Asset Reconstruction Company (India) Limited,Rep By Its Chief Manager,Mr.harshwardhan Kadam v. The Tax Recovery Officer-Iv, O/O The Principal Commissioner Of Income Tax -4, Room

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.07.2017 THE HON'BLE Mr. JUSTICE T.S.SIVAGNANAM W.P.Nos.40656 of 2015,34703 of 2016 and3572 of 2017 M/s.Well Stores (Madras) Private Limited,Rep by its Director,Mr.R.James. ..Petitioner in W.P.No.40656/2015 Asset Reconstruction Company (India) Limited,Rep by its Chief Manager,Mr.Harshwardhan Kadam. ..Petitioner in W.P.No.34703/2016Asset Reconstruction Company (India) Limited,Rep by its Chief Manager-LegalS.Saravanan. ..Petitioner in W.P.No.3572/2017 Vs. 1.The Tax Recovery Officer-IV, O/o the Principal Commissioner of Income Tax -4, Room No.327, Wanaparthy Building, “Aayakar Bhavan” No.121, Mahatma Gandhi Road, Nugambakkam, Chennai 600 034. 2.The Tax Recovery Officer-VII, O/o The Additional City Company Range-IV, Room.No.327, Wanaparthy Building, “Aayakar Bhavan” No.121, Mahatma Gandhi Road, Nugambakkam, Chennai 600 034 ..Respondents in W.P.No.40656/2015 https://hcservices.ecourts.gov.in/hcservices/ 1.The Tax Recovery Officer-IV, O/o the Principal Commissioner of Income Tax, Room.No.327, Wanaparthy Building, “Ayyakar Bhavan” No.121 Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Tax Recovery Officer-VII, O/o The Additional City Company Range-IV, Room.No.327, Wanaparthy Building, “Aayakar Bhavan” No.121, Mahatma Gandhi Road, Nugambakkam, Chennai 600 034. 3.The Sub-Registrar, Sub Registeration Office, Saidapet, Chennai. ..Respondents in W.P.No.34703/2016 1.The Tax Recovery Officer-VII, O/o The Additional City Company Range-IV, Room No.327, Wanaparthy Building, “Aayakar Bhavan” No.121, Mahatma Gandhi Road, Nungambakkam, Chennai- 600 034. 2.The Sub-Registrar, Chennai South-Joint-I, Sub Registration Office, 9, Jeenis Road, Saidapet, Chennai 600 015. 3.M/s.M.V.R.Exports Private Limited, Rep by its Management, 24, GST Road, Guindy, Chennai 600 032...Respondents in W.P.No.3572/2017 Prayer in W.P.No.40656 of 2015 : Petition filed under Article226 of the Constitution of India praying to issue a writ ofCertiorarified Mandamus, to call for the records in T.R.No.M-64/TRO-4/2015-16 dated 06.11.2015, on the file of the firstrespondent herein and quash the same and further direct thefirst respondent to communicate the raising of attachment overthe 6 items of immovable properties owned by the petitionerlisted as Item Nos.22 to 27 in the Form No.ITCP 16 inT.R.No.M-81/2004-05 dated 21.02.2005, issued by the secondrespondent, situate at Manapakkam Village, SriperumpudurTaluk, Kancheepuram District to the Sub-Registrar, Southhttps://hcservices.ecourts.gov.in/hcservices/Joint-I, Saidapet, Chennai. Prayer in W.P.No.34703 of 2016 : Petition filed under Article226 of the Constitution of India praying to issue a writ ofCertiorarified Mandamus, to call for the records of the secondrespondent attaching 27 items of immovable propertiesmortgaged to the petitioner listed as Item Nos.1 to 27 in theForm No.ITCP 16 in T.R.No.M-81/2004-05 dated 21.02.2005,attaching immovable properties mortgaged to the petitionersituate at Manapakkam Village, Sriperumpudur Taluk,Kancheepuram District to the Sub-Registrar, South Joint-I,Saidapet, Chennai and quash the same and further direct thethird respondent to raise the attachment over the immovableproperties mortgaged to the petitioner found in Form No.ITCP16 in T.R.No.M-81/2004-05 dated 21.02.2005. Prayer in W.P.No.34703 of 2016 : Petition filed under Article226 of the Constitution of India praying to issue a writ ofCertiorarified Mandamus, to call for the records of the secondrespondent attaching 27 items of immovable propertiesmortgaged to the petitioner listed as Item Nos.1 to 27 in theForm No.ITCP 16 in T.R.No.M-81/2004-05 dated 21.02.2005,attaching immovable properties mortgaged to the petitionersituate at Manapakkam Village, Sriperumpudur Taluk,Kancheepuram District to the Sub-Registrar, South Joint-I,Saidapet, Chennai and quash the same and further direct thethird respondent to raise the