TaxTMI 
TaxTMI 
2024 (9) TMI 1771
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....ecuring the same, the property situated at Gondal Revenue Survey No. 416/1 paikiee, Binkheti Land A. 3-33 G. Known as Shstri Nagar Paikee, Binkheti Plot No. 29, Paikee Residential House on land Sq. Yrds., 120-3 sq. mtrs., 100.65 of Gondal City Survey Ward No. 2, Sheet No. 150, City Survey No. 2967/23 Street No. 2 Shashtri Nagar, Off Yogiraj Pan main Road, Jetpur Road, Gondal Tal. Gondal Dist. Rajkot came to be mortgaged by the petitioner bank, the copy of the said mortgage deed is duly produced at Annexure-A. 3.2 As the respondent No. 3 defaulted in repaying the aforesaid credit facility, the applicant bank classified the said account as NPA (Non-Performing Asset) on 30.03.2018, in accordance with the Reserve Bank of India directives and guidelines. 3.3 In spite of the bank's repeated requests and reminders, the borrower did not repay the dues of the petitioner bank and in view thereof, the petitioner bank issued notice under Section 13(2) of the SARFAESI Act, 2002 to the Borrowers/Mortgagers/Guarantor and thereby demanded an amount of Rs. 2,80,86,457/-. The possession of the property was taken over by the petitioner bank under the provisio....
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.... of this petition, YOUR LORDSHIP be further pleased stay the operation and implementation of the impugned attachment order and charge recorded in the revenue record vide Entry no. 1749 by the respondent no. 2 at ANNEXURE-"F". (D) Pending admission, hearing and final disposal of this Special Civil Application, Your Lordships may be pleased to restrain the respondent no. 2 from taking any further steps in relation to the properties mortgaged by the Respondent no. 3 to 6 as security with the petitioner bank, and in view of the provisions under Section 26-E of the SARFAESI Act, 2002 for the reasons stated in the Memo of Petition and in the interest of justice; (E) The Hon'ble Court may kindly be pleased to grant such other relief(s) as deemed fit in the facts and circumstances of the case and in the interest of justice." 4. Mr. Sandip Bhatt, learned advocate appearing for the writ applicant submitted that the petitioner bank herein is a secured creditor of the property as referred to above; having sold the property to auction purchaser under SARFAESI Act. When the auction purchaser approached for verification of the revenue record, the charge of the respon....
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....x; State Tax Officer; Savair Energy Ltd; Maharashtra Industrial Development Corporation; State of Maharashtra reported in 2024 Law Suit (Bom) 558 and in case of State of Gujarat & Anr V/s. Pra Realities LLP & Anr reported in 2024 Law Suit (Guj) 697. 4.6 Placing reliance on the aforesaid, it is submitted that the Hon'ble Division Bench has also held that the mere Entry in the revenue record creating charge over the property by the State Department would not amount to any encumbrance on the immovable property, which has been sold in the public auction, more so when there is no attachment order of the property-in-question. 5. Ms. Nidhi Vyas, learned AGP appearing for the respondent No. 1 and 2 relied on the affidavit-in-reply, which is duly placed on record at page 46 and has submitted that the respondent State has been vigilant with respect to the amount that is payable by one M/s. Rohini Oil Mill which was a registered tax payer under the Gujarat Value Added Tax Act, 2003 and Central Sales Tax Act, 1956 and assessment order under Section 34 of the Gujarat Value Added Tax Act, 2003 and Central Tax Act read with Rule 9 of the Central Tax Act (Gujarat) Rules of 1970 was issued f....
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.... Section 26E of the SARFAESI Act, 2002, which reads thus: "Section 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." 7.1. Section 26E of the SARFAESI Act, 2002, as referred above, has an overriding effect on any other provision of any other law for the time being in force. The aforesaid section provides that the benefit of compliance of the provisions of Chapter IVA and declares that after the registration of security interest, the debts due to any secured creditor shall be paid in priority over; (a) all other debts (b) revenues (c) cesses, and; (d) other rates, payable to the (i) Central Government; (ii) State Government, or (iii) any local authority. The section has carved out an exception to the common law principle that a sovereign debt has priority over all other private debts. 8. Position of law:- (a). At this stage, it is apposite to refer to the ratio ....
