2018 (3) TMI 1918 - HC - VAT / Sales Tax

Registration of sale certificate - priority of secured creditors over all other dues - cancellation on the ground that the Commercial Tax Department has created an encumbrance on the property - HELD THAT - The decision of the Full Bench in the case of Assistant Commercial Tax Officer (CT) V. Indian Overseas Bank 2016 (12) TMI 373 - MADRAS HIGH COURT squarely answers the legal issue, wherein, it has been held that the secured creditor is entitled to realise secured debts due and payable by sale of assets over which security interest is created and 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. Therefore, the impugned order has to be held to be unsustainable in law. The first respondent is directed to register the sale certificate after deleting the encumbrance created at the instance of the Commercial Tax Department and the sale certificate shall be registered in favour of the third respondent, within a period of one week from the date of receipt of a copy of this order - Petition allowed.

Summary

Issues:
Challenge to order refusing to register sale certificate due to encumbrance by Commercial Tax Department, priority of secured creditor over other dues, rights of third party purchaser of mortgaged property.

Analysis:
The petitioner challenged an order refusing to register a sale certificate due to an encumbrance created by the Commercial Tax Department, claiming a charge over the property for sales tax arrears. The main issue was whether the petitioner, as a secured creditor, would have priority over all other dues. This issue was settled by a Full Bench decision, which emphasized the priority of secured creditors in realizing debts due by sale of assets over which security interest is created.

The judgment highlighted the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, which introduced Section 31B. This section clarified that the rights of secured creditors to realize secured debts would have priority over all other debts and government dues, including taxes and revenues. The introduction of this section with a 'notwithstanding' clause emphasized the priority of secured creditors, effective from 01.09.2016.

The court emphasized that the law, as introduced by Section 31B, governed the rights of parties even in pending cases. It confirmed that secured creditors have priority in realizing debts by sale of assets over all other dues, including government dues. The judgment conclusively answered the legal issue in favor of the financial institution, recognizing its entitlement to realize secured debts due and payable by sale of assets over which security interest is created.

Regarding the rights of a third party purchaser of the mortgaged property, the judgment clarified that such rights are protected under Section 31B, which includes secured debts due and payable by sale of assets. The court's decision aligned with the Full Bench's ruling, affirming the priority of secured creditors and their entitlement to register the sale certificate without the encumbrance created by the Commercial Tax Department.

In conclusion, the court allowed the writ petition, setting aside the impugned order and directing the first respondent to register the sale certificate in favor of the third respondent, deleting the encumbrance created by the Commercial Tax Department. The judgment upheld the priority of secured creditors and provided clarity on the rights of parties involved in such cases, ensuring the enforcement of legal provisions for secured debts and assets.