attachment over the immovableproperties mortgaged to the petitioner found in Form No.ITCP16 in T.R.No.M-81/2004-05 dated 21.02.2005. Prayer in W.P.No.3572 of 2017 : Petition filed under Article226 of the Constitution of India praying to issue a writ ofCertiorarified Mandamus, to call for the records of the firstrespondent in Form No.I.T.C.P 16 in T.R.No.M-63/04-05 dated21.02.2005 attaching the schedule mentioned propertiesmortgaged to the petitioner situate at Manapakkam Village,Sriperumpudur Taluk, Kancheepuram District and situated withinthe registration district of Chennai-South and within the Sub-Registration District of Chennai South Joint I and quash thesame and further direct the second respondent to raise theattachment over the schedule mentioned properties mortgaged tothe petitioner found in Form No.I.T.C.P.16 in T.R.No.M-63/04-05 dated 21.02.2005. For Petitioner: Mr.Vijay Narayan, Senior https://hcservices.ecourts.gov.in/hcservices/ C O M M O N O R D E R Heard Mr.N.Ramakrishnan, learned counsel on behalf ofM/s.Waraon And Sairams, learned counsel for the petitioner inW.P.No.40656 of 2015; Mr.Vijay Narayan, learned Senior Counselassisted by M/s.BFS Legal and Mr.M.Aasim Shehzad, learnedcounsel for the petitioners in W.P.Nos.34703 of 2016 and 3572of 2017; Mr.P.Srinivas, Mr.A.N.Jayaprathap, learned StandingCounsels and Mrs.A.Srijayanthi, learned Special GovernmentPleader appearing for the respondents. 2. There are three writ petitions, relating to the ordersof attachment passed by the Income Tax Department on theproperties, which were initially mortgaged with the IndianBank by the borrower. In W.P.Nos.34703 of 2016 and 3572 of2017, the petitioner is Asset Reconstruction Company (India)Limited and they have challenged two orders of attachment ofthe subject properties and also seeking for a direction toraise the attachment. The short ground, on which the impugnedorder have been challenged, is by placing reliance on thedecision of the Hon'ble Full Bench in the case of AssistantCommissioner (CT), Anna Salai-III Assesment Circle Vs. TheIndian Overseas Bank in W.P.No.2675 of 2011 etc. dated10.11.2016. The issue, which was referred to Hon'ble FullBench, for decision is as follows: “a) As to whether the Financial Institution,which is a secured creditor, or the department ofthe government concerned, would have the'Priority of charge' over the mortgaged propertyin question, with regard to the tax and otherdues.b) As to the status and the rights of athird party purchaser of the mortgaged propertyin question.” 3. The Full Bench after taking note of the Enforcement ofSecurity interest and Recovery of Debts and Laws andMiscellaneous Provisions (Amendment) Act, 2016, held thatthere is no doubt that the rights of the a secured creditor torealise secured debts due and payable by sale of assets overwhich security interest is created, would have priority overall debts and Government dues including Revenues, Taxes,Cesses and rates due to the Central Government, StateGovernment or local authority. The operative portion of thejudgment of the Full Bench is as follows: 3. The Full Bench after taking note of the Enforcement ofSecurity interest and Recovery of Debts and Laws andMiscellaneous Provisions (Amendment) Act, 2016, held thatthere is no doubt that the rights of the a secured creditor torealise secured debts due and payable by sale of assets overwhich security interest is created, would have priority overall debts and Government dues including Revenues, Taxes,Cesses and rates due to the Central Government, StateGovernment or local authority. The operative portion of thejudgment of the Full Bench is as follows: “2.We are of the view that if there was at allany doubt, the same stands resolved by view of theEnforcement of Security Interest and Recovery ofDebts Laws and Miscellaneous Provisions (Amendment)Act, 2016, Section 41 of the same seeking tointroduce Section 31B in the Principal Act, Whichhttps://hcservices.ecourts.gov.in/hcservices/reads as under:- “31B. Notwithstanding anything containedin any other law for the time being inforce, the rights