TaxTMI 
TaxTMI 
2024 (7) TMI 1547
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...., thereafter the matter was taken up for hearing from time to time. 4. By this petition under Article 226 of the Constitution of India, the petitioners have prayed for the following reliefs: "8. a) That the Hon'ble Court may be pleased to issue an appropriate writ, order or direction to the effect that statutory charge under section 48 of the Gujarat Value Added Tax Act, 2003 ceased to operate over Plot nos. B/17 to B/27, B/28 to B/39, B/40 to B/48, B/49 to B/56, B/68 to B/78 and B/79 to B/90 (in all admeasuring 15019.43 sqm. with construction of 5843 sqm.) situated on survey nos. 102 and 112/2, Block no. 93 of Village Mota Borasara, Sub district Mangrol, District Surat, with effect from date of sale in favour of the Petitioners; (a)(1) the Hon'ble Court may be pleased to issue an appropriate writ, order or direction to declare that Bank of Baroda had first charge over the Land which would override statutory charge under Gujarat Value Added Tax Act, 2003 and that the authorities under the Gujarat Valued Added Tax Act, 2003 cannot enforce charge over the Land to recover dues of Kabra Plastics Limited and/or Gujarat Poly Plast Ltd. (a)(2) the Hon....
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.... The petitioner purchased the land in question in auction held by the respondent no. 6-Bank under the provisions of the Act and the Rules, being parcel of the 63 industrial plots in an auction being plot numbers B/17 to B/27, B/28 to B/39, B/40 to B/48, B/49 to B/56, B/68 to B/78 and B/ 79 to B/90 in all admeasuring 15019.43 sq.mtrs with construction of 5843 sq.mtrs. situated on survey nos. 102 and 112/2, Block no. 93 of Village Mota Borasara, Sub district Mangrol, District Surat. 5.2. It is the case of the petitioner that the land in question was owned by one Binodkumar Ramprasad Kabra who mortgaged the same in favour of the consortium of Banks including respondent no. 6-Bank of Baroda and IDBI Limited for borrowing facilities granted to M/S. Kabra Plastics Limited. The Kabra Plastics Limited defaulted in repayment of finance advanced to it by the consortium of Banks and therefore land was put to auction after issuance of notice under the Rules to realise the dues of the secured creditors. 5.3. The petitioner was a successful bidder in the auction conducted on 16.11.2021 at an offer price of Rs. 7, 21, 00, 000/- which was accepted by the Bank of Baroda by letter dated 17.11.....
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....reated by Sales Tax/ VAT Department has preferred this petition with the aforesaid prayers. 6. Learned advocate Ms. Megha Jani for the petitioners submitted that in view of the decision of this Court in case of Kalupur Commercial Co-Operative Bank Ltd. Vs. State of Gujarat in Special Civil Application no. 17891 of 2018 rendered on 23.09.2019, the issue is no more resintegra because in view of Section 26A of the Securitisation Act, the respondent no. 6-Bank shall have priority of charge over the statutory dues of the Sales Tax/ VAT Department. 6.1. It was submitted that Chapter IVA comprising provisions of Section 26B to 26E are brought on statute by the Act no. 44 of 2016 with effect from 24.01.2020. It was therefore submitted that, as held by the Hon'ble Division Bench of this Court, the subsisting of the charge created by the Sales Tax/VAT Department is required to be quashed and set aside in view of the applicability of Section 26E of the Securitisation Act, as respondent no. 6-Bank would have first charge over the properties mortgaged by the Kabra Plastics Ltd. 6.2. Learned advocate Ms. Jani thereafter referred to the decision of decision of Kalupur Commercial Co-Opera....
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....ged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimham Committee's 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Subsection (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money....
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....sions similar to those contained in Section 14A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, Section 30 of the Gift- Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitisation Act. 130. Undisputedly, the two enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and Securitisation Act on the one hand and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may b....
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....twithstanding anything to the contrary in any other law. 34. We are sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35. While it is true that the Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31B of the RDB Act, being a substantive provision giving priority to the "secured creditors", the same will be applicable irrespective of the procedure through wh....
