Karnataka High Court
Balakrishna G vs The Sub Registrar on 19 July, 2024
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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NC: 2024:KHC:28311
WP No. 10383 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR
WRIT PETITION NO. 10383 OF 2024 (GM-ST/RN)
BETWEEN:
1. BALAKRISHNA G
AGED ABOUT 32 YEARS,
SON OF LATE K GOVINDASWAMY NAIDU,
2. SMT K NEELA
W/O LATE K GOVINDA SWAMY NAIDU,
AGED ABOUT 55 YEARS,
3. SMT G NETHRAVATHI
W/O T SHIVAIAH NAIDU,
AGED ABOUT 35 YEARS,
4. T SHIVAIAH NAIDU
S/O T CHINNABBA NAIDU,
AGED ABOUT 39 YEARS,
ALL THE PETITIONERS ARE
RESIDING AT NO.29/A, 2ND MAIN,
7TH CROSS, RANGAPPA LAYOUT,
Digitally signed
BSK STAGE 3,
by Vandana S
BENGALURU 560 085.
Location: HIGH ...PETITIONERS
COURT OF
KARNATAKA (BY SRI. S.BASAVARAJ, SENIOR COUNSEL FOR
SRI. OMKAR BASAVA PRABHU., ADVOCATE)
AND:
1. THE SUB REGISTRAR
JAYANAGAR DISTRICT (KENGERI),
2ND FLOOR, MYSORE ROAD,
KENGERI, BANGALORE 560 060.
2. ASSISTANT DIRECTOR
OFFICE OF THE JOINT DIRECTOR,
DIRECTORATE OF ENFORCEMENT,
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NC: 2024:KHC:28311
WP No. 10383 of 2024
BANGALORE ZONAL OFFICE,
3RD FLOOR, B BLOCK, BMTC,
SHANTHINAGAR TTMC KH ROAD,
SHANTHINAGAR,
BANGALORE 560 027.
3. PUNJAB NATIONAL BANK
REP BY ITS AUTHORIZED OFFICER,
HAVING ITS OFFICE AT CIRCLE SASTRA BRANCH,
2ND FLOOR, 26-27 RAHEJA TOWERS
MG ROAD, BANGALORE 560 001.
...RESPONDENTS
(BY SRI.N.B. PATIL., AGA FOR R-1
SRI. UNNIKRISHNA.M, ADVOCATE FOR R-2
SRI. VIGNESH SHETTY., ADVOCATE FOR R-3)
THIS W.P IS FILED UNDER ARTICLES 226 AND 2227 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED
ENDORSEMENT DTD 22.03.2024, BEARING REF NO.K/UNOKA/ / 731/23-24
ISSUE BY R-1 AT ANNEXURE-A.
THIS PETITION, COMING ON FOR ORDERS, THIS DAY, THE
COURT MADE THE FOLLOWING:
ORDER
In this petition, petitioners have sought for the following reliefs:-
" A) Issue a writ or Order by way of certiorari quashing the impugned Endorsement dated: 22.03.2024, bearing ref No. K/UNOKA/731/23-24 issued by Respondent No.1 at Annexure-A. B) Issue a writ or Order by way of Mandamus Directing respondent no. 1 to register the sale certificate dated: 20.03.2024 executed in favour of the petitioners by respondent NO.3 at Annexure-B. -3- NC: 2024:KHC:28311 WP No. 10383 of 2024 C) Grant any additional order or directive that this Honorable Court consider appropriate under the given facts and circumstances of the case, including any applicable costs, in the pursuit of justice and equity.'
2. Heard learned Senior counsel for the petitioners and learned AGA for the 1st respondent as well as learned counsel for respondents 2 and 3 and perused the material on record.
