TMI Blog2023 (7) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... provision creating first charge, then in such case, the Sales Tax Department for the purpose of Section 37 shall not have the first charge - 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). 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, 1967. The attachment is for recovery of an amount of Rs. 10,31,38,003/- being the sales tax dues payable by the dealers/borrowers M/s. Taurus Autodeal Pvt. Ltd.. The attachment notice was never challenged by the said dealers and its directors. For such reason in the hands of petitioner no. 3, the property stood as a property as attached by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , interpreting Section 37 of the MVAT Act, in the order dated 10 January 2020 passed on the writ petition filed by respondent no. 3. 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 VERSUS THE OFFICIAL LIQUIDATOR ANR. [ 2009 (2) TMI 921 - SUPREME COURT ], held that in terms of the provisions of the SARFAESI Act read with 2011 Rules, the secured creditor is expected to know the encumbrances. It was observed that once a statutory mechanism noting the encumbrances in respect of the immovable property being put up for sale by auction not being available before 24 January 2020, the authorized officers were found to play it safe by inserting the as is where is, whatever there is basis clause in the sale advertisement. The Court observed that once such clause is inserted in the advertisement and the prospective purchaser, upon bidding in the auction emerges as the highest bidder, normally such purchaser cannot insist upon issuance of sale certificate without clearing the liability of meeting othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Facts 3-23 C Reply affidavit on behalf of the State Government 24-27 D Submissions on behalf of the Petitioners 28 E Submissions on behalf of Respondent State/Sales Tax Dept. 29-33 F Reasons and Conclusion 34-67 A] Challenge and Question for determination:- 1. This petition under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over sales tax dues of Rs. 10,31,38,003/- of the borrower/dealer M/s. Taurus Auto Dealers Pvt. Ltd. The sales tax dues pertained to the period 1 June, 2014 to 31 March, 2015. 8. Thereafter, petitioner no. 3 applied to the learned District Magistrate, Pune seeking orders to enable petitioner no. 3 to take physical possession of the property. The learned District Magistrate passed an order dated 22 December, 2017 under section 14 of SARFAESI Act under which physical possession of the said property was taken over by petitioner no. 3. 9. In so far as the sales tax dues of the dealer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dues of a secured debtor rank above the dues of the State Government under the Maharashtra Sales Tax or a Value Added Tax. 3. Thus, the Petition is disposed of quashing the letter dated 14.03.2018. 4. Needless to state 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. 12. It may be observed that in ASREC s case (supra), a Division bench of this Court considering the provisions of Section 37 of MVAT Act vis-a-vis the applicability of Section 31B of the Recovery of Debt 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 Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition, the Deputy Commissioner again issued a notice dated 17 February, 2020 to petitioner no. 3 intimating of a charge on another property of the borrowers, which was stated to be attached under the provisions of Section 32 of MVAT Act. However, according to the petitioners, such notice which was in the nature of a garnishee notice, the Sales Tax Department had sought to lay its hands on any money which may become due to petitioner no. 3, by disposal of assets/property of the borrower. Petitioner no. 3 replied to the said notice of the Deputy Commissioner inter alia recording that such notice was bad and illegal on the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paid by the Bidder on or before Rs. 1,14,00,000/ Remaining Final Amount to be Paid by the Bidder (Compulsory within 15 Days of the Bid Opening Date) Rs. 5,25,00,000/ Terms and conditions: * Please note that on your failure to pay the balance amount or any part thereof as aforesaid, Cholamandalam Investment and Finance Company Limited shall be at all liberty to forfeit the amount paid by you and or charge interest, claim damages from you for the default. * The existing liabilities, if any, and the liabilities which may arise in future in respect of the dues of all the concerned authorities for transfer of the schedule property in question shall be payable by you. * You shall execute necessary document/s as may be advised or necessary for transfer of the schedule 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings were already initiated and a claim was lodged with the Competent Authority in respect of the property in question as per the provisions of MVAT Act and the Maharashtra Land Revenue Code (for short, MLRC ). It was recorded that the possession of the property in the hands of petitioner nos. 1 and 2 was illegal, as the Sales Tax Department had already taken over the possession vide Form No. 4 of the MLRC on 11 August, 2017. It was recorded that no objection was raised by petitioner no. 3 when the charge/encumbrance was noted on the CTS. It was recorded that petitioner no. 3 had proceeded to recover its dues by auctioning the said property, and petitioner nos. 1 and 2 having purchased the same, and although had registered the Sales Certificate dated 1 April, 2021, nonetheless, the charge of the Sales Tax Department subsisted on the said property as petitioner no. 3 had auctioned 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 encu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the entire sale transaction as Void Department is in opinion that this Auction is illegal and the whole process of Cholamandalam Investment and Finance Company Ltd becomes void ab initio. You are hereby directed to deposit amount of Rs. 15,77,91,893/- immediately within 15 days of receipt of this notice or latest by 20/08/2021 and produce the duly certified challans countersigned by Chartered Accountant to this office on or before 24/08/2021. The period wise dues / liability can be obtained from this office. Thus from above, it is crystal clear beyond doubt that the purchaser has knowingly and willingly purchased the above-mentioned property with all encumbrances attached to the said property. Hence it is the duty of the purchaser to take cognizance of the fact that any transaction between them has to be with the full understanding and liability acceptance forthwith Purchaser is legally 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T/LTU- l/E-610/Taurus Auto Dealers/Recovery/B-1481 annexed as Exhibit L , Demand Notice dated 09.04.2021 bearing no. DCST/LTU E-601/F-318/Recovery Notice/B-384, annexed as Exhibit O Demand Notice dated 26.07.2021 bearing No. DCST/PUN VAT- E-610/Taurus/Recovery/2021 -22/B-142, annexed as Exhibit R ' reply letter dated 18.08.2021, annexed as Exhibit T to this Petition; b) 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 Notice of Recovery dated 16.3.2021 bearing No. DCST/LTU-l/E-610/Taurus Auto Dealers/ Recovery/B-1481 annexed as Exhibit L , Demand Notice dated 09.04.2021 bearing no. DCST/LTU E-601/F-318/Recovery Notice/B384, annexed as Exhibit O Demand Notice dated 26.07.2021 bearing No. DCST/PUN-VAT- E-610/Taurus/Recovery/2021 -22/B142, annexed as Exhibit R ' reply letter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 14 March, 2018 issued by the Deputy Commissioner informing petitioner no. 3 in regard to the sales tax dues and the lien on the property in favour of the State Government. It is thus contended that petitioner nos. 1 and 2 were aware on the Sales Tax Department s assertions of its charge on the property as recorded in the letter dated 14 March 2018 addressed to petitioner no. 3, and that substantial amounts towards payment of sales tax were outstanding from the dealer (borrower), whose property was subject matter of purchase by petitioner nos. 1 and 2. In so far as the order dated 10 January, 2020 passed by this Court is concerned, it is contended that by such order, the letter dated 14 March, 2015 of the Deputy Superintendent of the Sales Tax, as addressed to petitioner no. 3 was quashed, under which the Sales Tax Department had asserted first charge on the said property. It is contended that however, the attachment dated 11 August, 2017 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries Centre (D.I.C.) Ors. Writ Petition No. 7971 of 2019 decided on 18.02.2021 in which this Court inter-alia held that the person who purchases property in auction with a notice that the sale is as is where is basis, as is what basis , such person is required to undertake due diligence and make enquiries for ascertaining encumbrances on the property, such purchaser accordingly is liable to pay the sales tax dues; also the charge on the property so attached runs on the property and is not extinguished if the sale takes place and that the purchaser cannot get sale certificate without payment of sales tax dues. It is stated that the SLP filed by Medineutrina Pvt. Ltd. was dismissed by the Supreme Court by an order dated 18 November, 2021 passed on SLP (C) No. 10919 of 2021. It is next contended that by virtue of Section 26-E of SARFAESI Act, the dues payable under the said Act are not wiped out and the auction purchaser would hold the property subject 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attachment and proclamation is made as per the provisions of the Maharashtra Realization of Land Revenue Rules, 1967 (for short, MLR Rules ). In the present case, both, attachment and proclamation are not as per the MLR Rules and hence, are invalid. It is submitted that by virtue of the order dated 10 January, 2020 passed in Writ Petition No. 4860 of 2019 filed by petitioner no. 3, this Court had clearly