Shailesh K. Bothra; Mukesh C. Karwa; Cholamandalam Investment & Finance Co. Ltd. v. State of Maharashtra; Chief Commissioner of Sales Tax; Deputy Commissioner of Sales Tax; Additional Commissioner of State Tax; Joint Commissioner of State Tax

6. The borrowers, however, persisted in their default by not honouring the demand notice. Consequently, on 14 March, 2017, the authorized officer of petitioner no. 3 published a possession notice in the local news paper, whereby formal possession of the subject property was taken over by the authorized officer.

7. It appears that the respondents, namely the Sales Tax Department of the Government of Maharashtra, through its Deputy Commissioner issued an “Attachment Order” dated 11 August, 2017 exercising powers under Section 34 of the Maharashtra Value Added Tax Act, 2022 (for short “MVAT Act”) whereby the said property as mortgaged with petitioner no. 3, was sought to be attached to recover sales tax dues of Rs.10,31,38,003/- of the borrower/dealer M/s. Taurus Auto Dealers Pvt. Ltd. The sales tax dues pertained to the period 1 June, 2014 to 31 March, 2015.

8. Thereafter, petitioner no. 3 applied to the learned District Magistrate, Pune seeking orders to enable petitioner no. 3 to take physical possession of the property. The learned District Magistrate passed an order dated 22 December, 2017 under section 14 of SARFAESI Act under which physical possession of the said property was taken over by petitioner no. 3.

9. In so far as the sales tax dues of the dealer were concerned, the Deputy Commissioner of Sales Tax issued a demand notice dated 14 March 2018 to petitioner no. 3, inter alia recording that there is a lien on the property for recovery of the sales tax dues. Petitioner no. 3 was accordingly directed not to transfer the said property, as the same would be in violation of Section 38 of the MVAT Act. In such notice, the Deputy Commissioner recorded that the borrower/dealer had not paid the sales tax dues despite follow up, and various notices issued by the Sales Tax Department, hence, a recovery action as per the provisions of Maharashtra Land Revenue Code, 1966 (for short “MLRC”) was already initiated against the borrowers. It was stated that the said property was already attached and the order of attachment in Form IV dated 11 August, 2017 was issued. The notice also recorded that section 37 of the MVAT Act was being applied, which ordained that liability under MVAT Act, shall be the first charge over the property of the dealer/borrower.

10. Being aggrieved by the said notice dated 14 March, 2018 of the Deputy Commissioner, petitioner no. 3 approached this Court by filing Writ Petition No. 4860 of 2019. In such Writ Petition, petitioner no. 3 inter alia contended that being a secured creditor, the dues of petitioner no.3 as recoverable from the borrower would rank above the dues of the State Government under the MVAT Act and/or the first charge on the said property would be that of petitioner no. 3 and for such reason, the notice dated 14 March, 2018 issued by the Deputy Commissioner of Sales Tax was illegal. Petitioner no. 3 prayed for the following reliefs in the said writ petition:- “a) That Honorable High Court may please be directed to the Tahsildar Pune City to take possession of the said property. b) That Honourable High Court may please be declared the letter/notice dated 14.03,2018 issued by the Respondent.No.6 is null and void. c) That during the pendency of the present Petition, the petitioner may please be stayed and Respondent No.6 may please be restrained from taking the possession of the said property.”

11. The said petition was disposed of by a Division Bench of this Court by an order dated 10 January, 2020, whereby the notice of the Deputy Commissioner of Sales Tax dated 14 March, 2018 was quashed and set aside observing that the issue was covered by a decision of the Division Bench in the case of ASREC (India) Ltd. vs. State of Maharashtra & Ors.1. The said order passed by the Division Bench reads thus:-

12. It may be observed that in ASREC’s case (supra), a Division bench of this Court considering the provisions of Section 37 of MVAT Act vis-a-vis the applicability of Section 31B of the Recovery of Debt and Bankruptcy Act, 1993 (for short “RDB Act”) and Section 26-B to Section 26-E of the SARFAESI Act, observed that by virtue of the provisions of the Central Act (SARFAESI Act), any priority or charge created in favour of any party, shall prevail, so as have the first charge of the secured creditor. This for the reason that Section 37 of the MVAT Act when commences with a non-obstante clause, it recognizes, that the same shall be subject to any provision regarding creation of the first charge under any Central Act. The Court observed that similar was the position under Section 31B of the RDB Act, which was introduced by an amendment in the year 2016, with effect from 2 September, 2016, by virtue of which priority was accorded to secured creditors with respect to the secured assets. The Division Bench also rejected a contention as urged on behalf of the Sales Tax Department, that Chapter IVA inserted in the SARFAESI Act comprising Sections 26-B to 26-E warrants record to be made in the Central Register by Central Registry creating a security interest and unless such security interest is recorded in the Central Register, the priority of interest contemplated by Section 26E would not be applicable. The Division bench rejecting such contention observed that such contention would be opposed to what has been held by the Court as also different High Courts, that if any Central Statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of the State for recovery of the tax due under the MVAT Act. In rejecting such contention, the Court observed thus: “20. The only contention which needs to be noted which was made by learned counsel for Respondent Nos. 1 and 2 which was not made before the four learned Benches of the four High Courts in their opinions above noted, is that Chapter IVA which was inserted in SARFAESI 2002 comprising Sections 26B to 26E warrants a record to be made in the Central Register by the Central Registry creating a security interest. As per learned Counsel as per Sub-section (2) of Section 26B which is a part of Chapter IVA a secured creditor has to ensure that the security interest is recorded in the record of the Central Registry. The argument therefore was that unless this is done, the priority of interest contemplated by Section 26E would not be applicable.