3. A perusal of the material on record will indicate that the 3rd respondent - Bank brought the subject property to sale by way of a public auction to liquidate debt owed by one M/s.Acropetal Technologies Ltd., and a public auction was conducted on 14.03.2024, in which, petitioners are the successful bidders and the sale in their favour was confirmed and a sale certificate dated 20.03.2024 was issued in favour of the petitioners. It is the grievance of the petitioners that when they approached the 1st respondent - Sub-Registrar seeking registration of the sale certificate executed in their favour, the 1st respondent issued the impugned Endorsement at Annexure-A dated 22.03.2024 refusing to take steps for registration of the sale certificate on the ground that a letter dated 01.10.2018 was written by the 2nd respondent -
Enforcement Directorate (ED), which required permission to be -4- NC: 2024:KHC:28311 WP No. 10383 of 2024 obtained from the ED before proceeding for registration. Aggrieved by the impugned Endorsement dated 22.03.2024 issued by the 1st respondent refusing registration of the sale certificate, petitioners are before this Court by way of the present petition. In support of his contention, reliance is placed upon the judgment of the Bombay High Court in the case of SBICAP Ventures Ltd, Vs. Joint Director, Directorate of Enforcement (Bengaluru Zonal Office) and others- W.P.No.1360/2023 dated 20.03.2023(Bombay); and judgments of this Court in the cases of T.Bharat Gowda vs. State of Karnataka & others - W.P.No.7872/2024 dated 28.05.2024 as well as Sri.K.M.Srikanta vs. State of Karnataka & others -
W.P.No.10530/2023 dated 29.05.2024.
4. While the 3rd respondent - Bank which has issued the sale certificate in favour of the petitioners would support the claim of the petitioners, the 1st respondent - State and 2nd respondent -
ED would reiterate the contentions urged in the statement of objections and submit that there is no merit in the petition and that the same is liable to be dismissed. It is also submitted that the 3rd respondent - Bank has instituted proceedings before the DRT in T.S.A.No.5/2024 against the mortgagor of the subject property, the -5- NC: 2024:KHC:28311 WP No. 10383 of 2024 said mortgagor has also preferred W.P.No.19356/2019 before this Court against the ED and others, in which, there is an interim order of stay which is in force from 25.04.2019 onwards. It is therefore submitted that there is no merit in the petition and that the same is liable to be dismissed.
5. I have given my anxious consideration to the rival submissions and perused the material on record.
6. A perusal of the impugned Endorsement at Annexure-A dated 22.03.2024 will clearly indicate that the sole ground on which the 1st respondent / Sub-Registrar has refused registration of the sale certificate is on account of letter / communication dated 01.10.2018 said to have been issued by the 2nd respondent - ED, who has put forth a claim over the subject property. In this context, it is relevant to state that there is no statutory provision under the Prevention of Money Laundering Act, 2002 (for short 'the PMLA') which empowers, enables or authorizes the 2nd respondent - ED to call upon the Registering Authority not to register the sale certificate in relation to an immovable property on the ground that the ED has a claim over the said property. It follows therefrom that in the absence of any provision either under the PMLA or any other -6- NC: 2024:KHC:28311 WP No. 10383 of 2024 law which could have been invoked by the ED so as to prevent registration of the subject sale certificate, the impugned Endorsement issued by the 1st respondent - Sub-Registrar refusing registration is clearly illegal, arbitrary and without jurisdiction or authority of law and the same deserves to be quashed.
7. It is well settled that the rights of the 3rd respondent -
secured creditor under the provisions of the SARFAESI Act would prevail over the claim of the ED under the PMLA, which would be subservient to the rights of the 3rd respondent - Bank as held by the Bombay High Court in SBICAP's case supra. Further, in K.M.Srikanta's case supra, this Court while dealing with an Endorsement in relation to a demand made by the Registering authorities to pay stamp duty on a sale certificate issued in favour of an auction purchaser came to the conclusion that it was incumbent upon the authorities to make an Entry in Book No.1 in the light of Section 89(4) of the Registration Act, 1908 by holding as under:-
6. Before adverting to the rival contentions it would be necessary to extract Section 89(4) of the said Act of 1908, which reads as under:-7-
NC: 2024:KHC:28311 WP No. 10383 of 2024 "89. Copies of certain orders, certificates and instruments to be sent to registering officers and filed.
(1) xxxx (2) xxxx (3) xxxx (4) Every Revenue Officer granting a certificate of sale to the purchaser of immovable property sold by public auction shall send a copy of the certificate to the registering officer within the local limits of whose jurisdiction the whole or any part of the immovable property comprised in the certificate is situate, and such officer shall file the copy in his Book No. 1."
