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2021 DIGILAW 1083 (BOM)

State Bank Of India v. State of Maharashtra

2021-08-04

A.S.CHANDURKAR, AMIT B.BORKAR

body2021
JUDGMENT Amit B. Borkar, J. - RULE. By consent of the parties, Rule is made returnable forthwith. 2. By this writ petition, the petitioner is seeking direction against the respondent no. 5 - Sub-Registrar (Class-I) to register sale certificate on receipt of stamp duty and registration charges. In addition to the said prayer, the petitioner is also seeking a direction against the respondent no. 7 - Government of Maharashtra, Through Sales Tax Department to take action against the defaulters for evading taxes and attaching their movable properties and not to obstruct the sale of the properties by the petitioner - Bank for recovery of its dues. The petitioner has also sought a declaration that the respondent nos. 1 and 2 i.e. the State of Maharashtra, Through Ministry of Finance / Revenue and the Collector, Yavatmal are not entitled to recover the dues in view of mandate of Section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act of 2002"). 3. The facts relevant for adjudication of the issues involved in the present petition are as under :- The petitioner - Bank is a Public Sector Nationalized Bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The petitioner - Bank initiated proceedings under the provisions of the Act of 2002. The certificate of sale dated 28/09/2020 was issued in favour of Ms. Maroti Cottons, Proprietor : Shilpa Preetam Kohar in exercise of power under the Security Interest (Enforcement) Rules, 2002 (for short "the Rules of 2002"). The copy of the certificate of sale is annexed at Exh. II. 4. The main grievance in this petition is as regards the communication dated 19/10/2020 issued by the respondent no. 5 (Registrar of Assurances, Class-I, Tah. Zarijamni, Dist. Yavatmal) by which the respondent no. 5 refused to register the aforesaid sale certificate in accordance with the provisions of the Registration Act, 1908 (for short "the Act of 1908"). The petitioner has therefore filed the present petition seeking various reliefs. During the course of hearing, learned advocate for the petitioner pressed for prayer clauses (f), (f-a) & (f-b) only, which are referred to in paragraph no. 2 above. 5. This Court by the order dated 29/01/2021 issued notices to the respondents and directed the petitioner to add the Sales Tax Department as party respondent. During the course of hearing, learned advocate for the petitioner pressed for prayer clauses (f), (f-a) & (f-b) only, which are referred to in paragraph no. 2 above. 5. This Court by the order dated 29/01/2021 issued notices to the respondents and directed the petitioner to add the Sales Tax Department as party respondent. In pursuance of the notice issued by this Court, the respondents have appeared and have filed their reply. The reply is filed by Tejrao Kisan Pacharne, Joint Commissioner of State Tax (Adm.), Amravati Division, Amravati. In the reply, it is stated that the Sales Tax Department has first charge over the dues of the secured creditor in view of Section 37 of the Maharashtra Value Added Tax Act (for short "MVAT Act"). It is stated that the charge created under Section 37 read with Section 100 of the Transfer of Property Act will continue with the property even if the property is sold by the mortgagor, and therefore the purchaser will have to discharge the liability before registration of sale certificate. It is stated that the property in respect of which the sale certificate was issued has been attached under the provisions of the Maharashtra Land Revenue Code, and therefore the purchaser will have to pay an amount of Rs. 01,04,89,132/- excluding accrued statutory interest thereon. 6. Learned advocate for the petitioner submitted that the Act of 2002 being the Central Statute, the secured creditor shall have the first right to recover its dues from property of the borrower in view of Section 26-E of the Act of 2002. He submitted that Section 37(1) of the MVAT Act shall not override the rights of the secured creditor protected under Section 26-E of the Act of 2002 as the language of Section 37 makes the sales tax dues subject to the provisions under the Central Act. He submitted that even otherwise also, the Registrar of Assurances has no power to consider any other factors than the factors mentioned under Rule 44 of the Maharashtra Registration Rules, 1961 (for short "the Rules of 1961"). He submitted that even otherwise also, the Registrar of Assurances has no power to consider any other factors than the factors mentioned under Rule 44 of the Maharashtra Registration Rules, 1961 (for short "the Rules of 1961"). He placed reliance on the judgments in the case of State Bank of India vs. State of Maharashtra, (2021) 2 MhLJ 721 , in the case of ASREC (India) Limited, Mumbai vs. State of Maharashtra, (2020) 2 BCR 243 and in the case of Axis Bank Limited, Mumbai vs. State of Maharashtra & anr., (2017) 3 BCR 456. 