State Bank of India V. Union of India and 4 Others

WP/20646/2020

AI Insights

The case revolves around the State Bank of India (petitioner) seeking to register a property sold in an auction under the SARFAESI Act, 2002, which was hindered by tax-related prohibitions from the Income Tax and Commercial Tax departments (respondents). The property, originally owned by Good Health Agra Tech Private Limited, was mortgaged to secure a loan. Upon default, the bank auctioned the property, but subsequent tax claims led to its prohibition from being registered. The court examined the legal precedence of the SARFAESI Act over the claims of tax authorities and the procedural validity of the prohibitory actions taken by the respondents.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721655 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 27-07-2021
• Assessment Year: misc
• Other Referred Cases: State Bank of India vs. Union of India
• Laws Referred To: SARFAESI Act, 2002, Income Tax Act, 1961, Registration Act, 1908, Recovery of Debts and Bankruptcy Act, 1993, Insolvency and Bankruptcy Code, 2016
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO; GP FOR REVENUE; K REDDY; K CHOUDARY
• Assessee Lawyers: E RAO
• Keywords: Auction Purchaser; Income Tax Dues; Non-performing asset; Prohibitory List; Security interest; Writ of Mandamus; VAT Dues
• Section: 35; 226(3); 26(e); 31(b)

Judgement Text

" HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THE HON'BLE SRI JUSTICE M.S. RAMACHANDRA RAO AND THE HON'BLE SRI JUSTICE T. VINOD KUMAR WRIT PETITION NO: 20646 OF 2020 Between: State Bank of lndia, Stressed Assets Nilanagement Branch-ll, D.No.3-4- 1013/A, 1st Floor, TSRTC Kachiguda, Community Amenity Centre, Kachiguda, Hyderabad-500027' Represented by its Assistant General Manager. ...'ET'T'ONER AND 1. Union of lndia, Ir,4inistry of Finance, Represented by its Secretary, Rajpath Marg' E-Block, Central Secretariat, New Delhi-l 1001 1 . 2. The Sub Regishar, Shamshabad, Ran_ga Reddy District. 3. The Comme-rcial Tax Officer, Special Commodities Circle, Saroornagar Division, Hyderabad. 4. The Deputy Commissioner of lncome Tax, Circle-2 (3), Room No.B24, B Block' 8th Floor, l.T. Towers, A.C.Guards, Hyderabad. 5. tr//s. Good Health Agra Tech Private Limited, 1-8-663, Azamabad lndustrial Area, Azamabad, Hyderadad, rep. by C.E.O. Sri Kailash Chandra Agan'val (also known as Kailash Aganrval) ...RES'.NDENTS Petition under Article 226 ol the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High court may be pleased to issue an appropriate order, writ or direction more particularly one in the nature of writ of mandamus:- (a) directing respondent No.2 to receive the sale deed to be submitted by petitioner bank for transfer of property viz, commercial unit bearing D. No. 12-10 with land admeasuring Ac,0.25 guntas in survey No.657 of Satamrai village, Shamshabad Mandal, Ranga Reddy district, in favour of the auction purchaser as per the sale certificate issued under the provisions of the SARFAESI Act, 2002, without reference to the letter RC. No.3695021718412016-17, dated 5.10.2016 addressed by respondent No.3 to respondent No.2, the notice under section 226(3) ol the lncome Tax Act, 1961 vide F.No.DC|T-2 (3/GHAT/AAACG7494F12014-15' dated 10.6.2014 issued by respondent No.4 and the prohibitory list maintained by respondent No.2, on ' complying with the other provisions of the Registration Act, 1908, and (b) declaring the letter RC. No. 3695021718412016-17, dated 5.10.2016 addressed by respondent No.3 and the notice under Section 226(3) of the lncome Tax Act' 1961 vide F.No.DClT-2(3yGHAT/AAACG7494F12014'15, dated 10.6.2014 issued by TUESDAY, THE TWENTY SEVENTH DAY OF JULY TWO THOUSAND AND TWENTY ONE PRESENT respondent No.4 to respondent No'2 as contrary to law and provisions of the RecoverY of Debts an SARFAESI Act, 2002 holding that the said d Bankruptcy Act, 1993 and Section 31 (b) and 26 (e) of the and consequently set aside the same' or n the alternative' proceedings are not binding the petitioner brlnk in transferring the property viz. commercial unit bearing D' No 12-10 with land adreasuring Ac'O'25 guntas in survey No 657 of Satamrai village' Shamshabad Manlal' Ranga Reddy district, as per the proceedings of the SARFAESI Act' 2002 in accordance with law' and (C) To set aside attachment order F'NoTRO/TRC No2O7t2O14-15'dated 