Provisions of SARFAESI Act prevails over Chhattisgarh Audhyogik Bhoomi Avam Bhawan Prabandhan Nigam 2015

Parth Concast Ltd. Vs State of Chhattisgarh (Chhattisgarh High Court)

Chhattisgarh High Court held that the provisions contained in SARFAESI Act will prevail over Rules of 2015. Accordingly, the demand of transfer fee made by the CSIDC is not sustainable in law.

Facts-

The petitioner is a Company engaged in the business of producing steel and iron products. The Chhattisgarh State Industrial Development Corporation Limited (CSIDC) had allotted four parcels of land situated at the Industrial Development Center to M/s Brahaspati Iron and Steel Company Private Limited (BISCPL), which is engaged in manufacturing hot and cold rolled products of steel and ancillary purposes, on lease for a period of 99 years.

BISCPL took a loan from the State Bank of India, respondent No.5 after obtaining NOC from CSIDC against the creation of security interest over its leasehold rights in respect of the properties in question. BISCPL defaulted in repayment of its secured debt to respondent No.5 and declared BISCPL as NPA as per the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and informed CSIDC in advance about initiating a proceeding under the provision of Section 13(4) of the SARFAESI Act and for recovery of secured debt, took possession of the secured assets including the right to transfer by way of lease, assignment or sale for realizing the secured asset.

An e-auction sale notice u/s. 13(4) of the SARFAESI Act was published on 09.05.2015 for the sale/transfer of the leasehold rights. The petitioner participated in the e-auction and was declared a successful auction purchaser, and a sale certificate in respect of the above-mentioned properties was issued on 16.06.2015 upon payment of 25% of the total consideration amount to respondent No.5.

An application submitted by the petitioner to CSPDCL for a new HT connection was rejected by a letter dated 05.08.2015 as there was no lease deed in favour of the petitioner. The petitioner, under duress, paid the transfer fees for the transfer of lease in respect of plots of lands forming part of the lease deed dated 16.04.2004.

Conclusion-

We are of the considered opinion that Clause 3.4.2.11 is ultra vires to Section 35 of the SARFAESI Act and that the provisions contained in SARFAESI Act will prevail over Chhattisgarh Audhyogik Bhoomi Avam Bhawan Prabandhan Nigam 2015. Resultantly, we are of the opinion that demand of transfer fee made by the CSIDC is not sustainable in law.

It is, however, noticed that the petitioner had deposited transfer fee in respect of lease deed dated 16.04.2004, as it appears, without any demur, although stand is taken that such payment was made under duress without bringing on record relevant circumstance demonstrating the same. Therefore, at this juncture, we are not inclined to pass any direction for refund of the transfer fee made by the petitioner to CSIDC.

FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT

Heard Mr. S.P. Upadhyay, learned senior counsel assisted by Mr. Ankit Pandey, learned counsel for the petitioner. Also heard Mr. Jitendra Pali, learned Deputy Advocate General appearing for respondent No.1, Mr. Prafull N. Bharat, learned senior counsel assisted by Mr. Ayaz Naved, learned counsel, appearing for respondents No.2 to 4 and Ms. Sharmila Singhai, learned senior counsel assisted by Mr. P.R. Patankar, learned counsel, appearing for respondent No.5.

2. The petitioner is a Company registered under the provisions of the Companies Act, 1956 engaged in the business of producing steel and iron products. The case of the petitioner, as presented in the writ petition, is that the Chhattisgarh State Industrial Development Corporation Limited (for short, ‘CSIDC’) had allotted four parcels of land situated at Industrial Development Center, Borai, Village Rasmada, District Durg to one M/s Brahaspati Iron and Steel Company Private Limited (for short, ‘BISCPL’), who is engaged in manufacturing of hot and cold rolled products of steel and ancillary purposes, on lease for a period of 99 years. Four lease deeds were executed on 16.04.2004, 08.01.2007, 30.01.2009 and 21.05.2009, in respect of Plot Nos.77A, 77B, 78, 79, 80, 105, 106, 107, 108A, 108B & Part 81 & 104, Plot Nos.65-74 (zone-c); Plot Nos. Part 82, 83 to 87 & Part 99, 100 to 102, and Plot Nos.88 to 98 Part 99, respectively. Lease deed dated 16.04.2004 was for the period 16.04.2004 to 15.04.2103 in respect of 4.004 hectares; lease deed dated 08.01.2007 was for the period 08.01.2007 to 07.01.2106 in respect of 6.245 hectares; lease deed dated 30.01.2009 was for the period 30.01.2009 to 29.01.2108 in respect of 2.897 hectares; and lease deed dated 21.05.2009 was for the period 21.05.2009 to 20.05.2108 in respect of 4.00 hectares.

