2022 (4) TMI 2 - HC - VAT and Sales Tax

Restraint from selling or alienating the property - Priories of secured creditors over State against tax dues - Seeking to remove the entries relating to the attachment order to enable the petitioner to transfer the Katha with respect to the schedule property - HELD THAT - The admitted facts being that the proceedings under the SARFAESI Act were earlier in point of time. The decision was taken on 15.06.2018 as per the Possession Notice at Annexure-'Q'. The proceedings by the State were subsequent in point of time and recovery notice by the Department was issued on 01.08.2018 and the attachment order was passed thereafter on 10.08.2018. The respondent bank lodged its creation of security before the Central Registry of Securitisation Asset Reconstruction and Security Interest of India as is evidenced from the search result at Annexure-'AB' and 'AC' with respect to the properties which is the subject matter of present petition. The search result indicates the date of search as 31.07.2018 which would imply that lodging of creation of interest as regards the property by the bank was prior to 31.07.2018 while the recovery notice by the State was only subsequent to 01.08.2018 and the attachment order was on 10.08.2018. In the present case, it is clear that the charge that would have a priority is that of the bank as it is prior in point of time and also in light of Section 26E of the SARFAESI Act - It must be noted that as on date, the State not having enforced its attachment under the provisions of KVAT Act, Section 26E would be applicable and accordingly, the rights of secured creditors would rank higher and would over-ride the charge of the State that has been created subsequently. The petition stands disposed off.

Summary

Issues:
1. Setting aside of attachment order and restraining order by respondents.
2. Declaration of action by respondents as illegal and without authority of law.
3. Consideration of representation by respondent bank and issuance of Katha Certificate.
4. Priority of secured creditors over State dues.
5. Application of Section 26E of the SARFAESI Act.
6. Interpretation of legal provisions regarding priority of charges.
7. Comparison with relevant case laws for precedence.
8. Disposal of the petition concerning properties under the SARFAESI Act.

Analysis:
1. The petitioner, an auction purchaser, sought to set aside an attachment order and restraining order issued by respondents, concerning properties in Mahajenahalli and Hanagavadi villages. The petitioner also requested the issuance of writs of certiorari and mandamus for relief.

2. The petitioner alleged that the actions of respondents 2 and 3 were illegal and without authority of law. They sought a declaration through a writ of mandamus to consider representations and remove attachment entries to facilitate property transfer.

3. Another aspect involved the consideration of representations by respondent bank and the issuance of a Katha Certificate for the schedule property. The petitioner emphasized being a bonafide purchaser for value under the SARFAESI Act.

4. The key contention revolved around the priority of secured creditors over State dues. The petitioner argued that Section 26E of the SARFAESI Act granted overriding charge to secured creditors, even in cases of State dues.

5. Section 26E of the SARFAESI Act was central to the legal analysis. It prioritizes debts due to secured creditors over other debts and government revenues. The provision clarified the supremacy of secured creditors in debt payment.

6. The judgment referenced legal provisions and case laws to interpret the priority of charges. The court highlighted the importance of the timing of creation of security interests and the implications on charge precedence.

7. Notable case laws, such as Edelweiss Asset Reconstruction Co.Ltd. v. Tax Recovery Officer and State Bank of India v. State of Maharashtra, were cited to support the precedence of secured creditors over tax dues. The judgments emphasized the priority of charge over the timing of creation.

8. Ultimately, the court ruled in favor of the petitioner, setting aside the attachment order by the State in recognition of the priority of the bank's charge under the SARFAESI Act. The judgment clarified the legal position and directed appropriate actions for property transfer procedures.

This detailed analysis of the judgment highlights the legal intricacies surrounding attachment orders, priority of charges, and the application of relevant legal provisions under the SARFAESI Act in the context of property auctions and creditor rights.