Allowed

International Asset Reconstruction v. The Commercial Tal Officer

Madras HC1 Apr 2021WP/35347/2019

Case brief

AI extract

What is this about?

The High Court allowed a writ petition challenging the attachment of a mortgaged property belonging to a director. The court held an asset belonging to a director cannot be attached for the arrears of a different company, especially without being offered as security to the tax department. The petition was allowed, and auction proceeds were directed to the petition.

What did the court decide?

Writ of Certiorari and Mandamus issued to quash the attachment order dated 22.12.2004 and direct the respondents to lift the attachment. Sale proceeds remitted to the writ petition.

International Asset Reconstruction Vs The Commercial Tal… — Banking and Recovery | Madras HC (2021)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 01.04.2021

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CORAM

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THE HONOURABLE DR. JUSTICE ANITA SUMANTH

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W.P.No.35347 of 2019 and

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WMP. No.36174 of 2019

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International Asset Reconstruction Company Private Limited, Represented by its Senior Vice President and Business Head (South), Aruna Mannath,

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Door No.1, 9^th Floor, “Prashanth Real Gold Tower”, D.No.39, North Usman Road, T.Nagar, Chennai-600 017. …Petitioner Vs. 1.The Commercial Tax Officer (Commercial Tax), Commercial Tax Office, No.158/1002, Main Road, Bhavani, Erode – 638 301.

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2.The Sub-Registrar, Sub-Registrar’s Office, No.300 S.Taluk Office Campus, Mettur Main Road,

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Bhavani, Erode – 638 301.

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3.M/s.Erode Rana Taxtiles Processors Private Limited, (In Liquidation), Represented by the Official Liquidator, High Court, Madras, As the Liquidator of Erode Rana Textiles Processors Private Limited, Corporate Bhavan, 2^nd Floor, No.29, Rajaji Salai, Chennai-600 001.

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…Respondents

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Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for issuance of Writ of Certiorarified Mandamus, calling for the records of the first Respondent culminating in the proceedings bearing reference number Na.Ka.1382/2003/A3 dated 22.12.2004 attaching the secured property mortgaged to the Petitioner, situate at R.S.No.141/4 (part) now bearing R.S.No.141/4A of Varadhanallur Village, Bhavani Taluk, Erode District, and quash the same and further direct the second Respondent to raise / lift the attachment over the secured property mortgaged to the Petitioner found in the

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https://hcservices.ecourts.gov.in/hcservices/

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afore-said proceedings bearing reference number Na.Ka.1382/2003/A3 dated 22.12.2004.

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For Petitioner : Mr.V.V.Sivakumar For Respondents: Mr.Mohammed Shaffiq (for R1) Special Government Pleader

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Mr.S.Gopalakrishnan (for R3) No Appearance (for R2)

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O R D E R

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The petitioner is the International Asset Reconstruction Company and has stepped into the shoes of the ICICI Bank Limited and Karur Vysya Bank Limited (Banks) under assignment agreements dated 30.04.2012 and 31.12.2012 registered as Document Nos.9729 of 2012 and 5182 of 2013 respectively, as a financial institution entitled to recover the loans advanced by the aforesaid two banks to the 3^rd respondent. The petitioner has also instituted recovery proceedings as against the 3^rd respondent before the Debts Recovery Tribunal at Coimbatore, which is pending adjudication.

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The two banks had sanctioned credit facilities to an entity by the name and style of Erode Rana Textiles Processors Private Limited (Company 1). The company had mortgaged immovable property as collateral security for the loan and one of the properties offered, comprised land and building situated at R.S.No.141/4 (part) now bearing R.S.No.141/4(A) of Varadhanallur Village, Bhavani Taluk, Erode District, ad-measuring an extent of 5 acres (schedule property) belonging to Mr.Rana K.V.Laxmanan, Managing Director in Company 1.

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The mortgage was by way of deposit of title deeds executed on 11.07.1994. Admittedly, the mortgage is unregistered insofar as the requirement to register instruments evidencing agreement for the deposit of title deed was by amendment of Section 17(1) of the Registration Act, 1908 with effect from 01.12.2012 only. However, the factum of execution of mortgage in 1994 by deposit of title deeds in favour of the banks is not disputed.

