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of <h1>Bank's SARFAESI charge from 2011 prevails over State's 2018 tax dues charge on property</h1> <h3>Karur Vysya Bank Limited & Anr. Versus State Of Gujarat & Ors.</h3> Karur Vysya Bank Limited & Anr. Versus State Of Gujarat & Ors. - 2024:GUJHC:61402 - DB Issues Involved:1. Authority of respondent No. 2 to claim outstanding dues from petitioners regarding specific land.2. Validity of orders/communications dated 26.09.2018 and 07.09.2019 by respondent No. 2.3. Priority of charge under the SARFAESI Act versus the State's claim.4. Applicability of legal precedents and statutory provisions regarding secured creditors and state dues.Detailed Analysis:1. Authority of Respondent No. 2:The petitioners challenged the authority of respondent No. 2 to claim outstanding dues related to the land situated at Survey No. 22/2/P1/p1, Village Varsana, Tal-Anjar, Dist. Kachchh. The petitioners argued that respondent No. 2 lacked the legal empowerment to enforce such claims. This issue was raised under the petition filed pursuant to Articles 226 and 227 of the Constitution of India, seeking a declaration against the authority of respondent No. 2.2. Validity of Orders and Communications:The petitioners sought to quash the orders/communications dated 26.09.2018 and 07.09.2019 issued by respondent No. 2. These orders directed the registration of a charge for the outstanding dues of the State. The petitioners contended that these orders were contrary to the provisions of section 26E of the SARFAESI Act, which grants priority to the charge created by the petitioner-Bank. The court was asked to quash these orders and the consequential revenue entries No. 1412 and 1452, asserting that the auction sale conducted by the petitioner No. 1-Bank should be free from encumbrances related to the State's charge.3. Priority of Charge under SARFAESI Act:The core issue revolved around the priority of the charge under the SARFAESI Act compared to the State's claim. The petitioners argued that the charge registered by the petitioner-Bank in 2011 had precedence over the charge created by the State in 2018. The court referred to the decision in Partners of Siddheshwar Tax Fab & Ors. Versus State Of Gujarat & Ors, which established that a secured creditor under the SARFAESI Act holds a prior charge over State dues. The court reiterated that the petitioner's charge, being earlier in time, had priority, and thus, the State's subsequent charge could not override it.4. Applicability of Legal Precedents and Statutory Provisions:The judgment extensively analyzed legal precedents and statutory provisions, particularly focusing on the SARFAESI Act, RDB Act, and the IBC. The court examined the decision in Rainbow Papers Ltd. and its implications on the priority of charges. It was clarified that the Rainbow Papers Ltd. case was confined to its specific facts and did not alter the established precedence of secured creditors under the SARFAESI Act over State claims. The court also referred to the Kalupur Commercial Cooperative Bank case, affirming that the SARFAESI Act and RDB Act provisions grant priority to secured creditors over State dues, aligning with the principle that the State's claim does not supersede the rights of secured creditors.Conclusion:The court concluded that the petitioner-Bank's charge, created in 2011, had a prior claim over the property, invalidating the State's subsequent charge. Consequently, the impugned orders dated 26.09.2018 and 07.09.2019 were quashed, and the related revenue entries were deleted. The court upheld the principle that secured creditors under the SARFAESI Act have precedence over State claims, reinforcing the legal position that State dues do not override the rights of secured creditors. The petition was thus allowed, and the rule was made absolute to the stated extent, with no order as to costs.
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