E-auction to be considered ‘open market sale’ for exemption from scrutiny under Stamps Act: High court of Calcutta
Not only court sales and company sales but any open sale by any authority by public e-action on sufficiently wide circulation worth the name, including sales under the SARFAESI Act, come within the purview of “open market sales”, thus excluding such sales from the scrutiny contemplated in Section 47A of the Stamp Act This was decided in the case of Ballyfabs International Limited and another Vs. The State of West Bengal and others [WPA No. 7006 of 2020 With IA No: CAN 1 of 2020] In the High Court at Calcutta by Hon’ble Judge Sabyasachi Bhattacharyya. The facts of the case are that the petitioners purchased the property in a public e-auction conducted by the IDBI Bank under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for a consideration of Rs.14,01,00,000/-. In a suit filed against IDBI, the Registrar claimed that he was entitled to re-evaluate the property. The present writ petition has been filed for a direction on the Registrar of Assurances to accept the value mentioned in the sale certificate issued by the IDBI Bank Limited that is, Rs. 14,01,00,000/- and to assess the stamp duty and registration fee accordingly without initiating a fresh enquiry for re-evaluation. The question which arises in the present writ petition is whether the e-auction sale, in which the petitioners purchased the property-in question, was an open market sale within the purview of Section 16B of the Indian Stamp Act, 1899 thus, exempting the instrument of such sale from assessment by the registering officer under the Registration Act, 1908, under Section 47A of the Indian Stamp Act. The counsel for the petitioner cites a Special Bench judgment of this court, rendered in State of West Bengal vs. Sati Enclave, reported at (2010) 3 CHN 651 and states that the said judgment was rendered on the premise that open market sales are exempted from scrutiny under Section 47A, although, in the particular case, a court sale was under consideration. As such, it is contended that the ratio of the said report cannot be restricted merely to court sales but applies to all open market sales. The state, on the other hand, contended that the reserve price stood substantially reduced from Rs. 17 crore to Rs. 14 crore, upon which the petitioner emerged as a successful bidder by quoting an amount which is an aggregate of the reserve price and the minimum bid increment amount. It is argued that the valuation of the subject property could not have been scaled down by Rs.3 crore within a period of five months under normal circumstances. Thus, it is argued that the principle of “open market sale” cannot be invoked in the facts and circumstances of the case. The consideration at which the subject property was sold did not match the valuation made by the bank. The court observed that the entire arguments of the parties, as well as the judgments of the coordinate Bench relied on by the State-respondent, hinge around the interpretation of aforementioned Sati Enclave case. It further stated “if the sale-in-question, in the first place, is an open market sale, upon due publication of notice and advertisement in newspapers, it is obvious that the consideration obtained for the sale was actually the “market value” of the property in the true sense of the term. Thus, there would not arise any requirement to resort to a legal fiction on the basis of other contemporaneous transactions to justify an assessment under Section 47A.” The court said that as the decision made here was being contrary to the ratio laid down in Sati Enclave, it is constrained to respectfully disagree with the same. Accordingly, the matter was referred to a larger Bench.
In the High Court at Calcutta Constitutional Writ Jurisdiction Appellate Side The Hon’ble Justice Sabyasachi Bhattacharyya WPA No. 70020 IA No: CAN 20 Ballyfabs International Limited and another Vs. The State of West Bengal and others For the petitioners For respondent no.4 For the State Mr. Dhruba Ghosh Mr. Rupak Ghosh Mr. Pradip Kumar Sarawagi Mr. Surajit Auddy Ms. Swapnalekha Auddy Mr. Abhrotosh Majumdar Mr. Ayan Banerjee Mr. Avra Mazumder Hearing concluded on Judgment on Sabyasachi Bhattacharyya J: IA No: CAN 20 is disposed of in view of the urgency involved and the writ petition is taken up for hearing. 2. The question which arises in the present writ petition is whether the e auction sale in which the petitioners purchased the property in question was an open market sale within the purview of Section 16B of the Indian Stamp Act 1899 thus 2 exempting the instrument of such sale from assessment by the registering officer under the Registration Act 1908 under Section 47A of the Indian Stamp Actfor a consideration of Rs.14 01 00 000 . In view of the Bank not being willing to execute a conveyance in the format suggested by the petitioners petitioner no.1 filed a suit bearing CS No. 64 of 2018 for declaration and mandatory injunction to approve of the draft conveyance forwarded by the petitioners. In the suit the Bank agreed to execute the conveyance and the learned Single Judge taking up the suit and connected application directed execution of the conveyance by the Registrar of Assurances. 