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Since there were defaults in settlement of the dues by the company, the petitioner was constrained to initiate action in terms of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). After the issuance of notice under Section 13(2) and taking of profession under Section 13(4) of the Act, the

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https://hcservices.ecourts.gov.in/hcservices/

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petitioner brought the property to auction on 14.08.2019. It was only at that juncture that it came to know that an encumbrance had been recorded by the first respondent, the Commercial Tax Officer, Erode/R1 and upon a request made to R1 to lift the attachment, received a copy of communication dated 22.12.2004 that had been sent by R1 to R2, from the Sub-Registrar, Erode/R2, that stated as follows:

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LNO11/2005
-tzpfthpj;Jiw-
mDg;g[eh; bgWeh;
jpU/R/jD!;nfho/. vk;/fhk;/. rhh;gjpthsh;
tzpfthp mYtyh; gthdp/
nej;jh$p nuhL rufk;.
<nuhL/
e/f/1382-2003-m3. ehs; 22/12/2004
bghUs; : thp epYit ? jpUth ? Fkhunty; uhzh
!;gpd;dp '; kpy; ? brhj;J $g;jp bra;jy; ?
bjhlh;ghf/
ghh;it : 1/,t;tYtyf e/f/1382-2003-m3.
ehs; 22/11/2004/
2/j'; fs; m/jp/K/873-2004-8/12/04/
?????
,r;rufj;ijr; nrh;e;j jpUthsh;. Fkhunty; uhzh !;gpd;dp '; kpy;!;
tisaf;fhu tPjp. <nuhL (g/rh/2881422) vd;w tzpfh; muRf;F fPH;f;fz;lthW thp.
kw;Wk; jz;lk; brYj;j ntz;oa[s;sJ/
kj;jpa tpw;giz thpr;rl;lk; thp epYit bjhif
thp U:/ 3.74.424/00
jz;lk; U:/ 5.61.636/00
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9.36.060/00
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j/eh/bgh/tp/t/r/
2881422/99/98 thp U:/ 2.38.005/00
jz;lk; U:/ 2.98.455/00
???????????????????
5.36.460/00
???????????????????
kj;jpa tpw;giz thpr;rl;lk;

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https://hcservices.ecourts.gov.in/hcservices/

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603334-97?98 thp U:/45.87.812/00 jz;lk; U:/68.81.717/00

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1.14.69.529/00

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j/eh/bgh/tp/t/r/ 2881422/98/99 thp U:/ 11.978/00 nkw;fz;l thp epYit bjhiffisr; brYj;JkhW nehpy; brd;W nfl;Lk; mwptpg;g[ thapyhf bjhptpj;Jk; tzpfh;fs; ,Jehs; tiuapYk; thp epYitfs; brYj;jg;gltpy;iy. vdnt g'; Fjhuh;fspy; xUtUf;Fr; brhe;jkhd mirahr; brhj;J $g;jp bra;ag;gl;Ls;sJ/ tujey;Yhhpy; cs;s mirahr; brhj;jpd; rpl;lh ml'; ;fy; efy; ,j;Jld; mDg;gpa[s;nsd;/ nkYk; brhj;J $g;jp bra;ag;gl;ljw;fhd gotk; ?4 eK:dh efy; xd;wpida[k; ,izj;J mDg;gpa[s;nsd;/ nkw;fz;l brhj;jpd; kPJ tpw;gid thp tpy;y '; fk; Vw;gLj;jpa [k;. nkw;fz;l brhj;jpid ntW vth; bgaUf;F khw;wk; bra;ag;gLk; nghnjh my;yJ tpw;f KaYk; nghnjh ,r;ryfj;jpypUe;J thp epYit ,y;yh rhd;W bgw;W tUkhW mwpt[iufs; tH'; FkhW nfl;Lf; bfhs;fpnwd;/ nkYk; murpd; thp epYitapid kPl;gjw;F ,j;Jiwa[ld; xj;JiHg;g[ ey;FkhW nfl;Lf;bfhs;fpnwd;/ ,izg;g[ : 1) rpl;lh ml'; fy; efy; 2) tiuglk; 3) gotk; 4 eK:dh efy; (x?k;) R/jD!;nfho tzpfthp mYtyh;. nejh$p nuhL rufk;. <nuhL/ -cz;ik efy;- cj;jut[g;goSd/fz;fhzpg;ghsh; 23/12/2004’

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It is this order that has come to be challenged by way of the present writ petition.

