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TMI Blog2024 (8) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case, the submission of learned AGP Mr. Trivedi that the State and its authorities have rightly rejected the application for mutation of entry of the petitioners in respect of the property in question cannot be accepted. Further, as far as the submission of delay is concerned, the same also cannot be accepted for the reason that the petitioners are the bonafide purchasers of the property in question by way of auction or from successful auction purchaser and they have invested huge amount in the property, they have acquired the title of the property by way of Sale Certificate, they are the holder of the title in respect of property in question as on today. The respondent authorities are directed to mutate the names of each of the petitioners in the revenue record by quashing and setting aside any attachment / charge over the property in question by the State or its authorities as there was a first charge of the respondent Bank in each of the petitions - Petition allowed. - HONOURABLE MR. JUSTICE NIRZAR S. DESAI Special Civil Application No. 9565 of 2023 MR MONAL S CHAGLANI for the Petitioners. MR JAY TRIVEDI, AGP for the Respondent Nos.1,2,3,5 NOTICE SERVED BY DS for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCA No.12848 of 2023 is treated as lead petition and facts are stated from the said petition. 3. The prayers made in Special Civil Application No.12848 of 2023 reads as under :- (A) to quash and set aside order dated 21.11.2022 (Annexure-A) passed below Entry No.7154 and order dated 18.02.2011 (Annexure-B) below Entry No.4752 passed by Respondent No.2 - Mamlatdar; (B) to direct the Respondent Nos.1 and 2 to mutate the name of Petitioner No.1 - SKMPL in the revenue records for the land bearing new Survey/Block No.109, Bhagya Laxmi Estate, Village : Rakanpur, Taluka : Kalol, District : Gandhinagar - 382 721 having Unique Property Identification Number : 10601033001090000 together with the construction standing thereon; (C) to direct the Respondent Nos.1 and 2 to annul the charge of Respondent No.3 - Department on land bearing new Survey/Block No.109, Bhagya Laxmi Estate, Village : Rakanpur, Taluka : Kalol, District : Gandhinagar - 382 721 having Unique Property Identification Number : 10601033001090000 together with the construction standing thereon; (D) to direct that pending hearing and final disposal of the present Special Civil Application, Respondent No.3 - Department be restrai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mutated. 3.6 It is the case of the petitioner all throughout as canvassed in the petition as well as in the written submissions that actually, both the parcels of land i.e. Block No.496 paiki Sub-plot Nos.5/1 and 5/2 and Sub-plot No.6 was owned by M/s. Dolplast Machinery and the same had never belonged to Helios. However, considering the prayer made in the petition, which is in respect of a revenue entry with respect to sub-plot Nos.5 and 6, as well as considering the fact that in this petition, there is no prayer against Dolplast, which is not even party, the aforesaid facts are stated just to state the petitioner's version, though the same has no bearing in respect of the controversy before this Court. 3.7 In the year 2002 - 03, upon Helios having defaulted on repayment of loan and was declared a non-performing asset, the respondent No.4 Bank initiated the proceedings under SARFAESI Act by filing Original Application No.264 of 2003 before the Debts Recovery Tribunal, Ahmedabad. 3.8 As Helios also did not make any payment towards the liability of Sales Tax - the respondent No.3 department, a charge over the subject land was registered on 15.9.2006. According to the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner in favour of Sales Tax Officer, Junagadh. 4.1. Whereas the claim of the petitioner is that the petitioner has purchased the property bearing Survey No.159/1 and 161 of Manavadar village by way of auction conducted by the Debts Recovery Tribunal as the original owner of the Bank, namely, M/s. Yogeshwar Industries failed to repay the cash credit facility availed by him in respect of respondent No.4 Bank. Therefore, he is seeking his name be mutated in respect of property in question in the revenue records as the petitioner of Special Civil Application No.9565 of 2023 is a bonafide purchaser who has purchased the property through auction under SARFAESI Act. 5. Special Civil Application No.10059 of 2023 is preferred seeking a declaration that the respondent No.4 Bank in that petition being Canara Bank is having the first charge over the property in question as the charge of respondent No.4 Bank would override the charge of respondent No.2 as per Section 26 (e) of SARFAESI Act over charge in favour of respondent No.2 under Section 48 of VAT Act. In that petition, the petitioner had purchased a property situated at Survey No.1221/2 (part) admeasuring 3750 Sq. Yd. situated at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the respondents to mutate the name of the petitioners in the revenue entry in revenue record is contrary to law and hence, illegal. 8.3 That each of the petitioners are bonafide purchasers of the property in question and they have purchased the property by way of auction conducted under the provisions of law and more particularly, pursuant to the proceedings before the Debts Recovery Tribunal and, therefore, after having invested huge amount and after having succeeded in getting the Sales certificate, denial to mutate the name of the petitioners in the revenue records would amount to penalizing the petitioners. 8.4 From the catena of decisions of the Hon'ble Supreme Court as well as this Court taking a view that the charge in favour of Secured Creditor would precede over the Unsecured Creditors (State in the instant case) and, therefore, the stand taken by the State Government is contrary to the settled proposition of law. 8.5 That the common law of England or principles of equity and good conscience would not allow Crowns Debt to have priority over the recovery of debts over the mortgagee or pledgee of goods or secured creditors and the aforesaid proposition of law is fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naxi Manishbhai Hansoti has never challenged the attachment order passed by the Sales Tax Department. That the petitioner cannot be said to be to be auction purchaser but a subsequent purchaser . That admittedly, the charge over the property was made by the Sales Tax authorities on 15.09.2006, and since the present petition is filed after the lapse of 17 years, the petitioners are not entitled for the discretionary reliefs as prayed in the petition on the ground of delay. 