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....in submitting that on the date on which the State of Karnataka proceeded to attach and sell the property of the partners of the firm mortgaged with the bank, it could not have appropriated the sale proceeds to the sales-tax arrears payable by the firm, thereby defeating the bank's security. In taking such view, the Supreme Court relied on its earlier decision in the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588." 6.3. Thereafter learned advocate Ms. Jani referred to the Full Bench decision of the Hon'able Bombay High Court in case of Jalgaon Janta Sahkari Bank Ltd. And Anr. Vs. Joint Commissioner of Sales Tax and Anr. reported in (2022) SCC Online Bombay 1767 (Larger Bench). 6.4. It was pointed out that the Full Bench of the Hon'ble Bombay High Court has framed following substantial questions of law for consideration: "44. Keeping in view the rival submissions, we have considered it appropriate to formulate the following substantial questions of law for answers: a. Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant ....
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....the relevant question is question g, which pertains to whether the auction purchaser of the secured asset would be liable to pay dues of the department in view of the subsistence of the charge of the respondent Sales Tax/ VAT Department. It was submitted that the Hon'ble Bombay High Court answered to question 'g' in favour of the petitioner as under: "158. A conjoint reading of the aforesaid rules admits of no doubt that the authorized officer while putting up an immovable property, i.e., the secured asset, for sale, is under a duty to notify, inter alia, the details of the encumbrances (in respect of such property that is proposed to be sold) which are known to the secured creditor as well as to require the purchaser to deposit money to discharge the encumbrances. 159. The Supreme Court in its decision in AI Champdany Industries Ltd. (supra) after considering the definition of 'encumbrance' in several law dictionaries, held that an 'encumbrance' "must be capable of being found out either on inspection of the land or the office of the Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or deprec....
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....hatever there is basis", the transferee shall be duty bound to deposit money for discharge of the encumbrance(s) provided, of course, that such liability may be overcome if he is in a position to disprove the claim of the department that he had no constructive notice of the charge, far less actual notice." 6.6. It was submitted that in the facts ofthe present case, the petitioners did not have any constructive notice of the charge and therefore though the auction sale is finalized in favour of the petitioners on "as is where is whatever there is basis", the petitioners cannot be made liable to pay any amount pursuant to the charge created by the Sales Tax/ VAT Department for recovery of the outstanding dues of the defaulter company. 6.7. It was submitted that the Full Bench of the Bombay High Court has answered questions a to c as per the decision of this Court in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra) and so far as the observations of the Hon'ble Bombay High Court with regard to questions d , e and f are concerned, while considering the amendment of Section 31B of the Recovery of Debt Act and Bankruptcy Act, 1993 (for short 'RDB Act') which has also been br....
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....no uncertain terms that as per Section 26E of the Act the charge of the Secured Creditor Bank shall have priority. It was submitted that only rider which is provided by the Full Bench of the Hon'ble Bombay High Court is to the effect that the secured creditor has to fulfill the other mandatory provisions that is provision of Section 26D of the Securitisation Act for registration of the charge with the Central Registry. 6.11. It was pointed out that similar provision is not made in RDB Act as the secured creditor is required to approach the DRT for determination of the debt due and payable to claim priority of charge over statutory dues of the respondent Sales Tax/ VAT Department as per the provision of Section 31B of the RDB Act. 6.12. Learned advocate Ms. Jani submitted that in the facts of the case, the auction notice was issued by the Bank on 31.10.2021 and auction was held on 16.11.2021 and bid was accepted on 17.11.2021 whereas notice under Section 13(2) of the Securitisation Act was issued in the year 2017 prior to the charge mutated in the revenue record by the respondent Sales Tax/ VAT Department. It was also pointed out that the mortgage over the land in question was....
