Bombay High Court
Punjab National Bank , Bandra E Mumbai vs Maa Banbhori Steel Industry Pvt. Ltd. ... on 29 October, 2018
Bench: K. K. Tated, N. J. Jamadar
(16) WP 11018-18.doc
Amk
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 11018 OF 2018
Punjab National Bank, Bandra (E), Mumbai .. Petitioner
Vs.
Maa Banbhori Steel Industry Pvt. Ltd. & Ors. .. Respondents
Mr. Pankaj Vijayan I/b Intralegal for the Petitioner.
Mr. A. P. Vanarase, AGP for the Respondent-State.
Mr. Aditya Bapat, Spl. Counsel for Respondent No.3.
CORAM : K. K. TATED AND
N. J. JAMADAR, JJ.
th DATE : 29 OCTOBER, 2018.
P. C.
1. This Writ Petition under Articles 226 and 227 of the Constitution of India, the Petitioner seeks, inter alia, a writ of certiorari and for any other appropriate writ, order or direction to the Sub-Registrar, Dindori (Respondent No.4) to accept the Sale Certificate dated 25.07.2018 executed by the Petitioner in favour of Respondent No.2 as per the Securitisation and Reconstructionof Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) in respect of secured assets i.e. factory land and building, plant situated at Survey No.7, Gat No.11/C at village Dindori, Taluka-Dindori, District Nashik admeasuring 8000 square meters.
2. The substance of the Petition is that the Respondent No.4 has 1/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 ::: (16) WP 11018-18.doc verbally declined to register the Sale Certificate on the premise that on the record of rights of the afore-mentioned secured assets, there is an endorsement of attachment to the tune of Rs.13,63,744/- as of 10.11.2015, on account of Sales Tax dues.
3. The learned Counsel for the Petitioner submitted that in view of the provisions contained in Section 26-E of the SARFAESI Act, the secured creditor has priority over the claims of even statutory creditors. It was further submitted that the issue has been considered by a Full Bench of Madras High Court in Writ Petition 2675 of 2011 along with connected matters, in the matter of The Assistant Commissioner (CT) Vs. The Indian Overseas Bank & Anr.
4. In the aforesaid case, the Full Bench of the Madras High Court, after considering the provisions of Section 31B of The Recovery of Debts and Bankruptcy Act, 1993, which are pari materia with Section 26-E of the SARFAESI Act enunciated law as under:
"3. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 2/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 ::: (16) WP 11018-18.doc 01.09.2016.
4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.
5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property.
6. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes "secured debts due and payable to them by sale of assets over which security interest is created".
5. In view of express provisions of Section 26-E and the aforesaid pronouncement, according to the learned Counsel for the Petitioner, the refusal of Respondent No.4 to register the Sale Certificate, on the premise that there are dues of the Sales Tax Department, is totally unjustifiable.
6. In contrast, it was sought to be urged on behalf of Respondent No.4 that the Petitioner did not tender the documents to the registering authority for proper adjudication and levy of stamp duty. Mr. Namdeo Madhukar Patil, Sub-Registrar, Dindori has sworn an Affidavit to that effect. Upon perusal of the Affidavit, this Court noticed that Respondent No.4 is also placing reliance on the amended Rule 44 of the Maharashtra 3/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 ::: (16) WP 11018-18.doc Registration Rules, 1961. Clause (i) of the said Rule, reads as under:
"(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."
7. The learned Government Pleader, however, could not point out the express prohibition contained in the State Act which would warrant the production of No Objection Certificate from the Competent Authority i.e. the Sales Tax Department in the case in hand.
8. We have heard the learned Counsel Mr. Bapat for Respondent No.3- Sales Tax Department. The learned Counsel for Respondent No.3 made a strenuous effort to distinguish the ruling of the Madras High Court in the case of The Assistant Commissioner (CT) (supra), on the premise that the issue has not been squarely considered in the said ruling. A submission was made to the effect that since Section 26-E of the Act came into force by Act 44 of 2016 and the endorsement of attachment in respect of Sales Tax dues was made prior thereto, the accrued right in favour of the Sales Tax Department would enure to the Sales Tax Department notwithstanding introduction of Section 26-E in the SARFAESI Act. Section 26-E of the SARFAESI Act reads as under:
4/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 :::
(16) WP 11018-18.doc "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." Section 37 of the Maharashtra Value Added Tax Act, 2002 (MVAT Act) reads as under:
"37. Liability under this Act to be the first charge -
[(1)] Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person.
