Sreedevi Mangalan v. The District Collector, Kollam and Others

W.P.(C)No.15719/2021 1 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY,THE 12[TH] DAY OF DECEMBER 2023/21ST AGRAHAYANA, 1945** **WP(C) NO. 15719 OF 2021** ## **PETITIONER:** **SREEDEVI MANGALAN AGED 57 YEARS W/O. MANGALANANDAN, RESIDING AT SREEMA NIVAS, PRAGATHI NAGAR, BEHIND GREEN PARK ARCADE, RANDAMKUTTY, KILIKOLLOR, KOLLAM.** **BY ADVS. SRI S.SREEKUMAR (KOLLAM) MS.PRIYA SHANAVAS** ## **RESPONDENTS:** - **1 THE DISTRICT COLLECTOR, COLLECTORATE, CIVIL STATION, KOLLAM-691013.** **2 THE TAHASILDAR (RR), TALUK OFFICE, TALUK KACHERY P.O., NEAR KSRTC BUS STAND, KOLLAM-691001.** - **3 THE VILLAGE OFFICER, MANGADU VILLAGE, KOLLAM-691015.** - **4 THE BRANCH MANAGER, TATA CAPITAL FINANCIAL SERVICES LTD., 2ND FLOOR, INDIA TOWER, VAZHUTHACADU, THIRUVANANTHAPURAM-695014.** - **5 THE SUB REGISTRAR OFFICER, SUB REGISTRAR OFFICE, KILIKOLLOR, KOLLAM-691004.** - **6 THE ASSISTANT COMMISSIONER, COMMERCIAL TAXES, (SPECIAL CIRCLE), ASRAMAM, KOLLAM-691001.** W.P.(C)No.15719/2021 2 ## **ADDL.R7 IMPLEADED** **7 ADDL.R7.RENJITH VILASEEDHARAN S/O. VILASEEDHARAN, DAMODHARAN, GAYATHRI, MANGAD NAGAR, A-69, MANGAD.P.O., KOLLAM-691015. (ADDL.R7 IS IMPLEADED AS PER ORDER DATED 8-11-2021 IN IA 1/2021 IN WP(C) 15719/2021).** **BY ADVS. SRI MUHAMMED RAFEEQUE (SPL.GOVERNMENT PLEADER) SRI MANSOOR.B.H. SRI B.ASHOK SHENOY SRI RENJITH.R SMT.C.G.PREETHA SRI P.S.GIREESH SRI ARJUN R NAIK** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON** **24.6.2022, THE COURT ON 12.12.2023 DELIVERED THE FOLLOWING:** W.P.(C)No.15719/2021 3 **T.R. RAVI, J. -------------------------------------------W.P.(C)No.15719 of 2021 -------------------------------------------Dated this the 12th day of December, 2023** ## **JUDGMENT** The petitioner purchased properties having an extent of 4.05 Ares situated in Mangadu Village, Kollam District, in ReSurvey No.642/13-2 in Block No.15 and 7.70 Ares with building No.KP IV/620 in Survey No. 642/14 in Resurvey Block No.15) for a sum of Rs.90,25,000/-, in an auction conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), for the realisation of amounts due to the 4th respondent. Ext.P1 is the sale certificate. The said property had been mortgaged by one Renjith Vilaseedharan with the 4[th] respondent at their Thiruvananthapuram Branch by deposit of title deeds on 15.7.2015. When the petitioner approached the 5[th] respondent for registering the sale certificate, she was informed that the property had been attached on 05.02.2021 in revenue recovery proceedings initiated for arrears of sales tax and hence the certificate cannot be registered. Ext.P3 is the encumbrance certificate issued by the W.P.(C)No.15719/2021 4 Kilikollur SRO on 05.07.2021, which does not disclose any attachment. Ext.P4 is the judgment of this court, which according to the petitioner has been rendered in similar circumstances. The contention of the petitioner is that the revenue recovery proceedings were initiated much after the equitable mortgage was created and that the mortgagee has a prior charge over the property. Reliance is placed on the decisions of this Court in **Kuriachan Chacko Vs. State of Kerala & Ors. [2012 (3) KHC 549]** , **Housing Development Finance & Anr. Vs. Sub Registry Officer & Ors. [2011 KHC 851],** and **Madhan S Vs. Sub Registrar, Kollam & Ors. [2014 (1) KLT 406]** in support of the contention. The writ petition is filed praying for a direction to the 5[th] respondent to register the sale deed as per Ext.P1 and to give direction to the 3[rd] respondent to mutate the property and to receive the basic tax. There is also a prayer for a direction to the 5[th] respondent to remove the adverse entries in the relevant registers regarding revenue recovery proceedings against the secured assets initiated after the mortgage. 2. The 6[th] respondent has filed a statement wherein it is stated that the property belonged to registered dealers under the Kerala Value Added Tax Act,2003 and Central Sales Tax Act,1956, who had arrears of tax under both the Acts, totalling an amount of W.P.