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....igh Court in case of Jalgaon Janta Sahkar Bank Ltd. And Anr. (Supra), wherein decision of the Division Bench of the Bombay High Court in case of Medineutrina Pvt. Ltd (company) Vs. District Industries Centre (DIC) And others reported in 2021 SCC Bombay 222 is also considered. Referring to the decision in case of Medineutrina Pvt. Ltd (company) (Supra) it was submitted that the provisions of Section 37(1) of the Maharashtra VAT Act and provisions of the Gujarat VAT Act are similar. It was submitted that the provisions of Section 48 of the VAT Act is more in general nature which provides that the tax to be first charged on the property of a dealer or any other person on account of tax interest and penalty payable. It was further submitted that the Division Bench of the Bombay High Court in case of Medineutrina Pvt. Ltd (company), while considering the aspect, the provisions of Section 37(1) of the Maharashtra VAT Act, 2002, vis-a-vis the auction purchaser of the property mortgaged with the secured creditor under the provisions of Securitisation Act and more particularly Section 26E has issued following directions for the secured creditors to take precautions for the sale of the mortg....
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....a charge upon the property, the same could be included in the reserve price, for sale of the property or got deposited from the bidder separately, so that the encumbrance could be cleared, by the secured creditor. (iv) where the secured creditors aware of encumbrance, the value for discharging such encumbrance, either can be included in the reserve price or got deposited from the bidder, so that the encumbrance could be cleared, by the secured creditor." 7.1. It was submitted that in the facts of the case, the respondent no. 6-Bank has not taken any care as per the aforesaid decision and accordingly, the petitioners as well as respondent no. 6-Banks are liable to pay outstanding dues of the Sales Tax/ VAT Department in view of the charge created prior in point of time, i.e. in the year 2018, as the auction took place in the year 2021. 7.2. It was submitted that the provisionof Section 26E of the Act has come into effect from 24.01.2020, whereas respondent Sales Tax Department has created charge in the year 2018 and as such as per the provisions of Section 48 of the VAT Act, the respondent shall have priority of the charge over the land in question and not respondent ....
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...., the claim of the Tax Department of the State, squarely falls within the definition of "Security Interest" under Section 3(31) of the IBC and the State becomes a secured creditor under Section 3(30) of the Code. 43. The learned Solicitor General rightly argued that when a grievance was made before the Adjudicating Authority with regard to a Resolution Plan, the Adjudicating Authority was required to examine if the Resolution Plan met the requirements of Section 30(2) of the IBC. The word "satisfied" used in Section 31(1) contemplates a duty on the Adjudicating Authority to examine the Resolution Plan - The Resolution Plan cannot be approved by way of an empty formality." 7.4. Referring to the above decision of the Hon'ble Apex Court, it was submitted that the provision of Section 48 of GVAT Act will have an overriding effect over the provisions of the IBC Act and therefore, it was submitted that when the provisions of Section 48, which are more general in nature, the decision of the Hon'ble Apex court would be squarely applicable in the facts of the case. It was therefore submitted that as per the provisions of Section 48 of the VAT Act, the petitioners would be liable....
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....d the State tax dues shall have priority over the charge of the secured creditor as provided in Section 26E of the SARFAESI Act, as under: "99. Applying these tests to Chapter IV-A, coupled with the express provision in section 26D regulating the exercise of power by secured creditors by barring them to take recourse to Chapter III of the SARFAESI Act without the CERSAI registration, there could be little hesitation to hold that section 26E of the SARFAESI Act would apply prospectively. 100. Pertinently, in the cases that we have in hand, the newly incorporated provisions cast certain mandatory duty and obligation on secured creditors. If they seek to invoke the provisions of Chapter III of the SARFAESI Act and enforce the security interest, the same needs to have a CERSAI registration. Such creditors would be entitled to seek 'priority' in terms of section 26E only after the security interest is registered and other provisions of the SARFAESI Act are complied with. Provisions in Chapter IV-A cannot be construed in a manner so as to disturb, impair or divest the State of its accrued rights. Sections 26D and 26E of the SARFAESI Act no doubt begin with non-o....
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....ection 48 of the GVAT Act, it was finally concluded in the impugned order as under:- "55. In our considered view, the NCLAT clearly erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Act. Section 53 of the IBC begins with a nonobstante clause which reads: - "Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority. .......... 56. Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(l)(b) (ii), the debts owed to a secured creditor, which would include the State under the GVAT Act are to rank equally with other specified debts including debts on account of workman's dues for a period of 24 months preceding the liquidation commencement date. 57. As observed above, the State isa secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest ....
