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2020 (10) TMI 150 - HC - Indian LawsPriority of settlement of claims - payment to secured creditors - Section 26(E) of The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and Section 31-B of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - HELD THAT - In the judgement relied on by the learned senior counsel for the petitioner reported in Manu/KE/3448/2019 State Bank of India v. State of Keral dated 30.07.2019 2019 (7) TMI 1684 - KERALA HIGH COURT , the scope and ambit of Section 26(E) of The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and Section 31-B of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 were considered in extenso. Accordingly, it was concluded that a secured creditor under the above said provisions get priority over the right, if any, claimed by the revenue. There is no fresh adjudication is required in the light of the judgement apart from the factual position which is not in dispute nor any contra materials produced. Petition allowed.
Issues Involved:
1. Non-repayment of the auction amount by the petitioner. 2. Refusal to register sale certificates due to encumbrances. 3. Priority of secured creditors over government dues. Issue-Wise Detailed Analysis: 1. Non-repayment of the auction amount by the petitioner: The petitioner, a successful bidder in the auctions conducted by the 1st respondent, failed to repay the remaining amount in W.P.No.8546 of 2020. However, the petitioner subsequently paid the amount, which was received by the 1st respondent. Consequently, the court directed the 1st respondent to issue and register the sale certificate, thereby disposing of the writ petition. 2. Refusal to register sale certificates due to encumbrances: In W.P.Nos.8547, 8548, and 8549 of 2020, the petitioner faced a common grievance where the 6th respondent (Sub Registrar) declined to register the sale certificates due to three encumbrances entered on the properties. These encumbrances were on behalf of the Income Tax Department (Encumbrance No. 8 of 2010), the Commercial Taxes Department (Encumbrance No. 5 of 2012), and the Customs Department (Encumbrance No. 11 of 2019). The 6th respondent communicated that these encumbrances were wrongly entered by misconstruing the letters from the respective departments and requested their cancellation. 3. Priority of secured creditors over government dues: The court examined the legal precedence regarding the priority of secured creditors over government dues. The Full Bench in UTI Bank Ltd v. The Deputy Commissioner of Central Excise Chennai II Division concluded that government dues generally get priority over ordinary debts, except when a statute specifically claims "first charge" over the property. In the absence of such a provision in the Central Excise Act and Customs Act, the claim of secured creditors prevails over government debts. This principle was reaffirmed by subsequent judgments, including the Full Bench in The Assistant Commissioner (CT), Annasalai-III Assessment Circle v. The Indian Overseas Bank, which emphasized the priority of secured creditors under Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and Section 26-E of the SARFAESI Act. The court also referenced the Division Bench of the Madurai Bench in Central Bank of India v. The Joint Sub Registrar No.1 and others, which held that secured creditors have priority over all debts and government dues. The Gujarat High Court and Kerala High Court further supported this view, reinforcing that the rights of secured creditors to realize debts by selling secured assets take precedence over government dues. Conclusion: The court concluded that the writ petitions should be allowed, as there was no fresh adjudication required in light of the established legal precedents and the undisputed factual position. The court directed the registration of the sale certificates and closed the connected writ miscellaneous petitions without costs.
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