A Division Bench of Calcutta High Court in the case of Ballyfabs International Limited v. State of West Bengal on April 22, 2022 has examined if a sale conducted by an authorized officer under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) would qualify as an open market sale to be excluded from the scrutiny contemplated under Section 47A of the Indian Stamp Act, 1899 (as amended in West Bengal) (“Stamp Act”).

Background:

A land parcel belonging to a company was mortgaged to IDBI Bank Limited. Pursuant to its failure to repay the loans, the bank took possession of the mortgaged property under the provisions of the SARFAESI Act and put up the property for auction by publishing auction notice in various newspapers. Basis such advertisement, the petitioner was identified as the successful bidder in whose favour, the sale was confirmed. 

Upon the bank’s failure to duly execute the deed of conveyance, a civil suit was filed by the petitioner, wherein the Court directed the parties to get the conveyance deed registered. In this regard, a query was raised to Registrar for Assessment of Stamp Duty, assessment of which stipulated a higher value of the property. Challenging such assessment, the petitioner responded contending that since the property was sold in public auction after wide publication, therefore, the assessment of stamp duty must be restricted to the price declared therein. Subsequently, the Court passed an order directing Registrar of Assurance for his views on assessment of market value being above the price fetched in public auction.

The Registrar of Assurance, Calcutta expressed that since public auction was conducted by the authorized officer of IDBI Bank Limited, which was not a court, the price therein could not be regarded as a price fetched in the open market sale and therefore, Section 47A of the Stamp Act and Rule 3 of the West Bengal Stamp (Prevention of Undervaluation Instruments), Rules, 2001 are applicable.

Query:

Whether sale conducted by an authorized officer under SARFAESI Act would qualify as an open market sale and thus, be excluded from the scrutiny contemplated under Section 47A of the Stamp Act?

Judgement:

To ascertain the criteria for court sale, the Court placed reliance on State of West Bengal v. Sati Enclave Private Limited, [2010 (3) CHN (Cal)], wherein it was held that for a court sale to satisfy the requirement of an open market sale, the following conditions are required to 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 circulation in the concerned city/ town/ district where the property is situated; and (b) the purchaser of the property must not be connected with or related to the authority/ officer conducting the sale. 

Thereafter, the Court made reference to the judgment of the Supreme Court in V.N. Devadoss v. Chief Revenue Control Officer- Inspector, [2009 (7) SCC 438], wherein it was held that where sale is effected by statutory authorities like BIFR and AAIFR it will be regarded that such sale is in exercise of the powers reserved or conferred upon them and is a sale in open market and therefore, the registering authority has no reason to believe that the price shown in the instrument in respect of the subject property is not the price which it would fetch or would have fetched if sold in the open market and hence, the same cannot be a subject matter of scrutiny under Section 47A of the Stamp Act.

To conclude, the Court held that sale conducted by the authorized officer in exercise of the powers conferred under the SARFAESI Act by public auction or by inviting tenders from the public would be regarded as the sale in the open market and the price so accepted shall be the price which it would fetch if sold in the open market under Section 47A of the Stamp Act. However, there must be a wide publicity of the advertisement at least in one newspaper having wide circulation in the concerned city/ town/ district where the property is situated, and the purchaser of the property should not be related to an authority or the officer conducting the sale.

Please find attached a copy of the judgment.

This update has been contributed by Arka Majumdar (Partner) and Juhi Wadhwani (Associate).

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