Case Note & Summary
The petitioner, State Bank of India, a public sector nationalized bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, filed a writ petition before the High Court of Judicature at Bombay, Nagpur Bench, Nagpur, seeking directions against the Sub-Registrar, Class I, Zarijamni, District Yavatmal, to register a sale certificate issued in favour of the auction purchaser, Ms. Maroti Cottons, Proprietor Shilpa Preetam Kohar, under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002. The bank also sought a declaration that the State of Maharashtra and the Collector, Yavatmal, were not entitled to recover dues in view of the mandate of Section 26-E of the SARFAESI Act, 2002, and that the Sales Tax Department should not obstruct the sale of the property for recovery of the bank's dues. The sale certificate was dated 28th September 2020. The Sub-Registrar, by communication dated 19th October 2020, refused to register the sale certificate on seven grounds: document not routed through proper source, demarcation of area not done, area of construction not stated, certified copy of 7/12 extract not annexed, proper description of machinery not mentioned, stamp duty payable needs adjudication under the Stamp Act, and there is encumbrance of the Department of Sales Tax. The petitioner pressed only prayers (f), (f-a), and (f-b) during the hearing, which sought registration of the sale certificate, action against defaulters for tax evasion, and a declaration of non-entitlement of the State to recover dues under Section 26-E of the SARFAESI Act. This Court by order dated 29th January 2021 issued notices and directed the addition of the Sales Tax Department as a party respondent. The respondents appeared and filed a reply through the Joint Commissioner of State Tax (Adm.), Amravati Division, contending that the Sales Tax Department has first charge over the dues of the secured creditor under Section 37 of the Maharashtra Value Added Tax Act, 2002, read with Section 100 of the Transfer of Property Act, 1882, and that the property was attached under the Maharashtra Land Revenue Code. The petitioner argued that the SARFAESI Act, being a central statute, gives the secured creditor priority under Section 26-E and that Section 37(1) of the MVAT Act makes sales tax dues subject to central enactments; the Registrar of Assurances has no power to consider factors beyond Rule 44 of the Maharashtra Registration Rules, 1961. The respondent argued that the statutory first charge follows the property and the purchaser must clear the sales tax dues before registration; the Registrar was justified in refusing without a no objection certificate from the Sales Tax Department. The court scrutinized the grounds for refusal. It observed that grounds 1 to 6 were not sustainable: the Authorized Officer under the Rules of 2002 could present the document; the petitioner was willing to supply area details and construction details; 7/12 extracts are available online; machinery being movable property need not be described in a sale certificate for immovable property; and the petitioner was willing to pay stamp duty as per ready reckoner valuation. The main ground remaining was ground 7 regarding sales tax encumbrance. The court noted that the State of Maharashtra had incorporated Section 22-A into the Registration Act, 1908, which allows the State Government to declare registration of documents opposed to public policy and requires the registering officer to refuse registration of such documents. The court also noted that a similar amendment in the State of Rajasthan was challenged and struck down as unconstitutional by the High Court of Rajasthan. The provided judgment text ends at that point, and the final operative order is not included. Therefore, the final decision and any directions are not ascertainable from the available text.
Headnote
A) Banking Law - Priority of Secured Creditor - Section 26-E, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 37, Maharashtra Value Added Tax Act, 2002 - Secured creditor's priority over government dues - Petitioner argued that Section 26-E as a central statute prevails over the state MVAT Act first charge and the Registrar cannot refuse registration based on sales tax encumbrance; respondent argued that the statutory first charge follows the property and purchaser must clear dues before registration; court examined the competing provisions to determine priority. Held: The issue of priority between Section 26-E SARFAESI Act and Section 37 MVAT Act was under consideration; no final holding in the provided text (Paras 6-7, 10). B) Registration Law - Grounds for Refusal of Registration - Section 22-A, Registration Act, 1908 and Rule 44, Maharashtra Registration Rules, 1961 - Extraneous technical grounds for refusal - The Sub-Registrar refused registration on seven grounds including improper routing, lack of demarcation, missing construction area, absence of 7/12 extract, inadequate machinery description, need for stamp duty adjudication, and sales tax encumbrance; the court observed that grounds 1 to 6 were not sustainable as the petitioner was willing to comply with requirements and movable machinery need not be described in a sale certificate for immovable property. Held: Technical grounds for refusal other than sales tax encumbrance were not sustainable (Paras 8-9). C) Constitutional Law - Validity of State Amendment to Registration Act - Section 22-A, Registration Act, 1908 - State amendment permitting refusal of registration on public policy grounds - The court noted that a similar amendment in the State of Rajasthan was challenged and struck down as unconstitutional by the High Court of Rajasthan; this precedent was relevant to assessing the Maharashtra amendment. Held: The constitutionality of Section 22-A was under consideration; the Rajasthan High Court decision striking down a similar provision was noted (Para 11).
Issue of Consideration
Whether Section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 confers priority to a secured creditor over state tax dues under Section 37 of the Maharashtra Value Added Tax Act, 2002; whether the Sub-Registrar can refuse registration of a sale certificate issued under the Security Interest (Enforcement) Rules, 2002 on grounds including sales tax encumbrance and technical non-compliance with Maharashtra Registration Rules, 1961; and whether Section 22-A of the Registration Act, 1908 as amended by Maharashtra is valid and applicable.
Final Decision
Not mentioned in the available judgment text
Law Points
- Section 26-E of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act
- 2002 provides priority to secured creditor over all other debts
- Section 37 of Maharashtra Value Added Tax Act
- 2002 creates first charge but subject to central law
- Registrar of Assurances can only refuse registration on grounds under Registration Act
- 1908 and Maharashtra Registration Rules
- 1961
- Section 22-A of Registration Act
- 1908 requires notification to refuse registration as opposed to public policy