09/09/2016 issued by respondent No 4as illegal arbitrary' contrary to Law and Section 31 (b) and 26 (e) of the SARFAESI Act' 2002' (Praver has been amended as per Co dt 01/03/2021 Vide l'A'No'2 ot 2021 ' tn W.P.No.Z0646 of 2020') lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circum itances stated in the affidavit filed in support of the petition' the High Coud may l:e pleased to direct respondentNo.2toreceivethesaledeedtobeSubmittedb./petitionerbankfor transfer of property viz' commercial unit bearing D No' 12-10 with land admeasuring Ac.o.25 guntas in survey No 657 of Satamrai village' Shamshabad Mandal' Ranga Reddy district' in favour of the auction purchaser as per the l;ale certificate issued under the provisions of the SARFAESI Act' 2002' without reference to the letter RC' No\" 36950217184t2O16-17, dated 5 10 2016 addressed by notice under Section 226{3) of the lncome Tax Act' 2(3yGHAT/AA ACG74}4FI2O14-'15' dated 10 6 20'14 issued b1 respondent No 4 and the prohibitory list maintained by respondent No'2' on corrplying with the other provisions of the Registration Act' 1908' The Sub Registrar, Shamshabad, Ranga Reddy District 'espondent No.3' the 1{)61 vide F.No.DCIT- ... Petit ioner/ResPonde nt No'2 IA NO 10 20 1 AND 1. ?:?'\".',\"1liig+t'ffi :i?n1f\"':\"Ed?Niii?fl.\"Aa\"ri,::{\"\"i:U:''i:;:n.',1'?S, u\"vi\"ij[Zi-soot)2, n,ipi\"\"i,11\"o'ov its Rssistdnt Genelal Manaser' ...Res;PondenUWrit Petitioner Between: J 2. Union of lndia, I rlinistry of Finance, Represented by its Secretary, Rajpath A/arg, E-Block, Central Secretariat, New Delhi-l 1001 1 . 3. The Commercial Tax Officer, Special Commodities Circle, Saroornagar Division, Hyderabad. 4. The Deoutv Commissioner of lncome Tax, Circle-2 (3), Room No.824, B Block, 8th Flo6r, l.T. Towers, A.C.Guards, Hyderabad. 5. M/s. Goob Health Agra Tech Private Limited, 1-B:6q3, Azamabad lndustrial Area, Azamabad, Hydera6ad, rep, by C.E.O. Sri Kailash Chandra Aganval (also known as Kailash Agan'val) ...Respondents/Respondents No.1, 3 to 5 Petition under section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to vacate the interim orders in W.P.No.20646 of 2020 dated 17-12-2020. Counsel for the Petitioner: SRl. E. MADAN MOHAN RAO Gounsel forthe Respondent No.1: SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL Counsel forthe Respondent No.2: GP FOR REVENUE Counsel for the Respondent No.3: SRI K. RAJI REDDY SENIOR SC FOR INCOME TAX DEPT. Counsel for the Respondent No'4: SMT K. MAMATA CHOUDARY, SR. SC FOR INCOME TAX Counsel forthe Respondent No.5: NONE APPEARED The Court made the following: ORDER ORDEII: Sri Justice .V.S.Ranachandru Rao) The petitioner in this Writ Petition is the State Bank of India. 2. The State Bank of India along with other consorrium banks, had granted a loan amounting to Rs.133 crores to the 5tr, respondent- Company in 2012 for Working Capital, and as securit:r for the said loan, a commercial unit bearing D.No.12-10 with land admeasuring Acs.0.25 gts. in Sy.No.657 of Satamrai Village, Shamshabad Mandal, Ranga Reddy District ( for short ,the subject property,) belonging to the said company was charged to the Bank alonl; with other properties. 3. The said charge was registerecl with the Central Registry of Securitization Asset Re-construction and Security Intr:rest of India (CERSAI) on 08.04.2000. 4, As the 5tr' respondent did not repay the lozLn dues, and committed default in making re-payments to the petitioner, the loan account of the 5'h respondent was declared as a Non-per lorming Asset on 13.10.2012. HONOURABLtr SRI JUSTICE M.S.RAMACHAND]1A RAO AND HONOURABLE SRI JUSTICE T. VINOD KUNTAR WRIT PETITION NO.20646 of 2020 5. 'lhereafter, proceedings under the SARFAESI A:t, 2002 were initiated and the propertv was put to public auction c,n 26.10.2020 through an auction notice dt.15.09.2020. L 6. M/s.Khargandhi Properlies Pvt. Ltd. ( for short 'the auction purchaser') was declared highest bidder for Rs.4.66 crores, and their bid was confirmed vide proceedings dt'26. 10.2020 and they were asked to pay the balance amount in accordance with the provisions ol the said Act. 1. The auction purchaser vide letter dt'28.10.2020 informed the Bank that it came to know that property purchased by it in e-auction from the petitioner-Bank has Income Tax attachments and so, it cannot be registered in view the fact that the property was kept under a prohibitory list under the Registration Act, 1908, and wanted to resile from the auction proceedings. 