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2023 (10) TMI 867

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..... irecting the Respondents to effect transfer of the leasehold rights of Plot Nos. 1 to 7 in Phase-III of Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh (measuring 14,846 square meter) in favour of the petitioner. 2. FACTUAL MATRIX: 2(i). M/s Jaimurthy Minerals & Chemicals Pvt Ltd (hereinafter referred to as the Original Lessee), entered into two lease deeds on 17th October, 2003 and 23rd August, 2004, Annexure P-1 and Annexure P-2, with the State Government, through General Manager, District Industries Centre, Nahan, District Sirmaur for leasing out its Industrial Plots No 1 to 7, in Unit-II, measuring 14846 square meters, in Phase-III, Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh. Consequent upon the execution of lease deeds, the Original Lessee decided to raise finances from Bank of Baroda, for which he deposited both these lease deeds and mortgaged these Industrial Plots with the Bank. Thereafter the Bank-secured creditor advanced loan to the borrower-Original Lessee as aforesaid. 2(ii). Due to the default in payment of loan by the Original Lessee, the secured creditor i.e. the Bank of Baroda, Zonal Stressed Asset Recov .....

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..... transfer the lease hold rights in favour of the petitioner. In response to Annexure P-6, the Respondent No 1, gave a reply to the petitioner on 7/11.10.2022, Annexure P-7, enclosing a copy of the letter dated 7.10.2022, directing the petitioner to deposit an additional sum amounting to Rs. 46,06,175/-(Fourty Six Lakh Six Thousand One Hundred Seventy Five Only) and GST @ 18% of Rs. 8,29,112/- on account of the unearned premium i.e. the differential amount of Industrial Plot which existed at the time of execution of initial lease deed vis-à-vis the market value existing on the date of auction/ sale. Surprisingly, in this letter, a condition No 7 was inserted for the first time whereby, the permission for transfer of Lease Holds Rights of these plots was given in favour of petitioner-auction purchaser without prejudice to the rights of the State Excise and Taxation Department (H.P) to recover its outstanding dues either from the secured creditor or from successful auction purchaser or from original lessee who had mortgaged the lease holds rights in favour of the Bank-secured creditor. In compliance to Annexure P-7, the petitioner deposited the demanded unearned premium/differe .....

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..... of the lease deed when, the petitioner having stepped into the shoes of the Original Lessee-M/s Jaimurthy Minerals & Chemicals Pvt. Ltd, who had an outstanding tax liability of Rs. 17,19,96,478/- i.e. (Seventeen Crore Nineteen Lakh Ninety Six Thousand and Four Hundred Seventy Eight Only) towards the State Excise and Taxation Department as mentioned in the communication dated 24.05.2019 Annexure R-5 and Annexure R-6 and the petitioner cannot escape the liability; and (v) the writ petition was stated to be not maintainable for non-joinder of necessary parties. In this background, the respondents have prayed for the dismissal of the writ petition. 4. We have heard Ms. Shilpa Sood, learned counsel for the petitioner and Mr. Anup Rattan, learned Advocate General assisted by Mr. I.N. Mehta, learned Senior Additional Advocate General for the respondent- State and have perused the pleadings. 5. The following questions arise for determination in this case:- (i) Whether the petitioner being bonafide auction purchaser of the secured assets {Industrial Plots} under SARFAESI Act could be fastened with the liability of State taxes which had accrued and were solely attributable to the busines .....

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..... t "no encumbrances known to the bank existed" then, any post-sale confirmation encumbrance, cannot be fastened or enforced against the petitioner. 6(ii). The second objection that petitioner-auction purchaser had been negligent as he had not shown diligence and had not made discreet inquiry from the Government functionaries regarding encumbrances, lien, charge, dues, taxes etc. as per condition No 16 of sale notice dated 10.12.2021, Annexure P-3, is without any substance. In this context, it is pertinent to note that firstly, once the Bank had clearly represented in the sale-notice dated 10.12.2021, Annexure P-3, that "there were no encumbrances known to bank" as per mandate of Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002 then, the condition No 16 mentioned in sale notice cannot be applied/invoked in such a situation, as in the instant case ; secondly, the condition No 16 could only operate in a situation where the Bank was not aware of the encumbrances i.e. lien, charges dues, taxes etc over the scheduled property ; thirdly, the condition No 16 in sale notice cannot be read in isolation so as to defeat, curtail, restrict, abridge or take away the rights acquir .....