of secured creditors torealise secured debts due and payable tothem by sale of assets over which securityinterest is created, shall have priorityand shall be paid in priority over allother debts and Government dues includingrevenues, taxes, cesses and rates due tothe Central Government, State Governmentor local authority. Explanation:-for the purposes of thisSection, it is hereby clarified that on orafter the commencement of the insolvencyand bankruptcy Code, 2016, in cases whereinsolvency or bankruptcy proceedings arepending in respect of secured assets ofthe borrower, priority to securedcreditors in payment of debt shall besubject to the provisions of that code.”3.There is, thus, no doubt that the rights of asecured creditor to realise secured debts due andpayable by sale of assets over which securityinterest is created, would have priority over alldebts and Government dues including revenues, taxes,cesses and rates due to the Central Government,State Government or Local Authority. This Sectionintroduced in the Central Act is with“notwithstanding” clause and has come into forcefrom 01.09.2016. 4.The law having now come into force, naturallyit would govern the rights of the parties in respectof even a lis pending. 5.The aforesaid would, thus, answer question(a) in favour of the financial institution, which isa secured creditor having the benefit of themortgaged property. 6.In so far as question (b) is concerned, thesame is stated to relate only to auction sales,which may be carried out in pursuance to the rightsexercised by the secured creditor having a mortgageof the property. This aspect is also covered by theintroduction of Section 31B, as it includes “secureddebts due and payable to them by sale of assets overwhich security interest is created.7.we, thus, answer the aforesaid referenceaccordingly.” 4. The respondent in their counter affidavit contendedthat any transfer of property during the pendency of theproceedings under the Income Tax Act or after the completionthereof and before the notice under Rule 2 of Second Scheduleas per Section 281 of the Act is void. Therefore, the mortgagehttps://hcservices.ecourts.gov.in/hcservices/or creation of charge in favour of the Bank, during the pendency of the proceedings, is void and the Income TaxDepartment has attached the properties, after issuing noticeunder Rule 2 of the second schedule. One more submission madeby the Revenue is by contending that the document executedbetween the petitioner and the Indian Bank is a sale documentand admittedly, purchase made by the petitioner was on07.12.2007, much after the attachment of the property by theIncome Tax Department. pendency of the proceedings, is void and the Income TaxDepartment has attached the properties, after issuing noticeunder Rule 2 of the second schedule. One more submission madeby the Revenue is by contending that the document executedbetween the petitioner and the Indian Bank is a sale documentand admittedly, purchase made by the petitioner was on07.12.2007, much after the attachment of the property by theIncome Tax Department. 5. The answer to the two submissions raised by therevenue lies in the decision of the Full Bench referred supra.That apart the interpretation given by the Income TaxDepartment to the Assignment Agreement dated 07.12.2017,stating that it should be treated as a sale transaction is nottenable. This is so because, the terms and conditions of theagreement clearly shows it is an assignment of securityinterest created in favour of the Indian Bank and by that theIndian Bank had transferred in favour of the petitioner, theloans disbursed under the financing documents together withall its rights, title and interest in the financing documentsand any underlying Security Interests, Pledges and/orguarantees in respect of such loans. 