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TMI Blog2021 (2) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This Section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. The SARFAESI Act, is obviously a Central Statute, and therefore any priority of claim for debts due to a secured creditor, which is created by any provision, as contained therein (Section 26-E in this case), will prevail over any First Charge, which may have been created by Section 37 (1) of the MVAT Act, 2002, in view of the language used in Section 26-E of the SARFAESI Act which states that such a claim by a secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses, and other rates payable to the Central Government or State Government or local authority . The priority created by virtue of Section 26-E of the SARFAESI Act, also takes precedence over any crown debt, which is due or payable to the Central Government, State Government or local authority. Thus, creation of any priority for any debts due, to the secured creditor, under Section 26-E of SARFAESI Act would prevail ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, in order to obtain a clear and marketable title to the property, having purchased the same on 'As is where is and whatever there is basis'. In case the petitioner discharges the aforesaid dues of the respondent no.2, it would then be entitled to a no dues certificate from the respondent no.2 - the petitioner is not entitled to the reliefs as claimed in the petition. Petition dismissed. - SUNIL B. SHUKRE AND AVINASH G. GHAROTE, JJ. Mr. Ritesh R. Dawda, Advocate for petitioner Ms. N.P. Mehta, AGP for respondent nos.1 and 2 Mr. M.Y. Wadodkar, Advocate for respondent no.3 JUDGMENT (PER : AVINASH G. GHAROTE, J.) 1. Heard. Rule. Rule made returnable forthwith. 2. The present petition raises a challenge to the action on the part of respondent no.1/ District Industries Centre in refusing to transfer the property in its record, in favour of the petitioner, unless the liability of the respondent no.2/Sales Tax Department, claiming earlier dues against M/s. Wood Stock Holdings, a Company which was owning the immovable property, attached and auctioned by the respondent no.3/Bank, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the property stood transferred to the petitioner free from encumbrances and any charge which may be claimed by the respondent no.2 on account of arrears of sales tax under Section 37 of the Maharashtra Value Added Tax Act, 2002 (for short, MVAT Act, 2002 hereinafter), would be subservient to the provisions of Section 26-E of the SARFAESI Act, due to which the action on part of the respondent nos.1 and 2 of not issuing the NOC for transfer of the land in favour of the petitioner, on account of the so called dues claimed by the respondent no.2, was clearly not in consonance with law and therefore illegal. (H) It is further contended that no notice whatsoever of any charge was given to the petitioner by the respondent nos.2 and 3 and therefore, the petitioner in absence thereof was not liable for payment of any dues of the respondent no.2 as the charge was not enforceable against the petitioner, who was an auction purchaser, without any notice of the charge. (I) The provisions of the SARFAESI Act and the Rules made thereunder, make it obligatory upon the respondent no.3/Bank to have found out the encumbrances upon the said property, and made them known to the petitioner, so that a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reflected from the sale certificate issued in favour of the petitioner, in view of which the petition was liable to be dismissed. 6. The respondent no.3/Bank has contended that it was not aware about any claim by the Sales Tax Department and therefore non-disclosure of something of which the Bank itself was unaware of, could not be laid at the doorstep of the Bank. Reliance was further placed on Section 26-E of the SARFAESI Act to oppose the claim by the respondent no.2. Reliance is placed on Mahendra Mahato and another Vs. The Central Bank of India, W.P. No.38111(W) of 2013, decided on 29/8/2014 by a learned Single Judge of the Calcutta High Court. 7. We have heard the learned Counsels for the parties at length. In our considered opinion, the issue about priority of dues, inter se between the respondent nos.2 and 3, is no longer res integra but is covered by the judgment of the Full bench of the Madras High Court in The Assistant Commissioner (CT) Vs. The Indian Overseas Bank and another, in W.P. No.2675/2011 and connected matters decided on 10/11/2016, where the question framed about priority of charge as follows :- a) As to whether the Financial Institution, which is a Secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amended by a Central Legislation vide Act No. 44 of 2016. Section 26E was inserted in the statute book. It reads as under:- 26E. Priority to secured creditors. - Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority Explanation . - For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 2. The Maharashtra Value Added Tax Act, 2002 which came into force on 1st April, 2005. Vide Section 37 it was stipulated as under:- 37. Liability under this Act to be the first charge- Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act to be the first charge. (1) Notwithstanding anything contained in any contract to the contrary , but subject