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2019 (11) TMI 1689 - HC - VAT and Sales TaxLiability to the First charge - Priority to secured creditors - Section 26E of the SARFESI Act - HELD THAT - Suffice it to state that Section 26E of the SARFESI Act has a non obstante clause and so does Section 37 of the Maharashtra Value Added Tax Act 2002 but notwithstanding the non obstante clause in Section 37 it is subject to any provision regarding creation of first charge in any Central Act. Meaning thereby harmoniously read a secured creditor would have a first charge over an asset and the charge created in favour of the State of Maharashtra under Section 37 of the Maharashtra Value Added Tax Act 2002 would be subject to the first charge created by the Central Legislation which in the instant case would be SARFESI Act 2002. The Petitioner Co-operative Bank would have the first lien over the sale proceeds realised by selling the secured assets. If there is any surplus the same would be credited to the account of the State of Maharashtra. Noting that the dues of the Petitioner as claimed in the notice under Section 13(2) of the SARFESI Act were Rs. 123/- Crores it is directed that the amount lying in this Court pursuant to sale of Flat No. 302 Heera Kunj Bhagat Singh Road Vile Parle (W) Mumbai 400 056 together with interest which is accrued thereon shall be released by the Registry of this Court in the name of the Petitioner for the reason the said amount is much less than Rs. 123/- crores. Petition disposed off.
Issues: Priority of secured creditors under SARFESI Act vs. Maharashtra Value Added Tax Act
In this judgment by the Bombay High Court, the primary issue revolved around the priority of secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act) as compared to the Maharashtra Value Added Tax Act, 2002. The court analyzed the conflict between Section 26E of the SARFESI Act and Section 37 of the Maharashtra Value Added Tax Act, which both contained non obstante clauses but with differing implications. The court first highlighted the amendment to the SARFESI Act in 2016, introducing Section 26E which emphasized the priority of secured creditors over other debts and government dues after the registration of security interest. The insertion of this section aimed to streamline the payment hierarchy in cases of insolvency or bankruptcy proceedings, subject to the Insolvency and Bankruptcy Code, 2016. Additionally, the judgment pointed out Section 37 of the Maharashtra Value Added Tax Act, which established that tax liabilities and other dues under the Act would constitute the first charge on the property of the dealer, subject to any provision in a Central Act creating a first charge. The court interpreted that while both statutes contained non obstante clauses, the charge created by the SARFESI Act would take precedence over the charge created in favor of the State of Maharashtra under the VAT Act. Ultimately, the court ruled in favor of the secured creditor, a Co-operative Bank in this case, affirming their first lien over the sale proceeds from the secured assets. Any surplus from the sale would then be credited to the State of Maharashtra. The judgment also directed the release of a specific amount held by the court to the petitioner due to being significantly less than the claimed dues, thereby concluding the writ petition. In conclusion, the Bombay High Court's judgment clarified the hierarchy of creditor priorities under the SARFESI Act and the Maharashtra Value Added Tax Act, ensuring the rights of secured creditors are upheld in cases of asset realization and debt recovery processes.
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