21. The argument is without any substance because the law declared in the four opinions above referred to is that if any Central Statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the Value Added Tax of the State. But we note the fact that the security interest has been entered in the record of the Central Registry.”

13. Now coming to the facts of the present case, the petitioners have contended that despite the order dated 10 January, 2020 passed by the Division Bench on petitioner no. 3’s writ petition, the Deputy Commissioner again issued a notice dated 17 February, 2020 to petitioner no. 3 intimating of a charge on another property of the borrowers, which was stated to be attached under the provisions of Section 32 of MVAT Act. However, according to the petitioners, such notice which was in the nature of a garnishee notice, the Sales Tax Department had sought to lay its hands on any money which may become due to petitioner no. 3, by disposal of assets/property of the borrower. Petitioner no. 3 replied to the said notice of the Deputy Commissioner inter alia recording that such notice was bad and illegal on the ground that the same was contrary to the order dated 10 January, 2020 passed by this Court in Writ Petition No. 4860 of 2019 filed by petitioner no. 3, wherein this Court had held that petitioner no. 3’s right to proceed against the secured assets takes precedence over the recovery of sales tax dues. Petitioner no. 3 also recorded that it had every right to sell and dispose off the secured assets and appropriate the net sale proceeds and such transaction will be in accordance with the provisions of the SARFAESI Act and not in contravention of the MVAT Act.

14. It appears that petitioner no. 3 on the backdrop of the orders dated 10 January 2020 passed on its writ petition, proceeded to issue an auction proclamation dated 11 February, 2021, as per the provisions of the SARFAESI Act for recovery of an outstanding amount of Rs.12,64,12,240.47 due and payable by the borrowers. Such proclamation came to be published in the local newspaper on 13 February 2021. In the said proclamation, petitioner No.3 specifically set out the known encumbrances namely encumbrances of Assistant Deputy Commissioner of Sales Tax for Rs.10,31,38,003/- and the encumbrances of Parshwanath Nagri Sahkari Patsanstha Ltd. Karad for Rs.1,75,00,000/- and the unpaid charges towards electricity, maintenance, tax etc., if any, as applicable.

15. Petitioner nos. 1 and 2 responded to the said offer of petitioner no. 3 sometime in the first week of March, 2021. On 2 March, 2021, petitioner NO. 3 issued a “Successful bid confirmation letter” to petitioner nos. 1 and 2 informing them that it was decided by petitioner no. 3 to accept the offer of petitioner nos. 1 and 2. It was informed that the sale of the said property to petitioner nos. 1 and 2 was on “as is where is basis”, “as is what is basis” and “whatever is there is basis” and subject to the scheduled payment of the total purchase price of Rs.6,71,00,000/-. It would be necessary to note the contents of the said letter, which read thus: “Dear Sir, With reference to the above, we are pleased to inform you that Cholamandalam Investment and Finance Company Limited has decided to accept the offer, subject to your strict compliance to the terms & conditions of the tender specified in the Tender form and Public Notice issued in the matter and terms & conditions mentioned hereunder. The Sale of the Schedule property (details of which is mentioned hereunder) to you is on “as is where is basis, “as is what is basis” and “Whatever is there is basis” and subject to the scheduled payment of the purchase price as mentioned hereunder: Reserve Price of the Secured Asst EMD Received (10% of Reserve Price) Sale/Purchase Price Rs.7,00,00,000/- Amount Received during Bid opening Date Rs.6,10,00,000/- Rs.61,00,000/- Amount to be Paid by the Bidder on or before 03/03/2021 Rs.1,14,00,000/- Remaining & Final Amount to be Paid by the Bidder (Compulsory within 15 Days of the Bid Opening Date) Rs.5,25,00,000/- Terms and conditions: * Please note that on your failure to pay the balance amount or any part thereof as aforesaid, Cholamandalam Investment and Finance Company Limited shall be at all liberty to forfeit the amount paid by you and or charge interest, claim damages from you for the default. * The existing liabilities, if any, and the liabilities which may arise in future in respect of the dues of all the concerned authorities for transfer of the schedule property in question shall be payable by you. * You shall execute necessary document/s as may be advised or necessary for transfer of the schedule property in your name and shall bear the expenses thereof. * All the formalities under this offer shall be completed within 15 days from the date of receipt of this letter failing which the offer shall stand withdrawn and the Cholamandalam Investment and Finance Company Limited shall be at full liberty to forfeit the Earnest Money Deposit and any other amount paid by you. * The movable, household goods etc. inside the construction standing thereon are not offered for sale or available. As regards completion of the legal formalities for transfer of the schedule property in our name and execution of documents for the same, you are requested to contact us after you have made complete payments of the above mentioned amounts to Cholamandalam Investment and Finance Company Limited. Kindly acknowledge the receipt of this Letter.” (emphasis supplied )

