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TMI Blog2023 (3) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ent no.1- The Recovery Officer-I, DEBT Recovery Tribunal-II, Ahmedabad due to the default committed by the borrower/mortgagor, after taking the possession of the property, under the Recovery of debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "RDDBI Act") Act. 2.2 The petitioner purchased the said property in the said public e-auction conducted by respondent no.1 for a sale consideration of Rs.13,75,00,000/- and the respondent no.1 issued a sale certificate in favour of the petitioner. 2.3 The petitioner was made aware by respondents No.1 and 2 that the claim of the banks dues are prior to the State dues as per Section 31-B of the RDDBI Act. 2.4 Thereafter, on 31.05.2022, respondent No.1 issued sale certificate. 2.5 There is a revenue entry being Entry No.6209 of the year 2018 which pertains to the charge created by the State Tax Department qua the land in question. 2.6 The petitioner therefore requested respondent No.1 - Recovery Officer of the Debt Recovery Tribunal for deciding the priority of charge between the bank and the VAT Department which was incorporated vide Entry No.6209. 2.7 Respondent No.1 had passed order dated 31.05.2022, cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Gujarat - Special Civil Application No.16352 of 2021 dated 30.03.2022 and has submitted that the issue is no more res integra. 4.4 He has further relied upon the following decisions in support of his submissions : (i) Special Civil Application No.15298 of 2020 - Bank of Baroda versus State of Gujarat (ii) Special Civil Application No.16855 of 2020 dated 29.06.2021 - The lakshmi Vilas Bank Ltd. Versus State of Gujarat (ii) Special Civil Application No.17891 of 2018 - Kalupur Commercial Co-operative Bank Ltd., versus State of Gujarat (iii) Special Civil Application No.17567 of 2022 - Dineshkumar Maneklal Patel versus Bank of Baroda, dated 12.01.2023 4.5 He has submitted that this petition may be allowed. 5. Learned AGP Mr. Kathiriya for respondents - State Authorities has submitted that there is a charge of the Government and the same may be taken care of by this Court. He has submitted that this petition may be dismissed. 6. The issue involved in this petition is as to whether the dues of secured financial institution will have priority over State tax dues or not. 7. We have heard learned advocates for the respective parties. The picture which has emerged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st April 2006 in the State of Gujarat. The Act was enacted to consolidate and amend the laws relating to the levy and collection of tax on the value added basis in respect of the sale of goods in the State of Gujarat. Section 48 of the Act, 2003, is with regard 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 Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) [the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)." 12. Sections 26E, 35 and 37 of the Securitisation and Reconstruction of Financial Assets and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable the 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 financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reasons specified in The Recovery of Debts Due to Banks & Financial Institutions Act, 1993 The same read thus; " THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 STATEMENT OF OBJECTS AND REASONS Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Solidaire India Ltd. (supra) are that, if there is a conflict between the two special Acts, the later Act must prevail. To put it in other words, when there are two special statutes which contain the non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non-obstante 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35. 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 Rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in Collector of Aurangabad v. Central Bank of India [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once the same is assessed in the assessment proceedings and the amount is determined accordingly by the authority concerned. Without any assessment proceedings, the amount cannot be determined, and if the amount is yet to be determined, then prior to such determination there cannot be any application of Section 48 of the VAT Act. We may also refer to Section 47 of the VAT Act. Section 47 of the VAT Act is with respect to transfer 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no concern with the dues of the State Authorities. The petitioner has paid full and final sale consideration 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 contesting 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 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. 8.6 Keeping the above view in mind, 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. 9. The petitioner does not press Prayer 14(D) at this stage, therefore, the prayers as prayed by the petitioner in this pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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