HC Bombay (2025.05.02) in Canara Bank Vs. Deputy Commissioner, Sales Tax Office and Ors. [(2025) ibclaw.in 727 HC, 2025:BHC-AS:20076-DB, WP.10533 of 2023] held that.-
Once the security interest of the creditor is registered under the provisions of the SARFAESI Act with CERSAI Act, the priority as provided under Section 26-E comes into play.
In view of the foregoing discussion, we have no hesitation to hold that the dues of a secured creditor (subject of course to CERSAI registration) and subject to proceedings under the I&B Code would rank superior to the dues of the relevant department of the State Government.”
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. . . . . . 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.
We, therefore, answer this question by observing that notwithstanding the duty of the authorized officer to indicate in the sale advertisement inviting bids the encumbrance(s) attached to the immovable property, i.e., the secured asset, as known to the secured creditor, if at all any detail in regard to such encumbrance(s) is not indicated but the sale is expressly made on "as is where is, whatever there is basis", the transferee shall be duty bound to deposit money for discharge of the encumbrance(s) provided, of course, that such liability may be overcome if he is in a position to disprove the claim of the department that he had no constructive notice of the charge, far less actual notice.
In other words, if the immovable property of the defaulter is shown to have been attached in accordance with law prior to Chapter IVA of the SARFAESI Act, or for that matter section 31B of the RDDB Act, being enforced, and such attachment is followed by a proclamation according to law, the 'priority' accorded by section 26E of the former and section 31B of the latter would not get attracted.”
he Petitioner-Bank having sold the secured asset to the Respondent No. 8 during the enforcement of the security interest under the provisions of SARFAESI Act, it gives clear title to the Respondent No. 8, free from encumbrance claimed by the Respondent Nos. 1 and 2 – Tax Authority.
The Respondent Nos. 1 and 2 – Tax Authority is entitled to residual proceeds from the sale of the secured asset, if any. The Petitioner-Bank is directed to provide to the Respondent Nos. 1 and 2– Tax Authority the statement of accounts in respect of dues owed by the Respondent No. 3 – Borrower and appropriation of sale proceeds.
Excerpts of the Order;
1. Rule. Learned Counsel for the respective Respondents waive service.Rule made returnable forthwith. Heard finally by consent.
2. The Petitioner-Bank is a secured creditor. The Respondent Nos. 1 and 2 are the officers of the Sales Tax / M-VAT Department, Respondent Nos. 6 and 7 are revenue authorities, the Respondent No. 8 is the auction purchaser and the Respondent Nos. 3, 4 and 5 are the borrower company under liquidation and its directors.
3. The secured asset involved is a factory land and building situated at Plot No. 1B, contained in Gat Nos. 1129(Pt), 1122, 1140, 1295/1 to 1295/10 and 1296/1 to 1296/10 admeasuring 8091.73 sq.mtrs. situated at Mauje Shirwal, Taluka: Khandala, District: Satara – 421801.
4. In this judgment, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is called ‘SAFAESI Act’. Central Registry of Securitisation Asset Reconstruction and Security Interest of India is called ‘CERSAI’. Maharashtra Value Added Tax Act, 2002 is called ‘M-VAT Act’.
5. Background facts necessary for disposal of this petition are as under.
A. The Respondent No. 3-borrower company had availed credit facility from the Petitioner-bank and had executed documents creating security interest over the secured asset. On 09/07/2011, the Petitioner recorded its charge over the secured asset with CERSAI in compliance with provisions of the SARFAESI Act. On 02/02/2015, the order of attachment of the secured asset was passed attaching the same against sales tax/M-VAT dues and Central Sales Tax dues payable by the Respondent No. 3-borrower company for a period 2013-2014. The loan account became Non-Performing Asset (‘NPA’ for short). A Company Petition was filed by a 3rd person against the Respondent No. 3-borrower company, which was allowed and liquidation proceedings started.