16. In or about 5 March, 2021, as per the terms and conditions of the auction sale, petitioner nos. 1 and 2 paid an amount of Rs. 1,75,00,000/- (25% of bid amount) to petitioner no. 3. Thereafter in or about 1 April, 2021, petitioner nos. 1 and 2 deposited the agreed amount of Rs. 7 crores with petitioner no. 3. In pursuance thereto, on 30 March, 2021, a “Sale Certificate” was executed by petitioner no. 3 in favour of petitioner nos. 1 and 2, which was duly registered with the Joint Sub-Registrar Haveli-I. Also the possession of the said property was handed over to petitioner nos. 1 and 2.

17. The Deputy Commissioner again issued a notice dated 9 April, 2021 to petitioner no. 3 under Form 318, being a notice under sub-section (1) of section 33 of the MVAT Act inter alia informing that an amount of Rs.14,89,862/- was due from the borrowers towards the Value Added Tax dues and that petitioner no. 3 was called upon to pay any money which may become due from petitioner no. 3 to the borrowers or which petitioner no. 3 may subsequently hold for or on account of said borrowers. Thus, such notice was in the nature of garnishee notice. Responding to such notice, petitioner no. 3 addressed the letter dated 19 April, 2021 that there was no surplus amount left with them which was held in account of the borrowers and hence, petitioner no.3 requested to withdraw such charge from the property in question.

