TaxTMI 
TaxTMI 
2021 (7) TMI 1209
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....cilities to one Classic Diamonds (India) Ltd. (the "Borrower") (now in liquidation) purporting to have a superior secured and prior charge in time over the attached properties, having commenced proceedings under the SARFAESI/Securitisation Act by issue of notices under Sections 13(2) and 13(4) and having taken possession of one of the attached properties (as will be described hereinafter), is aggrieved by the order of attachment dated 17th January 2013 passed by the Respondent No.1 Tax Recovery Officer ("TRO"), seeking recovery of Income Tax dues of the Borrower. 3. Submissions on behalf of the Petitioner in brief are that earlier in the year 2003, the assignor viz. State Bank of India ("SBI") amongst other banks and financial institutions had sanctioned facilities to the Borrower to the tune of 105 Crores and to secure the same, the Borrower had executed facility and security documents in favour of SBI. Similarly, in the year 2011, IndusInd bank had sanctioned facilities to the Borrower to the tune of Rs. 35 Crores and to secure the same facility and security documents were executed by Borrower in favour of IndusInd Bank. 4. On 17th January 2013 the Respondent No.1 Tax Recov....
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....sion notice. 8. It is also submitted on behalf of Petitioner that pursuant to order dated 15th October, 2019 passed by this Court in Writ Peition No. 2580 of 2019, the Respondent-Tax Recovery Officer had vide communication dated 8th November, 2019 lifted the attachment in respect of other properties secured in favour of Petitioner viz. office No. BC 8013 and BC 8014 at Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (East), Mumbai-400051. The said order dated 15th October 2019 is set forth as under:- "This Petition under Article 226 of the Constitution of India seeks to set aside a notices/orders of attachment dated 22 January 2013 passed by Respondent No.1-Tax Recovery Officer in respect of two office premises bearing Nos. BC8013 and BC-8014, Bharat Diamond Bourse, Mumbai. The basic contention of the Petitioner is that the Petitioner being a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 has priority in recovery of its debts over the dues of the State. 2. We note that the Petitioner has made various representations to Respondent No. 1, the last being dated 30 August 2019 emp....
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....or Counsel appearing on behalf of Petitioner submits that Respondent No. 1 has erred in not appreciating that the information furnished by Petitioner vide its letters dated 16th January 2020 and 14th February 2020 and 1st March 2021 respectively, reveal that Petitioner is a secured creditor with valid prior charge and an equitable mortgage in its favour and thus has prior and superior charge over the properties of the Borrower. He would submit that as a result of the equitable mortgage in favour of Petitioner with effect from the year 2005, Petitioner has prior and superior charge which cannot be disturbed in any manner whatsoever. That provisions of 26-E of the Securitisation Act accord priority to the dues of the secured creditor viz. dues of Petitioner over the dues of Respondent No.1. He further submits that the priority of the charge of Petitioner over the dues of the Income Tax Department stands clarified by the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment)Act, 2016, Section 41 whereof, introduces Section 31-B under the Recovery of Debts Due to Banks and Financial Institutions Act, 2002 (the "RDDB Act"). Section 26-E of th....
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....Court's intervention to direct lifting/raising of the attachment. 20. On the other hand, Respondent-Revenue has filed affidavit in reply dated 9th July 2021. It is submitted that as the total Income Tax demand against the Borrower was Rs. 58,64,54,659/-plus interest for different assessment years from 2006-2007 to 2013-2014, in the absence of any other means of recovery of the outstanding demand, immovable property of Borrower-assessee was attached by TRO under the provisions of Second Schedule to the Income Tax Act. 21. It is further submitted that recovery survey under Section133A of the Income Tax Act was conducted by the assessing officer, DCIT-5(1), Mumbai on 11th December 2012 at the said premises for the purposes of recovery of outstanding demand of Rs. 4,47,98,536/- pertaining to the assessment year 2011-12, during which survey, assessee Borrower was summoned to produce various details including details of loans and advances, however, Borrower had nowhere mentioned about the mortgage of subject property with Petitioner. He submits that therefore in the interest of Revenue, the said premises were attached. 22. Learned standing counsel for Revenue, Mr. Sham Walve, re....
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....repeated requests to Respondent TRO to lift/raise attachment over the said premises have not been attended to. The provisions of Section 31-B of the RDB Act as well as Section 26-E of the Securitization Act being applicable to the case of Petitioner, the Revenue is saying that TRO was not aware of the charge in favour of Petitioner and that there is no provision in the Income Tax Act empowering the TRO to lift/raise the attachment once levied. 27. Petitioner is also now seeking to sell the said premises, however, in view of the order of attachment dated 17th January 2013 and failure on the part of the first Respondent to grant NOC, Petitioner is before us. 28. The moot issue arising herein, whether the secured debt assigned in favour of Petitioner has a priority over Government dues/tax dues, is, no longer res integra. 29. The Supreme Court in the case of Bombay Stock Exchange Vs. V. S. Kandalgaonkar (supra), while considering the question whether the lien exercised under Rule 43 of the Stock Exchange can be said to be a superior right to the Income Tax dues, which may become payable by virtue of the Stock Exchange being a secured creditor, has held that the Income Tax Act....
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....charge over the charge of the State for tax/VAT dues. The following paragraphs of the said decision are also usefully quoted as under :- "30. From a plain and conjoint reading of Section 31-B of the RDB Act and Section 25-E of the SARFAESI Act it is clear that by virtue of the non-obstante language contained therein, the rights of secured creditors to realise secured debts by sale of assets over which security interest is created, shall have priority over Government dues including revenues, taxes, cesses and rates due to the Central/State Government or to the Local Authority. We also note the reference in the pleadings to the dates of creation of charge/security interest as well as lodging of the claim and dates of commencement of recovery proceedings to stake a claim of first charge over the said property. Petitioner's mortgage was created on the said property on 13th January 2014 and as secured creditor it has claimed priority of charge over the charge of the Sales Tax Department. We find that Respondent No.2 had claimed first charge on the said property, inter alia, stating that it had initiated recovery proceedings under Sections 32, 33 and 34 of the MVAT Act on 10....
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.... b) As to the status and the rights of a third party purchaser of the mortgaged property in question.'' 2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principal Act, which reads as under:- ''31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation. - For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of deb....
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....the Hon'ble Supreme Court had considered the provision of Section 38-C of the Bombay Sales Tax Act, 1959 and Section 26-B of the Kerala General Sales Tax Act, 1963 vis-a-vis the provisions of Section 34(1) the RDB Act and Section 35 of the SARFAESI Act, whereas Section 31-B was not on the statue book then and therefore did not come into consideration in the said matter; moreover, the decision in the case of Central Bank of India Vs. State of Kerala (supra) was prior in time to the amendment inserting 31-B in the RDB Act and Section 26E in the SARFAESI Act. Paragraph 41 of the decision in the case of State Bank of India Vs. State of Maharashtra and Ors.(supra) is usefully quoted as under :- "41. Before parting with the record we would like to state that we are conscious of the decision of the Supreme Court in the case of Central Bank of India Vs. State of Kerala (2009) 4 SCC 94 wherein the Supreme Court took the view that if the State Act creates first charge on the property, then secured creditor cannot have claim against the statutory provision. The Supreme Court was considering the provisions of Section 38C of the Bombay Sales Tax Act 1959 and Section 26-B of the Kerala ....