TMI Blog2021 (7) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... - SUPREME COURT] where it was held that Government dues have priority only over unsecured debts. Thus, there is no provision in the Income Tax Act which provides for any paramountcy of the dues of the Income Tax department over secured debt. The Petitioner s charge/mortgage over the said premises has priority over the dues of the Income Tax department and the said attachment dated 17th January 2013 by Respondent No.1 cannot come in the way of Petitioner s rights as secured creditor - Respondent No. 1 is directed to, within a period of two weeks from the date of this order, (i) raise the said attachment levied pursuant to the order of attachment dated 17th January 2013 on the said premises viz. office premises No. 1004, 10th Floor, Prasad Chambers, Opera House, Mumbai-400 004 and (ii) to grant and issue No Objection Certificate permitting the Petitioner to sell the said premises. Petition allowed. - WRIT PETITION (L) NO. 7964 OF 2021 - - - Dated:- 28-7-2021 - SUNIL P. DESHMUKH ABHAY AHUJA, JJ. Dr. Birendra Saraf, Senior Advocate with Mr. Vaibhav Charalwar, Mr. Sachin Chandrana and Mr. V. Purohit i/b Manilal Kher Ambalal Co., Advocates for the Petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner acquired similar rights to the facilities granted by IndusInd Bank to the Borrower. The aforesaid assignments were alongwith the benefits of security of equitable mortgages created by way of deposit of title deeds in respect of various immovable properties including the said premises, which were created in favour of State Bank of India/IndusInd Bank earlier. 6. However, in view of defaults committed by the Borrower in repayment of debts to SBI and IndusInd bank, assignors SBI and IndusInd bank filed separate proceedings before the Debts Recovery Tribunals-II, Mumbai being: (i) Original Application no. 205 of 2013 filed by SBI and (ii) Original Application no. 189 of 2012 filed by IndusInd Bank. It is submitted that in both the original applications, Petitioner has been substituted as original applicant being the assignee, vide orders dated 17th November 2014 and 7th December 2017 respectively. 7. On 25th May 2017, Petitioner issued a notice under Section 13(2) of the SARFAESI Act, recording defaults and calling upon the Borrower to pay the balance outstanding amounts. On 28th September 2017, this Court in Company Petition No. 317 of 2012 filed by ICICI Bank Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open for the Petitioner to challenge the same in accordance with law. 5. Therefore, the petition is disposed of in the above terms. All contentions are kept open. 9. When Petitioner s representative visited the said premises in December, 2019, Petitioner learnt of the attachment order dated 17th January 2013 passed by Respondent No.1, which Petitioner intends to sell, in respect of which notice under Section 13(4) of the SARFAESI Act and Rule 8(1) of the Securitization Rules was pasted. 10. Vide letter dated 16th January 2020, Petitioner informed Respondent No.1-Tax Recovery Officer of the action adopted by Petitioner under SARFAESI Act for recovery of its dues and also requested that the attachment in respect of the said premises be lifted in view of the order passed by this Court in Writ Petition No. 2580 of 2019 and the subsequent order passed by the Tax Recovery Officer lifting the attachment in respect of the other properties secured in favour of Petitioner. 11. On 14th February 2020, Tax Recovery Officer was reminded by Petitioner to vacate/lift the attachment on the said premises. The same was reiterated by letter dated 1st March 2021 from Petitioner s advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he alleged attachment levied by Respondent No.1. 16. He submits that inaction on the part of Respondent No. 1 and his conduct is causing severe prejudice to the Petitioner in recovery of its dues and that the order/inaction/failure of Respondent No.1 is erroneous, incorrect, arbitrary and unreasonable and deserves to be set aside by this Court. 17. Learned Senior Counsel refers to and relies upon the decision of the Hon ble Supreme Court in the case of Bombay Stock Exchange Vs. V. S. Kandalgaokar (2015) 2 SCC 1 and the decision of this Court in the case of State Bank of India Vs State of Maharashtra (2020) SCC online Bom 4190, in support of his contentions. He submits that the Income Tax Act does not provide for paramountcy of income tax dues; crown debt has no precedence and that the department has no answer to this in its reply. He further submits that this Court has also in the case of State Bank of India (supra) held that secured debt has priority over tax dues and that the said decision squarely applies to the case of Petitioner with respect to income tax dues. He submits that, therefore, Petitioner as secured creditor has a prior superior charge over the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to the affidavit, that the department has also lodged its claim before the official liquidator vide letter dated 20th December 2017 for recovery of the demand of ₹ 58,64,54,659/-. 24. Lastly, Mr. Walve, learned advocate for Respondents, submits that though the immovable property of the Borrower has been attached by TRO, in the interest of revenue as per Sections 220 to 232 of the Income Tax Act and Second Schedule thereof, there is no provision in the said Act to vacate/lift the attachment till the finalisation/recovery of the demand. He, therefore, fairly submits that in the absence of such provision, it would be for this Court to pass appropriate orders. 25. We have heard Dr. Birendra Saraf, Learned Senior Counsel for Petitioner as well as Mr. Sham Walve, Learned Standing Counsel for the Respondent-Revenue as well as Mr. Jejeebhoy, Learned Counsel for the Official Liquidator. We have, with their able assistance, perused the papers and proceedings in the matter. 26. Facts are not in dispute. Petitioner is a secured creditor of the Borrower company (now in liquidation), having earlier acquired the rights, title and interest in the facilities granted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured debts and in so holding the Court referred to a judgment in Giles V. Grover in which it has been held that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, Collector V. Central Bank of India 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 by continued Article 372 of the Constitution (AIR pp. 1835-36, para 7: SCR at pp. 861-62) 40. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of this case that if any Central statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the value added tax of the State. Therefore, in our view what becomes relevant in the facts of this case is the issue of priority of charge on the said assets of secured debt over tax dues and not whether the charge is first or not in time. 35. In this view of the matter, though it would not be necessary for us to deal with the contention of the Respondents relating to the date of effectiveness of Section 26-E of the SARFAESI Act, however we are of the view that even if Section 26-E was effective only prospectively from 24th January, 2020 and not applicable to the facts at hand, that would not make any difference; as according to us Section 31-B of the RDB Act itself would be sufficient to give priority to a secured creditor over the Respondent's charge for claiming tax dues. 36. The following observations of the Full Bench of the Madras High Court authored by Chief Justice Sanjay Kishan Kaul (as his Lordship then was) in the case of The Assistant Commissioner (Ct) vs The Indian O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 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. 39. In view of the above and being in respectful agreement with the views expressed in the cases cited above, we hold that the mortgage of the secured creditor viz. the Petitioner Bank gets prior charge over the charge of the Respondents for tax/VAT dues. 31. In our view the aforesaid decisions cover the case of Petitioner herein. There is no reason for us to take any other view in this case other than to say th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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