18. Thereafter, the Deputy Commissioner issued a notice dated 26 July, 2021 to petitioner nos. 1 and 2 interalia calling upon petitioner nos. 1 and 2, being the purchasers of the said property which was attached by the Sales Tax Department, to deposit MVAT dues of the borrower (M/s. Taurus Auto dealers Pvt. Ltd.). It was recorded that the borrower had failed to pay the arrears of sales tax dues, hence recovery proceedings were already initiated and a claim was lodged with the Competent Authority in respect of the property in question as per the provisions of MVAT Act and the Maharashtra Land Revenue Code (for short, “MLRC”). It was recorded that the possession of the property in the hands of petitioner nos. 1 and 2 was illegal, as the Sales Tax Department had already taken over the possession vide Form No. 4 of the MLRC on 11 August, 2017. It was recorded that no objection was raised by petitioner no. 3 when the charge/encumbrance was noted on the CTS. It was recorded that petitioner no. 3 had proceeded to recover its dues by auctioning the said property, and petitioner nos. 1 and 2 having purchased the same, and although had registered the Sales Certificate dated 1 April, 2021, nonetheless, the charge of the Sales Tax Department subsisted on the said property as petitioner no. 3 had auctioned the property subject to the charge of the Sales Tax Department of Rs.10.31 crores, as the property was auctioned on “as is where is basis”, “as is what is basis” and “whatever there is basis” as set out in the auction notice. It was further recorded that petitioner nos. 1 and 2 have purchased an encumbered property and for such reason, petitioner nos. 1 and 2 would be responsible to clear all the pending MVAT dues, which was also a condition of sale as declared by petitioner no. 3 in the auction notice. The relevant contents of the said letter of the Deputy Commissioner of Sales Tax are required to be noted, which reads thus: “But it is observed from the auction proclamation notice by Cholamandalam published in News paper dt. 11/02/2021, that the Cholamandalam Investment and Finance Company Ltd has mentioned the encumbrance of Sales Tax Department of Rs.10,31,38,003/-(where as the current dues are of Rs.157797893/-) on the said above mentioned property and also clearly mentioned that the property is being sold by them on “As is Where is Basis”, “Whatever is There is Basis” and further it is also mentioned that the bidder is responsible and obliged to exercise full due diligence in all respects including inspection of the property, title of the property, encumbrances if any on the said property etc. Consequently, the buyer of the property has purchased the property with encumbrances and is now responsible to clear all the pending MVAT and CST dues which is precondition as declared by Financier Cholamandalam Investment and Finance Company Ltd. This is because Chola knew that the said property is attached by Sales Tax Department for the dues payable by the dealer Taurus Autodealers Pvt. Ltd. More over property is sold by Cholamandalam with the charge of MVAT liabilities attached to the property & it clearly transpires that the responsibility to clear the dues is with the successful bidder. From above conditions and riders for auction as mentioned by Cholamandalam it clearly proves that the purchaser and the seller of the said property were fully aware that there is a statutory charge on the property created by Sales Tax/VAT Department & there is a huge liability payable by the buyer of the said property as per VAT Department’s record. Thus even after knowing this the purchaser has gone ahead and completed the sale transaction. Thus buyer has accepted the VAT liability attached to the said property Hence now it is the responsibility of the purchaser to clear the statutory liability on the property. Hence now there is no alternative left for the buyer but to clear the VAT dues otherwise the Auction conditions itself become unfulfilled thereby making the entire sale transaction as Void Department is in opinion that this Auction is illegal and the whole process of Cholamandalam Investment and Finance Company Ltd becomes void ab initio. You are hereby directed to deposit amount of Rs.15,77,91,893/immediately within 15 days of receipt of this notice or latest by 20/08/2021 and produce the duly certified chalans countersigned by Chartered Accountant to this office on or before 24/08/2021. The period wise dues / liability can be obtained from this office. Thus from above, it is crystal clear beyond doubt that the purchaser has knowingly and willingly purchased the above-mentioned property with all encumbrances attached to the said property. Hence it is the duty of the purchaser to take cognizance of the fact that any transaction between them has to be with the full understanding and liability acceptance forthwith Purchaser is legally duty bound to clear the said dues attached to the said property. In view of all above facts and deliberations this office is directing you to pay the MVAT Dues pending against the said property within 15 days from the receipt of this letter. Failing which, appropriate action will be taken against you. Now therefore, you are directed not to do any acts such as demolish, sell, lease, construct or modify in any way the present condition of the property, failing which you will be liable for appropriate legal action/prosecution which please note. Your prompt payment in this regard will be highly appreciated.”

19. Petitioner nos. 1 and 2 responded to the above letter of the Deputy Commissioner of Sales Tax by their letter dated 5 August 2021 inter alia setting out in detail that the contentions of the Sales Tax department were not untenable. They referred to the order dated 10 January, 2020 passed by this Court in the writ petition filed by petitioner no. 3, stating that by virtue of the said order they have purchased the said property free from all the encumbrances. Accordingly, the Deputy Commissioner was called upon to withdraw the notice dated 26 July, 2021 as also the City Survey Officer, Pune as also other authorities in that regard be informed by the Sales Tax Department that there is no charge of the Sales Tax Department on the said property.

20. The Deputy Commissioner, however, responded to the said reply of petitioner nos. 1 and 2 by his letter dated 18 August, 2021 stating that the petitioner’s request cannot be accepted for the reasons as contained in the Deputy Commissioner’s earlier notice addressed to petitioner nos. 1 and 2.

21. It appears that the Deputy Commissioner also addressed letter dated 28 November, 2021 to the City Survey Officer informing of the dues payable by the borrower and instructing the said authority to record a charge of the Sales Tax Department on the property in question.

22. In the above circumstances, the petitioners have moved this Court by filing Contempt Petition contending that the action on the part of the Sales Tax Department to attach the property was in complete breach of the order dated 10 January, 2020 passed by this Court in Writ Petition No. 4860 of

2019.