B. The Petitioner Bank issued a demand notice under Section 13(2) of the SARFAESI Act calling upon the Respondent No. 3 to discharge its liability to the tune of Rs.23,34,48,000/- as on 31/07/2016. On failure to comply with the demand notice, the Petitioner initiated measures under Section 13(4) of the SARFAESI Act. The Petitioner was permitted to take possession of the secured asset.
C. The Respondent No. 1–Sales Tax Authority recorded its charge in the other right column of the 7/12 extract of the secured asset under Mutation Entry No. 6321 and Mutation Entry No. 6877, pursuant to the attachment order dated 02/02/2015
D. The Petitioner requested the Respondent authorities to remove the charge and encumbrance recorded in the revenue record, however the request was not heeded. The Petitioner then issued legal notice dated 10/12/2021 calling upon the Respondent Nos. 1 and 2 to take steps for removal of encumbrances created, but to no avail.
E. Ultimately this petition was filed. During its pendency e-auction sale notice was issued for e-auction sale of the secured asset. On 16/01/2023, the Respondent No. 8 participated in the auction sale and was declared the highest bidder. The Respondent No. 8 deposited purchase price within the stipulated time. On 17/02/2023, Sale Certificate was issued by the authorized officer of the Petitioner to the Respondent No. 8 in respect of the secured asset, which was duly registered with the office of sub-Registrar. On 29/05/2023, title document was executed and registered between the Authorized Officer of the Petitioner and the Respondent No. 8.
F. The Petitioner informed the Respondent authorities about sale and handing over of possession of the secured asset. On 16/06/2023, the Respondent No. 8 also filed application reporting its ownership and possession over the secured asset, requesting to enter its name in the revenue record. The Respondent No. 6 informed the Respondent No. 8 that for mutating its name, ‘no objection’ must be received from the Respondent Nos. 1 and 2-Department of Sale Tax.
G. In this backdrop, on 09/08/2023, the Respondent No. 1 recorded a further charge worth Rs.19,53,17,584/- in the revenue record under the Mutation Entry No. 9233.
H. When the Respondent No. 8 applied for permission for construction of the industrial unit over the secured asset, objection was raised that in absence of mutation of name of the Respondent No. 8 in revenue record and during the existence of charge of the Respondent No. 1 over the secured asset, permission cannot be granted.
I. In these circumstances, the Petition is filed seeking declaration that the Respondent Nos. 1 and 2 cannot claim any charge over the secured asset which was mortgaged by the Respondent Nos. 3 to 5 and which has been now sold to the Respondent Nos. 8. Further direction is sought to the Respondent No. 1, 2 & 7 to withdraw their letters issued for recording encumbrance over the secured asset. Also a direction is sought to the Respondent Nos. 1 and 2 to direct concerned Talathi for withdrawing the encumbrance over the secured asset of M-VAT dues.
J. That the Petitioner and the Respondent No. 8 urged to take up hearing of the matter.
6. An affidavit-in-reply is filed on behalf of the Respondent No. 1 on 20/08/2024 opposing the petition.
7. The Respondent No. 8 has filed affidavit on 03/08/2020 claiming to be bonafide auction purchaser of the secured asset for value in an auction held by the Petitioner – Bank under the provision of SARFAESI Act.
SUBMISSIONS
8. Learned Counsel Ms. Bhilare for the Petitioner Bank, at the outset relied upon following judgments :
(i) Jalgaon Janta Sahakari Bank Ltd vs Joint Commissioner of Sales Tax (2022 SCC OnLine Bom 1767)
(ii) Ronak Industries and Ors. vs. Assistant Commissioner Central Excise and Customs and Ors. (2023 SCC OnLine Bom 1335)
She submitted that the present case is directly covered by the full bench Judgment of Jalgaon Janta Sahakari Bank Ltd (supra) and Ronak Industries and others (supra). She submitted that Petitioner being a secured creditor, has a clear priority over the dues of the State as per Section 26 of the SARFAESI Act. She submitted that when the secured asset is sold under the provisions of the SARFAESI Act, clear title must pass to the auction purchaser and State can not be allowed to continue its encumbrance upon secured asset sold.
