Indian Overseas Bank, Asset Recovery Management Branch, Coimbatore vs Assistant Commissioner of Central Excise & service Tax, Salem

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2023 Supreme(Mad) 2763

IN THE HIGH COURT OF JUDICATURE AT MADRAS
S.M. SUBRAMANIAM, J.
Indian Overseas Bank, Asset Recovery Management Branch, Coimbatore – Appellant
Versus
The Assistant Commissioner of Central Excise & service Tax, Salem & Others – Respondents
W.P. No. 15014 of 2022 & W.M.P. No. 14231 of 2022
Decided On : 05-09-2023

Advocates appeared:
For the Petitioner:M.L. Ganesh, Advocate. For the Respondents:R1, K. Umesh Rao, Senior Standing Counsel, R2, B. Dhan Raj, Advocate. R3, D. Ravichander, Special Govt. Pleader.

Headnote:
Attachment - Recovery of Loan Dues - SARFAESI Act, 2002, Recovery of Debts and Bankruptcy Act, 1993, Customs Act - Section 142A - The court dismissed the writ petition filed by the petitioner Bank seeking a direction to remove the attachment effected on the secured property belonging to the 2nd respondent. The court held that the sale certificate issued with known encumbrances cannot be registered under the provisions of the Registration Act, nor encumbrances can be removed, at the request of the Bank since such removal would result in misguidance to the public in general for further alienation of the properties. Unless the encumbrances are cleared, the attachment will continue, and it cannot be removed as such sought for by the petitioner Bank.

Judgement Key Points

Based on the provided legal document, here are the key points:

The court dismissed the writ petition filed by the Indian Overseas Bank (Petitioner) seeking a direction to remove the attachment effected by the Assistant Commissioner of Central Excise & Service Tax (1st Respondent) on secured property belonging to a company (2nd Respondent).
The court held that a sale certificate issued with known encumbrances cannot be registered under the provisions of the Registration Act, and therefore, encumbrances cannot be removed at the request of the Bank without clearing the dues first.
The petitioner argued that as a secured creditor under the SARFAESI Act, they hold first charge over the debts and that the unsecured tax department (Crown's debt) should not have priority over the bank's dues.
The petitioner relied on precedents stating that unless there is a specific provision in the Central Excise or Customs Act claiming "first charge," the claim of a secured creditor prevails over the Crown's debts.
However, the court noted that Section 142-A of the Customs Act and Section 11(E) of the Central Excise Act do provide for the government dues to be a "first charge" on the property, save as otherwise provided in specific acts like SARFAESI.
The court emphasized that the Bank failed to strictly follow the procedures under Rule 9 of the Security Interest (Enforcement) Rules, 2002. Specifically, the Sale Certificate issued by the authorized officer explicitly listed the Central Excise attachment as a known encumbrance.
Under Rule 9(6) and Rule 9(10), if the sale certificate mentions encumbrances, the purchaser is deemed to have bought the property with those encumbrances, and the Registering Authority is not empowered to remove them.
The court applied the principle of "Caveat Emptor" (Buyer Beware), stating that since the auction notice and sale certificate disclosed the encumbrances, the third-party purchaser bought the property with knowledge of the dues owed to the tax department.
Allowing the Bank to remove the attachment without clearing the dues would mislead the public regarding the status of the property for future alienation and would permanently deprive non-secured statutory creditors of their right to recover dues.
The court concluded that the Bank is duty-bound to follow the statutory rules scrupulously to protect the interests of other creditors, and non-compliance disentitles them from seeking a direction to remove encumbrances.
The writ petition was also considered premature as the Bank had not provided proof that the Sale Certificate was sent to the Sub-Registrar for registration, nor had they attempted to resolve the dispute through the Administrative Mechanism for Resolution of Disputes (AMRD) as per the Government of India Office Memorandum.

References: (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) [p

JUDGMENT

(Prayer: Writ Petition filed Under Article 226 of the Constitution of India, to issue a Writ of Mandamus, to direct the First respondent to remove the attachment effected on 03.12.2014 as mentioned in EC with the office of the 3rd respondent in respect of secured property belonging to the 2nd respondent so as to enable the petitioner bank to register the sale certificate / sale deed in favour of auction purchaser / third party(s) in accordance with law.)

1. The lis on hand has been instituted to direct the 1st respondent to remove the attachment effected on 03.12.2014, as mentioned in the Encumbrance Certificate, with the Office of the 3rd respondent, in respect of secured property belonging to the 2nd respondent, so as to enable the petitioner Bank to register the sale certificate / sale deed in favour of auction purchaser / third party(s) in accordance with law.