to any provision regarding creation of first charge in any Central Act for the time being in force , any amount of tax, penalty, interest, sum forfeited, fine or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person . (2) The first charge as mentioned in sub-section (1) shall be deemed to have been created on the expiry of the period specified in subsection (4) of section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount. Section 26-E. Priority to secured creditors. - Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority . Explanation . - For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n them. The purpose and effect of a non-obstante clause is to override the effects of any other legal provisions contrary to the one, in relation to which it is used. A non-obstante clause, when it is used, not in relation to or in context of any law, but in relation to or in context of any contract, will obviously not have the effect of overriding any law contained in any other Statute. In Union of India and another Vs. G.M. Gokil and others, 1984 (Supp) SCC 196 , in respect of a non-obstante clause it has been held as under :- It is well-known that a non obstante clause is a legislative device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions . 12. As against this, the language of Section 26-E of the SARFAESI Act is clear and speaks of notwithstanding anything contained in any other law for the time being in force . Thus, as against the non-obstante clause in Section 37 (1) of MVAT Act 2002, which gives an overriding effect to the liability to pay any amount of tax, penalty, inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditor, under Section 26-E of SARFAESI Act would prevail over any charge created for payment of a liability, on account of tax etc., which is due or payable to the State Government under the provisions of the MVAT Act, 2002. 15. Though it is contended that Section 26-E of the SARFAESI Act, has been brought into force w.e.f. 1/9/2016, however, the language of Section 37 (1) of the MVAT Act, 2002, to the effect, but subject to any provision regarding creation of first charge in any Central Act for the time being in force would thus make it clear that the charge for any dues under the MVAT Act, 2002, has to give way to the claim for dues/debts by a secured creditor under the SARFAEST Act and the dictum in The Indian Overseas Bank (supra) that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending, would also govern the field. 16. Even if it is contended that the provisions as contained in Section 26-E of the SARFAESI Act, is inconsistent with that of Section 37 of the MVAT Act 2002, and both of them contain a non-obstante clause, even then the later law, which in this case is Section 26-E of the SARFAESI Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all property of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial acts containing non obstante clauses, the later law shall typically prevail. In the present case, as we have seen, the Senior Citizen's Act 2007 contains a non obstante clause. However, in the event of a conflict between special acts, the dominant purpose of both statutes would have to be analyzed to ascertain which one should prevail over the other. The primary effort of the interpreter must be to harmonize, not excise. (emphasis supplied) 18. In the instant case, the provisions of Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 (for short, the RDB Act, 1993 hereinafter) and those of Section 26-E of the SARFAESI Act, both give priority to the rights of the secured creditor, to realise secured debts, due and payable to them by sale of assets in which security interest is created, over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local bodies, which position, in fact also stands recognised and accepted under the MVAT Act 2002, by user of the expression but subject to any provision regarding creation of first charge in any Central Act for the time being in force , as used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral law is defined in Section 100 of the Transfer of Property Act, 1882 (T.P. Act hereinafter for short) as under :- Section 100. Charges.- Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained [which apply to a simple mortgage shall, so far as may be, apply to such charge]. Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, [and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge (emphasis supplied) 23. The expression charge came up for consideration before the Hon'ble Apex Court in Shreyas Papers (supra), where dilating upon the subject, in view of the provisions of Section 100 of the T.P. Act, vis-a-vis the charge created under the Karnataka Sales Tax Act, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)] 22. In the present case, firstly, no provision of law has been cited before us that exempts the requirement of notice of the charge for its enforcement against a transferee who had no notice of the same. It remains to be seen, therefore, if in the facts of the present case, the first respondent had notice - actual or constructive - of the charge. . Thus for a 'Charge' as defined is Section 100 of the T.P. Act, to become effective, it is necessary that the transferee, ought to have had prior notice of such '' harge , be it either express, implied or constructive or the prior existence of such harge , is shown to have been within the knowledge of the transferee. 