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....mount realized on the sale of the assets of the company in liquidation. It was submitted that in the facts of the case, respondent no. 6-Bank has exercised its powers under the provisions on SARFAESI Act to realize its outstanding dues by selling the property mortgaged with it by the borrower. It was therefore submitted that under the provisions of Act when the property is already mortgaged with respondent no. 6-Bank, as per the Section 100 of the Transfer of Property Act, respondent-Bank would have charge over the property prior in point of time and provision of Section 48 which provides for charge by operation of law would not be applicable in view of the decision of this Court, in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra). 8.1. It was further submitted that the Hon'ble Division Bench of this Court in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra) has analysed in detail the provisions of the Securitisation Act as well as provisions of the VAT Act and it has been held that once the property is sold by secured creditor under the provision of Securitisation Act and Securitisation Rules, the amount realized will have to be appropriated towards the satisfac....
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....sale or whether the respondent no. 6-Bank would be liable to discharge such charge created by the respondent Sales Tax/VAT Department. 12. Before we consider the above questions, it would be germane to refer to the relevant provisions of the Act and Rules to answer the above questions which otherwise stands answered by the decision of this Court in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra), however, in view of the decision of the Hon'ble Apex Court in case of Rainbow Papers Ltd. (Supra) and the decision of the Full Bench of the Bombay High Court as canvassed by the respondent authority to the effect that the decision of Kalupur Commercial Co-Operative Bank Ltd.(Supra) is required to be relooked or not. "The Securitization Act: 2(z) "securitisation" means acquisition of financial assets by any [asset reconstruction company] from any originator, whether by raising of funds by such [asset reconstruction company] from 3 [qualified buyers] by issue of security receipts representing undivided interest in such financial assets or otherwise; (zc)"secured asset" means the property on which security interest is created; (zd) "secured cred....
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....hin sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). [Provided that- (i) the requirement of classification of secured debt as non-performing asset under this subsection shall not apply to a borrower who has raised funds through issue of debt securities; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.] xxxxx (4) In case the borrower fails to discharge his liability in full within the period specified in subsection (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer....
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....rder with particulars of the assessee and details of tax or other Government dues from such date as may be notified by the Central Government, in such form and manner as may be prescribed. (5) If any person, having any claim against any borrower, obtains orders for attachment of property from any court or other authority empowered to issue attachment order, such person may file particulars of such attachment orders with Central Registry in such form and manner on payment of such fee as may be prescribed. 26D. Right of enforcement of securities.-Notwithstanding anything contained in any other law for the time being in force, from the date of commencement of the provisions of this Chapter, no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry. 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 al....
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....ovable secured assets. (1) Where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspaper, one in vernacular language having sufficient circulation in that locality, by the authorized officer. (2A) [ All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.] [Inserted by Notification no. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).] (3) In the event of possession of immovable property is actually taken by the authorized officer, such property shall be kept in his own custody or in the custody of any person authorized or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the si....
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....thorized officer considers it necessary for a purchaser to know the nature and value of the property. (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled [between the secured creditors and the proposed purchaser in writing] [Substituted 'between the parties in writing' by Notification no. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002). 9. Time of sale, issue of sale certificate and delivery of possession, etc. (1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower: Provided further that if sale of immovable property by any one of the methods specified by sub rule (5) of rule 8 fails and sale is required to be conducted again, the authorized officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.] [Substituted by Notification no. .G.S.R. 1046 (E), dated 3.11.2016 (w.....
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....mbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. (8) On such deposit of money for discharge of the encumbrances, the authorized officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not." The Recovery of Debts and Bankruptcy Act, 1993: "19. Application to the Tribunal.-(1) Where a bank or a financial institution has to recover any debt from any person, it ma....
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....ation under this Chapter and subsequently opts to withdraw the application for the purpose of initiating proceeding under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) to recover debts, it may do so with the permission of the Tribunal and every such application seeking permission from the Tribunal to withdraw the application made under subsection (1A) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application: Provided that in case the Tribunal refuses to grant permission for withdrawal of the application filed under this subsection, it shall pass such orders after recording the reasons therefor.] Ins. by Act 44 of 2016, s. 41 (w.e.f. 19-2016) 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....
