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TMI Blog2020 (1) TMI 1613X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh. Unlike this, even in a case where the Bank has not taken any steps under the SARFAESI Act in respect of the security interest created much earlier and even if, the State has initiated the recovery proceedings invoking the machinery under the RR Act, later, if steps are taken by the Bank, projecting their claim, then the 'payment' cannot be effected to any others ignoring the 'priority' by the secured creditor. This being the position, the contention raised by the Appellant that Section 26E of the SARFAESI Act is prospective and hence, not applicable to the case in hand, since the 'Revenue Recovery Certificate' was issued prior to introduction of Section 26E does not hold any water and it stands repelled. Applicability of amended provisions - effective date - The Central Government consciously issued a notification bringing the above provisions declaring the priority rights by way of notification dated 01.09.2016 bearing No. S.O. 2831 (E), in the statute book and as such, priority of the secured creditors are declared and notified insofar as RDB Act is concerned. Whether non-issuance of notification in respect of Section 26E of the SARFAESI Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2002 (hereinafter referred to as 'SARFAESI Act'). 3. Heard Shri Ashish Surana, the learned counsel for the Appellant, Shri Ankit Singhal, the learned counsel for the Respondent-Bank, Shri Vikram Sharma, the learned Deputy Government Advocate representing the State as well as Shri J.K. Gupta, the learned counsel for the 5th Respondent. 4. The judgment passed by the learned Single Judge, which is subjected to challenge, highlights the rights and liberties of the 'Secured Creditor' Bank, to have preference/priority in getting the debts satisfied, over and above the rights of other creditors including the State by way of revenue or taxes, by virtue of the amendment brought about in the SARFAESI Act by introducing 'Section 26E' as per the Amendment Act 44 of 2016. 5. Before going to the legal aspects, a reference to the factual matrix is necessary to understand the nature of challenge and as to the course pursued by the learned Single Judge in finalising the matter. The sequence of events reveals that the 5th Respondent had borrowed some amounts from the 1st Respondent-Bank, creating security interest over various properties in the year 2013. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main contention raised by the Bank before the learned Single Judge was that, by virtue of Section 26E of the SARFAESI Act introduced with effect from 01.09.2016 as per Amendment Act 44 of 2016, the Bank was having priority among all debts even in respect of tax or revenue payable to the Government and in the said circumstances, the course sought to be pursued by the State/Revenue Authorities by causing the property to be sold in auction invoking the Revenue Recovery Act, 1890 (hereinafter referred to as 'RR Act') without any regard to the rights and interest of the Petitioner-Bank was liable to be interdicted. 8. The said writ petition, filed on 24.09.2018, came up for consideration on 26.09.2018, the date on which the auction sale was scheduled. The learned Single Judge passed an interim order on that day, to the effect that no third party right shall be created over the property in question. But the fact remains that no bidder had turned up on that day as well and in the said circumstance, the auction did not take place. 9. The legal issue projected before the learned Single Judge was considered, also taking note of the position that the auction had not taken place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tte. The other contention is that, the prayer of the writ Petitioner-Bank in the writ petition was only to set aside the auction notice dated 14.09.2018; whereas the 'Revenue Recovery Certificate' issued by the District Collector was never sought to be challenged. This being the position, the observation made by the learned Single Judge in paragraph-9 is liable to be interdicted. 12. The learned counsel for the Appellant submits that there is a fundamental difference between meaning of the word 'priority' and 'first charge'. The terminology used in Section 26E of the SARFAESI Act is only 'priority' and not 'first charge'. Reference is made to other similar provisions like Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as 'RDB Act'), where again, it has been mentioned as 'priority' and not 'first charge'. Distinction is sought to be drawn with reference to the law declared by the Apex Court in the matter of Central Bank of India v. State of Kerala and Another, (2009) 4 SCC 94. 13. The learned counsel for the Appellant submits that there is no dispute, by virtue of statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion reads as follows : 26E. 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 2016), in case 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. 15. As mentioned already, the primary contention raised by the Appellant is that the above provision has not come into effect. The next contention is that it cannot have retrospective effect, having allegedly brought into effect only from 01.09.2016; whereas the 'Revenue Recovery Certificate' was issued by the District Collector much prior to that date i.e. on 20.08.2015. 16. The question of retrospectivity/pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant submits with all force that the said Section has not been notified in the Official Gazette and the observation made by the learned Single Judge to the effect that it has come into effect from '01.09.2016' is not correct. Various judgments have been referred to during the course of hearing by both the sides, as rendered by the Full Bench of the Madras High Court (Assistant Commissioner (CT) Anna Salai-III Assessment Circle, Chennai v. Indian Overseas Bank, Chennai Anr reported in AIR 2017 Madras 67 FB), Division Bench of the Andhra Pradesh High Court (Dist. Manager, Mahabubnagar Dist v. Authorised Officer, Mahabubnagar Dist 5 Others reported in 2017 SCC Online Hyd 252) and Division Bench of Bombay High Court (Axis Bank Limited v. State of Maharashtra Another reported in 2017 SCC Online Bom 274), wherein observation has been made to the effect that Section 26E has been brought into effect from '01.09.2016'. 18. As a matter of fact, we have travelled quite long, to collect the particulars of all notifications from our Library and such other sources. In fact, three separate notifications have been issued, pursuant to amendment of the various provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings are pending respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 21. The Central Government consciously issued a notification bringing the above provisions declaring the priority rights by way of notification dated 01.09.2016 bearing No. S.O. 2831 (E), in the statute book and as such, priority of the secured creditors are declared and notified insofar as RDB Act is concerned. Whether non-issuance of notification in respect of Section 26E of the SARFAESI Act, as dealt with Section 18 of the Amendment Act 44 of 2016, was a conscious decision or whether it was an inadvertent omission, lingered in our minds, which persuaded us to probe further. Ultimately, it has been noted that the Central Government has now issued a notification bearing No. S.O. 4619/E dated 26.12.2019 , published in the Gazette of India dated 26.12.2019 to the effect that Sections 17 to 19 of the SARFAESI Act (Act 44 of 2016) will come into force from 24.01.2020. Thus, it is explicitly clear that Section 26E of the SARFAESI Act was never brought into force on 01.09.2016 and it is being brought into force only with e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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