24. Section 55 of the Transfer of Property Act which spells out the rights and liabilities of buyer and seller, in respect of the liability of the seller, states as under :- 55. Rights and liabilities of buyer and seller.- In the absence of a contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, as assignee for value of a reversionary interest, against a person coming in under a subsequent title . In Supreme Court on Words and Phrases it is stated that the word encumbrance means a burden or charge upon property or a claim or lien upon an estate or on the land . In Advanced Law Lexicon, encumbrance is defined as: An infringement of another's right or intrusion on another's property. In Black's Law Dictionary encumbrance is defined as: Any right to, or interest in, land which may subsist in another to diminution of its value, but consistent with the passing of the fee . Encumbrance, therefore, must be capable of being found out either on inspection of the land or the office of the Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance, thus, must be a charge on the property. It must run with the property. If by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance. 14. If the property tax was merely a statutory dues with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such charge or attachment, in view of the language of Section 100 of the T. P. Act, and the charge would thus be unenforceable as against the petitioner, on this count. 27. The above would be a correct position, if we were faced with a situation where a charge was created by virtue of Section 100 of the T.P. Act; by a written document between parties inter se or by a statutory provision contained in any Central/State/Local law, in terms of which the charge was not on the property. There is always a difference between a charge created by contract and a statutory charge created by the provisions of a statute on the property, be it a Central/State/local law. A statutory debt/charge is also different from a Crown debt, and prevails upon a Crown debt, as has been held in Union of India and others Vs. SICOM Limited and another, (2009) 2 SCC 121, in the following words :- 9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors . [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.), p. 114 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys presumed in law, to one and all and none can claim ignorance of the same. In AI Champandy Industries Limited (supra) itself the Hon'ble Apex Court has made a distinction between an encumbrance as it is understood in the general parlance and an encumbrance which is a charge on the property and runs with the property and has held that if by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance. 30. As Section 37(1) of the MVAT Act, 2002, creates a charge on the property, a successful auction purchaser, thus would hold the property, upon which a statutory charge has been created, subject to such charge and the property would thus continue to be liable for any statutory charges created upon it, even in the hands of such auction purchaser, though for non disclosure of such charge by the secured creditor, the auction purchaser may sue the secured creditor and have such redress, as may be permissible in law. This is moreso for the reason that the priority given in Section 26-E of the SARFAESI Act, to the Banks, which is a secured creditor, would only mean that it is first in que for recovery of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor and transferring the property free from any encumbrances and held that on account of such non-disclosure of pre-sale property tax dues which was a charge on the land and building on the secured asset, it had failed to discharge its statutory obligation and after completion of sale and delivery of possession the auction purchaser could not be fastened with the liability to discharge such encumbrances. 33. In Punjab Urban Planning and Development Authority (supra) relied upon by Mr. Dawda, learned Counsel for the petitioner, the issue was regarding allotment of commercial plots by auction on as is where is basis, where the allegation was that the Punjab Urban Planning and Development Authority (PUDA), could not claim interest, penal interest, as well as penalty on account of the delayed payment of installments, for the reason that there was delay on its part in providing the basic amenities like parking, lights, roads, water, sewerage etc. in time. Refuting the above contention, it was held that since the commercial plots were allotted on as is where is , basis, the allottees would have ascertained the facilities available at the time of auction and having accepted the commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced about any such liability/imposition. In case the auction purchaser, did not want to have the property, with its liabilities, he ought to have insisted on having the same free of all encumbrances, altogether, before bidding for the same. That apart, it is equally a duty of the auction purchaser, before bidding for the same, to make inquiries about the impositions upon the property, so that he can have it free of any encumbrances. After acquiring title to the property, the auction purchaser cannot be heard to say that he will have the rights associated with the property and not the liabilities. He takes it lock, stock and barrel, with everything. 