Securitisation Act Doesn't Override Sales Tax: Bank's Recovery Illegal, Must Pay Sales Tax Dues First.

The HC determined that Section 35 of the Securitisation Act does not supersede Section 38C of the Bombay Sales Tax Act. The statutory first charge for sales tax dues takes precedence over the Bank's secured interest. The Bank's recovery process was deemed illegal, requiring it to deposit sale proceeds with the sales tax department. The writ petition was dismissed with costs.

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Issues Involved:
1. Conflict between Section 38C of the Bombay Sales Tax Act, 1959 and Section 35 of the Securitisation Act, 2002.
2. Priority of sales tax dues over secured creditors.
3. Legality of the Bank's recovery process under the Securitisation Act.

Issue-wise Detailed Analysis:

1. Conflict between Section 38C of the Bombay Sales Tax Act, 1959 and Section 35 of the Securitisation Act, 2002:
The primary contention from the Bank was that the Securitisation Act, being a Central Act and enacted later, should prevail over the Bombay Sales Tax Act. Section 35 of the Securitisation Act states that its provisions will have effect notwithstanding anything inconsistent contained in any other law. However, Section 38C of the Bombay Sales Tax Act provides that any amount of tax, penalty, interest, or any other sum payable by a dealer under the Act shall be the first charge on the property of the dealer, subject to any provision regarding first charge in any Central Act. The court concluded that Section 13 of the Securitisation Act does not create a first charge but provides a mechanism for the realization of security without court intervention. Therefore, Section 35 of the Securitisation Act does not override Section 38C of the Bombay Sales Tax Act.

2. Priority of sales tax dues over secured creditors:
The court examined whether the statutory first charge created under Section 38C of the Bombay Sales Tax Act has precedence over the Bank's charge based on contractual mortgage. It was held that the statutory first charge under Section 38C has precedence over the Bank's charge. The court referred to the Supreme Court's judgment in State Bank of Bikaner & Jaipur, which held that a statutory first charge has precedence over an existing mortgage. Similarly, the court noted that Section 38C of the Bombay Sales Tax Act provides for the first charge on the property of the dealer in respect of sales tax liability, which overrides the Bank's secured interest.

3. Legality of the Bank's recovery process under the Securitisation Act:
The Bank initiated recovery proceedings under Section 13 of the Securitisation Act and sold the properties of the company to recover its dues. The court found that the sales tax authorities had already attached the properties for recovery of sales tax dues before the Bank initiated its process. The court held that the Bank's action was illegal and unauthorized as the sales tax authorities had a statutory first charge under Section 38C of the Bombay Sales Tax Act. The court directed the Bank to deposit the sale proceeds amounting to Rs. 66,31,001 with the sales tax department and dismissed the writ petition with costs.

Conclusion:
The court concluded that Section 35 of the Securitisation Act does not override Section 38C of the Bombay Sales Tax Act. The statutory first charge for sales tax dues has precedence over the Bank's secured interest. The Bank's recovery process under the Securitisation Act was deemed illegal, and the Bank was directed to deposit the sale proceeds with the sales tax department. The writ petition was dismissed with costs.

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