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TMI Blog2024 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... created in favour of the secured creditors and hence, the same will have no legs to stand. Debts due to any secured creditor shall be paid in priority over all other debts, dues and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or other local authority; it follows therefrom that the provisions of the SARFAESI Act would prevail over the provisions of other earlier enactments, under which, amounts are allegedly due to the Central Government; it is well settled that if there are two special Acts / enactments, it is the later enactment that shall prevail; in the instant case, it cannot be gainsaid that the FEMA (a special law / Act) is an earlier enactment, while the SARFAESI Act (a special law / Act) is a later / subsequent enactment which would prevail over FEMA in the light of the principles laid down by the Apex Court in several judgments including Solidaire India s case [ 2001 (2) TMI 968 - SUPREME COURT] Also, in SBICAP s case [ 2023 (3) TMI 1509 - BOMBAY HIGH COURT ] Division Bench of the Bombay High Court held that the provisions of the Prevention of Money Laundering Act, 2002 (for short the PMLA ) would be subservient to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of respondent Nos. 1 2 as well as the impugned order of attachment by virtue of Section 26 (E) of the SARFAESI Act which has a over riding effect over all debts payable to anyone else including claims/attachments of respondent Nos. 1 2 and consequently, since the petitioner had already been mortgaged with the subject property in the year 2013 itself much prior to initiation of the proceedings by respondent Nos. 1 2, the impugned attachment order would be sub-servant to mortgage already created in favour of the petitioner which would have an over-riding effect over the said proceedings initiated by respondents No. 1 2 and as such impugned of attachment order deserves to be quashed. 4. In support of this submission, learned Counsel for the petitioner placed reliance upon the following judgments: 1. State Bank of India Vs. Tax Recovery Officer, Income Tax Department and Ors. (01.09.2022-MADHC): MANU/TN/9360/2022; 2. Punjab National Bank Vs. Union of India (UOI) and Ors. (24.02.2022-SC): MANU/SC/0234/2022; and 3. Canara Bank Vs. The Commissioner of Customs and others - W.P.No. 10895/2023 DD 10.06.2024. 5. Per contra, learned Counsel for respondent No. 1 2 would reiterate the various c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37/1984: (1984) 4 SCC 657], and other cases, the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of Sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays occurring in winding-up proceedings could be avoided. If the above rule is applied, then there is no room for doubt that Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act which was introduced with a specific purpose to override and grant priority to recovery of debts due to secured creditors over all other debts, taxes, cesses etc., must be understood as prevailing over Section 281 of the Income Tax Act, in the event of conflict of priority. This is also in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is admittedly still outstanding, hence it is open for the Bankers/Financial Institutions on proceeding being set-aside to invoke Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act as it is applicable presently in any view. In similar circumstances, the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. [MANU/SC/0317/2000: (2000) 5 SCC 694] while examining the question whether the State would have precedence to recover the tax dues over that of secured creditors after clarifying the position on the above issue, proceeded to examine the further contention that the petitioners therein who were partners of a firm that Section 15 (2-A) of the Karnataka Sales Tax Act, which provided that where any firm is liable, the firm and each of the partners would be jointly and severally liable was introduced only with effect from 18.11.1983, however the taxes that were sought to be recovered related to periods prior to 1964-65 i.e., prior to the insertion of the above provision. The Apex Court after holding that it would be prospective, however proceeded to hold that even if the recovery proceedings were to be set as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2022, the appellant sought to quash the communication of the Respondent dated 27.12.2007 with respect to recovery of income tax arrears of M/s. NEPC Agro Foods Limited and its Directors, on the premise that mortgage in respect of the property, was executed in favour of the Bank on 31.03.1999 itself, i.e., prior to the recovery proceedings. (iii) In WA. No. 1385 of 2022, the writ petitioner/Bank challenged the attachment notice dated 27.03.2017 issued by the Income Tax Department, in respect of the properties which were offered to them as security by way of mortgage by deposit of title deeds for securing loans on 10.02.2014. The learned Judge allowed the writ petition on the ground that the mortgage preceded the attachment. (iv) In WA. No. 1512 of 2021, the appellant/Bank sought a direction to the first respondent-Tax Recovery Officer, Income Tax Department to remove the attachment made on 16.06.2017 and 23.07.2017 in respect of the properties, which were already mortgaged on 28.01.2016 and 07.02.2016, by the fourth and fifth Respondents to raise loan. 30.2. In all these cases, the orders of attachment passed by the Tax Recovery Officer/Income Tax Department were subsequent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very same property is not worthy of acceptance. