2023 (12) TMI 296 - HC - Indian Laws

Bank's secured debt from 2008-2012 takes priority over state excise department's 2017 charge under SARFAESI Act

State Bank of India Versus State of Himachal Pradesh & Ors.

State Bank of India Versus State of Himachal Pradesh & Ors. - TMI Issues Involved:1. Priority of debts between State departments and secured creditors.2. Legality of the charge created by the Excise Department.3. Registration and mutation of the sale certificate.Summary:Issue 1: Priority of debts between State departments and secured creditors.The primary issue in this case is whether the different departments of the State, including Excise and Revenue, have priority over the secured creditors' debt. The petitioner-bank, which became the secured creditor by acquiring the State Bank of Patiala, contended that it had the first charge over the property since 2008 and 2012, as opposed to the charge created by the Excise Department in 2017. The court referred to the authoritative judgment of the Supreme Court in 'Punjab National Bank Vs. Union of India & Ors.' (2022), which held that the secured creditor's debt under the SARFAESI Act has priority over the dues of the Excise Department. The court reiterated that the SARFAESI Act has an overriding effect on all other laws, including the Central Excise Act, 1944.Issue 2: Legality of the charge created by the Excise Department.The Excise Department argued that under Section 73 of the Himachal Pradesh Excise Act, 2011, the excise revenue has the first charge on the property of the defaulter. However, the court noted that the petitioner-bank's charge was created much earlier, in 2008 and 2012, compared to the Excise Department's charge in 2017. The court emphasized that the provisions of the SARFAESI Act, particularly Section 26E, which came into force on 1.9.2016, provide that the debts due to any secured creditor shall be paid in priority over all other debts and all revenue, taxes, cesses, and other rates payable to the Central Government or State Government or Local Authority.Issue 3: Registration and mutation of the sale certificate.The petitioner-bank auctioned the mortgaged property and issued a sale certificate to the successful bidder. Despite several requests, the Excise Department refused to remove the lien, and the Deputy Commissioner refused to register the sale certificate. The court directed the respondents to remove the red entry (rapat No. 484 dated 27.5.2017) from the revenue record and register the sale certificate in favor of the successful bidder. The court held that the secured creditor's rights under the SARFAESI Act take precedence over the claims of the Excise Department.Conclusion:The court allowed the petition, directing the removal of the red entry from the revenue records and the registration of the sale certificate, reaffirming the priority of secured creditors' debts under the SARFAESI Act over state department dues.