5. Subsequently the Registrar claimed that he was entitled to re evaluate the property. Upon hearing the Registrar the Trial Judge declined to give any further directions in the suit since the Registrar was not a party thereto. 3 6. The petitioners preferred an appeal from the said order. The matter was ultimately referred on a question of law to a Division Bench of this court on August 14 2020 which observed that the primary question raised regarding the stamp duty payable for such sale was not gone into and the petitioners were left free to avail other remedies. 7. The present writ petition has been filed for a direction on the Registrar of Assurances to accept the value mentioned in the sale certificate issued by the IDBI Bank Limitedthat is Rs. 14 01 00 000 and to assess the stamp duty and registration fee accordingly without initiating a fresh enquiry for re evaluation. Learned counsel for the petitioners cites a Special Bench judgment of this court rendered in State of West Bengal vs. Sati Enclave reported at 2010) 3 CHN 651. In the said case a question arose whether the provisions contained in Section 47A of the Indian Stamp Act read with Rule 3 of the West Bengal Stamp Prevention of Under valuation of Instruments) Rules 2001 are applicable to an instrument executed pursuant to an order of sale passed by a civil court in a suit for partition which was conducted by a receiver appointed by the civil court by auction after publication in newspapers. While deciding the said case the Special Bench considered V.N. Devadoss vs. Chief Revenue Control Officer Cum Inspector and others 4 reported at7 SCC 438. The Special Bench went on to hold that the provisions of Section 47A do not apply to open market sales. The Bench considered Section 2(10) and Section 47A as well as Section 2(16B) of the Stamp Act and held that if the legislature had intended that Section 2(16B) was to apply to open market sales also the legislature would have made a separate or specific provision regarding determination of the price of the property being sold in open market. Learned counsel argues that the said judgment was rendered on the premise that open market sales are exempted from scrutiny under Section 47A although in the particular case a court sale was under consideration. As such it is contended that the ratio of the said report cannot be restricted merely to court sales but applies to all open market sales. 10. The Supreme Court in V.N. Devadoss’s caseconsidered Section 47A and observed that there must be a reason to believe that the market value has not been properly set forth in the instrument to initiate an enquiry under the said section. It is not a routine procedure to be followed in respect of each and every document of conveyance presented for registration without any evidence to show lack of bona fides of the parties by attempting fraudulently to undervalue the subject of 5 conveyance with a view to evade proper stamp duty and thereby causing loss to the revenue. 11. The Supreme Court thus went on to observe that the properties which were disposed of in the said case by orders of the BIFR and AAIFR on the basis of value fixed by an Assets Sales Committee were offered for sale in the open market and bids were invited. Thus the market value which could have been fetched if sold in the open market on the date of execution of the instrument of conveyance was the yardstick followed and there was no possibility of any under valuation. In the absence of any scope for entertaining a doubt of under valuation Section 47A would have no application it was held. 12. Learned counsel for the petitioners further submits that the Registrar of Assurances in seeking to undertake an exercise under Section 47A relied on two Single Bench decisions of this court being the judgment dated February 18 2020 passed in APO No. 2217and the judgment dated January 25 2017 passed in WP No. 1236(W) of 2017was restricted to court sale by a receiver. However it is argued that such ratio is not borne out by Sati 6 Enclave which refers to open market sales and dealt with court sales in such context. The learned Single Judge in the said judgments held that sales under the SARFAESI Act are on the same footing as transactions between two private individuals which ratio does not hold true it is contended in view of the principles enunciated in V.N. Devadossand Sati Enclaveof the SARFAESI Act which provides that in case a borrower fails to discharge liability in full within the period specified in Section 13(2) a secured creditor may take recourse to take possession of the secured assets of the borrower including the rights to transfer by way of lease assignment or sale for realizing the secured assets to recover its secured dues. 14. Rule 8(5) of the SARFAESI Rules provides that before effecting sale of immovable property referred to in Rule 9(1) the Authorized Officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor fix the reserve price of the property and may sell the whole or any part of the immovable property secured assets by any of the methods provided therein. The first proviso to Rule 9(2) clarifies that no such sale shall be confirmed if the amount of sale price is less than the reserve price. It is argued that 7 the reserve price is fixed merely on the basis of valuation of the property by an approved valuer in consultation with the secured creditor. In the present case the reserve price stood reduced from Rs.17 crore to Rs.14 crore as appearing from the three relevant tender notices. 