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2006 (12) TMI 2 - HC - Central ExciseRevenue can not claim first preference over secured creditors for recovery of Central Excise / Customs under the relevant statutory provision of Central Excise Act, 1944 or Customs Act, 1962. Secured Creditors have first preference to recovered their money under SARFAESI Act, 2002
Issues Involved:
1. Whether the Crown's debts without statutory priority or charge should have precedence over secured creditors. 2. The rights of the petitioner bank under the SARFAESI Act. 3. The claim of the Central Excise Department over the property in question. 4. Analysis of relevant legal provisions and precedents. 5. The absence of specific statutory first charge provisions in the Central Excise and Customs Acts. Detailed Analysis: Issue 1: Whether the Crown's debts without statutory priority or charge should have precedence over secured creditors. The court examined whether the debts owed to the Crown (government) without a statutory priority or charge should take precedence over the claims of secured creditors. The petitioner, UTI Bank Ltd., argued that the SARFAESI Act, being a special enactment, grants them statutory first charge over the secured assets, which should prevail over the claims of the Central Excise Department. Issue 2: The rights of the petitioner bank under the SARFAESI Act. The borrower company failed to repay the financial assistance obtained from UTI Bank, leading the bank to initiate proceedings under the SARFAESI Act. The bank issued a notice under Section 13(2) of the SARFAESI Act and subsequently took possession of the secured assets. The bank claimed that their statutory rights under the SARFAESI Act should supersede any claims by the Central Excise Department. Issue 3: The claim of the Central Excise Department over the property in question. The Central Excise Department asserted that they had a priority claim over the property for the dues payable by the borrower company. However, the court noted that the Central Excise Act did not provide a statutory first charge over the property in question, unlike other statutes such as the Karnataka Sales Tax Act, which explicitly provided for such a charge. Issue 4: Analysis of relevant legal provisions and precedents. The court reviewed several legal provisions and precedents, including: - SARFAESI Act: Defined secured creditors and outlined the enforcement of security interests without court intervention. - Central Excise Act, 1944: Provided for the recovery of sums due to the government but did not explicitly grant a first charge over secured assets. - Customs Act, 1962: Similar provisions for recovery but no specific first charge. - Relevant Case Law: The court considered the Supreme Court's decision in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., which held that the Crown's preferential right to recover debts is confined to ordinary or unsecured creditors and does not extend to secured creditors. Issue 5: The absence of specific statutory first charge provisions in the Central Excise and Customs Acts. The court concluded that in the absence of specific provisions in the Central Excise Act and the Customs Act claiming a first charge, the claim of the Central Excise Department cannot have precedence over the claim of secured creditors like the petitioner bank. The court emphasized that only when there is a specific statutory provision claiming a first charge does the Crown's debt have priority over other claims. Conclusion: The court held that the petitioner UTI Bank, being a secured creditor under the SARFAESI Act, is entitled to precedence over the claims of the Central Excise Department. The Central Excise Department does not have a statutory first charge over the property in question. Therefore, the bank's claim prevails, and the Central Excise Department cannot auction the property for its dues. The writ petition was allowed, and the bank's secured debt was given priority.
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