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....uch dealer, or as the case may be, such person." The Bombay Land Revenue Rules "118. Form of notice of demand.- The notice of demand to be issued under section 152 shall be in Form S." The Insolvency And Bankruptcy Code, 2016 "3(29) "Schedule" means the Schedule annexed to this Code; 3(30) "secured creditor" means a creditor in favour of whom security interest is created; 3(31) "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; 53. Distribution of assets. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority a....
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....d to be sold by public auction in execution of a decree, the Court shall cause a proclamation of the intended sale to be made in the language of such Court. (2) Such proclamation shall be drawn up after notice to the decree-holder and the judgment-debtor and shall state the time and place of sale, and specify as fairly and accurately as possible- (a) the property to be sold [or, where apart of the property would be sufficient to satisfy the decree, such part]; (b) the revenue assessed upon the estate or past of the estate, where the property to be sold is an interest in an estate or in part of an estate paying revenue to the Government; (c) any incumbrance to which the property is liable; (d) the amount for the recovery of which the sale is ordered; and (e) every other thing which the Court considers material for a purchaser to know in order to judge of the nature and value of the property: [Provided that where notice of the date for settling the terms of the proclamation has been given to the judgment-debtor by means of an order under rule 54, it shall not be necessary to give notice under this rule to the judgment-deb....
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....ing changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a long- felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved 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 bee....
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....red creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Subsection (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if the....
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.... two enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and Securitisation Act on the one hand and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis a vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured cr....
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.... that, if there is a conflict between the two special Acts, the later Act must prevail. To put it in other words, when there are two special statutes which contain the non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non-obstante clause. If the legislature still confers the later enactment with a non- obstante clause, it means that the legislature wanted that enactment to prevail. 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 enactment, the language of the said provision also clearly indicates the intention of the Parliament to give precedence even over the Govern....
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.... Cas 226 (Mad) [FB]; AIR 2017 Mad 67 [FB], was called upon to answer the following two questions: "(i) As to whether the Financial Institution, which is a Secured Creditor, or the Department of the Government concerned, would have the 'Priority of Charge' over the Mortgaged property in question, with regard to the tax and other dues, and (ii) As to the status and the rights of a Third party Purchaser of the Mortgaged property in question."" 14. In case of Odhavji Mohanbhai Gadhiya Vs. State of Gujarat in SCA no. 9394 of 2021 rendered on 30.09.2022 after considering the decision of Kalupur Commercial Cooperative Bank (Supra) it is held by this Court as under: "5.1 The settled position of law is that the VAT and sales tax dues has no precedence over the dues of the bank for recovery of which the bank exercise powers under the SARFAESI Act. The bank was secured creditor. Section 26 E of the SARFAESI Act provides for priority of secured creditor, stating that notwithstanding anything contained in any other law, after the registration of security interest, the debts due to unsecured creditor shall be paid in priority of all other debts and all reven....
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.... the propositions of law highlighted, respondent no. 3 Sub Registrar was wholly unjustified in passing order dated 6.3.2021 to keep the document no. 1169 dated 16.2.2021 which was sale deed executed by the petitioners, keeping the same pending and not returning the same to the petitioners. 6.1 Since the petitioner had purchased in the auction sale conducted by the bank under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 the property travelled in favor of the petitioner free from any encumbrances, order of sales tax officer registering the charge over the property in relation to the sales tax and Value Added Tax payable by original owner of the property had no efficacy in law. The communication dated 14.10.2019 which was relied on by respondent no. 3 in passing aforesaid order dated 6.3.2021 whereby the charge was created by sales tax authority could also not sustain. 6.2 As a result order dated 6.3.2021 passed by respondent no. 3 Sub Registrar, Jamnagar as well as decision reflected in communication dated 14.10.2019 of the respondent no. 5 of Assistant Commissioner of sales tax- Gondal, are l....
