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TMI Blog2023 (1) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the bank and paid full and total sale consideration to the bank and the bank has issued sale certificate in favour of the petitioner. Considering the law laid down by this Court in KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT [ 2019 (9) TMI 1018 - GUJARAT HIGH COURT ] and also keeping in mind the provisions of Section 26E of the SARFAESI Act, the debts due to financial institution / Bank - a secured creditor shall be paid in priority over other debts/taxes payable to the State Government. The petitioner has no concern with the dues of the State Authorities which is of the erstwhile owner. The petitioner has paid full and final sale consideration to respondent No.5 - Bank and if the State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against the appropriate person/s. Any of the respondent has no right to disturb the right, title and interest of the petitioner qua the property in question. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected. Moreover, now it is well settled legal position that the mortgagor bank has priority to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Heard learned advocate Mr.B.C. Thakkar for the petitioner, learned AGP Mr.Trupesh Kathiriya for respondent Nos. 1 to 3 - State Authorities and learned advocate Ms.Dharmishta Raval for respondent No.5 - State Bank of India. Rule. Learned advocates waive service of notice of rule on behalf of the respective respondents. 4.1. Learned advocate for the petitioner has submitted that the petitioner has purchased the subject property in public e-auction conducted by respondent No.5 - State Bank of India. He has submitted that the erstwhile owner/mortgagor and or respondent No.1 authority had not created security interest over the property in question before the revenue authority. 4.2. He has further submitted that the petitioner is the absolute owner of the property once purchased under public auction and cannot be held liable for any unpaid dues of either parties. The priority created under Section 35 of the SARFAESI Act shall have overriding effect on all other laws. He has submitted that the priority has been given for the recovery of bank dues by way of enactment of central legislation. The State tax dues shall not have priority over the debt of the bank. 4.3. In support of this submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stwhile owner did not pay the debt of the Bank, the Bank has taken over the paper possession of the property in question. 9.5. The Bank has published e-auction on 30.11.2021 in the newspaper. 9.6. The petitioner has purchased the said property and paid full sale consideration of Rs.1,45,01,000/- through said auction to the Bank, which was acknowledged by the Bank on 16.12.2021. 9.7. The Bank has issued sale certificate in favour of the petitioner. 9.8. Consequently, the sale deed is executed by and between the petitioner and the Bank. The same is registered with the Sub-Registrar, Sihor - Bhavnagar on 24.06.2021 vide Sale Deed No.1533 of 2022. 10. Thus, the picture which has emerged before this Court is as under : 10.1 Respondent No.5 - State Bank of India has created charge over the property in question first. 10.2 Since the charge over the property in question is with the Bank, the Bank has published e-auction of the said property in the year newspaper on 30.11.2021. 10.3 The petitioner has purchased the property in question by paying total sale consideration of Rs.1,45,01,000/-to respondent No.5 - Bank in the said public e-auction, which was acknowledged by the Bank. 10.4 Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the charge on the property. Section 48 reads as under : 48. Tax to be first charge on property.-Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person. 10, Section 46 of the VAT Act is with regard to the special powers of the tax authorities for recovery of tax as arrears of land revenue. Section 46 of the VAT Act reads as under : 46. Special powers of tax authorities for recovery of tax as arrears of land revenue. (1) For the purposes of effecting recovery of the amount of tax, penalty or interest due from any dealer or other person by or under the provisions of this Act or under any earlier law, as arrears of land revenue. - (i) The Commissioner, the special Commissioner, Additional Commissioner and the joint Commissioners shall have and exercise all the powers and perform all the duties of the Collector under the Bombay Land Revenue Code, 1879. (ii) The Deputy Commissioners and Assistant Commissioner shall have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Enforcement of Security Interest Act, 2002, read as under : 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 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. 35. The provisions of this Act to override other laws-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 37. Application of other laws not barred.-The provisions of this Act or the rules made thereunder shall be in addition to, and not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and financial institutions to realize long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. It is now proposed to replace the Ordinance by a Bill, which, inter alia, contains provisions of the Ordinance to provide for - (a) Registration and regulation of securitisation companies or reconstruction companies by the Reserve Bank of India; (b) facilitating securitisation of financial assets of banks and financial institutions with or without the benefit of underlying securities; (c) Facilitating easy transferability of financial assets by the securitisation company or reconstruction company to acquire financial assets of banks and financial institutions by issue of debentures or bonds or any other security in the nature of a debenture; (d) Empowering securitisation companies or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers; (e) Facilitating reconstruction of financial assets acquired by exercising powers of enforcement of securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by the banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a long felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tante clause. If the legislature still confers the later enactment with a non-obstante clause, it means that the legislature wanted that enactment to prevail. 30. We are conscious of the fact that in the case on hand there is no conflict between two special statutes enacted by the Parliament. The conflict is with the State Act and the Central Act. We are trying to understand the true purport and effect of Section 26E of the SARFAESI Act which came to be enacted later in point of time and also the effect of Section 31B of the RDB Act which came to be enacted later in point of time. In other words, what necessitated the introduction of the two provisions in the two enactments and what object the two provisions would subserve. 31. We may, at the outset, clarify that the Government of India, Ministry of Finance, notified the provisions of Section 26(E) on 1st September 2016. The copy of the Notification issued by the Government of India, published in the Official Gazette Part-II, Section 3, at Serial No.2142 dated 1st September 2016 has been placed on record. The Notification reads as under : MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 1st Septemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantive provision giving priority to the secured creditors , the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase secured creditors to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. Thus, an interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors. 48. In the case of Stock Exchange, Bombay v. V.S.Kandalgaonkar, reported in MANU/SC/0876/2014 : (2014)51 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Bank of India MANU/SC/0003/1967 : [1967] 3 SCR 855 after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore law in force in the territory of India before the Constitution and was continued by Article 372 of the Constitution (at page 861, 862). In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. 49. The two decisions referred to above, one of the Supreme Court and another of the Bombay High Court, as such may not be helpful to the Bank because the principal issue in the case on hand is with regard to the statutory charge which is created by the State enactment. The Bombay High Court was dealing with a matter under the Income Tax Act and under the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of property by the dealer to defraud the Revenue. According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after the tax has become due, then such transfer would be a void transfer. The reason why we are referring to Section 47 is that the phrase therein 'after any tax has become due from him' assumes significance. The same is suggestive of the fact that before the assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of the dealer, such transfer would not be a void transfer. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer. Once this part is over, then Section 48 of the VAT Act would come into play. 53. One of us, J.B. Pardiwala, J., sitting as a Single Judge, had the occasion to consider this issue in the case of Bank of Baroda, Through its Assistant General Manager Prem Narayan Sharma vs. State of Gujarat Ors., Special Civil Application No.12995 of 2018, decided on 16.09.2019. We may quote the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent has no right to disturb the right, title and interest of the petitioner qua the property in question. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected. Moreover, now it is well settled legal position that the mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government, irrespective of the fact otherwise. 12. In view of above, the following order is passed. 12.1. The present petition is allowed. 12.2. This Court holds that the petitioner is a bona fide purchaser and is an absolute owner of the property in question with legal and valid title. Consequently, the sale deed registered by the Authority concerned is legal and valid. 12.3. Respondent No.3 - the Sub-Registrar, Sihor - Bhavnagar is directed to release the Sale Deed No.1533 of 2022 dated 24.06.2022 and further directed to remove the attachment / charge created by respondent No.1 - Tax Authority, if any, in the revenue records with regard to the property in question, forthwith. 12.4. Rule is made absolute to the aforesaid extent. 13. We may clarify that our order shall not preclude the State from r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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