7. Per contra, learned AGP submitted that in view of the language of Sub-section (1) of Section 37 of the MVAT Act, the first charge is created over the property of the borrower and the said charge being the statutory charge, it will go with the property and will follow the property, whoever may be the purchaser. She submitted that the petitioner - Bank had sufficient knowledge of the attachment and encumbrances over the said property, therefore it is the duty of the purchaser to clear the dues of the respondent no. 7. The sale certificate issued in favour of the auction purchaser can be registered by the Registrar of Assurances after getting the No Objection Certificate from the respondent no. 7. She therefore submitted that the Registrar of Assurances is therefore justified in refusing to register the sale certificate issued in favour of the auction purchaser. She placed reliance on the un-reported judgment of this Court in W.P. No. 7971/2019 (Medineutrina Pvt. Ltd. vs. State of Maharashtra) dated 18/02/2021. 8. With the assistance of learned advocates for the respective parties, we have carefully scrutinized the petition, affidavit-in-reply, rejoinder along with its annexures and in particular the communication dated 19/10/2020 issued by the respondent no. 5 (Registrar of Assurances) refusing to register the sale certificate issued as per the provisions of the Rules of 2002. The Registrar of Assurances has refused to register the sale certificate on the following grounds :- "(1) The document is not routed through proper source. (2) Demarcation of the area in the sale certificate is not done. (3) The area of construction is not stated. (4) The certified copy of 7/12 Extract is not annexed. (5) Proper description of machinery on site is not mentioned. (2) Demarcation of the area in the sale certificate is not done. (3) The area of construction is not stated. (4) The certified copy of 7/12 Extract is not annexed. (5) Proper description of machinery on site is not mentioned. (6) The stamp duty payable for sale certificate needs to be adjudicated under the provisions of the Stamp Act before registration. (7) There is encumbrance of the Department of Sales Tax." 9. Insofar as the Ground No. 1 regarding document not being routed through proper source is concerned, the Authorized Officer being the Competent Authority under the provisions of the Rules of 2002, he can present the document before the respondent no. 5 for registration. Insofar as the Ground Nos. 2 and 3 are concerned, the petitioner has shown willingness to supply the details of the area as required by the respondent no. 5 and has also shown its willingness to give the details of the area of construction. Insofar as the Ground No. 4 is concerned, it is stated that now 7/12 Extracts are available online and the same could be verified. Even otherwise, the petitioner can get the certified copy of 7/12 Extract from the Competent Authority under the Maharashtra Land Revenue Code. Insofar as the Ground No. 5 regarding proper description of machinery in the property is concerned, the same being movable property, it is not necessary to be mentioned in the sale certificate. The provisions of the Act of 1908 apply only to the immovable properties. Insofar as the Ground No. 6 regarding document to be adjudicated from the Authorities under the Maharashtra Stamp Act is concerned, the petitioner has shown its willingness to pay the amount of stamp duty as per the ready reckoner as per the valuation of the respondent no. 5, and therefore the said ground does not survive. 10. The main ground i.e. Ground No. 7 is regarding encumbrance of the Department of Sales Tax. The respondent no. 7 in its reply has stated that it has attached the property which is the subject matter of sale certificate under the Maharashtra Land Revenue Code and has registered its encumbrance in revenue record. For deciding the said objection, it is necessary to note that the State of Maharashtra made an amendment in the form of Section 22-A of the Act of 1908 vide Act No. 24 of 1938 read with 35 of 1958. For deciding the said objection, it is necessary to note that the State of Maharashtra made an amendment in the form of Section 22-A of the Act of 1908 vide Act No. 24 of 1938 read with 35 of 1958. Section 22-A reads as under :- "22-A. Documents registration of which is opposed to public policy - (1) The State Government may, by notification in the Official Gazette, declare that the registration of any document or class of document is opposed to public policy. (2) Notwithstanding anything contained in this Act, the registering officer shall refuse to register any document to which a notification issued under sub-section (1) is applicable." 11. At this stage, it is necessary to note that similar amendment incorporated in the State of Rajasthan was challenged before the High Court of Rajasthan. The High Court of Rajasthan held the said amendment to be unconstitutional and struck it down. The decision of High Court of Rajasthan holding the similar amendment as unconstitutional was affirmed by the Hon'ble Supreme Court in the case of State of Rajasthan vs. Basant Nahata, (2005) 12 SCC 77. It is pertinent to note that Section 22-A introduced by the Maharashtra Act No. 24 of 1938 came to be deleted by the Maharashtra Act No. 10 of 2012 which came into force on 25/05/2012. In clause (h) of Sub-Rule (1) of Rule 44 of the Rules of 1961, there was a provision made for giving effect to Section 22-A. It needs to be noted that by the notification dated 27/06/2006, Clause (i) was added to Sub-Rule (1) of Rule 44 of the Rules of 1961 covering a transaction which is prohibited by any existing Act of Central or State Government. 