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..... agreement that they shall bear the past liability of encumbrances, dues, taxes, etc. which factors are absent in the present writ petition; fourthly, in the aforesaid matters, the State of Maharashtra had also informed the secured creditor-Bank about the creation of charge, passing of attachment orders, outstanding encumbrances and these facts were reflected in the sale notice and in sale certificate whereas all these material aspects are absent in the instant petition; fifthly, the condition No 16 can neither be attracted nor invoked dehors the mandate of Rule 8(7)(a) which came into force w.e.f. 18.10.2018 in the Security Interests (Enforcement) Rules, 2002 ; sixthly, this condition cannot apply or operate to the disadvantage of petitioner ; seventhly, in the aforesaid matter, the provision of Section 26 B (4) of SARFAESI Act which came into force w.e.f. 24.1.2020 was not in issue ; and in view of the above discussion, the plea of the respondents in the reply is not tenable on facts and in law. 6(iv). The fourth objection in the reply that as per Clause 2(vi)(a) of the lease deed(s) since the petitioner had stepped into the shoes of the original lease holder therefore, the petit .....

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..... e deed(s) that the transferee of secured assets-Industrial Plots will bear the "liability arising out of or accruing from and connected with and solely attributable to the business of the original lessee"; fourthly, the petitioner-auction purchaser had purchased the immovable property i.e. Industrial plots and not the business concern of the original lessee M/s Jaimurthy Minerals & Chemicals Pvt. Ltd. In view of the above discussion, the respondents cannot fasten the business liability of original lease on the petitioner-auction purchaser and the condition No 7 imposing the liability of the original leasee on the petitioner does not conforms to law and is otherwise also unreasonable and arbitrary is set aside qua the petitioner. 6(v). The fifth objection in the reply that the petition is bad for non-joinder of parties is without merit, when the petitioner being the dominus litis has challenged the imposition of condition No. 7 as contained in the letter(s) dated 11.10.2022, Annexure P-7 and dated 13.12.2022, Annexure P-9, issued by respondents state, including respondents No. 1 and 2 herein. 6(vi). In the backdrop of the discussion made here-in-above, and as per the mandate of la .....

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..... ew the object of the SARFAESI Act, the non-obstante clause in the subsequent enactment would prevail over the earlier enactments in view of Section 35 of the SARFAESI Act. That being so, the dues of secured creditors shall prevail over the dues, taxes or cesses payable to the Central government or the State Government or local authority. In this background, the Hon'ble Apex Court has held as under:- "26. The short question which is posed for the consideration of this Court is whether the MSMED Act would prevail over the SARFAESI Act? The question is whether recovery proceedings / recoveries under the MSMED Act would prevail over the recoveries made / recovery proceedings under provisions of the SARFAESI Act? 27. It is the case on behalf of respondent No. 1 that in view of Section 24 of the MSMED Act which provides that the provisions of Sections 15 to 23 of the MSMED Act would have overriding effect and shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force and in view of the fact that the MSMED Act being a later enactment, then the SARFAESI Act, the MSMED Act would prevail over the SARFAESI Act. 28. While appr .....

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..... FAESI Act, then in that case, not only the object and purpose of special enactment/SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No. 1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26 E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. 33. Even otherwise the Naib Tehsildar was not at all justified in not taking possession of the secured assets / properties as per order dated 24.09.2014 passed by the District Magistrate under Section 14 of the SARFAESI Act. The order passed by the Naib Tehsildar refusing to take possession of the secured assets / properties despite the order passed under Section 14 of the SARFAESI Act on the ground that recovery certificates issued by respondent No. 1 for recovery of the orders passed by the Facilitation Council are pending, is wholly without jurisdiction. While exercising power under Section 14 of the SARFAESI Act, even the District Magistrate has .....

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..... ning the matter, propounded by this Court there cannot be any doubt that the rights of the appellant-bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods." 49. An SLP (No. 12462/2008) against the above .....

