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TMI Blog2023 (10) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctity of public auctions and the rights of an auction purchaser which had fructified on issuance of the sale certificate cannot be nullified, defeated, obstructed, frustrated, restricted nor curtailed, whittled down or extinguished in any manner has been approved by the Hon ble Apex Court in the case of K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple Ors [ 2022 (2) TMI 1388 - SUPREME COURT] . The Hon ble Apex Court in Shakena Anr versus Bank of India Ors, [ 2019 (8) TMI 904 - SUPREME COURT ], has been held that after incorporation of amended Section 13(8) of the SARFAESI Act, 2002 w.e.f. 1.9.2016 that the rights of an auction purchaser crystallize on issuance of sale certificate and registration of such certificate is not essential and the borrower can only redeem its mortgaged property before the date of the publication of sale notice by depositing amount and such right was not available thereafter when the rights title and interest of the auction purchaser-subsequent purchaser have matured. Whether the petitioner-auction purchaser of the secured assets-industrial plots under SARFAESI Act could be fastened with the liability of State taxes which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness liability of the original lessee on the petitioner. Moreover, the respondents cannot be permitted to penalize and prejudice the petitioner for inaction of the respondents in not resorting to the remedy available under Section 26B of SARFAESI w.e.f. 24.1.2020 and therefore, the condition so inserted to the disadvantage of petitioner is arbitrary and illegal. Legal position: Section 26-E of SARFAESI Act and section 26 of HP VAT Act - HELD THAT:- Reference to Section 26E of SARFAESI Act and Section 26 of HPVAT Act, reveals that the words priority in Section 26E of the SARFAESI Act and first charge in Section 26 of the VAT Act are of utmost significance. As per the Black s Dictionary, the word priority in Section 26E of SARFAESI Act means precedence or going before meaning thereby, that the word priority would mean right to enforce the claim in preference to others. That being so, the word first charge in Section 26 of the HPVAT Act cannot take precedence over the word priority in Section 26E of SARFAESI Act. Reading these provisions in the context of present case reveals that once the State Authorities have neither created a charge and have not made such char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the date of the issuance of the sale certificate as in the impugned orders, cannot nullify, frustrate or extinguish the rights, title and interest acquired by the auction purchaser except in case of fraud or collusion of an auction purchaser, which are non-existent and not borne out from the facts of the instant case. Accordingly, the impugned order and the adversial condition so imposed against the petitioner-auction purchaser, being illegal and arbitrary is set-aside. Whether adversial condition can be enforced against the petitioner when, Respondents-State Tax Authorities have failed to recover its outstanding encumbrances-tax liability, which was attributable to the business of the Original Lessee or its Directors in-accordance with the Himachal Pradesh Value Added Tax Act, 2005? - HELD THAT:- Notably, once the original lessee, being a Company was the dealer, who carried on its business from these industrial plots then, the original lessee was bound in law to pay the taxes relatable to his business. In case the taxes or outstanding dues of taxes were not forthcoming from original lessee then, the State authorities were under an obligation to recover such taxes from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection in the nature of mandamus or any other appropriate writ, order or direction directing the Respondents to effect transfer of the leasehold rights of Plot Nos. 1 to 7 in Phase-III of Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh (measuring 14,846 square meter) in favour of the petitioner. 2. FACTUAL MATRIX: 2(i). M/s Jaimurthy Minerals Chemicals Pvt Ltd (hereinafter referred to as the Original Lessee), entered into two lease deeds on 17th October, 2003 and 23rd August, 2004, Annexure P-1 and Annexure P-2, with the State Government, through General Manager, District Industries Centre, Nahan, District Sirmaur for leasing out its Industrial Plots No 1 to 7, in Unit-II, measuring 14846 square meters, in Phase-III, Industrial Area, Gondpur, Poanta Sahib, District Sirmaur, Himachal Pradesh. Consequent upon the execution of lease deeds, the Original Lessee decided to raise finances from Bank of Baroda, for which he deposited both these lease deeds and mortgaged these Industrial Plots with the Bank. Thereafter the Bank-secured creditor advanced loan to the borrower-Original Lessee as aforesaid. 