(C)No.15719/2021 5 Rs.2,80,07,850/- along with interest. It is submitted that the dealer M/s. Navami Exports was a firm that had three partners, Sri D Vilaseedharan, Sri. Sujith and Sri. Renjith (additional 7th respondent). It is stated that the firm had huge arrears of tax from 2006-07 to 2016-17. Under Section 28 of the KVAT Act,2003, the partners of a firm are jointly and severally liable to pay any arrears of tax, fee, or any such amounts payable by the firm. It is stated that the Assessment for the year 2006-07 of the dealer firm under the two Acts was completed on 30.12.2010 as evidenced by Exts.R6(b) and R6(c). It is stated that revenue recovery steps had been initiated on 10.6.2011, which was before the creation of the mortgage by the 7[th] respondent. It is submitted that the mortgage was created when penalty proceedings for the years 2010-11 to 2016-17 and 2012-13 to 2015-16 were pending before the 6[th] respondent and the Intelligence Officer, Kollam. It is contended that the equitable mortgage, created on 1.7.2015 when the State had a charge over the properties, is void and non-est by operation of Section 37 read with Section 38 of Kerala Value Added Tax Act,2003. The E-auction in favor of the petitioner is hence contended to be void as against claim in respect of tax or any sum payable under the Kerala Value Added Tax Act, 2003. It is submitted that the petitioner cannot thus have a grievance against W.P.(C)No.15719/2021 6 revenue recovery proceedings initiated against the property in accordance with law. 3. The 2[nd] respondent has filed a counter affidavit. It is submitted that the requisition for initiation of revenue recovery proceedings for realising an amount of Rs.2,87,78,789/- plus interest and collection charges had been received, and the proceedings have been set into motion. It is stated that the properties were attached on 15.12.2018 and 25.1.2021. The sale was conducted after the attachment by the revenue authorities. Properties, including the subject property, were e-auctioned only after the attachment by revenue authorities to realise the arrears against sales tax and Kerala Cashew Workers Relief and Welfare Fund (KCWRWF) dues. It is stated that KCWEWF has not been impleaded as a party to the writ petition. It is contended that the 4[th] respondent cannot claim any priority over the interest created upon the property under Section 26E of the SARFAESI Act as the notification giving effect to the Section came into force only on 24.01.2020, and no action has been taken under Section 26B of the SARFAESI Act. It is submitted that the 4[th] respondent has also not registered the property with the Central Registry. 4. The 4th respondent has filed a counter affidavit contending that the SARFAESI Act is a Central Act, and the W.P.(C)No.15719/2021 7 provisions of the said Act will prevail over the KVAT Act and the RR Act, which are State enactments, by operation of Article 251 of the Constitution of India. It is submitted that Section 26E of the SARFAESI Act begins with a _non-obstante_ clause and has, hence, an overriding effect and prevails over Section 37 of the KVAT Act. It is stated that the High Court of Andhra Pradesh has in its decision in **State Bank of India & Ors. v. The Deputy Commercial Tax officer II, Dwaraka Nagar & Ors. [Writ Petition No.4063 of 2019 & con.cases)]** , held that Section 26E of the SARFAESI Act is applicable to the security created prior to the advent of the said provisions of law. It is further contended that the mere assessment of tax liability does not create a charge over the property since there is no specific endorsement of the lien. According to the counter affidavit filed by the 2[nd] respondent, the property of the defaulters, including the 7[th] respondent, was attached on 15.12.2018 and 25.01.2021. Reliance is also placed on the decision of the Hon’ble Supreme Court in **State of Karnataka vs Shreyas Papers Pvt Ltd. [2006 (1) SCC 615],** wherein it was held that the Section is unambiguously indicating that a charge may not be enforced against a transferee if they had no notice of the same. 5. As already stated, the prayer in the writ petition is for a W.P.(C)No.15719/2021 8 direction to the 5[th] respondent to register the sale deed as per Ext.P1 sale certificate and to give a direction to the 3[rd] respondent to mutate the property of the petitioner purchased in auction and to receive the property tax. There is also a prayer for direction to the 5[th] respondent to remove the adverse entries in the relevant registers regarding the revenue recovery proceedings against the secured asset subsequent to the creation of the mortgage. It is not necessary to refer to the several decisions that have been placed before me by either side since the law has been settled by a judgment of a Division Bench of this Court in **Tahsildar (RR), Taluk Office, Kollam V. Nizamudeen S.** [ **2023 (1) KHC 248].** The Division Bench was hearing several Writ Appeals, which raised the question of priority of charge in the light of Section 26E of the SARFAESI Act over the statutory charge created under the KGST Act or the KVAT Act. After detailed discussion and consideration of all the judgments on the point, the Court concluded that the law as it stands today is that the State has first charge over the property, and the charge runs with the property irrespective of the sale conducted by the financial institutions as per the provisions of the SARFAESI Act 2002 and the RDB Act, 1993 and the debts are adjusted in priority in spite of the amendments made to the Acts. The Court further held that the SARFAESI Act being Central W.P.(C)No.15719/2021 9 Legislation, and going by the Rules in vogue, the financial institutions have the right to conduct the sale of the secured assets in accordance with law and adjust the amounts due in priority to other debts, but the statutory charge under the State laws would continue to run with the property. The Court held that even if the Bank sells the properties and adjusts the payment due to it first, until the encumbrances consequent to the first charge created as per the statute are cleared, the charge runs with the property. The Bench finally held that the statutory charge created as per the provisions of the KGST Act 1963 and the KVAT Act 2003, prior to any mortgage made against the dealers, would remain intact even if the property is sold by the Bank till such time the encumbrances are cleared as per the provisions of the said enactments and Rules thereto. In other words, it was held that the mortgage which is created after the amounts have fallen due as per the provisions of the KGST Act, 1963, and the KVAT Act, 2003, can only be termed as mortgages subject to the statutory charge. 6. In view of the above categoric pronouncements, it is evident that in the case on hand, the statutory charge in favour of the State will continue to be in force despite the sale in favour of the petitioner. The petitioner can claim rights only subject to the W.P.(C)No.15719/2021 10 charge of the State over the property. The only other question that needs to be decided is whether the sale certificate is liable to be registered when there is already a charge over the property. When this Court has held that the financial institutions can conduct the sale and appropriate the sale proceeds towards the debts, there is no reason why the sale certificate should not be registered in favour of the purchaser. As per the law laid down by the Division Bench, even if the property is registered in the name of the petitioner, the mutation is effected, and she is permitted to pay the tax, her ownership over the property is always subject to the charge, and the State will always be entitled to proceed against the property for enforcing their charge. Neither the registration of the sale certificate nor the payment of tax after effecting mutation will improve the right of the petitioner over the property as far as the State is concerned. 7. In the above circumstances, this writ petition is disposed of directing the 5[th] respondent to register the sale deed of the petitioner as per Ext.P1 sale certificate as and when the same is produced before the 5[th] respondent, and there will be a further direction to the 3[rd] respondent to effect mutation of the property and accept tax from the petitioner. It is made clear that the registration, as well as the mutation that is to be carried out, W.P.(C)No.15719/2021 11 will not in any manner affect the statutory charge of the respondents over the property. The prayer in the writ petition for a direction to remove the adverse entries in the relevant registers regarding the revenue recovery proceedings against the secured assets cannot be granted in view of the law laid down by the Division Bench that the statutory charge of the respondents remains to be in force and the revenue recovery proceedings are only proceedings initiated for enforcing the said charge. **==> picture [320 x 54] intentionally omitted <==** Sd/- **T.R. RAVI JUDGE** pn/dsn W.P.(C)No.15719/2021 12 ## **APPENDIX OF WP(C) 15719/2021** **PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE SALE CERTIFICATE ISSUED BY THE 4TH RESPONDENT DATED NIL. Exhibit P2 TRUE COPY OF THE LETTER DATED 24.7.2021 ISSUED BY THE 4TH RESPONDENT. Exhibit P3 TRUE COPY OF THE ENCUMBRANCE CERTIFICATE DATE 5.7.2021 ISSUED BY THE KILIKOLLOR SRO. Exhibit P4 THE TRUE COPY OF THE JUDGMENT IN WP(C) NO.7052/2021 DATED 2.7.2021 OF THE HON'BLE HIGH COURT OF KERALA. RESPONDENT EXHIBITS Exhibit R6(a) TRUE COPY OF THE DEALER DETAILS AS AVAILABLE IN THE KVATIS (KERALA VALUE ADDED TAX INFORMATION SYSTEM) RELATING TO M/S. NAVAMI EXPORTS, KOLLAM. Exhibit R6(b) TRUE COPY OF THE ASSESSMENT ORDER NO.32020273405/06-07 DATED 30.12.2010 RELATING TO THE YEAR 2006-07 PASSED BY THE 6TH RESPONDENT AGAINST M/S. NAVAMI EXPORTS, KOLLAM UNDER SECTION 25(1) OF THE KERALA VALUE ADDED TAX ACT,2003. Exhibit R6(c) TRUE COPY OF THE ASSESSMENT ORDER NO.32020273405/06-07 DATED 30.12.2010 RELATING TO THE YEAR 2006-07 PASSED BY THE 6TH RESPONDENT AGAINST M/S. NAVAMI EXPORTS, KOLLAM UNDER SECTION 6(5) OF THE CENTRAL SALES TAX ACT, 1956.**