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2020 (5) TMI 691 - HC - Indian LawsDenial of Predominance over the statutory charge due to Government - Whether a secured creditor can claim priority for sale and payment over statutory charge holders, due under State enactment? - SARFAESI Act and the RDB Act - HELD THAT - The SARFAESI Act and the RDB Act are Central enactments while the KVAT Act is a State enactment. The effect of inconsistency between a Central enactment and State enactment is resolved by recourse to Art. 254(1) and Art. 246 of the Constitution of India. Art. 254(1) deals with the Parliamentary supremacy in matters in which Parliament is competent to enact. Competence to enact a law is as specified under Art. 246. Supremacy of Parliament will be maintained irrespective of any conflict between matters in which both Centre and the State can enact on a subject matter - as per Article 254, the Central law will prevail, subject of course to the provisions in Art. 254(2). If a provision of law contained in the Concurrent list is made by the State legislature and receives assent of the President, then such a State enactment will prevail. The intention of the Constitution makers is evident that there must be uniform application of laws throughout the territory of India and in the event of any inconsistency between the Central law and the State law, the former alone shall be operative. When the inconsistency between the provisions of a Central Act and a State Act is of such a nature that they come into direct collision with each other, and it is impossible to comply with one without disobeying the other, a clear case of repugnancy arises. Repugnancy may also arise between the two enactments, even though obedience to each of them is possible without disobeying the other, if the competent Legislature of superior efficacy, expressly or impliedly evinces by the legislation, a clear intention to cover the whole field - it can safely be concluded that the provisions of SARFAESI Act and RDB Act (as amended) containing provisions commencing with non-obstante clauses and giving specific priority to secured creditors even over the taxes due from the Governments, will prevail over the KVAT Act. The sale carried out either under the SARFAESI Act or under the RDB Act takes precedence over the statutory charges due to the Government created under KVAT Act or under other State Enactments after the Amendment Act of 2016. A secured creditor in whose favour a security interest has been created thus has priority in sale and payment over all other statutory charge holders. The 2nd respondent Sub Registrar, Kottarakkara is directed to register the original of Annexure-A4 sale certificate as and when the same is presented for registration - Application allowed.
Issues Involved:
1. Whether a secured creditor can claim priority for sale and payment over statutory charge holders under State enactments. 2. The impact of the non-notification of certain provisions of the SARFAESI Act. 3. The effect of inconsistency between Central and State enactments. Detailed Analysis: 1. Priority of Secured Creditors over Statutory Charge Holders: The primary issue addressed is whether a secured creditor under the SARFAESI Act can claim priority over statutory charges due to the Government under State enactments like the Kerala Value Added Tax Act (KVAT Act). The court noted that the SARFAESI Act and the Recovery of Debts and Bankruptcy Act (RDB Act) were amended in 2016 to include Sections 26E and 31B respectively, which explicitly grant priority to secured creditors over all other debts and government dues, including taxes. The court emphasized that these provisions contain non-obstante clauses, indicating the legislature's intent to give these provisions overriding effect over other laws. 2. Non-notification of Provisions of the SARFAESI Act: Although Chapter IV-A of the Amendment Act, 2016, which includes Section 26E of the SARFAESI Act, has not been notified, the court held that the mere enactment of the law creates repugnancy with State laws that create first charges for statutory dues. The court cited precedents to assert that repugnancy arises at the time of the law's making, not its commencement. Thus, the priority given to secured creditors by the amended provisions stands, even without formal notification. 3. Inconsistency Between Central and State Enactments: The court discussed the constitutional principles governing the inconsistency between Central and State laws, particularly Articles 254(1) and 246 of the Constitution of India. It highlighted that in cases of direct conflict, Central laws prevail over State laws. The court referred to multiple precedents to underline that the non-obstante clauses in Sections 26E and 31B of the SARFAESI Act and RDB Act, respectively, ensure that these Central laws take precedence over conflicting State laws like the KVAT Act. Conclusion: The court concluded that the sale conducted under the SARFAESI Act or RDB Act takes precedence over statutory charges due to the Government under State enactments post the 2016 amendments. Consequently, the secured creditor has priority in sale and payment over all other statutory charge holders. Order: The court directed the Sub Registrar, Kottarakkara, to register the sale certificate and the Village Officer to effect the mutation of the property. Additionally, the validity of the e-stamp used for the sale certificate was extended due to delays caused by the pandemic. Final Judgment: The application was allowed, affirming the precedence of secured creditors' rights over statutory charges under State enactments.
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