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2019 (9) TMI 1049 - HC - Indian LawsAttachment of mortgaged properties - first charge of the Bank over the properties mortgaged with the Petitioners - recovery of sales tax dues from the assets of the defaulter by State Government - SARFAESI Act - Whether the Bank will have the first priority to recover its dues being a secured creditor in view of Section 26E of the SARFAESI Act or the State will have the first priority by virtue of Section 48 of the VAT Act? HELD THAT - While it is true that the Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31B of the RDB Act, being a substantive provision giving priority to the secured creditors , the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase secured creditors to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. An interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors. It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer. Thus, 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. Application allowed.
Issues Involved:
1. Priority of Charge on Secured Assets 2. Applicability of Section 26E of the SARFAESI Act 3. Applicability of Section 48 of the VAT Act 4. Retrospective Application of Amendments 5. Legal Precedents and Interpretations Detailed Analysis: 1. Priority of Charge on Secured Assets: The primary issue in this case was to determine whether the Bank or the State Government had precedence over the secured assets. The Bank argued that under Section 26E of the SARFAESI Act, the debts due to any secured creditor shall be paid in priority over all other debts, including revenues, taxes, cesses, and other rates payable to the Central or State Government. The State, on the other hand, contended that Section 48 of the VAT Act provided the State with the first charge over the property for any amount payable by a dealer on account of tax, interest, or penalty. 2. Applicability of Section 26E of the SARFAESI Act: The Bank's counsel emphasized that Section 26E of the SARFAESI Act, effective from 1st September 2016, prioritizes secured creditors over government dues. The State argued that Section 26E had not been notified and thus was not applicable. However, the court confirmed that Section 26E had indeed been notified and was in force, giving secured creditors priority over other debts, including government dues. 3. Applicability of Section 48 of the VAT Act: Section 48 of the VAT Act states that any amount payable by a dealer on account of tax, interest, or penalty shall be a first charge on the property of such dealer. The court had to determine whether this provision could override the priority given to secured creditors under Section 26E of the SARFAESI Act. The court concluded that Section 26E, being a later enactment with a non-obstante clause, would prevail over Section 48 of the VAT Act. 4. Retrospective Application of Amendments: The State contended that Section 26E could not nullify the effect of the first charge created under the State Act as it was not retrospective. The court clarified that Section 26E and Section 31B of the RDB Act, both containing non-obstante clauses, were intended to give priority to secured creditors over government dues. The court held that these provisions would apply prospectively and would not affect any charges created before their enactment. 5. Legal Precedents and Interpretations: The court referred to several precedents, including the Supreme Court's decisions in Central Bank of India v. State of Kerala and others, and Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and others. The court noted that the principles of statutory interpretation and the intention of the legislature were crucial in resolving conflicts between different laws. The court emphasized that the non-obstante clauses in Section 26E and Section 31B indicated the legislature's intention to prioritize secured creditors over government dues. Conclusion: The court concluded that the Bank, as a secured creditor, had the first priority over the secured assets, and the State's claim under Section 48 of the VAT Act could not override this priority. The writ-application was allowed, and it was declared that the Bank was entitled to auction the secured assets and recover its dues. The State was directed not to interfere with the Bank's rights under Section 26E of the SARFAESI Act.
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