The present appeal before the Hon’ble Supreme Court of India in the matter of the ‘State of Punjab & Anr. v. M/s Ferrous Alloy Forgings Private Limited & Ors. [Civil Appeal No. 12527 of 2024 arising out of the SLP(C) No. 23347 of 2014]’ (“SC Appeal”) has been filed by the State of Punjab against the order dated November 28, 2013 passed by the High Court of Punjab and Haryana (“P&H HC”) in C.W.P No. 11055/ 2001, wherein the registrar was directed to:

• handover the original sale certificate to Ferrous Alloy Forgings Private Limited (“Auction Purchaser”);
• send the copy of the sale certificate to the sub-registrar under Section 89(4) of the Indian Registration Act, 1908; and
• refund the stamp duty deposited by the Auction Purchaser pursuant to the order passed by the company judge of the P&H HC within a period of 1 month.

Key Facts: M/S Punjab United Forge Limited (“PUFL”) was ordered to be wound up by the company judge of the P&H HC and as a result, Industrial Finance Corporation of India (“IFCI“) and Andhra Bank were granted permission to sell the properties mortgaged and hypothecated by PUFL with IFCI and Andhra Bank, respectively. IFCI invited bids for the sale of assets (both movable and immovable) of PUFL, wherein one sister concern of the Auction Purchaser had offered the highest bid. The auction sale was confirmed in favour of the Auction Purchaser by the official liquidator and also by P&H HC.

The Auction Purchaser had moved an application before the company judge of P&H HC for execution of the conveyance deed in relation to the auctioned properties on the grounds that the sale consideration was paid by the Auction Purchaser and that the directors and chairman of the sister concern and the Auction Purchaser are the same. The application was rejected by the company judge of P&H HC; however, the same was allowed by the division bench of the P&H HC in appeal.

Thereafter, the Auction Purchaser filed an application under Order XXI Rule 94 of the Code of Civil Procedure, 1908 (“CPC”) requesting the issuance of the sale certificate in favour of the Auction Purchaser. P&H HC directed the Auction Purchaser to pay stamp duty, without considering the value of the immovable assets forming part of the auctioned properties. Accordingly, the value of the movable assets ascertained by the Auction Purchaser for the payment of stamp duty was Rs. 54.67 Lakhs. However, the registrar directed the Auction Purchaser to pay stamp duty on the amount of Rs. 2.25 Crores, which was the value of the immovable property in the auction.

Aggrieved by the order passed by the registrar, the Auction Purchaser filed a writ petition before the division bench of P&H HC and in this regard, P&H HC opined that the High Court and the registrar are only required to issue the sale certificate and send a copy of the same to the sub-registrar in accordance with the mandate contained in Section 89(4) of the Indian Registration Act, 1908. The responsibility of whether the sale certificate is to be stamped or not rests with the successful auction purchaser. State of Punjab, aggrieved by the order of the division bench of P&H HC, filed SC Appeal before Hon’ble Supreme Court of India.

Judicial precedents: Hon’ble Supreme Court of India relied upon its decision in ‘Municipal Corporation of Delhi v. Pramod Kumar Gupta, AIR 1991 SC 401’, ‘Smt. Shanti Devi L. Singh v. Tax Recovery Officer and Others, AIR 1991 SC 1880’, ‘B. Arvind Kumar v. Government of India and Others (2007) 5 SCC 745’, ’M/s Esjaypee Impex Private Limited v. The Asst. General Manager and Authorised Officer Canara Bank, (2021) 11 SCC 537’, and ‘Inspector General of Registration and Another v. G. Madhurambal and Another, 2022 SCC Online SC 2079’, wherein Supreme Court of India has held inter alia the following:

• the title to the property put on auction sale passes under the law when the sale is held, after all objections against the sale have been disposed off.
• the transfer becomes final when an order under Rule 92 of Order XXI is made.
• issuance of a sale certificate under Rule 94 is only a formal declaration of the effect of such confirmation of sale. No further transfer deed from court is contemplated or required.
• the sale certificate does not create or extinguish any title and cannot be regarded as conveyance attracting stamp duty.
• once a direction is issued for the duly validated certificate to be issued to the auction purchaser with a copy forwarded to the registering authorities to be filed in Book I as per Section 89 of the Indian Registration Act, 1908, it has the same effect as registration and requirement of any further action is precluded.

Decision in SC Appeal: The Apex Court, relying on its earlier decisions and the legislative framework of the Indian Registration Act, 1908, dismissed SC Appeal filed by State of Punjab and held that sale certificate issued by the authorized officer is not compulsorily registrable, till it remains as it is, and mere filing under Section 89(4) of the Registration Act, 1908 is sufficient when a copy of the certificate is forwarded by the Authorised officer to the registering authority. The sale certificate would attract payment of stamp duty only when (i) the auction purchaser uses the certificate for some other purpose; or (ii) the auction purchaser presents the original sale certificate for registration.

Some thoughts:

The decision of Supreme Court reiterated a settled principle of law safeguarding interest, rights and entitlements of an auction purchaser and has also emphasized that a sale certificate issued by “authorized officer” does not create or extinguish any title and cannot be regarded as conveyance attracting stamp duty and is not compulsorily registrable. The decision also provided clarity with respect to rights of an auction purchaser and also obligations of authorised officer conducting public auctions. This decision would aid to protect auction purchasers participating in purchase of the auctioned assets/ properties done through courts.

While there remain ambiguities in stamp duty & registration aspects regarding certain SARFAESI auctions, with overriding jurisprudence, we will keep tracking update on these aspects, so watch this space for more ….