9. Learned counsel Mr. Sonpal for the Respondent No. 1 submitted as under. That the charge over the secured asset which is attached and encumbrance is noted in the revenue record, is continued and the charge would follow the property in whoever’s hands the property goes despite its sale. That the charge of the Respondent No. 1 will continue as per the judgment of this Court in case of Medineutrina Pvt. Ltd. Vs. District Industries Centre (Writ Petition No. 7971 of 2019 Order dated 18/02/2021). That this position is reiterated and confirmed in paragraph 161 of the full Bench Judgment of this Court in case of Jalgaon Janta Sahakari Bank Ltd (supra). That priority under section 26E of the SARFAESI Act is not absolute but conditional. That the Full Bench Judgment in Jalgaon Janta Sahakari Bank Ltd (supra) has been challenged by the State Government in Hon’ble Apex Court which is pending. That the property of the Respondent No. 3- Borrower company including its secured asset is subject to recovery under M-VAT Act and the same can be recovered as arrears of land revenue. That the recovery under M-VAT Act is paramount as first charge under section 37 of M-VAT Act. That for subsequent period of assessment, additional encumbrance is also recorded. That though Petitioner has priority of appropriating sale proceeds of secured asset, that cannot be a ground to direct the Respondent No. 1 to remove the encumbrance of its dues. It is submitted that the encumbrance of M-VAT dues are not extinguished by the priority of the secured creditor over sale proceeds.
10. Mr. Sonpal further submitted that the application of the amended/inserted section 26E has been held to be prospective (after 24/01/2020) by the Full Bench Judgment in Jalgaon Janta Sahakari Bank Ltd (supra), therefore order of attachment in February 2015 and ‘first charge’ thereunder much prior to section 26E coming into force will remain unaffected. That section 26E coming into force will not nullify the first charge or make it void or render it nugatory. That unless the action of attachment under M-VAT Act is illegal or without jurisdiction, interference with its effect (viz. encumbrance in revenue entry) is not warranted. That under the applicable Rules of security interest enforcement, the Petitioner was duty bound to disclose encumbrance of the State put up for sale and the Respondent No. 8 has purchased the secured asset on ‘as is where is, whatever there is’ basis i.e. with liability it is bound to discharge. Finally it is submitted that for recovery of M-VAT dues ‘as arrears of land revenue’, proclamation is not compulsory and only directory and its non-compliance is not fatal. Section 192 and 176 of the Maharashtra Land Revenue Code, 1960 (“the Code” for short) is pressed into service for this submission.
11. Learned Counsel Mr. Adwant for the auction purchaser submitted that the dues of the secured creditor are to be paid in priority over the sues of the State which are unsecured debts. He submitted that section 26E of the said Act would prevail in the present case, over the claim of Respondent State in respect of MVAT dues. He submitted that claim of tax dues merely on the basis of an attachment order, without the requirement of proclamation being fulfilled, as provided under law, would not create a superior charge. He submitted that the liabilities of the defaulter would be transferred to the auction purchaser only if the ownership of business is transferred which is not the present case. Relying on the Maharashtra Realisation of Land Revenue Rules, 1967 (‘the Rules of 1967’ for short), he submitted that procedure contemplated under Rules 11 thereof, has not been shown to be undertaken and therefore, the ratio of Jalgaon Janta Sahakari Bank Ltd (supra) as laid down by the Full Bench of this Court would apply with full force to the facts of the present case. He submitted that despite the sale being on ‘as is where is, whatever there is’ basis, since Respondent No.8 auction purchaser had no constructive notice, much less actual notice of the State encumbrance, the secured asset sold under the provisions of SARFAESI Act, cannot carry the State’s dues as continuing encumbrances. In addition to the judgments relied upon by the Petitioner Bank, he has relied upon the following judgments in support of his case -
(i) Janaseva Sahakari Bank Ltd. vs. State of Maharashtra and Ors. (Writ Petition No. 12724 of 2023 Order dated 22/07/2024)
(ii) Indian Bank (Through Chief Manager) vs. State of Maharashtra and Ors. (Writ Petition No. 962 of 2023 Order dated 16/07/2024.)
