TaxTMI 
TaxTMI 
2023 (1) TMI 1369
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....ower/mortgagor, after taking the possession of the property, under the SARFAESI Act. 2.2 The petitioners purchased the said properties in the said public e-auction conducted by respondent no.1-Bank of Baroda on 12.5.2022 for a sale consideration of Rs.2,21,14,810/- and the respondent no.1-Bank issued a sale certificate in favour of the petitioners. 2.3 Thereafter, on 14.7.2022, the sale deed was executed in favour of the petitioner and the possession was handed over to the petitioners, free from all encumbrances by respondent No.1 - Bank. 2.4 After the execution of the sale deed, the petitioners came to know that respondent no.3-The State Tax Officer created a charge over the property in the revenue records vide entry no.15661 and 18595 for the recovery of the dues. Therefore, the petitioners, by way of this petition, seek to hold that they are the absolute owners of the properties in question with legal and valid title. 3. Heard learned advocate Mr.Vijay H Patel for the petitioners, and learned AGP for respondent nos.2 and 3. None for respondent No.1 - Bank of Baroda. 4.1 Learned advocate Mr.Patel for the petitioners has submitted that the petitioners have purchased....
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....is a charge of the Government and the same should be taken care of by this Court. She has submitted that this petition may be dismissed. 7. Though served, respondent No.1 - Bank of Baroda has chosen not to appear and contest this petition. 8. The issue involved in this petition is as to whether the dues of secured financial institution will have priority over State tax dues or not. 9.1 We have heard learned advocates for the parties. 9.2 There are following undisputed facts. 9.2.1 The erstwhile owner purchased the property in the year 2005 and the revenue entry to that effect came to be mutated and certified in the year 2006. 9.2.2 Respondent No.1 - Bank granted various credit facilities to the borrower - erstwhile owner of the properties in question on 31.02.2014 and by way of deposit of title deed created first charge mortgage over the properties of the borrower. 9.2.3 Respondent No.2 - Authority vide its order dated 02.07.2015 and 18.09.2020 has ordered for attachment of the mortgaged properties and mutation entry being Entry Nos.15661 and 18595 were mutated in the revenue record on 15.07.2015 and 22.09.2020, respectively. 9.2.4 Respondent No.1 - Bank iss....
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.... settled position of law that the debts due to any secured creditor shall be paid in priority over all other debits and all revenues, taxes, cesses and other rates payable to the Central Government or state Government or local authority. 11.2.2 At this stage, reference is made to Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which reads as under : " 26E. Priority to secured creditors. - Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or 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 (31 of 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 debt shall be subject to the provisions of that Code.] " 11.2.....
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....tion 73, 75, 79, or 94, be deemed to be an order passed under this Act." 11. Sections 31B and 34 of the Recovery of Debts and Bankruptcy Act, 1993, read as under : "31B. Priority to secured creditors.- 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 (31 of 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 debt shall be subject to the provisions of that Code." "34. Act to have over-riding effect.- (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything incon....
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.... "THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (Act No.54 of 2002) STATEMENT OF OBJECTS AND REASONS The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham C....
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....ompanies Act, 1956; (g) Defining 'security interest' as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; (h) Empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or takeover management in the event of default, i.e., classification of the borrower's account as nonperforming asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time; (i) The rights of a secured creditor to be exercised by one or more of its officers authorized in this behalf in accordance with the rules made by the Central Government; (j) An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal; (k) Setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration of transactions relating to securitisation, asset reconstruction and creation of sec....
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....more than Rs.5622 crores in dues of Public Sector Banks and about Rs.391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunal and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill. ACT 51 OF 1993 The Recovery of Debts Due to Banks and Financial Institutions Bill having been passed by both the Houses of Parliament received the assent of the President on 27th August 1993. It came on the Statute Book as THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (51 of 1993):)" 27. The principles discernible from the decision of the Supreme Court in the case of Kumaon Motor Owners' Union Ltd. (supra) are that, if there is a conflict between the provisions of the two Acts and if there is nothing repugnant, the provisions in the later Act would prevail. The second principle discernible is that, while resolving the con....
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....Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016), the Central Government hereby appoints the 1st day of September, 2016 as the date on which the following provisions of the said Act shall come into force, namely :- Sr. No. Sections 1 Sections 2 and 3 (both inclusive); 2 Sections 4 [except clause (xiii)]; 3 Section 5 and 6 (both inclusive); 4 Sections 8 to 16 (both inclusive); 5 Sections 22 to 31 (both inclusive); 6 Sections 33 to 44 (both inclusive). [F.No. 3/5/2016 DRT] ANANDRAO VISHNU PATIL, Jt. Secy." 32. Section 31B has been inserted in the Recovery of Debts and Bankruptcy Act, 1993 (herein after referred to as "the RDB Act") by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, w.e.f. 1.9.2016, which contains a non-obsante clause and which expressly provides that the secured debts shall be paid in priority over all other debts and Government dues including the State taxes. 33. Apart from the fact that Section 31B of the RDB Act is a later ena....
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....axmann.com 246 (SC), it was held by the Bombay High Court that, "By virtue of lien on securities under rule 43 of Bombay Stock Exchange Rules, BSE being secured creditor of defaulting member would have priority over dues of Income - tax department." While dealing with the tax recovery under Section 226 of the Incometax Act, 1961, read with Sections 8 and 9 of the Securities Contracts (Regulation) Act, 1956, it was held by the Apex Court that collection and recovery of tax has to be based on proper appreciation of facts of the case. While deciding Other modes of recovery (Priority over debts), the Apex Court duly considered the power of Central Government to direct rules to be made or to make rules and observed that a membership card is only a personal permission from Stock Exchange to exercise rights and privileges that may be given subject to Rules, Bye-Laws and Regulations of Exchange and moment a member is declared a defaulter, his right of nomination shall cease and vest in Exchange because even personal privilege given is at that point taken away from defaulting member. It therefore held that by virtue of rule 43 of Bombay Stock Exchange Rules security provided by a member sha....
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....n analogous to Section 48 of the VAT Act which creates a statutory charge. 50. There is one another important argument of Mr. Sheth which is quite appealing and we are at one with Mr. Sheth on the same. Indisputably, the Bank put forward its claim over the secured assets of the Bank for the first time on 01.10.2016 and that too by way of provisional attachment of the properties under Section 45 of the VAT Act, keeping in mind the dues that may be determined in future. It is not in dispute that there were no crystallized dues as on 01.10.2016 and, therefore, there was no question of there being any charge under Section 48 of the VAT Act which could only be in respect of the actual dues. It is also not in dispute that prior to the dues being crystallized in the case of the defaulting dealer, the Bank had already taken over the possession of the properties of the dealer, and by that time, Section 31B of the RDB Act had already been enforced by the Central Government. It is preposterous to suggest that the charge over the property under Section 48 of the State Act would come into force from the assessment of the earlier financial years and what is relevant in the present case ....
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....nt observations made in the said judgment. "It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer." 54. In view of the aforesaid discussion, We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003. 55. In the result, this writ application succeeds and is hereby allowed. The impugned attachment notice dated 22.01.2018 (Annexure-A) and the impugned communication dated 19.04.2018 (Annexure-B) issued by the respondent No.2 is hereby quashed and set aside. It is hereby declared that the Bank has the first charge over the properties mortgaged from M/s. M. M. Traders by virtue of Section 26E of the ....