23. It is on the above backdrop, the present petition has been filed by the petitioners praying for the following reliefs: “a) This Hon’ble Court may be pleased to issue a writ of mandamus or any other writ, order, direction in the nature of writ of mandamus thereby issuing appropriate direction to the Respondents to forthwith withdraw and/or cancel the Notice of Recovery dated 16.3.2021 bearing No. DCST/LTU- l/E-610/Taurus Auto Dealers/Recovery/B-1481 annexed as Exhibit “L”, Demand Notice dated 09.04.2021 bearing no. DCST/LTU E-601/F-318/Recovery Notice/B-384, annexed as Exhibit “O” & Demand Notice dated 26.07.2021 bearing No. DCST/PUN- VAT- E-610/Taurus/Recovery/2021 -22/B-142, annexed as Exhibit “R’' & reply letter dated 18.08.2021, annexed as Exhibit “T” to this Petition; b) This Hon’ble Court may be pleased to issue a writ of certiorari or any other writ, order, direction in the nature of writ of certiorari thereby, quashing and setting aside the Notice of Recovery dated 16.3.2021bearing No. DCST/LTU-l/E-610/Taurus Auto Dealers/ Recovery/B-1481 annexed as Exhibit “L”, Demand Notice dated 09.04.2021 bearing no. DCST/LTU E-601/F-318/Recovery Notice/B- 384, annexed as Exhibit “O” & Demand Notice dated 26.07.2021 bearing No. DCST/PUN-VAT- E-610/Taurus/Recovery/2021 -22/B- 142, annexed as Exhibit “R’' & reply letter dated 18.08.2021, annexed as Exhibit “T” to this Petition issued by the respondent no. 3 herein. c) This Hon’ble Court may be pleased to issue a writ of certiorari or any other writ, order, direction in the nature of writ of certiorari thereby, quashing and setting aside the Attachment Order dated 11.08.2017 passed by the Respondent No.3 bearing No. DCST/LTU/E-601/RECOVERY/ 27080000389V / C / B- 204 PUNE, being Exhibit “C” to this Petition in respect of land bearing CTS NO. 91/59, Final Plot No. 425/59, TMV Colony, Village Gultekdi, Taluka Haveli, District: Pune-411-037 admeasuring 7600 Sq. ft. with the entire bungalow standing thereon and allied construction; d) This Hon’ble Court may be pleased to hold and declare that the Attachment Order dated 11.08.2017 passed by the Respondent No.3 bearing No. DCST /LTU/E- 601/RECOVERY/27080000389V/C/B- 204 PUNE, being Exhibit “C” to this Petition in respect of land bearing CTS No. 91/59, Final Plot No. 425/59, TMV Colony, Village Gultekdi, Taluka Haveli, District: Pune-411-037 admeasuring 7600 Sq. ft. with the entire bungalow standing thereon and allied construction is null and void against the Petitioners in view of the same being not issued and proclaimed as per provisions of Section 192 of the Maharashtra Land Revenue Code, 1966 r/w. rule 11(2) of the Maharashtra Realisation of Land Revenue Rules, 1967; e) This Hon’ble Court may be pleased to declare that in view of the Judgment & Order dated 10.01.2020, annexed as Exhibit “H” to the Petition pgssed in Writ Petition No.4860 of 2019, the subsequent demand notices issued by the Respondent No.3 are null and void, nonbinding on the Petitioners and the Respondents be further directed to forthwith withdraw and/or remove any encumbrance and/or ary other letter or communication indicating charge in respect of the subject land i.e. land bearing CTS No. 91/59, Final Plot No. 425/59, TMV Colony, Village Gultekdi, Taluka Haveli, District: Pune-411-037 admeasuring 7600 Sq. ft. with the entire bungalow standing thereon and allied construction, filed before any authority;” C] Reply affidavit on behalf of the State Government:-

24. A reply affidavit has been filed on behalf of the respondents of Shri Rajendra Daulatrao Adsul, Joint Commissioner of State Tax LTU-1, Pune inter alia contending that petitioner nos.[1] and 2 are not disputing that they were aware of the charge of the Sales Tax Department on the said property. It is contended that they were also aware of the orders dated 10 January, 2020 passed by this Court in Writ Petition No. 4860 of 2019 filed by petitioner no.3, which dealt with a notice dated 14 March, 2018 issued by the Deputy Commissioner informing petitioner no.3 in regard to the sales tax dues and the lien on the property in favour of the State Government. It is thus contended that petitioner nos. 1 and 2 were aware on the Sales Tax Department’s assertions of its charge on the property as recorded in the letter dated 14 March 2018 addressed to petitioner no. 3, and that substantial amounts towards payment of sales tax were outstanding from the dealer (borrower), whose property was subject matter of purchase by petitioner nos.[1] and 2. In so far as the order dated 10 January, 2020 passed by this Court is concerned, it is contended that by such order, the letter dated 14 March, 2015 of the Deputy Superintendent of the Sales Tax, as addressed to petitioner no. 3 was quashed, under which the Sales Tax Department had asserted first charge on the said property. It is contended that however, the attachment dated 11 August, 2017 was not quashed, hence the attachment of the said property for the recovery of the sales tax dues had subsisted. It is next contended that in fact, this Court had directed petitioner no.3 to pay to the Sales Tax Department, any surplus amounts after sale of the property and consequent thereto, the Deputy Commissioner of Sales Tax had demanded the said amounts from petitioner no.3, by his letter dated 16 March, 2021. It is next contended that issuance of the notices to the petitioners was in accordance with law, as also, the order of attachment dated 11 August, 2017 was in accordance with law and in consonance with Sections 32, 34 and 37 of the MVAT Act, and fully within the powers of the respondents to recover the sales tax dues, hence, the recovery as initiated cannot be said to be without jurisdiction or illegal.

