C.R. Rajan Babu v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 27TH DAY OF OCTOBER 2020 / 5TH KARTHIKA, 1942 W.A.No.1502 OF 2017** **AGAINST THE JUDGMENT IN W.P(C) NO.20713/2015 DATED 04-07-2017 OF HIGH COURT OF KERALA** ## **APPELLANT/ PETITIONER IN THE W.P(C):** **C.R.RAJAN BABU, S/O. RAJAN, RAJBHAVAN, NEAR UNION CLUB, KARAPPUZHA, KOTTAYAM.** **BY ADVS. SRI.D.KISHORE SMT.MINI GOPINATH** ## **RESPONDENTS/ RESPONDENTS IN THE W.P(C):** - **1 STATE OF KERALA, REPRESENTED BY ITS SECRETARY TO GOVERNMENT, REVENUE [S] DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM 695 001.** - **2 THE COMMISSIONER OF LAND REVENUE, THIRUVANANTHAPURAM 695 001.** - **3 THE DISTRICT COLLECTOR, COLLECTORATE, CIVIL STATION, KOTTAYAM 686 002.** - **4 THE REVENUE DIVISIONAL OFFICER, MINI CIVIL STATION, KOTTAYAM 686 001.** - **5 THE TAHSILDAR [REVENUE RECOVERY], KOTTAYAM 686 001.** - **6 THE VILLAGE OFFICER, MUTTAMBALAM VILLAGE, KOTTAYAM 686 004.** - **7 THE COMMERCIAL TAX OFFICER 11ND CIRCLE, NEAR NEHRU STADIUM, NAGAMPADAM, KOTTAYAM 686 001.** **- 2 -** **W.A.No.1502 of 2017** - **8 OMMEN IYPE, ARAKKANATTU PUTHEN VEETTIL, PIRALASSERI, ALAPPUZHA DISTRICT, REPRESENTED BY HIS POWER OF ATTORNEY HOLDER OBIN MATHEW, S/O. MATHEW GEORGE, AMPIYIL PADINJATTETHIL HOUSE, PARAKKODE P.O, ADOOR, PATHANAMTHITTA DISTRICT.** - **9 MARIAMMA MATHEW, PARUTHIMOOTTIL THEKKEDATHU, EEREKKADAVU, KOTTAYAM 686 001.** **R1-R7 BY SPECIAL GOVT.PLEADER SRI.K.J.MOHAMMED ANZAR. R8 BY ADV. SRI.K.JAYAKUMAR (SR.) R8 BY ADV. SRI.JOHN JOSEPH VETTIKAD.** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 27-10-2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **- 3 -** **W.A.No.1502 of 2017** **==> picture [314 x 71] intentionally omitted <==** ## **JUDGMENT** **Vinod Chandran, J.** **The appeal is against the refusal of the learned Single Judge to interfere with the revenue sale of 22 cents of garden land with a residential building thereon. The appellant purchased 8 cents, out of the total 22 cents subject to revenue sale, in a Court auction and the revenue sale was challenged on the ground that the original owner had no dues to the Government. The learned Single Judge found that the original owner of the property had not challenged the sale; nor the charge created on the property. The appropriation of the amounts received in an earlier sale to the tax dues of another entity, which was also managed by the very same persons, had also not been challenged by the defaulters.** ## **2. The learned Counsel for the appellant** **Sri.D.Kishore referred to various dates and asserted that the Court sale in which the appellant purchased 8 cents of property was prior to the revenue sale. There was also** **- 4 -** **W.A.No.1502 of 2017** **attachment, ordered in the suit for recovery of money filed by a third party, subsisting in the property. Only when the mutation sought for was refused, the appellant came to know of the revenue sale. On enquiry, it was revealed that there are two entities, a Partnership Firm and a Private Limited Company which had tax dues. The owner of the property, which was purchased by the appellant, was a Partner in the Firm, but not connected with the Company. Prior to the subject revenue sale, the properties in the name of the Partnership Firm were sold, the proceeds of which was appropriated to the dues of the Private Limited Company. This was the only reason why dues of the Partnership Firm were subsisting. The proceeds of the sale of the property belonging to the Partnership Firm if at all permissible for appropriation to the dues of the Private Limited Company on the ground of the other Partner being one of the Directors, it could only be after first satisfying the dues of the Firm. The sale proceeds of the property belonging to the Firm was far in excess of the tax dues of the Firm. The appellant steps into the shoes of the owner of the property and he is clothed with the rights of the original owner as has been held in** _**Subbanna Rai K. v. Deranna Rai**_ **[** _**2011 (3) KLT 142 = 2011 KHC 2413**_ **]. The finding of the District** **- 5 -** **W.A.No.1502 of 2017** **Collector that none sought setting aside of the sale under Sections 52 or 53 of the Kerala Revenue Recovery Act, 1968 (hereafter, “Act” for brevity) is unsustainable since this Court in** _**Abdul Basheer K. v. District Collector, Kannur & Others**_ **[** _**2012 (4) KLT 257 = 2012 (3) KHC 858]**_ **has held that the power vested under Section 54 is very wide.