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....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 priority over all debts owned by defaulter member. The first thing to be noticed is that the Income Tax Act does not provide for any paramountancy of dues by w....
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....ection 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 VAT Act would come into play only when the liability is finally assessed and the amount becomes due and payable. It is only thereafter if there is any charge, the same would operate. The authority under the VAT Act....
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....epartment of the Government ought to be repaid first by reason of 'first charge' created over any property by operation of law (viz. the legislation in force in Maharashtra) giving such dues precedence over the dues of a secured creditor? c. Are the provisions, inter alia, according 'priority' in payment of dues to a secured creditor for enforcing its 1-WP-2935-2018 & Connected-FD security interest under the provisions of the SARFAESI Act prospective? d. Whether section 31B of the RDDB Act can be pressed into service for overcoming the disability that visits a secured creditor in enforcing its security interest under the SARFAESI Act upon such creditor's failure to register the security interest in terms of the amendments introduced in the SARFAESI Act? e. Whether the priority of interest contemplated by section 26E of the SARFAESI Act could be claimed by a secured creditor without registration of the security interest with the Central Registry? Depending on the answer to this question, whether correct proposition of law has been laid down (extracted infra) in paragraph 21 of the Division Bench decision reported in 2020 (2) Bom. C. R. ....
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....institutions is created for recovery/realization of their dues in priority to the dues of a department of the Government. 53. A Division Bench of the Gujarat High Court, in its decision reported in (2019) SCC Online Guj 1892 (Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat) considered an issue with regard to the priority of the petitioning cooperative bank over the dues vis-à-vis the sales tax dues which the State Government intended to recover from the assets of the defaulter. In other words, the question was whether by virtue of section 26E of the SARFAESI Act the same would override the charge of the State Government under section 48 of the Gujarat Value Added Tax Act, 2003. The Division Bench was of the view that section 48 of the relevant VAT Act would come into play only when the liability is finally assessed, and the amount becomes due and payable. It is only thereafter, if there is any charge, the same would operate. 54. Giving due regard to a decision rendered previously by the presiding Judge of the Division Bench, it was held in Kalupur Commercial Co-operative Bank Ltd. (supra) by the Division Bench that it had no hesitation in arr....
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.... been brought into force and notwithstanding section 31B of the RDDB Act being in force, for the purposes of action taken under the SARFAESI Act, the charge created by section 37 of the MVAT Act shall prevail. 59. In paragraph 12, the Court observed as follows: "12. A perusal of Section 37 of MVAT Act, 2002 reveals that though it commences with a non-obstante clause, but it recognises that the same shall be subject to any provision regarding creation of the first charge in any Central Act. Therefore, if, by virtue of any provision under a Central Act any priority or charge is created in favour of any party the same shall prevail." 60. Thereafter, the Division Bench referred to section 31B of the RDDB Act, the decision in G. M. G. Engineers and Contractor (supra), Assistant Commissioner (CT) (supra), Bank of Baroda (supra) and and Kalupur Commercial Cooperative Bank Ltd. (supra), while recording its concurrence in paragraph 19 with the consistent view taken by 3 (three) Division Benches of 3 (three) High Courts and the view taken by the Full Bench of the fourth High Court. Prior to allowing the writ petition and quashing the impugned notice dated 13th Nove....
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....ility of Section 31B, irrespective of determination of the amount due and payable, but reference to the Section 31B of the RBD Act is made as both Sections 31B and Section 26E of the RDB Act and 26E of the SARFAESI Act are brought on statute by the Act no. 44 of 2016 and both the Sections provide for priority of the charge of the secured creditor over all other dues, including the Government dues. This Court has not considered the applicability of Section 31B irrespective of the prescribed procedure laid down under provisions of the RDB Act for determination of the debt due and payable so as to give priority of the charge over such debt due and payable to the secured creditor. 21. The Full Bench of the Bombay High Court has therefore rightly held that Section 31B of the RBD Act can only be invoked when there is determination of debt due and payable as provided under the RDB Act with the intervention of the Court and in that scenario, it was observed with regard to the decision of this Court in case of Kalupur Commercial Cooperative Bank (Supra). 22. Learned AGP Mr. Chintan Dave has referred to and relied upon the findings of the Full Bench in para 99, reproduced herein above,....
