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2021 DIGILAW 250 (TS)

State Bank of India v. Union of India

2021-07-27

M.S.RAMACHANDRA RAO, T.VINOD KUMAR

body2021
ORDER : M.S.Ramachandra Rao, J. The petitioner in this Writ Petition is the State Bank of India. 2. The State Bank of India along with other consortium banks, had granted a loan amounting to Rs.133 crores to the 5th respondent- Company in 2012 for Working Capital, and as security for the said loan, a commercial unit bearing D.No.12-10 with land admeasuring Acs.0.25 gts. in Sy.No.657 of Satamrai Village, Shamshabad Mandal, Ranga Reddy District (for short ‘the subject property’) belonging to the said company was charged to the Bank along with other properties. 3. The said charge was registered with the Central Registry of Securitization Asset Re-construction and Security Interest of India (CERSAI) on 08.04.2000. 4. As the 5th respondent did not repay the loan dues, and committed default in making re-payments to the petitioner, the loan account of the 5th respondent was declared as a Non-Performing Asset on 13.10.2012. 5. Thereafter, proceedings under the SARFAESI Act, 2002 were initiated and the property was put to public auction on 26.10.2020 through an auction notice dt.15.09.2020. 6. M/s.Khargandhi Properties Pvt. Ltd. ( for short ‘the auction purchaser’) was declared highest bidder for Rs.4.66 crores, and their bid was confirmed vide proceedings dt.26.10.2020 and they were asked to pay the balance amount in accordance with the provisions of the said Act. 7. The auction purchaser vide letter dt.28.10.2020 informed the Bank that it came to know that property purchased by it in e-auction from the petitioner-Bank has Income Tax attachments and so, it cannot be registered in view the fact that the property was kept under a prohibitory list under the Registration Act, 1908, and wanted to resile from the auction proceedings. 8. The petitioner-Bank then verified the same and confirmed that the property was in the prohibitory list register maintained by the Sub- Registrar, Shamshabad (2nd respondent) in view of proceedings dt.05.10.2016 issued by the Commercial Tax Officer, Special Commodities Circle, Saroornagar Division, Hyderabad (3rd respondent) and proceedings dt.10.06.2014 of the Dy.Commissioner of Income Tax, Circle-2 (3), Hyderabad (4th respondent). 9. 8. The petitioner-Bank then verified the same and confirmed that the property was in the prohibitory list register maintained by the Sub- Registrar, Shamshabad (2nd respondent) in view of proceedings dt.05.10.2016 issued by the Commercial Tax Officer, Special Commodities Circle, Saroornagar Division, Hyderabad (3rd respondent) and proceedings dt.10.06.2014 of the Dy.Commissioner of Income Tax, Circle-2 (3), Hyderabad (4th respondent). 9. In the letter dt.05.10.2016 addressed to the 2nd respondent by the 3rd respondent it was stated that the 5th respondent had fallen in arrears of sales tax to the tune of Rs.3,05,89,201/-, that it owned the subject property, and requested the 2nd respondent not to permit alienation thereof as it had first charge under the provisions of the TVAT Act, 2005 over the said property. 10. In the letter dt.10.06.2014, addressed by the 4th respondent to the petitioner it was informed that a sum of Rs.572.66 lakhs for the Assessment Year 2011-12 was due from the 5th respondent towards income tax / interest; the petitioner was directed under Section 226(3) of the Income Tax Act, 1961 to pay to the 4th respondent the said amount; and in default, a threat was made to make the Bank an ‘assessee in default’ and to proceed against it for realization of the said dues under Sections 222 to 225 of the Income Tax Act, 1961 stating that the notice shall have the same effect as an attachment of a debt under Section 222 of the said Act. 11. Copy of the above letter was also forwarded to the 2nd respondent and on the basis of these two letters, the 2nd respondent kept the subject property in a prohibitory list prepared under Section 22-A of the Registration Act, 1908. THE INTERIM ORDER PASSED ON 17.12.2020 12. On 17.12.2020, while granting time to the respondents to file counter-affidavit, an interim direction was given to the 2nd respondent to receive, process and release the sale certificate submitted by the petitioner-Bank and the auction purchaser for registration as per due procedure. 13. But, on 09.06.2021, the Sub-Registrar, Shamshabad issued a letter 118/SHM/2021 dt.09.06.2021 stating that petitioner should pay the stamp duty and registration fee and without such payment, it cannot complain against the 2nd respondent for not registering the sale certificate. 14. 13. But, on 09.06.2021, the Sub-Registrar, Shamshabad issued a letter 118/SHM/2021 dt.09.06.2021 stating that petitioner should pay the stamp duty and registration fee and without such payment, it cannot complain against the 2nd respondent for not registering the sale certificate. 