AI Drafter 
TaxTMI 
TaxTMI 
2024 (10) TMI 229
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....From 2013 till 2020, respondent No. 3 also availed facilities from the petitioner towards the said mortgage. On 29.01.2022, petitioner bank instituted SARFAESI proceedings as against the respondent No. 3. Meanwhile, respondent No. 1 had initiated proceedings against the respondent No. 3 in the year 2021 by issuance of a notice dated 31.03.2021 pursuant to which respondent No. 1 passed an order of attachment on 06.03.2023 in relation to the subject property. Since the petitioner had already instituted the proceedings under the SARFAESI Act as against respondent No. 3, subject property was brought to sale by way of public auction and the successful auction bidder Shri Imran Hussain purchased the property in the auction sale and the sale certificate was issued in his favour on 28.04.2023. It is the specific contention of the petitioner that the petitioner's right has priority and would prevail over the claim of respondent Nos. 1 & 2 as well as the impugned order of attachment by virtue of Section 26 (E) of the SARFAESI Act which has a over riding effect over all debts payable to anyone else including claims/attachments of respondent Nos. 1 & 2 and consequently, since the petitione....
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....m of the petitioner as against the subject property mortgaged by respondent No. 3 in favour of the petitioner is as long back as in year 2013 would have an over riding effect in respect of all subsequent claims including the alleged claims of respondent Nos. 1 & 2 which was only in the year 2017 as held by the Madras High Court in the case of State Bank of India Vs. Tax Recovery Officer (supra), wherein it reads as under: "28. One more rule of construction is that when two competing Acts construed to further the purposes behind them produce a conflict; the court may resolve the conflict by taking into consideration as to which Act represents "the superior purpose", as held in the case of Allahabad Bank v. Canara Bank [MANU/SC/0262/2000: (2000) 4 SCC 406], which reads as under: "34. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers of the Company Court in Sudarsan Chits (I) Ltd. case [MANU/SC/0037/1984: (1984) 4 SCC 657], and other cases, the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of....
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....re is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." The Special Leave Petition is stated to be pending before the Apex Court and there is an order of "Status Quo" in SLP (Civil) No. 20471 of 2021 dated 16.03.2018. In view thereof, the Full Bench Order of this Court would continue to bind/govern. b) Secondly, we would think the examination of the above question may be academic, in view of the fact that even if the recovery proceeding is set-aside for any reason, the same may not serve any purpose. The claim of the Bankers/Financial Institutions is admittedly still outstanding, hence it is open for the Bankers/Financial Institutions on proceeding being....
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.... the Recovery of Debts and Bankruptcy Act and Section 26E of the SARFAESI Act would be available and the right to recover under the Income Tax Act, 1961 must yield to the provisions under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act and thus, the above exercise may not serve any useful purpose. Therefore, the above issue appears to be a mere academic exercise and we do not intend to examine the question any further. 30.1. In view of the legal position explained above and applying the same to the facts of the present case, we arrive at the following conclusion: (i) In WA. No. 60 of 2022, the appellant is a secured creditor, who offered credit facilities to the Respondents 4 and 5, for which, mortgages were created in favour of appellant on 23.04.2013 vide document No. 453 of 2013, on 18.08.2014 vide document No. 2467 of 2014 and on 22.10.2015 vide document No. 3168 of 2015. However, the Income Tax Department passed the order of attachment on 03.11.2015, for recovery of the tax dues, in respect of the properties over which mortgages were already created. (ii) In W.A. No. 1249 of 2022, the appellant sought to quash the communication of the R....
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....ct, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 44. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India v. SICOM Ltd. (supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944. 45. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the ve....
