Encumbrance created on my property by sales tax dept's dstraint order issued on my previous owner
PEER MOHAMED
(Querist) 18 June 2014
This query is : Resolved
Good day!
I need your expertise / valuable advice on vacating the Encumbrance filed on 10.03.2008 by the Sales Tax Department as per the Distraint Order(form 1, under sec 8)of the CTO dtd 07.03.2008 against the recovery of Sales Tax Dues from the previous owner of the property, which mortgaged property was taken possession by the bank on 11.03.2004 & on 23.01.2007 itself under sec. 13(4) of SARFAESI Act 2002 and was sold by 'Tender cum Auction Sale' to one 'X' by the bank on 31.01.2008, on 'as is where is' & 'as it what is' basis a 'Sale Certificate' dated 22.02.2008 stating that the sale of the scheduled property was made free from all encumbrances known to the secured creditor, which property was further sold by 'X' to me on 05.12.2012, when we noticed the Encumbrance on the property.
Sir, I am very much aware that it is the duty of 'X' the Vendor, who sold the property to me, to resolve the previous liabiities / encumbrances, as he bought the property in an auction from the bank on 'as is where is' and 'as it what is' basis. So, I shall send a legal notice to him asking him to get all the pending liabilities / encumbrances settled and to get me a clear title of the property sold to me.
Here, apart from the legal aspect, even though he is liable, as per the fact, he is an innocent / bonafide auction purchaser, who bought the property from the bank, who requires my help / assistance to get out the unexpected issues / litigations arised later after the Sale Certificate was issued to him, in which, Sale Certificate, the bank has confirmed by mentioning that THE SALE OF THE SCHEDULED PROPERTY WAS MADE FREE FROM ALL ENCUMBRANCES KNOWN TO THE SECURED CREDITOR ON DEPOSIT OF THE MONEY DEMANDED BY THE UNDERSIGNED, eventhough the Tender Notice says that THE PROPERTY SHALL BE TRANSFERRED / CONVEYED ON 'AS IS WHERE IS' BASIS AND 'AS IT WHAT IS' CONDITION BY MEANS OF A 'SALE CERTIFICATE' IN THE NAME OF THE PURCHASER ONLY.
Here, my questions are
1. Whether we can deal directly with the Registration Department asking them to remove the Encumbrance made on the property of 'X' by the Distraint Order (Form1 under Sec 8) of Sales Tax Department dtd 07.03.2008 towards the recovery of Tax Dues of 'A' during 1991-1996 FY, before which encumbrance date the property was duly sold to 'X' by the bank through an Auction Sale on 31.01.2008 (as the same property was taken possession by the Bank on 11.03.2004 & 23.01.2007 itself under sec.13(4) of SARFAESI Act 2002, as 'A' had motgaged the said property in favour of the bank against the credit facilities availed by him and defaulted) and the Title of the Property was duly transfered / conveyed to 'X' by the Sale Certificate issued to him on 22.02.2008 itself, and 'X' has already taken possession of the said property by then, eventhough in the books of SRO, the ownership might have been in the name of 'A', as the 'Sale Cerificate' was not registered.
2. Whether the Sales Tax Department has the rights to attach / make encumbrance on the sold property on 07.03.2008 for the recovery of tax dues of 'A' during 1991-1996 ?
3. As I know a little about the Government Tax Dues / Revenues becomes the first priority in collection and becomes first charge above all, I equally understand that SARFAESI Act 2002 overpass all other existing laws, which please clarify?
4. When the bank made the sale with the condition that 'as is where is' & 'as it what is', whether these terms define the condition of the property or those conditions are applicable even on the title of the property as well?
5. Moreover, even though the sale condition was 'as is where is' and 'as it what is' basis, as the bank further in the Sale Certificate says that the scheduled property was made free from all encumbrances known to the secured creditor on deposit of the money demaned by the undersigned, the Auction Purchaser 'X' becomes bonafide / innocent for the present litigations. Am I right? Then, as the bank becomes responsible, shall we approach the bank to settle the issues?
6. Or, should we approach the Sales Tax Department for the remedy, as they have done a wrong attachment on others' property for the recovery of some ones' tax dues? Here, I read some articles that towards the recovery of Tax dues / Revenue dues, they can attach the sold properties as well, which please clarify the applicability in our case.
7. If only solution is to go to the court for remedy, what me and 'X' have to do? What type of case to be filed? On whom should be filed? How long will it take for a solution?
8. After all, I need the encumbrance / litigation on the property to be cleared immediately at the earliest (?) so that I can avail bank loan on that property to carry on my business, which loan was primarily got sanctioned. FYI, I totally forgot about the encumrance on the title of the property, when I approched the bank asking for a loan. Now, the bank is after me and asking me the full set of documents with a new encumbrance certificate for the disbursement of loan. Now only, I got the memory of the Encumbrance created by the Distraint Order of Sales Tax Department on the property and hence, not given the documents to the bank and delaying the loan process from my end, as I have a good reputation in the bank. If I tell the bank manager now about the encumbtrance created on the property on 07.03.2008, he may mistake me.
Hence, advise me how should I handle the situation to come out of the issues quickly. Your prompt response by return would be highly appreciated.
Thanks and regards,
A.Peer Mohamed
Ph. +919444361786
Mail: apm.peer@gmail.com
P. Venu
(Expert) 24 June 2014
The matter could be resolved only through a Writ Petition.
Advocate Ravinder
(Expert) 12 July 2014
The order of Tax department has overriding effect upon the secured creditor i.e. the Bank herein, hence there is no use of going to court. Anyway try to defend your case by engaging a reliable experienced lawyer. For further doubts contact me ravinder2345@gmail.com.
Anirudh
(Expert) 12 July 2014
Dear Peer Mohamad,
You should have carefully checked the matter before purchasing the property.
All the Sales Tax Acts contain provision to the effect that the Sales Tax Department has over riding claim over the properties of the defaulter of sales tax.
Therefore, when the property was sold in the first instance by the Bank to Mr. X, the sale proceeds will first be adjusted towards the sales tax dues and only the balance amount remaining if any can be retained by the bank.
In this case 'X' is not liable to the Sales Tax Department, unless the consideration which he had paid to the bank is less than the sales tax outstanding.
In your sale deed, there will be a clause whereby you might have been indemnified by Mr. X regarding his clear title to the property free of any encumbrance and would have indemnified you against any loss that you may suffer in case of any defect in title. Based on this clause you have to serve a legal notice upon him. (You have to take the help of a lawyer for this purpose).
As regards helping Mr. X, as you feel that he was an innocent purchaser, guide him to approach a lawyer and to serve a legal notice upon the Bank for clear title.
