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TMI Blog2016 (11) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and direct Respondent Nos.3 and 4 to issue a "no claim certificate" and or "discharge certificate" to the Petitioners. The Petitioners have also sought a mandamus directing Respondent Nos.3 and 4 to forbear and refrain from, in any manner, asserting any charge on the property more particularly described in Exh "B" to the Petition and/or from taking any coercive steps in respect of said property for recovery of any Sales Tax dues of one M/s Weiler International Electronics Pvt. Ltd. (for short "the Defaulter Company"). At the very outset, we must mention that though these directions have been sought in the Petition, Mr Dada, learned Sr. Counsel appearing on behalf of the Petitioners, pressed only prayer clause (b) of the Petition, namely, that Respondent Nos.3 and 4 be directed to refrain from asserting any charge on the property more particularly described in Exh "B" to the Petition and from taking any coercive steps against the said property for the recovery of any alleged Sales Tax dues. 3. The aforesaid directions are sought by the Petitioners, in view of the fact that the Petitioners have purchased the said property pursuant to a sale conducted by Respondent Nos.1 and 2 (Nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No.2) issued a Public Notice dated 14 December, 2009 declaring that Respondent Nos.1 and 2 had taken physical possession of the said property, belonging to the Defaulter Company, in exercise of powers under Section 13(4) of the SARFAESI Act. Thereafter, Respondent No.1 issued a Public Auction Notice dated 31 December, 2009 inviting offers for sale of the said property on "as is where is basis". The reserve price fixed for sale of the said property was at Rs. 12 Crores and the Earnest Money Deposit was fixed at Rs. 1.02 Crores. As no bids were received pursuant to the aforesaid notice, another Public Notice dated 20 February, 2010 was issued for sale of the said property. However, now the reserve price was fixed at Rs. 11 Crores. No bids were received even with reference to this Public Notice. (c) It is thereafter averred in the Petition that in the third week of August 2010, the Petitioners learnt that the said property of the Defaulter Company was in the process of being sold by Respondent Nos.1 and 2 under the provisions of SARFAESI Act. Accordingly, on or about 26 August, 2010, the representatives of the Petitioners met with the Authorized Officer of Respondent No.1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the form prescribed by the SARFAESI Act would be issued by Respondent No.1 in favour of the Petitioners. In compliance with the requisitions contained in this letter, the Petitioners, on 22 September, 2010, made the balance payment of the purchase price. On receiving the the full consideration, Respondent No.1 (on behalf of itself and Respondent No.2) also executed a Sale Certificate on "as is where is basis" and "what is where is basis" in favour of the Petitioners. (g) The Petitioners thereafter requested Respondent Nos.1 and 2 to execute the conveyance in their favour. The draft conveyance was deliberated upon and finally the conveyance was duly executed and registered in the office of the Sub-Registrar, Khandala on 10th March, 2011. It is, at the time of this registration, that the Petitioners for the very first time perused the 7/12 extract of the said property and learnt that there was an encumbrance of the Sales Tax to the extent of Rs. 18,38,709/-. Though this encumbrance was not disclosed to the Petitioners and they contemplated taking legal steps against Respondent Nos.1 and 2, the Petitioners finally decided that keeping in mind the magnitude of the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d try and sort out the issue with Respondent Nos.1 and 2. However, without attempting to set right the wrong, Respondent Nos.1 & 2 purported to foist the responsibility of paying the sales tax upon the Petitioners. To make the matters worse, Respondent No.4 purported to issue another notice to the Defaulter Company dated 7 December, 2013 inter alia informing that a further amount of Rs. 6.65 Crores was due as an arrears of sales tax and payable by the Defaulter Company. The notice inter alia stated that in the event of non-payment, appropriate steps under the Maharashtra Land Revenue Code, 1966 would be initiated against the Defaulter Company. 5. In this factual background, Mr Dada, learned Sr. Counsel appearing on behalf of the Petitioners submitted that the chronology of the aforesaid facts clearly disclose that the Petitioners had no notice or knowledge of the alleged sales tax dues to the extent of Rs. 28 Crores. He submitted that the alleged dues of the sales tax were never disclosed to the Petitioners either by Respondent No.1 and or Respondent No.2. Mr Dada submitted that these encumbrances would have a vital bearing on the market value of the property. He submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the BST Act. Relying upon the aforesaid provisions, Mr Kotangle submitted that once the sales tax dues were in arrears and they were always payable, then it is a charge on the properties of the dealer or any other person within the meaning of Section 38C of BST Act. This would enable the Sales Tax Department to go after the properties of the Defaulter Company and recover the sales tax dues. 8. In addition to the aforesaid argument, Mr Kotangle submitted that the dues of the sales tax were brought to the notice of the 1st Respondent bank on 11 August, 