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TMI Blog2024 (2) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the proceedings under the Insolvency and Bankruptcy Code would rank superior to the dues of the relevant department to the State Government. Thus in view of the clear position in law as laid down by the full Bench, the Sales Tax Department cannot claim priority over the dues payable to the petitioner who is the secured creditor as held by the Full Bench. Petition allowed. - G. S. KULKARNI FIRDOSH P. POONIWALLA, JJ. For the Petitioner : Mr. Deepak Saxena a/w Mr. Jitendra Bakliwal i/b Legal Prism. For the State : Mrs. Jyoti Chavan, Addl. G.P. ORAL ORDER (PER G. S. KULKARNI, J.) 1. Rule, made returnable forthwith. Respondents waive service. By consent of the parties, heard finally. 2. This petition under Article 226 of the Constitution of India is filed on 20 December 2020 praying for the following reliefs: (a) this Hon ble Court be please to issue writ of Mandamus and/or Certiorari and/or any writ in the nature of Mandamus and/or Certiorari and/ or any appropriate writ, order or direction, to quash and set aside the attachment order dated 20th February 2019 passed by the Respondent no. 1; (b) Pending the hearing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 2 after which it was classified as a Non-Performing Asset (NPA) according to the directives issued by the Reserve Bank of India. As on 23 August 2015, a large sum of Rs. 22,16,62,046.25/- was due and payable as outstanding dues. 6. The petitioner so as to recover the amounts due and payable, issued a notice to respondent Nos. 2, 3 4 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short SARFAESI Act ) calling upon them to pay a total sum of Rs. 22,16,62,046.25/-. As there was a default in not honoring such payment, as per the time lines as set out in the said notice, on 30 December 2015 the petitioner took symbolic possession of the secured assets. Thereafter, on 5 May 2016, the petitioner again issued a notice calling upon the respondent Nos. 2, 3 4 to pay the outstanding dues with interest to the petitioner within a period of seven days, however, as the same was not paid, the petitioner approached the learned Chief Metropolitan Magistrate, Esplanade, Mumbai, on 28 November 2017 and obtained on order under Section 14 of the SARFAESI Act. In pursuance thereto on 16 November 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured assets cannot be sustained and would be required to be set aside. This also for the reason that there was no registration of the charge by the State Government with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. Thus, no legal rights can be recognized, for the State Government to assert any charge overriding the secured interest of the petitioner. It is hence submitted that in the aforesaid circumstances, the petition needs to succeed hence it be allowed in terms of prayer clause-(a). 12. We may also observe that in the present case as pointed out on behalf of the petitioner, the registration with the Central Registry of Securitization Assets, Reconstruction and Security Interest of India (for short CERSAI ) in accordance with the provisions of chapter IIII of the SARFAESI Act was undertaken on 29 April 2013. This is clear from the report of the CERSAI, as annexed to the petition as also the particular of registrations as set out in respect of the properties at page 56-A, the details of which are as under: The particulars of the Registration with CERSAI are tabulated below: Exhibit D1 to D8 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1) (la) of the RDDB Act], and the taxing/revenue departments of the Central/State Governments, can legally claim priority for liquidation of their respective dues qua the borrower/dealer upon enforcement of the security interest [as defined in section 2(1)(zf) of the SARFAESI Act] and consequent sale of the secured asset [as defined in section 2(1)(zc) of the SARFAESI Act], in view of the extant laws, was the broad question the Full Bench was tasked to decide. The Full Bench framed the following substantial questions to be answered: a. Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant department of the Government [under the BST Act/MVAT Act/MGST Act] to appropriate the amount realized by the sale of a secured asset? b. Whether, despite section 26-E in the SARFAESI Act or section 31-B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of first charge created over any property by operation of law (viz. The legislation in force in Maharashtra) giving such dues pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payable to the Central Government or State Government or local authority. 86. A debt that is secured or which, by reason of the provisions of a statute, becomes a first charge on the property, in view of the plain language of Article 372 of the Constitution, must be held to prevail over a Crown debt, which is an unsecured one. The law, as it stands even today, is that a Crown debt enjoys no priority over secured debts. This principle has been repeatedly reaffirmed including, inter alia, in the decision of the Supreme Court reported in (2000) 5 SCC 694 (Dena Bank vs. Bhikhabhai Prabhudas Parekh Co.) where the Court observed: 10. However, the Crown s preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown s right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of legal right existing in favour of a person cannot be presumed in construing the statute. It is in fact the other way round and thus, a contrary presumption shall have to be raised. 44. Section 529(1)I of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis- -vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged assets, that, in our opinion, would not mean that the provisions of Section 48 of the Transfer of Property Act in relation to a company, which has undergone liquidation, shall stand obliterated. 45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him on par with an unsecured credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h CERSAI on 25 October 2017. Post enforcement of Chapter IV-A of the SARFAESI Act, under sub-section (4) of section 26B of the SARFAESI Act, the department of the Government which professes to recover any tax or other Government dues, is enjoined to register such claim with CERSAI. 190. It does not appear that the respondent no. 1 registered its claim or attachment over the secured asset with CERSAI, post enforcement of Chapter IV-A of the SARFAESI Act. Sub-section (2) of section 26C provides that any attachment order subsequent to the registration of the security interest with CERSAI, shall be subject to such prior registered claim. 191. In our view, in the instant case, with the enforcement of Chapter IV-A of the SARFAESI Act, the claim of the respondent no. 7 Bank, the secured creditor, was extolled to a higher pedestal and the subsequent act of recording a charge in the record of right of the secured asset cannot dilute the right of priority in payment, under sections 26C(2) and 26 of the SARFAESI Act. As a necessary corollary, the non-registration of the claim and/or attachment order by the respondent no. 1 under section 26B(4) of the SARFAESI Act, can only be at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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