Secured creditors have priority over VAT claim under SARFAESI and RDB Acts. Impugned notice quashed.

The court held that the petitioners, as secured creditors, have the first charge on the property of the dealer under the SARFAESI Act and the RDB Act. The respondents' claim under Section 26 of the HP VAT Act cannot override the petitioners' rights. The court quashed the impugned notice and directed the respondents not to claim a first charge over the secured assets of the petitioners.

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Issues Involved:
1. Whether the petitioners have the first charge on the property of the dealer under the provisions of the SARFAESI Act and the Recovery of Debts and Bankruptcy Act (RDB Act) or whether the first charge belongs to the respondents under Section 26 of the Himachal Pradesh Value Added Tax (HP VAT) Act, 2005.

Issue-wise Detailed Analysis:

1. First Charge on Property:
The primary issue in this case is to determine whether the petitioners (banks) have the first charge on the property of the dealer under the SARFAESI Act and the RDB Act, or whether the respondents (State) have the first charge under Section 26 of the HP VAT Act, 2005. The petitioners argued that their rights as secured creditors under the SARFAESI Act and the RDB Act take precedence over the State's claims under the HP VAT Act. They cited Section 31B of the RDB Act and Section 26E of the SARFAESI Act, which provide that the rights of secured creditors shall have priority over all other debts, including government dues.

2. Statutory Provisions:
The court examined relevant statutory provisions, including Section 26E of the SARFAESI Act, which states that debts due to secured creditors shall be paid in priority over all other debts and government dues. Similarly, Section 31B of the RDB Act provides that the rights of secured creditors shall have priority over all other debts and government dues. These provisions were incorporated to address the lacunae identified by the Supreme Court in the Central Bank of India vs. State of Kerala case, where it was held that the non obstante clauses in the SARFAESI Act and the RDB Act could not override the first charge created by state legislations.

3. Judicial Precedents:
The court referred to several judgments, including the Kerala High Court's decision in State Bank of India vs. State of Kerala, which held that the amendments to the SARFAESI Act and the RDB Act create a first charge in favor of banks and financial institutions, overriding any state legislation. The court also cited decisions from the Madras High Court, Gujarat High Court, Madhya Pradesh High Court, and Bombay High Court, all of which supported the view that the amendments to the SARFAESI Act and the RDB Act give priority to secured creditors over state claims.

4. Interpretation of Non Obstante Clauses:
The court analyzed the non obstante clauses in the relevant statutes and concluded that the provisions of the SARFAESI Act and the RDB Act, being central legislations, take precedence over the HP VAT Act. The court noted that the amendments to the central statutes were specifically incorporated to ensure that the rights of secured creditors have priority over state claims.

5. Conclusion:
The court held that the petitioners, as secured creditors, have the first charge on the property of the dealer under the SARFAESI Act and the RDB Act. The respondents' claim under Section 26 of the HP VAT Act cannot override the petitioners' rights. The court quashed the impugned notice dated 24.06.2017 and held that the provisions of the HP VAT Act must give way to the provisions of the SARFAESI Act and the RDB Act. The writ petition was allowed, and the respondents were directed not to claim first charge over the secured assets of the petitioners.

Separate Judgments:
No separate judgments were delivered by different judges in this case. The judgment was delivered by a single judge, and the analysis and conclusions are based on the interpretation of the relevant statutory provisions and judicial precedents.

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