7. A plain reading of Section 89(4) of the said Act of 1908 is sufficient to come to the conclusion that immediately after the Registering Officer receiving the Sale Certificate from the Officer/Official Liquidator, it is incumbent upon him to make an entry in this regard without insisting upon payment of stamp duty. The said issue/question came up for consideration before the Apex Court in the case of The Inspector General of Registration & Anr. Vs. G. Madhurambal & Anr. (supra), wherein it is held as under:
"Learned counsel for the petitioner(s) has made a valiant endeavor to persuade us to interfere with the impugned judgment(s) but not successfully. It is logically so as this issue has been repeatedly settled and if one may say, a consistent view followed for the last 150 years. We may refer to the judgments by the Madras High Court in the Board of Revenue No.2 of 1875 (In Re: Case Referred) dated 19.10.1875 opining that a certificate of sale cannot be regarded as a conveyance subject to stamp duty, by the Allahabad High Court in Adit Ram v. Masarat-un-Nissa1 opining that a sale certificate is not an instrument of the kind mentioned in clause (b) of Section 17 of Act III of 1877 and is not compulsorily registrable and this Court's view in Esjaypee Impex Pvt. Ltd. v. Asst. General Manager and Authorised Officer, Canara Bank opining that the mandate of -8- NC: 2024:KHC:28311 WP No. 10383 of 2024 law in terms of Section 17(2)(xii) read with Section 89(4) of the Registration Act, 1908 only required the Authorised Officer of the Bank under the SARFAESI Act to hand over the duly validated Sale Certificate to the Auction Purchase with a copy forwarded to the Registering Authorities to be filed in Book I as per Section 89 of the Registration Act and order of this Court in M.A. No.19262/2021 in SLP(C) No.29752/2019 dated 29.10.2021 opining that once a direction is issued for the duly validated certificate to be issued to the auction purchaser with a copy forwarded to the registering authorities to be filed in Book I as per Section 89 of the Registration Act, it has the same effect as registration and obviates the requirement of any further action.
2. It is time that the authorities stop filing unnecessary special leave petitions only with the objective of attaining some kind of a final dismissal from this Court every time. Costs this time has been spared but will not be spared the next time.
3. The needful be done in terms of the impugned judgment(s) within 15 days from today.
4. The special leave petitions are dismissed.
5. Pending applications stand disposed of."
8. A similar view was taken by this Court in Panduranga Acharya's case (supra), wherein it was held as under:
" 3. The brief facts are that the petitioner is the purchaser in respect of the auction conducted by Union Bank of India for realising certain sum due from the borrowers. The Sale Certificate dated 4-12-2012 as at Annexure-B was issued in favour of the petitioner. However, the borrower had assailed the action of Union Bank of India by filing an appeal before the Debts Recovery Tribunal. The proceedings in the Debts Recovery Tribunal came to be disposed of on 21-10-2013. In that circumstance, the Sale Certificate was required to be entered in the Register maintained in the Office of the first respondent. The Union Bank of India being exempted from appearance before the Authority, had issued a letter dated 9-11-2013 (Annexure-D) addressed to the first 3 -9- NC: 2024:KHC:28311 WP No. 10383 of 2024 respondent. Pursuant thereto the petitioner has also addressed a communication dated 13-11-2013 to the first respondent. The first respondent has however issued an endorsement dated 23-11-2013 stating therein that registration of the document cannot be made after lapse of four months from the date of execution of the Sale Certificate. Though from the manner in which the endorsement has been issued to the petitioner, it is seen that the first respondent has construed it as registration and applied the time stipulated under Section 23 of the Registration Act, 1908, what is necessary to be noticed is that in the instant case, the first respondent was required to enter the transaction of Sale Certificate in Book-I maintained by them as contemplated under Section 89 of the Act.
4. If this aspect of the matter is kept in view, all that the first respondent was expected to do is to follow the procedure as contemplated under Section 89 of the Act by entering the Sale Certificate in favour of the petitioner in Book-I as maintained in the said Office or by making such entry in electronic records. This position of law has already been clarified by the Hon'ble Supreme Court in the case of SMT. SHANTI DEVI L. SINGH V. TAX RECOVERY OFFICER AND OTHERS reported in AIR 1991 SC 1880 and also by this Court in the case of THOMSON PLANTATION (INDIA) PRIVATE LIMITED, KODAGU v. SENIOR SUB-
REGISTRAR, MADIKERI AND ANOTHER reported in 2006 (1) KAR LJ 403. In that view of the matter, the endorsement dated 23-11-2013 impugned at Annexure-A to the petition is not sustainable and the same is accordingly quashed.
5. A direction is issued to the first respondent to enter the transaction of the Sale Certificate in favour of the petitioner in Book-I as contemplated under Section 89 of the Act and provide such documents in favour of the petitioner in accordance with law. The said procedure shall be complied by the first respondent as expeditiously as possible, but not later than four weeks from the date on which a certified copy is furnished to the first respondent. The petition stands disposed of in above terms."