directed that petitioner no. 3, being a Secured Creditor, would be entitled to proceed with the sale of secured asset; and only if a surplus remains after the sale of secured asset, the same would be transmitted to the Sales Tax Department. It is hence submitted that such order passed by the Division Bench having attained finality, and after sale of the property by petitioner no. 3 to petitioner nos. 1 and 2, no surplus amount being left with petitioner no. 3, the property had ceased to be the property of the defaulter, hence, the respondent-State cannot claim any further encumbrances 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 defaulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased the said property from the secured creditor (petitioner no. 3), as per the auction notice, the sale itself was on as is where is basis, or as is what is basis and whatever there is basis . The auction notice also put the bidders to caution that the bidder is obliged to exercise full due diligence in all respects, including to inspect each of the details of the property and that he would also acknowledge full knowledge of terms and conditions that governed the auction. It is submitted that the auction notice also put the bidders to a notice that the Authorized Officer conducting the auction would not be held responsible for any charge, lien, property tax or any other dues to the Government or local body or any other authority in respect of the property under sale. Further the auction notice clearly disclosed encumbrance on the property of the Assistant Commissioner of Sales Tax of an amount of Rs. 10,31,38,003/-. It is next submitted that also in the bid confirmation letter dated 03 March, 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 conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nos. 1 and 2 that they were having actual notice of sales tax encumbrances, for such reason also petitioner nos. 1 and 2 cannot escape the consequences of having purchased an encumbered property and back out from discharging the sale tax liabilities. It is next submitted that the Full Bench has also held that if the State is claiming priority over banks prior to 24 January, 2020, it must have attachment in accordance with the MLRC Rules. If attachment is prior to 24 January, 2020 as in the present case the attachment is dated 11 August, 2017, as made under the MLRC Rules, the State will retain priority. It is thus submitted that the contention of the petitioners that the State has not followed proper procedure in attaching the property cannot be countenanced in absence of any material to the contrary. 32. It is next submitted that this Court in its order dated 10 January, 2020 passed on Writ Petition No. 4860 of 2019 filed by petitioner no. 3 had merely held that petitioner no. 3 had priority to appropriate the 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll payment thereof shall be paid forthwith. (ii) the amount of tax which it becomes necessary to pay on account of the reduction in set-off because of any contingency specified in the rules, shall be paid at the time prescribed for making payment of tax for the period in which such contingency occurs. (b) (i) The amount of tax due as per any order passed under any provision of this Act, for any period, less any sum already paid in respect of the said period; and (ii) the amount of interest or penalty or both, if any, levied under any provision of this Act; and (iii) the sum, if any, forfeited and the amount of fine, if any, imposed under the Act or rules; and (iv) the amount of tax, penalty and interest demanded in the context of excess availment of incentives or availment of incentives not due; and (v) any other amount due under this Act, shall be paid by the person or dealer or the person liable therefor into the Government treasury within thirty days from the date of service of the notice issued by the Commissioner in respect thereof: Provided that, the Commissioner may, in respect of any particular dealer or person, and for reasons to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted, the remaining amount shall, after deducting the expenses of collection and recovery as determined by the State Government, under appropriation duly made by law in this behalf, be entered into, and transferred to, that Fund. (ii) No sum from the Fund shall be paid or applied for any purpose other than the one specified in clause (iii). (iii) The Fund shall be administered in the prescribed manner; and the amount in the Fund shall be utilised for meeting the expenses of any activities related to consumer protection and guidance as the State Government may direct, and for giving grant in the prescribed manner to any voluntary consumer organisation, society, association, body or institution engaged in providing for the better protection of the interests of the consumers and having such qualifications as may be prescribed. (8) (a) Any dealer or person may apply to the Commissioner in the prescribed form for a clearance certificate and thereupon the Commissioner may, on the basis of the record, issue a certificate in the prescribed form within a period of fifteen days from the date of receipt of the application, in so far as he may, stating therein, the periods for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arrest and confinement of a defaulter in a civil jail) and perform all the duties of the Tahsildar under the said Code. (2) Every notice issued or order passed in exercise of the powers conferred by sub-section (1) shall, for the purposes of sections 24, 25, 26, 27 and 85 be deemed to be a notice issued or an order passed under the said Act. . . Section 37 Liability under this Act to be the first charge. 