** _**Asha v. District Collector**_ **[** _**1990 (2) KLT 289 = 1990 KHC 376**_ **] held that the power under Section 54 can be exercised even on grounds other than that enumerated in Sections 52 or 53. The sale of the partnership property was not proceeded with in accordance with the procedure under the Act, as has been** _**-**_ **dilated upon in** _**Omaga Tyre Re trading Co. v. STO**_ **[** _**1988 (2) KLT 216 = 1988 KHC 416**_ **].** **3. Learned Senior Counsel Sri.K.Jayakumar argued for the 8[th] respondent, who is the purchaser in the revenue sale. It is contended that the property at the time it was sold by the revenue authorities, was not subject to attachment by any Court. In fact, even before the Court auction the properties which were mortgaged by the owner to a Bank was taken over by the Authorized Officer of the Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ['SARFAESI Act']. On intimation of the statutory first** **- 6 -** **W.A.No.1502 of 2017** **charge for the sales tax dues of the Partnership Firm, the Bank conceded the same fully realizing the first charge created on the property by statute. The auction sale, according to the 8[th] respondent, is a collusive affair so as to save the property. A sketch is produced, across the Bar, to show that the property sold to the appellant takes away the entire road frontage of the 22 cents except for an opening on one corner. This renders the balance property useless and the collusion is fairly evident from that fact itself. The 8[th] respondent had purchased the property with its entire extent and the sale itself has to be set aside if the right of the appellant is found on part of the property. It is also argued that if the sale is set aside, the Government should be directed to refund the amount with interest and damages.** **4. Learned Special Government Pleader Sri.K.J.Mohamed Anzar seeks to sustain the judgment of the learned Single Judge. It is stressed that the Partnership Firm and the Private Limited Company were managed by the members of the same family. There were sales tax dues of a far earlier period which creates a statutory charge on the properties of even the individual Partners and Directors. The State was well within its right to proceed against** **- 7 -** **W.A.No.1502 of 2017** **the properties and sell the same for realization of sales tax dues.** **5. The undisputed facts are the following.- There were two entities, one, the Partnership Firm, called 'Indiana Panels', and the other a Private Limited Company, viz., 'Guardian Veneers'. Indiana Panels had two Partners, Mariamma Mathew (the 9[th] respondent) and Varghese Mathew, her son. Guardian Veneers had two Directors, Varghese Mathew and his wife Anitha Varghese. Both the entities were registered under the Kerala General Sales Tax Act, 1963 ['KGST Act' for brevity] and had sales tax dues; the Firm's coming to Rs.95,29,886/- and the Companies Rs.3,57,86,525/-. The Partnership Firm had a total extent of 3.00145 hectares of land in Block No.35 of Manacaud Village as evidenced from Exhibit P2, an extract from a register maintained under the Transfer of Registry Rules. The same was sold pursuant to Exhibit P4 revenue recovery notice. The revenue recovery notice indicates that the sale was intended for realization of the total dues of Indiana Panels and Guardian Veneers. Exhibit P5 dated 10.03.2010 is the order confirming the sale of the said properties for a total consideration of Rs.2,02,49,300/-.** **- 8 -** **W.A.No.1502 of 2017** **6. The sales tax dues of Indiana Panels is seen from Exhibit P20 series of documents, which are the demands raised as against the Partnership Firm, for the assessment years 1999-2000 to 2003-2004, totalling an amount of Rs.95,29,886/-. The property first sold being in the name Indiana Panels, the entire liability would have been satisfied by the sale proceeds. The balance could have been appropriated towards the dues of the Private Limited Company only to the extent of the share of one of the Partners who also is a Director of the Private Limited Company.