9. As it is clear from the provision contained in Section 89(4) of the said Act of 1908 and the judgment of the
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NC: 2024:KHC:28311 WP No. 10383 of 2024 Apex Court as well as this Court, referred to supra, immediately upon receipt of Sale Certificate dated 20.04.2023 from the Official Liquidator, NCLT, respondent No.3 was duty bound to make an entry in this regard in Book No.1 of the record in terms of Section 89(4) of the said Act of 1908 without insisting or calling upon the petitioner to pay stamp duty and consequently, the impugned endorsement at Annexure-A is not only illegal and arbitrary, but also without jurisdiction or authority of law and also contrary to the provisions contained in Section 89(4) of the said Act of 1908, warranting interference by this Court in the present petition.
8. So also, in T.Bharat Gowda's case supra, this Court held as under:-
" 9. The afore-narrated facts are not in dispute. In a public auction conducted by the 3rd respondent, the petitioner emerges as the successful bidder of the property owned by the borrowers. This leads the Bank issuing a sale certificate in favour of the petitioner on 30-09-2022. The petitioner desirous of getting the sale certificate registered, approaches the jurisdictional Sub-Registrar and pays amounts/fees that are required for registration of a document. After all this, when the petitioner sat before the Sub-Registrar, he was given to understand that the document would not be registered. The reason was that a claim of the Income-Tax Department still hangs on the head of the borrowers of the property and, therefore, the document cannot be registered. Whether such discretion is available to the Sub-Registrar is what is required to be
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NC: 2024:KHC:28311 WP No. 10383 of 2024 noticed. The document of registration i.e., the sale certificate had emanated from the proceedings under the SARFAESI Act. Section 26-E of the SARFAESI Act, reads as follows:
"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.
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."
(Emphasis supplied) Section 26E mandates priority to secured creditors over any other law for the time being in force after the registration of security interest. Section 35 of the Act reads as follows:
"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."
(Emphasis supplied) Section 35 of the Act mandates that the SARFAESI Act will have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. These are the rights of secured creditor under the Act. To put in one word - the right of the secured creditor is "unstoppable" except if it is interdicted by any order of a Court of law, which is admittedly absent in the case at hand. There is no
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NC: 2024:KHC:28311 WP No. 10383 of 2024 proceeding initiated by the borrowers before any judicial or quasi-judicial fora.
10. Registration of a document is under the Registration Act, 1908. Refusal to register a document is dealt with under Section 71 of the Registration Act. The Sub-Registrar can refuse registration of a document on grounds that are set out therein. Section 71 of the Registration Act reads as follows:
"71. Reasons for refusal to register to be recorded.--(1) Every Sub-Registrar refusing to register a document, except on the ground that the property to which it relates is not situate within his sub-district, shall make an order of refusal and record his reasons for such order in his Book No. 2, and endorse the words "registration refused" on the document; and, on application made by any person executing or claiming under the document, shall, without payment and unnecessary delay, give him a copy of the reasons so recorded.
(2) No registering officer shall accept for registration a document so endorsed unless and until, under the provisions hereinafter contained, the document is directed to be registered."
(Emphasis supplied) Invoking its power to frame Rules under the Registration Act, the Karnataka Government has promulgated 'the Karnataka Registration Rules, 1965' ('hereinafter referred to as 'the Rules' for short). Chapter-XXIV of the Rules deals with refusal to register. Rule 171 therein deals with reasons for refusal to register. The reasons are enumerated therein. Rule 171 reads as follows:
"171. Reasons for refusal to register.- When registration is refused, the reasons for refusal shall be at once recorded in Book 2. They will usually come under one or more of the heads mentioned below.
