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Case title: SRI. T.BHARATHGOWDA VS. STATE OF KARNATAKA AND ORS.

Case no: WRIT PETITION No.7872 OF 2024 (GM-RES)

Order on: 28th May, 2024

Quorum: THE HON’BLE MR. JUSTICE M. NAGAPRASANNA

Fact of the case:

In this writ petition, The petitioner, Sri T. Bharathgowda, seeks registration of a sale certificate for a property originally owned by Thimme Gowda, T. Raghavendra Gowda, and T. Prasanna Raghavendra Gowda. The property is located at 11th Cross, Wilson Garden, Hombegowdanagara, Bengaluru. The original owners had mortgaged the property to Canara Bank (the 3rd respondent) and defaulted on the loan. This led to proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The property was auctioned on 19-03-2022, where the petitioner emerged as the successful bidder. After paying the full consideration, the petitioner received a sale certificate on 30-09-2022. The petitioner attempted to register the sale certificate at the jurisdictional Sub-Registrar’s office (the 2nd respondent). Despite paying all necessary fees and stamp duty, the registration was refused verbally due to pending Income Tax claims against the original borrowers. The petitioner sent letters to the Sub-Registrar and Canara Bank to clarify the situation and request registration. With no response from the Sub-Registrar, the petitioner filed a writ petition seeking a court order for registration of the sale certificate.

Issues framed by court:

1. Whether the Sub-Registrar has the discretion to refuse registration of the sale certificate based on pending Income Tax dues against the borrowers.
2. Whether other statutory dues pending against the borrowers would entail non-registration of a document, need not detain this Court for long, or delve deep into the matter.

Legal provisions:

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)-

Section 26E: Gives priority to the debts of secured creditors over all other debts and statutory dues after the registration of security interest.

Section 35:  States that the provisions of the SARFAESI Act will have effect notwithstanding anything inconsistent with it contained in any other law for the time being in force.

Registration Act, 1908:

Section 71: Outlines the grounds on which a Sub-Registrar can refuse to register a document, which include reasons related to the proper identification of the property, language issues, and compliance with required formalities.

Karnataka Registration Rules, 1965:

Rule 171:  Enumerates specific reasons for which a Sub-Registrar can refuse to register a document, such as issues with language, unattested alterations, insufficient property description, and absence of required maps or plans.

Contentions of Appellant:

The petitioner argued that the SARFAESI Act provides that the rights of secured creditors take precedence over other debts and statutory dues. Therefore, the Sub-Registrar had no jurisdiction to refuse the registration of the sale certificate on the basis of pending Income Tax dues against the borrowers. The petitioner contended that he had complied with all necessary formalities for registration, including the payment of stamp duty and other fees. Hence, there was no valid ground under the Registration Act or the Karnataka Registration Rules for the refusal to register the sale certificate. The petitioner highlighted that the sale of the property had not been challenged by the borrowers before any judicial or quasi-judicial authority, indicating that the sale was uncontested and thus should be registered without hindrance.

Contentions of Respondents:

 The Additional Government Advocate, representing the Sub-Registrar, contended that the registration of the sale certificate could not be completed due to the pending Income Tax dues against the original borrowers. The respondent argued that these statutory dues needed to be cleared before the property could be registered as free from encumbrance. The respondent maintained that the Sub-Registrar was acting within his rights to ensure that all statutory dues were settled before registering the document, to prevent any legal complications arising from encumbrances on the property.

The counsel for Canara Bank supported the petitioner’s contention, emphasizing that the rights of the secured creditor under the SARFAESI Act override any other statutory dues, including those of the Income Tax Department. The Bank argued that once the property was auctioned and the sale certificate issued under the SARFAESI Act, the Sub-Registrar had no discretion to refuse registration based on unrelated statutory dues.

Court Analysis & Judgement:

The court emphasized the provisions of the SARFAESI Act, which prioritize the rights of secured creditors over other claims, including statutory dues. The court reviewed the grounds under which the Sub-Registrar can refuse registration. It found that the Sub-Registrar exceeded his authority by refusing registration on grounds not supported by the Registration Act or the Karnataka Registration Rules. The court referenced Supreme Court judgments, which assert that secured creditors’ rights under the SARFAESI Act override other statutory claims, including those by the Income Tax Department.

Therefore, The court allowed the writ petition, directing the Sub-Registrar to register the sale certificate without delay. A mandamus was issued to the Sub-Registrar to register the document immediately upon presentation of the court order. The court directed the State Government to issue a circular to all Sub-Registrars, clarifying the legal position and the limitations on their discretion to refuse registration. The State Government was ordered to report compliance with the circular issuance within eight weeks.

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Judgement Reviewed By- Antara Ghosh