Indian Overseas Bank vs The Assistant Commissioner of Central Excise and service Tax, Salem I Division
Writ Petition 15014 of 2022
Facts:
1.Petitioner is the Indian Overseas Bank, Asset Recovery Management Branch. The 2nd respondent had purchased the land and building together with plant, machineries, accessories etc., belonging to M/s.Tamil Nadu Sponge Limited, pursuant to the sealed tender invited by DRT, Coimbatore in TA.No.995/2002, which was filed by ICICI Bank Limited, IDBI and IFCI. The DRT, Coimbatore had received 16 tenders and out of which the 2nd respondent-Company was declared as highest bidder and on remittance of entire sale price, the DRT, Coimbatore issued sale certificate on 30.09.2003 in favour of the 2nd respondent.
2.Sale certificate was duly registered as Document No.566/2004 SRO, Omalur in favour of the 2nd respondent, in respect of the properties morefully described in the affidavit filed in support of the writ petition. Respondent-Company had availed various credit facilities from the petitioner-Bank from time to time in order to run its business operations on the aforesaid property and the last credit facilities, namely, cash credit facility, working capital demand loan, term loan (9Nos) LG, LC and A & E were extended by the petitioner-Bank for Rs.241.52 Crores and in order to secure the aforesaid credit facilities, the 2nd respondent had created primary security on hypothecation of stocks, stocks in trade, book debts, receivables, consumables and collateral security for the aforesaid property.
3.The 2nd respondent had defaulted in repaying the loan amount, and the loan accounts were slipped into NPA category on 31.12.2023 in terms of Reserve Bank of India (RBI) guidelines. The petitioner-Bank had invoked SARFAESI actions and thus, caused demand notice under Section 13(2) of SARFAESI. Petitioner-Bank had so far sold the secured properties belonging to the guarantors and recovered only a sum of Rs.51,79,77,500/- as against the staggering outstanding amount of Rs.216,63,91,070.59 as on 21.02.2014.
4.The petitioner-Bank has so far caused more than 10 notices to auction the secured property belonging to the 2nd respondent but could not be sold for want of bidders mainly due to the attachment effected by the 1st respondent / Assistant Commissioner of Central Excise and Service Tax towards its dues.
Issue: Whether the attachment is liable to be set aside?
Arguments:
Petitioner:
1.Counsel contended that they are struggling to auction the secured properties beacuase of the attachment made by the 1st respondent. They are unable to register the sale deed and necessary entries are not made in the Encumbrance Certificate. Thus, the 3rd party purchasers are unable to deal with the properties, which they purchased through public auction conducted by the Bank. The respondent is not having any priority over the debts of the creditor. The petitioner-Bank admittedly is the secured creditor and hold first charge over the debts.
2.It was submitted that 1st respondent being an un-secured creditor does not have precedent over the secured creditor in the light of Section 26-E of the SARFAESI Act and Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993. Petitioner states that in the absence of specific provisions in the Central Excise Act as well as in Customs Act, the claim of secured creditor will prevail over Crown’s debts. The petitioner-Bank being a secured creditor, the Deputy Commissioner of Central Excise is not entitled to bring the property in auction. The petitioner-Bank had sent letters to the 1st respondent to lift the attachment on the secured property. But the first respondent refused to do so.
3.It was submitted that petitioner-Bank had caused a sale notice on 09.03.2022 to bring the secured assets of E-Auction 2022 in order to recover the outstanding loan amount of Rs.714.39 Crores as on 29.03.2022. The petitioner-Bank has duly informed the public about the dues claimed by the Commercial Tax Department, Central Excise and Service Tax. It is specifically mentioned that the Bank dues will be appropriated as per the provisions of the law and the Bank dues will be given priority over the Statutory Rule.
Respondent:
1.Counsel submitted that Writ Petition is pre-mature, as there is nothing on record filed by the Petitioner to show that the Sale Certificate was sent to the 3rd Respondent viz., Sub- Registrar, Omalur. There is absolutely no averment in the Writ Affidavit to show that the Sale Certificate sought to be registered has been sent and refused and at the same time there is no document in typed set of documents filed by the Petitioner.
2.Counsel submitted that the 2nd Respondent is not a necessary party as the property belonging to them has already been sold by the Petitioner under SARFAESI Act. There are no averment or grounds raised against the 2nd Respondent. The 3rd Respondent is only a formal party and there is no real lis/ dispute between the Petitioner and the 3rd Respondent. There are no averment or grounds raised against the 3rd Respondent.
3.The bank after issuance of Sale Certificate, becomes funtus officio. The property now vests in the hands of auction purchaser. If at all aggrieved, it is the auction purchaser who has to file a Writ Petition.
4.Counsel for the 3rd respondent, mainly contended that the Registering Authority, under the Registration Act, is bound by the provisions of the Act. If any attachment is made by the Central Government, State Government or under the Central Act or State Act, then the Registering Authority is empowered to refuse the document for registration. The Attachment already entered in the Encumbrance Certificate can be removed only if it is lifted.
Decision: Hon’ble HC dismissed the writ petition after noting that relief claimed is untenable.
Rationale:
1.Hon’ble court noted that No doubt, the petitioner-Bank would be interested only to recover their dues since the dues are running more than the security offered by the borrower and the guarantors. However, one cannot neglect the other statutory creditors since attachments are made under the special enactments to recover the Public dues. The 1st respondent admittedly attached the property since their dues are running in Crores.
2.It held that there is no proof on record filed by the petitioner to show that the sale certificate was properly sent by the Authorised Officer to the 3rd respondent for making entries as contemplated under Section 89(4) of the Registration Act. In the absence of any such proof, the relief as such sought for against the 3rd respondent is not entertainable and is pre-mature.
3. It noted that The process does not complete on issuance of the sale certificate by the authorised officer. Sub Rules (7) to (10), to Rule 9, indicate the subsequent procedures to be followed by the authorised officer to protect the other encumbrances / non-secured statutory or other creditors. It is not as if the secured creditors/ Banks can auction the secured assets, issue the sale certificate and wash off their hands. They have duty towards the other nonsecured statutory creditors under the provisions of the Security Interest (Enforcement) Rules 2002. In the event of non-compliance of the statutory rules issued under the SARFAESI Act, the Bank is not entitled for any relief from the hands of the Constitutional Courts.
4.It further held that mandatory procedures contemplated under the Rules, if violated or not complied with, then the secured creditor/ Bank is not entitled for the relief to lift the attachment without clearing the dues or to remove the attachment from the encumbrance certificate under the provisions of the Registration Act. The legislative intention of the SARFAESI Act and Security Interest (Enforcement) Rules, 2002, is not restricted by providing priority to the secured creditors / Banks, but extents its protection to the non-secured and statutory creditors.
Order:
