Rajender Singh vs. State Of Hp And Others

Held

The Court allowed the writ petition. Regarding the first two issues, the Court held that the charge/lien of the Excise and Taxation Department on the property was inoperative and could not be fastened upon the petitioner. The Court reasoned that the sale notice declared the property free from encumbrances, and the Excise and Taxation Department failed to comply with the mandatory requirements of Section 26B(4) of the SARFAESI Act by not registering its claim with CERSAI and also failed to comply with Rule 8(7)(a) of the Security Interest (Enforcement) Rules. The Court emphasized that the negligence and inaction of the State Tax Authorities in not resorting to timely recovery of state taxes could not be a basis for fastening past business liabilities on the bonafide auction purchaser. The Court declared the red-ink entry in the revenue records creating the charge as inoperative, illegal, and quashed it. On the third issue, the Court directed Respondent No. 3 (Public Works Department) to release the compensation amount of Rs. 4,60,610 to the petitioner with statutory benefits within four months. The Court's ratio decidendi is that a bonafide auction purchaser under SARFAESI acquires absolute rights, title, and interest in the property, which cannot be nullified by subsequent or undisclosed encumbrances due to the statutory authorities' failure to comply with procedural mandates.

Facts

The petitioner, Rajender Singh, was the highest bidder in an e-auction held on October 25, 2022, for a property mortgaged to the State Bank of India (SBI) by M/s Aradhana Wines. The sale notice stated the property was free from encumbrances. The petitioner paid the full bid amount of Rs. 1,66,00,000 and received a sale certificate on January 20, 2023. However, the sale certificate contained an endorsement of an encumbrance in favor of the Excise and Taxation Department. The petitioner sought removal of this charge and release of compensation amounting to Rs. 4,60,610 for a portion of the land acquired by the Public Works Department. The SBI had also written to the Excise and Taxation Department requesting removal of the endorsement, citing legal precedents and provisions of the SARFAESI Act.

Key Issues

1. Whether the charge/lien of the Excise and Taxation Department on the property purchased by the petitioner through e-auction under the SARFAESI Act is valid and enforceable against the petitioner, considering the sale notice declared the property free from encumbrances and the provisions of Section 26E and Section 35 of the SARFAESI Act, 2002, which grant overriding effect to secured creditors' dues? (Question of law) 2. Whether the petitioner, as a bonafide auction purchaser, is entitled to have the property registered in his name free from all encumbrances, particularly when the encumbrance was not disclosed at the time of the auction and confirmation of sale? (Question of mixed law and fact) 3. Whether the compensation amount of Rs. 4,60,610 for the acquired portion of the land should be released to the petitioner as the current owner of the property? (Question of fact) Petitioner's Arguments: The petitioner argued that the sale notice explicitly stated the property was free from encumbrances. He relied on Section 26E and Section 35 of the SARFAESI Act, 2002, asserting that the bank's dues have overriding priority over other dues, including state taxes. He also contended that the Excise and Taxation Department failed to register its claim with CERSAI as required by Section 26B(4) of the SARFAESI Act and did not adhere to Rule 8(7)(a) of the Security Interest (Enforcement) Rules, making their claim unenforceable against him. The petitioner also argued that the compensation for the acquired land should be released to him as the rightful owner. Respondents' Arguments: The respondents (State Tax Authorities) argued that the charge/lien was created prior to the auction. The judgment does not explicitly record arguments from the State Tax Authorities regarding the validity of the charge or the non-registration with CERSAI. The State Bank of India, through its counsel, supported the petitioner's claim for removal of the encumbrance.