9911796707
TMI Blog2005 (1) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent (A.P. Industrial Infrastructure Corporation Ltd.). As the said M/s. Sree Lekha Industries committed default, the account maintained by them was declared by the respondent-bank as non-performing asset on 22-8-2001. In exercise of powers conferred under section 13(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act"), possession notice was issued by the respondent-bank on 20-7-2002 and physical possession was taken of the mortgaged properties by the first respondent-bank on 9-10-2002. Auction was conducted pursuant to notice dated 14-2-2004 said to have been published in the local newspapers stating that the date of auction would be 20-3-2004. The second petitioner participated in the auction through the first petitioner and rights of the property in question were knocked down in favour of the first petitioner on 20-3-2004 being the highest bidder by bidding an amount of Rs. 24,00,000. The first respondent-bank also communicated on 23-7-2004, to second respondent-Corporation that the leasehold rights of the said property have been knocked down in favour of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve got priority by virtue of section 16C of the APGST Act and that the same prevails over the mortgage of the financial institutions including first respondent-bank. It is further stated in the counter-affidavit of the fourth respondent that second respondent-Corporation was informed not to transfer the property in question unless a tax clearance certificate is received from the third respondent. However, the second respondent-Corporation informed that the property had already been sold by the first respondent-bank in auction to the petitioners, and advised the sales tax department to approach the bank which is holding the sale proceeds of the property relating to the said dealer M/s. Sree Lekha Industries. On this aspect, the case of the respondent-tax authorities is that by virtue of section 18 of the APGST Act, the petitioner are obliged to pay the entire arrears of sales tax due by the aforesaid M/s. Sree Lekha Industries. 5. The petitioners case is that they are bona fide purchasers for value, at a public auction and have no notice of the aforesaid tax dues and, therefore, they have no liability to pay any tax dues of the aforesaid defaulter M/s. Sree Lekha Industries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it may be stated that the petitioners are not the transferees in respect of the business of the dealer. The ownership of the business has not been transferred to the petitioners. They are purchasers of the property at a public auction conducted by the respondent-bank under the provisions of the SARFAESI Act. Therefore, section 18 of the APGST Act which deals with the recoveryof tax where a business of a dealer is transferred would have no application. 10. Mr. Deepak Bhattacharjee, learned counsel for the respondent-Bank, relying upon section 35 of the SARFAESI Act, contended that by virtue of section 35, the provisions of that Act have been given overriding effect over the other laws notwithstanding anything inconsistent therewith contained in any other law. Reliance was placed by Mr. Deepak Bhattacharejee upon section 13 of the SARFAESI Act and more particularly to sub-section (7) thereof. It lays down the procedure with regard to the application of the moneys realised by the secured creditors (bank). It would be appropriate to extract sub-section (7) of section 13 of the SARFAESI Act, which reads as under : "Where any action has been taken against a borrower underthe prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax Act, 1954, was construed by the Supreme Court in State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation [1995] 82 Comp. Cas. 551, [1995] 96 STC 612, 616, as creating a first charge by operation of law and that charge, it was held, will have precedence over an existing mortgage. It would be appropriate to extract the relevant conclusions of the Supreme Court in that case, which are as under : "In the present case, the section creates a first charge on the property, thus clearly giving priority to the statutory charge over all other charges on the property including a mortgage. The submission, therefore, that the statutory first charge created by section 11AAAA of the Rajasthan Sales Tax Act can operate only over the equity of redemption, cannot be accepted. The charge operates on the entire property of the dealer including the interest of the mortgagee therein. Looked at a little differently, the statute has created a first charge on the property of the dealer. What is meant by a first charge ? Does it have precedence over an earlier mortgage ? Now, as set out in Dattatreya Shankar Mote v. Anand Chintaman Datar [1974] 2 SCC 799, a charge is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent-tax authorities are aware of the auction as can be seen from the averments in their counter-affidavit, referred to earlier. The only step for recovery of tax dues taken by the respondents, was by attachment of the property much after its sale. Section 16C of the APGST Act, though creates a charge on the property and person of the dealers in default, does not, in terms, state that the charge can be enforced against any property in the hands of a transferee for consideration without notice of the charge. There is nothing brought on record by the respondent-sales tax authorities to show that the transferees (petitioners) can be imputed with the knowledge of the aforesaid charge. The petitioners are the purchasers for value in a public auction conducted in exercise of the powers under section 13 of the SARFAESI Act and, thus, they are transferees for consideration, and as already seen, without notice of the charge. The petitioners are thus protected by the general prohibition contained in latter part of section 100 of the Transfer of Property Act, which lays down that no charge shall be enforced against any property in the hands of a transferee for consider- ation without noti ..... 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