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....sence of any discussion on the object of introduction of Chapter IV-A of the SARFAESI Act by the Division Bench in ASREC (India) Ltd. (supra), we are constrained to hold that a law has been declared which runs clearly contrary to the statutory mandate and, therefore, paragraph 21 of such decision does not represent the correct position of law. 132. The other Division Bench in State Bank of India vs. State of Maharashtra (supra) may not have considered sections 26D and 26E of the SARFAESI Act in such great depth in the absence of proper assistance from the parties while holding that even if the secured creditor does not register the mortgage under section 26D of the SARFAESI Act, such alleged non-registration, in view of the Division Bench's discussion on section 31B of the RDDB Act, would not affect the legal position on the issue of priority. 133. We have no hesitation to hold that the views expressed by the Division Benches in ASREC (India) Ltd. (supra) and State Bank of India (supra), as discussed above, on the question under consideration are not the correct exposition of law and, to that extent, stand overruled. Answer to question (f) "150. The c....
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....ity and all actions pursuant thereto are liable to be struck down/quashed. However, the proceedings before us do not concern execution of any decree. 153. In these proceedings we are as much concerned with proclamation itself as much with attachment. Insofar as recovery pursuant to the MLR Code is concerned, not only the provisions contained therein but also the provisions contained in the 1967 Rules are to be complied with. Simply ordering an attachment is not enough; a proclamation has to be issued in the prescribed form and such proclamation must be made public by beating of drum and such other mode as specified in section 192 of the MLR Code and rule 11(2) of the 1967 Rules before the property attached is sold. 154. We are of the considered opinion, on facts and in the circumstances, that unless attachment of the defaulter's immovable property is ordered in the manner ordained by the MLR Code and as prescribed by the MRLR Rules and due proclamation thereof is made, even the creation of charge on such immovable property may not be of any real significance, not to speak of demonstrating with reference to evidence that the transferee had actual or co....
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....itor under sub-section (4) of section 13 of the SARFAESI 1WP-2935-2018 & Connected-FD Act, have been laid down in rules 8 and 9, respectively, of the 2002 Rules. 157. Provisions contained in subrule (7) of rule 8 of the 2002 Rules read thus: "(7) Every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorized officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include, (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserved price of the immovable secured assets below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property. Sub-rules (....
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.... January 2020, it may not have been possible for a secured creditor to know precisely all encumbrances in respect of the immovable property. With the insertion of section 26B in the SARFAESI Act read with the 2011 Rules, a secured creditor is expected to know some of such encumbrances if at all compliance of section 26B is resorted to by the Central Government, any State Government or a local authority, to whom money is owed by the defaulter being an owner of the property. Such a statutory mechanism for knowing the encumbrances in respect of the immovable property being put up for sale by auction not being available before 24th January 2020, the authorized officers were found to play it safe by inserting the "as is where is, whatever there is basis" clause in the sale advertisement. Once such clause is inserted in the advertisement and the prospective purchaser upon bidding in the auction emerges as the highest bidder, normally such purchaser cannot insist upon issuance of sale certificate without clearing the liability of meeting other dues in relation to such property. This is because he participates in the auction and bids, with his eyes open, that the sale would be on "as is wh....
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....ge subsisting on the property which is put to auction sale. 27. In such circumstances, the auction purchaser who does not have a constructive notice of any charge over the property cannot be made liable to make the payment, assuming for a while that the charge subsist on the property. 28. In view of the above analysis made by the Full Bench of the Bombay High Court, as stated in para 161 extracted herein above, the auction purchaser shall not be duty bound to make any payment, even if the charge subsist over the property, except what is stated in the sale agreement or sale deed executed between the parties. 29. In the facts of the case, it is also not in dispute that the conditions stated in the sale deed only stipulates with regard to the liability of the auction purchaser for payment of all rents, taxes, assessment rates and dues which may be chargeable on the property purchased in auction sale and all the Estate, right, interest, possession, benefit, claim and demand whatsoever both at law and intended or expressed so to be with their and every of their rights, members and appurtenance unto and to the use and benefit of the purchaser on "as is where is whatever there is....
