Case: Sherwood Resorts Private Limited &amp; Another Vs. State of Maharashtra &amp; Others

1. Rule. Respondents waive service. By consent of parties, Rule made returnable forthwith and heardattachment was levied on an immovable property purchased by the Petitioners pursuant to an auction conducted by Respondent No.2SICOM under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). Petitioner No.1 is a Company incorporated and registered under the provisions of the Companies Act, 1956 and Petitioner No.2 is its shareholder. It is the case of the Petitioners that the impugned attachment order was passed by Respondent No.5 (Sales Tax officer,VAT Recovery, Raigad Division, Belapur, Navi Mumbai), after the said property was purchased by the Petitioners for valuable consideration and without any notice of the alleged charge of the Sale Tax Authorities, which they now seek to enforce against the said property.3. It is the case of the Petitioners that one M/s. Iccon Oil and Specialties Ltd (for short, Iccon Oil) was the owner of an immovable property consisting of land and factory buildings, other structures and plant and machinery, situate at Plot No.1, Survey No.59 (Part) of Village Honad, at TakaiAdhoshi Road, Taluka Khalapur, District Raigad, area of plot admeasuring approximately 10,790 sq.mtrs. and built up area thereon admeasuring 10,552.31 sq.ft. (hereinafter referred to as the secured property). The said Iccon Oil was also a debtor of Respondent No.2SICOM. To recover its dues from Iccon Oil, Respondent No.2 conducted an auction of the secured property under the provisions of the SARFAESI Act. In this auction, the Petitioners were the highest bidder and the sale was accordingly confirmed in their favour. It is in these circumstances that the Petitioners claim to be the owners of the secured property.4. It appears that Iccon Oil, apart from being a debtor of Respondent No.2, was also in arrears of its Sales Tax dues to the tune of Rs.To recover these arrears, Respondent No.5 passed the impugned attachment order, attaching the secured property. As stated earlier, it is the case of the Petitioners that when they purchased the secured property, they had no notice of the purported charge / claim of the Sales Tax Authorities in the sum of Rs.It is in these circumstances that the Petitioners challenge the legality and validity of the impugned attachment order (Exh.Q to the Petition), on the ground that the same is arbitrary, illegal and without jurisdiction.5. The contesting Respondents in this Writ Petition are Respondent Nos.1, 3, 45. Respondent No.1 is the State of Maharashtra and Respondent Nos.3 to 5 are high ranking officials of the Sales Tax Department. Respondent No.6 is the Official Liquidator of the erstwhile Iccon Oil that has been ordered to be wound up pursuant to an order dated 18th March, 2015 passed by this Court in Company Petition No.653 of 2013. Respondent No.7 is the Tahsildar of Taluka Khalapur, District Raigad and Respondent No.8 is the Talathi, Honad, Taluka Khalapur.6. It is the case of the Petitioners that on the secured property, the said Iccon Oil carried on its business as a manufacturer of lubricating and other oils, petroleum products,etc. During the course of its business, Iccon Oil obtained financial assistance from banks like Central Bank of India, Union Bank of India and State Bank of Indore (now merged in State Bank of India). Such assistance was obtained inter alia against security of its immovable and movable property, including plant and machineries. Since Iccon Oil did not pay its dues to the banks, on 8th October 2003, Central Bank of India issued a notice under section 13(2) of the SARFAESI Act calling upon Iccon Oil to repay an amount of Rs.12,05,77,541/as on 14th March, 2001. As Iccon Oil failed to comply, a notice was published in the newspapers on 17th April, 2004 notifying that Central Bank of India had taken over possession of the secured property under the provisions of the SARFAESI Act.7. Thereafter, by a Deed of Assignment dated 31st March 2010, Respondent No.2SICOM inter alia acquired all the right, title and interest arising out of the loan disbursed by the said Central Bank of India to Iccon Oil, alongwith the assignment of the secured property. Therefore, by virtue of this Deed of Assignment, Iccon Oil became the debtor of Respondent No.2.8. Since Iccon Oil did not honour its debt, under the provisions of the SARFAESI Act, Respondent No.2 sought to enforce its security by sale of the secured property. Accordingly, on 9th December, 2011 Respondent No.2 published a sale notice which was followed by another sale notice on 28th December, 2011. These sale notices were challenged by Iccon Oil in the Debt Recovery Tribunal (DRT), as well as the Debt Recovery Appellate Tribunal (DRAT), without any success.9. Since the said challenge failed, Respondent No.2 once again issued a sale notice on 25th August, 2012 under the provisions of the SARFAESI Act, inviting offers in respect of the secured property on an as is where is and as is what is basis. The Petitioners, being desirous of purchasing the secured property, bid in the public auction held on 10th September, 2012 and offered a consideration of Rs.On 15th March 2013, Respondent No.2 was pleased to accept this offer of the Petitioners and accordingly, the Petitioners made payment of the full sale consideration of Rs.2,65,00,000/on 21st March 2013. On 1st April 2013, Respondent No.2 confirmed receipt of the entire sale consideration and requested the Petitioners to proceed with the execution of the sale certificate.11. It is the case of the Petitioners that prior to purchasing the secured property, the Petitioners undertook a complete title due diligence and obtained a 7/12 extract dated 15th May, 2012 (Exh.G to the Petition) in respect of the secured property which recorded the name of Iccon Oil as the owner. The other rights column of the 7/12 extract recorded that one District Industries Centre, Raigad had a charge on the secured property in the sum of Rs.In the said 7/12 extract, no charge of the Sales Tax Authorities was reflected at that time. It was in these circumstances that the Petitioners decided to bid for the secured property. It is the further case of the Petitioners that even after the sale of the