Research › Search › Judgment

Bombay High Court · body

2024 DIGILAW 581 (BOM)

Bhushan Ramesh Bramgankar v. State of Maharashtra

2024-04-30

B.P.COLABAWALLA, SOMASEKHAR SUNDARESAN

body2024
JUDGMENT Somasekhar Sundaresan, J. - Rule. With the consent of the parties, rule is made returnable forthwith and the Writ Petition is taken up for final disposal. 2. This Writ Petition is essentially a challenge to the continued assertion of rights by the State of Maharashtra against the purchaser of two properties auctioned by Respondent No. 2, State Bank of India ('SBI'), in enforcement of a mortgage created by an erstwhile owner of the properties. 3. For the reasons set out in this judgement, we allow the Writ Petition with appropriate directions, by reason of the entitlements conferred by Section 26-C read with Section 26-E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act'). Factual Matrix: 4. The Petitioner is a purchaser of two properties ('Secured Assets') sold in auction by SBI. The details of the Secured Assets and the purchase in the auction are summarised in the table below:- Sr. No Property Details Value Date of Auction 1. Non-agricultural plot of land admeasuring approximately 500 Sq. Mtrs. located at Plot No. A, Sy. No. 893/1/1/2/1 near Siemens Colony, Wadala Pathardi Road, Indira Nagar, Nashik 1,62,36,000 3rd May, 2023 2. Non-agricultural plot of land admeasuring approximately 469.70 Sq. Mtrs. located at Plot No. C, Sy. No. 893/1/1/2/3 near Siemens Colony, Wadala Pathardi Road, Indira Nagar, Nashik 2,28,27,000 20th June, 2023 5. It is common ground between the parties to these proceedings that :- a) The Petitioner paid the aforesaid values for the purchase of the aforesaid Secured Assets in the respective e-auctions within the timelines (including extensions) stipulated by SBI, the details of which are not relevant to the matter at hand. The sale certificates were issued on 1st August, 2023 and 31st July, 2023 respectively; b) The Secured Assets had been mortgaged to State Bank of Bikaner and Jaipur (which later merged into SBI) on 29th March, 2010, in respect of borrowings of Shri Saptashringi Ispat Pvt. Ltd. ('Borrower'); c) The mortgage had been created by one Mr. The sale certificates were issued on 1st August, 2023 and 31st July, 2023 respectively; b) The Secured Assets had been mortgaged to State Bank of Bikaner and Jaipur (which later merged into SBI) on 29th March, 2010, in respect of borrowings of Shri Saptashringi Ispat Pvt. Ltd. ('Borrower'); c) The mortgage had been created by one Mr. Santosh Badriprasad Jaiswal, and had been registered as a security interest in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India ('CERSAI') on 28th March, 2012; d) The Assistant Commissioner, Sales Tax, Nashik has claims of sales tax dues owed by the Borrower, and towards this end, on 12th December, 2020, has caused mutation entries in the land records relating to the Secured Assets in the 'Tenancy, Rent and Other Rights' column of the 7/12 extract' relating to the Secured Assets; and e) When the Petitioner approached the Deputy Sub-Registrar, Nashik for registration of the Secured Assets in his name, he was informed about the aforesaid assertion of rights by the State's tax authorities, and therefore, till date, the Petitioner's ownership interests have not been recorded in the land records, free and clear of all encumbrances, leading to this Writ Petition being filed. Priority of Security Interest - Jalgaon Janta and consequent decisions: 6. The short question that emerges is whether the State's tax authorities can chase either the purchaser of the Secured Assets, or the Secured Assets, towards enforcement of its right to recover State's tax dues, despite a bank as a secured creditor, having a mortgage prior in time and that too, registered with CERSAI. 7. This issue has been answered time and again by this Court, both by another Division Bench in the case of Union Bank of India vs. Deputy Commissioner of Sales Tax & Ors., Writ Petition No. 248 of 2020, disposed of by judgement dated 22nd January, 2024 (by Division Bench comprising G.S. Kulkarni and Firdosh P. Pooniwalla JJ) (Union Bank), as indeed by this very Bench in the case of Indian Overseas Bank vs. Deputy Commissioner of State Tax & Ors, 2024 SCC OnLine Bom 907 (Indian Overseas Bank). Each of Union Bank and Indian Overseas Bank relies on a decision of the Full Bench of this Court in Jalgaon Janta Sahakari Bank & Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai & Anr. Each of Union Bank and Indian Overseas Bank relies on a decision of the Full Bench of this Court in Jalgaon Janta Sahakari Bank & Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai & Anr. , 2022 SCC OnLine Bom 1767 (Jalgaon Janta). 