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....roperty once sold, then charge would be shifted to the sale consideration realized and therefore it would be between the respondent State and the secured creditor as to who will have first right to recover such sale consideration. It may happen that even though the secured creditor may have the first charge over the property and respondent State might have sold the property then in that circumstances also the question would arise whether the secured creditor would be entitled to recover such sale consideration from the State Authority by virtue of first charge over the property. 33. In such circumstances, as held by this Court in case of Kalupur Commercial Cooperative Bank (Supra) and as per the decision of the Full Bench of the Bombay High Court, the secured creditor would have the first charge in view of the priority of the charge as prescribed in Section 26E of the SARFAESI Act and Section 31B of the RBD Act as the case maybe. 34. In view of the above, now the question would arise whether the subsequent decision of the Hon'ble Apex Court in case of Rainbow Papers Ltd. (Supra) would be applicable to the issue as to the priority of the charge of the secured creditor visa-vis....
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.... claim to property, created in favour of, or provided for a secured creditor by a transaction, which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person. xxxxx 53. In other words, if a company is unable to pay its debts, which should include its statutory dues to the Government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated in Section 53 of the IBC. 54. In our considered view, the Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Authority or for that matter, any other dues. 55. In our considered view, the NCLAT clearly erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Act. Section 53 of the IB....
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....enacted that any amount payable towards tax or penalty by any person would constitute a 'first charge' on the property of such dealer or person. The corporate debtor had defaulted in payment of its tax dues and recovery proceedings had been initiated. In the meanwhile, insolvency proceedings had commenced. During the resolution process, the State tax authorities claimed that the dues payable had to be accrued previously and relied upon Section 48, in addition to Section 53 of the IBC. The State contended that the non-obstante clause in the state enactment and the non-obstante clause in the IBC operated at different fields, and the State had to be treated as a 'secured creditor' by virtue of Section 48 of the state act. This was rejected by the NCLT and the NCLAT. However, this court took note of Sections 30 and 31 of the IBC and certain other provisions and held that NCLT had erred in its observations. It was held that: "56. Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally wi....
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....e, having lower priority. As noticed earlier, this intention is also evident from a reading of the preamble to the Act itself. 55. According to the principles of statutory interpretation, when an enactment uses two different expressions, they cannot be construed as having the same meaning. It was held in Member, Board of Revenue v. Anthony Paul Benthall that: "When two words of different import are used in a statute, in two consecutive provisions, it would be difficult to maintain that they are used in the same sense..." This idea is reflected in a subsequent judgment in Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club." 56. The views expressed by the present judgment finds support in the decision reported as Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs 38. In that case, Section 142A of the Customs Act 1962 was in issue - authorities had submitted that dues payable to it were to be treated as 'first charge' on the property of the assessee concerned. In the resolution process, it was argued that the Customs Act, 1962 acquired primacy and had to be given effect to. This court, after notici....
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....s (supra) [refer also: Innoventive Industries (supra), CIT v. Monnet Ispat & Energy Ltd., Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., and Jagmohan Bajaj v. Shivam Fragrances Private Limited. 58. In view of the above discussion, itis held that the reliance on Rainbow Papers (supra) is of no avail to the appellant. In this court's view, that judgment has to be confined to the facts of that case alone." 36. From the above, it is clear that the Judgment in case of Rainbow Papers Ltd. (Supra) is confined to the facts of the said case only and therefore, it would not be required to relook the decision of the Kalupur Commercial Cooperative Bank (Supra) considering the decision of the Rainbow Papers Ltd. (Supra) of the Apex Court, as the facts of the present case are in the realm of the provisions of the RDB Act and SARFAESI Act, whereas the decision of the Apex Court in case of Rainbow Papers Ltd. (Supra) was in realm of IBC Code confined to the facts of the said case as observed in the subsequent decision of the Apex Court. 37. It is also pointed out by the learned AGP that the decision of the Rainbow Papers Ltd. (Supra) was considered in ....