2021 (7) TMI 1354 - HC - VAT and Sales Tax

Secured Creditor Priority Upheld Over State in Debt Recovery

The court allowed the writ petition, affirming the secured creditor's priority over the state in debt recovery matters. It held that the findings from a ... Recovery of dues - priority of claims - petitioner being “Secured Creditor”, has preference over the respondent-State with regard to the debts due from the private respondent or not - HELD THAT:- Reliance placed in the judgment passed by this Court PUNJAB NATIONAL BANK AND ANOTHER VERSUS STATE OF HIMACHAL PRADESH AND OTHERS [2021 (5) TMI 1026 - HIMACHAL PRADESH HIGH COURT], as it has not been disputed by the State that the issue involved in this writ petition is, in fact, covered by the judgment, where it was held that This Court has no hesitation in holding that the petitioners being “Secured Creditors” have preference over the respondent-State with regard to the debts due from respondent No. 4. This writ petition is allowed by holding that the findings in the said case shall mutatis mutandis apply to this petition also - The petitioner being “Secured Creditor”, has preference over the respondent-State with regard to the debts due from the private respondent(s) and the respondent-Department cannot claim first charge over secured assets of the petitioner belonging to the private respondents, as the petitioner has first charge over the secured assets, in view of the provisions of the SARFAESI Act 2002 and Recovery of Debts and Bankruptcy Act, 1993, as amended from time to time. Writ petition disposed off. Issues:- Priority of secured creditor over state in debt recoveryAnalysis:The petitioner, a bank, sought relief in a writ petition to remove a charge against certain secured assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitioner argued that as a secured creditor, it should have priority over the state regarding debts due from private respondents. The petitioner relied on the SARFAESI Act 2002 and the Recovery of Debts and Bankruptcy Act, 1993 to support its claim.In response, the Senior Additional Advocate General for the state acknowledged that the issue raised in the petition was similar to a previous judgment by the court and indicated the state's intention to challenge that judgment through a Letters Patent Appeal. Despite not contesting the applicability of the previous judgment to the current case, the state requested the petition be disposed of in line with the earlier decision, while reserving the right to challenge it.After considering the arguments and reviewing the records, the court found that the issue in the present petition was indeed covered by a prior judgment involving similar circumstances. Consequently, the court allowed the writ petition, affirming that the findings from the previous case applied mutatis mutandis to the current matter. The court clarified that it was deciding only on the priority between a secured creditor and the state in debt recovery, without delving into specific disputes between the bank and private respondents.The court concluded the judgment by reiterating that the petitioner, as a secured creditor, held precedence over the state concerning debts owed by private respondents. It emphasized that the state department could not claim a first charge on the bank's secured assets, as the bank's rights were protected by the relevant provisions of the SARFAESI Act 2002 and the Recovery of Debts and Bankruptcy Act, 1993. The court also highlighted that the provisions of the H.P. VAT Act, 2005 were subordinate to the SARFAESI Act 2002 and the RDB Act 1993. Finally, the court disposed of any miscellaneous applications related to the case.