Facts of the Case:

2. The petitioner is the Indian Overseas Bank, Asset Recovery Management Branch. The 2nd respondent had purchased the land and building together with plant, machineries, accessories etc., belonging to M/s.Tamil Nadu Sponge Limited, pursuant to the sealed tender invited by DRT, Coimbatore in TA.No.995/2002, which was filed by ICICI Bank Limited, IDBI and IFCI. The DRT, Coimbatore had received 16 tenders and out of which the 2nd respondent-Company was declared as highest bidder and on remittance of entire sale price, the DRT, Coimbatore issued sale certificate on 30.09.2003 in favour of the 2nd respondent.

3. The sale certificate was duly registered as Document No.566/2004 SRO, Omalur in favour of the 2nd respondent, in respect of the properties morefully described in the affidavit filed in support of the writ petition.

4. The 2nd respondent-Company had availed various credit facilities from the petitioner-Bank from time to time in order to run its business operations on the aforesaid property and the last credit facilities, namely, cash credit facility, working capital demand loan, term loan (9Nos) LG, LC and A & E were extended by the petitioner-Bank for Rs.241.52 Crores and in order to secure the aforesaid credit facilities, the 2nd respondent had created primary security on hypothecation of stocks, stocks in trade, book debts, receivables, consumables and collateral security for the aforesaid property. Besides, the aforesaid property belonging to the 2nd respondent and guarantors also offered some immovable properties to secure the immovable properties. The 2nd respondent had defaulted in repaying the loan amount, and the loan accounts were slipped into NPA category on 31.12.2023 in terms of Reserve Bank of India (RBI) guidelines. The 2nd respondent-Company had become non-functional ever since from the year 2014 onwards and virtually defunct due to stoppage of business operations. The Guarantors also had failed and neglected to repay the outstanding loan amount. The petitioner-Bank had invoked SARFAESI actions and thus, caused demand notice under Section 13(2) of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002, on 21.02.2014 to the 2nd respondent and the possession had been taken by the petitioner-Bank. The Bank continued its actions under the SARFAESI to recover the huge outstanding loan amount of Rs.216,63,91,070.59/- as on 21.02.2014. The petitioner-Bank has so far caused more than 10 notices to auction the secured property belonging to the 2nd respondent but could not be sold for want of bidders mainly due to the attachment effected by the 1st respondent / Assistant Commissioner of Central Excise and Service Tax towards its dues.

5. The petitioner-Bank had so far sold the secured properties belonging to the guarantors and recovered only a sum of Rs.51,79,77,500/- as against the staggering outstanding amount of Rs.216,63,91,070.59 as on 21.02.2014.

6. The petitioner-Bank mainly contended that they are struggling to auction the secured properties beacuae of the attachment made b

Click Here to Read the rest of this document

2023 Supreme(Mad) 2763

Related Judgments

Indian Overseas Bank, Asset Recovery Management Branch, Coimbatore VS Assistant Commissioner of Central Excise & service Tax, Salem - 2023 Supreme(Mad) 2763

Punjab National Bank VS Assistant Commissioner of State Tax (D-815), Nodal Division-1, Mazgaon, Mumbai - 2023 Supreme(Bom) 341

Adidev Polymers Private Ltd, Rep By Its Director Mr. Suresh Kumar Ramsisaria vs State Bank of Patiala, MID Corporation Branch, Badami House, N.S. Square, Bangalore - 2025 Supreme(Kar) 828

Love Garg VS State Of Punjab - 2021 Supreme(P&H) 1523

Indian Overseas Bank Asset Recovery Management Branch, Represented by its Chief Manager VS TLS Tyres, represented by its Managing Partner Mr. Valliappan - 2022 Supreme(Mad) 3996

Tamilnadu Mercantile Bank Ltd. vs Sub Registrar - 2024 Supreme(Mad) 2558

State Bank of India, Represented by its Chief Manager, Madurai VS Joint–II Sub-Registrar, Karur - 2021 Supreme(Mad) 736

Tamil Nadu Mercantile Bank Ltd. vs Sub Registrar, Chennai - 2024 Supreme(Mad) 2643

Ronak Industries VS Assistant Commissioner Central Excise and Customs, Daman - 2023 Supreme(Bom) 512

Vinjam Srinivasa Rao VS Union of India - 2023 Supreme(AP) 775