2019 (2) TMI 2037 - HC - Customs

Seeking lifting of attachment - recovery of dues - priority over such dues - whether the charge created by the Customs Department would prevail over the charge created by the Bank in discharge of which the property in question was auctioned and purchased for valuable consideration by the petitioner? - Section 26E to the SARFAESI Act - HELD THAT - The question of priority of charge was considered by the Full Bench of this Court in the case of UTI Bank Limited vs. Deputy Commissioner Central Excise 2006 (12) TMI 2 - MADRAS HIGH COURT setting out the scheme of priority in respect of collection of dues, where it was held that In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts. The Section is unambiguous and provides that a charge created over a property to a secured creditor, being a financial institution, would prevail over all other charges created over the asset in question and is absolute in its obligation - In the present case, the charge created by the Bank is prior in time to the demand raised by the customs authorities. Moreover, the customs authorities have not even registered an encumbrance or created a charge but only written a letter to the Registrar not to entertain any transfer of the property in question. This cannot, in any way stand in the way of the Bank, as secured creditor, taking recourse under SARFAESI. The respondent is directed to lift the attachment over the property in question within a period of two (2) weeks from date of receipt of a copy of this order - Petition allowed.

Summary

Issues:
1. Validity of the proceedings of the respondent in F.No.S.Misc/391/2017-Bonds (Sea), dated 20.07.2018
2. Priority of charge between the Customs Department and the Bank in relation to a property auctioned and purchased

Analysis:
1. The petitioner sought a Writ of Certiorari to quash the respondent's proceedings in F.No.S.Misc/391/2017-Bonds (Sea), dated 20.07.2018. The property in question, originally owned by Mr. Pramod Kumar Saraf, was mortgaged to Indian Overseas Bank in 2008. Due to default, the Bank took possession of the property in 2010 under the SARFAESI Act and later auctioned it to the petitioner in 2011.

2. An attachment was placed on the property by customs authorities in 2010 due to assessments against related entities of the property owner. The petitioner, after purchasing the property, faced challenges in registering it due to the existing attachment. The respondent, Assistant Commissioner of Customs, contended that the customs department held the first charge over the property due to non-payment of customs duty.

3. The judgment analyzed the priority of charges based on legal provisions and precedents. Referring to the Full Bench case of UTI Bank Limited vs. Deputy Commissioner Central Excise, it was established that in the absence of specific provisions in the Central Excise Act and Customs Act, the claim of a secured creditor prevails over Crown's debts. Additionally, Section 26E of the SARFAESI Act mandates that debts due to a secured creditor take priority over all other debts and government dues.

4. The Court emphasized that the charge created by the Bank, being a secured creditor, held precedence over any claims by the customs authorities. The Bank's charge was prior in time to the customs demand, and the absence of a registered encumbrance by the customs authorities further supported the Bank's position. Consequently, the Court allowed the Writ Petition, directing the respondent to lift the attachment on the property within two weeks.

This detailed analysis of the judgment highlights the legal intricacies involved in determining the priority of charges over a property in a situation where both a financial institution and a government department assert claims.