2024:BHC-OS:6919-DB

WP-31816-2023-30-04-2024--F.docx

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION (LODG.) NO. 31816 OF 2023

Bhushan Ramesh Bramgankar,

Digitally
signed by Age 40 years, Indian Inhabitant,
SHRADDHA
SHRADDHA KAMLESH Occ. Business, residing at Flat No.14,
KAMLESH TALEKAR
TALEKAR Date:
2024.04.30
Komal Residency, Near Mico Circle,
13:39:58
+0530 Sadhuwaswani Road, Nashik 422 001.
.. Petitioner
Versus
1. State of Maharashtra
Through Sale Tax Office (Nashik)

2. State Bank of India,

Stressed Assets Management Branch-II,
Raheja Chambers, Ground Floor, Wing-B,
Free Press Journal Marg, Nariman Point,
Mumbai 400 021. …Respondents

Mr.Sagar Chaturvedi, , Advocate for Petitioner.

Ms.Jyoti Chavan, Addl. G.P. for Respondent No.1-State.

None for Respondent No.2.

CORAM : B.P. COLABAWALLA &

SOMASEKHAR SUNDARESAN, JJ.

Reserved on : April 23, 2024.

Pronounced on : April 30, 2024.

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JUDGMENT : (Per, Somasekhar Sundaresan, J.)

1. 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:-

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Sr. Property Details Value Date of Auction

No

1. Non-agricultural plot of 1,62,36,000 3rd May, 2023

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
2. Non-agricultural plot of 2,28,27,000 20th June, 2023
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

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

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respectively;

b) The Secured Assets had been mortgaged to State Bank of

Bikaner and Jaipur (which later merged into SBI) on 29 th

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

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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.1 (Union Bank), as indeed by this very

Bench in the case of Indian Overseas Bank vs. Deputy Commissioner of

State Tax & Ors.2 (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

1
Writ Petition No. 248 of 2020, disposed of by judgement dated 22 nd January, 2024
(by Division Bench comprising G.S. Kulkarni and Firdosh P. Pooniwalla JJ)
2
2024 SCC OnLine Bom 907

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Tax Nodal 9, Mumbai & Anr.3 (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
3
2022 SCC OnLine Bom 1767

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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.

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

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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

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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. 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:-

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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]

Directions and Declarations:

15. In the result, the Writ Petition deserves to be allowed. We,

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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

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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 18 th 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.

[ SOMASEKHAR SUNDARESAN, J. ] [ B.P. COLABAWALLA, J. ]

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