2(ii). Due to the default in payment of loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , returning the original lease deeds with the request to issue the No Objection Certificate and to transfer the lease hold rights in favour of the petitioner. In response to Annexure P-6, the Respondent No 1, gave a reply to the petitioner on 7/11.10.2022, Annexure P-7, enclosing a copy of the letter dated 7.10.2022, directing the petitioner to deposit an additional sum amounting to Rs. 46,06,175/-(Fourty Six Lakh Six Thousand One Hundred Seventy Five Only) and GST @ 18% of Rs. 8,29,112/- on account of the unearned premium i.e. the differential amount of Industrial Plot which existed at the time of execution of initial lease deed vis- -vis the market value existing on the date of auction/ sale. Surprisingly, in this letter, a condition No 7 was inserted for the first time whereby, the permission for transfer of Lease Holds Rights of these plots was given in favour of petitioner-auction purchaser without prejudice to the rights of the State Excise and Taxation Department (H.P) to recover its outstanding dues either from the secured creditor or from successful auction purchaser or from original lessee who had mortgaged the lease holds rights in favour of the Bank-secured creditor. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) the claim for the withdrawal or for exemption of condition No 7 was not tenable in view of Clause 2(vi)(a) of the lease deed when, the petitioner having stepped into the shoes of the Original Lessee-M/s Jaimurthy Minerals Chemicals Pvt. Ltd, who had an outstanding tax liability of Rs. 17,19,96,478/- i.e. (Seventeen Crore Nineteen Lakh Ninety Six Thousand and Four Hundred Seventy Eight Only) towards the State Excise and Taxation Department as mentioned in the communication dated 24.05.2019 Annexure R-5 and Annexure R-6 and the petitioner cannot escape the liability; and (v) the writ petition was stated to be not maintainable for non-joinder of necessary parties. In this background, the respondents have prayed for the dismissal of the writ petition. 4. We have heard Ms. Shilpa Sood, learned counsel for the petitioner and Mr. Anup Rattan, learned Advocate General assisted by Mr. I.N. Mehta, learned Senior Additional Advocate General for the respondent- State and have perused the pleadings. 5. The following questions arise for determination in this case:- (i) Whether the petitioner being bonafide auction purchaser of the secured assets {Industrial Plots} under SARFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 9(6) of the Security Interest (Enforcement) Rules, 2002. Notably, once the Bank had specifically represented to the general public that no encumbrances known to the bank existed then, any post-sale confirmation encumbrance, cannot be fastened or enforced against the petitioner. 6(ii). The second objection that petitioner-auction purchaser had been negligent as he had not shown diligence and had not made discreet inquiry from the Government functionaries regarding encumbrances, lien, charge, dues, taxes etc. as per condition No 16 of sale notice dated 10.12.2021, Annexure P-3, is without any substance. In this context, it is pertinent to note that firstly, once the Bank had clearly represented in the sale-notice dated 10.12.2021, Annexure P-3, that there were no encumbrances known to bank as per mandate of Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002 then, the condition No 16 mentioned in sale notice cannot be applied/invoked in such a situation, as in the instant case ; secondly, the condition No 16 could only operate in a situation where the Bank was not aware of the encumbrances i.e. lien, charges dues, taxes etc over the scheduled property ; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order was made known to the original allottee prior to the issuance of the sale certificate; thirdly , in the aforesaid matter(s), auction purchaser had executed agreement that they shall bear the past liability of encumbrances, dues, taxes, etc. which factors are absent in the present writ petition; fourthly , in the aforesaid matters, the State of Maharashtra had also informed the secured creditor-Bank about the creation of charge, passing of attachment orders, outstanding encumbrances and these facts were reflected in the sale notice and in sale certificate whereas all these material aspects are absent in the instant petition; fifthly , the condition No 16 can neither be attracted nor invoked dehors the mandate of Rule 8(7)(a) which came into force w.e.f. 18.10.2018 in the Security Interests (Enforcement) Rules, 2002 ; sixthly , this condition cannot apply or operate to the disadvantage of petitioner ; seventhly , in the aforesaid matter, the provision of Section 26 B (4) of SARFAESI Act which came into force w.e.f. 24.1.2020 was not in issue ; and in view of the above discussion, the plea of the respondents in the reply is not tenable on facts and in law. 6(iv). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere connected with and solely attributable to the business of the original lessee for the period from 2012 to 2015; thirdly, there was no express covenant in original lease deed(s) that the transferee of secured assets-Industrial Plots will bear the liability arising out of or accruing from and connected with and solely attributable to the business of the original lessee ; fourthly, the petitioner-auction purchaser had purchased the immovable property i.e. Industrial plots and not the business concern of the original lessee M/s Jaimurthy Minerals Chemicals Pvt. Ltd. In view of the above discussion, the respondents cannot fasten the business liability of original lease on the petitioner-auction purchaser and the condition No 7 imposing the liability of the original leasee on the petitioner does not conforms to law and is otherwise also unreasonable and arbitrary is set aside qua the petitioner. 