(iii) Indian Overseas Bank, through its Authorized Officer vs Deputy Commissioner of State Tax and Others (2024 SCC OnLine Bom 907)
(iv) Purushottam Prabhakar Chavan vs. Deputy Commissioner of Sales Tax and Ors. (2024 SCC OnLine Bom 1235)
(v) Bhushan Ramesh Bramgankar vs. State of Maharashtra & Anr. (2024 SCC OnLine Bom 1215)
REASONS AND CONCLUSIONS
12. We have considered the rival submissions and perused the record with the assistance of the learned Counsel for the parties.
13. At the outset, we note that the Central GST department has accepted the request of the Petitioner / Respondent No. 8 and has issued necessary letter on 11/02/2021 for removal of its encumbrance from the revenue record of the secured asset, as can be seen from Exh. E - page 36 of the petition.
14. We find that the arguments of Mr. Sonpal is an attempt to re-argue the case which is already considered by the Full Bench of this Court in Jalgaon Janta Sahakari Bank Ltd (supra) and subsequent judgments as indicated below.
15. The core issue involved in the present matter is no more res integra in the light of the view taken by this Court in the Full Bench Judgment of Jalgaon Janta Sahakari Bank Ltd (supra). Once the security interest of the creditor is registered under the provisions of the SARFAESI Act with CERSAI Act, the priority as provided under Section 26-E comes into play. In the present matter admittedly, the security interest is registered with CERSAI on 09/07/2011 and much thereafter, on 02/02/2015, the order of attachment of secured asset has been passed by the Tax Officer. We note here that Respondent No. 1 has only produced attachment order and one 7/12 extract of the secured asset with its reply. Nothing else is produced. Not even Mutation Entries under which the encumbrance is recorded. No material in support of any steps for proclamation is produced.
16. We note that Mr. Sonpal, learned counsel for the Respondent Tax authorities had himself raised all the same arguments before the full Bench of this Court, as is evident from paragraph 30 to 36 of Jalgaon Janta Sahakari Bank Ltd (supra). After considering the said arguments and the core issue, full bench of this Court has held as under (paragraphs taken from SCC online judgment) :
“88. The fact that the BST Act and the MVAT Act, which are under consideration, expressly make it subordinate or subservient to any Central legislation creating first charge cannot be ignored. The 2016 Amending Act being of recent origin, the first query that arises in this regard is : did Parliament not know that there is a plethora of legislation in the country, both Central and State, that speaks of creation of ‘first charge’ in favour of a Department of the Central/State Government ? The reply cannot but be in the affirmative. The next query that would obviously follow is : whether the word ‘priority’ appearing in section 26E of the SARFAESI Act, i.e.
"… 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" (italics for emphasis by us), was usedwithout a purpose ? This reply has to be in the negative.
89. Priority means precedence or going before (Black's Law Dictionary). In the present context, it would mean the right to enforce a claim in preference to others. In view of the splurge of ‘first charge’ used in multiple legislation, Parliament advisedly used the word ‘priority over all other dues’ in the SARFAESI Act to obviate any confusion as to inter se distribution of proceeds received from sale of properties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31B and section 26E, that the dues of the secured creditor shall have "priority" over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
92. Bare perusal of the 2016 Amending Act would show that the dues of the Central/State Governments were in the specific contemplation of Parliament while it amended the RDDB Act and the SARFAESI Act, both of which make specific reference to debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority and ordains that the dues of a secured creditor will have ‘priority’, i.e., take precedence. Significantly, the statute goes quite far and it is not only revenues, taxes, cesses and other rates payable to the State Government or any local authority but also those payable to the Central Government that would have to stand in the queue after the secured creditor for payment of its dues.