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..... nt to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 54. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q (2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944". (Underlining Ours) 7(iv). LEGAL POSITION: PRECEDENTS OF THIS HIGH COURT ON OVERIDING EFFECT OF SARFAESI ACT: While deciding an issue regarding the overriding effect of Section 26-E (came into force w.e.f. 1.9.2016) of the SARFAESI Act vis-a-vis the provision of Section 26 of the HP VAT Act 2005, this Court held in CWP .....

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..... s, dues of banks, financial institutions and other secured creditors should have priority over the States statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14¬A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, and Section 529 A of the Companies Act, 1956 would have been incorporated in the DRT Act and the Securitization Act. 130. Undisputedly, .....

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..... ovisions of Section 26E of the SARFAESI Act and Section 31B of the RDB Act become necessary for a detailed evaluation. 41. As has been extracted above, Section 26E of the SARFAESI Act provides that the debts due to any secured creditor shall be paid in priority over all other debts and all revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. Section 31B of the RDB Act takes this one step forward and elevates the right of the secured creditors to realise their debts, by sale of the secured assets, to enjoy priority and then re-affirms that such debts will be paid in priority over the revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. It is thus irrefragable and in fact, expressly conceded to by the learned Additional Advocate General that the Banks /Financial Institutions have the First Right to have their debts extinguished; but, as has been recorded above, the Revenue merely claims that they have right to sell the property first. This argument again is flawed because the First Charge creating no right over the property, the Revenue cannot claim a First Right .....

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..... Section 26E of the SARFAESI Act has come into force from 24.01.2020, yet the same will not have any effect on the issue of the Banks/Financial Institutions having first charge on the property of the dealer, as the provisions of Section 31B of the RDB Act shall override the provisions of Section 26 of the HP VAT Act, 2005, especially in view of the observations contained in the judgment of Hon'ble Supreme Court in Central Bank of India's case (supra). 36. Therefore, this Court has no hesitation in holding that the petitioners being "Secured Creditors" have preference over the respondent- State with regard to the debts due from respondent No. 4. Accordingly, this writ petition is allowed by quashing Annexure P-10, dated 24.06.2017 and by holding that the respondent Department cannot claim first charge over secured assets of the petitioners belonging to the private respondent-Company, as the petitioners have first charge over the secured assets in view of the provisions of the SARFAESI Act 2002 and Recovery of Debts and Bankruptcy Act, 1993, as amended from time to time. It is further held that the provisions of Section 26 of the H.P. VAT Act, 2005 shall have to give way to the pro .....

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..... contained in the SARFAESI Act, 2002. 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant-bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. 5. Learned Additional Advocate General has failed to controvert the factual aspect of the submissions made by learned counsel for the respondents. 6. Since the question involved in the present appeal is no longer res integra and has been settled by the Hon'ble Supreme Court in Punjab National Bank's case supra, all the Letters Patent Appeals are dismissed...." 7(vi). This Court in CWP No 678 of 2023, titled as M/s Nugenix Pharma Pvt. Lt .....

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..... contained in the SARFAESI Act, 2002. 44-46...xxx...xxx... 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944...." 3. In view of the legal position, set out here- in-above, this Court is left with no other option, but to allow this petition by directing respondents No. 4 and 5 to attest mutation of sale deed dated 18.9.2021 (Annexure P-5) issued by the Indian Bank, in favour of the petitioners and further respondents No. 4 and 5 are directed to enter the names of the petitioners as owner of the property in question in the rev .....

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..... te Bench of this Court in LPA No. 156 of 2021 (supra), and, therefore, the impugned order(s) passed by the State Authorities in disallowing registration of Sale Certificate and the consequential mutation etc. being dehors the provisions of SARFAESI Act and the mandate of law, referred to above, are illegal and unsustainable." 8. LEGAL POSITION: RIGHTS OF BONAFIDE AUCTION PURCHASER UNDER SARFAESI While dealing with the rights of an auction purchaser in the context of the object and regime of the SARFAESI Act and Rules issued thereunder, the Hon'ble Apex Court has held in Authorised Officer, State Bank of India vs. C. Natarajan & Anr, Civil Appeal No. 2545 of 2023, decided on 10.04.2023 and Paras 23 and 27 read as under:- "23. That apart, significantly, section 35 of the SARFAESI Act mandates that the provisions there of would have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any other instrument having effect by virtue of any such law. At the same time, section 37 of the SARFAESI Act postulates that provisions thereof or the rules made there under shall be in addition to and not in derogation of the enumerated .....

