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of <h1>Bank's secured charge from 2013 takes priority over later state department charges from 2015-2018</h1> <h3>State Bank of India Versus State of H.P. & Ors.</h3> The HC ruled in favor of the petitioner bank, holding that secured creditors have priority over state department charges. The bank had created a first ... Recovery of dues - priority over charges - whether the different departments of the State including Excise and Revenue will have priority over the secured creditors’ debt? - HELD THAT:- It would be evident from the replies filed by the respondents that they have nowhere disputed the lien of the State Bank of India as per Section 26 D noted and entered in the CERSAI (Annexure P-2), dated 06.03.2013, which clearly establishes the fact that the petitioner-Bank is not only a secured creditor but has created the first charge over the property in question as far as back in the year, 2013. Whereas the charge of respondents No. 1 and 2 had been created and reflected in revenue record vide rapat No. 459, dated 09.07.2015 and that of respondent No. 3 only vide Rapat No. 173, dated 05.02.2018. Once the petitioner is a secured creditor and has moreover created the first charge over the property, then obviously, it has the first right to realise its dues and this question is no longer res integra in view of the authoritative pronouncement of the Hon'ble Supreme Court in Punjab National Bank Vs. Union of India & Ors. [2022 (2) TMI 1171 - SUPREME COURT]. The legal position has thereafter been reiterated in a recent judgment of this Court in Mankind Life Sciences Private Limited vs. The State of Himachal Pradesh & Anr., [2023 (10) TMI 867 - HIMACHAL PRADESH HIGH COURT], wherein it was held [2022 (2) TMI 1171 - SUPREME COURT]. This Court is left with no other option, but to allow the instant petition by directing respondents to remove the red entry qua the property in question made in the revenue record i.e. Rapat No. 459, dated 09.07.2015 and Rapat No. 173, dated 05.02.2018 forthwith. The instant petition is allowed. Issues Involved:1. Priority of debts between State Departments (Excise and Revenue) and secured creditors.2. Legal precedence of SARFAESI Act over other statutes.Summary:Issue 1: Priority of DebtsThe core issue was whether the debts owed to different State departments, including Excise and Revenue, would take precedence over the debts owed to secured creditors. The petitioner-bank had provided financial assistance to a unit, which later defaulted, leading the bank to initiate recovery proceedings under the SARFAESI Act. The bank's lien on the property was recorded in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) as of 06.03.2013. Subsequently, the Excise and Taxation Department and the Income Tax Department entered their claims in the revenue records in 2015 and 2018, respectively. The petitioner-bank sought the removal of these entries, asserting its first charge over the property as per Section 26-E of the SARFAESI Act.Issue 2: Legal Precedence of SARFAESI ActThe court noted that the respondents did not dispute the bank's lien as per Section 26 D of the SARFAESI Act, which was established in 2013. The court referenced the Supreme Court's judgment in Punjab National Bank Vs. Union of India & Ors. (2022) 7 SCC 260, which affirmed that secured creditors have the first charge on secured assets, and the provisions of the SARFAESI Act have an overriding effect on other laws, including the Central Excise Act. The court reiterated this position, citing several precedents, including the Kerala High Court's decision in State Bank of India Vs. State of Kerala and others, and other judgments that confirmed the priority of secured creditors over state claims.Conclusion:The court concluded that the petitioner-bank, as a secured creditor with a first charge over the property, had the primary right to realize its dues. The court ordered the removal of the red entries made by the Excise and Taxation Department and the Income Tax Department in the revenue records, thus allowing the petition and affirming the precedence of the SARFAESI Act over other state claims.
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