3. BISCPL took loan from the State Bank of India, i.e. respondent No.5 after obtaining No Objection Certificate (for short, ‘NOC’) from CSIDC against creation of security interest over its lease hold rights in respect of properties in question. The BISCPL defaulted in repayment of its secured debt to respondent No.5 and respondent No.5 declared BISCPL as Non Performing Asset (for short, ‘NPA’) as per the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘SARFAESI Act’) and informed CSIDC in advance about initiating proceeding under the provision of Section 13(4) of the SARFAESI Act and for recovery of secured debt, took possession of the secured assets including the right to transfer by way of lease, assignment or sale for realizing the secured asset. An e-auction sale notice under Section 13(4) of the SARFAESI Act was published on 09.05.2015 for sale / transfer of the lease hold rights in the above mentioned properties.

4. The petitioner participated in the e-auction and was declared successful auction purchaser, and accordingly, sale certificate in respect of above mentioned properties was issued on 16.06.2015 upon payment of 25% of the total consideration amount of Rs.3,20,00,000/- to respondent No.5. The sale certificate was duly stamped by the petitioner by paying Rs.80,00,000/- as stamp duty and Rs.10,24,170/- as other ancillary registration charges on 24.06.2015. The petitioner paid Rs.12,80,00,000/- to respondent No.5 as total consideration for purchase of lease hold rights in the above mentioned properties.

5. By a letter dated 22.06.2015, CSIDC was informed by the petitioner about the purchase of lease hold rights, and accordingly, request was made for substitution of its name in place of BISCPL. By another letter dated 04.07.2015, the petitioner requested CSIDC for substitution of its name in place of BISCPL in the lease deeds.

6. A request was again made by another letter dated 07.07.2015 for substitution of its name in place of BISCPL. Once again, the petitioner wrote a letter on 10.07.2015 to CSIDC for substitution of name of the petitioner in the lease deeds.

7. It was after many correspondences by the petitioner, by letter dated 27.07.2015, CSIDC informed the petitioner for the first time that the transfer of lease would be done in accordance with the provisions of Chhattisgarh Audhyogik Bhoomi Avam Bhawan Prabandhan Niyam, 2015 (for short, ‘Rules of 2015’).

8. After protracted correspondences as well as oral request, CSIDC issued four separate land transfer orders on 04.08.2015 demanding the petitioner to pay an amount totalling Rs.21,54,24,600/-.

9. In the meantime, an application submitted by the petitioner to Chhattisgarh State Power Distribution Company Limited (for short, ‘CSPDCL’) for a new HT connection was rejected by a letter dated 05.08.2015 as there were no lease deed in favor the petitioner. In such circumstance, the petitioner, under duress, paid the transfer fees for transfer of lease in respect of plots of lands forming part of lease deed dated 16.04.2004.

10. It is pleaded that the Chhattisgarh Environment Conservation Board (for short, ‘CECB’), by the letter dated 03.10.2015, had granted renewal of consent under Sections 25, 26 of the Water (Prevention and Control of Pollution) Act, 1974 (for short, ‘Act of 1974’) as well as under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 (for short, ‘Act of 1981’) and had also accorded approval of change of name from earlier BISCPL to the petitioner.

11. In the background of the above facts, the petitioner prayed for declaration of the provisions of the Rules of 2015, which are inconsistent with the SARFAESI Act, Transfer of Property Act, 1882 (for short, ‘Act of 1882’) and the Constitution of India as ultra-vires. Prayer was also made for quashing of the order dated 04.08.2015 issued by CSIDC and for substitution of name of the petitioner in place of BISCPL in the lease deeds for remaining lease hold rights over the property, and for refund of the transfer charges which the petitioner had deposited under duress for transfer of one of the parcels of lease hold properties.

