A charge cannot be enforced against a transferee if he has had no notice of the same

Bombay High Court: While relying upon the Supreme Court decision in State of Karnataka v. Shreyas Papers Pvt. Ltd., 2006 (1) SCC 615 the Division Bench comprising of S. C. Dharmadhikari, B.P. Colabawalla, JJ. held that no charge can be enforced against a property legitimately purchased for consideration by the transferee if he has had no notice, either actual or constructive, of the charge.

In the instant case, when a defaulter company could not repay the loan taken from the respondent bank, the bank took physical possession of a property belonging to the defaulter company under Section 13(4) of the SARFAESI Act and invited offers for sale of the said property. On 1st September, 2010 the petitioners placed their bid for purchasing the property at Rs. 11,00,29,000. Thereafter, a Deed of Conveyance was registered in favour of the petitioners with the Registrar of Assurances on 10th March, 2011. At the time of registration, the petitioners perused the 7/12 extract relating to the property and learnt that there was an encumbrance of Rs.18,38,709 of the Sales Tax Department on the property. The petitioners keeping in mind the magnitude of the investment already made, accepted the conveyance with the encumbrance of the Sales Tax Department. At a later stage, the petitioners were informed by the Sales Tax Department about another claim of the Department amounting to Rs. 28 crores due on the property. In this backdrop, the petitioners filed a petition with the Bombay High Court seeking a writ of mandamus directing Sales Tax Department to refrain from asserting any charge on the property.

The High Court referred to Section 100 of the Transfer of Property Act, 1882 that provides that no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge. The Court noted that chronology of events clearly indicate that the purchase of the property was done by the petitioners before the alleged dues of the Sales Tax Authorities to the extent of Rs.28 crores was brought to their notice. The Court further observed that it was not even the case of the Sales Tax Department that the petitioners were either informed or had constructive knowledge of their dues, except to the extent of Rs.18,38,709. Therefore, the Court held that the Sale Tax Authorities cannot recover their dues from the Petitioners by enforcing their charge against the said property. The Court however clarified that their order and direction does not mean that the Sales Tax Authorities cannot proceed against the defaulter company. [Sonoma Management Partners Pvt. Ltd. v. Bank of Maharashtra, 2016 SCC OnLine Bom 9649, decided on 22nd November, 2016]