** **7. It is the submission of the State that the entire sale proceeds were appropriated towards the dues of Guardian Veneers since both the entities were run by the same family. Subsequently, proceedings were taken against the private property of Mariamma Mathew by Exhibit P6 revenue recovery notice to satisfy the dues of Indiana Panels, pursuant to which the sale was made to the 8[th] respondent. Here we once again notice the dates. The confirmation of sale of the property belonging to Indiana Panels was made on 10.03.2010. As we noticed, the sale was proceeded for the sales tax dues of both the Partnership Firm and the Private Limited Company. The appropriation to** **- 9 -** **W.A.No.1502 of 2017** **the tax dues has to be made by the requisitioning authority, who is the Assessing Officer of the Sales Tax Department. There is nothing produced to show that such appropriation was made in satisfaction of the dues of the Private Limited Company and the same was informed to Mariamma Mathew & Varghese Mathew, who are the Partners of the firm; to which firm the property belonged. In such circumstances, we do not agree with the learned Single Judge that the owners of the property had not objected to the appropriation.** **8. Immediately thereafter Exhibit P6 sale notice had been issued for settlement of the dues of the Partnership Firm, which could not have subsisted for reason of the entire dues having been satisfied by the sale of the property belonging to the Partnership Firm. The dues of Guardian Veneers does not create a charge on either the property of Indiana Panels or Mariamma Mathew. There could not have been any sale of the personal property of one of the Partners, Mariamma Mathew, for settlement of dues of the Private Limited Company in which she had absolutely no interest. The fact that the Private Limited Company had as its Directors Mariamma Mathew's son and daughter-in-law does not for that sole reason create any charge on the** **- 10 -** **W.A.No.1502 of 2017** **property. There is also no provision in the KGST Act to create a charge on the property of family members of the Directors of a Company.** **9. The statutory charge under the KGST Act is provided by Section 26B, which is a** _**non obstante**_ **clause. Notwithstanding anything to the contrary contained in any other law for the time being in force, it creates a first charge on the property of a dealer or any other person with respect to any amount of tax, penalty, interest and any other amount payable by such dealer or such other person. There is also a provision in the KGST Rules (Rule 6) by which the Assessing Authority could demand security from a dealer for the purpose of registration. One of the modes of furnishing security is Rule 6(d) by which a third person can offer himself as surety with respect to the dues of the dealer, in which event there should be a surety bond executed by such person. The liability of the Directors of a Private Company is provided under Section 26C, which is subject to the provisions of the Companies Act, 1956. Any tax or any amount recoverable under the KGST Act from any Private Company, if it cannot be recovered for any reason; every person who was a Director of the Company when the tax or amounts fell due, would also be jointly and severally** **- 11 -** **W.A.No.1502 of 2017** **liable for such dues. Hence a statutory charge is on the dealer or such person from whom any amounts are due. With respect to a Private Company the liability is also on the Directors and not on any other. Even proceedings against the Directors of a Private Limited Company for realization of amounts due from the Company can be taken only if such amounts cannot be recovered from the Company itself as held by this Court in** _**Jose Kurian v. Deputy Tahsildar**_ **[** _**2011 (4) KHC 879 (DB**_ **]. Another Division Bench in** _**Mohammed Harid v. District Collector**_ **[** _**2014 (2) KLT 102**_ **] also held that 'since Section 26C contains a specific clause that it would be subject to the Companies Act, if any statutory right or protection is available to the Director under the Companies Act, contravention of the same could be taken as a defence against the recovery'. A reading of the provisions clearly indicate that the dues of the Private Company cannot be realized by proceeding against the private property of a Partner in a Firm where one of the Directors is also a Partner.** **10. As far as the sale to the appellant, an attachment was made in O.S.No.179 of 2004 on 07.04.2004, which was later decreed by the Principal Sub Court, Kottayam. In E.P.No.191 of 2007, the Principal Sub Court** **- 12 -** **W.A.No.1502 of 2017** **brought the properties attached, to auction, where the appellant bid successfully. The sale confirmation was carried out on 22.07.2010. The Sale Certificate issued, dated 04.10.2010, is produced as Exhibit P1. The learned Senior Counsel appearing for the 8[th] respondent had relied on the documents produced by the State through memo dated 03.07.2017 to urge the contention of collusion and the properties being mortgaged to the Bank. The proceedings of the District Collector dated 30.07.2007, which is the first document produced along with the memo, indicates that the District Collector had permitted the Authorized Officer of the mortgagee Bank to take possession of 26.93 cents of land with residential building in Survey Nos.2/12/2 and 2/12/3, with the help of the Superintendent of Police, Kottayam. The second document produced is a communication by the Village Officer, Muttambalam to the Authorized Officer affirming the possession having been taken of the said property at 04.30 p.m. 09.08.2007.