8. Where a secured creditor has registered his security interest with CERSAI prior in time, upon Chapter IVA of the SARFAESI Act coming into force on 24th January, 2020, the order of priority of security interests over the asset in question would follow the priority in which such registration has been effected. By operation of the provisions of Section 26-C(1) of the SARFAESI Act, the registration with CERSAI would act as a public notice. Pursuant to Section 26-C(2) of the SARFAESI Act, the claim of the creditor who registers prior in time would have priority over any subsequent security interest registered over the same asset. The enforcement of the security interest registered subsequently, would be subject to the claim of the creditor whose security interest is registered prior in time. 9. This scheme of the law is very simple and clear, and when applied to the facts of the case, it is apparent that the claim of SBI would have priority over the claim of the State's tax authorities. The mortgage over the Secured Assets in favour of SBI was created in 2010 and was registered in CERSAI in 2012. 10. The provisions of Section 26-C of the SARFAESI Act came into force on 24th January, 2020, and with effect from that date, the priority of registration as obtaining from that date would determine the priority of the right to claim and enforce against the Secured Assets. Therefore, SBI having a higher-ranking security interest would have priority in enforcement action as compared with the State tax authorities. 11. In Union Bank, dealing with a near-identical fact situation, another Division Bench of this Court dealt with a similar conflict between the interests of a lender from whom secured assets were purchased and the interests of the State's tax authorities. In the case of Union Bank, the lender's security interests had been created between 2008 and 2011, with enforcement action having commenced in 2015, while the Deputy Commissioner of Sales Tax initiated attachment proceedings in February 2019. Auctions were conducted between May 2019 and November 2019. In the case of Union Bank, the lender's security interests had been created between 2008 and 2011, with enforcement action having commenced in 2015, while the Deputy Commissioner of Sales Tax initiated attachment proceedings in February 2019. Auctions were conducted between May 2019 and November 2019. The lender's requests to the State's tax authorities to remove their encumbrances was not paid heed to, leading to that petition. The registrations with CERSAI had been effected in 2013. Citing copiously from the Full Bench decision in the case of Jalgaon Janta (Paragraphs 84 to 89; Paragraph 92; and Paragraphs 189 to 192 thereof), the Division Bench clearly held that the Sales Tax Department cannot claim priority over the dues payable to the lender who is the secured creditor. We are in agreement with this conclusion. It is clear from Jalgaon Janta that even where there is an attachment order of the Sales Tax authorities prior to 24th January, 2020 (when Section 26-E of the SARFAESI Act was brought into effect), but no further steps were taken before the said date towards issuing a proclamation of sale, the Sales Tax Department cannot claim priority over the dues payable to the Secured Creditor, who enjoys the entitlement to priority under Section 26-E read with Section 26-C(2) of the SARFAESI Act. 12. Likewise, in Indian Overseas Bank, this very Bench, also relying onJalgaon Janta (Paragraphs 82 to 85; and Paragraphs 88 to 92 thereof) returned a similar finding. In the interest of brevity, all the extracts from Jalgaon Janta cited in Union Bank and in Indian Overseas Bank are not extracted again. Proposition of Continued Enforcement: 13. Ms. Jyoti Chavan, the Learned Additional Govt. Pleader on behalf of the State, suggested that the priority may only mean that the first shot at enforcement would be at the hands of the creditor whose interest is registered earlier, but that does not mean that the subsequently registered interest cannot be enforced thereafter. Such an argument is not consistent with the explicit provisions of Section 26-C(2) of the SARFAESI Act, which clearly provides that any enforcement of the subsequently registered security interest would be subject to the claim of the creditor whose security interest is registered prior. This simply means that the enforcement of the subsequently registered security interest is subservient to the enforcement of the security interest registered prior. This simply means that the enforcement of the subsequently registered security interest is subservient to the enforcement of the security interest registered prior. In other words, once an enforcement of a security interest is effected against a secured asset, the enforcement of the subsequently registered security interest would lead to an entitlement to any surplus or residual proceeds arising out of the enforcement of the prior security interest, and by no stretch could the subservient security interest be regarded as a fresh and wholesome security interest to be enforced again against either the asset in question or against the purchaser of such asset. 