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..... uctified on issuance of the sale certificate cannot be nullified, defeated, obstructed, frustrated, restricted nor curtailed, whittled down or extinguished in any manner has been approved by the Hon'ble Apex Court in the case of K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple & Ors, (2002) 5 SCC 710. The relevant observations are reproduced below: "14. Once the appellant was found to be the highest bidder in a public auction in which 45 persons had participated and thereafter when the sale was confirmed in his favour and even the sale deed was executed, unless and until it was found that there was any material irregularity and/or illegality in holding the public auction and/or auction-sale was vitiated by any fraud or collusion, it is not open to set aside the auction or sale in favour of a highest bidder on the basis of some representations made by third parties, who did not even participate in the auction proceedings and did not make any offer. 16. It is also required to be noted that the sale was confirmed in favour of the appellant by the Commissioner, Endowments Department after obtaining the report of the Assistant Commissioner. Therefore, we are of the .....

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..... ts mortgaged property before the date of the publication of sale notice by depositing amount and such right was not available thereafter when the rights title and interest of the auction purchaser-subsequent purchaser have matured. Paras 5, 6, 24 and 29 are reads as under:- "5. The highest bidder (respondent No 3) in the meantime had complied with all the terms and conditions of sale as a result of which the sale was confirmed in his favour. In that, he paid the entire sale consideration of Rs. 42,51,000/ (Rupees Forty Two Lacs Fifty One Thousand Only) by 4th January, 2006. On payment of sale consideration, the respondent bank credited a sum of Rs 12,40,000/ (Rupees Twelve Lacs Forty Thousand Only) in the loan account of appellant No. 2 herein and a sum of Rs 12,52, 350/- (Rupees Twelve Lacs Fifty Two Thousand Three Hundred Fifty Only) in the loan account of appellant No. 1 herein and closed both the loan accounts. 6. On 6th January, 2006, the respondent bank issued a sale certificate in favour of respondent No. 3. According to the respondent bank upon issue of sale certificate, the sale had become final. 24. After cogitating over the factual matrix and perusing the relevant .....

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..... lment of rights and benefits which have accrued to an auction purchaser has been deprecated by the Hon'ble Apex Court in Sadashiv Prasad Singh vs. Harender Singh & Ors, (2014) 1 SCALE 230, and the relevant paras read as under:- 12. Learned counsel for the auction purchaser Sadashiv Prasad Singh, in the first instance vehemently contended, that in terms of the law declared by this Court, property purchased by a third party auction purchaser, in compliance of a court order, cannot be interfered with on the basis of the success or failure of parties to a proceeding, if auction purchaser had bonafidely purchased the property. In order to substantiate his aforesaid contention, learned counsel representing Sadashiv Prasad Singh placed emphatic reliance, firstly, on a judgment rendered by this Court in Ashwin S. Mehta & Anr. vs. Custodian & Ors, (2006) 2 SCC 385. Our attention was drawn to the following observations recorded therein: "In that view of the matter, evidently, creation of any third-party interest is no longer in dispute nor the same is subject to any order of this Court. In any event, ordinarily, a bona fide purchaser for value in an auction-sale is treated differently th .....

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..... mely, Jagmohan Singh. And that Harender Singh had created an unbelievable story with the connivance and help of his brother, so as to save the property in question. The claim of Harender Singh in his objection petition, was based on an unregistered agreement to sell dated 10.1.1991. Not only that such an agreement to sell would not vest any legal right in his favour; it is apparent that it may not have been difficult for him to have had the aforesaid agreement to sell notarized in connivance with his brother, for the purpose sought to be achieved. Secondly, it is apparent from the factual position depicted in the foregoing paragraphs that Harender Singh, despite his having filed objections before the Recovery Officer, had abandoned the contest raised by him by not appearing (and by not being represented) before the Recovery Officer after 26.10.2005, whereas, the Recovery Officer had passed the order of sale of the property by way of public auction more than two years thereafter, only on 5.5.2008. Having abandoned his claim before the Recovery Officer, it was not open to him to have reagitated the same by filing a writ petition before the High Court ....." The High Court ought not .....