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. Section 38. Transfer to defraud revenue void. - (1) Where, during the pendency of any proceedings under this Act or after the completion thereof, [the Commissioner has reason to believe that the liability of the dealer to pay tax or any other sum payable under this Act, is likely to be in excess of rupees twenty-five thousand and the dealer], creates a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods: (a) by obtaining quotations from the persons dealing with similar secured asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) of rule 9: Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent. of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------ DESCRIPTION OF THE MOVABLE PROPERTY ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- All that part and parcel of the property consisting of Flat No .. / Plot No in Survey No . / City or Town Survey No .../ Khasra No . Within the registration Sub-District and District Bounded: On the North by On the South by On the East by On the West by List of encumbrances 1. 2. Date: Place: sd/- Authorised Officers (Name of the Institution) (emphasis supplied) 38. In the context of the attachment of the said property by the Sales Tax Department, Section 178 and 267 of the MLRC as also Rule 11 of the Maharashtra Realisation of Land Revenue Rules, 1967 are also relevant, which read thus: Section 178 When notice of demand may issue (1) A notice of demand may be issued on or after the day following that on which the arrear accrues. (2) The Commissioner may from time to time make orders of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The order shall take effect as against purchasers for value in good faith from the date when a copy thereof is affixed on the property and against all other transferees from the defaulter from the date on which such order is made. 39. Thus, under Section 34(1)(i) of the MVAT Act the Commissioner of Sales Tax is empowered to exercise all powers and perform all the duties of the Commissioner under the Maharashtra Land Revenue Code, for the purpose of effecting recovery of amount of tax, penalty, interest, amount forfeited or any other similar dues or recoverable from dealer or other person or under the provisions of the Act as arrears of land Revenue. Section 37 provides for liability under the MVAT Act to be the first charge which begins with a non-obstante clause and ordains that 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 the Act, shall be the first charge on the property of the dealer or, as the case may be, such person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) of the Bombay Sales Tax, 1956 and Section 9(2) of the Central Sales Tax Act, 1956 and Rule 11 of the Maharashtra Realization of Land Revenue Rule, 1967, at all material times has subsisted. As noted earlier, it was not challenged even by the dealers whose liability was to clear the sales tax dues, nor was any challenge mounted to the attachment by petitioner no. 3, who had merely assailed the letter of the respondents dated 14 March 2018 in regard to the respondents asserting first charge on the said property in the capacity as secured creditors. 44. It may be observed that confronted with such clog on the rights of petitioner no. 3 as created by the respondents by issuing a letter dated 14 March 2018 asserting first charge, petitioner No. 3 and merely to realize its security interest and/or the recoveries against the borrower, petitioner No. 3 approached this Court by filing Writ Petition No. 4860 of 2019 on which an order dated 10 January 2020 came to be passed, as noted by us hereinabove in paragraph 11 above. The grievance of petitioner no. 3 in the said writ petition was to the effect that the Deputy Commissioner was legally not correct to assert that petitioner no. 3 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty is being sold on as is where is basis , as is what is basis and whatever is there is basis ; and lastly that the authorised officer would not be responsible interalia in regard to any fees, mortgage, property tax and/or any other Government and /or any other liability of local bodies in relation to the said property. 