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....harge on the property. Section 48 reads as under : "48. Tax to be first charge on property.- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person." 10. Section 46 of the VAT Act is with regard to the special powers of the tax authorities for recovery of tax as arrears of land revenue. Section 46 of the VAT Act reads as under : "46. Special powers of tax authorities for recovery of tax as arrears of land revenue. (1) For the purposes of effecting recovery of the amount of tax, penalty or interest due from any dealer or other person by or under the provisions of this Act or under any earlier law, as arrears of land revenue. - (i) The Commissioner, the special Commissioner, Additional Commissioner and the joint Commissioners shall have and exercise all the powers and perform all the duties of the Collector under the Bombay Land Revenue Code, 1879. (ii) The Deputy Commissioners and Assistant Commissioner s....
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....on and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, read as under : "26-E. 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." "35. The provisions of this Act to override other laws -- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." "37. Application of other laws not barred.-- The provisions of this Ac....
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....ed therewith or incidental thereto. The provisions of the Ordinance would enable the banks and financial institutions to realize long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. It is now proposed to replace the Ordinance by a Bill, which, inter alia, contains provisions of the Ordinance to provide for - (a) Registration and regulation of securitisation companies or reconstruction companies by the Reserve Bank of India; (b) facilitating securitisation of financial assets of banks and financial institutions with or without the benefit of underlying securities (c) Facilitating easy transferability of financial assets by the securitisation company or reconstruction company to acquire financial assets of banks and financial institutions by issue of debentures or bonds or any other security in the nature of a debenture; (d) Empowering securitisation companies or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers; (e) Facilit....
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....present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by the banks and financial institutions and suggested remedial measures including 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....
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....st 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. 30. We are conscious of the fact that in the case on hand there is no conflict between two special statutes enacted by the Parliament. The conflict is with the State Act and the Central Act. We are trying to understand the true purport and effect of Section 26E of the SARFAESI Act which came to be enacted later in point of time and also the effect of Section 31B of the RDB Act which came to be enacted later in point of time. In other words, what necessitated the introduction of the two provisions in the two enactments and what object the two provisions would subserve. 31. We may, at the outset, clarify that the Government of India, Ministry of Finance, notified the provisions of Section 26(E) on 1st September 2016. The copy of the Notification issued by the Government of India, published in the Official Gazette Part-II, Section 3, at Serial No. 2142 dated 1st....
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.... 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 which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase "secured creditors" to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. Thus, an interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fa....
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....cement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad v. Central Bank of India [1967] 3 SCR 855 after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore "law in force" in the territory of India before the Constitution and was continued by Article 372 of the Constitution (at page 861, 862). In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. 49. The two decisions referred to above, one of the Supreme Court and another of the Bombay High Court, as such may not be helpful to the Bank because the principal issue in the case on hand is with ....
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....nation there cannot be any application of Section 48 of the VAT Act. We may also refer to Section 47 of the VAT Act. Section 47 of the VAT Act is with respect to transfer of property by the dealer to defraud the Revenue. According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after the tax has become due, then such transfer would be a void transfer. The reason why we are referring to Section 47 is that the phrase therein 'after any tax has become due from him' assumes significance. The same is suggestive of the fact that before the assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of the dealer, such transfer would not be a void transfer. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer. Once this part is over, then Section 48 of the VAT Act would come into play. 53. One of us, J.B. Pardiwala, J., sitting as a Single Judge, had the occasion to consider this issue in the case of Bank of Baroda, Throug....
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....us of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372 (1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the States sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements Their Lordships have summed up the law as under :- 1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts. 2. The common law doctrine about priority of crown debts which was recognised by Indian High Courts prior to 1950 constitutes law in force within the meaning of Article 372 (1) and continues to be in force. 3. The basic justification for the claim for priority of State d....
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....ai Prabhu Dass Parikh and another, [(2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under :- "10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor." (emphasis supplied) 47. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors. [(2007) 8 SCC 353], while adjudicating a similar matter, this Court has held as under :- "18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant - bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts....
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....Madras High Court." (emphasis supplied) 49. An SLP (No. 12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was "Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under :- "9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Consti....
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....nder MSMED Act, if the submission on behalf of respondent No. 1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment / SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No. 1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. (f) The Hon'ble Apex Court in the case of in case of State of Gujarat & Anr V/s. Pra Realities LLP & Anr reported in 2024 Law Suit (Guj) 697. wherein para Nos. 5 to 9 read thus:- "5. Taking note of the provisions of Section 26E read with Section 13(7) of the SARFAESI Act, 2002, we may note that with non-obstante Clause, under Section 26E, priority has been given to the secured creditors wherein the proceedings have been initiated by the secured creditor for recovery of its debt in accordance with the provisions of S....