2025 (12) TMI 1606 - HC - VAT / Sales Tax

Bank's registered mortgage versus later State tax lien on same property; earlier security upheld, lien removed from records.

The dominant issue was whether a State tax department's lien in revenue records could override a bank's prior registered security interest over the same ... Recovery of dues - priority to secured creditors - Seeking writ of mandamus directing respondent No. 2 to remove the lien over the property which is a secured asset in the hands of the petitioner Bank - HELD THAT:- In the present case it is not disputed that the charge vide equitable mortgage in favour of the petitioner Bank was created on 18.04.2014, which was duly registered in the Central Registry CERSAI registration on 03.05.2014 (Annexure P-1) whereas respondent No. 3 had created lien over the property vide rapat No. 251 dated 17.03.2025 (Annexure P-8), therefore, it transpires that the charge created in favour of the petitioner bank is much prior in time being duly registered in the Central Registry on 03.05.2014 whereas the charge in favour of the respondent No. 3 was created on 17.03.2025 which is much later. Thus, by applying the ratio laid down in the decisions rendered by this Court in STATE BANK OF INDIA VERSUS SUB REGISTRAR, SUB TEHSIL NIGHDU KARNAL AND OTHERS [2025 (12) TMI 1375 - PUNJAB AND HARYANA HIGH COURT], on the subject is concerned, this Court has no manner of doubt that the petitioner Bank has a prior charge over the secured assets as reflected in the record, vis a vis the tax dues claimed by respondent No. 3 department. A Writ of Mandamus is issued to respondent No. 1 and 2 to remove the lien dated 17.03.2025 in the revenue record entered at the behest of the respondent No. 3 over the secured asset and file compliance report within a period of 02 months, before the Registry of this Court, failing which the Registry is directed to list the case as IOIN before appropriate Bench - The charge created in the Revenue records vide rapat No. 251 dated 17.03.2025 (Annexure P-8) in favour of respondent No. 3/The State Tax Officer, (Ward No. 32) Ist Floor, Treasury Office, Diet Building, Jagraon, District Ludhiana, Punjab is quashed by a Writ of Certiorari. This petition preferred by the petitioner-Bank is hereby allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, in view of the Bank's earlier registered security interest, the Bank's claim as a secured creditor has statutory priority over later-created State tax dues/lien recorded in the revenue record. (ii) Whether the lien/charge entered in the revenue record at the behest of the tax department over the secured asset, subsequent to registration of the Bank's security interest, is liable to be removed and quashed, and whether the State can recover its dues only after satisfaction of the secured creditor's dues or otherwise in accordance with law. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Priority between registered security interest of secured creditor and State tax lien recorded later Legal framework (as applied by the Court): The Court examined and applied the statutory priority regime under Section 26E of the SARFAESI Act and Section 31B of the RDB Act, both containing non obstante clauses and providing that, after registration of security interest, debts due to secured creditors shall be paid in priority over all other debts and Government dues (including taxes and revenues), subject to the stated insolvency/bankruptcy carve-out where applicable. Interpretation and reasoning: The Court treated the determinative facts as undisputed: the borrower had created an equitable mortgage in favour of the Bank in 2014 and the security interest stood registered in the Central Registry in 2014; the tax department's lien entry in the revenue record was made much later in 2025. On this admitted chronology, and applying the priority provisions, the Court concluded that the Bank's registered secured interest, being prior in time and covered by the statutory 'priority to secured creditors' mandate, prevails over the subsequently created lien asserted for tax dues. The Court expressly held that the Bank has a prior charge over the secured assets vis-à-vis the tax dues claimed by the department. Conclusion: The Bank, as a secured creditor with a registered security interest, has priority over the State's tax dues/lien recorded later in the revenue record with respect to the secured asset. Issue (ii): Validity and consequences of the later lien entry in revenue records; reliefs and State's residual recovery rights Legal framework (as applied by the Court): Having found statutory priority in favour of the secured creditor under the above provisions, the Court proceeded to determine whether the impugned revenue lien entry could stand and what directions should follow. Interpretation and reasoning: Since the lien/charge entry in the revenue record was created after the Bank's registered security interest and operated to impede enforcement and liquidation of the secured asset, the Court held it could not override the secured creditor's priority. Accordingly, the Court granted consequential relief to give effect to the priority finding: removal of the lien and quashing of the revenue-record charge. Conclusions and directions: The Court allowed the writ petition and (a) issued mandamus to the relevant revenue authorities to remove the lien entry from the revenue record within the stipulated time and file compliance, and (b) issued certiorari to quash the lien/charge entry in the revenue record. The Court also conclusively determined that the State remains at liberty to recover its dues after the Bank satisfies its outstanding dues, or by any other means permissible in law, thereby preserving the State's recovery rights but subordinating them to the secured creditor's priority in relation to the secured asset.