12. On careful reading of the last ground mentioned in the communication dated 19/10/2020, it appears that the respondent no. 5 has purportedly refused to register the sale certificate relying on Clause (i) of Sub-Rule (1) of Rule 44 of the Rules of 1961, though it is not specifically stated in the affidavit-in-reply filed by the respondent no. 5 or during the submissions made on behalf of the respondents. 5 has purportedly refused to register the sale certificate relying on Clause (i) of Sub-Rule (1) of Rule 44 of the Rules of 1961, though it is not specifically stated in the affidavit-in-reply filed by the respondent no. 5 or during the submissions made on behalf of the respondents. It needs to be noted that Sub-Section (1) of Section 22-A clearly provided that only if a notification is published in the Official Gazette declaring that registration of any document or class of document is opposed to any public policy, only then the question of refusal of registration of the document will arise. Even otherwise, since Section 22-A is no longer on the statute book, registration of the sale certificate could not have been refused on the ground of same being in contravention of Section 22-A of the Act of 1908. The ground of encumbrance to refuse registration of a document is in relation to marketable title of the property. We may make a useful reference to the decision of the Hon'ble Supreme Court in the case of Satyapal Anand vs. State of Madhya Pradesh and ors., (2016) 10 SCC 767 , and in particular para no. 41 which reads thus :- "41. Section 35 of the Act does not confer a quasi-judicial power on the Registering Authority. The Registering Officer is expected to reassure that the document to be registered is accompanied by supporting documents. He is not expected to evaluate the title or irregularity in the document as such. The examination to be done by him is incidental, to ascertain that there is no violation of provisions of the 1908 Act. In the case of Park View Enterprises, it has been observed that the function of the Registering Officer is purely administrative and not quasi-judicial. He cannot decide as to whether a document presented for registration is executed by person having title, as mentioned in the instrument. We agree with that exposition." 13. The purported source of power for rejection of sale certificate is under Clause (i) of Sub-Rule (1) of Rule 44 of the Rules of 1961. The notification dated 27/07/2006 published in the Official Gazette on 22/07/2006 incorporates Clause (e) (which is in Marathi) and Clause (i) (which is in English). Clause (i) reads thus :- "44(1). The purported source of power for rejection of sale certificate is under Clause (i) of Sub-Rule (1) of Rule 44 of the Rules of 1961. The notification dated 27/07/2006 published in the Official Gazette on 22/07/2006 incorporates Clause (e) (which is in Marathi) and Clause (i) (which is in English). Clause (i) reads thus :- "44(1). Before accepting any document for registration, a registering officer may not concern himself with its validity, but shall ascertain - (a) ..... (b) ..... (c) ..... (d) ..... (e) ..... (f) ..... (g) ..... (h) ..... (i) that, if the transaction which is intended by the document, is prohibited by any existing act of Central or State Government, then the true copy of requisite permission or No Objection Certificate from the Competent Authority under the said act, has been attached along with the document, and that, the document is not written in contradiction with any vital term or condition mentioned in that permission or No Objection Certificate." 14. On plain reading of Clause (i), we are of the view that the respondent no. 5 could not have purportedly invoked Clause (i). Sub-Rule (1) of Rule 44 of the Rules of 1961 provides that before accepting any document for registration, the Registering Officer is concerned with its validity but he should ascertain the various factors set out in Clauses (a) to (i). Clause (i) of Rule 44 of the Rules of 1961 will apply only when the transaction is covered by the document which is prohibited by a Central or State Statute. There is encumbrance of the Department of Sales Tax. The Registering Officer shall have to ascertain whether the requisite permission from the Competent Authority under the relevant enactment has been obtained and is required to annex the said permission, if it is prohibited. The Registering Officer will also have to ascertain whether the document presented for registration is contrary to any of the terms and conditions mentioned in the NOC granted by the Competent Authority. Undisputedly, in the present matter, the respondents have not shown any such statutory prohibition which enables the Registering Officer to refuse registration of the sale certificate. 15. In view of the authoritative pronouncement of the Hon'ble Supreme Court in the case of Satyapal Anand (supra), the Registering Officer under the Act of 1908 has no power to adjudicate upon the issue of marketable title to the property. 