6(v). The fifth objection in the reply that the petition is bad for non-joinder of parties is without merit, when the petitioner being the dominus litis has challenged the imposition of condition No. 7 as contained in the letter(s) dated 11.10.2022, Annexure P-7 and dated 13.12.2022, An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers, (2023) 3 SCC 210, that the non-obstante clause in Section 26E of SARFAESI Act shall prevail over the MSMED Act and even in case a non-obstante provision exists in two enactments then also, keeping in view the object of the SARFAESI Act, the non-obstante clause in the subsequent enactment would prevail over the earlier enactments in view of Section 35 of the SARFAESI Act. That being so, the dues of secured creditors shall prevail over the dues, taxes or cesses payable to the Central government or the State Government or local authority. In this background, the Hon ble Apex Court has held as under:- 26. The short question which is posed for the consideration of this Court is whether the MSMED Act would prevail over the SARFAESI Act? The question is whether recovery proceedings / recoveries under the MSMED Act would prevail over the recoveries made / recovery proceedings under provisions of the SARFAESI Act? 27. It is the case on behalf of respondent No. 1 that in view of Section 24 of the MSMED Act which provides that the provisions of Sections 15 to 23 of the MSMED Act would have overriding effect and shall have effect notwithstanding anything inconsistent therewi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor -financial institution. Therefore, in absence of any specific provision for priority of the dues under MSMED Act, if the submission on behalf of respondent No. 1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment/SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No. 1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26 E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. 33. Even otherwise the Naib Tehsildar was not at all justified in not taking possession of the secured assets / properties as per order dated 24.09.2014 passed by the District Magistrate under Section 14 of the SARFAESI Act. The order passed by the Naib Tehsildar refusing to take possession of the secured assets / properties despite the order passed under Section 14 of the SARFAESI Act on the ground that recovery certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gee or pledgee of goods or a Secured Creditor. 47. Further, in Central Bank of India Vs. Siriguppa Sugars Chemicals Ltd. Ors. (2007) 8 SCC 353 , while adjudicating a similar matter, this Court has held as under: 18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant-bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws . It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 54. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q (2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944 . (Underlining Ours) 7( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529 A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the States statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14 A of the Workmen s Compensation Act, 1923, Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue built on a claim of right over properties fails, without any further requirement for expatiation; corollarily, enjoining me to consider if the provisions of the KGST Act/KVAT Act would still grant to the Revenue the First Right to proceed against it for recovery of the tax arrears. 40. It is here that the specific provisions of Section 26E of the SARFAESI Act and Section 31B of the RDB Act become necessary for a detailed evaluation. 41. As has been extracted above, Section 26E of the SARFAESI Act provides that the debts due to any secured creditor shall be paid in priority over all other debts and all revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. Section 31B of the RDB Act takes this one step forward and elevates the right of the secured creditors to realise their debts, by sale of the secured assets, to enjoy priority and then re-affirms that such debts will be paid in priority over the revenue, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. It is thus irrefragable and in fact, expressly conceded to by the learned Additional Advocate General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/ Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory first charge in favour of the Revenue. 26. It is also necessary to take note of one fact that though Section 26E of the SARFAESI Act has come into force from 24.01.2020, yet the same will not have any effect on the issue of the Banks/Financial Institutions having first charge on the property of the dealer, as the provisions of Section 31B of the RDB Act shall override the provisions of Section 26 of the HP VAT Act, 2005, especially in view of the observations contained in the judgment of Hon ble Supreme Court in Central Bank of India s case (supra). 