96. In view of the foregoing discussion, we have no hesitation to hold that the dues of a secured creditor (subject of course to CERSAI registration) and subject to proceedings under the I&B Code would rank superior to the dues of the relevant department of the State Government.” [Emphasis supplied]
17. The same view has been followed thereafter by this Court in the case of Ronak Industries (supra).
18. So far as the argument about application of ratio in Medinutrina (supra) is concerned, we note that in a recent judgment of Indian Overseas Bank (supra), a co-ordinate bench of this Court has considered the same in detail and has held as under :
“31. We also find that Mrs. Vyas’ reliance on Medineutrina is totally misplaced. First, Medineutrina was rendered by a two-judge Division Bench prior to Jalgaon Janta Sahakari Bank, which was rendered by a Full Bench. Second, the Full Bench indeed noticed Medineutrina and analysed its contents while declaring the law emphatically, also taking note of the fact that Paragraph 41 of Medineutrina (the paragraph that summarises all the findings and consequential directions) had been stayed by the Hon'ble Supreme Court.
32. That apart, with the deepest respect, we do note that Medineutrina had not noticed that Section 26-E of the SARFAESI Act, although legislated, had not been brought into force. Paragraph
28 thereof had proceeded on the footing that the provision had been brought into force on 1 st September, 2016. Parliament had given the Central Government the authority to notify the date from which Section 26-E would take effect. Evidently, the legislature gave the executive time to take a considered policy decision on when to bring such an important, nuanced and significant legislative intervention, into force. It must follow that since it took over three years to bring this significant and fundamental piece of reform into effect, deliberations among the various arms of the government would have been involved, before the provision was brought into force on 24th January, 2020.
33. In any case, the combined effect of the stay of the operative part of Medineutrina by the Hon'ble Supreme Court, and the emphatic declaration of the law by the Full Bench, would mean that Medineutrina stands completely overtaken, and is of no assistance to the MVAT Authorities in persisting with their reading of the law in a manner that is diametrically contrary to Jalgaon Janta Sahakari Bank.
34. After 24th January, 2020, Section 26-E would give a security interest of a secured creditor registered prior in time, priority over even a proclamation for recovery of land revenue. Since in the facts of this case, the attachment orders came to be passed well after 24th January, 2020, and no registration was effected in CERSAI, and indeed no proclamation for recovery of revenue had been made, we refrain from delving further into whether an attachment would suffice or a proclamation would be necessary in respect of tax recovery proceedings.
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. 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]
19. This has been followed in number of judgments and orders, including in the cases of Janseva Sahakari Bank Ltd. (supra), Indian Bank (supra), Purushottam Prabhakar Chavan (supra) and Bhushan Ramesh Bramgankar (supra) relied upon by the Respondent No. 8. It is not necessary to consider detail facts of each case as they all proceed on the decision taken by the Full Bench on the core issue as indicated above.
20. That leaves us with the last consideration in the matter about whether the Respondent No. 8, as auction purchaser can claim the benefit of the priority from its seller (secured creditor). In the present case admittedly, secured assets have been sold on ‘as is where is whatever there is basis’. It has not come on record when the mutation entry was recorded entering the encumbrance of MVAT dues.
21. In this regard, specific issue (g) was framed by the Full Bench in paragraph 45 of Jalgaon Janta Sahakari Bank Ltd (supra) and following was held:
“ANSWER TO QUESTION (g)
163. To answer this question, we need to take note of some provisions of the Security Interest (Enforcement) Rules, 2002 (hereafter ‘2002’ Rules, for short). However, it must be borne in mind that while a secured creditor is concerned only with sale of the immovable property, being the secured asset, and no other property of the defaulting borrower, the concern of the Department need not necessarily be confined only to the secured asset but could well spill over and any other asset of the defaulter in payment of State's dues could be put up for sale to realize such dues in terms of the MLR Code and the 1967 Rules.