12. No specific provision of Rules of 2015 was indicated in the prayer for declaration of the same as ultra-vires.

13. In the return filed by respondents No.2 to 4, it is stated that BISCPL was having only lease hold rights over the parcels of the land. The lease granted in favour of BISCPL was forfeited and cancelled in the year 2012-13 as it had breached the conditions of the lease. Against the orders of cancellation of lease dated 09.10.2012, 19.06.2013, 19.06.2013 and 19.06.2013, BISCPL had preferred an appeal, which was partly allowed by an order dated 31.08.2015, extending time for compliance of the terms of the lease deed. Even thereafter, there was no compliance by BISCPL in terms of the appellate order and therefore, the order of cancellation of lease deeds had attained finality.

14. It is pleaded that the orders of cancellation were forwarded to respondent No.5. Much after determination of the lease, auction sale was conducted on 12.06.2015 and thereafter, sale certificate was issued on 16.06.2015, and therefore, the auction sale made by the authorities on 12.06.2015 would not have any bearing in so far as lease hold rights are concerned.

15. It is further stated that respondent No.5 was aware of the fact that the auction purchaser has to pay transfer charges, lease transfer charges, stamp duty, registration charges along with other statutory or non-statutory duties, and therefore, specific terms and conditions with regard to the aforesaid were incorporated in the advertisement dated 09.05.2015 issued by respondent No.5. The petitioner was, thus, aware of the terms and conditions. The transfer fee is required to be deposited within 30 days, which period is extendable on request on payment of interest. In pursuance of the transfer order No.245 dated 04.08.2015, the petitioner deposited the requisite transfer fee in respect of Plot Nos.77A, 77B, 78, 79, 80, 105, 106, 107, 108A, 108B & Part 81 & 104 covered by lease deed dated 16.04.2004. However, transfer fee was not deposited in respect of transfer orders No.246, 247 and 248, all dated 04.08.2015, in respect of other lease deeds.

16. As no request was made for extension of time, subsequently, on 09.11.2016, acting on an application dated 06.07.2016 submitted by M/s Tirumala Balaji Smelters Private Limited, a lease deed was executed on 20.12.2016 for 2.10 hectares and the land was handed over to the said unit on 19.01.2017. Similarly, one M/s Balram Biotech Private Limited had submitted three different applications dated 21.10.2016 for a total 2.80 hectares, for which, Letter of Intent (for short, ‘LOI’) was issued on 10.01.2017 and as such, third party interest had been created in respect of property in question. It is stated that there is no merit in the petition and that apart, the writ petition is also liable to be dismissed on the ground of delay and laches as the order dated 04.08.2015 was challenged after more than one year and four months by filing the writ petition on 07.12.2016, that too, after complying with one transfer order dated 04.08.2015 by paying transfer fee.

17. Since the plots of lands were the property of respondent No.2, BISCPL could not have mortgaged and created any security interest over the land with respondent No.5. It is stated that ‘security interest’ can be created by the secured creditor on a property only to the extent the title vested with the borrower. As BISCPL was having only lease hold rights, any charge in terms of SARFAESI Act can be created only with respect to lease hold rights and not beyond it. The secured creditor, i.e., respondent No.5, on the date of e-auction was not having any title or right over the land in dispute because the lease deeds were cancelled. Since the lease deeds in favor of BISCPL were cancelled, any NOC granted in pursuance to the lease deed cannot be enforced after cancellation of the lease deed.

18. It is denied that respondent No.5 had duly intimated the respondents No.2 to 4 about initiation of proceedings under Section 13(4) of the SARFAESI Act and it is averred that respondent No.5 never intimated about any such proceedings initiated by it.

19. It is also pleaded that by the advertisement dated 09.05.2015, the properties of BISCPL were put to auction for recovery of the dues of respondent No.5 only, though indicating that BISCPL is having pending dues to the tune of Rs.22,92,830/- with CSIDC. Neither valuation of the property in the auction was made nor the transfer charges as stipulated in clause 13 of the advertisement was ever assessed by respondent No.5. It is pleaded that clause 3.4.2.1.1 deals with the situation where the property is purchased under the provisions of SARFAESI Act and it provides that in such cases, clause 3.4.2.1 to clause 3.4.2.5 of the Rules of 2015 would be applicable.

