2020 (12) TMI 1261 - HC - Indian Laws

Validity of attachment and auction notice - Section 26E of the Act and Section 31B of the Bankruptcy Act - right of the petitioner to yield to crown debt coupled with charge is sustainable or not - HELD THAT - A reading of provisions of law makes it abundantly clear that the said provisions are analogous though under two different legislations. Section 26E of the Act, which came into force w.e.f 24-01-2020 begins with 'non obstante' clause and stipulates that after registration of the 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 or State Governments or local authority. Section.31B of the Bankruptcy Act is also to the same effect. When the language of the provisions of law is very lucid and clear, no other interpretation is possible. In the instant case, the 3rd respondent created mortgage over the subject property by way of a registered deed in favour of Andhra Bank as long back as on 16-03-2013 and as the account of the loanee became NPA on 31-07-2016, the Bank authorities initiated action under the provisions of the Act by issuing notices under Section 13(2) and (4) of the Act. It is absolutely not in controversy that the petitioner herein clearly falls under the definition of secured creditor as defined under Section 2(zd) of the Act, since the petitioner herein is an Asset Reconstruction Company in whose favour Andhra Bank assigned the debt by way of registered document on 26-09-2017 - Having regard to the language employed in Section 26E of the Act and 31B of the Bankruptcy Act, the contention of the learned Government Pleader that mortgage in favour of the petitioner herein should yield to crown debt coupled with charge cannot be sustained in the eye of law. Submission of the learned Government Pleader that since the petitioner-institution did not take any steps pursuant to the assignment of debt in its favour, it is liable to be non-suited, is also not tenable having regard to the above said provision of law - this court has absolutely no scintilla of hesitation to hold that the impugned action is neither sustainable nor tenable in the eye of law. Petition allowed.

Summary

Issues:
Challenge to auction notice and attachment notice under A.P. Revenue Recovery Act,1864.

Analysis:
The writ petition challenged the auction notice and attachment notice issued by the Deputy Commercial Tax Officer-I, Chittoor, under the A.P. Revenue Recovery Act,1864. The petitioner, an Asset Reconstruction and Securitization Company, acquired the debt from Andhra Bank after the borrower defaulted. The petitioner argued that the notices were illegal and violated Article 14 of the Constitution. The petitioner cited a Division Bench order in support of their contentions.

The Government Pleader for Commercial Tax contended that the petitioner's reliance on certain laws was irrelevant to the case. They argued that the petitioner could not benefit from certain provisions and that the mortgage debt should yield to crown debt. The main issues for consideration were the sustainability of the proceedings by the 2nd respondent and the validity of the petitioner's rights against crown debt.

The court found that the petitioner, being an Asset Reconstruction Company, fell under the definition of a secured creditor. The court analyzed the provisions of the Act and the Bankruptcy Act, emphasizing the priority of secured creditors in payment of debts. The court noted that the petitioner informed the authorities about the security interest, and past judgments supported the priority of charge over mortgaged property for secured creditors.

The court rejected the Government Pleader's arguments regarding the prospective application of the laws and the petitioner's inaction after the debt assignment. The court held that the impugned action was not sustainable in law and allowed the writ petition, setting aside the auction and attachment notices. The court concluded that the notices were invalid and closed any pending miscellaneous petitions.

In conclusion, the judgment addressed the legality of the auction and attachment notices under the A.P. Revenue Recovery Act,1864, considering the rights of the petitioner as a secured creditor and the priority of secured debts. The court's detailed analysis of relevant provisions and past judgments led to the decision to set aside the notices based on the lack of legal sustainability.