8. The petitioner-Bank then verified the same and confirmed that the property was in the prohibitory list register maintained by the Sub- Registrar, Shamshabad (2nd respondent) in view of proceedings dt.05.10.2016 issued by the Commercial Tax Officer, Special Commodities Circle, Saroomagar Division, Hyderabad (3'o respondent) and proceedings dt'10'06'2014 of the Dy.Commissioner of Income Tax, Circle-2 (3), Hyderabad (4th respondent). g. In the letter d1.05.10.2016 addressed to the 2nd respondent by the 3d respondent it was stated that the 5th respondent had falle, in arrears of sales tax to the tune of Rs'3,05,89,2011-, that it owned the subject property, and requested the 2nd respondent not to permit 3 alienation thereof as it had first charge under the pro'iisions of the TVAT Act, 2005 over the said property. 10. In the letter dt. 10.06.2014, addressed by the 4'h respondent to the petitioner it was informed that a sum of Rs.572.66 lakhs for the Assessment Year 20ll-12 was due from the 5'h respordent towards income tax / interest; the petitioner was directed under liection 226(3) of the Income Tax Act, 1961 to pay to the 4'h respotrdent the said amount; and in default, a threat was made to make the Bank an 'assessee in default' and to proceed against it for rea.ization of the said dues under Sections 222 to 225 of the Income l'ax Act, 1961 stating that the notice shall have the same effect as an attachment of a debt under Section 222 ofthe said Act. 11. Copy of the above letter was also forw;rded to the 2nd respondent and on the basis ofthese two letters, the 2nd respondent kept the subject property in a prohibitory list prepared under Section 22-A of the Registration Act, 1908. THE YIlrltl l ORDEI{ PASSED ON 17.12.2020 12. On 17.12.2020, while granting time to the resp,:ndents to file counter-affidavit, an interim direction was given to the 2nd respondent to receive, process and release the sale certificate suttmitted by the petitioner-Bank and the auction purchaser for registration as per due procedure. 13. But, on Og.O5.2O2l, the Sub-Registrar' Shamshabad issued a iener 118/SHIvI/ZOZI dt.09.06.2021 stating that petitioner should pav the stamp dury and registration fee and without such payment' it cannot complain against the 2nd respondent for not registering the sale certificate. 14. He also stated that since the land is described in 'guntas\" and so it is an agricultural land covered with a commercial unitl since there is no conversion proceedings and the extent mentioned is in 'guntas', he is not competent to register the document uniess there are proceedings produced converting the subject property into non- agricultural land. He quoted G'O'Ms'No'118 Revenue (Registration Department) dt.28.lO'2020 appointing Tahsildars as Sub-Registrar under the Registration Act, 1908 for Registration of agricultural lands' He thus stated that the jurisdiction Tahsildar should be approached for registering the document' I.A.No.l of 2021 15.I'A.No,lof202|isfiledbytheSub-Registrar,shamshabadto vacate the order dt'17'12'2020 passed in W'P'No'20646 of 2020 reiterating the contents of the above proceeding' 16. During the course of the hearing' it also came to light that the Office of the Tax Recovery Officer-2' Hyderabad under the Income TaxAct,lg6lhadissuedProceedingsF.No.TRO/TRCNo.207l2014. t5 to th. principal Officer of the 5s respondent stating that Rs'4'27 '-.-....- I.A.No.2 of 2021 Crores excluding of interest under Section 220(2) of tlrc Income Tax Act, 1961 was payable by the 5th respondent in respect of Certificate (ITCP-l) dt.11.06.2014; and the subject property is prohibited and restrained from being transferred or charged in any wrry until further orders by him. 17. On coming to know of this proceeding, the tetitioner filed I.A.No.2 of 2021 challenging the said attachment orde: dt.09.09.2016 also and the said application was allowed by this Court on 01.03.2021. CONTENTIO NS OF THE PAI].TIE S AND CONSIDEI{A TION I}Y THE COLI{T 18. Sri E. Madan Mohan Rao, Senior Counsel ap.tearing for the petitioner-Bank, contended that in view of Section 26(E) of the SARFAESI Act, 2002, the Bank has prior claim o.rer the subject property over the dues of the State Govemment and Central Government / respondent nos.3 and 4; there is no pror.ision under the Income Tax Act, 1961 for the 4th respondent to claim any priority; and in view of Section 26(E) read with Section 31(b) of :he SARFAESI Act,2002, the claim of3'd respondent is also subservient to that ofthe Bank. He relied upon a decision of a Division Bench of this court in State Bank of India vs. Union of Indiar. 