TaxTMI 
TaxTMI 
2023 (1) TMI 1396
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....a due to the default committed by the borrower/mortgagor, after taking the possession of the property, under the SARFAESI Act. 2.2 The petitioner purchased the said property in the said public e-auction conducted by respondent No.5 - Bank on 16.12.2021 for a sale consideration of Rs.1,45,01,000/- and the Bank issued a sale certificate in favour of the petitioner. 2.3 Thereafter, on 24.06.2022, the sale deed was executed in favour of the petitioner and the possession was handed over to the petitioner, free from all encumbrances by respondent - Bank. 2.4 After the execution of the sale deed, the petitioner came to know that respondent No.1 - the Central Sales Tax Department created charge over the property for the recovery of the dues. Therefore, the Revenue Authority - Sub-Registrar, Sihor has sent a letter dated 24.06.2022 to the petitioner that he shall not release the sale deed unless the the petitioner resolve the issue related to sales tax. 2.5 Therefore, the petitioner, by way of this petition, seeks to hold that he is the absolute owner of the property in question with legal and valid title and a bona fide purchaser; and further seeks direction against the revenue....
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....een the Tax Authorities and the Bank and the Bank was aware about the dues of the Tax Authorities. He has submitted the even though the Bank has published auction in the newspaper and sold the property to the petitioner. He has submitted that this petition may be dismissed. 6. Ms.Raval, learned advocate for respondent No.5 - State Bank of India has submitted that the bank has priority to recover its dues under the Statute. She has submitted that the Bank has rightly executed the sale deed and recovered their dues. She has submitted that the reply was also given by the Bank to the Tax Authority at the relevant point of time and thereafter, there was no correspondence or rebuttal by the Tax Authority for many months. She has submitted that even otherwise, the Bank has priority over the mortgaged property for its dues as per the various decisions of this Court as well as of the Hon'ble Apex Court. She has supported the case of the petitioner. She has submitted that this petition may be allowed. 7. 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. 8. We have heard learned advocates ....
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....ge, 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.] " 11.2.3 Reference in this regard is made to the decision of this Court in the case of Kalupur Commercial Cooperative Bank Ltd., versus State of Gujarat - Special Civil Application No.17891 of 2018 dated 23.09.2019. Relevant paragraphs 9 to 14, 27, 29 to 35 ....
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.... 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 inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in....
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....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 Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have sugges....
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....owering 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 non-performing 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 security interest; (l) Application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other ent....
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....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 conflict, the court must look into the object behind the two statutes. To put it in other words, what necessitated the legislature to enact a particular provision, later in point of time, which may be in conflict with the provisions of the other Acts. The third ....
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....hall 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-obstante 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 enactment, the language of the said provision also clearly indicates the intention of the Parliament to give precedence even over the Government dues notwithstanding anything to the contrary in any other law. 34. We are sure of one thing that there exists n....
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....ment." 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 shall be a first and paramount lien for any sum due to Stock Exchange. Thus, Bombay Stock Exchange being secured creditor would have priority over Govt. dues and if a member of BSE was declared a defaulter, Income-tax department would not have pr....
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.... 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 is that the dues and resultantly the charge under Section 48 of the VAT Act came into existence after the implementation of Section 31B of the RDB Act. 51. Section 48 of the ....
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....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 SARFAESI Act." 11.3. In the instant case, it is an undisputed fact that respondent No.5 - Bank is a secured creditor. Therefore, the Bank has valid first charge over the property i....