2020 (12) TMI 1287 - HC - VAT and Sales Tax

Sale of property by way of auction - account of the borrower was declared or classified as NPA - issue of notice under Section 13(2) of the SARFAESI Act - mortgaged properties were tried to be put on auction but the Bank failed - HELD THAT - At this stage, Mr. Kavina pointed out that the law is well settled in view of the two pronouncements of this Court that the Bank will have precedence over the charge of the State in view of Section 26E of the SARFAESI Act. According to Mr. Kavina, the State may not be able to enforce such charge in view of the settled position of law, but in the process, the Bank will also loose its legitimate dues. Mr. Antani is requested to immediately get in touch with the authority concerned and discuss the matter. It should not happen that the State also fails in enforcing its charge, and at the same time, the Bank would also loose its legitimate dues. In other words, in this imbroglio, the public exchequer should not suffer. In the peculiar fact situation, we are adjourning this matter for tomorrow. The Registry shall prepare a Board and notify this matter for hearing Let this matter come up tomorrow for further hearing as a special case. Post the matter on 12th December, 2020.

Summary

Issues:
1. Jurisdiction of Single Judge vs. Division Bench
2. SARFAESI Act applicability and auction process
3. VAT Department charge on mortgaged property
4. Interpretation of Security Interest Enforcement Rules, 2002
5. Extension of auction period and State charge enforcement

Jurisdiction of Single Judge vs. Division Bench:
The judgment begins with a reference to an order passed by a Single Judge directing the matter to be placed before an Appropriate Division Bench due to an impending urgency. The subsequent judges express reluctance to reevaluate the jurisdiction issue, emphasizing the urgency of the case and the need to proceed without delay.

SARFAESI Act applicability and auction process:
The petitioner bank, after numerous failed attempts, successfully auctioned a mortgaged property for ?10 Crore. However, the auction purchaser hesitated to pay the balance due to a charge created by the VAT Department over the property. The bank sought relief under Sub-Rules 4 and 5 of Rule 9 of the Security Interest Enforcement Rules, 2002, which govern the payment and forfeiture terms in such cases.

VAT Department charge on mortgaged property:
The auction purchaser refused to pay the balance amount due to the charge created by the VAT Department on the property. This situation posed a challenge for the bank as the purchaser demanded resolution of the charge issue before completing the transaction, leading to a potential forfeiture scenario as per the rules governing such auctions.

Interpretation of Security Interest Enforcement Rules, 2002:
The judges highlighted the provisions of Sub-Rules 4 and 5 of Rule 9 of the Security Interest Enforcement Rules, 2002, which dictate the payment timelines and consequences of default in auction transactions involving immovable properties. The impending expiry of the 90-day period added urgency to the situation, prompting the bank to seek an extension or resolution of the VAT charge issue.

Extension of auction period and State charge enforcement:
Considering the urgency and legal complexities, the court adjourned the matter for further discussion. The judges emphasized the need to prevent loss to both the bank and the State, hinting at a potential extension of the auction period or a stay on the VAT charge to safeguard the interests of all parties involved. The Attorney General was tasked with seeking appropriate instructions to address the situation before the next hearing scheduled as a special case.