20. In the return filed by respondent No.5, it is stated that BISCPL, before creating the mortgage, had obtained NOC from CSIDC on 30.05.2009 with a condition that the charge of CSIDC would have priority and before initiating recovery proceedings, respondent No.5 would give three months prior notice to CSIDC. BISCPL had taken credit facilities from State Bank of Indore, which was subsequently acquired and merged with the State Bank of India on 28.07.2010 and all assets and liabilities of the State Bank of Indore had vested with State Bank of India. As BISCPL had defaulted in repayment of loan amount, BISCPL was declared as NPA on 29.07.2013. In compliance of the terms of the NOC, the Bank informed the CSIDC by letter dated 15.02.2014, which was duly served about initiation of recovery proceedings against BISCPL. However, the Bank was never informed by CSIDC that leases granted to BISCPL were cancelled. Even after notice under Section 13(2) of the SARFAESI Act was issued on 22.07.2014, no objections were raised.

21. It was further pleaded that on 12.12.2014, possession notice under Section 13(4) of the SARFAESI Act was issued and the Bank took symbolic possession of the lease hold properties mortgaged with respondent No.5 and the fact of taking symbolic possession was published in two leading newspapers having wide circulation in the locality i.e. Raipur and Durg. An e-auction notice of sale of lease hold rights was published, first on 11.02.2015, and then again on 09.05.2015. Even after publication of e-auction notices, the CSIDC did not intimate the Bank about cancellation of the lease deeds granted in favor of BISCPL. Rather, by a letter dated 05.06.2015, the General Manager of CSIDC, while acknowledging receipt of a letter dated 15.02.2014 by which the Bank had indicated about taking steps for recovery of dues, had requested the Bank to take steps for recovery of Rs.43,84,580/-, which was due to CSIDC from BISCPL for the period 01.01.2012 to 31.12.2015 along with outstanding loan amount. However, no intimation about cancellation of the lease deeds was given, which in essence, approved the steps taken by the Bank for recovery of the amount.

22. In compliance of the order dated 26.05.2015 (4 in number) issued by District Magistrate, Durg, possession of the lease hold properties were handed over to the authorized officer of the Bank on 17.06.2015 and the same, in turn, was handed over to the successful bidder, i.e. the petitioner, on 17.06.2015 itself. By the letter dated 25.06.2015, respondent No.5 informed the CSIDC that lease hold rights on the mortgaged property as well as plant and machinery had been sold by way of e-auction and the same were purchased by the petitioner on 12.06.2015, for which sale certificate was issued on 17.06.2015. It was also informed in the said letter that the auction purchaser was intimated about outstanding amount of Rs.43,84,580/-payable to CSIDC by BISCPL. Even after receipt of the said letter, CSIDC kept silent and did not inform the Bank about cancellation of lease deeds executed in favor of BISCPL. The four cancellation orders were never served upon respondent No.5. The orders, if at all sent, were sent to State Bank of Indore, which was no more in existence on 19.06.2013, and not to respondent No.5. Respondent No.5 came to know about cancellation of such leases by the CSIDC for the first time when these facts were brought before the Court by CSIDC.

23. It is pleaded that CSIDC having allowed the Bank to proceed with the recovery proceedings, the contention advanced that the Bank had no right to auction the lease hold rights, is wholly without any substance. It is stated that the petitioner was well aware about the terms and conditions enumerated in the auction notice, which stipulates that the purchaser shall bear the applicable stamp duty, additional stamp duty / transfer charges, lease transfer charges / registration charges, fees, etc. and statutory and non-statutory dues. In view of the stand taken in the return of CSIDC, it is stated that M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited are necessary parties.

24. In the return filed by the State / respondent No.1, it is stated that it relies on the return filed by respondents No.2 to 4, i.e. CSIDC.

25. Though one return was filed by respondents No.2 to 4 and another by respondent No.5, a rejoinder-affidavit is filed by the petitioner clubbing together the returns filed by respondents No.2 to 4 and by respondent No.5.

26. In the rejoinder-affidavit, it is stated that e-auction notice dated 09.05.2015 indicated that the title vested with BISCPL, and therefore, the plea taken by the CSIDC that BISCPL had no perfect title as lease deed was cancelled, is perverse. It is pleaded that the officials of the Bank and CSIDC are colluding with each other. It is stated if the lease deed was cancelled in the year 2012-13, then why CSIDC insisted upon payment of transfer charges. It is also pleaded that in view of Section 35 of SARFAESI Act, the provision of SARFAESI Act will prevail over the Rules of 2015. The petitioner was diligently pursuing the matter at the departmental level and failed to achieve any desired result, and therefore, the petitioner was compelled to send a notice dated 13.04.2016 under Section 80 of the Code of Civil Procedure, 1908 (for short, ‘CPC’), but no response was given to the same. It is pleaded that there is no transfer in the instant case and the petitioner has merely stepped into the shoes of BISCPL as it had acquired the property in terms of the SARFAESI Act.