(i) Section 19.- that the document is written in a language which the Registering Officer does not understand and which is
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NC: 2024:KHC:28311 WP No. 10383 of 2024 not commonly used in the district, and that if is unaccompanied by a true translation or a true copy;
(ii) Section 20.- that it contains unattested interlineations, blanks, erasures, or alterations which in the opinion of the Registering Officer require to be attested;
(iii) Section 21(1) to (3) and Section 22.- that the description of the property is insufficient to identify it or does not contain the information required by Rule 15;
(iv) Section 21(4).- that the document is unaccompanied by a copy or copies of any map or plan which it contains;
(v) Rule 50.- that the date of execution is not stated in the document or that the correct date is not ascertainable or altered so as to make it unascertainable;
(vi) Section 23, 24, 25, 26, 72 ,75 and 77.- that it is presented after the prescribed time;
(vii) Section 32, 33, 40 and 43.- that it is presented by a person who has no right to present it;
(viii) Section 34.- that the executing parties or their representatives, assigns, or agents have failed to appear within the prescribed time;
(ix) Section 34 and 43.- that the Registering Officer is not satisfied as to the identity of a person appearing before him who alleges that he has executed the document or when an executant is not, identified to the satisfaction of the Registering Officer.
(x) Section 34 and 40.- that the Registering Officer is not satisfied as to the right of a person appearing as representative, assignee or agent, so to appear;
(xi) Section 35.- that execution is denied by any person purporting to be an executing party or by his agent;
Note,- When a Registering Officer is satisfied that an executant is purposely keeping out of the way with a view to evade registration of document or has gone to a distant place and is not likely to return to admit execution within the prescribed time, registration may be refused, the non appearance being treated as tantamount to denial of execution.
(xii) Section 35.- that the person purporting to have executed the document is a minor, an idiot or a lunatic;
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NC: 2024:KHC:28311 WP No. 10383 of 2024 Note.- When the executant of a document who is examined under a Commission under Section 38 of the Act is reported by the Commissioner to be a minor, an idiot or a lunatic, registration may be refused and it is not necessary that the Registering Officer should personally examine the executant to satisfy himself as to the existence of the disqualification.
(xiii) Section 35.- that execution is denied by the representative or assign of a deceased person by whom the document purports to have been executed.
Note.- When some of the representatives of a deceased executant admit and the others deny execution, the registration of the document shall be refused in toto, the persons interested being left to apply to the Registrar for an enquiry into the fact of execution.
(xiv) Sections 35 and 41.- that the alleged death of a person by whom the document purports to have been executed has not been proved;
(xv) Section 41.- that the Registering Officer is not satisfied as to the fact of execution in the case of a Will or of an authority to adopt presented after the death of the testator of donor;
(xvi) Section 25, 34 and 80.- that the prescribed fee or fine or fee under nay other Act to be levied before admitting a document to registration has not been paid."
The reasons indicated in Rule 171 are self- explanatory. While it is an admitted fact that none of those reasons found in the statute i.e., Rule 171 are even present in the case at hand. The refusal to register a document as observed is dealt with under Section 71 of the Registration Act and Rule 171 of the Rules, a perusal of which will nowhere creates any impediment for the 2nd respondent/Sub-Registrar to register the said document. All the nuances necessary for registration have been complied with by the petitioner. The reason for denial of registration by respondent No.2 - Sub-Registrar is that the dues of the Income-Tax Department pending against the borrowers. In the considered view of this Court, in the light of Section 35
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NC: 2024:KHC:28311 WP No. 10383 of 2024 quoted supra of the SARFAESI Act, 2002 the said reason though not in writing could not have been projected by the Sub-Registrar to deny registration. The issue whether other statutory dues pending against the borrowers would entail non-registration of a document, need not detain this Court for long, or delve deep into the matter.
11. The Apex Court in the case of PUNJAB NATIONAL BANK v. UNION OF INDIA1 has held as follows:-
"42. Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise Department, the High Court in the impugned judgment has held [Punjab National Bank v. Union of India, 2008 SCC OnLine All 1576] that "In this view of the matter, the question of first charge or second charge over the properties would not arise". In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise.
43. A Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)], while dealing with a similar issue, has held that : (SCC OnLine Mad paras 25-26) "25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs.
26. In the light of the above discussion, we conclude,
(i) Generally, the dues to Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts.1
(2022) 7 SCC 260
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(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.
(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor viz. the petitioner Bank.
(iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts.' In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein."
