TMI Blog2024 (5) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... irly stated on oath in an additional affidavit filed pursuant to directions by this Court, that no proclamation of sale has been issued. Therefore, in view of the law laid down in Jalgaon Janta, it cannot be said that there is a competing charge in favour of the DCST over the Walkeshwar Flat. The attachment orders issued prior to 24th January, 2020 are of no assistance in giving priority to the DCST in claims over the Walkeshwar Flat. With no registration with CERSAI having been made by the DCST, and no proclamation of sale having been issued, the Lender Bank s entitlement to priority has not been undermined. That entitlement flowed to Encore ARC. The consequences of such priority has led to the Petitioner having a free and marketable title free of the encumbrance claimed by the DCST. Any attachment sought to have been issued in respect of value added tax and central sales tax dues owed by SMI, insofar as it relates to the Walkeshwar Flat, is hereby quashed and set aside. The Petitioner is entitled to have the Walkeshwar Flat registered in his name and the DCST can have no objection to such registration. Petition allowed. - B.P. COLABAWALLA SOMASEKHAR SUNDARESAN, JJ. For the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction thereon ( Nashik Property ), collectively, the Secured Assets ; C) The details of the borrowings by the aforesaid borrowers and the security interests created to secure such borrowings, may be summarised thus:- Borrower Loan Amount Secured Asset mortgaged SMI 3,20,00,000 Walkeshwar Flat and Nashik Property SMIEPL 85,00,000 Walkeshwar Flat SRI 80,00,000 Walkeshwar Flat and Nashik Property D) The Walkeshwar Flat was owned by one Mrs. Praffulata Yeshwant Shah ( Mrs. PY Shah ), the mother of Bharat, and the mortgage was created by her on 18th June, 2010; E) Mrs. PY Shah passed away on 10th June, 2013; F) All the loans taken by the SMI, SMIEPL and SRI came to be classified as non-performing assets on 16th October, 2013; G) On 5th October, 2015, an order of restraint was passed by the Assistant Commissioner of Sales Tax, Nashik in respect of specified movable properties and the Nashik Property in connection with the alleged default by SMI in payment of value added tax dues. Pertinently, this order did not cover the Walkeshwar Flat; H) On 2nd June, 2016, the Lender Bank invoked Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accounts came to be sold and assigned by the Lender Bank to Encore ARC on 21st March, 2020 and the registration at CERSAI too was eventually modified to reflect the name of Encore ARC in place of the Lender Bank; S) The arbitration proceedings between the Lender Bank and the borrowers culminated in an award dated 8th April, 2022 against the borrowers, after which, on 11th April, 2022, an auction notice was published. Attempts to auction were made between 11th May, 2022 and 26th December, 2022; T) Correspondence disputing priority between the DCST and Encore ARC continued, and yet another order dated 23rd August, 2022 came to be passed by the DCST asserting that, among others, the Walkeshwar Flat must not be sold since the MVAT authorities enjoyed priority; U) Eventually, in an auction held on 28th February, 2023, the Petitioner made the highest bid for the Walkeshwar Flat and on 25th April, 2023, the sale certificate certifying sale of the Walkeshwar Flat to the Petitioner was issued on 20th March, 2023; V) Meanwhile, the housing society relating to the Walkeshwar Flat asked the Petitioner to get a no-objection certificate from the DCST owing to communications issued by the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned by Respondent No. 3 in Arbitration dispute No. 1 2 before the Hon ble Arbitral Tribunal, Nashik) is naturally and legally supposed to inherit the property hence the action by the R No. 1 is legal and in the interest of securing revenue of the Department. M /s. See Megh Industries is a partnership firm and Mr. Bharat Shah is the partner in the firm. Warrant of attachment in Form No. 4 under MLRC, 1966 was already issued by R No. 1 on 08-11-2017. R No. 1 has already initiated actions as per MLRC and created the encumberance by serving attachment orders dated 05.10.2015, 08.11.2017, 23.08.2022 and 15.06.2023. . [Emphasis Supplied] 8. There are three legal heirs of Mrs. PY Shah apart from Bharat, one Mr. Amit Yeshwant Shah and another Mrs. Bhawana Himanshu Agashiwala. Therefore, what share of interest in the Walkeshwar Flat would go to Bharat as a legal heir is a question of fact that would have to be determined before examining if that component of interest is amenable to attachment and recovery by the tax authorities. However, without getting into the extent of Bharat s interest (assuming for the sake of argument that Bharat was entitled to the entire Walkeshwar Flat as legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the creditor whose security interest is registered prior in time. Under Section 26-E of the SARFAESI Act 2 , once a secured creditor registers its security interest, notwithstanding any other law in force, the debts owed to such secured creditor shall be paid from the proceeds of enforcement over that asset, in priority over all other debts, including taxes payable to the State Government. 13. It is clear from Jalgaon Janta that even where there is an attachment order of the Sales Tax authorities prior to 24th January, 2020, without any further steps being taken towards issuing a proclamation of sale, the tax authorities cannot claim priority over the dues payable to the secured creditor, whose security interest is registered with CERSAI. 14. This law declared by the Full Bench in Jalgaon Janta, brings about a quietus to the conflicts between secured creditors and tax authorities, with effect from 24th January, 2020. The proliferation of a first charge across fiscal legislation was dealt with in Jalgaon Janta, and the first principles of the law was declared. The parties to this Writ Petition (and indeed this Bench) are bound by the law so declared. 15. The Lender Bank regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MVAT Act would override any provision of contract that creates a charge, it would be subservient to any provision in a Central Act that gives first charge to some other entity. The Full Bench has ruled in Jalgaon Janta that the first charge provided for in Section 37(1) of the MVAT Act would yield to the priority provided for in Section 26-E of the SARFAESI Act, evidently a Central Act that gives first priority to secured creditors, subject to the security interest being registered with CERSAI. 20. Therefore, when Encore ARC enforced the mortgage over the Walkeshwar Flat, it enjoyed priority over the statutory first charge of the DCST under the MVAT Act (assuming the Walkeshwar Flat in its entirety was even available for enforcement of dues owed by SMI). Therefore, the Petitioner, as a purchaser of the Walkeshwar Flat has the benefit of a clear and marketable title to the Walkeshwar Flat, free of encumbrances enjoyed by the DCST, since it was in the enforcement of a security interest enjoying priority that led to the purchase by the Petitioner. 21. Once the mortgage is enforced against a secured asset, there would be no scope left for any further enforcement against the same asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24th January, 2020 and altered the position on priority of claims for all existing and new cases, with effect from that date. This Writ Petition is by the auction purchaser, who is entitled in law, to a clear and marketable title, free from competing encumbrances. Therefore, the dismissal for non-appearance of counsel, of a writ petition by the Lender Bank is of no detriment to the Petitioner s case in this Writ Petition. Conclusions and Directions: 26. Therefore, the Writ Petition deserves to be allowed with the following directions and declarations:- a) The Lender Bank had first priority in enforcement against the Walkeshwar Flat with effect from 24th January, 2020, having been the first to register with CERSAI, which was done on 2nd January, 2020; b) Encore ARC, which conducted the auction on 28th February, 2023, acquired the entitlement to priority from the Lender Bank along with the assignment of the loans to the borrowers with attendant security interests on 21st March, 2020; c) Although the DCST has repeatedly issued orders of restraint, there is no evidence of registration with CERSAI. The DCST has fairly stated on oath in an additional affidavit filed pursuant to direction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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