Case Note & Summary
The petitioner, Medineutrina Pvt. Ltd., purchased an immovable property (plot no.206, MIDC, Butibori, Nagpur) in an auction conducted by Punjab National Bank (respondent no.3) under the SARFAESI Act. The property originally belonged to M/s. Wood Stock Holdings, which had defaulted on a loan. The petitioner's bid of Rs.71,25,000 was accepted on 14/3/2017, and a sale certificate was issued on 29/3/2017. Symbolic possession was handed over on the same day. On 12/1/2018, the petitioner applied to the District Industries Centre (DIC) for transfer of the property in its records. The DIC, by letter dated 6/2/2018, informed the petitioner that it would need a No Objection Certificate (NOC) from the Sales Tax Department (respondent no.2) because there were arrears of sales tax dues against M/s. Wood Stock Holdings. The petitioner challenged this action, contending that as an auction purchaser under the SARFAESI Act, it was entitled to a clear title free from all encumbrances, including prior sales tax dues. The court analyzed the provisions of the SARFAESI Act, particularly Section 35 which gives overriding effect to the Act over other laws, and Section 13 which allows the secured creditor to enforce security interest. The court held that the auction sale under the SARFAESI Act extinguishes all prior encumbrances, including statutory dues like sales tax. The DIC's insistence on an NOC from the Sales Tax Department was arbitrary and illegal. The court also noted that the Sales Tax Department's claim for arrears against the previous owner does not attach to the property after a valid SARFAESI auction. The court allowed the writ petition, directing the DIC to transfer the property in its records in favour of the petitioner without insisting on any NOC from the Sales Tax Department, and directed the bank to issue a fresh sale certificate free from all encumbrances.
Headnote
A) SARFAESI Act - Auction Sale - Clear Title - Section 13, 17, 35 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The auction purchaser of a property sold under the SARFAESI Act acquires the property free from all encumbrances, including prior sales tax dues of the previous owner. The DIC cannot insist on a No Objection Certificate from the Sales Tax Department for transfer of the property in its records. (Paras 1-10) B) Sales Tax - Priority of Dues - Section 26 of Maharashtra Value Added Tax Act, 2002 - Sales tax dues do not have priority over the secured creditor's rights under the SARFAESI Act. The auction purchaser is not liable to pay the previous owner's sales tax arrears. (Paras 5-10) C) Writ Jurisdiction - Maintainability - Article 226 of Constitution of India - The High Court can entertain a writ petition against the DIC and Sales Tax Department for arbitrary refusal to transfer property records, as it involves a public law element and violation of fundamental rights. (Paras 1-10)
Issue of Consideration
Whether the District Industries Centre can refuse to transfer the property in its records in favour of the auction purchaser on the ground that there are arrears of sales tax dues of the previous owner, and whether the auction purchaser is liable for such dues.
Final Decision
Writ petition allowed. DIC directed to transfer the property in its records in favour of the petitioner without insisting on any NOC from the Sales Tax Department. Bank directed to issue a fresh sale certificate free from all encumbrances.
Law Points
- Auction purchaser under SARFAESI Act gets clear title free from prior encumbrances
- Sales Tax dues do not attach to property after SARFAESI sale
- DIC cannot insist on NOC from Sales Tax for transfer of property purchased in auction under SARFAESI Act
