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2023 (3) TMI 121 - HC - VAT and Sales TaxRecovery of dues - Attachment of property (secured asset) - absolute owner of the property - legal and valid title or not? (as once purchased under the public auction) - HELD THAT - It is a settled position of law that the debts due to any secured creditor shall be paid in priority over all other debits and all revenues, taxes, cesses and other rates payable to the Central Government or state Government or local authority. Reference made to the case of KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT 2019 (9) TMI 1018 - GUJARAT HIGH COURT where it was held that We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003. In the instant case, it is an undisputed fact that respondent No.2 Bank of Baroda is a secured creditor. Therefore, the Bank has valid first charge over the property in question by way of mortgage and has first right to sell the same in view of priority under Section 31B of the RDDBI Act, so also Section 26E of the SARFAESI Act and recovered its dues from it. The petitioner is a bona fide purchaser, purchased the property in question from the public e-auction held by the Recovery Officer and paid full and total sale consideration and the Recovery Officer has issued sale certificate in favour of the petitioner. The debts due to Bank a secured creditor shall be paid in priority over other debts/taxes payable to the State Government. The petitioner has no concern with the dues of the State Authorities - now it is well settled legal position that the mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government, more particularly the mortgage is created prior to the registration of such charge by the Authority. Thus, it is held that the RDDBI Act is meant for enforcement of security interest which is created in favour of the secured creditor financial institution, and provides specific mechanism / provision for the financial assets and security interest. Petition allowed.
Issues Involved:
1. Quashment of attachment in revenue record. 2. Determination of the petitioner's ownership and title of the property. 3. Priority of dues between secured financial institutions and State tax dues. 4. Execution of the sale deed by the Sub-Registrar. Detailed Analysis: 1. Quashment of Attachment in Revenue Record: The petitioner sought to quash the attachment in the revenue record by respondent No.4, which was recorded under Revenue Entry No.6209 dated 20.09.2018 and certified on 25.10.2018. The attachment was related to a charge created by the State Tax Department on the property in question. The court held that the petitioner, being a bona fide purchaser, had a valid title to the property, and thus the attachment was quashed. 2. Determination of the Petitioner's Ownership and Title of the Property: The petitioner purchased the property in a public e-auction conducted by the Recovery Officer of the Debt Recovery Tribunal due to the default committed by the borrower/mortgagor. The petitioner paid the full sale consideration of Rs.13,75,00,000/- and was issued a sale certificate. The court held that the petitioner is the absolute owner of the property with legal and valid title once purchased under the public auction. 3. Priority of Dues Between Secured Financial Institutions and State Tax Dues: The core issue was whether the dues of secured financial institutions have priority over State tax dues. The court referred to Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBI Act) and Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), which provide that the debts due to secured creditors shall be paid in priority over all other debts and Government dues. The court cited previous judgments, including "Kalupur Commercial Cooperative Bank Ltd. vs. State of Gujarat" and others, to support this position. It was concluded that the bank, being a secured creditor, had the first right to recover its dues by selling the mortgaged property, and the State tax dues do not have priority over the bank's dues. 4. Execution of the Sale Deed by the Sub-Registrar: Despite the petitioner's valid purchase and the issuance of a sale certificate, the Sub-Registrar refused to register the sale deed due to the registered liability of the State Tax Department. The court directed the Revenue Authority to register the sale deed to be executed between the petitioner and the Recovery Officer/Bank of Baroda, thereby facilitating the formal transfer of ownership to the petitioner. Conclusion: The court allowed the petition, quashing the attachment in the revenue record and affirming the petitioner's absolute ownership and valid title to the property. The court directed the Revenue Authority to register the sale deed, ensuring that the petitioner's rights are protected. The State Tax Authority was permitted to initiate appropriate proceedings for recovery of its dues against the appropriate persons before the appropriate forum, in accordance with the law.
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