14. He also stated that since the land is described in ‘guntas’, and so it is an agricultural land covered with a commercial unit; since there is no conversion proceedings and the extent mentioned is in ‘guntas’, he is not competent to register the document unless there are proceedings produced converting the subject property into nonagricultural land. He quoted G.O.Ms.No.118 Revenue (Registration Department) dt.28.10.2020 appointing Tahsildars as Sub-Registrar under the Registration Act, 1908 for Registration of agricultural lands. He thus stated that the jurisdiction Tahsildar should be approached for registering the document. I.A.No.1 of 2021 15. I.A.No.1 of 2021 is filed by the Sub-Registrar, Shamshabad to vacate the order dt.17.12.2020 passed in W.P.No.20646 of 2020 reiterating the contents of the above proceeding. I.A.No.2 of 2021 16. During the course of the hearing, it also came to light that the Office of the Tax Recovery Officer-2, Hyderabad under the Income Tax Act, 1961 had issued Proceedings F.No.TRO/TRC No.207/2014- 5 to the Principal Officer of the 5th respondent stating that Rs.4.27 Crores excluding of interest under Section 220(2) of the Income Tax Act, 1961 was payable by the 5th respondent in respect of Certificate (ITCP-1) dt.11.06.2014; and the subject property is prohibited and restrained from being transferred or charged in any way until further orders by him. 17. On coming to know of this proceeding, the petitioner filed I.A.No.2 of 2021 challenging the said attachment order dt.09.09.2016 also and the said application was allowed by this Court on 01.03.2021. CONTENTIONS OF THE PARTIES AND CONSIDERATION BY THE COURT 18. Sri E. Madan Mohan Rao, Senior Counsel appearing for the petitioner-Bank, contended that in view of Section 26(E) of the SARFAESI Act, 2002, the Bank has prior claim over the subject property over the dues of the State Government and Central Government / respondent nos.3 and 4; there is no provision under the Income Tax Act, 1961 for the 4th respondent to claim any priority; and in view of Section 26(E) read with Section 31(b) of the SARFAESI Act, 2002, the claim of 3rd respondent is also subservient to that of the Bank. He relied upon a decision of a Division Bench of this Court in State Bank of India vs. Union of India, Order dt.21.04.2020 in W.P.NO.20196 of 2019 (D.B.). 19. He contended that the proceedings issued by respondent nos.3 and 4 cannot debar the petitioner-Bank from auctioning the secured asset under the SARFAESI Act, 2002 and executing a sale deed in favour of the auction purchaser pursuant to the sale held on 26.10.2020 as per the provisions of the said Act; and the 2nd respondent cannot refuse to receive the document for registration by keeping the subject property in the prohibitory list. 20. He further contended that the Revenue Department of the State of Telangana to which the 2nd respondent belongs was aware that the subject land has been the place of setting up of a factory by the 5th respondent even by 1996, that the Mandal Revenue Office of Shamshabad had even issued a notice for the year 1997-98 demanding from the 5th respondent assessment under the A.P. Non-Agricultural Land Assessment Act, 1963 which was also paid on 07.10.1997 by the 5th respondent and acknowledged by the Mandal Revenue Officer, Shamshabad Mandal; similar payments were also received under the said statute for 1998-99, 1999-2000, 2000-2001; House Tax, licence fee were being collected by the Gram Panchayat, Shamshabad from 1996; that the 5th respondent was given registration under the Central Excise Act, A.P. General Sales Tax Act (on 28.01.1994); and the District Collector, Ranga Reddy issued proceedings on 01.12.2005 that the 5th respondent was selected for collection of data on six parameters for estimation of National Income and also State Income under the Manufacturing Sector. 21. He stated that it is absurd for the 2nd respondent to now contend that the subject property was agricultural land and that unless it is converted for non-agricultural use, the 2nd respondent will not be able to register the land under the Registration Act, 1908 and only the jurisdictional Tahsildar, is competent to register the sale certificate. 22. The learned Government Pleader for Revenue, appearing for 2nd respondent, did not dispute the fact that the 5th respondent was running a factory since 1996 and had paid assessment under the A.P. Non-Agricultural Assessment Act, 1963 since 1996-97. 23. 22. The learned Government Pleader for Revenue, appearing for 2nd respondent, did not dispute the fact that the 5th respondent was running a factory since 1996 and had paid assessment under the A.P. Non-Agricultural Assessment Act, 1963 since 1996-97. 