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2021 (5) TMI 1026 - HC - VAT and Sales TaxRecovery of dues - priority of charges - attachment of property in question which already stands mortgaged with petitioners by respondent No. 4, by creating and claiming their first charge upon the same - Body Corporates constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or not - first charge upon the property of the dealer in terms of the provisions of the RDB Act and the SARFAESI Act, as amended from time to time or not - whether the first charge shall be that of respondents No. 1 to 3 in terms of the provisions of Section 26 of the Himachal Pradesh Value Added Tax Act, 2005? HELD THAT - By virtue of the amendments incorporated in the Central Statutes, the Financial Institutions now have priority over the rights claimed by the Revenue. Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 create First Charge by way of priority in favour of the Banks and Financial Institutions de hors any non obstante Clause contained in any Local Statute. The Legislators were aware of the lacunae which were existing in the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, on account of which, the Banks/Financial Institutions were not having first charge by way of priority to recover and satisfy their debts visavis the Revenue in lieu of the statutory provisions contained in the Local Acts. It was to over ride this difficulty that the amendments were incorporated. A perusal of the provisions of Section 38 of the KVAT Act and Section 26 of the HP VAT Act demonstrates that these provisions are almost pari materia. This Court concurs with the reasoning of the Hon ble High Court of Kerala that after coming into force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory first charge in favour of the Revenue - It is also necessary to take note of one fact that though Section 26E of the SARFAESI Act has come into force from 24.01.2020, yet the same will not have any effect on the issue of the Banks/Financial Institutions having first charge on the property of the dealer, as the provisions of Section 31B of the RDB Act shall over ride the provisions of Section 26 of the HP VAT Act, 2005. The provision of Section 48 of the Gujarat Value Added Tax Act,2003, is also pari materia to the provisions of Section 26 of the Himachal Pradesh Value Added Tax Act, 2005. The Hon ble High Court of Gujarat in BANK OF BARODA THROUGH ITS ASSISTANT GENERAL MANAGER PREM NARAYAN SHARMA VERSUS STATE OF GUJARAT 3 OTHER (S) 2019 (9) TMI 1049 - GUJARAT HIGH COURT , while interpreting the provisions of Section 48 of the Gujarat VAT Act visavis the provisions of Section 26 of the SARFAESI Act and Section 31B of the RDB Act has held that the first priority over the secured assets shall be of the Bank and not of the State Government on account of Section 48 of the Gujarat VAT ACT, 2003. There is no ambiguity that in view of the provisions of Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, a secured creditor has priority over the rights claimed by the Revenue. This Court has no hesitation in holding that the petitioners being Secured Creditors have preference over the respondent-State with regard to the debts due from respondent No. 4 - Petition allowed.
Issues Involved:
1. Whether the petitioners have the first charge on the property of the dealer under the provisions of the SARFAESI Act and the Recovery of Debts and Bankruptcy Act (RDB Act) or whether the first charge belongs to the respondents under Section 26 of the Himachal Pradesh Value Added Tax (HP VAT) Act, 2005. Issue-wise Detailed Analysis: 1. First Charge on Property: The primary issue in this case is to determine whether the petitioners (banks) have the first charge on the property of the dealer under the SARFAESI Act and the RDB Act, or whether the respondents (State) have the first charge under Section 26 of the HP VAT Act, 2005. The petitioners argued that their rights as secured creditors under the SARFAESI Act and the RDB Act take precedence over the State's claims under the HP VAT Act. They cited Section 31B of the RDB Act and Section 26E of the SARFAESI Act, which provide that the rights of secured creditors shall have priority over all other debts, including government dues. 2. Statutory Provisions: The court examined relevant statutory provisions, including Section 26E of the SARFAESI Act, which states that debts due to secured creditors shall be paid in priority over all other debts and government dues. Similarly, Section 31B of the RDB Act provides that the rights of secured creditors shall have priority over all other debts and government dues. These provisions were incorporated to address the lacunae identified by the Supreme Court in the Central Bank of India vs. State of Kerala case, where it was held that the non obstante clauses in the SARFAESI Act and the RDB Act could not override the first charge created by state legislations. 3. Judicial Precedents: The court referred to several judgments, including the Kerala High Court's decision in State Bank of India vs. State of Kerala, which held that the amendments to the SARFAESI Act and the RDB Act create a first charge in favor of banks and financial institutions, overriding any state legislation. The court also cited decisions from the Madras High Court, Gujarat High Court, Madhya Pradesh High Court, and Bombay High Court, all of which supported the view that the amendments to the SARFAESI Act and the RDB Act give priority to secured creditors over state claims. 4. Interpretation of Non Obstante Clauses: The court analyzed the non obstante clauses in the relevant statutes and concluded that the provisions of the SARFAESI Act and the RDB Act, being central legislations, take precedence over the HP VAT Act. The court noted that the amendments to the central statutes were specifically incorporated to ensure that the rights of secured creditors have priority over state claims. 5. Conclusion: The court held that the petitioners, as secured creditors, have the first charge on the property of the dealer under the SARFAESI Act and the RDB Act. The respondents' claim under Section 26 of the HP VAT Act cannot override the petitioners' rights. The court quashed the impugned notice dated 24.06.2017 and held that the provisions of the HP VAT Act must give way to the provisions of the SARFAESI Act and the RDB Act. The writ petition was allowed, and the respondents were directed not to claim first charge over the secured assets of the petitioners. Separate Judgments: No separate judgments were delivered by different judges in this case. The judgment was delivered by a single judge, and the analysis and conclusions are based on the interpretation of the relevant statutory provisions and judicial precedents.
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