14. In our opinion, it would be absurd to suggest that every subsequent security interest, evidently having subservient and lower priority would get to continue enforcement against the same asset, each time in the hands of the next purchaser. Such a construction would turn the very concept of priority in enforcement on its head. In Indian Overseas Bank, the same argument was dealt with in the following words:- 35 . As a last ditch-effort, Mrs. Vyas presented us with a unique proposition. It was her contention that notwithstanding the fact that the secured creditor has the first charge and priority for recovery of dues from the sale of the secured asset, the MVAT Authorities can once again chase the very same asset in the hands of the purchaser and put it up for sale towards recovery of their dues. 36. Such a proposition has only to be stated to be rejected.. The creation of the mortgage over the asset would mean that the charge is over the asset. Once the security interest is enforced, the asset would no longer be available for further enforcement. The proposition canvassed by Mrs. Vyas would render Section 26-E meaningless, because if that were the legal position, the creation of priority in favour of the secured creditor would have no meaning. Put differently, according to the proposition suggested, the secured creditor would first enforce its charge against the asset and thereafter the MVAT Authorities would yet again enforce their charge against the very same asset to recover their dues. Thereafter if there are other security interests with an inferior priority, every single beneficiary of every such security interest would keep enforcing their security interest against the very same asset. Thereafter if there are other security interests with an inferior priority, every single beneficiary of every such security interest would keep enforcing their security interest against the very same asset. Such an absurd proposition turns on its head, the very meaning of having a security interest over an asset in priority over others. Needless to say, no person in his right mind would ever bid for an asset against which enforcement of multiple charges is contemplated. This because he would have to face the endless queue of subsequent enforcement actions against the very same asset. To underline the absurdity, for example, if the secured asset were being sold when its market value is Rs.5 Crores and the dues of the MVAT Authorities are Rs.10 Crores, a potential purchaser of the property would effectively have to be ready to pay Rs.15 Crores for the property worth Rs.5 Crores. This would indeed be absurd to say the least. We therefore have no hesitation in rejecting this argument canvassed by Mrs.Vyas. [Emphasis Supplied] Directions and Declarations: 15. In the result, the Writ Petition deserves to be allowed. We, therefore, issue the following directions and declarations:- (a) SBI enjoys priority of security interest and its enforcement over the Secured Assets, as compared with the interests of the State; (b) SBI having sold the Secured Assets pursuant to the enforcement measures under the SARFAESI Act (not only by reason of the priority under Section 26-C(2) but also by reason of Section 26-E of the SARFAESI Act), was entitled to be paid in priority over the State tax authorities. By a conjoint reading of the two provisions, the enforcement against the Secured Assets led to a clean and clear title free from the purported encumbrance claimed by the State's tax authorities being vested in the Petitioner, who is the purchaser of the Secured Assets in the auction; (c) The State's tax authorities are indeed entitled to any residual proceeds from the sale towards discharge of the Borrower's dues owed to them. Towards this end, SBI is directed to provide to the State, a statement of accounts in respect of the dues owed by the Borrower to SBI and the appropriation of sale proceeds by SBI pursuant to the auction of the Secured Assets; (d) Consequently, mutation entries indicating an interest enjoyed by the State's tax authorities over the Secured Assets towards tax dues are directed to be removed within a period of two weeks from today. The registrar's office is also directed to register the transfer of the Secured Asset from the erstwhile owners to the Petitioner in accordance with law, within a period of two weeks from today; and (e) Nothing contained in this judgement is an expression of an opinion on the right of the State's tax authorities to undertake enforcement action in accordance with law against any other assets, properties and persons that are not subject matter of a registered security interest registered in favour of any secured creditor under the SARFAESI Act, and which may therefore be amenable to enforcement for recovery of tax arrears owed by the Borrower. 16. Rule is made absolute in the aforesaid terms. The Writ Petition is disposed of accordingly. Although the petition stands disposed of, we place the same for reporting compliance on 18th June, 2024. 17. This judgement will be signed digitally by the Private Secretary / Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this judgement.