Can't Deny Registration Of Property Which Is Purchased In Auction On The Ground That Income Tax Dues Are Pending Against Original Borrowers: Karnataka HC

The Karnataka High Court has held that a Sub-Registrar cannot refuse to register a sale certificate issued by the bank to an auction purchaser of property on the ground that certain claims of the Income Tax Department are pending against the original loan borrowers.

A single judge bench of Justice M Nagaprasanna allowed a petition filed by T Bharathgowda and directed the Sub-Registrar to register the document brought before him by the petitioner forthwith, the moment a copy of this order is brought to his notice, without any delay.

The petitioner had argued that a proceeding under the SARFAESI Act has precedence over any other law. The right of the secured creditor overrides every right of the borrower over the property. The Sub-Registrar had no jurisdiction to deny registration of documents after compliance with every necessary nuance of registration. Citing an unjustifiable reason as dues of the Income Tax Department by the borrowers can never be a ground to deny registration.

The government advocate contended that the Sub-Registrar is not in a position to register the sale certificate as the Income Tax dues of the borrowers of the property are still pending.

It was argued that they are statutory dues and unless the statutory dues are cleared by the borrowers, the property would not become free from encumbrance and if the property would not become free from encumbrance, the Sub-Registrar would not register the document.

The bench noted that Section 26E of the SARFAESI Act mandates priority to secured creditors over any other law for the time being in force after the registration of security interest. Section 35 of the Act mandates that the SARFAESI Act will have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Further, it said that under the Karnataka Registration Rules, 1965, Chapter-XXIV of the Rules deals with refusal to register. Rule 171 therein deals with reasons for refusal to register. Then it said “The refusal to register a document as observed is dealt with under Section 71 of the Registration Act and Rule 171 of the Rules, a perusal of which will nowhere create any impediment for the 2nd respondent/SubRegistrar to register the said document. All the nuances necessary for registration have been complied with by the petitioner.”

It added “The reason for denial of registration by respondent No.2 – Sub-Registrar is that the dues of the Income-Tax Department are pending against the borrowers. In the considered view of this Court, in the light of Section 35 of the SARFAESI Act, 2002 the said reason though not in writing could not have been projected by the Sub-Registrar to deny registration.”

Placing reliance on an Apex court judgment the court held “The SubRegistrar, though not in writing, orally refused to register the document on the score that dues of the Income-Tax Department are pending against the borrowers, is a reason which is unavailable to the Sub-Registrar, even if it were to be in writing.”

Further, it said “The Sub-Registrar can act only within the four corners of the Registration Act and the Registration Rules framed by the State. If none of the circumstances under Rule 171 of the Rules are found, the Sub-Registrar has no jurisdiction to refuse registration of a document; the document in the case at hand is the sale certificate.”

The bench observed that unless the Sub-Registrar notices any violation as obtained under Rule 171 of the Rules, the Sub-Registrar does not have jurisdiction to refuse registration of a document.

It then directed the State Government to issue a necessary circular in terms of Rule 171 of the Rules and the law laid down by the Apex Court in the judgment above.

It said, “So that every person who goes for registration of documents should not be denied registration except in accordance with the observations supra as acts of Sub-Registrars are driving every person who is denied registration to the doors of this Court unnecessarily and if the Sub-Registrar would not register a document, if it is found to be in tune with law, the delay in registration would be attributable only to those Sub-Registrars, who will be saddled with exemplary costs when such cases are brought before this Court seeking a direction for registration of a document.”

Accordingly, it allowed the petition.

Appearance: Advocate Swaroop S for Petitioner.

AGA Navya Shekhar FOR R1 AND R2.

Advocate Vignesh Shetty for R3.

Citation No: 2024 LiveLaw (Kar) 238

Case Title: T Bharathgowda AND State of Karnataka

Case No: WRIT PETITION No.7872 OF 2024

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