X x x
169. Till 24 th January 2020, it may not have been possible for a secured creditor to know precisely all encumbrances in respect of the immovable property. With the insertion of section 26B in the SARFAESI Act read with the 2011 Rules, a secured creditor is expected to know some of such encumbrances if at all compliance of section 26B is resorted to by the Central Government, any State Government or a local authority, to whom money is owed by the defaulter being an owner of the property. Such a statutory mechanism for knowing the encumbrances in respect of the immovable property being put up for sale by auction not being available before 24 th January 2020, the authorized officers were found to play it safe by inserting the " as is where is, whatever there is basis" clause in the sale advertisement . Once such clause is inserted in the advertisement and the prospective purchaser upon bidding in the auction emerges as the highest bidder, normally such purchaser cannot insist upon issuance of sale certificate without clearing the liability of meeting other dues in relation to such property. This is because he participates in the auction and bids, with his eyes open, that the sale would be on "as is where is, whatever there is basis" . Having so participated, the prospective purchaser cannot wriggle out of the consequences and claim that the other dues are not payable by him if he cannot disprove constructive notice of the charge created on the property put up for auction sale. If indeed the department of the Government fails to act in terms of section 26B of the SARFAESI Act read with the 2011 Rules, consequences are bound to follow which have to be accepted by such department.
170. We, therefore, answer this question by observing that notwithstanding the duty of the authorized officer to indicate in the sale advertisement inviting bids the encumbrance(s) attached to the immovable property, i.e., the secured asset, as known to the secured creditor, if at all any detail in regard to such encumbrance(s) is not indicated but the sale is expressly made on "as is where is, whatever there is basis", the transferee shall be duty bound to deposit money for discharge of the encumbrance(s) provided, of course, that such liability may be overcome if he is in a position to disprove the claim of the department that he had no constructive notice of the charge, far less actual notice.” [Emphasis supplied]
22. We note here that nothing is brought to our notice that the attachment order was registered with CERSAI by the Respondent Tax Authorities as required under section 26B(4) of the SARFAESI Act. The authorities were bound by the said requirement after 24/01/2020 when chapter IVA was brought on the statute book including section 26B to 26E thereof. It is material to note that the sale has taken place as e-auction sale under notice dated 06/12/2022 and there was sufficient time in the interregnum for the Respondent Authorities to register its attachment order.
23. On the aspect of requirement of proclamation by the Respondent Authorities, the Full Bench of this Court has held as under :
“152. In this context, it is relevant to note that section 72 of the MLR Code provides that land revenue is to be a paramount charge on land. The provisions contained in sections 173 to 184 and 191 to 221 of the MLR Code encapsulate the procedure for recovery of unpaid amounts as arrears of land revenue. Section 265 of the MLR Code (which is applicable only within the city of Bombay) confers precedence on the arrears of land revenue due on any land under the relevant Chapter.
153. The exhaustive procedure that the MLR Code conceives relating to recovery of unpaid amounts as arrears of land revenue need not be examined in any great detail here. We may only refer to the decision of the Division Bench reported in [2004] SCC OnLine Bom 1247 (Satish Arjun Surve v. State of Maharashtra), where the court has noted the same.
154. However, what appears to be clear is that if there be a default and the defaulter does not pay what he owes to the relevant Department of the Government, power is available under rule 17 of the Maharashtra Realization of Land Revenue Rules, 1967 (hereafter "MRLR Rules", for short), framed under section 328 read with Chapter XI of the MLR Code, for the Tehsildar, on receipt of a requisition from such Department, to proceed in accordance with the MLR Code and the 1967 Rules and cause the defaulter's immovable property to be attached and sold. Necessarily, prior to effecting a sale, a proclamation has to be made in the manner ordained.
X x x
157. The contention that rules are yet to be framed for making subsection (4) of section 20B operational is wholly incorrect. By a notification dated 24th January 2020 issued by the Department of Financial Services in the Ministry of Finance, Government of India, published in the Gazette of India of even date, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) (Amendment) Rules, 2020 were duly notified whereby amendments were incorporated in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 (hereafter '2011 Rules', for short). In view of the amendments that have now been incorporated in the 2011 Rules with effect from the date Chapter IV-A of the SARFAESI Act was made effective and enforceable, the relevant Department of the State Government despite attachment orders being issued by the competent authority can only avoid compliance of sub-section (4) of section 26B at its own peril. We hold that attachment orders issued post January 24, 2020, if not filed with the Central Registry, any Department of the Government to whom a person owes money on account of unpaid tax has to wait till the secured creditor by sale of the immovable property being the secured asset mops up its secured dues.
