TMI Blog2023 (3) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... of the RDDBI Act, so also Section 26E of the SARFAESI Act and recovered its dues from it. The petitioner is a bona fide purchaser, purchased the property in question from the public e-auction held by the Recovery Officer and paid full and total sale consideration and the Recovery Officer has issued sale certificate in favour of the petitioner. The debts due to 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 - 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, more particularly the mortgage is created prior to the registration of such charge by the Authority. Thus, it is held that the RDDBI Act is meant for enforcement of security interest which is created in favour of the secured creditor financial institution, and provides specific mechanism / provision for the financial assets and security interest. Petition allowed. - R/SPECIAL CIVIL APPLICATION NO. 17531 of 2022 - - - Dated:- 8-2-2023 - HONOURABLE MS. JUSTICE SONIA GOKANI AND HON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the property in question with legal and valid title. 3. Heard learned advocate Mr.Vijay H Patel for the petitioner, learned Bhaskar Sharma for respondent No.2 Bank of Baroda and learned AGP Mr. Trupesh Kathiriya for respondents No.3 and 4. 4.1 Learned advocate Mr.Patel for the petitioner has submitted that the petitioner has purchased the subject property in public e-auction conducted by respondent no.1- Recovery Officer of the Debt Recovery Tribunal. He has submitted the charge of respondent no.4 State Tax Department is subsequent of the creation of mortgage by respondent No.2 - Bank. He has submitted that the erstwhile owner/mortgagor had created security interest over the property in question and therefore, the entry registered before the revenue records are nullity. He has further submitted that the petitioner has asked for clarification about the charge of the State Tax Department and the Authority concerned has clarified the same and stated that the Bank has first right over the property in question as per the statue. He has submitted that irrespective of any charge, the bank being a secured creditor has first right over the property / mortgaged property and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs.13,75,00,000/- in the said auction. The Authority has issued sale certificate in favour of the petitioner. 7.3 Pursuant to the query raised by the petitioner regarding the priority of dues, respondent No.1 officer has clarified vide his letter dated 31.05.2022 that the bank has priority than VAT department qua the charge / dues to be recovered. 7.4 The petitioner has requested the officer to execute the sale deed. 7.5 The Sub-Registrar concerned has refused to register the sale deed due to registered liability of the State Tax Department. 8.1 The petitioner is a bona fide purchaser. He has purchased the property in question in the auction process. 8.2 It is a settled position of law that the debts due to any secured creditor shall be paid in priority over all other debits and all revenues, taxes, cesses and other rates payable to the Central Government or state Government or local authority. 8.3 At this stage, reference is made to Section 31B of the RDDBI Act as under : 31B. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay Land Revenue Code, 1879. (ii) The Deputy Commissioners and Assistant Commissioner shall have and exercise all the powers (except the powers of arrest and confinement of a defaulter in a civil jail) and perform all the duties the assistant Collector or Deputy Collector under the said Code. (iii) The Commercial Tax Officers shall have and exercise all the powers (except the powers of arrest and confinement of a defaulter in a civil jail) and perform all the duties of the Mamlatdar under the said Code. (2) Every order passed in exercise of the powers conferred buy sub-section (1) shall, for the purpose of section 73, 75, 79, or 94, be deemed to be an order passed under this Act. 11. Sections 31B and 34 of the Recovery of Debts and Bankruptcy Act, 1993, read as under : 31B. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured 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, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. 13. The statement of objects and reasons for the two enactments read as under: THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (Act No.54 of 2002) STATEMENT OF OBJECTS AND REASONS The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 or change of management or other powers which are proposed to be conferred on the banks and financial institutions; (f) Declaration of any securitisation company or reconstruction company registered with the Reserve Bank of India as a public financial institution for the purpose of section 4A of the Companies Act, 1956; (g) Defining 'security interest' as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; (h) Empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or takeover management in the event of default, i.e., classification of the borrower's account as nonperforming asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 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 longfelt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than Rs.5622 crores in dues of Public Sector Banks and about Rs.391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunal and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill. ACT 51 OF 1993 The Recovery of Debts Due to Banks and Financial Institutions Bill having been passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 September, 2016 S.O. 2831 (E).--In exercise of the powers conferred by sub-section (2) of section 1 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016), the Central Government hereby appoints the 1st day of September, 2016 as the date on which the following provisions of the said Act shall come into force, namely :- Sr. No. Sections 1 Sections 2 and 3 (both inclusive); 2 Sections 4 [except clause (xiii)]; 3 Section 5 and 6 (both inclusive); 4 Sections 8 to 16 (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 (2014)51 taxmann.com 246 (SC), it was held by the Bombay High Court that, By virtue of lien on securities under rule 43 of Bombay Stock Exchange Rules, BSE being secured creditor of defaulting member would have priority over dues of Income - tax department. While dealing with the tax recovery under Section 226 of the Income-tax Act, 1961, read with Sections 8 and 9 of the Securities Contracts (Regulation) Act, 1956, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Income Tax Act, there is no provision analogous to Section 48 of the VAT Act which creates a statutory charge. 50. There is one another important argument of Mr. Sheth which is quite appealing and we are at one with Mr. Sheth on the same. Indisputably, the Bank put forward its claim over the secured assets of the Bank for the first time on 01.10.2016 and that too by way of provisional attachment of the properties under Section 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggestive 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 observations made in the said judgment. 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held that the RDDBI Act is meant for enforcement of security interest which is created in favour of the secured creditor financial institution, and provides specific mechanism / provision for the financial assets and security interest. 9. The petitioner does not press Prayer 14(D) at this stage, therefore, the prayers as prayed by the petitioner in this petition are as follows : 14.. (A) Your lordships may be pleased to admit the said Petition, (B) Your lordships may be pleased to issue a writ of mandamus/certiorari or any Other appropriate writ, order or direction in the nature of certiorari or mandamus by quashing the attachment in revenue record vide entry no 6209 by Respondent no 4 at Annexure-D for the reasons stated in memo of petition and in the interest of justice. (C) Your lordships may be pleased to hold that the petitioner herein is the absolute owner or the property with legal and valid title of the property in question once purchased under public auction, (D) Your lordships may be Pleased to hold that the respondents can claim their right over the auction amount being 13,75,00,000/- and nothing otherwise as petitioner have got absol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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