2017 (5) TMI 1058 - HC - Companies Law

E-auction - SARFAESI Act - Held that - The petitioner in the present case purchased the property in e-auction under Section 13(9) of the SARFAESI Act being the highest bidder, believing that the property was free from all encumbrances and charges. Thus, there was no obligation on the part of the petitioner to discharge liability of the outstanding dues towards the previous owner.

Summary

Issues:
- Registration of sale deed of property purchased in e-auction under SARFAESI Act.
- Dispute regarding outstanding dues of Excise and Taxation department affecting registration.
- Priority of secured creditor's rights over government dues.
- Interpretation of Section 31B of SARFAESI Act.
- Applicability of legal precedents in determining liability of subsequent purchaser for government dues.

Analysis:

1. The petitioner sought a writ of mandamus to direct respondent No.2 to register the sale deed of a property purchased in an e-auction under the SARFAESI Act. The petitioner participated in the auction, deposited the required amounts, and received assurances from the bank that the property was free from encumbrances. However, later, it was revealed that outstanding dues to the Excise and Taxation department were pending, hindering the registration process.

2. The respondent bank contended that the petitioner was aware, through public notices, that the property was being sold on an "as is where is" basis, and it was the bidder's responsibility to conduct independent inquiries regarding encumbrances. The petitioner certified satisfaction after checking revenue records. Respondent No.3 sought dismissal of the petition based on these grounds.

3. Respondent No.4 highlighted the Central Excise Act's provisions allowing recovery of outstanding dues from the sale proceeds of the property. However, the petitioner argued that as per Section 31B of the SARFAESI Act, secured creditors have priority over government dues, including taxes and cesses.

4. The court analyzed Section 31B, emphasizing that secured creditors' rights take precedence over government dues. Citing legal precedents, the court held that subsequent purchasers cannot be burdened with government dues unless specific provisions claim first charge for the purchaser. The judgment in M/s Rana Girders Limited case was cited to support this interpretation.

5. Considering the facts and legal principles, the court held in favor of the petitioner, stating that there was no obligation for the petitioner to discharge the outstanding dues of the previous owner. The court directed respondent No.2 to register the sale deed in favor of the petitioner, as the property was purchased under the SARFAESI Act, and the petitioner should hold the assets free from any encumbrances.

This comprehensive analysis delves into the legal intricacies surrounding the registration of the sale deed, the priority of secured creditors' rights, and the interpretation of relevant legal provisions and precedents.