25. The reply affidavit further states that the assertion in the letter dated 17 February, 2020 addressed by the Deputy Commissioner to petitioner no.3 was post the order passed by this Court on 10 January, 2020, so as to positively make known to petitioner no.3 that there were dues of the sales tax department, against the dealer (borrower), so as to enable petitioner no.3 to disclose encumbrances to prospective purchasers, as required under Rules 8(6) (a) and (f), 9(7), 9(9) and 9(10) of the Security Interest (Enforcement) Rules, 2002, to be notified as ‘known encumbrances’. It is stated that this was also to enable petitioner no.3 to remit any sums, if at all, payable to the dealer at any time, with a caveat that nothing in the said notice required petitioner no.3 to pay any amounts to respondents, as such intimation was in the nature of garnishee proceedings as per the provisions of Section 33 of the MVAT Act. It is further contended that even the auction notice issued by petitioner no.3 categorically referred that the property was being sold on “as is where is basis”, “as is what basis”.

26. In so far as the petitioners’ reliance on the order dated 10 January, 2020 passed by this Court in Writ Petition No. 4860 of 2019 was concerned, it is contended that by such order this Court had merely quashed the restraint of the Deputy Commissioner of Sales Tax issued to petitioner no.3 not to sell the assets of the dealer on account of the sales tax dues pending. It is contended that the High Court did not quash the attachment order dated 11 August,

2017. It is next contended that before the auction sale of the said property on 02 March, 2021, on 18 February, 2021, the Nagpur Bench of this Court had delivered a judgment in the case of Medineutrina Pvt. Ltd. vs. District Industries Centre (D.I.C.) & Ors.[2] in which this Court inter-alia held that the person who purchases property in auction with a notice that the sale is “as is where is basis, as is what basis”, such person is required to undertake due diligence and make enquiries for ascertaining encumbrances on the property, such purchaser accordingly is liable to pay the sales tax dues; also the charge on the property so attached runs on the property and is not extinguished if the sale takes place and that the purchaser cannot get sale certificate without payment of sales tax dues. It is stated that the SLP filed by Medineutrina Pvt. Ltd. was dismissed by the Supreme Court by an order dated 18 November, 2021 passed on SLP (C) No. 10919 of 2021. It is next contended that by virtue of Section 26-E of SARFAESI Act, the dues payable under the said Act are not wiped out and the auction purchaser would hold the property subject to the charge of the

2 Writ Petition No. 7971 of 2019 decided on 18.02.2021 State Government to recover the sales tax dues. It is thus contended that petitioner nos.[1] and 2 have taken the decision to purchase subject property despite knowing the outstanding dues of the Sales Tax Department.

27. It is next contended that the Full Bench of this Court in the case of Jalgaon Janta Sahakari Bank Ltd. & Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai, & Anr.[3] has held that although the secured creditor would have the first charge over the government dues, however when the property of the defaulters of sales tax is sold on “as is where basis, as is what basis”, the auction purchaser is liable to pay the dues of the State Government as the charge of the State Government on the property would continue to operate. It is contended that for such reasons, the recovery proceedings taken by respondents against petitioner nos.[1] and 3 are sustainable in law and hence the reliefs as prayed for in the petition, cannot be granted. It is hence contended that the petition be dismissed. D] Submissions on behalf of the Petitioners:-

28. Mr. Godbole, learned senior counsel for the petitioners has made the following submissions:-

(i) It is submitted that the issue regarding priority of charges of the secured creditor under the SARFAESI Act vis-a-vis provisions of the

3 Writ Petition No. 2935 of 2018 decided on 30 August, 2022 MVAT Act under Sections 37, 38 thereof stood concluded in view of the orders passed by the Division Bench of this Court dated 10 January, 2020 in Writ Petition No.4860 of 2019 filed by petitioner no.3.

(ii) In view of the said orders passed by the Division Bench, it was no longer open to respondents/Sales Tax Department to claim any dues against the property purchased by petitioner nos.[1] and 2 in auction undertaken under the SARFAESI Act. The issue has attained finality in view of the order dated 10 January, 2020. It is submitted that overruling of the observations of the Division Bench in paragraph 21 of the judgment in ASREC’s case (supra), by the Full Bench in its decision in Jalgaon Janta Sahakari Bank Ltd. (supra) in no manner takes away or dilutes the legal effect and consequences of the orders of the Division Bench in disposing of petitioner no.3’s Writ Petition No. 4860/2019.