47. Thus, on such clear notice that there was a charge/attachment of the Sales Tax Department on the property for an amount of Rs. 10,31,38,003/-, petitioner Nos. 1 and 2 participated in the auction and purchased the said property at an amount of Rs. 7 crores. The successful bid confirmation letter dated 2 March 2021 as issued by petitioner No. 3 to petitioner Nos. 1 and 2, categorically records that petitioner no. 3 accepted the offer of petitioner Nos. 1 and 2 strictly accepting the terms and conditions of the auction. It also records that the sale of the property to petitioner Nos. 1 and 2 was on as is where is basis , as is what is basis and whatever is there is basis . It also recorded that the existing liability, if any, and the liability which may arise in future in respect of the dues of all the concerned authorities for transfer of the schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors if any. 4. That the encumbrance of Parshwanath Nagari Sahakari Patsanstha Maryadit, Karad is levied on the said property Svide order dated 13/12/2019 passed by Hon'ble Maharashtra State Cooperative Appellate Court, Mumbai, Bench Pune, at Pune in AO 47 of 2019 wherein said that The Disputant Society may get some share out of sale proceeds after adjustment of dues of other preferential creditors . 5. As on 10/02/2021 date the current outstanding on secured asset is Rs. 12,64,12,240.47/- (Rupees Twelve Crores Sixty Four Lakhs Twelve Thousand Two Hundred Forty and Forty Seven paisa only) and current sale price is less than the current outstanding. Hence no surplus amount remains with the Secured Creditor and hence the Secured Creditor is not liable to transmit to any other party including, but not limited to the Sates Tax Department of the State of Maharashtra, Parshwanath Nagari Sahakari Patasanstha Maryadit, Karad and any other, if the case may be. .. 10. That the Said Bungalow with the construction thereon is sold on 'as is where is' basis, 'as is what is basis' and 'as is whatever is basis'. 11. That the Aucti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or on the land. It also means a burden of legal liability on property. When there is an encumbrance on a land, it constitutes burden on the title which diminishes the value of the land. (See Abdul Karim Khan Ors. vs Managing Committee, George High School AIR 1936 All 879.) 51. It may be observed that once the question arises as to whether there is a charge on a property and in the present case a charge which has arisen by operation of law, Section 100 of the Transfer of Property Act, 1882 (for short, TP Act ) would become relevant in the context of the legal status of such property. Section 100 of the TP Act reads thus:- 100. Charges. Where immoveable 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 1[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 expenses properly incurred in the execution of his trust, 2[and, save as otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even applying the second part of Section 100 of the TP Act. Thus, certainly, this is not a case in which there was no enforceability of a charge on the said property of the Sales Tax Department, even when it changed hands, by petitioner no. 3 selling the same to petitioner Nos. 1 and 2. Also in terms of Section 100 of the Act petitioner no. 1 and 2 are not the persons without notice of the charge. 54. As held by the decision of the Full Bench of Allahabad High Court in Umrao Singh vs Kacheru Singh And Ors. AIR 1939 ALL 415 as followed in the decision in Krishna Mohan Vs. Bal Krishna Chaturvedi (deceased by LRs) AIR 2001 ALL 334, sale certificate is a title deed of the auction purchaser. A perusal of the sale certificate as issued by petitioner No. 3 in favour of petitioner Nos. 1 and 2 also clearly indicates that the property has been sold by petitioner no. 3, informing the auction purchasers (petitioner Nos. 1 and 2) of the charge of the Sales Tax Department, the same was also reflected in the sale certificate as noted above. Thus, looked from any angle, petitioner nos. 1 and 2 had constructive notice of the charge of the Sales Tax department, and with open eyes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 property transferred, as if the transfer had been made by the owner. The issue regarding the knowledge of the encumbrances known to the secured creditor, thus assumes significance. In so far as encumbrances on account of statutory/Government/ Municipal/ Revenue dues are concerned, the responsibility of obtaining the details thereof is of the secured creditor. The knowledge of these encumbrances can easily be solicited, obtained from the authorities by the secured creditor. Thus, the secured creditor is clearly possessed of the wherewithal, to obtain the information about encumbrances of the above nature. This is necessary for the secured creditor, for the reason that these encumbrances, have to be mentioned in the notice of sale under Rule 8 (7) (a) of the Security Interest (Enforcement) Rules, 2002 [for short, SI (E), Rules, 2002 hereinafter]. So also, Rule 8 (7) (f) of the SI (E), Rules, 2002 requires the sale notice to contain all the other terms and conditions which the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a no dues certificate from the respondent no. 2. 