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..... ismissed." (Underlining ours) 8(iv). LEGAL POSTION: EXTINGUISHING RIGHTS OF AUCTION PURCHASER ONLY IN EVENT OF COLLUSION OR FRAUD While dealing with the rights of an auction Purchaser, who had purchased the assets of company in liquidation, it has been held that after issuance of the letter of confirmation of sale, the rights which accrue in favour of the auction-purchaser cannot be defeated, curtailed or extinguished except in case of fraud or collusion, as held by the Hon'ble Apex Court in Valji Khimji & Co versus Official Liquidator of Hindustan Nitro Produce (Gujraj) Limited & Ors, (2008) 9 SCC 299 and the operative Paras read as under:- "11. It may be noted that the auction sale was done after adequate publicity in well-known newspapers. Hence, if any one wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, oth .....

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..... r curtails or restricts the accrued and vested rights, interests and benefits acquired by the petitioner auction purchaser amounts to defeating the object and sanctity of auction under the SARFAESI Act and the Rules and therefore, the impugned orders-action, in fastening the business liability of the Original Lessee (or the erstwhile owner as the case may be generally), does not stand the test of judicial scrutiny and these impugned are accordingly set-aside. 10. ANALYSIS OF QUESTION NO 1: 10(i). The first question as to whether the petitioner-auction purchaser of the secured assets-industrial plots under SARFAESI Act could be fastened with the liability of State taxes which had accrued and were connected with and were solely attributed to the business of the original lessee. In order to deal with this aspect, the pleadings of the parties reveal that the State Government through its General Manager (Industries), District Sirmaur (HP) executed two lease deeds with a Company, namely M/s Jaimurthy Minerals & Chemicals Pvt. Ltd. (hereinafter referred to as the original lessee on 17.10.2003 and 23.08.2004 for leasing out seven Industrial Plots, in Unit-II, measuring 14845 square meter .....

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..... -rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets, to be so sold : (a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or (b) inviting tenders from the public; or (c) holding public auction including through e-auction mode; or (d) by private treaty. (2) to (4) ....xxxx.... 8. Sale of immovable secured assets: (1) Where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub- rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper one in vernacular language having sufficient circulation in that locality, by the authorized officer. (2A) All notices under these rules may also be served upon the borrower through electronic .....

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..... s and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing. 9. Time of sale, Issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower: Provided further that if sale of immovable property by any one of the methods specified by sub rule (5) of rule 8 fails and sale is required to be conducted again, the authorized officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to c .....

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..... for discharge of the encumbrances, the authorized officer shall 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 authorized 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." 10 to 13 A ...not relevant... 10(iii). Case file reveals that the secured creditor- Bank had created a charge only upon the Industrial Plots-Immoveable Properties, which were the subject matter of lease deeds dated 17.10.2003 and 29.4.2004 and such a charge-right, title or interest created on these immoveable properties, was enforceable but by resorting to the sale of immoveable property, after complying with the mandate of Rule 8 and 9 of the Security Interest (Enforcement) Rules 2002 as amended from time to time. However, as per Annexure R-5 and Annexure .....

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..... chased the past or ongoing business of the original lessee therefore, the petitioner-auction purchaser cannot be fastened with the liability of State taxes, which had accrued and were connected with and were solely attributable to the business of the original lessee only. 10(iv). LEGAL POSITION : WHETHER BUSINESS LIABILITY (PAST OR ONGOING) OF ORIGINAL LESSEE (ERSTWHILE OWNER OF BUSINESS) COULD BE FASTENED ON AN AUCTION PURCHASER While dealing with the issue as to whether the business liability (past or ongoing) of the Original Lessee as in the instant case (or an erstwhile owner of business, as the case may be) could be fastened on an auction purchaser has been answered by the Hon'ble Apex Court in the case of Rana Girders Limited vs. Union of India and others, (2013) 10 SCC 746, in the Paragraphs, which are reproduced hereinbelow:- "20. Coming to the liability of the successor in interest, the Court clarified the legal position enunciated in M/s. Macson by observing that such a liability can be fastened on that person who had purchased the entire unit as an ongoing concern and not a person who had purchased land and building or the machinery of the erstwhile concern. This dis .....