secured property was confirmed in its favour, they once again obtained another 7/12 extract dated 12th April, 2013 (ExhAs stated earlier, after the entire sale consideration of Rs.2,65,00,000/was paid, the Petitioners were requested to proceed with the execution of the sale certificate. It is the case of the Petitioners that the only reason the Petitioners could not obtain registration of the Sale Certificate is on account of the excessive stamp duty demanded by the registering authority by taking into account the alleged arrears of sales tax dues of Iccon Oil, in addition to the consideration paid (ofby the Petitioners to Respondent No.2. It is in this light that the Petitioners once again applied for and obtained the latest 7/12 extract dated 9th January, 2014 in respect of the secured property. It is at this time that they were shocked and surprised to note that now the said 7/12 extract showed an additional entry. Now, apart from the earlier charge of Rs.4,30,601/of the District Industries Centre, Raigad, for the first time, the said 7/12 extract also reflected a charge of Rs.2,77,72,073/of the Sales Tax Authorities. This was duly brought to the notice of Respondent No.2 and Respondent No.2 was informed that this charge of the Sales Tax Authorities in the sum of Rs.2,77,72,073/was not reflected in the 7/12 extract when they purchased the secured property from Respondent No.2. Thereafter, it is stated in the Petition that the Petitioners have obtained physical possession of the secured property with the help of Police Officials of Khopoli Police Station on 3rd April, 2014. This is how they claim to be in possession as well as the owners of the secured property.13. As mentioned earlier, an order of attachment dated 29th April, 2013 but signed on 2nd May, 2013 (Exhto the Petition) was passed by Respondent No.5 attaching the secured property for recovery of the outstanding dues of the Sales Tax Authorities. These dues of M/s Iccon Oil (in the sum ofwere for the periods3. Accordingly, by a letter dated 22nd May 2013, Respondent No.7 (Tahasildar, Khalapur) enclosed a copy of the said order of attachment and directed Respondent No.8 to take further necessary action to record the charge of the Sales Tax Authorities in the sum of Rs.After the Petitioners obtained possession of the secured property, on 7th April 2014, a visit was paid by the Sales Tax Inspectors to the place of business of Iccon Oil for recovery of the sales tax dues. At this time, the Sales Tax Inspectors learnt that the secured property had been sold by Respondent No.2 and the same was in possession of the Petitioners. This was duly recorded by the Sales Tax Inspectors in their submission which is annexed at Exh.to the Petition.14. Be that as it may, in furtherance of recovering the Sale Tax dues, on 20th June 2014, Respondent No.3 (Commissioner of Sales Tax, VAT, Admin.) issued a notice under section 62A of the Bombay Sales Tax Act, 1959 to Respondent No.2 (with a copy marked to the Petitioners) inter alia alleging that though the secured property was attached by the Sales Tax Authorities way back in April 2013, Respondent No.2 had sold the same to the Petitioners and that the said transfer being an intent to defraud the revenue, there was reason to believe that the transfer by Respondent No.2 was void under section 62A of the Bombay Sales Tax Act, 1959.15. In view of the aforesaid notice, the Petitioners attended the hearing in the Office of Respondent No.3 on 15th July, 2014 and submitted their written submissions inter alia stating that the notice issued was completely illegal and unsustainable in law. It was submitted that the purported new charge of Rs.2,77,72,073/was recorded in the 7/12 extract of the secured property only after 22nd May 2013, while the Petitioners had bonafide purchased the same by paying the full consideration to Respondent No.2 on 21st March 2013, without any knowledge of the alleged encumbrance of the Sales Tax Authorities. At that time, the only encumbrance recorded in the 7/12 extract was a sum of Rs.4,34,601/due to District Industries Centre, Raigad. It is important to note that in the written submissions filed by the Petitioners, they also intimated the Sales Tax Authorities that the said defaulter M/s Iccon Oil was already functioning at another address duly registered under the Maharashtra Value Added Tax Act, 2002.16. Thereafter, the Petitioners, through their Advocates and Solicitors, also addressed a letter dated 22nd June 2015 to Respondent No.5 calling upon him to direct the Office of the Respondent No.7 to withdraw / cancel the alleged charge of the Sales Tax Authorities and submit a copy of the written communication to the Petitioners within 7 days of receipt of the said letter. No action was taken on this letter and neither has the impugned order of attachment been lifted and / or cancelled. It is in these circumstances that the Petitioners have approached us inter alia praying that the impugned order of attachment be quashed and set aside.17. For the sake of completeness, we must mention here that apart from taking action under the provisions of the SARFAESI Act, Respondent No.2 also initiated winding up proceedings against Iccon Oil, by filing Company Petition No.653 of 2013 in this Honble Court. In the said Company Petition, on or about 18th November, 2014 Respondent No.5 herein (Sales Tax Officer, C008) filed Company Application (L) No.603 of 2014 praying that this Court be pleased to direct Iccon Oil to settle the dues of the Sales Tax Authorities amounting to Rs.Thereafter, Company Petition No.653 of 2013 as well as Company Application (L) No.603 of 2014 were disposed of by two separate orders, both dated 18th March, 2015. By the order passed in the Company Petition (Exhto the Petition), this Court ordered the winding up of M/s Iccon Oil and appointed the Official Liquidator (Respondent No.6 herein) to take charge of the assets belonging to M/s Iccon Oil. As far as Company Application (L) No.603 of 2014 is concerned, this Court ordered that since Iccon Oil had been wound up, the Government of Maharashtra through the Department of Sales Tax, shall file their claim before the Official Liquidator (Exhto the Petition). With these directions Company Application (L) No.603 of 2014 was disposed of.