9.2 That under Section 13(7) of the SARFAESI Act, 2002, it is the statutory duty of the Bank to discharge the dues of the secured creditor and the residue of the money so received be paid to the person/department against whom there is valid outstanding amount. He further submitted that under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, it is the statutory obligation of the Authorised Officer of the Bank to include the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditors. As per Rule 9(7) of the Rules, 2002, it is by virtue of the statutory mandate, where the immovable property is sold which is subject to any encumbrances, than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tax Department subject to the outcome of the petition. The Hon ble Supreme Court vide it order dated 18.11.2021 has dismissed the petition of the Bank, by observing that it was not open for the petitioner Bank to resile from the liability to discharge the same in connection with the first charge of the State. 9.7 That the Hon ble Full Bench of the Bombay High Court, in the case of Jalgaon Janta Sahakari Bank Ltd. versus Joint Commissioner of Sales Tax reported in 2022 SCC Online Bom 1767 has in para 44 framed the question of law and in respect to the liability of the auction purchaser the Hon ble Bombay High Court has framed the question in para 44(g) (Page No. 34 of the judgment). The Hon ble Court has decided the question in para 155 to 161. 9.8 Learned AGP relied on the decision of the Hon'ble Supreme Court in the case of Union of India and others v. N. Murugesan and others, (2022) 2 SCC 25 wherein the Hon'ble Supreme Court has explained the doctrine of delay, laches and acquiescence and submitted that the charge was created in favour of Sales Tax department long back and after long delay, such charge could not have been challenged by way of present petitions. He, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de auction purchaser. 13. Therefore, when each of the properties were purchased pursuant to an auction carried out pursuant to the orders passed by DRT, the aforesaid auction was held to recover the dues of Secured Creditors i.e. respective Banks under an order passed by DRT in the relevant proceedings before DRT. Therefore, being the Secured Creditor, the Banks were enjoying priority in terms of Section 26 E of the SARFAESI Act, which 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. 14. In light of this, decisions of the Hon'ble Supreme Court as well as this Court are required to be considered. 15. Learned advocates appearing for the respective petitioners cited number of judgments, but since they are on same point, instead of discussing every judgment, I may consider few latest decisions of the Hon'ble Supreme Court as well as this Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. 10. However, the Crown s preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown s right and that of the subject meet at one and the same time that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. 10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments. 17. In case of Odhavjibhai Mohanbhai Gadhiya v. State of Gujarat (Supra), this Court observed in paragraphs 5.1 to 5.3 as under :- 5.1 The settled position of law is that the VAT and sales tax dues has no precedence over the dues of the bank for recovery of which the bank exercise powers under the SARFAESI Act. The bank was secured creditor. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-Registrar refused to return the sale registered sale deed in view of the order of the respondent No.5 Sales Tax Authority on the ground that it had created charge over the properties for the sales tax dues. 18. Recently, Hon'ble Supreme Court in the case of Punjab National Bank v. Union of India and others (Supra), observed in paragraphs 46 to 50 as under :- 46. This Court in Dena Bank v. Bhikhabhai Prabhu Dass Parikh and another, [(2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under :- 10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor. (emphasis supplied) 47. Further, in Central Bank of India Vs. Siriguppa Sugars Chemicals Ltd. Ors. [(2007) 8 SCC 353], while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex Court in the matter of priority of state debts as already discussed and the provision of Section 35 of SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court. (emphasis supplied) 49. An SLP (No. 12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951 and this Court held as under :- 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 Aiyear (3rd Edn.) p. 1147] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the bank and paid full and total sale consideration to the bank and the bank has issued sale certificate in favour of the petitioner. Considering the law laid down by this Court as well as by the Hon ble Apex Court and also keeping in mind the provisions of Section 26E of the SARFAESI Act, the debts due to financial institution / Bank a secured creditor shall be paid in priority over other debts/taxes payable to the State Government. The petitioner has no concern with the dues of the State Authorities which is of the erstwhile owner. The petitioner has paid full and final sale consideration to respondent No.5 Bank and if the State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against the appropriate person/s. Any of the respondent has no right to disturb the right, title and interest of the petitioner qua the property in question. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected. Moreover, now it is well settled legal position that the mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X
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