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2023 (1) TMI 734 - HC - VAT and Sales TaxDoctrine of merger - Recovery of dues (secured debt) - secured creditor has priority over the right claimed by the Revenue over secured debt or not - Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act, 1993) - sum and substance of the contention therefore advanced by the learned Special Government Pleader is that the findings rendered by the Hon ble Apex Court in CENTRAL BANK OF INDIA VERSUS STATE OF KERALA AND OTHERS 2009 (2) TMI 451 - SUPREME COURT is clearly applicable to the cases on hand. HELD THAT - Hon ble Apex Court has held in Central Bank of India that in none of the judgments pointed out by the financial institutions in the said case, held that by virtue of the provisions contained in the DRT Act or the SARFAESI Act, 2002, first charge has been created in favour of Banks, financial institutions etc., and further that in none of the judgments, either called upon nor it decided competent priorities of statutory first charge created under Central Legislations (S) on the one hand and State Legislations (S) on the other, nor it proved that statutory first charge created under a State Legislation is subservient to the dues of Banks, financial institutions etc., even though statutory first charge has not been created in their favour - It was finally held therein that the High Court was right inholding that the Tahsildar was entitled to give effect to the primacy of statutory first charge created on the property of the dealer under Section 26B of the KGST Act, 1963; and therefore held that the State has got prior charge over the property of the dealer and there is no valid ground to interfere with the order passed by the Division Bench of this Court. In KUNHAYAMMED AND OTHERS VERSUS STATE OF KERALA AND ANOTHER 2000 (7) TMI 67 - SUPREME COURT a Three Judge Bench of the Hon ble Apex Court had occasion to consider the doctrine of merger, binding precedent under Article 141 vis-a-vis Articles 132 to 136 and the Supreme Court Rules. The issue with respect to dismissal of Special Leave Petition by speaking or reasoned order was considered by the Hon ble Apex Court in the said judgment - It was held therein that the law stated or declared by the Hon ble Apex Court in its order shall attract applicability of Article 141 of the Constitution. It was also held that the reasons assigned in the order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by the court because permitting to do so would be subversive of judicial discipline and an affront to the order of the court. If and when any amounts have fallen due as per the provisions of the KGST Act, 1963 and the KVAT Act, 2003 and the proceedings start, consequent to which a charge is created on the properties of the assessee and the said charge created would continue to run with the property even if the Banks / financial institutions conduct the sale to recover the amounts due under the mortgage - It is quite clear and evident from Section 26E of the SARFAESI Act 2002 that it creates only a priority in favour of the financial institutions in the matter of payment over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or the State Government or local authority. But the priority in payment is in no manner in conflict with the first charge created over the properties as per the provisions of the KGST Act, 1963, and the KVAT Act, 2003. Section 26E states only the nature of the priority for payment; whereas Rules 8 and 9 of Rules 2002 deals with the manner in which the sale of the secured assets to be carried out, and which makes it specific how a notice is to be issued; how an encumbrance is to be removed; how a delivery of the property is to be effected to the purchaser free from encumbrances known to the secured creditor; and how a sale certificate is to be issued free of encumbrances - there is no case for the Banks / financial institutions that the notices were given by the Bank after making due enquiries with respect to any encumbrance or that the purchasers have come forward to purchase the property after making due enquiries with respect to any encumbrance on the property. The statutory charge created as per the provisions of the KGST Act, 1963 and the KVAT Act, 2003, prior to any mortgage made, against the dealers would remain intact, even if the property is sold by the Bank, by the rights conferred under Section 26E of the SARFAESI Act, 2002, and Section 31B of the RDB Act 1993 read with the Rules to it, till such time the encumbrances are cleared as per the provisions of the said enactments and the rules thereto - Appeal allowed.
Issues Involved:
1. Priority of secured creditors under Section 26E of the SARFAESI Act and Section 31B of the RDB Act. 2. First charge of the State under Section 26B of the KGST Act and Section 38 of the KVAT Act. 3. Registration of documents and objections raised by the Registration department. 4. Auction purchasers seeking registration of sale certificates. 5. Conflict between central and state legislations regarding priority and charge on properties. Issue-wise Analysis: 1. Priority of Secured Creditors under Section 26E of the SARFAESI Act and Section 31B of the RDB Act: Section 26E of the SARFAESI Act, 2002, and Section 31B of the RDB Act, 1993, state that "notwithstanding anything contained in any other law for the time being in force, 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." This provision establishes the priority of secured creditors in recovering debts over other claims, including government dues. 2. First Charge of the State under Section 26B of the KGST Act and Section 38 of the KVAT Act: Section 26B of the KGST Act, 1963, and Section 38 of the KVAT Act, 2003, state that "any amount of tax, penalty, interest, and any other amount payable by a dealer or any other person under the Act shall be the first charge on the property of the dealer or such person." This creates a statutory first charge in favor of the State for the recovery of tax dues. 3. Registration of Documents and Objections Raised by the Registration Department: The Registration department raised objections to registering documents pertaining to properties sold by banks under the SARFAESI Act and RDB Act, citing that amounts due to the State Government create a first charge over the properties, as per the provisions of the Registration Act, 1908. 4. Auction Purchasers Seeking Registration of Sale Certificates: Auction purchasers sought directions to registrars to register sale certificates in their favor. The State Government contended that without satisfying the requirements of Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, the first charge created under the KGST Act and KVAT Act would continue to run with the property. 5. Conflict Between Central and State Legislations Regarding Priority and Charge on Properties: The court analyzed the provisions of the SARFAESI Act, RDB Act, KGST Act, and KVAT Act, along with relevant rules and judicial precedents. The court concluded that Section 26E of the SARFAESI Act and Section 31B of the RDB Act create only a priority in payment for secured creditors but do not eliminate the first charge created by state laws. The statutory charge under the KGST Act and KVAT Act continues to run with the property, even if sold by the bank. Conclusion: The court held that the statutory charge created under the KGST Act, 1963, and the KVAT Act, 2003, remains intact even if the property is sold by the bank under the SARFAESI Act, 2002, and the RDB Act, 1993. The priority in payment does not conflict with the first charge created by state laws. The writ petitions filed by the banks/financial institutions were dismissed, and the statutory charges as per state laws were upheld.
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