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TMI Blog2025 (5) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the Sales Tax / M-VAT Department, Respondent Nos. 6 and 7 are revenue authorities, the Respondent No. 8 is the auction purchaser and the Respondent Nos. 3, 4 and 5 are the borrower company under liquidation and its directors. 3. The secured asset involved is a factory land and building situated at Plot No. 1B, contained in Gat Nos. 1129(Pt), 1122, 1140, 1295/1 to 1295/10 and 1296/1 to 1296/10 admeasuring 8091.73 sq.mtrs. situated at Mauje Shirwal, Taluka: Khandala, District: Satara - 421801. 4. In this judgment, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is called 'SARFAESI Act'. Central Registry of Securitisation Asset Reconstruction and Security Interest of India is called 'CERSAI'. Maharashtra Value Added Tax Act, 2002 is called 'M-VAT Act'. 5. Background facts necessary for disposal of this petition are as under. A. The Respondent No. 3-borrower company had availed credit facility from the Petitioner-bank and had executed documents creating security interest over the secured asset. On 09/07/2011, the Petitioner recorded its charge over the secured asset with CERSAI in compliance with provisions of the SARF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8 that for mutating its name, 'no objection' must be received from the Respondent Nos. 1 and 2-Department of Sale Tax. G. In this backdrop, on 09/08/2023, the Respondent No. 1 recorded a further charge worth Rs. 19,53,17,584/- in the revenue record under the Mutation Entry No. 9233. H. When the Respondent No. 8 applied for permission for construction of the industrial unit over the secured asset, objection was raised that in absence of mutation of name of the Respondent No. 8 in revenue record and during the existence of charge of the Respondent No. 1 over the secured asset, permission cannot be granted. I. In these circumstances, the Petition is filed seeking declaration that the Respondent Nos. 1 and 2 cannot claim any charge over the secured asset which was mortgaged by the Respondent Nos. 3 to 5 and which has been now sold to the Respondent Nos. 8. Further direction is sought to the Respondent No. 1, 2 & 7 to withdraw their letters issued for recording encumbrance over the secured asset. Also a direction is sought to the Respondent Nos. 1 and 2 to direct concerned Talathi for withdrawing the encumbrance over the secured asset of M-VAT dues. J. That the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge under section 37 of M-VAT Act. That for subsequent period of assessment, additional encumbrance is also recorded. That though Petitioner has priority of appropriating sale proceeds of secured asset, that cannot be a ground to direct the Respondent No. 1 to remove the encumbrance of its dues. It is submitted that the encumbrance of M-VAT dues are not extinguished by the priority of the secured creditor over sale proceeds. 10. Mr. Sonpal further submitted that the application of the amended/inserted section 26E has been held to be prospective (after 24/01/2020) by the Full Bench Judgment in Jalgaon Janta Sahakari Bank Ltd (supra), therefore order of attachment in February 2015 and 'first charge' thereunder much prior to section 26E coming into force will remain unaffected. That section 26E coming into force will not nullify the first charge or make it void or render it nugatory. That unless the action of attachment under M-VAT Act is illegal or without jurisdiction, interference with its effect (viz. encumbrance in revenue entry) is not warranted. That under the applicable Rules of security interest enforcement, the Petitioner was duty bound to disclose encumbrance of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Purushottam Prabhakar Chavan vs. Deputy Commissioner of Sales Tax and Ors. (2024 SCC OnLine Bom 1235) (v) Bhushan Ramesh Bramgankar vs. State of Maharashtra & Anr. (2024 SCC OnLine Bom 1215) REASONS AND CONCLUSIONS 12. We have considered the rival submissions and perused the record with the assistance of the learned Counsel for the parties. 13. At the outset, we note that the Central GST department has accepted the request of the Petitioner / Respondent No. 8 and has issued necessary letter on 11/02/2021 for removal of its encumbrance from the revenue record of the secured asset, as can be seen from Exh. E - page 36 of the petition. 14. We find that the arguments of Mr. Sonpal is an attempt to re-argue the case which is already considered by the Full Bench of this Court in Jalgaon Janta Sahakari Bank Ltd (supra) and subsequent judgments as indicated below. 15. The core issue involved in the present matter is no more res integra in the light of the view taken by this Court in the Full Bench Judgment of Jalgaon Janta Sahakari Bank Ltd (supra). Once the security interest of the creditor is registered under the provisions of the SARFAESI Act with CERSAI Act, the priority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31B and section 26E, that the dues of the secured creditor shall have "priority" over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. 