36. Therefore, this Court has no hesitation in holding that the petitioners being Secured Creditors have preference over the respondent- State with regard to the debts due from respondent No. 4. Accordingly, this writ petition is allowed by quashing Annexure P-10, dated 24.06.2017 and by holding that the respondent Department cannot claim first charge over secured assets of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant-bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. 5. Learned Additional Advocate General has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 44-46 xxx xxx 47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944 . 3. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 and the dictum of law laid down by the Hon ble Apex Court, in case of Punjab National Bank and Kotak Mahindra Bank (supra) and the judgment of the Coordinate Bench of this Court in LPA No. 156 of 2021 (supra), and, therefore, 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, referred to above, are illegal and unsustainable. 8. LEGAL POSITION: RIGHTS OF BONAFIDE AUCTION PURCHASER UNDER SARFAESI While dealing with the rights of an auction purchaser in the context of the object and regime of the SARFAESI Act and Rules issued thereunder, the Hon ble Apex Court has held in Authorised Officer, State Bank of India vs. C. Natarajan Anr, Civil Appeal No. 2545 of 2023, decided on 10.04.2023 and Paras 23 and 27 read as under:- 23. That apart, signifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and that a court has no power to ignore that provision to relieve what it considers a distress resulting from its operation. The statute must, of course, be given effect to whether a court likes the result or not. This is the statement of law in the decision of this Court in Martin Burn Ltd vs The Corporation of Calcutta . (Underlining ours) 8(i). The issue of sanctity of public auctions and the rights of an auction purchaser which had fructified on issuance of the sale certificate cannot be nullified, defeated, obstructed, frustrated, restricted nor curtailed, whittled down or extinguished in any manner has been approved by the Hon ble Apex Court in the case of K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple Ors, (2002) 5 SCC 710. The relevant observations are reproduced below: 14. Once the appellant was found to be the highest bidder in a public auction in which 45 persons had participated and thereafter when the sale was confirmed in his favour and even the sale deed was executed, unless and until it was found that there was any material irregularity and/or illegality in holding the public auction and/or auction-sale was vitiated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be frustrated and the rights of a genuine bidder would be adversely affected. (Emphasis supplied) 8(ii). The Hon ble Apex Court in Shakena Anr versus Bank of India Ors, (2019) 11 SCALE 59, has been held that after incorporation of amended Section 13(8) of the SARFAESI Act, 2002 w.e.f. 1.9.2016 that the rights of an auction purchaser crystallize on issuance of sale certificate and registration of such certificate is not essential and the borrower can only redeem its mortgaged property before the date of the publication of sale notice by depositing amount and such right was not available thereafter when the rights title and interest of the auction purchaser-subsequent purchaser have matured. Paras 5, 6, 24 and 29 are reads as under:- 5. The highest bidder (respondent No 3) in the meantime had complied with all the terms and conditions of sale as a result of which the sale was confirmed in his favour. In that, he paid the entire sale consideration of Rs. 42,51,000/ (Rupees Forty Two Lacs Fifty One Thousand Only) by 4th January, 2006. On payment of sale consideration, the respondent bank credited a sum of Rs 12,40,000/ (Rupees Twelve Lacs Forty Thousand Only) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision, stringent condition has been stipulated that the tender of dues to the secured creditor together with all costs, charges and expenses incurred by him shall be at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private deed for transfer by way of lease assessment or sale of the secured assets. That event happened before the institution of the subject writ petitions by the appellants. 8(iii). The deprivation or curtailment of rights and benefits which have accrued to an auction purchaser has been deprecated by the Hon ble Apex Court in Sadashiv Prasad Singh vs. Harender Singh Ors, (2014) 1 SCALE 230, and the relevant paras read as under:- 12. Learned counsel for the auction purchaser Sadashiv Prasad Singh, in the first instance vehemently contended, that in terms of the law declared by this Court, property purchased by a third party auction purchaser, in compliance of a court order, cannot be interfered with on the basis of the success or failure of parties to a proceeding, if auction purchaser had bonafidely purchased the property. In order to substantiate his aforesaid contention, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objection of Harender Singh under Rule 11 of the Second Schedule to the Income Tax Act, 1961. But considering the delay such a remand may cause, we have ourselves examined the objections of Harender Singh and reject the objections