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2021 (11) TMI 89 - HC - VAT and Sales TaxPreferential charge - Recovery of sales tax - Default in repayment of credit facilities - account was classified as Non-Performing Assets (NPA) - Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - HELD THAT - Overlapping between the provisions of the DRT Act and Securitisation Act on one hand and Section 38 C of the Bombay Sales Tax Act and Section 26 B of the Kerala General Sales Tax Act and the Non-obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation would not operate qua the proceedings initiated by Banks, Financial Institutions and other secured creditors for recovery of their dues or enforcement of security interest. The Central Government amended SARFAESI Act, 2002 by introducing Chapter IV A by Amending Act, 44 of 2016 dated 01.01.2016 and the Central Government introduced the concept of registration by secured creditors and other creditors. In case of KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT 2019 (9) TMI 1018 - GUJARAT HIGH COURT the issue was with regard to the first priority of the Bank over the dues vis- -vis the sales tax dues which the State Government intended to recover from the assets of the defaulter. This Court examined this and to hold it in favour of the Bank that it would have the first charge over the properties mortgaged by virtue of Section 26 E. In the present case, the petitioner Bank had already registered all the mortgaged documents in the Central Registry as per Section 20 of the SARFAESI Act, 2002 and by virtue of provision of Section 26 E it is rightly held that the Bank being a secured creditor after registration of the security interest would enjoy priority over all other debts and all revenues, taxes, cesses and other rates. The petitioner appears to have registered all the mortgaged documents with the Central Registry as per the procedure prescribed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 - petitioner-Bank not only had registered the charge over the property in question, but it had also issued a public notice and deployed the security for protecting the property. The present petition succeeds and is hereby allowed.
Issues Involved:
1. Whether the petitioner-Bank has the first charge over the properties mortgaged by the respondent under Section 26E of the SARFAESI Act, 2002. 2. Whether the charge recorded by the respondent State Tax Officer under Section 48 of the VAT Act, 2003 has precedence over the petitioner-Bank's claim. 3. The applicability and interpretation of Section 26E of the SARFAESI Act, 2002 and Section 48 of the VAT Act, 2003. Issue-wise Detailed Analysis: 1. First Charge Over Properties: The petitioner-Bank classified the respondent's account as Non-Performing Assets (NPA) due to default in repayment. Subsequently, the Bank issued a notice under Section 13(2) of the SARFAESI Act, 2002 and took possession of the secured assets. The Bank then initiated the sale of the property through an e-auction, receiving the highest bid from M/s. Khusbu Metal Industries and Minerals. However, the registration of the sale deed was denied due to a lien by the Sales Tax Department. The Bank argued that it had the first right to recover its dues under Section 26E of the SARFAESI Act, 2002, which provides that the debts due to any secured creditor shall be paid in priority over all other debts and revenues. 2. Charge Recorded by State Tax Officer: The respondent State Tax Officer issued an attachment order to recover Value Added Tax from the respondent borrower. The respondent contended that under Section 48 of the VAT Act, 2003, their charge had precedence over the Bank's claim. The State Tax Officer argued that the VAT Act's provisions, which include special powers for tax recovery, would prevail over the SARFAESI Act, 2002. The respondent relied on various judgments to support the primacy of tax recovery over other claims. 3. Applicability and Interpretation of Relevant Sections: The Court examined the legal provisions and relevant case laws. It noted that the principle of priority of Government debts is founded on public policy. However, the introduction of Section 26E in the SARFAESI Act, 2002 by the Central Government through an amendment in 2016, provided that the debts due to secured creditors shall be paid in priority over all other debts, including taxes. The Court referred to previous judgments that supported the Bank's claim of first charge over the secured assets, emphasizing that the SARFAESI Act, 2002 would have primacy over the VAT Act, 2003. Judgment: The Court concluded that the petitioner-Bank had the first charge over the properties mortgaged by the respondent under Section 26E of the SARFAESI Act, 2002, overriding the charge recorded by the respondent State Tax Officer under Section 48 of the VAT Act, 2003. The Court quashed and set aside the impugned attachment order and the charge recorded in the revenue record by the respondent State Tax Officer. The petition was allowed, and the Bank's claim was upheld. Conclusion: The judgment establishes that the petitioner-Bank, as a secured creditor, has the first charge over the mortgaged properties under Section 26E of the SARFAESI Act, 2002, which takes precedence over the State Tax Officer's claim under Section 48 of the VAT Act, 2003. This decision reinforces the priority of secured creditors in the recovery of dues post the 2016 amendment to the SARFAESI Act, 2002.
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