15. Learned counsel for the State argues that the petitioner had quoted an amount which was basically an aggregate of reserve price and the minimum bid increment amount. As such it is argued the minimal extent of public participation in the bid is required to be looked into. 16. It is reiterated by the State that the minimum price at which the property could be sold was substantially scaled down. Reserve price cannot be treated as market value for the purpose of determination of stamp duty since it is not synonymous with valuation of the property. 17. Learned counsel argues that a sale made by an Authorized Officer under the SARFAESI Act and Rules cannot be treated as a sale made by the 18. Learned counsel submits that in Sati Enclavethe Special Bench was considering a court sale and stipulated that the sale must be conducted by a court through its officers and that the sale must be made court. in open market. 8 19. A co ordinate Bench in Anil Kamal Singh vs. The State of West Bengal & Ors.held that an Authorized Officer acting under the provisions of the SARFAESI Act cannot be said to be a court and that the evil of under declaring the actual sale price at the time of registration and therefore evading the actual stamp duty payable is sought to be arrested by the introduction of Section 47A. 20. The learned Single Judge in Anil Kamal also considered Sati Enclave and held that the judgment is not applicable to a sale made by an Authorized Officer under the SARFAESI Act and Rules. 21. A similar view was taken by the co ordinate Bench in case of Vitarich Agro Food India Limited vs. The State of West Bengalof 2017] as well as in Glovi Infracon LLP vs. Inspector General of Registration C.S.R. & Anr.and in VPH Real Estate Pvt. Ltd. & Anr. vs. Directorate of Registration & Stamp Revenue Finance Dept. Ors.the value of the property was fixed by the Asset Sale Committeewhich consisted of members such as representatives of IDBI debenture holders Government of West Bengal and Special Director of BIFR. Thus the ratio laid down therein cannot assist the petitioner it is submitted. 9 23. In the judgment rendered by the Division Bench in Sudipta Traders Private Limited vs. State of West Bengal and otherson February 18 2020 it was held that since the sale of the asset was made pursuant to an auction conducted by the Recovery Officer attached to the Debts Recovery Tribunal a sale certificate obtained by a purchaser at such a sale becomes the veritable deed of conveyance which may be registered under Section 89(4) of the Registration Act 1908. In the said case the sale was not made by an Authorized Officer of a bank under the SARFAESI Act. 24. Learned counsel for the State contends that the reserve price stood substantially reduced from Rs. 17 crore to Rs. 14 crore upon which the petitioner emerged as a successful bidder by quoting an amount which is an aggregate of the reserve price and the minimum bid increment amount. It is argued that the valuation of the subject property could not have been scaled down by Rs.3 crore within a period of five months under normal circumstances. Thus it is argued that the principle of “open market sale” cannot be invoked in the facts and circumstances of the case. The consideration at which the subject property was sold did not match the valuation made by the bank. 25. Thus it is submitted that the writ petition ought to be dismissed. 10 26. As far as the judgments relied on by the parties are concerned Glovi Infracon LLP did not lay down any ratio as such but merely followed a previous judgment of the same co ordinate Bench rendered in VPH Real Estateon the other hand the learned Single Judge merely observed that the Authorized Officer under the SARFAESI Act is not a court and distinguished Sati Enclaveon the ground that the said judgment was rendered in respect of a court sale. The Division Bench judgment in Sudipta Traderswas considering the question as to whether the sale certificate issued by a Recovery Officer under the Recovery of Debts due to Banks and Financial Institutions Act 1993 was to be registered without calling into question the quantum of the purchase money. The Division Bench held that it was not necessary to have any deed of conveyance prepared for the purpose of perfecting the sale since the certificate of sale was conclusive proof of such sale. As such the said Division Bench judgment is not directly relevant for the present context particularly since the parties agreed to the execution of a sale deed which agreement was crystallized in the order passed by this court in a suit. 28. In Anil Kamal Singh the learned Single Judge the view of the Registering Authority that as the property was not sold by a court or by 11 a Collector or a Revenue Officer stamp duty was chargeable on assessment under Section 47A. The premise on which the judgment in Anil Kamal Singh was rendered was that Sati Enclave referred to a court sale and an Authorized Officer acting under the provisions of the SARFAESI Act cannot be said to be a court. 