(iii) It is next contended that even the decision of the Full Bench in

Jalgaon District Sahakari Bank (supra) mandates that unless the charge is registered with CERSAI after 2020, it is only then the State can have a prior charge. In case of an attachment prior to 24 January, 2020, the State has to show that the attachment and proclamation is made as per the provisions of the Maharashtra Realization of Land Revenue Rules, 1967 (for short, “MLR Rules”). In the present case, both, attachment and proclamation are not as per the MLR Rules and hence, are invalid. It is submitted that by virtue of the order dated 10 January, 2020 passed in Writ Petition No. 4860 of 2019 filed by petitioner no.3, this Court had clearly directed that petitioner no.3, being a Secured Creditor, would be entitled to proceed with the sale of secured asset; and only if a surplus remains after the sale of secured asset, the same would be transmitted to the Sales Tax Department. It is hence submitted that such order passed by the Division Bench having attained finality, and after sale of the property by petitioner no. 3 to petitioner nos. 1 and 2, no surplus amount being left with petitioner no. 3, the property had ceased to be the property of the defaulter, hence, the respondent-State cannot claim any further encumbrances or charge on the property.

(iv) It is submitted that once the defaulter’s property is auctioned by the secured creditor, the said property will no longer remain as the property of the defaulter, the State, therefore, cannot make any claim against the property. The priority does not mean that if the property is auctioned at the maximum value then it will again be re-auctioned with the second creditor in line. It is submitted that such proposition as canvassed by the respondents will create an anomalous situation where the property will continuously get re-auctioned and there will not be any end to the said position.

(v) It is next submitted that the respondents’ contention that even after the auction of the subject property, the State Government’s charge on the property would nonetheless remain under Sections 37 and 38 of the MVAT Act and the purchaser, who acquires the property under such auction, if he is aware of the charge of the State, he would still be liable to pay and discharge the liability towards the dues of the State Government, is a misconceived proposition. In this context, it is submitted that firstly, the provisions of the SARFAESI Act overrides the provisions of the MVAT Act, as also Section 37 of the MVAT Act clearly stipulates that it is subject to any provisions regarding creation of first charge under any Central Act; secondly, the provisions of the MVAT Act nowhere indicates that except for the defaulter/dealer, any other person, as in the present case, the person who has purchased auctioned property, is liable to pay the arrears of the State VAT Department. Thus, the respondents’ contention that even after the auction of the property based on the provisions of Section 37, the State is entitled to issue a Demand Notice to the successful auction purchaser is untenable.

(vi) It is next submitted that the reliance of the respondents on the decision of the Division Bench in the case of Medineutrina Pvt. Ltd. (supra) is misconceived and is not applicable to the the auction proceedings as held in the present case. The principles in the said judgment cannot be said to be retrospectively applicable. It is, therefore, submitted that the Sales Tax Department cannot assert any charge on the said property, sold by petitioner no.3 in favour of petitioner nos.[1] and 2. E] Submissions on behalf of the Respondent State/Sales Tax Department:-

29. Mr. Sonpal, learned Assistant Government Pleader has made the following submissions:- The petitioners are not entitled to any relief. Although petitioner nos. 1 and 2 have purchased the said property from the secured creditor (petitioner no. 3), as per the auction notice, the sale itself was on “as is where is basis, or as is what is basis and whatever there is basis”. The auction notice also put the bidders to caution that the bidder is obliged to exercise full due diligence in all respects, including to inspect each of the details of the property and that he would also acknowledge full knowledge of terms and conditions that governed the auction. It is submitted that the auction notice also put the bidders to a notice that the Authorized Officer conducting the auction would not be held responsible for any charge, lien, property tax or any other dues to the Government or local body or any other authority in respect of the property under sale. Further the auction notice clearly disclosed encumbrance on the property of the Assistant Commissioner of Sales Tax of an amount of Rs.10,31,38,003/-. It is next submitted that also in the bid confirmation letter dated 03 March, 2021 issued to petitioner nos.[1] and 2, petitioner no.3 reiterated that the existing liabilities, if any, and the liabilities which may arise in future in respect of the dues of all concerned authorities for transfer of the schedule property were payable by the auction purchasers. It is submitted that the sale certificate reiterates that the bungalow with construction thereon is sold on ‘as is where is basis’, ‘as is what is basis’ and ‘as is whatever is basis’. It is hence submitted that petitioner nos.[1] and 2 were fully aware and were put to notice that they were purchasing the property with all encumbrances. Further petitioner no. 3 in putting the said property for auction, had taken all precautions that for a complete discharge of the said property from the lien/ charge of the State Government, all the pending dues were required to be paid by them (purchasers) by providing for the appropriate disclosures, as required by the Security Interest (Enforcement) Rules, 2002. Hence, for such reason, petitioner no. 1 and 2 cannot contend that they are not liable for discharge of the liabilities.

