TaxTMI 
TaxTMI 
2023 (6) TMI 1530
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....ng the secured asset. 2. The third respondent borrowed money from the petitioner bank and respondent Nos. 4 to 8 stood as guarantors for the loan facilities availed by the third respondent. The loan facilities extended to third respondent were secured by way of mortgaging different properties including the property admeasuring 9,317 square yards with RCC building and sheds situated in Sy. No. 15, Plot No. 7-A, Gaddapotharam Village, Jinnaram Mandal, Sangareddy District Telangana State. 3. Holding that the third respondent failed to discharge the debt, the bank declared the loan account of the third respondent as non-performing asset and the bank has taken recourse to the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for Short "2002 Act") and Recovery of Debts and Bankruptcy Act, 1993 (for Short "1993 Act") to recover the money due. The petitioner filed O.A.No.1179 of 2013 in Debts Recovery Tribunal, Hyderabad subsequently re-numbered as O.A.No.286 of 2017 on the file of Debts Recovery Tribunal-II, Hyderabad. The said O.A was decreed for the debt amount of Rs. 9,16,61,397/- with pendent lite and future interest an....
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....0,00,000/- and sale certificate was also registered in the name of the highest bidder. 7. In both the writ petitions, the parties are same. The orders of Deputy Commercial Tax Officer dt. 30.11.2016 and the Orders of Recovery Officer and Debts Recovery Tribunal concern same property mortgaged by the borrower. Therefore, they are considered by this common order. 8. We have heard learned senior counsel for the petitioner bank Sri E Madan Mohan Rao and learned standing counsel for the respondent Nos.1 and 2 Sri Venkateshwar Rao. 9. Learned senior counsel contended that as security interest is created in favour of petitioner bank, the bank has the first charge to recover its loan amount. 9.1. He would further contend that in view of provision under Section 31B of the 1993 Act, the Bank's claim shall prevail over any other claims even if there is any conflict in the two enactments and the bank has the priority to recover the debts while selling the secured assets mortgaged with the bank. 9.2. In support of his contentions learned senior counsel placed reliance on STATE BANK OF INDIA, KACHIGUDA, HYDERABAD Vs. UNION OF INDIA AND OTHERS 2020 (4) ALD 261 (TS) (DB), STATE BANK....
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.... reads as under:- "31B. Priority to secured creditors.-Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority." 15. According to this provision notwithstanding anything contained in any other law, the rights of secured creditors to realize 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 etc. In terms of this provision, the bank has the priority to recover the dues by selling the security asset created with the bank. 16. Section 82 of the Telangana State Goods and Services Act, reads as under: "82. Tax to be first charge on property: Notwithstanding anything to the contrary contained in any law for the time being in force, save as other....
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.... over Section 82 of the Act, 2017. 22. Next question for consideration is since Act, 2017 is later law, will that prevail over Act, 1993. 23. There is an apparent inconsistency between these two provisions. This Court requires to consider whether there is repugnancy of State law compared to Central law. 24. The Doctrine of repugnancy has been enshrined in Article 254 of The Constitution of India, to deal with conflicting Centre and State laws with respect to legislative enactments on the same subject matter. Article 254 reads as under: "254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause ( 2 ), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State sha....
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....f the State." Repugnancy between two statutes may thus be ascertained on the basis of the following three principles: (1) Whether there is direct conflict between the two provisions; (2) Whether Parliament intended to lay down an exhaustive code in respect of the subject-matter replacing the Act of the State Legislature and (3) Whether the law made by Parliament and the law made by the State Legislature occupy the same field." 27. In the case of State Of Maharashtra vs Bharat Shanti Lal Shah & Ors (2008) 13 SCC 5 on 1 September, 2008, the Supreme Court interpreted the provision of Article 254 in the following manner. "32. Article 254 of the Constitution succinctly deals with the law relating to inconsistency between the laws made by the Parliament and the State Legislature. The question of repugnancy under Article 254 will arise when a law made by Parliament and a law made by State Legislature occupies the same field with respect to one of the matters enumerated in Concurrent List and there is a direct conflict in two laws. In other words, the question of repugnancy arises only in connection with subjects enumerated in Concurrent List. In s....
