioner Nos. 1 and 2 purchased the said property. 48. It is significant that petitioner Nos. 1 and 2 were also clearly put to notice that the auction was being conducted by petitioner no. 3 as per the Security Interest (Enforcement) Rules, 2002, under which sub-rule (6) of Rule 9 provides for a certificate of sale of the immovable property to be issued in favour of the purchaser (petitioner nos. 1 and 2) in the form as prescribed in Appendix V of the said Rule. Sub-rule 10 of Rule 9 also provides that a "certificate of sale" issued under sub-rule (6) shall specifically mention whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. In the context of such statutory requirements, it is noticed from the sale certificate annexed at Exhibit N (page 126 of the petition) that the sale certificate was issued by petitioner No. 3 not in the Form-Appendix V and complying with the specific requirements of sub-rule (6) and sub-rule (1) of Rule 9, inasmuch as, the sale certificate does not indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim in future on this regard with the Secured Creditor neither that claim shall stand In front of law. 12. That after taking the possession of the said property, the Auction Purchaser/s will not be entitled to claim any type of damages regarding the construction quality and material, and the Auction Purchaser/s have seen all the documents/paper related to Property and the Auction Purchaser/s is fully satisfied regarding the document. And the Auction Purchaser/s will not claim and not raise any dispute in future regarding the construction, map & design etc. Note: It is put on record that as per section 26E SARFAESI Act, 2002 the rights of the secured creditors to realize their dues by selling the above secured asset shall have priority and shall be paid in priority over all other debts and governments dues including revenue, taxes, cesses and rate due to central government, state government or local authority, therefore the sale consideration as paid by the highest bidders would be first credited in the loan account of Secured Creditor and if there remains any surplus amount then only that can be paid to any other/second charge holders by the Secured Creditor itself." (empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such property has been transferred for consideration and without notice of the charge]." 52. On a plain reading of Section 100 of the TP Act two types of charges are indicated; firstly a charge created by act of parties and the charge arising by operation of law. In J.K. (Bombay) (P) Ltd. Vs. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. & Ors. AIR 1970 SC 1041, it was observed that in the case of a charge there was no transfer of property or any interest therein, but only the creation of a right of payment out of the specified property. It is also well settled that the purchaser of the property at the auction sale takes the property subject to all defects of title and the doctrine of Caveat Emptor (purchaser beware) applies to such a purchaser, as held by the Supreme Court in Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenbhai (1971) 1 SCC 754. 53. Applying Section 100 of the TP Act to the facts of the present case, legal consequences emanate, firstly that by operation of the provisions of Section 37 of the MVAT Act there was undoubtedly a charge on the said property, when the property stood in the hands of petitioner No. 3 being the secured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is basis", "as is what is basis" and "whatever is there is basis", the case of the respondents would certainly be supported by the observations of the Division Bench of this Court in the case Medineutrina Pvt. Ltd. vs. District Industries Centre (D.I.C.) & Ors. (supra) wherein the Division Bench has observed that when the purchase of the property was on "as is where is and what is there is" basis, it would mean that the purchaser is purchasing such property with all its obligations and liabilities whatsoever on the said property, which would include all dues, impositions, restrictions as may be imposed. The Court also observed that after acquiring such property, the purchaser cannot be permitted to quibble out of it, on lack of any notice or disowning the liabilities. This for the reason that the auction purchaser had an option to insist that he would purchase the property which is not encumbered or which is free of any charge. The relevant observations of the Division Bench read thus:- "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, oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposition upon the property. Thus, information and details regarding any encumbrances upon the property which is the security interest, which are easily obtainable from the statutory authorities, ought to be so obtained by the secured creditor as well as the authorised officer, which then needs to be entered in the notice of sale under Rule 8 (7) (a) of the SI (E), Rules, 2002, which would result in bringing the information about any encumbrance to the knowledge of the prospective bidders. In absence of any such information, an auction purchaser may in the facts of the given case, raise a claim that the purchase by him was without notice of any such encumbrance and any charge found subsequent to the confirmation of the auction, shall on that count, be not enforceable against the auction purchaser, which may lead to litigation. 