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2021 (7) TMI 1209 - HC - Companies LawAttachment of premises - Priority of charge/mortgage over the premises - priority over the dues of the Income Tax department or not - commencement of proceedings under the SARFAESI/Securitisation Act - Whether the secured debt assigned in favour of Petitioner has a priority over Government dues/tax dues? - HELD THAT - The issue decided in the case of THE STOCK EXCHANGE, BOMBAY VERSUS VS. KANDALGAONKAR 2014 (10) TMI 368 - SUPREME COURT while considering the question whether the lien exercised under Rule 43 of the Stock Exchange can be said to be a superior right to the Income Tax dues, which may become payable by virtue of the Stock Exchange being a secured creditor, has held that the Income Tax Act does not provide for any paramountcy of dues by way of Income Tax - Supreme Court while holding thus, referred to its own decision in the case of DENA BANK VERSUS BHIKHABHAI PRABHUDAS PAREKH AND CO. AND OTHERS 2000 (4) TMI 36 - SUPREME COURT where it was held that Government dues have priority only over unsecured debts. Thus, there is no provision in the Income Tax Act which provides for any paramountcy of the dues of the Income Tax department over secured debt. The Petitioner s charge/mortgage over the said premises has priority over the dues of the Income Tax department and the said attachment dated 17th January 2013 by Respondent No.1 cannot come in the way of Petitioner s rights as secured creditor - Respondent No. 1 is directed to, within a period of two weeks from the date of this order, (i) raise the said attachment levied pursuant to the order of attachment dated 17th January 2013 on the said premises viz. office premises No. 1004, 10th Floor, Prasad Chambers, Opera House, Mumbai-400 004 and (ii) to grant and issue No Objection Certificate permitting the Petitioner to sell the said premises. Petition allowed.
Issues Involved:
1. Priority of secured debt over government dues/tax dues. 2. Validity of attachment order by Tax Recovery Officer. 3. Petitioner's right to sell the attached property. 4. Inaction by Tax Recovery Officer in lifting the attachment. Issue-wise Detailed Analysis: 1. Priority of Secured Debt over Government Dues/Tax Dues: The primary issue was whether the secured debt assigned to the Petitioner has priority over government dues, specifically tax dues. The Petitioner argued that as a secured creditor with a valid prior charge and equitable mortgage, their claim should supersede the government's tax dues. The court referenced Section 26-E of the SARFAESI Act and Section 31-B of the RDDB Act, which provide statutory recognition of the priority of secured creditors over other debts, including government dues. The court also cited the Supreme Court's decision in Bombay Stock Exchange Vs. V. S. Kandalgaonkar, which held that the Income Tax Act does not provide for paramountcy of income tax dues over secured debts. The court concluded that the Petitioner's charge/mortgage over the said premises has priority over the Income Tax department's dues. 2. Validity of Attachment Order by Tax Recovery Officer: The Petitioner challenged the attachment order dated 17th January 2013 issued by the Tax Recovery Officer (TRO) prohibiting the transfer or charging of the attached property. The Petitioner argued that this attachment was invalid as it did not consider the Petitioner's prior secured interest. The court noted that the TRO was not aware of the Petitioner's charge at the time of attachment and that there is no provision in the Income Tax Act to vacate such an attachment once levied. The court found that the attachment could not impede the Petitioner's rights as a secured creditor. 3. Petitioner's Right to Sell the Attached Property: The Petitioner sought to sell the attached property but was hindered by the TRO's attachment order and the lack of a No Objection Certificate (NOC). The court recognized the Petitioner's right under the SARFAESI Act to sell the assets of the Borrower to recover dues. The court emphasized that the secured creditor's rights to realize secured debts by selling the assets have priority over government dues, citing the State Bank of India Vs. State of Maharashtra case, which held that secured debt has priority over tax dues. 4. Inaction by Tax Recovery Officer in Lifting the Attachment: The Petitioner repeatedly requested the TRO to lift the attachment on the said premises, but these requests were ignored. The court found this inaction unreasonable and arbitrary, causing severe prejudice to the Petitioner. The court directed the TRO to raise the attachment and issue the NOC within two weeks, allowing the Petitioner to proceed with the sale of the property. Conclusion: The court ruled in favor of the Petitioner, affirming that the secured debt has priority over government dues and directing the Tax Recovery Officer to lift the attachment and issue the necessary No Objection Certificate. The petition was allowed, with no order as to costs.
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