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....w, Act, 2002 shall prevail. Section 31-B is emphatic in its tone and tenor conveying in clear terms that secured creditor shall have priority right to realize secured debts over all other debts and Government dues including revenues, taxes, cess and rates due to Central Government, State Government, Local Authority. In other words, if secured interest is created in a property, the secured creditor shall have first right to recover. As the field is occupied by the Central legislation, clearly holding that the secured creditor shall have priority right to realize secured debts, a State Legislature even if made later can not seek to encroach upon such field and to that extent Central legislation shall prevail. Further, as per Section 34 of the Act, the provisions of Act, 1993 shall have over riding effect over any other Statute. 33. We also have the advantage of these issues delineated and considered lucidly by Gujarat and Bombay High Courts in the following decisions: 33.1. In Kalupur Commercial Co-Operative Bank Ltd. v. State of Gujarat 2019 SCC OnLineGuj 1892,, before Gujarat High Court, issue fell for consideration was when a State tax act (Section 48 of Gujrat VAT Act) also....
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....ovisions 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 principle discernible is that the court must look into the language of the provisions. If the language of a particular provision is found to be more emphatic, the same would be indicative of the intention of the legislature that the Act shall prevail over the other statutes. ...... 51. The principles of law discernible from the decision of the Supreme Court in the case of Solidaire India Ltd. (supra) are 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 co....
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....ation 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." 76. 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." (emphasis supplied) 33.2. In the case Jalgaon JantaSahakari Bank Ltd. v. Joint Commissioner of Sales Tax 2022 SCC OnLine Bom 1767, the Bombay High Court analysed whether dues accrued by the state government department will take precedence over dues payable to the secured creditor. The High Court, in light of Section 26 - E of the SARFESI Act, 2002 and Section 31B of the RDDB Act, 1993 held that these acts being a central legislations would take precedence over state legislations pertaining to recovery of dues/tax, provided that the secured creditors had registered their charge over the property with CERSAI. Bombay High Court held : "73. The 2016 Amending Act also introduced a fresh chapter (Chapter IV-A) in the SARFAESI Act adding four mor....
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....erties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31 B and section 26-E, that the dues of the secured creditor shall have 'priority' over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. 90. We may answer the question from a different angle. The RDDB Act and the SARFAESI Act are Central Acts. If any provision therein is discerned to be seemingly inconsistent with any provision in a State legislation, reconciliation of the same ought to be attempted failing which the Central Acts will prevail over the State legislations, in view of the principle of repugnancy that Article 254 of the Constitution contemplates. Further, section 37 of the MGST Act and section 38C of the BST Act expressly make it subject to the provisions of any Central Act creating 'first charge'. Also, section 26-E of the SARFAESI is a subsequent legislation, as it was notified on 24th January, 2020. Subject to compli....
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....ht for recovery of debt over the mortgagee or pledgee of goods or secured creditors. The law was further settled by the Supreme Court in Punjab National Bank Vs. Union of India [(2022) 7 SCC 260] on this score." (emphasis supplied) 34. We are in respectful agreement with the opinion expressed by Gujarat and Bombay High Courts in the above decisions. 35. In DENA BANK Vs BHIKHABHAI PRABHUDAS PAREKH AND COMPANY AND OTHERS (2000) 5 SCCC 694, the Hon'ble Supreme Court has clearly delineated the priority right of the secured creditor. Hon'ble Supreme Court has held as under:- "However, the Crowns preferential right to 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 for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crowns right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule doe....
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....r issue, has held that : (SCC OnLine Mad paras 25-26) "25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs. 26. In the light of the above discussion, we conclude, '(i) Generally, the dues to Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts. (ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others. (iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence ove....