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TMI Blog2023 (1) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property, under the SARFAESI Act. 2.2 The petitioners purchased the said properties in the said public e-auction conducted by respondent no.1-Bank of Baroda on 12.5.2022 for a sale consideration of Rs.2,21,14,810/- and the respondent no.1-Bank issued a sale certificate in favour of the petitioners. 2.3 Thereafter, on 14.7.2022, the sale deed was executed in favour of the petitioner and the possession was handed over to the petitioners, free from all encumbrances by respondent No.1 - Bank. 2.4 After the execution of the sale deed, the petitioners came to know that respondent no.3-The State Tax Officer created a charge over the property in the revenue records vide entry no.15661 and 18595 for the recovery of the dues. Therefore, the petitioners, by way of this petition, seek to hold that they are the absolute owners of the properties in question with legal and valid title. 3. Heard learned advocate Mr.Vijay H Patel for the petitioners, and learned AGP for respondent nos.2 and 3. None for respondent No.1 - Bank of Baroda. 4.1 Learned advocate Mr.Patel for the petitioners has submitted that the petitioners have purchased the subject properties in public e-auction conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n may be dismissed. 7. Though served, respondent No.1 - Bank of Baroda has chosen not to appear and contest this petition. 8. 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. 9.1 We have heard learned advocates for the parties. 9.2 There are following undisputed facts. 9.2.1 The erstwhile owner purchased the property in the year 2005 and the revenue entry to that effect came to be mutated and certified in the year 2006. 9.2.2 Respondent No.1 - Bank granted various credit facilities to the borrower - erstwhile owner of the properties in question on 31.02.2014 and by way of deposit of title deed created first charge mortgage over the properties of the borrower. 9.2.3 Respondent No.2 - Authority vide its order dated 02.07.2015 and 18.09.2020 has ordered for attachment of the mortgaged properties and mutation entry being Entry Nos.15661 and 18595 were mutated in the revenue record on 15.07.2015 and 22.09.2020, respectively. 9.2.4 Respondent No.1 - Bank issued public e-auction notice on 08.04.2022 and said public e-auction is held on 12.05.2022 and the Bank declared that the properties i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable to the Central Government or state Government or local authority. 11.2.2 At this stage, reference is made to Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which 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 (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.] " 11.2.3 Reference in this regard is made to the decision of this Court in the case of Kalupur Commercial Cooperative Bank Ltd., versus State of Gujarat - Special Civil Application No.17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained 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, 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 (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." "34. Act to have over-riding effect.- (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 from time to time; (i) The rights of a secured creditor to be exercised by one or more of its officers authorized in this behalf in accordance with the rules made by the Central Government; (j) An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal; (k) Setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration of transactions relating to securitisation, asset reconstruction and creation of security interest; (l) Application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other entities; (m) Non-application of the proposed legislation to security interests in agricultural lands, loans not exceeding rupees one lakh and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 by both the Houses of Parliament received the assent of the President on 27th August 1993. It came on the Statute Book as THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (51 of 1993):)" 27. The principles discernible from the decision of the Supreme Court in the case of Kumaon Motor Owners' Union Ltd. (supra) are that, if there is a conflict between the provisions of the two Acts and if there is nothing repugnant, the provisions in the later Act would prevail. The second principle discernible is that, while resolving the conflict, the court must look into the object behind the two statutes. To put it in other words, what necessitated the legislature to enact a particular provision, later in point of time, which may be in conflict with the provisions of the other Acts. The third principle discernible is that the court must look into the language of the provisions. If the language of a particular provision is found to be more emphatic, the same would be indicative of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive); 6 Sections 33 to 44 (both inclusive). [F.No. 3/5/2016 DRT] ANANDRAO VISHNU PATIL, Jt. Secy." 32. Section 31B has been inserted in the Recovery of Debts and Bankruptcy Act, 1993 (herein after referred to as "the RDB Act") by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, w.e.f. 1.9.2016, which contains a non-obsante clause and which expressly provides that the secured debts shall be paid in priority over all other debts and Government dues including the State taxes. 33. Apart from the fact that Section 31B of the RDB Act is a later enactment, the language of the said provision also clearly indicates the intention of the Parliament to give precedence even over the Government dues notwithstanding anything to the contrary in any other law. 34. We are sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y over debts), the Apex Court duly considered the power of Central Government to direct rules to be made or to make rules and observed that a membership card is only a personal permission from Stock Exchange to exercise rights and privileges that may be given subject to Rules, Bye-Laws and Regulations of Exchange and moment a member is declared a defaulter, his right of nomination shall cease and vest in Exchange because even personal privilege given is at that point taken away from defaulting member. It therefore held that by virtue of rule 43 of Bombay Stock Exchange Rules security provided by a member shall be a first and paramount lien for any sum due to Stock Exchange. Thus, Bombay Stock Exchange being secured creditor would have priority over Govt. dues and if a member of BSE was declared a defaulter, Income-tax department would not have priority over all debts owned by defaulter member. The first thing to be noticed is that the Income Tax Act does not provide for any paramountancy of dues by way of income tax. This is why the Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [2005] 5 SCC 694 (para 19) held that Government dues only have priority over unsecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there being any charge under Section 48 of the VAT Act which could only be in respect of the actual dues. It is also not in dispute that prior to the dues being crystallized in the case of the defaulting dealer, the Bank had already taken over the possession of the properties of the dealer, and by that time, Section 31B of the RDB Act had already been enforced by the Central Government. It is preposterous to suggest that the charge over the property under Section 48 of the State Act would come into force from the assessment of the earlier financial years and what is relevant in the present case is that the dues and resultantly the charge under Section 48 of the VAT Act came into existence after the implementation of Section 31B of the RDB Act. 51. Section 48 of the VAT Act would come into play only when the liability is finally assessed and the amount becomes due and payable. It is only thereafter if there is any charge, the same would operate. The authority under the VAT Act passed the assessment order later in point of time. 52. The language of Section 48 of the VAT Act is plain and simple and the phrase 'any amount payable by a dealer or any other person on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that 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. 55. In the result, this writ application succeeds and is hereby allowed. The impugned attachment notice dated 22.01.2018 (Annexure-A) and the impugned communication dated 19.04.2018 (Annexure-B) issued by the respondent No.2 is hereby quashed and set aside. It is hereby declared that the Bank has the first charge over the properties mortgaged from M/s. M. M. Traders by virtue of Section 26E of the SARFAESI Act." 11.3 In the instant case, it is an undisputed fact that respondent No.1 - Bank of Baroda is a secured creditor. Therefore, the Bank has valid first charge over the properties in question by way of mortgage and has first right to sell the same in view of priority under Section 26E of the Act and recovered its dues from it. The petitioners are the bona fide purchasers, purchased the properties in question from the public e-auction held by the bank and paid full and total sale consideration to the bank and the bank has issued sale certificate in favour of the petitioners and also handed over the peaceful and vac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No.1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/ or redundant. Any other contrary view would be defeating the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act." 11.5 Keeping the above view in mind, it is held that the SARFAESI 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. Any other provision(s) would not defeat the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act. 12. In view of above, the following order is passed. 12.1 The present petition is partly allowed. 12.2 This Court holds that the petitioners are the bona fide purchasers and are the absolute owners of the properties in question with legal and valid title. Consequently, the sale deed registered by the Authority concerned is legal and valid document. 12.3 The Revenue Authority - R ..... 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