27. Once the lease deeds are mortgaged after grant of NOC by the CSIDC, the same could not have been terminated by the CSIDC without consent of the Bank and there is no material on record to indicate that consent of the Bank was obtained. It is stated that to defeat the claim of the petitioner, CSIDC had passed the order dated 09.11.2016 in favour of M/s Tirumala Balaji Smelters Private Limited, executed the lease deed on 20.12.2016, handed over the land on 19.01.2017 and also executed LOI to M/s Balram Biotech Private Limited on 10.01.2017.

28. With regard to the plea taken by the Bank that M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited are necessary parties, it is stated that the same are misplaced and such LOI and lease deeds are non-est in law.

29. Mr. S.P. Upadhyay, learned senior counsel for the petitioner submits that Section 2(zf) of the SARFAESI Act would go to show that title and rights pass on to the auction purchaser and in the instant case, lease rights, which were mortgaged to the Bank, had passed on to the petitioner after mortgaged land was sold in an auction for enforcing security interest created in favour of the Bank, which was the secured creditor. The learned senior counsel has also drawn the attention of the Court to Section 35 of the SARFAESI Act to contend that the provisions of the Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instruments having effect by virtue of any such law. It is submitted that Rules 3.2.4.1, 3.4.2.5 and 3.4.2.11 of the Rules of 2015 are repugnant to SARFAESI Act as demand for payment of transfer fee is against the very object of the SARFAESI Act. It is contended that the petitioner having purchased lease hold rights of BISCPL, the petitioner had only stepped into the shoes of the erstwhile lessee, and therefore, it is a case of substitution of the name of petitioner in place of BISCPL. In support of his submissions, he has placed reliance on paragraph-26 of M/s Transcore v. Union of India & Another, reported in (2008) 1 SCC 125, paragraphs-46 & 47 of P.H. Paul Manoj Pandian v. P. Veldurai, reported in (2011) 5 SCC 214, paragraph-27 of Rajasthan State Industrial Development & Investment Corporation v. Subhash Sindhi Cooperative Housing Society Jaipur & Ors., reported in (2013) 5 SCC 427, paragraphs-11 & 13 of MGB Gramin Bank v. Chakrawarti Singh, reported in (2014) 13 SCC 583, paragraphs-48 & 49 of Punjab National Bank v. Union of India through its Secretary, reported in 2022 SCC Online 227, paragraphs-23, 24&26 of Krishna Rai (Dead) through Lrs. & Others v. Banaras Hindu University through Registrar & Others, reported in 2022 SCC Online SC 750.

30. Mr. Prafull N. Bharat, learned senior counsel, appearing for respondents No.2 to 4 submits that when it is an admitted position that the lease deeds executed in favour of BISCPL had been cancelled, the contention of the petitioner that it had stepped into the shoes of BISCPL is not tenable. It was made clear in the advertisement that transfer fee would be payable by the auction purchaser and petitioner being aware of such condition had participated in e-auction, and therefore, subsequently the petitioner cannot turn around and question the demand of transfer charge, more so, as the petitioner, without any demur, had paid the transfer fee in respect of one lease deed, which was executed earlier in favour of BISCPL. It is submitted that in the present factual matrix, adjudication as to the validity of the provisions of Rules of 2015 need not be considered as viewed from any angle, present is not a case of petitioner stepping into the shoes of the earlier lessee, i.e., BISCPL as there was no existence of a valid lease. It is also submitted that the petitioner having itself admitted that the third party rights had been created, the petitioner did not array M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited as parties. He relies on paragraph-6 of the judgment in Akhil Bhartiya Upbhokta Congress v. State of M.P. & Others, reported in (2011) 5 SCC 29 and paragraph-50 of City Industrial Development Corporation through its Managing Director v. Platinum Entertainment & Others, reported in (2015) 1 SCC 558.

