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IN THE HIGH COURT OF KERALA AT ERNAKULAM
T.R.RAVI, J.
Sreedevi Mangalan, W/o. Mangalanandan – Appellant
Versus
The District Collector – Respondent
WP(C) No. 15719 of 2021
Decided on : 12-12-2023
SARFAESI Act - Property Auction - KVAT Act, 2003, Central Sales Tax Act,1956 - Revenue Recovery Proceedings - [SARFAESI Act, 2002, KVAT Act, 2003, Central Sales Tax Act,1956] - The court discussed the priority of charge in the light of Section 26E of the SARFAESI Act over the statutory charge created under the KGST Act or the KVAT Act. It concluded that the State has the first charge over the property, and the charge runs with the property irrespective of the sale conducted by financial institutions. The statutory charge created under the State laws would continue to run with the property even if the property is sold by the Bank till such time the encumbrances are cleared as per the provisions of the said enactments and Rules thereto.
Fact of the Case:
The petitioner purchased properties in an auction conducted under the SARFAESI Act. The property had been attached in revenue recovery proceedings for arrears of sales tax, and the petitioner sought direction for registration of the sale deed and mutation of the property.
Finding of the Court:
The court held that the statutory charge in favor of the State will continue to be in force despite the sale in favor of the petitioner. The sale certificate is liable to be registered, but the ownership over the property is always subject to the charge, and the State will always be entitled to proceed against the property for enforcing their charge.
Issues: Priority of charge under SARFAESI Act over statutory charge created under State laws, registration of sale certificate in the presence of a charge over the property, and removal of adverse entries in relevant registers regarding revenue recovery proceedings.
Ratio Decidendi: The statutory charge created under the State laws would continue to run with the property even if the property is sold by the Bank till such time the encumbrances are cleared as per the provisions of the said enactments and Rules thereto.
Final Decision: The court directed the registration of the sale deed and mutation of the property in favor of the petitioner, but made it clear that the statutory charge of the respondents over the property will not be affected. The prayer for removal of adverse entries in relevant registers regarding revenue recovery proceedings was not granted.
JUDGMENT :
The petitioner purchased properties having an extent of 4.05 Ares situated in Mangadu Village, Kollam District, in Re-Survey No.642/13-2 in Block No.15 and 7.70 Ares with building No.KP IV/620 in Survey No. 642/14 in Resurvey Block No.15) for a sum of Rs.90,25,000/-, in an auction conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), for the realisation of amounts due to the 4th respondent. Ext.P1 is the sale certificate. The said property had been mortgaged by one Renjith Vilaseedharan with the 4th respondent at their Thiruvananthapuram Branch by deposit of title deeds on 15.7.2015. When the petitioner approached the 5th respondent for registering the sale certificate, she was informed that the property had been attached on 05.02.2021 in revenue recovery proceedings initiated for arrears of sales tax and hence the certificate cannot be registered. Ext.P3 is the encumbrance certificate issued by the Kilikollur SRO on 05.07.2021, which does not disclose any attachment. Ext.P4 is the judgment of this court, which according to the petitioner has been rendered in similar circumstances. The contention of the petitioner is that the revenue recovery proceedings were initiated much after the equitable mortgage was created and that the mortgagee has a prior charge over the property. Reliance is placed on the decisions of this Court in Kuriachan Chacko Vs. State of Kerala & Ors. [2012 (3) KHC 549], Housing Development Finance & Anr. Vs. Sub Registry Officer & Ors. [2011 KHC 851], and Madhan S Vs. Sub Registrar, Kollam & Ors. [2014 (1) KLT 406] in support of the contention. The writ petition is filed praying for a direction to the 5th respondent to register the sale deed as per Ext.P1 and to give direction to the 3rd respondent to mutate the property and to receive the basic tax. There is also a prayer for a direction to the 5th respondent to remove the adverse entries in the relevant registers regarding revenue recovery proceedings against the secured assets initiated after the mortgage.
2. The 6th respondent has filed a statement wherein it is stated that the property belonged to registered dealers under the Kerala Value Added Tax Act, 2003 and Central Sales Tax Act,1956, who had arrears of tax under both the Acts, totalling an amount of Rs.2,80,07,850/-along with interest. It is submitted that the dealer M/s. Navami Exports was a firm that had three partners, Sri D Vilaseedharan, Sri. Sujith and Sri. Renjith (additional 7th respondent). It is stated that the firm had huge arrears of tax from 2006-07 to 2016-17. Under Section 28 of the KVAT Act, 2003, the partners of a firm are jointly and severally liable to pay any arrears of tax, fee, or any such amounts payable by the firm. It is stated that the Assessment for the year 2006-07 of the dealer firm under the two Acts was completed on 30.12.2010 as evidenced by Exts.R6(b) and R6(c). It is stated that revenue recovery steps had been initiated on 10.6.2011, which was before the creation of the mortgage by the 7th respondent. It is submitted that the mortgage was created when penalty proceedings for the years 2010-11 to 2016-17 and 2012-13 to 2015-16 were pending before the 6th respondent and the Intelligence Officer, Kollam. It is contended that the equitable mortgage, created on 1.7.2015 when the State had a charge over the properties, is void and non-est by operation of Section 37 read with Section 38 of Kerala Value Added Tax Act,2003. The E-auction in favor of the petitioner is hence contended to be void as against claim in respect of tax or any sum payable under the Kerala Value Added Tax Act, 2003. It is submitted that the petitioner cannot thus have a grievance against revenue recovery proceedings initiated against the property in accordance with law.
3. The 2nd respondent has filed a counter affidavit. It is submitted that the requisition for initiation of revenue recovery proceedings for r
The statutory charge created under the State laws continues to run with the property even after its sale, and the ownership over the property is always subject to the charge.
Statutory first charge under tax laws prevails over registered sale certificates post mortgage.
Bank is entitled only for a priority in payment alone, it can never be said to be a charge created over property against statutory charge contained under KGST Act, 1963 and KVAT Act, 2003 or any Cent....
The provisions of the SARFAESI Act grant secured creditors priority over state tax dues, rendering any conflicting claims by tax authorities ineffective.
The rights of secured creditors take precedence over government dues once a sale under the SARFAESI Act is registered.
The provisions of Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 create "First Charge" by way of priority in favour of the Banks and Financial ....
Section 26E of the SARFAESI Act establishes that secured creditors have priority over State revenue claims, reinforcing the enforceability of secured debts post-registration.
Section 26(E) of the SARFAESI Act and Section 31B of Act 51 of 1993, there cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which ....
There cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which security interest is created, would have priority over all the debts.
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