2010. This was before the sale of the said property was conducted by it and therefore, the Sales Tax Authorities had acted with due diligence and cannot be faulted for not bringing to the notice of the concerned persons that huge amounts of Sales Tax dues were outstanding by the Defaulter Company. In support of his submissions, Mr Kotangle relied upon a decision of the Supreme Court in the case of Central Bank of India Vs. State of Kerala and Ors. (2009) 21 VST 505 (SC) 9. Mr Shroff, learned Counsel appearing on behalf of Respondent Nos.1 and 2 (the Nationalized Banks) submitted that the banks have sold the said property to the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt and subject to other stipulations set out in the SARFAESI Act. It is on the basis of exercising powers under the provisions of the SARFAESI Act that Respondent No.1 (as leader of the consortium with Respondent No.2) issued a possession notice as well as a sale notice in respect of the said property. It is pursuant to this sale notice that the Petitioners have purchased the said property from Respondent Nos.1 and 2. 11. What is important to note is that this entire purchase was done by the Petitioners before the alleged dues of the Sales Tax Authorities was brought to their notice. The chronology of events set out above clearly indicates that the Petitioners placed their bid for purchasing the said property on 1 September, 2010 along with their earnest money deposit. Thereafter, the sale was confirmed in favour of the Petitioners on 15 September, 2010, once the sale was confirmed the Petitioners on 22 September, 2010 paid the balance purchase price and thereafter a Sale Certificate was also issued in favour of the Petitioners on 23 September, 2010. Thereafter, a Deed of Conveyance was executed by Respondent No.1 in favour of the Petitioners in respect of the suit property and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the SARFAESI Act, sought to enforce their security interest and sell the secured asset (the said property) to the Petitioners. It is in these circumstances that the Petitioners have purchased the said property. They can by no stretch of the imagination be termed as a successor of the business of the Defaulter Company to enable the Sales Tax Authorities to recover their dues from the Petitioners by enforcing their alleged charge against the said property purchased by the Petitioners under the provisions of the SARFAESI Act. 13. In the view that we have taken, we are supported by a decision of the Supreme Court in the case of State of Karnataka & Anr Vs. Shreyas Papers Pvt. Ltd. 2006 (1) SCC 615 : AIR 2006 SC 865 On the issue of enforcement of charge, the Supreme Court at paragraphs 18 to 21 thereof (of the SCC report) opined thus: "18. The next limb of Mr Hegde's arguments was that since Section 13(2)(i) of the KST Act creates a charge on the property of the defaulting company, the charge would continue on the properties, even if it changes hands by transfer. 19. While the expression "charge" is not defined by the KST Act, this concept is well known in property l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was that where the local law provided for the creation of a charge against a property for which municipal taxes were due, transferees of such properties were imputed with constructive knowledge of any charge created against the properties that they had purchased. This argument was, however, rejected. This Court held that while constructive notice was sufficient to satisfy the requirement of notice in the proviso to Section 100 of the TP Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. [Ibid., at SCC pp. 765-66 (para 12) : AIR pp. 1207-08(para 8)] In other words, this Court held that there could be no fixed presumption as to the transferee having constructive notice of the charge against the property. In fact, the principle laid down in Ahmedabad Municipal Corpn. [(1971) 1 SCC 757, 759-61 (paras 3 & 4) : AIR 1971 SC 1201, 1202-04(para 3)] has been correctly applied in a sales tax case similar to the present case. [CTO v. R.K. Steels, (1998) 108 STC 161 (Mad)] (emphasis supplied) 14. In the facts of the present case and considering this authoritative pronouncement of the Supreme Court, we have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court in the case of Sherwood Resorts Pvt. Ltd. & Anr. Vs The State of Maharashtra. Writ Petition No.2086 of 2015 decided on 16 October, 2015. to which both of us were parties. Over there also, exactly the same argument was canvassed on behalf of the Sales Tax Authorities and was repelled by this Court in paragraph 30 of the aforesaid decision. We, therefore, have no hesitation in holding that the Sales Tax Authorities (Respondent No.4) cannot recover the Sales Tax dues (except to the extent of Rs. 18,38,709/-) from the Petitioners by enforcing their charge on the said property. 17. Having held so, we shall now deal with the judgment relied upon by Mr Kontangale in the case of Central Bank of India Vs. State of Kerala and Ors.(2009) 21 VST 505 (SC) On a careful perusal of this decision, we fail to see how the aforesaid decision supports the case of the Sales Tax Department. The issue that was being decided by the Supreme Court in the aforesaid decision was whether Section 38C of the BST Act, Section 26B of the Kerala General Sales Tax Act, 1963 and similar provisions contained in other State Legislations, by which a charge was created on the property of the dealer who was liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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