Bank's Priority Upheld Over State Claim on Secured Assets

The court held in favor of the petitioner bank, affirming its first charge over the secured assets of the borrower, despite the State's claim under the Gujarat Value Added Tax Act. The court referenced a prior ruling establishing the bank's priority. The auction notice was deemed invalid, and the bank was permitted to proceed with the auction following SARFAESI Act procedures. The writ application was disposed of, directing the release and appropriation of the sale proceeds among secured creditors.

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Issues Involved:
1. Validity of the auction notice issued by the respondents under Section 46 of the Gujarat Value Added Tax Act, 2003.
2. Determination of whether the State or the Bank has the first charge over the secured assets of the borrower.

Detailed Analysis:

1. Validity of the Auction Notice:
The petitioner, a nationalized bank, challenged the auction notice published by the respondents in "Divya Bhaskar" and "Gujarat Samachar" on 01.11.2015. The bank argued that the notice was issued without considering the bank's secured interest in the assets of M/s. Computer Skill Ltd. The bank had taken possession of these assets under the SARFAESI Act due to the borrower's default on credit facilities. The petitioner contended that the auction notice was issued despite the bank's prior claim and without providing the valuation report that determined the upset price of Rs. 6 crores for the sale of the assets.

2. Determination of First Charge Over the Secured Assets:
The core issue was whether the State's claim of first charge under Section 48 of the Gujarat Value Added Tax Act, 2003, supersedes the bank's secured interest under the SARFAESI Act. The respondents argued that the State had a right to recover sales tax dues amounting to Rs. 6 crores from the borrower's immovable assets, asserting a first charge based on Section 48 of the VAT Act. The petitioner bank, however, maintained that as a secured creditor, it had the first charge over the assets, which was reinforced by the physical possession and prior unsuccessful auction attempts.

Interim Orders and Final Judgment:

Interim Orders:
- On 2nd December 2015, the court issued an interim order staying the auction of the properties in question.
- On 30th June 2016, the court directed both parties to maintain the status quo with respect to the property and allowed for the possibility of jointly suggesting the sale of the plant and machinery.
- On 19th April 2018, the court permitted the petitioner bank to proceed with the public auction following the SARFAESI Act procedures, ensuring transparency and allowing the State to raise objections to the valuation.

Final Judgment:
The court referenced a previous ruling in Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat, which established that the bank has the first charge over the secured assets of the original borrower, and this claim cannot be defeated by Section 48 of the VAT Act. Consequently, the court concluded that no further adjudication was necessary. The bank was allowed to appropriate the sale proceeds, which had been kept in a separate account, among the secured creditors.

The writ application was disposed of, affirming the bank's first charge over the secured assets and directing the release and appropriation of the sale proceeds accordingly.

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