29. The respondents rely on Ram Kishun and others vs. State of Uttar Pradesh and others reported at 11 SCC 511 in support of the proposition that the word “value” means intrinsic worth or cost or price for sale of a property. It was observed that the concept of reserve price is different from valuation of the property. Since an invitation to tender is not an offer but an attempt to ascertain whether an offer can be obtained with a margin it cannot be equated with valuation which is a question of fact to be fixed on relevant material. 30. There cannot be any quarrel with such proposition. 31. The entire arguments of the parties as well as the judgments of the co ordinate Bench relied on by the State respondent hinge around the interpretation of Sati Enclaveand V.N. Devadossthe Special Bench was considering the applicability of Section 47A of the Indian Stamp Act to a court sale in a suit for partition and a sale in course of liquidation proceedings before 12 the company court respectively by auction and advertisement. The Special Bench in paragraph no.14 of the judgment carefully considered the rival submissions as well as the ratio laid down in V.N. Devadoss supra). The Bench considered the definition of “conveyance” as stated in Section 2(10) of the Stamp Act Section 47A of the Stamp Act and the scope of operation of such provisions. 33. In paragraph no. 16 of Sati Enclave the provisions of Section 2(16B) Section 27 Section 47A and Section 75 of the Indian Stamp Act were considered along with Rule 3(1) of the West Bengal Stamp Prevention & Under valuation of Instruments) Rules 2001 of the 2001 Rules lays down the manner of determination of market value and furnishing of particulars relating to any property. 34. In conclusion keeping in mind the object of insertion of Section 47A the Special Bench held that Rule 3 of the 2001 Rules provides for determining the market value of the property where the Registering Authority has reason to believe that the market value of the property was not truly set forth in the instrument executed at a private sale and the Registering Officer is to find out what price the property would have fetched or would fetch if sold in open market on the date of execution of the instrument but when the property is sold in the open market no 13 such fiction is required to be provided for determining the price it is thus obvious that the definition is not to apply if the property is actually sold in the open market. 35. The Special Bench in paragraph nos.24 and 25 compared between a private sale where the legislature wanted the Registering Authority to find out the market value of the property and an open market sale. 36. The Special Bench categorically found that if the legislature had intended that Section 2(16B) of the Stamp Act was to apply to open market sales also the legislature would have made a separate or specific provision regarding the determination of the price of the property being sold in open market. The expression “if sold in open market” pre supposes that the property was not sold in open market and therefore the legislature made the provision of Section 2(16B). The language of Rule 3 of the 2001 Rules also buttresses the view as per the Special Bench. None of the four methods of determining the value of the property it was held refers to value fetched at an open market sale. On such premise the Special Bench relied on Devadoss’s case and held that the legal fiction created for ascertaining the market value in respect of private sales did not apply to open market sales. 37. Hence the pre dominant ratio in Sati Enclave was that Section 47A is not attracted to open market sales even without reference to 14 court sales. Only consequently in paragraph no.27 of Sati Enclave supra) the Special Bench held that a court sale being an open market sale also did not attract Section 47A. 38. In fact the Special Bench stipulated that for a court sale to satisfy the requirement of an open market sale two conditions shall have be satisfied: a) There must be wide publicity of the proposed sale and particularly there shall be publication of advertisement in at least one newspaper having wide city town district b) The purchaser of the property must not be connected with or related to the Authority Officer conducting the sale. 39. The above conclusions would equally apply to sales conducted by the company court after publication of advertisement in a widely circulated newspaper the Special Bench held. 40. In V.N. Devadossthe Supreme Court held that market value is a changing concept. In the said case the property was offered for sale in the open market on a value fixed by the Assets Sales Committee pursuant to orders of BIFR and AAIFR. Thus it was observed there is no 15 correct price. question of any intention to defraud the revenue or non disclosure of the 41. Thus both the Special Bench and the Supreme Court went on to lay down the ratio that an open market sale by its implicit nature cannot create a doubt as to the consideration of the property thus excluding Section 47A of the Stamp Act. 42. Even the language of Section 47A of the Stamp Act indicates that the pre requisite of the exercise of ascertainment of market value of the property was that the Registering Officer must have reason to believe that the market value of the property has not been truly set forth in the instrument presented for registration. 