92. Bare perusal of the 2016 Amending Act would show that the dues of the Central/State Governments were in the specific contemplation of Parliament while it amended the RDDB Act and the SARFAESI Act, both of which make specific reference to debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority and ordains that the dues of a secured creditor will have 'priority', i.e., take precedence. Significantly, the statute goes quite far and it is not only revenues, taxes, cesses and other rates payable to the State Government or any local authority but also those payable to the Central Government that would have to stand in the queue after the secured creditor for payment of its dues. 96. In view of the foregoing discussion, we have no hesitation to hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 34. After 24th January, 2020, Section 26-E would give a security interest of a secured creditor registered prior in time, priority over even a proclamation for recovery of land revenue. Since in the facts of this case, the attachment orders came to be passed well after 24th January, 2020, and no registration was effected in CERSAI, and indeed no proclamation for recovery of revenue had been made, we refrain from delving further into whether an attachment would suffice or a proclamation would be necessary in respect of tax recovery proceedings. 35. As a last ditch-effort, Mrs. Vyas presented us with a unique proposition. It was her contention that notwithstanding the fact that the secured creditor has the first charge and priority for recovery of dues from the sale of the secured asset, the MVAT Authorities can once again chase the very same asset in the hands of the purchaser and put it up for sale towards recovery of their dues. 36. Such a proposition has only to be stated to be rejected. The creation of the mortgage over the asset would mean that the charge is over the asset. Once the security interest is enforced, the asset would no longer be available for further enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 45 of Jalgaon Janta Sahakari Bank Ltd (supra) and following was held: "ANSWER TO QUESTION (g) 163. To answer this question, we need to take note of some provisions of the Security Interest (Enforcement) Rules, 2002 (hereafter '2002' Rules, for short). However, it must be borne in mind that while a secured creditor is concerned only with sale of the immovable property, being the secured asset, and no other property of the defaulting borrower, the concern of the Department need not necessarily be confined only to the secured asset but could well spill over and any other asset of the defaulter in payment of State's dues could be put up for sale to realize such dues in terms of the MLR Code and the 1967 Rules. x x x 169. 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 2011 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion sale under notice dated 06/12/2022 and there was sufficient time in the interregnum for the Respondent Authorities to register its attachment order. 23. On the aspect of requirement of proclamation by the Respondent Authorities, the Full Bench of this Court has held as under : "152. In this context, it is relevant to note that section 72 of the MLR Code provides that land revenue is to be a paramount charge on land. The provisions contained in sections 173 to 184 and 191 to 221 of the MLR Code encapsulate the procedure for recovery of unpaid amounts as arrears of land revenue. Section 265 of the MLR Code (which is applicable only within the city of Bombay) confers precedence on the arrears of land revenue due on any land under the relevant Chapter. 153. The exhaustive procedure that the MLR Code conceives relating to recovery of unpaid amounts as arrears of land revenue need not be examined in any great detail here. We may only refer to the decision of the Division Bench reported in [2004] SCC OnLine Bom 1247 (Satish Arjun Surve v. State of Maharashtra), where the court has noted the same. 154. However, what appears to be clear is that if there be a default and the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such other node as specified in section 192 of the MLR Code and rule 11(2) of the 1967 Rules before the property attached is sold. 162. We are of the considered opinion, on facts and in the circumstances, that unless attachment of the defaulter's immovable property is ordered in the manner ordained by the MLR Code and as prescribed by the MRLR Rules and due proclamation thereof is made, even the creation of charge on such immovable property may not be of any real significance, not to speak of demonstrating with reference to evidence that the transferee had actual or constructive notice of such charge. If there has been an attachment and a proclamation thereof has been made according to law prior to 24th January 2020 or 1st September 2016, i.e., the dates on which Chapter IV-A of the SARFAESI Act and section 31B of the RDDB Act, respectively, were enforced, the department may claim that its dues be paid first notwithstanding the secured dues of the secured creditors; but in the absence of an order of attachment being made public in a manner known to law, i.e., by a proclamation, once Chapter IV-A of the SARFAESI Act or section 31B, as the case may be, has been enforced, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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