31. Sharmila Singhai, learned senior counsel, appearing for respondent No.5 submits that a specific stand was taken by respondent No.5 that M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited are necessary parties in the proceedings and they having not been made parties, the writ petition is liable to be dismissed

32. We have considered the submissions of learned counsel for the parties and have perused the materials on record.

33. Materials on record would go to show that lease deeds executed in favor of BISCPL were cancelled, as against which, an appeal was preferred. The Appellate Court had extended time for compliance of the conditions of the lease to BISPCL. As there was no compliance even during the extended period, the order of cancellation of lease deeds had attained finality. The orders of cancellation were forwarded to respondent No.5. Respondent No.5 had pleaded that the same were not forwarded and served upon it and if at all the orders of cancellation were sent, it may have been sent to State Bank of Indore, which was merged with State Bank of India way back on 28.07.2010.

34. Clause 13 of the advertisement indicates that the purchaser shall bear the applicable stamp duties / additional stamp duty / transfer charges / lease transfer charges / Registration charges, fees etc. and also all the statutory / non-statutory dues, taxes, rates, assessment charges, fees, etc.

35. The e-auction sale notice indicates the name of the title holder as M/s Brahaspati Iron and Steel Company Private Limited.

36. Clause 3 of the e-auction sale notice indicated that to the best of knowledge and information of the authorized officer, there is no other encumbrance on the properties. It was also stated therein that the intending bidders should make their own independent inquiries regarding the encumbrances, title of properties put on auction and claims / rights / dues / affecting the property, prior to submtting their bid. It was also stated that the e-auction advertisement did not constitute and would not be deemed to constitute a commitment or any representation of the bank and that the property was being sold with all the existing and future encumbrances whether known or unknown to the bank. The authorized officer / secured creditor shall not be responsible in any way for any third party claims / rights / dues.

37. E-auction sale notice goes to show that outstanding dues for recovery of which property was being sold, as on 28.04.2014, was Rs.15,09,58,565.89 plus interest thereon with effect from 29.04.2014. Reserve price was set at Rs.12,80,00,000.00 and the property was auctioned at the reserve price.

38. At this juncture, it will be relevant to take note of clauses 3.4.1.1, 3.4.2, 3.4.2.1, 3.4.2.2, 3.4.2.3, 3.4.2.4, 3.4.2.5 and 3.4.2.11. They are reproduced as translated into English by the petitioner:

“3.4.1.1 – Transfer means

A. Transfer means that the original allotted / original allotted (leaseholder / lessee) of the land, shed-building has changed the nature of the organization and by making such change, the share / part of the original allotted / original allotters should be reduced to less by not remaining 51 percent. Provided that the change in the form of organization / formation in the formation of a company or partnership with a sole proprietorship or partnership from company shall not be considered as transfer, if the part / share of the original allotted remains 51 percent or more as sole or jointly in the organization.

B. There can be a person in cases of sole proprietorship, a single partner or more than one partner in partnership cases and one shareholder or more than one shareholder in cases of the company at the time of allotment and these are the original allotter (leaseholder / lessee).

C. After execution of deeds related to land transfer / transfer, in whose favor the transfer lease will be executed for the remaining period, they will become the original allotter (leaseholder / lessee) same as in clause (b) above and the sequence will be continuous, if the transfer takes place in the future in period of lease deeds.

Note: It is clarified that mere change in the name of the industry or change in the products of the industry will not be considered as land transfer / transfer.

3.4.2 – Transfer will be allowed subject to the following situations / conditions:

3.4.2.1- In cases where no building required for production except boundary wall has been constructed as per the proposed project report on the allotted plot, that is, even if the not suitable building is constructed for boundary wall / production work, the application for transfer of vacant plots, sheds, buildings will not be done under any situation. In such cases, such vacant plots / sheds buildings as the case may be, its possession will be taken immediately by the GM/CGM, District Trade and Industry Center / CSIDC and subsequently, its allotment will be as per the procedure prescribed elsewhere in these rules.

3.4.2.2 – In cases where there is a investment of minimum of 25 (twenty five) percent of the proposed project cost in the building head shown in the proposed project report on the allotted plot and in case of minimum 25 (twenty five) percent of the proposed investment in the plant and machinery head, in them, an amount equal to 25 (twenty five) percent of the prevailing land interest will be payable as transfer fee in the cases.