(emphasis in original and supplied)
44. This Court, while dismissing Civil Appeal No. 3627 of 2007 filed against the judgment [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] of the Full Bench, vide order dated 12-2-2009 [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] held as under: (UTI Bank case [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] , SCC OnLine SC para 1) "1. Having gone through the provisions of the Securitisation Act, 2002, in the light of the judgment of the Division Bench of this Court in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent Bank. In the circumstances, the civil appeal is dismissed with no order as to costs"
(emphasis supplied)
45. Hence the reasoning given by the High Court stands strong and has been affirmed by this Court.
46. This Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (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 : (SCC p. 703, para 10) "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
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NC: 2024:KHC:28311 WP No. 10383 of 2024 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 v. Siriguppa Sugars & Chemicals Ltd. [Central Bank of India v. Siriguppa Sugars & Chemicals Ltd., (2007) 8 SCC 353 : (2007) 2 SCC (L&S) 919], while adjudicating a similar matter, this Court has held as under :
(SCC pp. 360-61, para 17) "17. Thus, going by the principles governing the matter propounded by this Court there cannot be any doubt that the rights of the appellant Bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant Bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant Bank. In view of the fact that the goods were validly pawned to the appellant Bank, the rights of the appellant Bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods."
(emphasis supplied)
48. The Bombay High Court in Krishna Lifestyle Technologies Ltd. v. Union of India [Krishna Lifestyle Technologies Ltd. v. Union of India, 2008 SCC OnLine Bom 137] , wherein the issue for consideration was "whether tax dues recoverable under the provisions of the Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" held that : (SCC OnLine Bom paras 19-20) "19. Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the
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NC: 2024:KHC:28311 WP No. 10383 of 2024 provisions of the SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues.
20. Insofar as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in 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 [Ed. : The reference appears to be to Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694] by the Supreme Court in the matter of priority of State debts as already discussed and the provision of Section 35of the SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] ."
(emphasis supplied)
49. An SLP (No. 12462/2008) against the above judgment of the Bombay High Court stands dismissed by this Court on 17- 7-2009 [Union of India v. Krishna Life Style Technologies Ltd., 2009 SCC OnLine SC 1952] by relying upon the judgment in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , wherein the question involved was "Whether realisation 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 : (SICOM case [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , SCC p. 126, para 9) "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 Aiyar (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property
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NC: 2024:KHC:28311 WP No. 10383 of 2024 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."
(emphasis supplied)
50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the appellant, on Issue 2, hold merit. Evidently, prior to insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, there was no provision in the 1944 Act inter alia, providing for first charge on the property of the assessee or any person under the 1944 Act. Therefore, in the event like in the present case, where the land, building, plant, machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in Sections 2(1)(zc) to (zf) of the SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a first charge on the secured assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11-E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.
51. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, will have an overriding effect on the provisions of the 1944 Act.
52. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of acceptance. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing
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NC: 2024:KHC:28311 WP No. 10383 of 2024 and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with.
53. Further, the contention that in the present case, the confiscation proceedings were initiated almost 8-9 years prior to the charge being created in respect of the very same properties in favour of the bank is also inconsequential. The fact that the charge has been created after some time period has lapsed post the initiation of the confiscation proceedings, will not provide legitimacy to a confiscation order that is not rooted in any valid and existing statutory provision.
54. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173-Q(2) of the Central Excise Rules, 1944 on 26-3-2007 and 29-3-2007 for confiscation of land, buildings, etc. when on such date, the said Rule 173-Q(2) was not in the statute books, having been omitted by a Notification dated 12-5- 2000. Secondly, the dues of the secured creditor i.e. the appellant Bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act, 1944."
(Emphasis supplied) The Apex Court considers identical circumstance. The dues in the case before the Apex Court were that of the Department of Central Excise. The Apex Court holds that debt owed to the Crown or the State cannot take away the right of a secured creditor in the light of Section 26E and Section 35 of the Act supra.
12. The Apex Court considering the entire spectrum of law holds that dues of the secured creditor, the Bank or any other financial institution will have priority over the dues of the Central Excise Department under the Central Excise Act. The Apex Court holds the provisions of the SARFAESI Act, 2002 will have overriding effect on the provisions of the
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NC: 2024:KHC:28311 WP No. 10383 of 2024 Central Excise Act. If the Central Excise Act found in the judgment of the Apex Court is paraphrased with that of the Income-Tax Department/dues under the Income-Tax Act, the reasons so rendered by the Apex Court would become applicable to the facts of the case at hand as well. The Sub-Registrar, though not in writing, orally refused to register the document on the score that dues of the Income- Tax Department are pending against the borrowers, is a reason which is unavailable to the Sub-Registrar, even if it were to be in writing.
13. The Sub-Registrar can act only within the four corners of the Registration Act and the Registration Rules framed by the State. If none of the circumstances under Rule 171 of the Rules are found, the Sub-Registrar has no jurisdiction to refuse registration of a document; the document in the case at hand is the sale certificate.