43. Section 2(16B) of the Stamp Act defines market value in relation to any property which is a subject matter of any instrument as the price which such property would have fetched or would fetch if sold in open market on the date of execution of such instrument. 44. Thus a conjoint reading of the provisions of the Stamp Act clearly point in the direction that the exercise under Section 47A merely creates a fiction of the actual market value. Such ascertainment by the Registering Officer under Section 47A would only be occasioned if there was a 16 reason to believe that the market value had not been truly set forth in the instrument presented for registration. Only in case of such doubt would the Registering Officer resort to the yardsticks stipulated in the said section to arrive at a market value on the basis of a fiction derived from contemporaneous sales in nearby properties. 45. However if the sale in question in the first place is an open market sale upon due publication of notice and advertisement in newspapers it is obvious that the consideration obtained for the sale was actually the “market value” of the property in the true sense of the term. Thus there would not arise any requirement to resort to a legal fiction on the basis of other contemporaneous transactions to justify an assessment under Section 47A. 46. Hence with utmost respect and humility the decisions arrived at by the learned Single Judge in Anil Kamal Singh Vitarich Agro VPH Real Estate Private Limited and Glovi Infracon LLP were based on a misdirected interpretation of the ratio laid down in Sati Enclaverelying on V.N. Devadosswas clearly that Section 47A was not attracted to an open market sale irrespective of whether the sale was ordered by a court or in respect of a Company Act proceeding. The conclusion that the said section is not applicable to a court sale was 17 only a corollary to the finding that a court sale is also an open market sale thus justifying the finding that Section 47A also did not operate in case of court sales. However as per the chain of logic followed in Sati Enclave the first deduction was that Section 47A of the Stamp Act is not attracted in case of any open market sale and consequentially that a court sale being an open market sale also gets similar benefit. However with due respect the co ordinate Bench judgments adopted a converse line of reasoning. 48. In the present case the materials on record clearly show that not only one but three public e notices were issued for sale of the subject property respectively on August 25 November 3 and December 31 2017. Such notices were published in two widely circulated newspapers in the city and the State in all the three cases. 49. As pointed out by the State respondent itself and vindicated in Ram Kishun valuation of a property is not synonymous with reserve price. The reserve price is fixed on an appropriate assessment by a valuer while valuation is the actual market price which might be derived from the market itself. Thus the disputed sale being a widely circulated open market sale as envisaged in Sati Enclaveand V.N. Devadoss supra) there arose no question of resorting to any further legal fiction on the basis of contemporaneous transactions regarding nearby 18 properties in an exercise of ascertainment under Section 47A. Such an assessment would be superfluous and uncalled for amounting to beating about the bush whereas the bird itself was at hand the market value having been determined by the market itself. 50. The reduction of reserve price cannot be a valid ground for challenge to the consideration price in the present case rather the Authorized Officer was compelled to so reduce in view of no bid being offered in the market for the property in question despite widely circulated public e auctions. This is only a commentary on the demand for such property in the market which is the ultimate determinant of the market price. As argued by the State respondent itself quite correctly the reserve price was entirely different from market value. Thus the reserve price or reduction therein could not have any bearing on the actual market price obtainable for the property in the open market. Hence the only determinants as stipulated in Sati Enclavebeing wide circulation in more than one newspaper and absence of relation between the purchaser and the Authorized Officerwere fully satisfied in the present case. 51. It may be noted here that relying on the ratio decidendi of Sati Enclave supra) not only court sales and company sales but any open sale by any authority by public e action on sufficiently wide circulation worth the 19 name including sales under the SARFAESI Act come within the purview of “open market sales” thus excluding such sales from the scrutiny contemplated in Section 47A of the Stamp Act. 52. Hence the view taken by the learned Single Judge in Anil Kamal Singh supra) Vitarich AgroVPH Real Estate Private Limitedand Glovi Infracon LLP being contrary to the ratio laid down in Sati EnclaveI am constrained to respectfully disagree with the same. 53. Accordingly the matter may be referred to a larger Bench to be constituted by the Hon’ble the Chief Justice on the following question of law: Whether a sale conducted by an Authorized Officer under the SARFAESI Act 2002 is an open market sale and is thus excluded from the scrutiny contemplated in Section 47A of the Indian Stamp Act 1899