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.... the petitioner - Bank, the 3rd respondent mortgaged the schedule property along with the other property on 20.02.2015 by way of registered Memorandum of Title Deeds and letter handing over title deeds of the properties. Since the 3rd respondent defaulted in repayment of loan, the loan accounts were classified as 'NPA' by the petitioner - Bank. It is contended that when the petitioner - Bank was contemplated initiation of proceedings under the SARFAESI Act, 2002, it learnt that the 2nd respondent had seized the schedule property for alleged offences said to have been committed by the 3rd respondent under the provisions of the Foreign Exchange Management Act, 1999 (for short 'the FEMA') and passed the impugned order dated 31.03.2022 directing seizure of the schedule property and other properties of the 3rd respondent. 3. It is contended that the petitioner submitted a representation dated 29.07.2022 to the 2nd respondent requesting release / cancellation of the attachment / seizure, to which, the 2nd respondent issued a reply dated 04.08.2022 intimating the petitioner that a petition under Section 37A(2) of FEMA had already been filed by the 2nd respondent before the compet....
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....ent dues viz., revenues, taxes, cesses and rates due to the respondents 1 and 2. (iv) That the impugned seizure order dated 31.03.2022 passed under Section 37A(1) of the FEMA is illegal, arbitrary and without jurisdiction or authority of law and the same deserves to be quashed. In support of his submissions, learned Senior counsel relied upon the following judgments:- (i) SBICAP Ventures Ltd, Vs. Joint Director, Directorate of Enforcement (Bengaluru Zonal Office) and others- W.P.No. 1360/2023 dated 20.03.2023(Bombay); (ii) Solidaire India Ltd., Vs Fairgrowth Financial Services and others - (2001) 3 SCC 71; (iii) Assistant Commissioner vs. Indian Overseas Bank- 2016 SCC Online MAD 10030. 7. Per contra, learned counsel for respondents 1 and 2 submits that the alleged dues payable in respect of the property attached in the impugned order would not be covered under any of the amounts / sums mentioned / stated in Section 26E of the SARFAESI Act and the contention of the petitioner was liable to be rejected. It was also submitted that in the light of availability of equally efficacious alternative remedy before the appellate tribunal ....
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....everal judgments including Solidaire India's case supra, wherein it was held as under:- 7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32 (1) of the said Act reads as follows: "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "13. Act to have overr....
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....the 3rd respondent in favour of the petitioner - Bank, by virtue of Section 26E of the SARFAESI Act which overrides and prevails over alleged dues of 3rd respondent under FEMA, the 2nd respondent was not entitled or empowered to invoke 37A of FEMA because of the overriding effect contained in 26E of the SARFAESI Act. Under these circumstances, I am of the view that the impugned order passed by the 2nd respondent is illegal and arbitrary in addition to being without jurisdiction or authority of law and the same deserves to be quashed. 15. A perusal of the material on record will indicate that the schedule property had been mortgaged in favour of the petitioner - Bank on 20.02.2015; it is an undisputed fact that Section 37A of the FEMA came into force w.e.f. 09.09.2015 by virtue of Act No. 20 of 2015, under which, Section 37A was inserted into the FEMA; the said provisions of Section 37A being substantive in character clearly cannot be construed or treated as being retrospective or retroactive in operation and the same cannot be made applicable to the schedule property which had undisputedly been mortgaged in favour of the petitioner - Bank prior to Section 37A of the FEMA c....
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....ubt, 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 debt shall be subject to the provisions of that Code." 3. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets ov....
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....epresent the Central Government, the same are covered by the aforesaid provisions and as such, the said contention urged by the respondents 1 and 2 cannot be accepted. 20. Insofar as the contention as regards availability of equally efficacious and alternative remedy by way of an appeal under Section 37A(5) of the FEMA is concerned, in the light of the findings recorded by me hereinbefore that the impugned order is without jurisdiction or authority of law and the same is not only illegal and arbitrary but also contrary to the provisions contained in the SARFAESI Act and RDBI Act and consequently, mere availability of a remedy by way of an appeal cannot be construed or treated as denuding this Court of its jurisdiction under Article 226 of the Constitution of India and the said contention of the respondents 1 and 2 in this regard cannot be accepted. 21. In the result, I pass the following: ORDER (i) Petition is hereby allowed. (ii) The impugned order at Annexure-A dated 31.03.2022 passed by the 2nd respondent insofar as it relates to the schedule property mortgaged by the 3rd respondent in favour of petitioner -Bank is hereby quashed. ....