for a variety of reasons. Firstly, the contention raised at the hands of the respondents before the High Court, that the facts narrated by Harender Singh (the appellant in Special Leave Petition (C) No. 26550 of 2010) were a total sham, as he was actually the brother of one of the judgment-debtors, namely, Jagmohan Singh. And that Harender Singh had created an unbelievable story with the connivance and help of his brother, so as to save the property in question. The claim of Harender Singh in his objection petition, was based on an unregistered agreement to sell dated 10.1.1991. Not only that such an agreement to sell would not vest any legal right in his favour; it is apparent that it may not have been difficult for him to have had the aforesaid agreement to sell notarized in connivance with his brother, for the purpose sought to be achieved. Secondly, it is apparent from the factual position depicted in the foregoing paragraphs that Harender Singh, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncalled for. For the reasons recorded hereinabove, we are of the view that the impugned order dated 17.5.2010 passed by the High Court allowing Letters Patent Appeal No. 844 of 2010 deserved to be set aside. The same is accordingly set aside. The right of the appellant Sadashiv Prasad Sinha in Plot No. 2722, Exhibition Road, P.S. Gandhi Maidan, patna, measuring 1289 sq.ft. is hereby confirmed. In the above view of the matter, while appeal preferred by Sadashiv Prasad Sinha stands allowed, the one filed by Harender Singh is hereby dismissed. (Underlining ours) 8(iv). LEGAL POSTION: EXTINGUISHING RIGHTS OF AUCTION PURCHASER ONLY IN EVENT OF COLLUSION OR FRAUD While dealing with the rights of an auction Purchaser, who had purchased the assets of company in liquidation, it has been held that after issuance of the letter of confirmation of sale, the rights which accrue in favour of the auction-purchaser cannot be defeated, curtailed or extinguished except in case of fraud or collusion, as held by the Hon ble Apex Court in Valji Khimji Co versus Official Liquidator of Hindustan Nitro Produce (Gujraj) Limited Ors, (2008) 9 SCC 299 and the operative Paras r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, defeated, obstructed, frustrated, restricted, curtailed, tinkered with or extinguished in any manner either by the Bank or State Authorities and the petitioner has every right to get benefit of such property for all intends and purposes, by getting the said immoveable property entered in revenue records as lessee in the instant case {or as an owner in other cases, as the case may be}. Accordingly, the action of Respondents-State Authorities in imposing the condition no 7, in the impugned orders dated 11.10.2022 and 13.12.2022, Annexures P-7 and P-9, which extinguishes or curtails or restricts the accrued and vested rights, interests and benefits acquired by the petitioner auction purchaser amounts to defeating the object and sanctity of auction under the SARFAESI Act and the Rules and therefore, the impugned orders-action, in fastening the business liability of the Original Lessee (or the erstwhile owner as the case may be generally), does not stand the test of judicial scrutiny and these impugned are accordingly set-aside. 10. ANALYSIS OF QUESTION NO 1: 10(i). The first question as to whether the petitioner-auction purchaser of the secured assets-industrial plots und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of Section 2(z)(c), Section 2(z)(f) of SARFAESI Act and Rules 6, 7, 8 and 9 of the Security Interest Enforcement Rules, read as under:- Section 2(z)(c) of the Act: secured asset means the property on which security interest created ; Section 2(z)(c) of the Act: security interest means right, title or interest of any kind, other than those specified in section 31 upon property created in favour of any secured creditor and includes. 6. Sale of movable secured assets: (1) The authorized officer may sell the moveable secured assets taken possession under sub-rule (1) of rule 4 in one or more lots by adopting any of the following methods to secure maximum sale price for the assets, to be so sold : (a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or (b) inviting tenders from the public; or (c) holding public auction including through e-auction mode; or (d) by private treaty. (2) to (4) .xxxx . 8. Sale of immovable secured assets: (1) Where the secured asset is an immovable property, the authorized officer shall take or cause to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property and the authorized officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include ; (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price of the immovable secured assets below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing. 9. Time of sale, Issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules, in first instance shall take place before the expir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchaser in the Form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalization of the sale. (8) On such deposit of money for discharge of the encumbrances, the authorized officer shall issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly. (9) The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no