X x x
161. In these proceedings we are as much concerned with proclamation itself as much with attachment. Insofar as recovery pursuant to the MLR Code is concerned, not only the provisions contained therein but also the provisions contained in the 1967 Rules are to be complied with. Simply ordering an attachment is not enough; a proclamation has to be issued in the prescribed form and such proclamation must be made public by beating of drum and such other node as specified in section 192 of the MLR Code and rule 11(2) of the 1967 Rules before the property attached is sold. 162. We are of the considered opinion, on facts and in the circumstances, that unless attachment of the defaulter's immovable property is ordered in the manner ordained by the MLR Code and as prescribed by the MRLR Rules and due proclamation thereof is made, even the creation of charge on such immovable property may not be of any real significance, not to speak of demonstrating with reference to evidence that the transferee had actual or constructive notice of such charge. If there has been an attachment and a proclamation thereof has been made according to law prior to 24th January 2020 or 1st September 2016, i.e., the dates on which Chapter IV-A of the SARFAESI Act and section 31B of the RDDB Act, respectively, were enforced, the department may claim that its dues be paid first notwithstanding the secured dues of the secured creditors; but in the absence of an order of attachment being made public in a manner known to law, i.e., by a proclamation, once Chapter IV-A of the SARFAESI Act or section 31B, as the case may be, has been enforced, the dues of the secured creditor surely would have 'priority'. In other words, if the immovable property of the defaulter is shown to have been attached in accordance with law prior to Chapter IVA of the SARFAESI Act, or for that matter section 31B of the RDDB Act, being enforced, and such attachment is followed by a proclamation according to law, the 'priority' accorded by section 26E of the former and section 31B of the latter would not get attracted.” [Emphasis supplied]
24. Undisputedly, we have also not been shown any steps taken by the Respondent State to undertake the proclamation of attachment order as contemplated with beat of drum or other customary mode or its copy being affixed on some conspicuous part of the secured asset and also on the notice board of concerned Talathi office. Therefore it cannot be said that Respondent No.8 had either constructive or actual notice of the State dues. In that view of the matter, Respondent No.8 can not be held bound to pay the State dues and it can not be said that the encumbrance will continue on the secured asset.
25. In the aforesaid facts and circumstances and for reasons indicated above, the petition succeeds and the same is allowed in following terms:
(a) The Petitioner-Bank has a priority over Respondent Nos. 1 and 2, who do not have charge over the secured asset sold to the Respondent No.8.
(b) The Petitioner-Bank having sold the secured asset to the Respondent No. 8 during the enforcement of the security interest under the provisions of SARFAESI Act, it gives clear title to the Respondent No. 8, free from encumbrance claimed by the Respondent Nos. 1 and 2 – Tax Authority.
(c) The Respondent Nos. 1 and 2 – Tax Authority is entitled to residual proceeds from the sale of the secured asset, if any. The Petitioner-Bank is directed to provide to the Respondent Nos. 1 and 2– Tax Authority the statement of accounts in respect of dues owed by the Respondent No. 3 – Borrower and appropriation of sale proceeds. (d) Consequently, impugned communications dated 18/12/2020 & 22/12/2020 issued by Respondent No. 2 and impugned letter dated 19/07/2023 issued by Respondent No. 7 are quashed and set aside. Respondent Nos. 6 & 7 are directed to remove the encumbrance of M-VAT dues of the Respondent Nos. 1 and 2 – Tax Authority from the revenue record of the secured asset, within a period of 2 weeks.
(e) Notwithstanding this judgment, the Respondent Nos. 1 and 2 – Tax Authority are free to undertake and enforce action in accordance with law against any other assets or properties or persons of the Respondent No. 3-Borrower company or its Directors, as may be permissible under law.
26. Rule is made absolute in above terms. No order as to the costs.
27. All concerned to act on duly authenticated or digitally signed copy of this order.
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