Case Note & Summary
The petitioners, Viraat Ispat Limited and another, challenged an auction notice dated 13 September 2011 issued by the Assistant Commissioner of Sales Tax, Palghar, for the sale of their immovable property situated in MIDC Tarapur to recover sales tax dues of Rs.1.22 Crores. The property had already been secured by the Central Bank of India under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The bank had issued a notice under Section 13(2) for a claim of Rs.9.67 Crores and taken possession under Section 13(4) on 27 October 2008. The bank's debt was assigned to the second respondent, an asset reconstruction company, on 30 March 2011, which took symbolic possession on 24 June 2011. The petitioners argued that under Section 13(4) read with Section 13(6) of the SARFAESI Act, the property vests in the secured creditor, and the SARFAESI Act, being a subsequent central legislation, overrides the Maharashtra Land Revenue Code by virtue of Section 35. They contended that the sale can only be conducted by the secured creditor under Rule 9(7) of the Security Interest Rules. The revenue authorities relied on Central Bank of India v. State of Kerala, arguing that the SARFAESI Act does not create a first charge in favour of the secured creditor. The court held that the SARFAESI Act has overriding effect under Section 35, and once the secured creditor takes possession, the property cannot be sold by the state revenue authorities. The auction notice was quashed, and the respondents were directed to cooperate with the secured creditor for the sale, with the proceeds to be disbursed in accordance with law.
Headnote
A) Securitisation Law - Overriding Effect - Section 35 SARFAESI Act - Priority of Secured Creditor - The SARFAESI Act, being a subsequent central legislation, overrides the Maharashtra Land Revenue Code and state revenue recovery laws. Once a secured creditor takes possession under Section 13(4), the property cannot be sold by the state revenue authorities; the sale must be conducted by the secured creditor under Rule 9(7) of the Security Interest Rules. Held that the auction notice issued by the Assistant Commissioner of Sales Tax is quashed and set aside (Paras 1-5).
Issue of Consideration
Whether the Assistant Commissioner of Sales Tax can auction immovable property of a borrower when the secured creditor has already taken possession under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Final Decision
The writ petition is allowed. The auction notice dated 13 September 2011 issued by the Assistant Commissioner of Sales Tax, C621, Palghar is quashed and set aside. The respondents are directed to cooperate with the secured creditor for the sale of the property, and the proceeds shall be disbursed in accordance with law.
Law Points
- Overriding effect of SARFAESI Act
- Priority of secured creditor over state revenue
- Section 35 SARFAESI Act
- Section 13(4) and 13(6) SARFAESI Act
- Rule 9(7) Security Interest Rules
Case Details
2011 LawText (BOM) (11) 35
WRIT PETITION NO.9070 OF 2011
DR.D.Y.CHANDRACHUD, A. A. SAYED
Mr. Mayur Khandeparkar with Mr. T.N. Tripathi and Ms. Sapna Rachure i/b T.N. Tripathi & Co. for the Petitioners, Mr. Vinay A. Sonpal, A Panel counsel for Respondent No.1, Mr. Samjay Udeshi with Ms. Pallavi Dedhia i/b Sanjay Udeshi & Co. for Respondent No.2
Viraat Ispat Limited and another
Assistant Commissioner of Sales Tax and others
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Nature of Litigation
Writ petition under Article 226 of the Constitution challenging an auction notice issued by the Assistant Commissioner of Sales Tax for sale of immovable property.
Remedy Sought
Quashing of auction notice dated 13 September 2011 and direction to the revenue authorities to allow the secured creditor to conduct the sale.
Filing Reason
The petitioners' property was already under possession of a secured creditor under the SARFAESI Act, and the sales tax authorities issued an auction notice for recovery of dues, which the petitioners contended was impermissible.
Previous Decisions
The Central Bank of India had taken possession under Section 13(4) of the SARFAESI Act on 27 October 2008, and the debt was assigned to the second respondent on 30 March 2011, who took symbolic possession on 24 June 2011.
Issues
Whether the state revenue authorities can auction property already secured under the SARFAESI Act.
Whether the SARFAESI Act overrides state revenue recovery laws.
Submissions/Arguments
Petitioners: Under Section 13(4) read with Section 13(6) of the SARFAESI Act, the property vests in the secured creditor; the SARFAESI Act overrides the Maharashtra Land Revenue Code under Section 35; the sale can only be conducted by the secured creditor under Rule 9(7) of the Security Interest Rules.
Respondents (Revenue): Relied on Central Bank of India v. State of Kerala to argue that the SARFAESI Act does not create a first charge in favour of the secured creditor.
Ratio Decidendi
The SARFAESI Act, being a subsequent central legislation, has overriding effect over state revenue laws under Section 35. Once a secured creditor takes possession under Section 13(4), the property cannot be sold by the state revenue authorities; the sale must be conducted by the secured creditor under Rule 9(7) of the Security Interest Rules.
Judgment Excerpts
The Petitioners have impugned in these proceedings under Article 226 of the Constitution an auction notice issued by the Assistant Commissioner of Sales Tax on 13 September 2011 for the sale of certain immovable property belonging to the Petitioners for the recovery of dues in the amount of Rs.1.22 Crores.
Under Section 13(4) read with Section 13(6) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the property vests in the Second Respondent on a measure being taken; the Securitisation Act is a legislation subsequent to the Maharashtra Land Revenue Code and by virtue of the provisions of Section 35 has overriding force and effect.
Procedural History
The Central Bank of India sanctioned credit facilities to the petitioners. On default, a notice under Section 13(2) of the SARFAESI Act was issued for Rs.9.67 Crores. On 27 October 2008, possession was taken under Section 13(4). The debt was assigned to the second respondent on 30 March 2011, who took symbolic possession on 24 June 2011. On 13 September 2011, the Assistant Commissioner of Sales Tax issued an auction notice for recovery of sales tax dues. The petitioners filed the present writ petition challenging the auction notice.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: 13(2), 13(4), 13(6), 35
- Security Interest (Enforcement) Rules, 2002: 9(7)
- Constitution of India: 226