56. Thus, Mr. Godbole s contention that once the defaulter s (borrower s) property was auctioned by a secured creditor (petitioner No. 3), the property will no longer remain as a property of the defaulter, is totally untenable, in view of the fact that the attachment as also the charge on the property did not extinguish merely for the reason that the secured creditor exercised its first charge to recover the dues payable to it by the borrower. Despite such sale, the sales tax dues, subject matter of attachment, were not satisfied and had remained outstanding. Thus, the legal character of the property, being an encumbered property and that it continued to be an encumbered property under the valid attachment/charge of the Government, subsisted even in the hands of the purchasers. We do not agree with Mr. Godbole that this would create anomalous situation inasmuch as it was always open to the purchaser (petitioner Nos. 1 and 2 ) not to purchase the property when they were put to notice that it was encumbered, however, with eyes open petitioner Nos. 1 and 2 purchased the property, which had a charge of the Sales Tax Department. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective 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. The observations of the Full Bench in such context are required to be noted which read thus:- 160. Till 24th January 2020, it may not have been possible for a secured creditor to know precisely all encumbrances in respect of the immovable property. With the insertion of section 26B in the SARFAESI Act read with the 2021 Rules, a secured creditor is expected to know some of such encumbrances if at all compliance of section 26B is resorted to by the Central Government, any State Government or a local authority, to whom money is owed by the defaulter being an owner of the property. Such a statutory mechanism for knowing the encumbrances in respect of the immovable property being put up for sale by auction not being available before 24 th January 2020, the authorized officers were found to play it safe by inserting the as is where is, whatever there is basis clause in the sale advertisement. Once such clause is inserted in the advertisement and the prospective purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in paragraph 20 of the decision of the Division Bench in ASREC s case (supra), the contention as urged on behalf of the respondent therein was to the effect that by virtue of insertion of Chapter IVA in the SARFAESI Act, comprising Section 26-B to 26-E, it was necessary that a record be made in the Central Register by the Central Registry of the creation of a security interest, as per sub-section (2) of Section 26-B. The Division Bench in paragraphs 20 of the said decision had noted the contention as urged on behalf of the respondent that Chapter IVA which was inserted in SARFAESI 2002 comprising Sections 26-B to 26-E warranted a record to be made in the Central Register by the Central Registry creating a security interest. It was contended that as per sub-section (2) of Section 26-B which is a part of Chapter IVA a secured creditor has to ensure that the security interest is recorded in the record of the Central Registry. The contention therefore was that unless this was done, the priority of interest contemplated by Section 26-E would not be applicable. The Division Bench, however, in paragraph 21 observed that the said argument was without any substance because the law decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in respect of the suit property. It may be observed that this issue was also one of the questions for consideration before the Full Bench in Jalgaon Janta Sahakari Bank Ltd. (supra) in which the Full Bench has framed the question (f) which reads thus:- f. When, and if at all, can it be said that the statutory first charge under the State legislation, viz. the BST Act, the MVAT Act and the MGST Act, as the case may be, stands displaced having regard to introduction of Chapter IV-A of the SARFAESI Act from 24th January 2020? 64. Analyzing the provisions of the SARFAESI Act as also the MVAT Act, the Full Bench has held that the attachment orders issued post 24 January 2020 if not filed with the Central Registry, any department of the Government to whom a person owes money on account of unpaid tax has to wait till the secured creditor by sale of the immovable property being the secured asset mops up its secured dues. Insofar as the attachment orders which were issued prior to coming into force the 2011 Rules as amended, the Court observed that insofar as recovery as initiated under the MLRC is concerned, not only the provisions contained therein but also the provisions con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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