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with. 46. Further, the contention that in the present case, the confiscation proceedings were initiated almost 8-9 years prior to the charge being created in respect of the very same properties in favour of the bank is also inconsequential. The fact that the charge has been created after some time period has lapsed post the initiation of the confiscation proceedings, will not provide legitimacy to a confiscation order that is not rooted in any valid and existing sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner before the authority. In pursuance of the same, petitioner submitted a representation / objections dated 23.08.2022 to the 1st respondent Commissioner and since no decision has been taken by him and the order of seizure continues to subsist in respect of the schedule property, petitioner is before this Court by way of the present petition. 4. The 2nd respondent has filed statement of objections and has contested the petition. 5. Heard Sri. Dhyan Chinnappa, learned Senior counsel for the petitioner and Sri. H. Shanthi Bhushan, learned DSGI for 1st respondent and Sri. H. Jayakar Shetty, learned counsel for 2nd respondent. 6. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner has made the following submissions:- (i) That by virtue of Section 26E of the SARFAESI Act, the petitioner being a secured creditor, the debt due to the petitioner shall have priority and prevail over all other debts / dues including all revenues, taxes, cesses and other rates payable to the respondents 1 and 2 and the provisions of the SARFAESI Act overrides the provisions of the FEMA, since both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits that since the impugned order was without jurisdiction or authority of law, mere availability of an appeal under Section 37A (5) of the FEMA would not come in the way of this Court entertaining and adjudicating upon the present petition. 9. I have given my anxious consideration to the rival submissions and perused the material on record. 10. Before adverting to the rival contentions, it would be profitable to extract the statutory provisions which are germane and relevant for consideration of the issue involved in the present petition. 11. Section 26E of SARFAESI Act, reads as under:- 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, in cases where insolvency or bankruptcy proceedings are pending in respect of secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Maharashtra Ltd. (1993) 2 SCC 144 ; Sarwan Singh v. Kasturi Lal (1977) 1 SCC 750 : (1977) 2 SCR 421 ; Allahabad Bank v. Canara Bank (2000) 4 SCC 406 and Ram Narain v. Simla Banking Industrial Co. Ltd. AIR 1956 SC 614 : 1956 SCR 603. 13. So also, in SBICAP s case supra, the Division Bench of the Bombay High Court held that the provisions of the Prevention of Money Laundering Act, 2002 (for short the PMLA ) would be subservient to the rights of a secured creditor under the SARFAESI Act which would prevail and override the provisions of the PMLA. 14. In the instant case, in the light of the undisputed fact that the SARFAESI Act, 2002 is a later Act / law, the same would prevail over the earlier Act / law, i.e., FEMA, 1999 and having regard to the language employed in Section 26E of the SARFAESI Act, the provisions contained therein would have a overriding effect over th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule property which had undisputedly stood mortgaged in favour of the petitioner Bank prior to Section 37A coming into force and consequently, the said provision was not applicable to the schedule property and the 2nd respondent did not have jurisdiction or authority of law to invoke or apply Section 37A of the FEMA for the purpose of passing the impugned order which deserves to be quashed on this ground also. 16. Section 31B of the RDBI Act, reads as under:- 31B. Priority to secured creditors. Notwithstanding anything contained in any other law for the time being in force, the rights of secure creditor to realise secure debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority 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, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even a lis pending. 5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 6. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of section 31B, as it includes secured debts due and payable to them by sale of assets over which security interest is created . 7. We, thus, answer the aforesaid reference accordingly. 8. The matters be placed before the roster Division Bench for dealing with the individual cases. 18. A perusal of Section 31B of the RDBI Act and the principles laid down by the Full Bench of the Madras High Court supra, is sufficient to come to the conclusion that in the proceedings sought to be initiated by the petitioner Bank under SARFAESI Act, which would be governed by the procedure prescribed under the RDBI Act, the petitioner Bank being a secured creditor would have priority and the claim of the petitioner would prevail over the alleged dues payable un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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