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..... . 10.9.2004. Therefore, we are eschewing our discussion regarding this proviso as that is not applicable in so far a s present case is concerned. Accordingly, we thus, hold that in so far as legal position is concerned, UPFC being a secured creditor had priority over the excise dues. We further hold that since the appellant had not purchased the entire unit as a business, as per the statutory framework he was not liable for discharging the dues of the Excise Department ....xxx.... 23. We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the Sale Deed/Agreement as well, to the effect that the properties in question are being sold free from all encumbrances. At the same time, there is also a stipulation that "all these statutory liabilities arising out of the land shall be borne by purchaser in the sale deed" and "all these statutory liabilities arising out of the said properties shall be borne by the vendee and vendor shall not be held responsible in the Agreement of Sale." As per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent .....

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..... oducing income or profit. Ownership of assets is merely an incident rather than a characteristic of business. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the "ownership of the business" for "ownership of a business" is much wider than mere ownership of discrete or individual assets. In fact, "ownership of business" is wider than the sum of the ownership of a business' constituent assets. Above all, transfer of "ownership of business" requires that the business be sold as a going concern. In our view, therefore, Section 15(1) is intended to operate only when there is complete transfer of "ownership of business" so as to render the transferee as a successor-in- interest of the transferor. Only in such an eventuality does Section 15 (1) make the transferee liable for the transferor's sales tax liabilities. 20. As the section itself unambiguously indicates a charge may not be enforced against a transferee if she has had no notice of the same, unless by law, the requirement of such notice has been waived. This position has long been accepted by this Court in Dattatreya Shanker Mote v. Anand Chitaman Datar, and in A .....

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..... achment order, such person may file particulars of such attachment orders with Central Registry in such form and manner on payment of such fee as may be prescribed. 10(vii). A perusal of Section 26-B (2) provides that from the date of issuance of the notification dated 24.01.2020 the transactions pertaining to the creation, modification and satisfaction of any security interest over properties was to be registered with the Central Registry i.e. CERSAI. It is mandatory that under Section 26-B(4) that every authority or officer of the Central Government or any other State Government or local authority entrusted with the function of recovery of taxes or other Government dues against any person shall have to file an attachment order with the Central Registry. There is nothing on record to indicate that the respondents-state tax authorities had registered their claim for recovery of taxes due from the original lessee after the date of enforcement of Section 26-B (4) of the Act w.e.f. 24.01.2020 till the date of issuance of sale notice on 10.12.2021 or even thereafter till the issuance of sale certificate on 1.1.2022 and even till the filing of the instant petition with the Central Regi .....

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..... hall be subject to the provisions of that Code." In contrast to Section 26E of the SARFAESI Act, the provisions of Section 26 of the H.P. Value Added Tax Act, 2005 read as under: "26. Notwithstanding anything to the contrary contained in any law, any amount of tax and penalty including interest, if any, payable by a dealer or any other person under this Act shall be a first charge on the property of the dealer or such other person." 10(ix). Reference to Section 26E of SARFAESI Act and Section 26 of HPVAT Act, reveals that the words 'priority' in Section 26E of the SARFAESI Act and "first charge" in Section 26 of the VAT Act are of utmost significance. As per the Black's Dictionary, the word 'priority' in Section 26E of SARFAESI Act means 'precedence' or 'going before' meaning thereby, that the word 'priority' would mean right to enforce the claim in preference to others. That being so, the word 'first charge' in Section 26 of the HPVAT Act cannot take precedence over the word 'priority' in Section 26E of SARFAESI Act. Reading these provisions in the context of present case reveals that once the State Authorities have neither created a charge and have not made such charge known .....