39. An anomalous position would arise, when the Bank as a secured creditor, sells the property and appropriates the entire consideration thereof for its own debts, leaving the authorities which have a statutory charge on the property for dues under the statute, in a lurch, who then would be left with no choice than to explore other means to recover their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of SARFAESI Act, the Recovery of Debts and Bankruptcy Act, 1993, and as to whether a secured creditor would have prior right over a relevant department of the Government under the MVAT Act, Bombay Sales Tax, 1959, the Maharashtra Goods and Services Tax Act, 2017, and to appropriate the amount realised on sale of secured asset. There were other questions which fell for consideration of the Court as set out in paragraph 44 of the decision, in regard to priority of payment of dues to a secured creditors for enforcing its security interest. However, one of the question relevant to the controversy in the present proceedings was question (g) which reads thus:- "(g) Whether an auction purchaser of a secured asset would be liable to pay the dues of the department in order to obtain a clear and marketable title to the property having purchased the same on "as is where is and whatever there is basis"?" 58. In answering the said question the Full Bench considering the provisions of Rule 8 of the Security Interest (Enforcement) Rules, 2002 read with the provisions of Section 13(4) of the SARFAESI Act and the decision of the Supreme Court in AI Champdany Industries Limited vs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such property. This is because he participates in the auction and bids, with his eyes open, that the sale would be on "as is where is, whatever there is basis". Having so participated, the prospective purchaser cannot wriggle out of the consequences and claim that the other dues are not payable by him if he cannot disprove constructive notice of the charge created on the property put up for auction sale. If indeed the department of the Government fails to act in terms of section 26B of the SARFAESI Act read with the 2021 Rules, consequences are bound to follow which have to be accepted by such department. 161. We, therefore, answer this question by observing that notwithstanding the duty of the authorized officer to indicate in the sale advertisement inviting bids the encumbrance(s) attached to the immovable property, i.e., the secured asset, as known to the secured creditor, if at all any detail in regard to such encumbrance(s) is not indicated but the sale is expressly made on "as is where is, whatever there is basis", the transferee shall be duty bound to deposit money for discharge of the encumbrance(s) provided, of course, that such liability may be overcome if he is in a po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge in favour of a State for a tax due under the Value Added Tax of the State. 61. The observations of the Division Bench in paragraphs 20 and 21 in ASREC's case would not assist the petitioners for more than one reason. Firstly, the said observations of the Division Bench have been held to be not the correct position in law, in the decision of the Full Bench in Jalgaon Janta Sahakari Bank Ltd. (supra). The Full Bench examined the correctness of the observations of the Division Bench as made in paragraph 21 in ASREC's case (supra). In such context, the Full Bench framed the following question [question (e)] which reads thus:- "e. Whether the priority of interest contemplated by section 26E of the SARFAESI Act could be claimed by a secured creditor without registration of the security interest with the Central Registry? Depending on the answer to this qeustion, whether correct proposition of law has been laid down (extracted infra) in paragraph 21 of the Division Bench decision reported in 2020(2) Bom. C. R. 243 (OS) (ASREC (India) Limited Vs. State of Maharashtra and Ors.) and in paragraph 35 of the Division Bench decision, reported in 2021(2) Mh.LJ 721 (State Bank of India vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to have actual and constructive notice of such charge. The observations of the Full Bench in the context of the procedure under the 1967 Rules to be followed, reads thus:- "154....... ... If there has been an attachment and a proclamation thereof has been made according to law prior to 24th January 2020 or 1st September 2016, i.e. the dates on which Chapter IV-A of the SARFAESI Act and Section 31B of the RDDB Act, respectively, were enforced, the department may claim that its dues be paid first notwithstanding the secured dues of the secured creditors; but in the absence of an order of attachment being made public in a manner known to law, i.e. by a proclamation, once Chapter IV-A of the SARFAESI Act or section 31B, as the case may be, has been enforced, the dues of the secured creditor surely would have 'priority'. In other words, if the immovable property of the defaulter is shown to have been attached in accordance with law prior to Chapter IV-A of the SARFAESI Act, or for that matter section 31B of the RDDB Act, being enforced, and such attachment is followed by a proclamation according to law, the 'priority' accorded by section 26E of the former and section 31B of the latt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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