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Mr.Sivakumar, learned counsel for the petitioner, would point out that the reason for attachment of the schedule property was admittedly the tax arrears of an entity by name 'Kumaravel Rana Spinning Mills' (company 2), as can be seen from the impugned communication.

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The counter filed by the respondent states that Erode Rana Textiles Processors Private Limited and Kumaravel Rana Spinning Mills had both been in arrears of sales tax and despite the efforts of the Commercial Taxes Department, it had been

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https://hcservices.ecourts.gov.in/hcservices/

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unable to collect or recover the dues. It was for this purpose that coercive recovery proceedings had been taken by attachment of the schedule property. However, the schedule property did not belong to Company 2, but to a director, who happened to be common to both companies, 1 & 2. This is the tenuous link on the basis of which the respondent seeks to support the impugned attachment.

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7.Mr.Mohammed Shaffiq, learned Special Government Pleader appearing for the Commercial Taxes Department would initially seek to advance arguments on the veracity of the charge created by R1 arguing that the Commercial Taxes Department would hold priority of charge in respect of arrears of sales tax. However, these arguments are not necessary bearing in mind the factual aspects of the matter as noticed above, and which are admitted.

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In the counter, the pending arrears relating to both company 1 and company 2 are set out as follows:

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‘Arrears	Pending to be collectable details
1. Tvl.Erode A	Rana Textile Processors (P) Ltd., Erode rrears under TNGST Act 1959
Arrears	Amount of 24(3) Interest
relating to the year	arrears Tax & Penalty Rs. decalculated up to 31.12.2014 Rs.
1999-2000	82,546.00 2,61,121.00
2000-2001	87,736.00 2,24,019.00
2001-2002	80,473.00 2,20,603.00
Total	2,50,755.00 7,05,743.00

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2. Tvl.Kumar Arrears unde	avel Rana Spinni r TNGST Act 1959	ng Mills, Erode
Arrears	Amount of	24(3) Interest
relating	arrears Tax &	decalculated up
to the year	Penalty Rs.	to 31.12.2014 Rs.
1997-98	5,36,460.00	15,32,487.00
1998-99 Ar	11,978.00 rears under CST	42,722.00 Act 1956
1996-97	9,36,060.00	33,01,172.00
1997-98	1,14,69,529.00	3,27,64,627.00
Total	1,29,54,027.00	3,76,41,008.00
Grand Total	1,32,04,782.00	3,83,46,751.00

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The arrears of company 1 are significantly less when compared to those of company 2. Be that as it may, such fact being irrelevant to the decision in this writ petition and

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https://hcservices.ecourts.gov.in/hcservices/

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mentioned only incidentally, an asset admittedly belonging to a Director of company 1 cannot be attached for the arrears of another Company, especially when the said property has not been offered as security by the Director to the Commercial Taxes Department. The attachment of the schedule property by R1 thus fails.

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During the pendency of this writ petition, an order was passed by me on 14.10.2020 lifting the attachment solely to enable auction of the schedule property within a fixed time frame. The sale proceeds were directed to be remitted to the credit of this writ petition.

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I am given to understand, under memo dated 25.03.2021, that the auction was successful and the sale proceeds have been deposited in an interest bearing fixed deposit bearing No.FDTDR No.0432017 dated 24.12.2020 (account bearing No.6720058211 drawn on Indian Bank, Madras High Court Branch) to the credit of this writ petition. The Registrar shall return the fixed deposit receipt to the petitioner, upon a request accompanied by a certified copy of this order.

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This writ petition is allowed. Connected Miscellaneous Petition is closed. No costs. Sd/Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar To 1.The Commercial Tax Officer (Commercial Tax), Commercial Tax Office, No.158/1002, Main Road, Bhavani, Erode – 638 301.

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