** **11. Immediately we have to notice that there is no indication as to whether the property is the same since the Sale Certificate pursuant to Court auction at Exhibit P1 shows the Re-survey number and the documents above referred; the original Survey number. The extent also is** **- 13 -** **W.A.No.1502 of 2017** **different, since the revenue sale, which is the subject matter of the appeal, indicate sale of 22 cents, while the Bank had taken possession of 26 cents. It was for the State to establish that the property is the same, which has not been done. Be that as it may, for the present we will accept that the property is the same, since the documents produced as No.3 along with the memo shows the Re-survey number as is available in Exhibit P1 Sale Certificate. Even then the date of mortgage is not revealed. We also have to notice that if at all there was a mortgage subsisting, before the Court attachment, then the purchase by the appellant of an extent of property than that comprised in the mortgage, as argued by the learned Senior Counsel, would only grant him the remedy to exercise right of redemption as against the Bank. That, however, is not a question arising in the present appeal and the Bank is not even a party here. The Bank's right if exercised against the property, that question may arise, which question has to be independently agitated. We desist from making any observation on that count. The mortgage and the prior charge on the property created by that mortgage, definitely would not validate the revenue sale made allegedly on the ground of a statutory charge subsisting as against the** **- 14 -** **W.A.No.1502 of 2017** **property; which has been shown to be not existing.** **12. We have noticed herein above that the sale of three and odd hectares of property belonging to the Partnership Firm was made prior to the present sale. There was no appropriation made of the sale proceeds of the Partnership Firm in satisfaction of the dues of the Private Limited Company. It is also trite that when sale is made of the property belonging to a Partnership Firm, even if one of the Partners is a Director in a Company which also has tax dues, the dues of the Partnership Firm has to be first settled before being applied to the tax dues of the Company. If that had been done, there would not be any pending dues for the Partnership Firm. As far as the dues of the Private Limited Company, Mariamma Mathew is not at all liable. We verified from the records of the Sales Tax Department that Mariamma Mathew had not executed any surety bond in favour of the Private Limited Company undertaking to satisfy its tax dues. In such circumstance, when the Partnership Firm had no subsisting dues after the sale of the property belonging to it, there could not have been any proceedings taken as against the personal property of Mariamma Mathew, who was a Partner in the Firm and not associated with the Company.** **- 15 -** **W.A.No.1502 of 2017** **13. We have also found that there is no question** **of appropriation being raised here, since the State does not have a case that such appropriation was carried out by the Sales Tax authorities, that too with notice to the Partners of the Firm, whose property was sold first. The sale of the property belonging to the Partnership Firm was for amounts far in excess of its dues. There is no subsisting statutory charge under the KGST Act as against the property of Mariamma Mathew, who was a Partner in the Firm and was not even a Director in the Company. In that context, the sale of the property evidenced by Exhibit P1 Sale Certificate issued by the Principal Sub Judge, Kottayam has to be found as having transferred the rights of Mariamma Mathew over the extent of 8 cents covered in Exhibit P1, in favour of the appellant. The State has no subsisting interest over that property prior to the Court sale nor after that. The statutory charge as against the dues to the Partnership Firm stands vacated on the sale of the properties belonging to the Partnership Firm itself. We do not venture to look into the rights of the mortgagee Bank, which we are not called upon to decide in the present appeal.