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TMI Blog2024 (5) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SBI enjoys priority of security interest and its enforcement over the Secured Assets, as compared with the interests of the State; b) SBI having sold the Secured Assets pursuant to the enforcement measures under the SARFAESI Act (not only by reason of the priority under Section 26-C(2) but also by reason of Section 26-E of the SARFAESI Act), was entitled to be paid in priority over the State tax authorities. By a conjoint reading of the two provisions, the enforcement against the Secured Assets led to a clean and clear title free from the purported encumbrance claimed by the State s tax authorities being vested in the Petitioner, who is the purchaser of the Secured Assets in the auction; c) The State s tax authorities are indeed entitled to any residual proceeds from the sale towards discharge of the Borrower s dues owed to them. Towards this end, SBI is directed to provide to the State, a statement of accounts in respect of the dues owed by the Borrower to SBI and the appropriation of sale proceeds by SBI pursuant to the auction of the Secured Assets; d) Consequently, mutation entries indicating an interest enjoyed by the State s tax authorities over the Secured Assets towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th June, 2023 5. It is common ground between the parties to these proceedings that :- a) The Petitioner paid the aforesaid values for the purchase of the aforesaid Secured Assets in the respective e-auctions within the timelines (including extensions) stipulated by SBI, the details of which are not relevant to the matter at hand. The sale certificates were issued on 1st August, 2023 and 31st July, 2023 respectively; b) The Secured Assets had been mortgaged to State Bank of Bikaner and Jaipur (which later merged into SBI) on 29th March, 2010, in respect of borrowings of Shri Saptashringi Ispat Pvt. Ltd. ( Borrower ); c) The mortgage had been created by one Mr. Santosh Badriprasad Jaiswal, and had been registered as a security interest in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India ( CERSAI ) on 28th March, 2012; d) The Assistant Commissioner, Sales Tax, Nashik has claims of sales tax dues owed by the Borrower, and towards this end, on 12th December, 2020, has caused mutation entries in the land records relating to the Secured Assets in the Tenancy, Rent and Other Rights column of the 7/12 extract relating to the Secured Assets; and e) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is apparent that the claim of SBI would have priority over the claim of the State s tax authorities. The mortgage over the Secured Assets in favour of SBI was created in 2010 and was registered in CERSAI in 2012. 10. The provisions of Section 26-C of the SARFAESI Act came into force on 24th January, 2020, and with effect from that date, the priority of registration as obtaining from that date would determine the priority of the right to claim and enforce against the Secured Assets. Therefore, SBI having a higher-ranking security interest would have priority in enforcement action as compared with the State tax authorities. 11. In Union Bank, dealing with a near-identical fact situation, another Division Bench of this Court dealt with a similar conflict between the interests of a lender from whom secured assets were purchased and the interests of the State s tax authorities. In the case of Union Bank, the lender s security interests had been created between 2008 and 2011, with enforcement action having commenced in 2015, while the Deputy Commissioner of Sales Tax initiated attachment proceedings in February 2019. Auctions were conducted between May 2019 and November 2019. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prior security interest, and by no stretch could the subservient security interest be regarded as a fresh and wholesome security interest to be enforced again against either the asset in question or against the purchaser of such asset. 14. In our opinion, it would be absurd to suggest that every subsequent security interest, evidently having subservient and lower priority would get to continue enforcement against the same asset, each time in the hands of the next purchaser. Such a construction would turn the very concept of priority in enforcement on its head. In Indian Overseas Bank, the same argument was dealt with in the following words:- 35. As a last ditch-effort, Mrs. Vyas presented us with a unique proposition. It was her contention that notwithstanding the fact that the secured creditor has the first charge and priority for recovery of dues from the sale of the secured asset, the MVAT Authorities can once again chase the very same asset in the hands of the purchaser and put it up for sale towards recovery of their dues. 36. Such a proposition has only to be stated to be rejected. The creation of the mortgage over the asset would mean that the charge is over the asset. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchaser of the Secured Assets in the auction; c) The State s tax authorities are indeed entitled to any residual proceeds from the sale towards discharge of the Borrower s dues owed to them. Towards this end, SBI is directed to provide to the State, a statement of accounts in respect of the dues owed by the Borrower to SBI and the appropriation of sale proceeds by SBI pursuant to the auction of the Secured Assets; d) Consequently, mutation entries indicating an interest enjoyed by the State s tax authorities over the Secured Assets towards tax dues are directed to be removed within a period of two weeks from today. The registrar s office is also directed to register the transfer of the Secured Asset from the erstwhile owners to the Petitioner in accordance with law, within a period of two weeks from today; and e) Nothing contained in this judgement is an expression of an opinion on the right of the State s tax authorities to undertake enforcement action in accordance with law against any other assets, properties and persons that are not subject matter of a registered security interest registered in favour of any secured creditor under the SARFAESI Act, and which may therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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