30. It is next submitted that the above proposition is supported by the decision of the Division Bench of Nagpur Bench in the case of Medineutrina Pvt. Ltd. vs. District Industries Centre (D.I.C.) & Ors. (supra). It is submitted that the said decision although upholds the priority of the secured creditor to receive sale proceeds from sale of secured assets over the Government dues, however, the decision also holds that the purchaser is liable to pay the dues of the Government, if the property is purchased on “as is where is basis” and “whatever there is basis”. It is submitted that the Court has specifically held that although the bank has priority to receive the sale proceeds, it does not have the effect of wiping out the dues payable under any Central/State/Local Act, where first charge has been created as under the MVAT Act. It is submitted that the Court has held that the charge on the property runs with the property and when the purchase of the property is on “as is where is basis” and “what is there is basis”, it would mean that the property was being taken by the auction purchasers with all its rights, obligations and liabilities. It is submitted that as to what has been held by the Division Bench in the case of Medineutrina Pvt. Ltd. (supra) is also the view of the Full Bench of this Court in the case of Jalgaon District Sahakari Bank (supra).

31. It is submitted that in any event there is an admission on the part of petitioner nos.[1] and 2 that they were having actual notice of sales tax encumbrances, for such reason also petitioner nos. 1 and 2 cannot escape the consequences of having purchased an encumbered property and back out from discharging the sale tax liabilities. It is next submitted that the Full Bench has also held that if the State is claiming priority over banks prior to 24 January, 2020, it must have attachment in accordance with the MLRC Rules. If attachment is prior to 24 January, 2020 as in the present case the attachment is dated 11 August, 2017, as made under the MLRC Rules, the State will retain priority. It is thus submitted that the contention of the petitioners that the State has not followed proper procedure in attaching the property cannot be countenanced in absence of any material to the contrary.

32. It is next submitted that this Court in its order dated 10 January, 2020 passed on Writ Petition No.4860 of 2019 filed by petitioner no. 3 had merely held that petitioner no.3 had priority to appropriate the sale proceeds recognizing its first charge as the secured creditor. It is submitted that at that point of time, the judgment of the Full Bench was not available, which clearly holds that the purchasers (petitioner nos. 1 and 2) would nonetheless be liable to discharge the sales tax dues.

33. It is next submitted that a prayer to quash the attachment order cannot be granted as the attachment order is as per the jurisdiction and the provisions of Section 32(5) of the MVAT Act read with Sections 181, 182 and 185 of the MLRC Rules and there is no material to show any illegality in the attachment, which was done in accordance with law. It is thus submitted that the petition be dismissed. F] Reasons and Conclusion:-

34. On the above backdrop, we have heard learned Counsel for the parties. We have perused the pleadings and the record.

35. This is a case where the respondents / Sales Tax Department is asserting an attachment of the property in question as auctioned by petitioner no. 3 in favour of petitioner Nos.[1] and 2, inter alia contending that the attachment as made by the Sales Tax Department dated 11 August 2017, is legal and valid for recovery of an amount of Rs.10,31,38,003/- as set out in the said attachment notice. Thus the question is whether the Sales Tax Department is correct in asserting that it has a charge on the property in question as purchased by petitioner Nos. 1 and 2 from petitioner No. 3.

36. As to what would be the authority, power and jurisdiction of the Sales Tax Department to recover the sales tax dues under the MVAT Act can be ascertained from the relevant provisions in that regard which are Section 32, 34, 37 and 38 of the MVAT Act, 2002 which read thus:-

37. Also, as the auction in question has been undertaken by petitioner no. 3 under the Security Interest (Enforcement) Rules, 2002 the relevant provisions in that regard are also required to be noted which read thus:- Rule 8. Sale of immovable secured assets.— (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:— (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,— (a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems if fit, put on the web-site of the secured creditor on the Internet. (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. Rule 9.Time of sale, issues of sale certificate and delivery of possession, etc.— (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9: Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent. of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorised officer may, if the thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. (8) On such deposit of money for discharge of the encumbrances, the authorised officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. ….. …

SALE CERTIFICATE (For Immovable Property) Whereas The undersigned being the authorised officer of the …………………… (name of the Institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 (54 of 2002) and in exercise of the powers conferred under section 13 read with rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 sold on behalf of the …………………. (name of the secured creditor/institution) in favour of ………………. (purchaser), the immovable property shown in the Schedule below secured in favour of the …………… (name of the secured creditor) by ………………….. (the names of the borrowers) towards the financial facility…………………….. (description) offered by ………………. (secured creditor). The undersigned acknowledge the receipt of Rs. …… (Rupees……………………….), the sale price in full and handed over the delivery and possession of the schedule property. The sale of the scheduled property was made free from all encumbrances known to the secured creditor listed below on deposit of the money demanded by the undersigned.