[(2) "(2) The first charge as mentioned in sub-section (1) shall be deemed to have been created on the expiry of the period specified in sub-section (4) of section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount.]"5/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 :::
(16) WP 11018-18.doc
9. We are of the, prima facie, view that the provisions of Section 26-E of the SARFAESI Act have overriding effect. Section 37 of the MVAT Act, is expressly made subject to the provisions of any Central Act which create first charge. The fact that the provisions of Section 26-E came into force by Act 44 of 2016 do not detract materially from the overriding effect of the provisions of the said Section, especially, in the facts of the case at hand, as the security interest was created in pursuance of the mortgage registered on 05.03.2010.
10. A Division Bench of this Court in Writ Petition No. 1796 of 2015 in the case of Axis Bank Limited Vs. State of Maharashtra and Ors. (MANU/MH/0379/2017) decided on 07.03.2017 had an occasion to consider the import of legislative change, in view of introduction of the Section 26-E of the SARFAESI Act. This Court had, inter alia, observed in paragraph 22 as under:
"22. Though the learned counsel appearing for the respondent State is justified in contending in normal circumstances in view of the provisions of SARFAESI Act (Unamended) primacy can be extended to the provisions like Section 38-C of the Bombay Sales Tax Act or Section 37 of the MVAT Act. Section 13 envisages application of money received by the secured creditor and by adopting any of the measures specified in Section 13 (4) merely regulates distribution of money received by the secured creditor 6/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 ::: (16) WP 11018-18.doc and it does not create first charge in favour of the secured creditor.
Though in normal course in view of Section 35 of the SARFAESI Act, 2002 no priority can be claimed by the bank or financial institutions over the State's statutory first charge in the matter of recovery of dues of sales tax etc. However, in respect of company under liquidation, in view of the provisions of Section 529-A of the Companies Act, a distinction has to be made and as has been laid down by the Division Bench of this Court in the matter of SICOM Ltd, which view has been upheld by the Supreme Court, the claim of the secured creditor in respect of the company being under liquidation shall have the priority in view of the language applied in Section 529-A of the Companies Act, 1956. It also must be taken note of that there is statutory recognition of priority claim of the secured creditor in view of the amendment brought into effect by virtue of Act No.44 of 2016 thereby introducing section 26E providing for priority to secured creditor over all other debts and all taxes, cess and other rates payable to Central Government or the State Government or the Local Authority. The applicability of provisions of Section 31-B of RDB Act which is pari materia to Section 26E of the SARFAESI Act was subject matter for consideration before the Full Bench of the Madras High Court in the matter of Assistant Commissioner (CT) Chennai vs. the Indian Overseas Bank decided on 11.11.2016 and the Full Bench has observed in paragraph 4 of the Judgment that "the law having now been come into force naturally it would govern the rights of the parties in respect of even lis pendence" We do not propose to analyse the Full Bench judgment delivered by the Madras High Court."
(emphasis supplied) 7/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 ::: (16) WP 11018-18.doc
11. In the circumstances, we are of the view that the question of preferential claim of the Petitioner and Respondent No.3 qua the secured assets can be considered and determined after providing opportunity to the Respondent No.3 to put forth its case. In the meanwhile, however, the registering authority is not justified in refusing to register the instrument, and therefore, we are inclined to pass the following directions:
(i) The Petitioner shall tender the Sale Certificate, registration of which is sought, before the Respondent No.4 tomorrow.
(ii) Respondent No.4 shall carry out the necessary process of adjudication and determine the stamp duty to be levied on the said instrument by 01.11.2018.
(iii) The Registry is directed to list the matter on 02.11.2018.
[N. J. JAMADAR, J.] [K. K. TATED, J.] 8/8 ::: Uploaded on - 01/11/2018 ::: Downloaded on - 02/11/2018 00:52:53 :::