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..... ng dues, etc. nor obtained such attachment orders from the Court or other Competent Authority and got it registered with CERSAI against the erstwhile Original Lessee (or erstwhile owner as the case may be) in-accordance with the mandate of Section 26-B (4) of the SARFAESI Act, which came into force w.e.f. 24.01.2020 then, the Respondents, including the State Tax Authorities have neither any locus nor any right to fasten upon the business liability of the original lessee, on the auction purchaser, alike the petitioner. Moreover, the fastening of such liability amounts to penalizing, prejudicing and putting the auction purchaser (petitioner in instant case) to a disadvantageous position by acting in total defiance of the object and spirit of the SARFAESI Act. The rights, title or interest so acquired by the petitioner-auction purchaser in the scheduled immoveable property {i.e. on the industrial plots} after issuance of the sale certificate amounts to brushing aside the sanctity of public auction under the SARFAESI Act ; which could only be extinguished in the case of fraud or collusion as per the mandate of Law laid down by the Hon'ble Apex Court in the cases of C Natarajan ; Shakee .....

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..... the Statute/Rules is impermissible. 11(ii). As a sequel to the discussion made while answering the Question no 1 supra, the Question No. 2 is answered, to the effect that once the sale certificate was issued in favour of auction purchaser then, no liability could be fastened on him. In case the Bank had knowledge of any encumbrance of the original lessee (or owner as the case may be) then, it was mandatory on the Bank-secured creditor to disclose the same in the sale notice, after insertion of Rule 8(7)(a) of the Security Interest (Enforcement) Rules w.e.f. 18.10.2018. Moreover, the liability of state taxes which had accrued and were connected with and were solely attributable to the business of Original Lessee (or owner as the case may be) cannot be fastened on the auction purchaser unless the State Authorities-Respondents, get their claim for recovery of dues, taxes etc. registered and obtained an attachment order from the Court or competent authority and got it registered with CERSAI, under Section 26-B(4) of the SARFAESI Act w.e.f. 24.1.2020, which was not done in instant case. Further, unless the petitioner-auction purchaser gets the business of the Original Lessee (or owner .....

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..... s connected with and was attributable solely to the business of the original lease holder in accordance with the provisions of the H.P. Value Added Tax Act, 2005. In this context, a reference to the communications dated 30.05.2019, Annexure R-5 and 24.05.2019, Annexure R-6 gains significance. Reference to these two letters reveal that the original lessee had failed to pay their tax liability pertaining to the year 2013-14 and 2015-16 under Himachal Pradesh Value Added Tax Act, 2005 (hereinafter referred to as VAT Act). Since the outstanding recovery of taxes originates from the HP VAT Act, therefore, it is relevant to take note of the provisions of Section 2 (c), 2(g), 2(k), 2(z) and Sections 6, 7, 16, 19, 25, 27, 50 and 53 of the Act, are reproduced here-in-below:- "Section 2(c), business includes (i) any trade, commerce, manufacture, any adventure or concern, in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make profit and whether or not any profit accrues therefrom ; and (ii) any transaction in connection with or ancillary to such trade, commerce, manufacture, adventure or .....

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..... rchase of goods, levied under section 6 or 7; 6. Levy of tax (1) Subject to the provisions of this Act, there shall be levied a tax:- (a) at every point of sale in respect of the goods specified in the second column of Schedule 'A', (b) at the prescribed points of purchase in respect of goods specified in the second column of Schedule 'C', and (c) at the first point of sale in respect of the goods specified in the second column of Schedule 'D', (d) at every point of sale in respect of the goods specified in the second column of Schedule 'E', on the taxable turnover of a dealer, at the rates as specified in the respective Schedules or at such rates not exceeding 100 paise in a rupee as the State Government may, by notification, direct: Provided that the State Government may notify different rates in respect of different goods or classes of goods: Provided further that the rate of tax in respect of declared goods shall not exceed the maximum rate of tax specified in clause (a) of section 15 of the Central Sales Tax Act, 1956: Provided further that subject to furnishing of a declaration as may be prescribed, the Government may, by notification, reduce the rate of tax .....

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..... accept from any class of dealers in lieu of the amount of tax payable under this Act for any period, by way of composition, a lump sum to be determined and to be paid at such intervals and in such manner as may be prescribed, or the lump sum amount may be calculated at a fixed rate on the taxable turnover, as may be prescribed in respect of such class of dealers and for this purpose a simplified system of registration, maintenance of accounts, filing of returns may also be prescribed which shall remain in force during the period of such composition. (3) Such dealers as may be required so to do by the Assessing Authority by notice served in the prescribed manner and every registered dealer shall furnish such returns manually of electronically by such dates and to such Authority as may be prescribed. (3a) The State Government may, by notification, exempt any class of dealer from filling of return, subject to such restrictions and conditions, such limit of turnover and for such period, as may be prescribed, and tax, if any, deducted at source, shall be deemed to be final payment of tax and such dealer shall be liable to assessment for that period. (4) Before a registered dealer .....