express covenant in the lease deeds that the subsequent purchaser-petitioner will be liable for the outstanding liability of business intangible assets etc which had accrued and were connected with and were solely attributable to the business of original lessee; sixthly, the petitioner had nowhere participated in the E-auction for the sale of moveable assets of Original Lessee and lastly, when, the petitioner had only participated in the E-auction for the sale of scheduled assets-immoveable property as detailed in the sale notice issued by the Bank. Thus, once the petitioner has only purchased the Industrial Plots-Immovable Properties, which had been leased out to the Original Lessee by department of industries and the petitioner has never purchased the past or ongoing business of the original lessee therefore, the petitioner-auction purchaser cannot be fastened with the liability of State taxes, which had accrued and were connected with and were solely attributable to the business of the original lessee only. 10(iv). LEGAL POSITION : WHETHER BUSINESS LIABILITY (PAST OR ONGOING) OF ORIGINAL LESSEE (ERSTWHILE OWNER OF BUSINESS) COULD BE FASTENED ON AN AUCTION PURCHASER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt also did not notice the binding precedent of Dena Bank as also other decisions referred to hereinbefore. 21. A harmonious reading of the judgments in Macson and SICOM would tend us to conclude that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that he would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there is a specific provision in the Statute, claiming first charge for the purchaser . As far as Central Excise Act is concerned, there was no such specific provision as noticed in SICOM as well. Proviso to Section 11 is now added by way of amendment in the Act only w.e.f. 10.9.2004. Therefore, we are eschewing our discussion regarding this proviso as that is not applicable in so far a s present case is concerned. Accordingly, we thus, hold that in so far as legal position is concerned, UPFC being a secured creditor had priority over the excise dues. We further hold that since the appellant had not purchased the entire unit as a business, as per the statutory framework he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be held liable if the ownership of business is transferred to such auction purchaser and not otherwise, in view of the mandate laid down by the Hon ble Apex Court in the case of, State of Karnataka vs. Shreyas Papers (P) Ltd. Ors, (2006) 1 SCC 615 and operative part reads as under:- 15. A careful reading of Section 15(1) of the KST Act shows that the consequences contemplated therein, namely, foisting of the liabilities of the defaulting transferor on to the transferee, would come into effect only if the ownership of the business is transferred. Although, Mr. Hegde strenuously urged that business could not be separated from the assets of the business, we are unable to accept this contention. Business is an activity, directed with a certain purpose, more often towards producing income or profit. Ownership of assets is merely an incident rather than a characteristic of business. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the ownership of the business for ownership of a business is much wider than mere ownership of discrete or individual assets. In fact, ownership of business is wider than the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of security interest over properties created in its favour shall not be entitled to exercise any right of enforcement of securities under this Act. (4) Every authority or officer of the Central Government or any State Government or local authority, entrusted with the function of recovery of tax or other Government dues and for issuing any order for attachment of any property of any person liable to pay the tax or Government dues, shall file with the Central Registry such attachment order with particulars of the assessee and details of tax or other Government dues from such date as may be notified by the Central Government, in such form and manner as may be prescribed. (5) If any person, having any claim against any borrower, obtains orders for attachment of property from any court or other authority empowered to issue attachment order, such person may file particulars of such attachment orders with Central Registry in such form and manner on payment of such fee as may be prescribed. 10(vii). A perusal of Section 26-B (2) provides that from the date of issuance of the notification dated 24.01.2020 the transactions pertaining to the creation, modification and satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e priority over other debts, dues, taxes payable to the government. At the sake of repetition, the provision of Section 26E of the SARFAESI Act 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. In contrast to Section 26E of the SARFAESI Act, the provisions of Section 26 of the H.P. Value Added Tax Act, 2005 read as under: 26. Notwithstanding anything to the contrary contained in any law, any amount of tax and penalty including interest, if any, payable by a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business cannot be fastened on an auction purchaser. Further, once the Bank has not