23. Therefore, there is no basis for the 2nd respondent to contend that the subject land, merely because it was described in “guntas” and not in “square yards/square meters” continues to be agricultural land, notwithstanding the non-agricultural use to which it was put to since 1996. Therefore, he cannot contend that he has no jurisdiction to receive the sale certificate presented by the Bank and the auction purchaser and only the jurisdictional Tahsildar is empowered to receive and register the said sale certificate. 24. Regarding the inclusion of the subject land in the prohibitory list prepared under Section 22-A of the Registration Act, 1908 on account of alleged VAT dues to the 3rd respondent and alleged Income Tax dues to the 4th respondent, it is undisputed that the security interest/charge of the Bank over the subject property was registered way back on 08.04.2000 and was reiterated on 21.09.2012 when the 5th respondent was in possession of the property and had created such charge for its working capital loan requirements. 25. Sec.26-E of the SARFAESI Act,2002 introduced by Act 44 of 2016 w.e.f. 24.1.2020 states: "26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and 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." 26. Thus the above provision gives priority to claims of secured creditors like the petitioner Bank over the dues of the State such as Service Tax dues/ Income Tax dues and the non-obstante clause therein overrides the provisions of the Income Tax Act, 1961 and the Telangana VAT Act, 2005. 27. Thus the above provision gives priority to claims of secured creditors like the petitioner Bank over the dues of the State such as Service Tax dues/ Income Tax dues and the non-obstante clause therein overrides the provisions of the Income Tax Act, 1961 and the Telangana VAT Act, 2005. 27. Sec.35 of the SARFAESI Act, 2002 gives overriding effect to the said statute over anything inconsistent therewith in any other law. It states: “Sec.35. The provisions of this Act to override other laws.— The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” 28. In our considered opinion, after introduction of Section 26-E of the SARFAESI Act, 2002 w.e.f. 24-01-2020, once the security interest created in favour of the Bank is registered with the Central Registry of Securitization Asset Reconstruction and Security Interest (CERSAI), the non-obstante clause contained in Section 26-E r/w Section 35 of the SARFAESI Act, 2002 will come into play and override the provision such as Section 26 of the Telangana VAT Act, 2005 (which give priority to VAT dues over any other claim) or the order of attachment dt.09.09.2016 issued by the Tax Recovery Officer under Rule 48 of the II Schedule to the Income Tax Act, 1961. 29. A Division Bench of this Court to which one of us (Justice M.S. Ramachandra Rao) was a member had held in the decision in State Bank of India (supra) that after the advent of Section 26-E r/w Section 35 of the SARFAESI Act, 2002 and also Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 (inserted by Section 249 of V Schedule to the IBC, 2016), secured creditors like the petitioner-Bank have priority over the dues of Central Government or State Government Authorities such as Service Tax/Income Tax dues and that the non obstante clause therein will override the provisions of the Finance Act, 1994 or the Income Tax Act, 1961. 30. This legal position is not disputed by Sri K.Raji Reddy, learned Special Standing Counsel for the Commercial Tax Department (3rd respondent) or Ms.Mamatha Choudary, learned Senior Standing counsel for the Income Tax Department (4th respondent). 31. 30. This legal position is not disputed by Sri K.Raji Reddy, learned Special Standing Counsel for the Commercial Tax Department (3rd respondent) or Ms.Mamatha Choudary, learned Senior Standing counsel for the Income Tax Department (4th respondent). 31. Accordingly, the Writ Petition is allowed; proceedings Rc.No.36950217184/2016-17 dt.05.10.2016 addressed by the 3rd respondent to the 2nd respondent and proceedings F. No. TRO/TRC No.207/2014-15 dt.09.09.2016 issued by the 4th respondent are both set aside; and a Writ of Mandamus is issued directing the 2nd respondent to receive the sale deed submitted by the petitioner Bank for transfer of property viz., commercial unit bearing D.No.12- 10 with land admeasuring Ac.0.25 gts in Sy.No.657 of Satamrai village, Shamshabad Mandal, Ranga Reddy District, in favour of the auction purchaser as per the sale certificate issued under the provisions of the SARFAESI Act, 2002, and register it within four (04) weeks of such presentation of sale deed by them, if it is otherwise in conformity with the Stamp Act,1899 and the Registration Act,1908 by collecting the applicable stamp duty and Registration charges, without raising a plea that the land is agricultural land, and without reference to the letter Rc.No.36950217184/2016-17 dt.05.10.2016 addressed by 3rd respondent to the 2nd respondent or attachment order F.No.TRO/TRC No.207/2014-15 dt.09.09.2016 issued by 4th respondent, and the prohibitory list maintained by 2nd respondent. No costs. 32. Pending miscellaneous petitions, if any, in this Writ Petition shall also stand dismissed.