2023 (8) TMI 1364 - HC - VAT and Sales Tax

Disallowing registration of Sale Certificate and the consequential mutation - Attachment of mortgaged properties - priority, preferential right and first charge/lien for realization bank dues from sale of immoveable property of the borrower which stood mortgaged with Bank over and above the crown debt - HELD THAT - While dealing with the scope of MSMED Act, 2006 vis- -vis SARFAESI Act, 2002 and the validity of the order of attaching of mortgaged secured assets, in view of recoverable dues, the Hon ble Apex Court has categorically in Kotak Mahindra Bank Ltd. vs. Girnar Corrugators Private Limited and Others, 2023 (1) TMI 244 - SUPREME COURT held that non-obstante clause in Section 26E of SARFAESI Act shall prevail over the MSMED Act, in absence of any specific express provision giving priority for payment under the MSMED Act over the dues of the secured creditors or over any taxes or cesses payable to central/state government or local authority. It is worth mentioning that respondent No.2, Excise Taxation Department cannot raise a priority claim over and above the Petitioner-Bank, when, as per Section 26E of SARFASEI Act introduced by amendment carried in 2016, the Petitioner-Bank has first charge over the properties being secured creditor in priority over all Other Debts, Revenues, Taxes, Cesses and Other Rates payable to the Central or State Government or Legal Authority and that too when, there is nothing on record to show (even by way of reply or by instructions) that the Respondent No.2 i.e. H.P. Excise and Taxation Department has resorted to assessment of liability; determination of liability and has issued notice of such determination/liability under the statute (i.e. under H.P. Vat Act or other corresponding statutes, if any). In absence of any assessment and the resultant determination of liability, the action of the Respondents in inserting red entry marks in Annexure P-4 and Annexure P-5, in revenue records and the resultant action of Respondent No.3, in refusing to register the Sale Certificate dated 15.01.2021, Annexure P-3, and to carry out the Mutation thereof, in favour of Respondent No. 6-Auction Purchaser, amounts to not only frustrating the statutory provisions of Section 26E of SARFAESI Act, enacted in the year 2016 but also amounts to curtailing or defeating the rights accruing to the Auction Purchaser- Respondent No.6 herein, under the SARFASEI Act. 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 are illegal and unsustainable - Petition allowed.

Summary

Issues Involved:
1. Priority of bank dues over crown debt.
2. Registration of Sale Certificate.
3. Quashing of impugned actions and revenue entries.

Summary:

Issue 1: Priority of Bank Dues Over Crown Debt
The petitioner, a Nationalized Bank, sought a declaration that it has priority, preferential right, and first charge/lien for realizing bank dues from the sale of a mortgaged property over the crown debt in the form of outstanding tax liability claimed by the HP Excise and Taxation Department. The Court referred to Section 26E and Section 35 of the SARFAESI Act, which give priority to secured creditors over all other debts, including taxes payable to the government. The Court cited the Supreme Court's judgment in Punjab National Bank vs. Union of India & Ors (2022) and other relevant cases, affirming that the rights of secured creditors prevail over unsecured crown debts.

Issue 2: Registration of Sale Certificate
The petitioner also sought an order directing the respondents to register the Sale Certificate dated 15.01.2021 for the auctioned property. The Sub-Registrar (Rural) Shimla had refused registration, citing an attachment in favor of the HP State Excise and Taxation Department. The Court held that the refusal was unjustified, as the secured creditor (the bank) has first charge over the property, and the attachment by the Excise and Taxation Department was not supported by any assessment or determination of liability. The Court emphasized that the SARFAESI Act's provisions override other laws, including tax liabilities.

Issue 3: Quashing of Impugned Actions and Revenue Entries
The petitioner sought to quash the impugned actions and revenue entries that obstructed the registration of the Sale Certificate. The Court quashed the order-report dated 2.11.2020 and the corresponding revenue entry in the Jamabandi, which denied the registration of the Sale Certificate. The Court directed the respondents to register the Sale Certificate in favor of the auction purchaser and extend all benefits accruing therefrom, including mutation, within six weeks.

Conclusion and Directions:
The Court allowed the writ petition, quashing the impugned actions and revenue entries, and directed the respondents to register the Sale Certificate and complete the mutation process within six weeks. The petition was allowed with no order as to costs. Pending applications, if any, were also disposed of.