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2018 (10) TMI 101 - HC - Indian LawsWithdrawal of Auction Proceedings - Auction of immovable secured assets - Section 26-E of the SARFAESI Act, 2002 - Held that - In view of Section 26-E of the SARFAESI Act, 2002, 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 Government or State Government or local authority. Hence, the notice dated 19.01.2018 is unsustainable in law - petition allowed.
Issues:
1. Validity of the notice issued under Section 147 (C) of the Madhya Pradesh Land Revenue Code, 1959 for auctioning immovable assets to recover tax dues. 2. Conflict between the SARFAESI Act, 2002 and other tax laws regarding priority of creditors in recovery proceedings. Analysis: 1. The petitioner, a bank, provided a cash credit loan to a company with guarantors who mortgaged their assets as security under the SARFAESI Act, 2002. The Commercial Tax Officer issued a notice for auctioning the same property to recover tax dues of another company. The bank objected, citing its priority under the SARFAESI Act, 2002, over all other debts and taxes. 2. The Respondent State argued that their tax laws, like the Value Added Tax Act, 2002, and later GST Acts, provide for the first charge of the government over the property of the assessee. They claimed priority in recovering tax dues over the bank's security interest. The Respondents contended that since Section 26-E of the SARFAESI Act, 2002 had not been notified by the Government of India, the bank's claim of priority was not valid. 3. The court referred to Section 26-E of the SARFAESI Act, 2002, which grants priority to secured creditors over all other debts and taxes payable to the government. The court held that the notice for auctioning the property to recover tax dues was unsustainable in law due to the priority given to the bank under the SARFAESI Act, 2002. As the auction did not take place, and no fresh notice was issued, the court allowed the petition in favor of the bank.
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