3.4.2.3- In cases where minimum 50(fifty) percent of the proposed project cost has been invested in the building head shows in the proposed project report on the allotted plot and minimum 50 (fifty) percent of the proposed investment in plant and machinery head, in those cases, an amount equal to 20 (twenty) percent of the then prevailing interest will be payable as transfer fee.

3.4.2.4- Cases in which the industry has been set up on the allotted land, i.e. the working or close industry after coming into production, in which the action of land use has been completed as per the Project Report (DPR) submitted at the time of allotment and whom the certificate of commencement of production by the department viz. Part-2 and production certificates have been issued and cancellation order has been issued in the case of closed industry, 15 (fifteen) percent of the land premium prevailing at the time will be payable as transfer fee.

3.4.2.4– In the case from 3.4.2.1 to 3.4.2.4 above, the rates of land transfer, maintenance charges, street light charges etc. after any such transfer will be applicable as per prevailing premium at that time. It will be mandatory to clearly mention in the amendment order / lease deed. In such cases, land rent, maintenance charges, street light charges etc. will be calculated by determining the prevailing premium in the case in a symbolic manner.

3.4.2.11- Even in cases of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act), the land transfer fee will be payable as per clause 3.4.2.1 to 3.4.2.5, as applicable above.”

39. Section 2(zf) of the SARFAESI Act defines “security interest”. Section 2(zf) is reproduced below:

“2(zf) “security interest” means right, title or interest of any kind, other than those specified in Section 31, upon property created in favour of any secured creditor and includes-

(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay and unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or

(ii) such right, title or interest in any intangible asset or assignment or licence of such ntangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset.”

40. Section 13(4) and 13(6) of the SARFAESI Act read as follows:

“13. Enforcement of security interest.-

x                      x                      x

x                      x                      x

(4) In case the borrower fails to discharge his liability in full within the period specified in sub- section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realize the secured asset;

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”

x                 x                  x

(6) Any transfer of secured asset after taking possession thereof or take over of management under sub- section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.”

41. Section 35 of SARFAESI Act reads as follows:

“The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

42. The substratum of argument of Mr. Bharat is that the petitioners cannot step into the shoes of BISCPL as the lease in favour of BISCPL was cancelled. That BISCPL took loan from respondent No. 5 after obtaining NOC from CSIDC against creation of security interest over the lease hold rights in respect of the properties in question is not in dispute. It is also not in dispute that the respondent No. 5 is a secured creditor.

43. In M/s Transcore (supra), the Hon’ble Surpeme Court held as follows:

“26. Section 13(6) inter alia provides that any transfer of secured asset after taking possession or after taking over of management of the business, under Section 13(4), by the bank/FI shall vest in the transferee all rights in relation to the secured assets as if the transfer has been made by the owner of such secured asset. Therefore, Section 13(6) inter alia provides that once the bank/FI takes possession of the secured asset, then the rights, title and interest in that asset can be dealt with by the bank/FI as if it is the owner of such an asset. In other words, the asset will vest in the bank/FI free of all encumbrances and the secured creditor would be entitled to give a clear title to the transferee in respect thereof.”

44. The decision in M/s Transcore (supra) lays down that once the secured creditor takes possession of the secured asset, such asset well vest in the secured creditor free of all encumbrances and that it can deal with such asset, as if it is the owner of such asset. Not only that, all rights in relation to the secured asset vest in the transferee as if the transfer has been made by the owner of secured assets. In MGB Gramin Bank (supra), it was observed by the Hon’ble Supreme Court that the vested right is a right independent of any contingency and it cannot be taken away without consent of the person concerned. Vested right can arise from contract, statute or by operation of law.

Cancellation of the lease deeds in favour of BISCPL does not alter the legal position as noticed herein above. Therefore, whether the lease deed in favour of BISCPL was cancelled or not is not a relevant consideration.

45. Clauses 3.4.2.1 to 3.4.2.4 lay down situations / conditions under which transfer would be allowed. Clause 3.4.2.5 lays down in what manner rates of land transfer, manufacture charges, etc. could be levied when transfer takes place in terms of Clauses 3.4.2.1 to 3.4.2.4. Perusal of the definition of transfer as defined in Clause 3.4.1.1 would go to show that the transfer that had taken place in the instant case is not the kind of transfer that is contemplated in Clause 3.4.1.1

46. Learned counsel for the petitioner has not been able to show how Clause 3.4.1.1 or Clause 3.4.2.5 is arbitrary and bad in law. Of course, application of Clause 3.4.1.1. or Clauses 3.4.2.1 to 3.4.2.5 in respect of a transfer taking place under the provision of SARFAESI Act is a different matter altogether.

