Case Note & Summary
The matter arose from a writ petition filed by a sugar factory (petitioner) challenging communications dated 29th November 2016 and 23rd January 2017 issued by the Assistant Sales Tax Commissioner (respondent no.2) seeking to recover sugarcane purchase tax and sales tax arrears amounting to Rs.7,04,10,624/- from the petitioner, which were originally due from another sugar factory (respondent no.4). Respondent no.4, a cooperative sugar factory, had obtained financial assistance from the Maharashtra State Cooperative Bank (respondent no.3) and mortgaged its properties. Upon default, the bank took possession under the SARFAESI Act on 1st March 2011 and issued a tender notice on 16th January 2012 for sale of the secured assets on an 'as is where is' basis with the condition that the purchaser would bear all statutory dues. The petitioner submitted the highest bid of Rs.48.51 crores on 14th February 2012, which was accepted on 16th February 2012. A sale certificate was registered on 27th November 2012 and physical possession was handed over on 22nd November 2012. Respondent no.2 had claimed that respondent no.4 owed the above dues towards sugarcane purchase tax, Bombay sales tax, and Central sales tax and sent a letter to the bank on 6th March 2012 to treat the amount as first charge. The bank denied liability on 2nd February 2013, and subsequently, respondent no.2 issued the impugned recovery notices to the petitioner. The petitioner contended it had purchased only the secured assets and not the business interest; the dues were against respondent no.4's business, which had ceased operations; and it was a bonafide purchaser for value without any notice of the tax charge, as the 7/12 extracts at the time of bid did not reflect any encumbrance. The respondents argued that the tender notice expressly made the purchaser liable for statutory dues, that the revenue authorities had been intimated and a mutation entry (No.1747) showing the charge was certified on 15th August 2012, which constituted constructive notice, and that the petitioner had resumed sugar manufacturing in the next season, making it a business transferee. The court analysed the timeline and noted that the auction was concluded on 16th February 2012 upon unconditional acceptance of the bid, whereas respondent no.2 moved to record the charge only on 21st February 2012 and the mutation entry was certified on 15th August 2012. The sale certificate, registered on 21st November 2012, annexed 7/12 extracts that did not show the charge. Therefore, the court held that the petitioner could not be attributed with actual or constructive notice of the dues at the time of submitting the bid. Relying on Sherwood Resorts Pvt. Ltd. v. State of Maharashtra, the court inferred that a bonafide purchaser for value without notice of pre-existing tax dues could not be held liable. The judgment appears to have allowed the writ petition and quashed the recovery notices, though the operative part is not fully reproduced in the available text. The reasoning unmistakably favours the petitioner's non-liability for the dues of respondent no.4.
Headnote
A) Taxation - Recovery of Statutory Dues - Liability of Auction Purchaser - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) - The issue was whether a bonafide purchaser of secured assets in an auction under the SARFAESI Act could be held liable for sugarcane purchase tax and sales tax arrears of the previous owner when the charge was not reflected in revenue records at the time of bid. The Court observed that the auction sale was concluded on 16th February 2012 when the bid was accepted, while the revenue authorities moved to record the charge only on 21st February 2012 and the mutation entry was certified on 15th August 2012. The sale certificate registered on 21st November 2012 annexed 7/12 extracts that did not show any charge. Held that the petitioner had no actual or constructive notice of the dues at the time of submitting the bid, and could not be burdened with the liability of the defaulter borrower. (Paras 9-10)
Issue of Consideration
Whether an auction purchaser of secured assets under the SARFAESI Act, who purchased the assets bonafide for value without notice of pre-existing tax dues of the original owner, is liable to pay such dues when the charge was recorded in revenue records after the auction sale was concluded?
Law Points
- Auction purchaser of secured assets under SARFAESI Act not liable for statutory dues of previous owner when no notice of charge at time of bid
- constructive notice requires charge to be reflected in revenue records at time of sale
- sale under SARFAESI Act concluded upon acceptance of bid
- mutation entry certified after bid does not constitute notice to bidder