created any charge, right, title or interest on moveable property, including the business of the erstwhile Original Lessee then, his business liability cannot be fastened on an auction purchaser. Moreover, once the Bank has failed to disclose the known encumbrances of state taxes/dues of the original lessee in sale notice, despite knowledge, vide Annexure R-5 and R-6 and the Bank had acted contrary to Rule 8(7)(a) of the Security Interest Enforcement Rules which came into force w.e.f. 18.10.2018 and had also not complied with Rule 8(7)(f) of the Security Interest (Enforcement) Rules then, any such undisclosed liability cannot be fastened on an auction purchaser. Moreover, once the Respondents-State Tax Authorities have neither registered its recoverable claims/dues/taxes of outstanding dues, etc. nor obtained such attachment orders from the Court or other Competent Authority and got it registered with CERSAI against the erstwhile Original Lessee (or erstwhile owner as the case may be) in-accordance with the mandate of Section 26-B (4) of the SARFAESI Act, which came into force w.e.f. 24.01.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-(Seventeen Crore Nineteen Lakh Ninety Six Thousand Four Hundred Seventy Eight Only) but despite the fact that the Bank had the knowledge of these outstanding/recoverable dues, the Bank has failed to disclose these known encumbrances in the sale notice dated 10.12.2021, Annexure P-3, as was mandatory required to be disclosed after the insertion of Rule 8 (7) (a) in the Security Interest (Enforcement) Rules applicable w.e.f. 18.10.2018. The Bank acted contrary to the Rules by remaining silent from date of knowledge of aforesaid liability in May 2019 till the issuance of the sale notice and till the issuance of the sale certificate on 1.1.2022 and therefore, the petitioner cannot be fastened with the liability or outstanding business dues of the original lessee, and any such condition will amount to giving a premium to the bank for its negligence, inaction or non-performance contrary to the Statute/Rules is impermissible. 11(ii). As a sequel to the discussion made while answering the Question no 1 supra, the Question No. 2 is answered, to the effect that once the sale certificate was issued in favour of auction purchaser then, no liability could be fastened on him. In case the Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve discussion, we are of the considered view that any adversial condition, imposed, after the date of the issuance of the sale certificate as in the impugned orders, cannot nullify, frustrate or extinguish the rights, title and interest acquired by the auction purchaser except in case of fraud or collusion of an auction purchaser, which are non-existent and not borne out from the facts of the instant case. Accordingly, the impugned order and the adversial condition so imposed against the petitioner-auction purchaser, being illegal and arbitrary is set-aside. 12. ANALYSIS OF QUESTION No 3: 12(i). In order to appreciate Question No 3, is as to whether adversial condition, as in Question No (ii) supra, could be enforced against the petitioner- auction purchaser, when the Respondent-State tax authorities have a remedy to recovery its outstanding tax liability, which had accrued and was connected with and was attributable solely to the business of the original lease holder in accordance with the provisions of the H.P. Value Added Tax Act, 2005. In this context, a reference to the communications dated 30.05.2019, Annexure R-5 and 24.05.2019, Annexure R-6 gains significance. Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and (f) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service, is for cash, deferred payment or other valuable consideration ; 2(k) goods means every kind of movable property (other than news-papers, actionable claims, stocks and shares and securities) and includes live stock, all materials, commodities and articles and every kind of property (whether as goods or in some other form) involved in the execution of a works contract, and all growing crops, grass, trees or things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; 2(z) tax or value added tax means the tax on the sale or purchase of goods, levied under section 6 or 7; 6. Levy of tax (1) Subject to the provisions of this Act, there shall be levied a tax:- (a) at every point of sale in respect of the goods specified in the second column o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in this Act, every registered dealer, whose turnover in any year does not exceed such amount as may be prescribed, shall, in lieu of the tax payable under this Act, pay presumptive tax on the entire taxable turnover of sales or purchases, as the case may be, at such rates, not exceeding the rates specified in section 6, as the State Government may, by notification, direct, and subject to such conditions and restrictions and in such manner as may be prescribed: Provided that no input tax credit shall be available to such dealer: Provided further that a registered dealer who imports goods for sale shall pay tax on the sale of such goods imported from outside the State on actual basis i.e. as per tax applicable on the sale of such goods within the State. 