19. He contended that the proceedings issued by rc)spondent nos.3 and 4 cannot debar the petitioner-Bank from auctioning the secured . asset under the SARFAESI Act, 2002 and executing a sale deed in fbvour of the auction purchaser pursuant to the sale held on I Order dr.2l .04.2020 in W.p.NO.20 t 96 of 2019 (D_8.) 26.10.2020 as per the provisions of the said Act; and the 2nd respondent cannot refuse to receive the document for registration by keeping the sub.ject prope(y in the prohibitory list. 20, He further contended that the Revenue Department of the State of Telangana to which the 2nd respondent belongs was aware that the subject land has been the place of setting up of a factory by the 5'h respondent even by 1996, that the Mandal Revenue Olfice of Shamshabad had even issued a notice for the year 199'/-98 demanding frorn the 5'h respondent assessment under the A.P. Non-Agricultural Land Assessment Act, 1963 which was also paid on 07'10.1997 by the 5th respondent and acknowledged by the Mandal Revenue Officer, Shamshabad Mandal; similar payments were also received under the said statute for 1998-99, 1999-2000,2000-2001; House Tax, licence fee were being collected by the Gram Panchayat, Shamshabad from 1996; that the 5th respondent was given registration under the Central Excise Act, A.P. General Sales Tax Act (on 28'01'1994); and the District Collector, Ranga Reddy issued proceedings on 01'12'2005 that the 5,h respondent was selected for collection of data on six parameters for estimation of National Income and also State Income under the Manufacturing Sector. 21. He stated that it is absurd for the 2nd respondent to now contend that the subject property was agricultural land and that unless it is converted for non-agricultural use, the 2nd respondent will not be able 1 to register the land under the Registration Act, l90g and only the jurisdictional rahsildar, is competent to register the sale certificate. 22. The leamed Govemment pleader for Revenue, appearing for 2'd respondent, did not dispute the fact that the 5rh rr:spondent was running a factory since 1996 and had paid assessment lnder the A.p. Non-Agricultural Assessment Act, 1963 since 1996_97. 23. Therefore, there is no basis for the 2nd respond,lnt to contend that the subject land, merely because it was described in..guntas,,and not in \"square yards/square meters,, continues to be ag:.icultural land, notwithstanding the non-agricultural use to which it wris put to since 1996. Therefore, he cannot contend that he has no jurisdiction to receive the sale certificate presented by the Bank arLd the auction purchaser and only the jurisdictional Tahsildar is r:mpowered to receive and register the said sale certificate. 24, Regarding the inclusion of the subject land in tae prohibitory list prepared under section 22-A of the Registration Act, r90g on account of alleged VAT dues to the 3'd respondent and alleged Income Tax dues to the 4th respondent, it is undisputed that the security interest/charge of the Bank over the subject property ,vas registered way back on 08.04.2000 and was reiterated on 21.09.2012 when the 5'h respondent was in possession of the property and ha,l created such charge for its working capital loan requirements. 25, Sec.26-E of the SARFAESI Act,2002 introduced by Act 44 of t\"')otO w.e.f.24.1 .2020 srates: ,,26_8. priority to anythins contained ,, *, :;;';: i'ifr',;_!#r!::f;: after the registration of security interest, the debts clue to any secured creditor shatt be paid in priority over al other debts and all revenues, t@ces, 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 Bankruprcy code, 20r6 (3r of 2016), in cases where insorvency or bankruptcy proceedings are pending in respect of .secured asset.s oJ- the borrower, priority to secured creditors in payment of debt ,shall be subject to the provisions of that Code.,, 26. Thus the above provision gives priority to claims of secured creditors like the petitioner Bank over the dues of the State such as Service Tax dues/ Income Tax dues and the non_obstante clause therein over:rides the provisions of the Income Tax Act, 1961 and the Telangana VAT Act, 2005. 