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TMI Blog2021 (4) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... fers are to be construed as fraudulent transfers or mortgage and therefore, the mortgage in favour of the petitioner-Bank cannot be held as valid in the eye of law and since it is held as invalid, the question of invoking Section 26E of the SARFAESI Act would not arise at all. In view of the facts and circumstances that the earliest demand notice at the first instance issued by the Income tax Department on 31.03.2015 is not disputed, it is to be construed that the proceedings under the IT Act for recovery of tax dues were pending on the date, i.e., 31.03.2015 and therefore, any transfer made thereafter is hit by the provision of Section 281 of the IT Act and all such transfers are void and therefore, the subsequent mortgage became consequently invalid in the eye of law and therefore, the application of SARFAESI Act would not arise at all. Further, the scope of Section 26E of the SARFAESI Act is relatabe to the priority and the priority would arise only if more than one person could able to establish the right over the property and in the present case, when there is no right to mortgage was vested with the assessees, the question of priority would not arise at all. When the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the said attachment, the petitioner-Bank is unable to deal with the said properties with reference to the terms and conditions stipulated in the Deed of Mortgage. Thus, they are constrained to move the present writ petition. 3. The facts regarding the mortgage of the properties in favour of the Bank and their capacity as a secured creditor are not disputed by the first respondent. 4. The learned counsel for the petitioner reiterated that the petitioner-Bank holds the first charge over the properties in view of Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act ) and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as the 1993 Act ). Thus, the first respondent has no authority to attach the subject properties, which is violation of the provisions of SARFAESI Act and therefore, the direction as such sought for is to be granted. 5. To substantiate the contentions, the learned counsel for the petitioner relied on Section 26E of the SARFAESI Act, which enumerates that notwithstanding anything contained in any other law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside. 9. Relying on the judgments, the learned counsel for the petitioner reiterated that the Bank holds the first charge over the subject properties and when the properties in question were mortgaged as per the terms and conditions, the petitioner must be allowed to deal with the properties and the attachment made illegally by the first respondent is to be raised. 10. The learned counsel for the petitioner has further stated that the order of attachment passed by the first respondent on 23.05.2017 is after the mortgage and the deposit of title documents with the petitioner-Bank by the fourth and fifth respondents on 27.01.2016 and 06.02.2016 respectively. When the mortgage was executed prior to the passing of the order of attachment by the first respondent on 23.05.2017, then the petitioner-Bank holds the first charge over the properties. Thus, the subsequent order passed by the first respondent is invalid in the eye of law. 11. The learned Senior Standing Counsel appearing on behalf of the first respondent-Income Tax Department strenuously objected the contentions raised on behalf of the petitioner by stating that admittedly the subject properties were mortgaged in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge on the properties of its clients. In the case on hand, it is the Income Tax Department, which holds the first charge, as the initial demand was made prior to the subject properties were mortgaged and the mortgage to the Bank is void as per the IT Act. 15. At the outset, it is contended that the initial demand was raised by the Department on 31.03.2015, whereas the properties are mortgaged with the Bank only on 27.01.2016 and 06.02.2016 and hence, the Income Tax Department do not have charge much less first charge over the assets of its partners. 16. Lets us now consider the provisions of Section 281(1) of the IT Act, which contemplates that where, during the pendency of any proceeding under the IT Act or after the completion thereof, but before the service of notice under Rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or an other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned, they are relating to the income tax assessment years 2012- 13 and 2013-14 and the earliest demand notice was issued by the Income Tax Department on 31.03.2015. Thereafter, repeated reminders were sent to the assessees and the assessees failed to remit dues and thereafter, the subject properties were attached on 23.05.2017. Thus, the Income Tax Department claims first charge over the properties of the assessees and its partners with effect from 31.03.2015, the date on which the earliest demand notice was issued. 20. However, the learned counsel appearing on behalf of the petitioner contended that the properties were purchased from and out of the housing loan sanctioned in favour of the assessees/fourth and fifth respondents in the present case and therefore, subject properties itself were purchased from and out of the loan raised from the petitioner-Bank. In this regard, it is relevant to consider the factual details provided in the notices under Section 13(2) of the SARFAESI Act issued to respondents 4 and 5 dated 11.11.2016 and 08.12.2016 respectively and the notice dated 11.11.2016 contains the details of security documents including all supplementary documents a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. Section 281 of the IT Act stipulates that if any mortgage or transfer is made in any manner, then all such transfers, mortgage, gift, etc., became void and therefore, such mortgage, gift or transfer is non-existence in law. In such circumstances, the question of priority would not arise at all. 23. The concept of priority would arise, if there are more than one claim between two or more transfers, who all are holding valid right in respect of the subject property. If more than two persons are having right over the property and such more than two or more persons are claiming the benefits from and out of the subject property, then only the question of priority would arise. If the priority question arises, then as per Section 26E of the SARFAESI Act, the first charge must be to the secured creditor/Bank. Thus, the priority to secured creditors is not disputed and such priority would arise only if rights regarding the subject property are established by more than two persons. 24. Section 26E of the SARFAESI Act is not connected with the declaration contemplated under Section 281 of the IT Act. Therefore, the said provisions cannot be construed as repugnant and in fact, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that there must be a transfer of the property; (ii) that it should be during the pendency of a proceeding under the Act; and (iii) that the transfer must be with intent to defraud the Revenue and if these conditions are satisfied, then the transfer shall be void in respect of any tax or sum payable by the assessee as a result of the completion of the proceedings during the pendency of which the transfer was effected. The effect of the section is that, if such transfer with intent to defraud the Revenue has been made and any claim for tax arises after completion of the proceedings during the pendency of which the transfer took place, such tax or other sum can be recovered by proceeding against the property notwithstanding the said transfer. 27. In view of the facts and circumstances that the earliest demand notice at the first instance issued by the Income tax Department on 31.03.2015 is not disputed, it is to be construed that the proceedings under the IT Act for recovery of tax dues were pending on the date, i.e., 31.03.2015 and therefore, any transfer made thereafter is hit by the provision of Section 281 of the IT Act and all such transfers are void and there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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