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of <h1>Tax Recovery Officer's order voiding bank's equitable mortgage quashed for failing to establish crucial dates under Section 281</h1> <h3>Bajaj Finance Limited Versus The Tax Recovery Officer (1), Bhubaneswar and others</h3> Bajaj Finance Limited Versus The Tax Recovery Officer (1), Bhubaneswar and others - [2024] 461 ITR 397 (Ori) Issues Involved:1. Validity of the mortgage created by the borrower.2. Priority of secured creditors over tax claims.3. Adequacy of findings in the impugned order regarding the date of mortgage creation.Summary:1. Validity of the mortgage created by the borrower:The petitioner, a finance company, challenged an order by the Tax Recovery Officer (TRO) declaring the mortgage void and attaching the property. The petitioner argued that the mortgage was created on 29th March 2016 and duly registered. The respondent contended that proceedings under the Income Tax Act were initiated before the mortgage creation, rendering the mortgage void under section 281 of the Act. The court found that the impugned order lacked a clear finding on the date of mortgage creation, which is crucial to determine the validity of the mortgage.2. Priority of secured creditors over tax claims:The petitioner relied on section 26-E of the SARFAESI Act, 2002, and section 31-B of the Recovery of Debts and Bankruptcy Act, 1993, which prioritize secured creditors over tax claims. The court referred to the Supreme Court's judgment in Connectwell Industries (P) Ltd. v. Union of India, which affirmed that secured creditors have preference over Crown debts unless a statute provides otherwise. The court noted that the impugned order did not adequately address the priority of claims.3. Adequacy of findings in the impugned order regarding the date of mortgage creation:The court emphasized the necessity of a clear finding on the date of mortgage creation. The impugned order mentioned that proceedings under the Income Tax Act were initiated before the mortgage creation but failed to specify the dates. The court found this omission significant and ruled that the impugned order was vague and lacked necessary findings. The court set aside and quashed the impugned order, noting that the TRO must provide evidence to substantiate the declaration of the mortgage being void.Conclusion:The court allowed the writ petition, vacated the interim order, and quashed the impugned order due to its vagueness and lack of clear findings on the dates of initiation of proceedings and mortgage creation.
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