** **- 16 -** **W.A.No.1502 of 2017** **14. Section 52 of the RR Act speaks of an application to set aside sale of immovable property on deposit of a sum equal to 5% of the purchase money and the arrears of public revenue due, for which the sale was proceeded with. The said application can be moved by any person owning or claiming an interest in that immovable property sold. However, the appellant herein needs to file an application under Section 52 only if the sale is proper and valid. Section 53 provides for an application to set aside a sale on ground of material irregularity, mistake, etc., which has also to be filed within thirty days from the date of sale. Here again, the appellant, who has title over 8 cents of property in a total of 22 cents sold by the Revenue authorities, was not issued with any notice of such sale. The appellant also came to know of the sale only when mutation was declined. Obviously the revenue sale was carried out without verifying the encumbrance on the property. A verification would have definitely revealed the attachment and the Court sale made prior to the revenue sale. It is in this context that the appellant moved an application under Section 54 of the RR Act.** **15. The power vested in the Collector under Section 54 is very wide and is apposite for invocation in** **- 17 -** **W.A.No.1502 of 2017** **the facts of the present case, where the appellant, who had title and interest in a part of the properties sold, was never put to notice of the sale carried out by the Revenue authorities. Section 54 speaks of both confirmation and setting aside of sale. The section clothes the Collector with the power to confirm the sale if no application under Section 52 or 53 is received or when received, it has been rejected. The power is hedged with a proviso that even if no application to set aside the sale has been made or rejected; for any reason the Collector has reason to think that the sale ought to be set aside, it could be so done. The only restriction is that if an application under Section 52 or 53 has been made and rejected, then on the very same reasons, which already stands rejected, there could be no setting aside of a sale. This is a very wide power granted to the Collector akin to a visitorial jurisdiction; which the Collector could invoke** _**suo-motu**_ **or on an application made by any person aggrieved or interested. It is to set right an apparent illegality.** **16. We cannot but conclude that the sale effected of Mariamma Mathew's personal property, by the revenue authorities for satisfaction of the dues of the Partnership Firm, Indiana Panels cannot be sustained. The sale notice** **- 18 -** **W.A.No.1502 of 2017** **issued was also against the entire extent of property and the 8[th] respondent was misled. The property minus the eight cents which was purchased by the appellant, would not fetch the value it did in the revenue sale. We set aside the sale and direct the respondent, Revenue Recovery Authorities, to refund the entire amounts deposited by the 8[th] respondent with 7% interest per annum from the date of deposit till payment within a period of six months from today. The learned Special Government Pleader argued that the interest rates are far lower as on today. We cannot but notice that the deposit was made in the year 2010 when the interest rates were far higher than 7%. It is hence we fix the interest rate at 7% for the entire period. We also make it clear that if the amounts are not deposited within six months as directed, the interest rate shall stand enhanced to 10% per annum from the date of deposit and in such circumstance, the State would be entitled to proceed for recovery of the differential amount from the officer who committed default.** **The Writ Appeal is allowed, setting aside Exhibits P14, P17 and P18 proceedings, declaring that the property covered by Exhibit P1 Sale Certificate is not liable to be proceeded against for realizing the sales tax arrears** **W.A.No.1502 of 2017 - 19 -** **of Indiana Panels or Guardian Veneers; the dues against Indiana Panels having been satisfied by sale of properties evidenced from Exhibit P5. Exhibits P6 and P7 to P9 proceedings of the statutory authorities would also stand set aside. Parties are left to suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Vku/-** **Sd/T.R.RAVI JUDGE [ true copy ]**