Court's reasoning:
In these circumstances, we find that Mr Joshi is fully justified in contending that the Petitioners had no knowledge or notice of the charge of the Sales Tax Authorities before they purchased the secured property from Respondent No.2 and therefore, the Sales Tax Authorities cannot enforce their charge against the secured property.In view of this authoritative pronouncement of the Supreme Court, in the facts of the present case we have no hesitation in holding that the Petitioners, having no knowledge of the charge of the Sales Tax Authorities before they purchased the secured property, the Sales Tax Authorities could not enforce their charge against the securedthis view of the matter, we find no substance in thisargument is stated, only to be rejected. Firstly, the expression charge, just like in the Karnataka Sales Tax Act, 1957, is also not defined in the Bombay Sales Tax Act, 1959. On the issue of enforceability of charge, the Supreme Court, whilst considering the provisions of Section 100 of the Transfer of Property Act, 1882 gave its findings in paragraphs 18 to 21 thereof. These findings are binding on us and we cannot distinguish the aforesaid decision on the specious ground that the same is rendered in the context of the provisions of the Karnataka Sales Tax Act, 1957. Secondly, even otherwise, we find that the very same judgment of the Supreme Court in the case of Shreyas Papers (supra) has been relied upon by a another Division Bench of this Court in the case of M/s.National Steel and Agro Industries Ltd, Mumbai v/s the State of Maharashtra and Others. (2015 (2) ABR 805  )to which one of us (S. C. Dharmadhikari, J.), was a party. This decision was rendered in context to the Bombay Sales Tax Act, 1959. We find that this exact argument was canvassed before the Division Bench in M/s.National Steel and Agro Industries Ltds case (2015 (2) ABR 805  ), and the same was repelled by this Court. The argument canvassed before the Division Bench was that no assistance could be derived from the decision of the Supreme Court in the case of Shreyas Papers (supra). After relying upon the very same paragraphs of the Supreme Court judgment that have been reproduced above, this Court repelled the aforesaid contention in paragraphs 35 and 36 of itsthe facts of the present case, we are unable to agree with this submission. As stated by the Petitioners in their affidavit in rejoinder, the only reason why the Sale Certificate could not be registered was because the stamp duty demanded by the Registering Authority was taking into account the arrears of Sales Tax dues of Iccon Oil, in addition to the consideration already paid by the Petitioners to Respondent No.2. Admittedly, the Petitioners are not liable for this amount as they are not the debtors of the Sales Tax Authorities. Furthermore, when the sale of the secured property was confirmed in favour of the Petitioners, admittedly the charge of the Sales Tax Authorities was not reflected in the 7/12 extract of the said property. We therefore find no substance in the aforesaid argument canvassed by Mr Sharma.32. We also must note here that Iccon Oil was wound up by and under the orders of this Court and this Court by its order dated 18th March 2015, passed in Company Application (L) No.603 of 2014, has given liberty to the Sales Tax Authorities to file their claim before the Official Liquidator. We are informed that the claim of the Sales Tax Authorities has also been filed thereafter with the Official Liquidator of this Court and we are of the view that the Sales Tax Department is free to pursue its claim against Iccon Oil.33. Before parting, we must clarify that we havent entered upon any controversy regarding the priority the Sales Tax Authorities may have on the sale proceeds received from the sale of the secured property to the Petitioners. The priority, if any, of the Sales Tax Authorities is not in issue before us and therefore we should not be understood to have rendered any finding in that regard. The issue of priorities shall be decided in appropriate proceedings before the appropriate forum, and in accordance with law.