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TMI Blog2024 (5) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... lson Garden, Hombegowdanagara, Bengaluru measuring 6000 sq.ft. The aforesaid owners of the property had mortgaged the subject property and availed a loan from Canara Bank, the 3rd respondent. The loan gets into default, the default gets into initiation of proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('hereinafter referred to as 'the SARFAESI Act' for short) to recover the amount. Sale of the property was conducted on 19-03-2022. The petitioner participates in the auction, emerges as the successful bidder and pays the entire consideration as necessary in law. After receipt of the entire consideration, the Bank issues a sale certificate in favour of the petitioner on 30-09-2022. It is an admitted fact that as on today, the borrowers/owners of the property have not challenged the sale or initiated any proceedings against the sale of the property, as the challenge is not pending before any judicial or quasi judicial fora. 4. The petitioner desirous of getting the sale certificate registered approaches the jurisdictional Sub-Registrar i.e., the Sub-Registrar of JP Nagar/2nd respondent. The pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bidder of the property owned by the borrowers. This leads the Bank issuing a sale certificate in favour of the petitioner on 30-09-2022. The petitioner desirous of getting the sale certificate registered, approaches the jurisdictional Sub-Registrar and pays amounts/fees that are required for registration of a document. After all this, when the petitioner sat before the Sub-Registrar, he was given to understand that the document would not be registered. The reason was that a claim of the Income-Tax Department still hangs on the head of the borrowers of the property and, therefore, the document cannot be registered. Whether such discretion is available to the Sub-Registrar is what is required to be noticed. The document of registration i.e., the sale certificate had emanated from the proceedings under the SARFAESI Act. Section 26-E of the SARFAESI Act, reads as follows: "26E. Priority to secured creditors.--Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained, the document is directed to be registered." (Emphasis supplied) Invoking its power to frame Rules under the Registration Act, the Karnataka Government has promulgated 'the Karnataka Registration Rules, 1965' ('hereinafter referred to as 'the Rules' for short). Chapter-XXIV of the Rules deals with refusal to register. Rule 171 therein deals with reasons for refusal to register. The reasons are enumerated therein. Rule 171 reads as follows: "171. Reasons for refusal to register.- When registration is refused, the reasons for refusal shall be at once recorded in Book 2. They will usually come under one or more of the heads mentioned below. (i) Section 19.- that the document is written in a language which the Registering Officer does not understand and which is not commonly used in the district, and that if is unaccompanied by a true translation or a true copy; (ii) Section 20.- that it contains unattested interlineations, blanks, erasures, or alterations which in the opinion of the Registering Officer require to be attested; (iii) Section 21(1) to (3) and Section 22.- that the description of the property is insufficient to identify it or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the Registrar for an enquiry into the fact of execution. (xiv) Sections 35 and 41.- that the alleged death of a person by whom the document purports to have been executed has not been proved; (xv) Section 41.- that the Registering Officer is not satisfied as to the fact of execution in the case of a Will or of an authority to adopt presented after the death of the testator of donor; (xvi) Section 25, 34 and 80.- that the prescribed fee or fine or fee under nay other Act to be levied before admitting a document to registration has not been paid." The reasons indicated in Rule 171 are self-explanatory. While it is an admitted fact that none of those reasons found in the statute i.e., Rule 171 are even present in the case at hand. The refusal to register a document as observed is dealt with under Section 71 of the Registration Act and Rule 171 of the Rules, a perusal of which will nowhere creates any impediment for the 2nd respondent/Sub- Registrar to register the said document. All the nuances necessary for registration have been complied with by the petitioner. The reason for denial of registration by respondent No.2 - Sub-Registrar is that the dues of the Income-Tax De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce over the claim of secured creditor viz. the petitioner Bank. (iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts.' In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein." (emphasis in original and supplied) 44. This Court, while dismissing Civil Appeal No. 3627 of 2007 filed against the judgment [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] of the Full Bench, vide order dated 12-2-2009 [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] held as under: (UTI Bank case [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] , SCC OnLine SC para 1) "1. Having gone through the provisions of the Securitisation Act, 2002, in the light of the judgment of the Division Bench of this Court in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors and their rights cannot prevail over the rights of the pawnee of the goods." ( emphasis supplied ) 48. The Bombay High Court in Krishna Lifestyle Technologies Ltd. v. Union of India [Krishna Lifestyle Technologies Ltd. v. Union of India, 2008 SCC OnLine Bom 137] , wherein the issue for consideration was "whether tax dues recoverable under the provisions of the Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" held that : (SCC OnLine Bom paras 19-20) "19. Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of the SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues. 20. Insofar as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied) 50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the appellant, on Issue 2, hold merit. Evidently, prior to insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, there was no provision in the 1944 Act inter alia, providing for first charge on the property of the assessee or any person under the 1944 Act. Therefore, in the event like in the present case, where the land, building, plant, machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in Sections 2(1)(zc) to (zf) of the SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a first charge on the secured assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11-E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 51. Thus, as has been authoritatively established by the aforementioned cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Excise Act, 1944 w.e.f. 8-4-2011, the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act, 1944." (Emphasis supplied) The Apex Court considers identical circumstance. The dues in the case before the Apex Court were that of the Department of Central Excise. The Apex Court holds that debt owed to the Crown or the State cannot take away the right of a secured creditor in the light of Section 26E and Section 35 of the Act supra. 12. The Apex Court considering the entire spectrum of law holds that dues of the secured creditor, the Bank or any other financial institution will have priority over the dues of the Central Excise Department under the Central Excise Act. The Apex Court holds the provisions of the SARFAESI Act, 2002 will have overriding effect on the provisions of the Central Excise Act. If the Central Excise Act found in the judgment of the Apex Court is paraphrased with that of the Income-Tax Department/dues under the Income-Tax Act, the reasons so rendered by the Apex Court would become applicable to the facts of the case at hand as well. The Sub-Registrar, though not in writing, orally refu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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