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2016 Supreme(Bom) 1697
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. DHARMADHIKARI & B.P. COLABAWALLA, JJ.
M/s. Sonoma Management Partners Pvt. Ltd. & Ors. - Petitioners
Vs.
Bank of Maharashtra & Ors. - Respondents
WRIT PETITION NO. 4188 OF 2014
Decided On : 22-11-2016
For the Petitioners: Mr. Rafique Dada, with Mr. Ravi Kadam, Dr. Birendra Saraf, Mr. Jai Chhabria & Ms. Ayushi Anandpara, M/s. Federal & Rashmikant.
For the Respondents: Mr. Karl Shroff, Mrs. Hema Desai, Mr. Vijay L. Hinge Singhi & Co., Ms. Sushma Bhende, Mr. Ashok Kotangle.
The main legal point established in the judgment is that a purchaser under the SARFAESI Act, who had no notice of Sales Tax dues at the time of purchase, cannot be held liable for the dues beyond what was disclosed at the time of purchase.
Headnote:
SALES TAX - PROPERTY PURCHASE - SARFAESI Act, 2002 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - [Section 13(6) of SARFAESI Act, 2002, Section 38C of the Bombay Sales Tax Act, 1959]
Fact of the Case:
The Petitioners sought a writ of mandamus against Respondent Nos.1 and 2 to refrain from asserting any charge on the property purchased under the SARFAESI Act for the recovery of alleged Sales Tax dues. The Petitioners purchased the property under the SARFAESI Act without notice of the Sales Tax dues, which were disclosed after the purchase.
Finding of the Court:
The court found that the Sales Tax Authorities cannot recover their dues from the Petitioners by enforcing their charge under Section 38C of the BST Act on the said property, except to the extent of Rs.18,38,709. The court clarified that its order does not affect the Sales Tax Authorities' ability to proceed against the Defaulter Company or the priority of the Sales Tax Authorities on the sale proceeds.
Issues: The main issue was whether the Sales Tax Authorities could enforce their charge on the property purchased under the SARFAESI Act by the Petitioners, who had no notice of the Sales Tax dues at the time of purchase.
Ratio Decidendi: The court held that the Sales Tax Authorities cannot recover their dues from the Petitioners by enforcing their charge under Section 38C of the BST Act on the said property, except to the extent of Rs.18,38,709, as the Petitioners had no knowledge of the dues at the time of purchase.
Final Decision: The court made the rule absolute in favor of the Petitioners, stating that the Sales Tax Authorities cannot recover the dues from the Petitioners by enforcing their charge under Section 38C of the BST Act on the said property, except to the extent of Rs.18,38,709. The court left the parties to bear their own costs and clarified that the issue of priorities between the Sales Tax Authorities and Respondent Nos.1 and 2 shall be decided in appropriate proceedings before the appropriate forum and in accordance with the law.
B.P. COLABAWALLA, J.
1. Rule. Respondents waive service. By consent of parties, rule is made returnable forthwith and heard finally.
2. By this Writ Petition under Article 226 of the Constitution of India, the Petitioners have sought a writ of mandamus or any other appropriate order or direction against Respondent Nos.1 and 2 to pay over to Respondent No.3 or Respondent No.4 the sale proceeds of the property, more particularly described in Exh “B” to the Petition (for short “the said property”) and direct Respondent Nos.3 and 4 to issue a “no claim certificate” and or “discharge certificate” to the Petitioners. The Petitioners have also sought a mandamus directing Respondent Nos.3 and 4 to forbear and refrain from, in any manner, asserting any charge on the property more particularly described in Exh “B” to the Petition and/or from taking any coercive steps in respect of said property for recovery of any Sales Tax dues of one M/s Weiler International Electronics Pvt. Ltd. (for short “the Defaulter Company”). At the very outset, we must mention that though these directions have been sought in the Petition, Mr. Dada, learned Sr. Counsel appearing on behalf of the Petitioners, pressed only prayer clause (b) of the Petition, namely, that Respondent Nos.3 and 4 be directed to refrain from asserting any charge on the property more particularly described in Exh “B” to the Petition and from taking any coercive steps against the said property for the recovery of any alleged Sales Tax dues.
3. The aforesaid directions are sought by the Petitioners, in view of the fact that the Petitioners have purchased the said property pursuant to a sale conducted by Respondent Nos.1 and 2 (Nationalized Banks) under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the “SARFAESI Act”) and the rules framed there under. In a nutshell, it is the case of the Petitioners that the alleged Sales Tax dues of the Defaulter Company were never disclosed to the Petitioners by Respondent Nos.1 and 2 whilst conducting the sale and in fact even the 7/12 extract relating to the said property, only reflected the dues of the sales tax to the extent of Rs.18,38,709/-. This amount, without prejudice to its rights and contentions, the Petitioners are willing to pay. It is the case of the Petitioners that the alleged Sales Tax dues of the Defaulter Company amounting to approximately Rs.28 Crores was brought to their notice long after they had already purchased the said property under the provisions of the SARFAESI Act. It is in these facts and circumstances, that it is the contention of the Petitioners that the Sales Tax Authorities cannot enforce their alleged charge on the said property purchased by the Petitioners, and if at all the Sales Tax have any charge, it would have to be recovered from the sale proceeds which lie in the hands of Respondent Nos.1 and 2. It is in this backdrop, that the present Writ Petition has been filed.
4. The brief facts giving rise to the present controversy are as under:-
(a) Petitioner No.1 is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 and has purchased the said property. Petitioner No.2 is the CEO and Managing Director of Petitioner No.1. For the sake of convenience, they are collectively referred to as the Petitioners. Respondent No.1 is the Bank of Maharashtra and Respondent No.2 is the Bank of Baroda, who had both granted financial assistance to the Defaulter Company. Respondent No.3 is the State of Maharashtra and Respondent No.4 is the Sales Tax Department, through the Deputy Commissioner, Satara. It is the case of Respondent No.4 that the Defaulter Company has huge Sales Tax dues outstanding to the extent of approximately Rs.28 Crores.
(b) It is not in dispute that the Defaulter Company had taken financial assistance from Respondent Nos.1 and 2. Since the Defaulter Company could not repay the financial assi