27. Sec.35 of the SARFAESI Act,2002 gives overriciing effect to the said statute over anything inconsistent therewith in any other law. It states: \" Sec..l5. The provisions of this Act to override other laws,- The provisions of this Act shall have effect, notu)ithstanding anything inconsistent therewilh contained in any other lqva, .for the time being inforce or any instrumenl having effect by virtue of any such law. \" 28, ln our considered opinion, after introduction of Sectior.r 26-E of the SARFAESI AcI,2002w.e.f.24-01-2020, once the security interest created in favour of the Bank is registered with the Central Registry of the non-obstante clause contained in Section 26-E rlw Section 35 of Securitization Asset Reconstruction and Security Interest (CERSAI), -,:ii.-.--.i* 9 theSARFAESIAct,2002wilicomeintoplayandoverridethe provision such as Section 26 of the Teiangana VAT Act' 2005 (which give priority to VAT dues ovel any other claim) or the order of attachment d1.09.09.2016 issued by the Tax Recovery Officer under Rule 48 of the II Schedule to the Income Tax Act, 1961 ' 29. A Division Bench of this Court to which one of ur; (Justice M'S' Ramachandra Rao) was a member had held in the decision in State Bank of India (1 supra) that after the advent of Section 26-E rlw Section 35 of the SARFAESI Act,2002 and also Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 (inserted by Section 249 of V Schedule to the IBC, 2016), secured cretlitors like the petitioner-Bank have priority over the dues of Central (lovemment or State Government Authorities such as Service Tax./Income Tax dues and that lhe non obstante ciause therein will override th,r provisions of tlre Finance Act, 1994 or the Income Tax Act, 1961. 30. This legal.position is not disputed by Sri K.Raji I(eddy, learned Special Standing Counsel for the Commercial Tax Deparlment (3'd respondent) or Ms.Mamatha Choudary, leamed Senior Standing counsel for the Income Tax Department (4m respondent). 31. Accordingly, the Writ Petition is allowed: proceedings Rc.No.3695021718412016-17 dt.05.10.2016 addressed by the 3'd respondent to the 2.d respondent and proceedings F.No.TRO/TRC No.20712014-15 dt.09.09.2016 issued by the 4th respondent are both set aside; and a Writ of Mandamus is issued directing the I F- IU 2nd respondent to receive the sale deod subrnitted by the petitioner Bank for transfer of property viz., commercial unit bearing D.No.12_ 10 with land admeasuring Ac.0.25 gts in Sy.No. 657 of Satamrai village, Shamshabad Mandal, Ranga Reddy District, in favour of the auction purchaser as per the sale certificate issued under the provisions of the SARFAESI Act, 2002, and register ir within four (04) weeks of such presentation of sale deed by them, if it is otherwise in conformity with the Stamp Act,1899 and the Registration Act,190g by collecting the applicable stamp duty and Registration charges, without raising a plea that the land is agricultural land, and without addressed by 3'd respondent to the 2nd respondent or attachment order F.No.TRO/TRC No.207l2014-i5 dt.09.09.2016 issuecl by 4th respondent, and the prohibitory list maintained by 2'\"r respondent. No costs. 1' Pending miscelianeous petitions, if any, in this Writ Petition shall also stand dismissed. ASS*iRI#aTE|SHTH //TRUE CoPY/t . 2 ' SECTION OFFICER to\", . -nu secretary, Ministry ot-f i.1919e.]]lion of lndia' Rajpath Marg' E-BIock' Central Secretariat' New Delnl-l luu I I z ii'\"'br.i o\"n\"\"'ql li iii,' s-ni'i n i o-ad' f q rp a Red d v. D i st ri ct 3. The commerciar rax'iSiiicti]-si?ciir iornmodltiJs Circte. sa roornaga r Division, . ?il:\"J33if, commissioner or lncome Tax' circle-2 (3)' Room No B24' B Block' - efir-l#iiiT Towers, A'C Guards' Hvderabad' 5. il; ic'id 'sri E. rr,ritlii H'tot''in Rag' Advocate- IoPUCI 6 rwo ccs to GP i\"' R:l;i;;:Iish cliu't for the'State oi relansana at , Bx1\"6t?S *t*r.1,*i?:,r\"Hrj: ibfli:, 8. One CC to Sri K. Ra. 9. One CC to Smt K M toPUCl 10.Two CD CoPies 1 1 . One SPare CoPY CHR { MMT L- reference to the letter Rc.No.369502lll84l20l6-17 dt.05.10.2016 5 { HIGH COURT DATED:2710712021 ORDER W.P.No.20646 of 2020 ALLOWING THE WRIT PETITION WITHOUT COSTS 11 E 5 i,].,! C:.oo r.-r- :) o ,J 11 4U020?1 C) 9+ tt rt s "