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2019 (9) TMI 1049 - HC - Indian LawsAttachment of mortgaged properties - first charge of the Bank over the properties mortgaged with the Petitioners - recovery of sales tax dues from the assets of the defaulter by State Government - SARFAESI Act - Whether the Bank will have the first priority to recover its dues being a secured creditor in view of Section 26E of the SARFAESI Act or the State will have the first priority by virtue of Section 48 of the VAT Act? HELD THAT:- While it is true that the Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31B of the RDB Act, being a substantive 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. 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. It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer. Thus, the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003. Application allowed.
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