2021 (12) TMI 1046 - HC - VAT and Sales Tax

Attachment of secured assets - recovery of sales tax dues - Section 26-E of the SARFAESI Act and Section 31-B of the Recovery of Debts and Bankruptcy Act 2002 - HELD THAT - In the case of the Cosmos Cooperative Bank .v/s. State of Maharashtra and other 2019 (11) TMI 1689 - BOMBAY HIGH COURT the Division Bench of this Court at the Principal seat at Bombay has held that on harmonious reading of Section 26-E of the SARFAESI Act and Section 37 of the MVAT Act it would be clear that the secured creditor would have a first charge over an asset and the charge created in favour of the State of Maharashtra under Section 37 of the MVAT Act would be subject to the first charge created by the Central Legislation namely Section 26-E of the SARFAESI Act. In view of this settled legal position and in the background of the facts established in this case the action initiated by the respondent Nos.1 2 and 3 to the extent of two properties cannot be sustained. Petition allowed.

Summary

Issues:
1. Priority of secured creditors under SARFAESI Act vs. MVAT Act.

Analysis:
The petitioner, a bank, granted credit facilities secured by mortgage to respondent No.4, which later became non-performing assets. The bank issued notices under SARFAESI Act to recover outstanding amount, but respondent Nos. 2 and 3, tax authorities, claimed first charge over the properties under MVAT Act. Respondent Nos. 5 and 6 challenged the bank's actions, alleging illegal attachment and creation of charge. The key contention was the priority of the bank's claim under SARFAESI Act against the tax authorities' claim under MVAT Act.

The respondent tax authorities argued that their attachment was valid as it preceded the amendment to SARFAESI Act. However, the court noted that the subsequent attachment post-amendment was relevant. The court examined Section 26-E of SARFAESI Act and Section 37 of MVAT Act. While both acts had non-obstante clauses, the court held that SARFAESI Act's provisions took precedence over MVAT Act in this case. The court emphasized the importance of registration of security interest, which the bank had fulfilled. The court referred to previous decisions, including Edelweiss Asset Construction Co. Ltd. and State Bank of India cases, to support the priority of secured creditors post-amendment.

Based on the legal analysis and precedents, the court set aside the tax authorities' actions of attachment and creation of charge over the bank's secured assets. The court ruled in favor of the bank, emphasizing the priority of secured creditors under SARFAESI Act over other debts and government dues, including tax authorities' claims under MVAT Act. The judgment clarified the legal position regarding the priority of secured creditors in such cases, providing a clear directive for future similar disputes.