47. In Rajasthan State Development Industrial Development & Investment Corporation (supra), the Hon’ble Supreme Court held that executive instructions which have no statutory force, cannot over­ride the law. In H. Paul Manoj Pandian (supra), it was held that once a law occupies the field, it will not be open to the State Government in exercise of its executive power under Article 162 of the Constitution to prescribe in the same field by an executive order. However, it is well recognized that in matters relating to a particular subject in absence of any parliamentary legislation on the said subject, the State Government has the jurisdiction to act and to make executive orders.

48. In Punjab National Bank (supra), the Hon’ble Supreme Court, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act read with provisions contained in Section 13 of the SARFAESI Act, observed that the secured creditor will have a First Charge on the Secured Assets and that Section 35 of the SARFAESI Act shall have overriding effect on all other laws. In that context, it was observed that provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in SARFAESI Act

49. In view of the above discussion, we are of the considered opinion that Clause 3.4.2.11 is ultra vires to Section 35 of the SARFAESI Act and that the provisions contained in SARFAESI Act will prevail over Rules of 2015.

50. Resultantly, we are of the opinion that demand of transfer fee made by the CSIDC is not sustainable in law.

51. It is, however, noticed that the petitioner had deposited transfer fee in respect of lease deed dated 16.04.2004, as it appears, without any demur, although stand is taken that such payment was made under duress without bringing on record relevant circumstance demonstrating the same. Therefore, at this juncture, we are not inclined to pass any direction for refund of the transfer fee made by the petitioner to CSIDC.

52. An interim order dated 03.02.2007 was passed to the effect that (i) the respondents shall not proceed further in the matter of transfer of lease hold rights of the subject land beyond the stage, which stood as on that date, (ii) no further coercive steps shall be taken against the petitioner to recover any transfer fee and (iii) the land shall not be subjected to any change or alteration for any purpose to any person.

53. On 07.05.2018, after hearing the learned counsel for the parties, I.A. Nos. 3 & 4, application for directions to respondents No.2 to 5 and application for grant of further interim relief were disposed of and it was directed that subject to deposit of amount of @ Rs.5 Lakhs per annum by the petitioner in respect of the plots, for which, the demand had been raised on 24.04.2018, the petitioner should not be dispossessed from any of the plots. It was further directed that the payment made by the petitioner should remain subject to final outcome of this petition.

54. Therefore, notwithstanding the fact that the petitioner had responded to the e-auction notice which contains, amongst others, requirement of payment of transfer fee, since the petitioner has not till date paid the transfer fee in respect of the other 3 lease deeds and the interest of the petitioner is protected till date by means of an interim order, the petitioner cannot be fastened with condition of e-auction notice requiring payment of transfer fee. As held in Krishna Rai (Dead) through Lrs (supra), principle of estoppel cannot over-ride the law.

55. In Udit Narain Singh Malpaharia v. Additional Member, Board of Revenue, reported in AIR 1963 SC 786, the Hon’ble Supreme Court has held that a necessary party is one without whom no order can be made effectively; a proper party is one in whose absence an effective order can be made but whose presence is necessary for a complete and final decision on the question involved in the proceeding.

56. It is an admitted position that third party rights had been created in favour of M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited, but they are not made party respondents to the proceedings. As such, no adverse orders can be passed against M/s Tirumala Balaji Smelters Private Limited and M/s Balram Biotech Private Limited in their absence.

57. Accordingly, the CSIDC is directed to execute the lease deeds in favour of the petitioner for the remaining terms of the original lease deeds based on the sale certificates issued. However, area of land in respect of which third party right had been created shall be excluded from the original area for which lease deeds were earlier executed.

58. We further direct that the registration and other statutory charges required for the lease deeds to be executed will be borne by the petitioner. The amounts paid by the petitioner in terms of the interim order dated 07.05.2018 shall be adjusted towards payment of registration fees.

59. The writ petition is allowed as indicated above.