2017 (8) TMI 863 - HC - VAT and Sales Tax

Court lifts attachment in favor of secured creditors over government dues under Securitization Act

State Bank of India, Stressed Assets Management Branch, Rep. by its Assistant General Manager, Chennai Versus Assistant Commissioner (Commercial Tax) Chennai, S.K.C. Retail Ltd., Rep. by its Directors, Sub-Registrar (Purasawalkam), Chennai

The court lifted the attachment entry challenged by the petitioner Bank, citing the priority of secured creditors over government dues as per the ... Right of a secured creditor to realize the secured debts - Recovery of Debts due to Banks and Financial Institutions - attachment orders - Held that:- As correctly argued by the learned counsel for the petitioner Bank, on a parity of reasoning, Section 26-E of the 2002 Act construed likewise. In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realize the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc.,. should hold good qua 2002 Act as well. We tend to agree with the submission advanced before me by the learned counsel for the petitioner Bank. Accordingly,the impugned attachment entry would have to be lifted. It is ordered accordingly. The writ petition is disposed of, based on an undertaking given by Mr.M.L.Ganesh, who appears for the petitioner Bank, that in case, the Revenue were to succeed in the SLP, the money realised from the sale of the subject properties would be disbursed to respondent No.1, in accordance with law. Issues:Challenging attachment entry by respondent No.3 at the say so of respondent No.1, priority of moneys received from the sale of subject properties between petitioner Bank and respondent No.1, statutory charge under Section 42(1) and Section 43 of the Tamil Nadu Value Added Tax, 2006, impact of amendments in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Recovery of Debts due to Banks and Financial Institutions Act, 1993 on the rights of secured creditors and government dues, interpretation of Section 26E of the 2002 Act, implications of Full Bench judgment on the attachment entry, pending Special Leave Petition (SLP) against the Full Bench judgment.Analysis:The writ petition challenges the attachment entry made by respondent No.3 at the direction of respondent No.1 due to arrears of sales tax. The dispute revolves around the proceeds of immovable properties, some of which have been sold during the pendency of the petition. The petitioner Bank sold properties under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and holds the sale proceeds in trust. The petitioner Bank claims that respondent No.1 cannot have a prior charge on the subject properties mortgaged to it before the attachment. Respondent No.1 asserts priority over the sale proceeds based on statutory charges under the Tamil Nadu Value Added Tax, 2006.The petitioner Bank details the properties sold and unsold, along with the sale proceeds received. The Full Bench judgment clarifies that secured creditors have priority over all debts and government dues, including taxes, as per amendments in the 2002 Act and the 1993 Act. The judgment emphasizes the importance of the amendments in resolving disputes over secured debts and government dues. The interpretation of Section 26E of the 2002 Act aligns with the Full Bench decision, granting secured creditors priority in realizing debts.Based on the Full Bench judgment, the court orders the lifting of the impugned attachment entry. However, it notes that respondent No.1 has filed an SLP against the Full Bench judgment. The writ petition is disposed of with an undertaking from the petitioner Bank to disburse the money to respondent No.1 if the Revenue succeeds in the SLP. The judgment concludes without further orders, closing the connected miscellaneous petitions without costs. The impact of the pending SLP on the resolution of the dispute remains a crucial aspect to be monitored for future developments.