14. Scores and scores of cases are filed before this Court where the Sub-Registrars refuse to register the documents - the documents could be sale certificates or documents creating charge over the property. The Sub- Registrars, on grounds that are not available to them, refuse to register the documents, sometimes on the score that the software in the Registration Department or the Sub- Registrar's office is not made to be in tune with the necessities of registration of documents of the Banks and therefore, it is not registered and in certain cases, it is the statutory dues by the borrower or the holder of the document, which are not cleared and therefore, would not be registered. All these are reasons beyond the statute.
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NC: 2024:KHC:28311 WP No. 10383 of 2024 Unless the Sub-Registrar notices any violation as obtaining under Rule 171 of the Rules, the Sub-Registrar does not have jurisdiction to refuse registration of a document. Therefore, it is necessary for the State Government to issue necessary circular in terms of Rule 171 of the Rules and the law laid down by the Apex Court in the judgment supra, so that every person who goes for registration of documents should not be denied registration except in accordance with the observations supra as acts of Sub-Registrars are driving every person who is denied registration to the doors of this Court unnecessarily and if the Sub-Registrar would not register a document, if it is found to be in tune with law, the delay in registration would be attributable only to those Sub- Registrars, who will be saddled with exemplary costs when such cases are brought before this Court seeking a direction for registration of a document.
15. For the aforesaid reasons, the following:
ORDER
(i) The writ petition is allowed.
(ii) Mandamus issues to the 2nd respondent/Sub-
Registrar to register the document brought before him by the petitioner forthwith; the moment copy of this order is brought to his notice, without brooking any delay.
(iii) The State Government is directed to issue a Circular to all the Sub-Registrars in the State in tune with this order so that persons, who are wanting to get their
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NC: 2024:KHC:28311 WP No. 10383 of 2024 documents registered, need not every time knock at the doors of this Court.
(iv) The Circular to be so issued shall bear reference to the Rules and the judgment of the Apex Court quoted in this order.
(v) Compliance with issuance of Circular be reported to this Court within eight weeks from the date of receipt of a copy of this order."
9. As can be seen from the aforesaid judgments referred to supra, the petitioners are entitled to get the sale certificate registered in their favour and alternatively, an Entry in Book No.1 is directed to be made in respect of the sale certificate in terms of Section 89(4) of the Registration Act and in the absence of any statutory provision which would empower or authorize the ED from objecting to the registration of the sale certificate in favour of the petitioners, I am of the view that the impugned Endorsement at Annexure-A deserves to be quashed and necessary directions are to be issued to the 1st respondent - Sub-Registrar in this regard.
10. Insofar as the contention of the respondents 1 and 2 that T.S.A.No.5/2024 filed by the 3rd respondent - Bank and W.P.No.19356/2019 are pending adjudication is concerned, it is needless to state that the present order would be subject to the
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NC: 2024:KHC:28311 WP No. 10383 of 2024 final outcome of the said proceedings and liberty would have to be reserved in favour of the 2nd respondent - ED to take necessary steps in accordance with law.
11. In the result, I pass the following:-
ORDER
(i) Petition is hereby allowed.
(ii) The impugned Endorsement at Annexure-A dated 22.03.2024 is hereby quashed.
(iii) The 1st respondent - Sub Registrar is directed to register the sale certificate at Annexure-B dated 20.03.2024 executed by respondent No.3 within a period of two weeks from the date of receipt of a copy of this order.
(iv) Alternatively, in the event the petitioners do not pay the requisite stamp duty on the sale certificate, the 1st respondent -
Sub-Registrar is directed to make an Entry of the Sale Certificate dated 20.03.2024 in favour of the petitioners in Book No.1 and in all official records by filing a copy within a period of two weeks from the date of receipt of a copy of this order.
(v) It is made clear that all acts, deeds and things done by the parties pursuant to the present order shall be subject to final
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NC: 2024:KHC:28311 WP No. 10383 of 2024 outcome of T.S.A.No.5/2024 and W.P.No.19356/2019 and all rival contentions on all aspects of the matter are kept open and no opinion is expressed on the same.
(vi) Liberty is reserved in favour of the 2nd respondent - ED to take necessary steps in accordance with law.
(vii) By way of an interim arrangement, the petitioners are directed not to alienate the subject property for a period of three months from today.
Sd/-
JUDGE Srl.