Case Note & Summary
The Petitioner, Ronak Industries, a partnership firm, purchased an immovable property (Survey No.366/5 and 366/6, admeasuring 2400 sq.mtrs, along with structures and plant and machinery) in an auction sale conducted by Respondent No.3, Bank of Baroda, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The sale was conducted pursuant to a Sale Notice dated 27th June 2022 published in the Free Press Journal. The Petitioner paid the full consideration and a Sale Certificate was issued in its favour by the Bank. However, when the Petitioner approached Respondent No.4, the Sub-Registrar, for registration of the Sale Certificate, the Sub-Registrar refused to register it on the ground that the property records showed a lien/charge/mutation entry in favour of Respondent Nos.1 and 2, the Assistant Commissioners of Central Excise & Customs, Daman. The Petitioner also approached Respondent No.5, the Mamlatdar, for removal of the said entry, but to no avail. Aggrieved, the Petitioner filed the present Writ Petition seeking a direction to remove the lien/charge/encumbrance entry of Respondent Nos.1 and 2 from the records of Respondent Nos.4 and 5, and to direct Respondent No.4 to accept and register the Sale Certificate. The Court, after hearing the parties, held that the sale under the SARFAESI Act extinguishes all prior encumbrances, including statutory liens of the Excise Department, and the auction purchaser gets a clean title. The Court further held that the Sub-Registrar cannot refuse registration of the Sale Certificate on the ground of such prior encumbrance. Accordingly, the Court allowed the Petition and directed Respondent Nos.1 and 2 to remove their lien/charge/encumbrance/mutation entry from the records of Respondent Nos.4 and 5 within two weeks, and directed Respondent No.4 to register the Sale Certificate within two weeks thereafter.
Headnote
A) Securitisation and Debt Recovery - Auction Sale under SARFAESI Act - Priority of Dues - The issue was whether the lien of the Central Excise Department over a property sold by a bank under the SARFAESI Act, 2002, can be enforced against the auction purchaser. The Court held that the sale under SARFAESI Act extinguishes all prior encumbrances, including statutory liens of the Excise Department, and the auction purchaser gets a clean title. The Sub-Registrar cannot refuse registration of the sale certificate on the ground of such prior encumbrance. (Paras 3-20) B) Constitutional Law - Writ of Mandamus - Removal of Illegal Encumbrance - The Court held that a writ of mandamus lies against revenue authorities to remove illegal encumbrances created by the Central Excise Department on a property sold under SARFAESI Act, as the continued entry of lien is without authority of law and infringes the rights of the auction purchaser. (Paras 21-25) C) Registration Act - Refusal to Register - Duty of Sub-Registrar - The Court held that the Sub-Registrar cannot refuse to register a sale certificate issued by a bank under the SARFAESI Act on the ground that there is a prior lien of the Central Excise Department, as the sale under SARFAESI Act extinguishes all prior encumbrances. The Sub-Registrar is bound to register the document if it is otherwise in order. (Paras 26-30)
Issue of Consideration
Whether the lien/charge/mutation entry of the Central Excise Department over a secured asset can be enforced against an auction purchaser who purchased the property in a sale conducted by a bank under the SARFAESI Act, 2002, and whether the Sub-Registrar can refuse to register the sale certificate on the ground of such prior encumbrance.
Final Decision
The Court allowed the Writ Petition and directed Respondent Nos.1 and 2 to remove their lien/charge/encumbrance/mutation entry from the records of Respondent Nos.4 and 5 within two weeks from the date of the order. Further directed Respondent No.4 to register the Sale Certificate within two weeks thereafter. Rule made absolute accordingly.
Law Points
- Lien of Central Excise Department cannot prevail over the rights of an auction purchaser under SARFAESI Act
- 2002
- Sub-Registrar cannot refuse registration of sale certificate on ground of prior encumbrance of excise dues
- Writ of mandamus lies against revenue authorities to remove illegal encumbrances.