15. In view of the authoritative pronouncement of the Hon'ble Supreme Court in the case of Satyapal Anand (supra), the Registering Officer under the Act of 1908 has no power to adjudicate upon the issue of marketable title to the property. The power of the Registering Officer is purely administrative and is not quasi judicial power. The Registering Officer has no right to decide whether a person who has presented the document for registration has marketable title or not. 16. Section 17(2)(xii) of the Act of 1908 specifically provides that a certificate of sale granted to any purchaser of any property sold by public auction by a Civil or Revenue Officer does not fall under the category of non-testamentary document which requires registration under Sub-Sections (b) & (c) of Section 17(1) of the Act of 1908. Such sale certificate does not require registration which may have been issued by an Officer authorized by the Court. It is well settled that when a property is sold by public auction, in pursuance of an order of the Court and the sale is confirmed by the Court in favour of the purchaser, the said becomes absolute and the title vests in the purchaser. A sale certificate is issued to the purchaser only when the sale becomes absolute. It is well settled that when an auction purchaser derives title on confirmation of sale in his favour, no further deed of transfer from the Court is required. The sale certificate itself is evidence to such sale and title. Therefore, the respondent no. 5 ought to have taken into consideration this position of law before refusing to register the sale certificate issued by the Authorized Officer. 17. Much emphasis is made on Section 26-E of the Act of 2002 by learned advocate for the petitioner - Bank. Insofar as the priority of the secured creditor to recover its debt over the liability to pay the tax under the MVAT Act is concerned, the issue is no longer res-integra in view of the pronouncement of the three judgments of the Division Bench of this Court in the case of State Bank of India (supra), ASREC (India) Limited, Mumbai (supra) and Axis Bank Limited, Mumbai (supra). It is categorically held by this Court that if any Central Statute creates priority of a charge in favour of the secured creditor, the same will rank above the charge in favour of the State for a tax due under the Value Added Tax of the State. Therefore, it is not necessary to dilate on the said issue anymore. 18. Learned AGP placed reliance on the un-reported judgment of this Court in the case of Medineutrina Pvt. Ltd. (supra). This Court in the said case, inter alia held that the dues under Section 37(1) of the MVAT Act, being a statutory charge on the property, would also be recoverable by a sale of property and thus puts a liability upon the auction purchaser, who in case, wants an encumbrance free title, will have to clear such dues. In the facts of the present case, the petition is filed by the Bank seeking relief of registration of the sale certificate. Therefore, we are not making any adjudication on the issue of right of the respondent no. 7 to recover its dues from the auction purchaser. 19. For foregoing reasons, we are of the view that it is the duty of the respondent no. 5 to register the sale certificate issued in favour of the auction purchaser by the Authorized Officer under the provisions of the Rules of 2002. 20. Insofar as the prayer clause (f-a) is concerned, we have no doubt that the respondent no. 7 is duty bound to take action against the defaulter for evading taxes and recovering its dues by attaching their movable properties. Second part of the prayer as sought by the petitioner is a general prayer which needs to be adjudicated in the facts of each case and this Court cannot grant omnibus prayer against the respondent no. 7 not to obstruct the sale of the properties by the petitioner - Bank, in absence of cause of action accrued in favour of the petitioner - Bank in an individual case. 21. 7 not to obstruct the sale of the properties by the petitioner - Bank, in absence of cause of action accrued in favour of the petitioner - Bank in an individual case. 21. Insofar as the prayer clause (f-b) is concerned, as we have already held that in view of the consistent view taken by this Court that the priority of charge created under Section 26-E of the Act of 2002 in favour of the secured creditor will rank above the charge in favour of a State for a tax due under Value Added Tax of the State, in our opinion, the aforesaid position of law takes care of prayer clause (f-b) prayed by the petitioner. Therefore, the petition must partly succeed. 22. Hence, the following order:- (a) The communication dated 19/10/2020 is hereby quashed and set aside. (b) We direct the respondent no. 5 to register the sale certificate dated 06/07/2020 subject to compliance of Ground Nos. 2 and 3 and on payment of stamp duty as per the ready reckoner and after following all the other requirements of law as per the Registration Act, 1908. (c) We direct that registration of the sale certificate shall not be refused on the basis of encumbrance of the respondent no. 7. (d) We make it clear that we have not made any adjudication on the issue of recovery of sales tax dues from the auction purchaser, if recoverable as per law. 23. Rule is made partly absolute in the above terms. Pending applications, if any, stands disposed of.