37. Section 13 (6) of the SARFAESI Act reads as under :- Section 13. Enforcement of security interest. - (1) (2) (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. Rules 8 (7) (a) and (f), Rule 9 (7) (9) and (10) of the Security Interest ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secured asset after taking possession thereof, either physical or symbolic, by the secured creditor, vests in the transferee with all rights in the property transferred, as if the transfer had been made by the owner. The issue regarding the knowledge of the encumbrances known to the secured creditor, thus assumes significance. In so far as encumbrances on account of statutory/ Government / Municipal / Revenue dues are concerned, the responsibility of obtaining the details thereof is of the secured creditor. The knowledge of these encumbrances can easily be solicited, obtained from the authorities by the secured creditor. Thus, the secured creditor is clearly possessed of the wherewithal, to obtain the information about encumbrances of the above nature. This is necessary for the secured creditor, for the reason that these encumbrances, have to be mentioned in the notice of sale under Rule 8 (7) (a) of the Security Interest (Enforcement) Rules, 2002 [for short, SI (E), Rules, 2002 hereinafter]. So also, Rule 8 (7) (f) of the SI (E), Rules, 2002 requires the sale notice to contain all the other terms and conditions which the authorised officer considers it necessary for a bidder/p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper enquiries about other dues/encumbrances upon the property, to obtain information about which, the secured creditor has the means and wherewithal and to disclose in the auction notice about such dues and also the situation about the possession of the property, so that the bidder is consciously made aware of all the pros and cons about the property, including the encumbrances/dues/possessory status and thereafter cannot be heard to raise a plea of not having been informed, afterwards. After all the money in the coffers of the Bank as a secured creditor is public money, as is the money, due and payable under the Central/State/Local statutes to the authorities. There is no reason why, the secured creditor and other statutory authorities, who have a charge upon the property for recovery of their dues, cannot act in tandem, so that the interest of one and all, and dues receivable by each one of them are realised. This is imminently possible in this digital world, where information is readily available. Though information about statutory dues, may not be, at times, easily available to a bidder, however the same is easily accessible to a secured creditor. It needs to be kept in mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate is found to be false, should be a must, which certificate should also contain a statement that the lawyer has also verified the suits filing register of the Court, within whose jurisdiction, the property is situated to ascertain, whether the same is the subject matter of any litigation and an affidavit from the borrowers that it is not so; (c) in all such cases, a valuation certificate, by a government approved, at the penalty of cancellation of his licence, in case such certificate is found to be false, should be a must; (d) immediately upon creation of security interest in its favour for payment of its dues, the bank must inform all the Central/State/Local Authorities regarding creation of such security interest, including the Sub-Registrar of documents and City Survey office concerned; (e) the bank/secured creditor, should before any property is attached and auctioned : (i) enquire with the Central/State/Local authorities regarding any dues on the property sought to be auctioned and in case such dues are found, to mention the same in the public notice to be published inviting bids, so that the bidder, is made aware of the liability and encumbrance, which the property car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay the dues of the respondent no.2, from and out of the sale proceeds, of the auction. The contention is misconceived, for the reason that in Babulal Lade (supra) the direction for the Bank to pay the employees dues, as per the recovery certificate issued by the Industrial Court, out of the sale proceeds from the auctioned property, was due to the stipulation as contained in the letter dated 8/3/2010, under which the Bank had undertaken the responsibility for employees dues and not otherwise. There is no such undertaking by the respondent no.3, in the present matter. 44. Thus even in the present case, the dues as claimed by the respondent no.2, being a charge on the property, under Section 37(1) of MVAT Act, 2002, and the property having stood attached by the respondent no.2, before the auction, the petitioner, would be liable to pay the same to the respondent no.2, in order to obtain a clear and marketable title to the property, having purchased the same on 'As is where is and whatever there is basis'. In case the petitioner discharges the aforesaid dues of the respondent no.2, it would then be entitled to a no dues certificate from the respondent no.2. 45. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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