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..... ) of section 3 may, after giving such dealer a reasonable opportunity of being heard, direct him to pay by way of penalty, a sum: (i) equal to ten percentum, for the delay upto fifteen days, (ii) equal to twenty five percentum, for the delay exceeding fifteen days but not exceeding thirty days, and (iii) equal to fifty percentum, for the delay exceeding thirty days, of the amount of tax to which he is assessed or is liable to be assessed under section 21, in addition to the amount of tax to which he is assessed or is liable to be assessed. (8). If a dealer has maintained false or incorrect accounts with a view to suppressing his sales, purchases or stocks of goods, or has concealed any particulars of his sales or purchases or has furnished to, or produced before, any Authority under this Act or the rules made there under any account, return or information which is false or incorrect in any material particular, the Commissioner or any person appointed to assist him under sub section (1) of section 3 may, after affording such dealer a reasonable opportunity of being heard, direct him to pay by way of penalty in addition to the tax to which he is assessed or is liable to be as .....

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..... nd penalty under this Act. Explanation.-- For the purposes of this sub-section, the amount due to a dealer or money held for or on account of a dealer by any person shall be computed after taking into account such claim, if any, as may have fallen due for payment by such dealer to such person and as may be lawfully subsisting. (2) The officer issuing a notice under sub- section (1) may at any time or from time to time, amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. (3) Any person making any payment in compliance with a notice issued under sub- section (1) shall be deemed to have made the payment under the Authority of the dealer and the treasury receipt for such payment shall constitute a good and sufficient discharge of the liability of such person to the extent of the amount specified in the receipt. (4) Any person discharging any liability to the dealer after service on him of the notice issued under sub-section (1) shall be personally liable to the State Government to the extent of the liability discharged or to the extent of the liability of the dealer for tax, interest and penalty, whichever is less. (6) Any amo .....

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..... the original lessee, being a Company was the dealer, who carried on its business from these industrial plots then, the original lessee was bound in law to pay the taxes relatable to his business. In case the taxes or outstanding dues of taxes were not forthcoming from original lessee then, the State authorities were under an obligation to recover such taxes from the Company and its Directors as the arrears of land revenue under Section 25 and Section 53 of the VAT Act. In addition to this, the State Tax Authorities had another remedy of resorting to the special mode of recovery under Section 27 of the HP VAT Act. Section 39 of the HPVAT Act stipulates that the tax liability of a dealer which had accruing from business could be imposed on a transferee of business but in the instant case, this provision is not applicable when, the petitioner-auction purchaser has nowhere purchased the business liability of the original lessee. Section 50 of HP VAT Act makes a dealer criminally liable who defaults in payments of taxes, interest and penalty imposed-levied on him under the Act if such dealer or businessman defaults or acts in contravention of the provisions of the HP VAT Act. In this b .....

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..... action for recovery of taxes, interest or penalty and arrears under VAT Act which had accrued and was connected with and was solely attributable to the business of the Original Lessee-Company and its Directors then, the inaction or negligence or non-performance on the part of the State Authorities cannot be the basis for prejudicing or putting the petitioner-auction purchaser to a disadvantage or position, by fastening the business liability of others, on the petitioner-auction purchaser is impermissible, on facts of this case, as discussed hereinabove. 13. CONCLUSION AND DIRECTION(S) In view of the discussion, made hereinabove, the instant writ petition is allowed, with the following directions:- (i) The condition no. 7, in the impugned letter(s) dated 7/11.10.2022 and 13.12.2022 vide Annexure P-7 and Annexure P-9, respectively and the communication dated 23.06.2023 vide Annexure P-12, so far it adversely affects the petitioner, is quashed and set-aside. (ii) The Respondents-State Authorities are directed to transfer the Industrial Plots-scheduled property as detailed in the Sale Certificate dated 01.01.2022 Annexure P-5, in favour of the petitioner- auction purchaser, as a .....

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