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TMI Blog2020 (4) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... RFAESI Act,2002 w.e.f. 1.9.2016, the claim of the petitioner Bank would prevail over that of the respondents 1-3. Having regard to the clear language contained in Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 giving priority to rights of secured creditors (to realise secured debts due and payable to them by sale of assets over which security interest is created) over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority, the law has undergone a sea change; and in view of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and sec.26E of the SARFAESI Act,2002 w.e.f.1.9.2016 the claims of secured creditors such as the petitioner Bank have priority over the claims of the respondents 1-3 for service tax dues. The claim of the respondents 1-3 that they are entitled to the Income Tax refund amount credited to the 6th respondent s Bank account with the petitioner Bank and that the petitioner cannot claim it, is rejected - the impugned notice under Sec.87 of the Finance Act,1994 issued by the 3rd respondent cannot be sustained in law. Whether the 5th respondent s claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund Commissioner- II it s Recovery Officer, Regional Office, Hyderabad. 4. The 6th respondent is M/s SEW Infrastructures Limited, Greenlands, Hyderabad, a Company incorporated under the Companies Act,1956. 5. The petitioner Bank in it s banking activity had sanctioned limits of ₹ 820 Crores to the 6th respondent with working capital limits of ₹ 198 crores ( Fund based) and ₹ 622 Crores ( Non Fund based) and the limits were renewed during February,2016 along with consortium Banks. 6. The 6th respondent created a first charge by way of hypothecation of all it s current assets and receivables as primary security and a mortgage over it s immoveable properties as collateral security. 7. The loan accounts of the 6th respondent were classified as Non Performing Assets as on 8.1.2016 as per the Reserve Bank of India norms. The petitioner then initiated proceedings under the SARFAESI Act, 2002 by issuing a demand notice under Sec.13 (2) of the said Act and also took possession of 6th respondent s properties under Sec.13 (4) of the said Act on 19.2.2018. These had been challenged by the 6th respondent in other forums. 8. The petitioner also filed on 13.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respondent with it under Sec.8 F of the Employees Provident Fund and Miscellaneous Provisions Act,1952 for the same amount and that it is not possible to pay it to the respondents 1-3. 15. Petitioner also contends that as per sec.88 of the Finance Act,1994, the service tax and government dues have no priority over the secured debts covered by the Recovery of Debts and Bankruptcy Act,1993 and the SARFAESI Act,2002. 16. Petitioner further contends that it is not a party to the adjudication proceedings against the 6th respondent taken by the respondents 1-3 and the very issuance of the notice under sec.87 (b)(i) of the Finance Act,1994 is without jurisdiction and is arbitrary. IA No. 1 of 2019 17. Petitioner had filed IA No. 1 of 2019 in the Writ Petition to suspend the impugned notice issued by the 3rd respondent on 11.6.2019. 18. On 17.9.2019, this court granted interim suspension of the impugned notice. I.A.nos. 2 and 3 of 2019 19. I.A.no. 2 of 2019 is filed by the 6th respondent and I.A.No.3 of 2019 is filed by the respondents 1-3 to vacate the said order. 20. The 5th respondent filed a counter affidavit disputing the petitioners contentions. The stand of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 26. It is contended that the Finance act,1994 is still existing even after the commencement of the CGST Act,2017, that it has not been repealed and under Sec.174(2) of the CGST Act r/w Sec.142(8) of the CGST Act , the action of the 3rd respondent is valid in law. The stand of the 6th respondent 27. In the affidavit filed along with IA No.2 of 2019, the 6th respondent Company supported the stand of the respondents 1-3 and contended that petitioner cannot challenge the impugned notice. 28. While admitting that the 6th respondent had borrowed loans from the petitioner, it is stated that it is still a going concern, but is passing through a bad phase financially. It admitted that it has liability towards service tax and also was in default of provident fund contributions. 29. It claimed that it had made a claim under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in so far as service tax arrears are concerned on 31.10.2019 under ARN NO.LD3110190000255; that in view of the amnesty scheme, the demand for service tax would get settled at 60% of the tax component and that the interest component would be totally waived of, subject to acceptance by the Dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax refund Order for ₹ 35,75,95,400/- on 20.5.2019 and it was credited into the TRA account of the 6th respondent in the petitioner Bank at it s CCG Branch, Hyderabad. 39. The question is which of the parties is entitled to take this amount? Whether the claim of petitioner prevails over the claim of the respondents 1-3? 40. In this regard, we shall first consider the rival claims of the petitioner Bank and the respondents 1-3. 41. Sec.87(b) (i) of the Finance Act,1994 states: 87. Recovery of any amount due to Central Government.-Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:- (a) the Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so payable from any money owing to such person which may be under the control of the said Central Excise Officer or any officer of customs; (b)(i) the Central Excise Officer may, by notice in writing, require any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 46. Sec.26-E of the SARFAESI Act,2002 introduced by Act 44 of 2016 w.e.f 1.9.2016 also contains an identical provision which states: 26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis- vis Section 69 or Section 69-A of the Transfer of Property Act. In terms of that sub-section, a secured creditor can enforce security interest without intervention of the court or tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a Receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of the Narasimham Committee s Second Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis- -vis other mortgagees who could exercise rights under Sections 69 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 by Act 44 of 2016. 53. So, in our opinion, after introduction of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26-E of the SARFAESI Act,2002 w.e.f. 1.9.2016, the claim of the petitioner Bank would prevail over that of the respondents 1-3, and the decision in Central Bank of India ( 1 supra) cannot be relied on by the respondents 1-3. 54. But the following discussion in Central Bank of India ( 1 supra) about the interpretation of a non-obstante clause is relevant for our purposes. 55. The Supreme Court explained in Central Bank of India ( 1 supra): 103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting non obstante clause, the court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. 56. The said non-obstante clause in both Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Sec.26E of the SARFAESI Act,2002 would override over the provisions of the Finance Act,1994 like Sec.87(b) (i). 57. The Gujarat High court in Bank of Baroda vs. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme; or (b) from the employer in relation to an exempted establishment in respect of any contribution to the Provident Fund or any Insurance Fund (in so far as it relates to exempted employees), under the rules of the Provident Fund or any Insurance Fund any contribution payable by him towards the Pension Fund under sub-section (6) of Section 17, damages recoverable under Section 14-B or any charges payable by him to the appropriate Government under any provision of this Act or under any of the conditions specified under Section 17, shall, where the liability therefor has accrued before the order of adjudication or winding up is made, be deemed to be included among the debts which under Section 49 of the Presidency Towns Insolvency Act, 1909, or under Section 61 of the Provincial Insolvency Act, 1920 or under Section 530 of the Companies Act, 1956, are to be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be. Explanation.-In this sub-section and in Section 17, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: 13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any court, tribunal or other authority. 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State Industrial Investment Corpn. of Maharasht ..... X X X X Extracts X X X X X X X X Extracts X X X X
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