2018 (2) TMI 989 - HC - VAT and Sales Tax

Release of attached property - whether the Bank has priority over the dues of the Sales Tax Department? - Held that - the issue is no longer res integra and has been decided by a Full Bench of this Court in the case of The Assistant Commissioner (CT) vs. the Indian Overseas Bank and another 2016 (12) TMI 373 - MADRAS HIGH COURT in which the Court held that financial institution, which is a secured creditor would have Priority of Charge over the mortgaged property over and above the Department of the Government. The attachment of the mortgaged property by the Sales Tax Department is held to be without jurisdiction - petition allowed.

Summary

Issues Involved:
1. Priority of charge between financial institution and government department over mortgaged property.
2. Rights of third party purchaser of mortgaged property.

Analysis:
1. The petitioner, a financial institution, sought relief against the first respondent to remove an attachment on a property offered as collateral by a borrower. The Debt Recovery Appellate Tribunal set aside the sale by the bank in favor of a third party, rendering the relief sought infructuous. The issue of priority over dues of the Sales Tax Department was previously decided by a Full Bench, establishing that a secured creditor has priority over government dues. The introduction of Section 31B in the Enforcement of Security Interest and Recovery of Debts Laws Act further solidified the secured creditor's priority over all debts and government dues, effective from 01.09.2016. Consequently, the attachment by the Sales Tax Department was deemed without jurisdiction, and the writ petition was allowed for the removal of the attachment.

2. The judgment clarified that the rights of a secured creditor to realize debts through the sale of assets take precedence over all other debts and government dues. The introduction of Section 31B addressed the rights of secured creditors even in pending cases. The judgment emphasized that the priority of a secured creditor extends to auction sales conducted in line with the rights exercised by the creditor. The court's decision favored the financial institution as a secured creditor with the benefit of the mortgaged property, leading to the removal of the attachment by the Sales Tax Department. The judgment concluded by directing the matters to be placed before a roster Division Bench for further proceedings.