16. Payment of tax and returns: (1) Tax payable under the Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed. (2) The State Government may, in public interest and subject to such conditions as it may deem fit, accept from any class of dealers in lieu of the amount of tax payable under this Act for any period, by way of composition, a lump sum to be determined and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate as required under sub-section (3), dealer shall be liable to pay, by way of penalty, a sum equal to Rs. 200/-per day till the default counties, but such penalty shall not exceed Rs. 25000/. Provided that where the dealer is filing monthly returns, a sum equal to Rs. 1000/- per day shall be charged as penalty till the default continues, but such penalty shall not exceed Rs. 50,000/-: Provided further that where a dealer has closed down his business or has left the business without getting his Registration Certificate cancelled, the Assessing Authority shall suspend his Registration Certificate immediately, and thereafter no further incremental penalty as applicable shall be imposed. (6-A). If a dealer fails without sufficient cause to furnish annual return by the prescribed date, he shall be liable to pay by way of penalty, a sum of Rs. 5000/-. (7) If a dealer fails without sufficient cause to comply with the requirements of the provisions of sub-section (4), the Commissioner or any person appointed to assist him under subsection (1) of section 3 may, after giving such dealer a reasonable opportunity of being heard, direct him to pay by way of penalty, a sum: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d revenue: The amount of any tax and penalty imposed or interest payable under this Act, which remains unpaid after the due date, shall be recoverable as arrears of land revenue. 27. Special mode of recovery : (1) Notwithstanding anything contained in section 25 or any law or contract to the contrary, Commissioner, or any officer other than an Excise and Taxation Inspector, appointed under section 3 to assist the Commissioner, may, at any time or from time to time, by notice in writing (a copy of which shall be sent to the dealer at his last address known to the officer issuing the notice), require (a) any person from whom any amount is due or may become due to a dealer who has failed to comply with a notice of demand for any amount due under this Act; (b) any person who holds or may subsequently hold any money for or on account of such dealer, to pay into the Government treasury in the manner specified in the notice issued under this sub-section, so much of the money as is sufficient to pay the amount due from the dealer in respect of the arrears of the tax, interest and penalty under this Act. Explanation .-- For the purposes of this sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or under any other provisions of this Act for such contravention or failure, be liable to imposition of a penalty, not exceeding five thousand rupees, and where such contravention or failure is continuing one, to a daily penalty not exceeding two hundred rupees during the period of the continuance of the contravention or failure. (3) xxx xxx xxx 53. Directors of defaulting companies to be liable to pay tax: Notwithstanding anything contained in any other law, where any tax assessed or penalty imposed under this Act on a company cannot be recovered by reason of the company having gone into liquidation or for any other reason, then every person, who was Director of such company at any time during the relevant period for which the tax is due or in respect of which the default for which the penalty is imposed was committed, shall be jointly and severally liable for the payment of such tax and penalty unless he proves that the non-payment or non- recovery cannot be attributed to any neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. 12(ii). In the above background, notably, once the original lessee, being a Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erform its statutory functions in neither taking steps for recovery of outstanding taxes, interest and penalty, {as in Annexure R-5 and Annexure R-6}, and nor in resorting to the criminal action against the Original Leasee-M/s Jaimurthy minerals and Chemicals Pvt Ltd and its Directors, in-accordance with the mandate of HP VAT Act and in these circumstances, the adversial condition no 7, contained in the letters dated 7/11.10.2022, Annexure P-7, and the letter dated 13.12.2022, Annexure P-9, cannot be permitted to operate so as to fasten the business liability of the Original Leasee, as in the instant case (or owner, in general, as the case may be) on the petitioner-auction purchaser, after the issuance of sale certificate in his favour, under the SARFAESI Act. This condition no 7 cannot operate to the prejudice and disadvantage of the petitioner and this condition being arbitrary and illegal, in context of the petitioner is accordingly quashed and set-aside. 12(iii). In view of the above discussion, Question No 3 is answered to the effect that once the State Tax Authorities under the HPVAT Act have neither invoked, nor resorted to statutory remedial action for recovery of taxes, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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