6. Therefore the petitioner being the successor wouldstep into the shoes of the financing Bank, which admittedly,is a secured creditor. Further more, the document has beenvalid by stamped for the purpose of stamp duty as assignmentdeed as could be seen from the endorsement in the reverse ofpage No.1 of the Assignment agreement dated 07.02.2017. Thus,in the light of the decision of the Full Bench, taking note ofthe Amendment Act, 2016, the order of attachment made by theIncome Tax Department should yield to rights of thepetitioner, secured creditor. Therefore, they are required tobe set aside. 7. In the counter affidavit, the Income Tax Departmenthas made an alternate submission that in any case as far asthe petitioner, in whose custody, the subject properties nowrest, is concerned, the Income Tax Department has nothing toadd except to aver that excess realization from sale of thesubject properties over and above the dues to the Indian Bankfrom the date of pendency of the proceedings against thedefaulter or at least from the date of attachment dated27.02.2004, be surrendered to the Income Tax Department foradjustment against the outstanding dues of the defaulter-company, since the subject properties were also mortgaged,rather pledged as security to the Indian Bank for obtainingvarious financial facilities by the defaulter-company as wellas M/s.Well Stores, the petitioner in W.P.No.40656 of 2016. 8. The learned counsel appearing for the petitioner viz.,Asset Reconstruction Company (India) Limited, on instructions,would submit that in case there is any excess realizationhttps://hcservices.ecourts.gov.in/hcservices/after adjustment of the dues payable to the petitioner, then obviously the reminder would be shared among the othercreditors in accordance with relevant statutory provisions. 9. Thus, for the above reasons, it is held that thepetitioner would have priority over all other debts andGovernment dues including taxes, cesses, etc., due to theIncome Tax Department, Central Government, State Government orLocal Authority. Therefore, the impugned orders of attachmentare liable to be set aside. 8. The learned counsel appearing for the petitioner viz.,Asset Reconstruction Company (India) Limited, on instructions,would submit that in case there is any excess realizationhttps://hcservices.ecourts.gov.in/hcservices/after adjustment of the dues payable to the petitioner, then obviously the reminder would be shared among the othercreditors in accordance with relevant statutory provisions. 9. Thus, for the above reasons, it is held that thepetitioner would have priority over all other debts andGovernment dues including taxes, cesses, etc., due to theIncome Tax Department, Central Government, State Government orLocal Authority. Therefore, the impugned orders of attachmentare liable to be set aside. 10. In the result, the writ petitions in W.P.No.34703 of2016 and 3572 of 2017 are allowed and the impugned orders areset aside and the attachment stands raised. In the light ofthe orders passed in these writ petitions, no further ordersare required in W.P.No.40656 of 2015, as the said propertiesis covered in the list of the properties, which are thesubject matter of the other two writ petitions. Hence,W.P.No.40656 of 2015 is dismissed. As this Court has allowedthe writ petitions filed by Assets Reconstruction CompanyIndia Limited, The Sub-Registrar, Saidapet, Chennai isdirected to remove the entries in the encumbrance certificateof the subject properties. No costs. Consequently, theconnected miscellaneous petitions are also closed. Sd/- Assistant Registrar(CCC) //True Copy// vsm Sub Assistant Registrar To 1.The Tax Recovery Officer-IV, O/o the Principal Commissioner of Income Tax, Room.No.327, Wanaparthy Building, “Ayyakar Bhavan” No.121 Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Tax Recovery Officer-VII, O/o The Additional City Company Range-IV, Room.No.327, Wanaparthy Building, “Aayakar Bhavan” No.121, Mahatma Gandhi Road, Nugambakkam, Chennai 600 034.https://hcservices.ecourts.gov.in/hcservices/ 3.The Sub-Registrar, Chennai South-Joint-I, Sub Registration Office, 9, Jeenis Road, Saidapet, Chennai 600 015. + 1 cc to Mr. BFS Legal, Advocate Sr.50433+ 1 cc to Mrs. Hema Murlaikrishnan, Advocate Sr.50360+ 1 cc to Mr. Waraon and Sairams, Advocate SR.50240 W.P.Nos.40656 of 2015,34703 of 2016 and 3572 of 2017EV(CO)Eu 11.08.17