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TMI Blog2024 (7) TMI 1547X X X X Extracts X X X X X X X X Extracts X X X X ..... rom time to time. 4. By this petition under Article 226 of the Constitution of India, the petitioners have prayed for the following reliefs: "8. a) That the Hon'ble Court may be pleased to issue an appropriate writ, order or direction to the effect that statutory charge under section 48 of the Gujarat Value Added Tax Act, 2003 ceased to operate over Plot nos. B/17 to B/27, B/28 to B/39, B/40 to B/48, B/49 to B/56, B/68 to B/78 and B/79 to B/90 (in all admeasuring 15019.43 sqm. with construction of 5843 sqm.) situated on survey nos. 102 and 112/2, Block no. 93 of Village Mota Borasara, Sub district Mangrol, District Surat, with effect from date of sale in favour of the Petitioners; (a)(1) the Hon'ble Court may be pleased to issue an appropriate writ, order or direction to declare that Bank of Baroda had first charge over the Land which would override statutory charge under Gujarat Value Added Tax Act, 2003 and that the authorities under the Gujarat Valued Added Tax Act, 2003 cannot enforce charge over the Land to recover dues of Kabra Plastics Limited and/or Gujarat Poly Plast Ltd. (a)(2) the Hon'ble Court may further be pleased to issue a writ of mandamus and/ or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and the Rules, being parcel of the 63 industrial plots in an auction being plot numbers B/17 to B/27, B/28 to B/39, B/40 to B/48, B/49 to B/56, B/68 to B/78 and B/ 79 to B/90 in all admeasuring 15019.43 sq.mtrs with construction of 5843 sq.mtrs. situated on survey nos. 102 and 112/2, Block no. 93 of Village Mota Borasara, Sub district Mangrol, District Surat. 5.2. It is the case of the petitioner that the land in question was owned by one Binodkumar Ramprasad Kabra who mortgaged the same in favour of the consortium of Banks including respondent no. 6-Bank of Baroda and IDBI Limited for borrowing facilities granted to M/S. Kabra Plastics Limited. The Kabra Plastics Limited defaulted in repayment of finance advanced to it by the consortium of Banks and therefore land was put to auction after issuance of notice under the Rules to realise the dues of the secured creditors. 5.3. The petitioner was a successful bidder in the auction conducted on 16.11.2021 at an offer price of Rs. 7, 21, 00, 000/- which was accepted by the Bank of Baroda by letter dated 17.11.2021. The petitioner also deposited the entire sale consideration as per the schedule mentioned in the said letter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of this Court in case of Kalupur Commercial Co-Operative Bank Ltd. Vs. State of Gujarat in Special Civil Application no. 17891 of 2018 rendered on 23.09.2019, the issue is no more resintegra because in view of Section 26A of the Securitisation Act, the respondent no. 6-Bank shall have priority of charge over the statutory dues of the Sales Tax/ VAT Department. 6.1. It was submitted that Chapter IVA comprising provisions of Section 26B to 26E are brought on statute by the Act no. 44 of 2016 with effect from 24.01.2020. It was therefore submitted that, as held by the Hon'ble Division Bench of this Court, the subsisting of the charge created by the Sales Tax/VAT Department is required to be quashed and set aside in view of the applicability of Section 26E of the Securitisation Act, as respondent no. 6-Bank would have first charge over the properties mortgaged by the Kabra Plastics Ltd. 6.2. Learned advocate Ms. Jani thereafter referred to the decision of decision of Kalupur Commercial Co-Operative Bank Ltd. (Supra), wherein it is held as under: "7. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Subsection (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 30 of the Gift- Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitisation Act. 130. Undisputedly, the two enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and Securitisation Act on the one hand and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis a vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588." 6.3. Thereafter learned advocate Ms. Jani referred to the Full Bench decision of the Hon'able Bombay High Court in case of Jalgaon Janta Sahkari Bank Ltd. And Anr. Vs. Joint Commissioner of Sales Tax and Anr. reported in (2022) SCC Online Bombay 1767 (Larger Bench). 6.4. It was pointed out that the Full Bench of the Hon'ble Bombay High Court has framed following substantial questions of law for consideration: "44. Keeping in view the rival submissions, we have considered it appropriate to formulate the following substantial questions of law for answers: a. Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant department of the Government [under the BST Act/MVAT Act/MGST Act] to appropriate the amount realized by the sale of a secured asset? b. Whether, despite section 26E in the SARFAESI Act or section 31B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of 'first charge' created over any property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorized officer while putting up an immovable property, i.e., the secured asset, for sale, is under a duty to notify, inter alia, the details of the encumbrances (in respect of such property that is proposed to be sold) which are known to the secured creditor as well as to require the purchaser to deposit money to discharge the encumbrances. 159. The Supreme Court in its decision in AI Champdany Industries Ltd. (supra) after considering the definition of 'encumbrance' in several law dictionaries, held that an 'encumbrance' "must be capable of being found out either on inspection of the land or the office of the Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance, thus must be a charge on the property. If by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance". 160. Till 24th January 2020, it may not have been possible for a secured creditor to know precisely all encumbrances in respect of the immovable property. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he auction sale is finalized in favour of the petitioners on "as is where is whatever there is basis", the petitioners cannot be made liable to pay any amount pursuant to the charge created by the Sales Tax/ VAT Department for recovery of the outstanding dues of the defaulter company. 6.7. It was submitted that the Full Bench of the Bombay High Court has answered questions a to c as per the decision of this Court in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra) and so far as the observations of the Hon'ble Bombay High Court with regard to questions d , e and f are concerned, while considering the amendment of Section 31B of the Recovery of Debt Act and Bankruptcy Act, 1993 (for short 'RDB Act') which has also been brought on statute by the Act no. 44 of 2016 with effect from 1st September, 2016 by holding that whether the Financial Institution can get the benefit of Section 26E in absence of the registration of charge with the Central Registry for enforcing the security interest having a priority of the interest and simultaneously can also avail the priority of its charge as per the provision of Section 31B of the RDB Act is concerned, it was submitted that the Full Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is not made in RDB Act as the secured creditor is required to approach the DRT for determination of the debt due and payable to claim priority of charge over statutory dues of the respondent Sales Tax/ VAT Department as per the provision of Section 31B of the RDB Act. 6.12. Learned advocate Ms. Jani submitted that in the facts of the case, the auction notice was issued by the Bank on 31.10.2021 and auction was held on 16.11.2021 and bid was accepted on 17.11.2021 whereas notice under Section 13(2) of the Securitisation Act was issued in the year 2017 prior to the charge mutated in the revenue record by the respondent Sales Tax/ VAT Department. It was also pointed out that the mortgage over the land in question was created in the year 06.03.2010 which was renewed in the year 2015. 6.13. It was therefore submitted that the charge created by the Secured Creditor respondent no. 6- Bank of Baroda was much prior in point of time than the charge created by the respondent Sales Tax/ VAT Department. It was submitted that irrespective of Section 26E, a secured creditor shall have priority of the charge over the land in question in view of the prior registration of the charge. It was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. It was submitted that the provisions of Section 48 of the VAT Act is more in general nature which provides that the tax to be first charged on the property of a dealer or any other person on account of tax interest and penalty payable. It was further submitted that the Division Bench of the Bombay High Court in case of Medineutrina Pvt. Ltd (company), while considering the aspect, the provisions of Section 37(1) of the Maharashtra VAT Act, 2002, vis-a-vis the auction purchaser of the property mortgaged with the secured creditor under the provisions of Securitisation Act and more particularly Section 26E has issued following directions for the secured creditors to take precautions for the sale of the mortgaged property (secured assets) under the provisions of Securitisation Act read with Securitisation Rules: "51. The secured creditor under the SARFAESI Act, therefore must in all cases ensure: (a) that the property offered as a security interest is free from any encumbrance whatsoever, at the time when it is so offered initially, to avail financial credit by the owner/s; (b) in all such cases, a titleverification certificate, by a lawyer, at the penalty of cancellation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken any care as per the aforesaid decision and accordingly, the petitioners as well as respondent no. 6-Banks are liable to pay outstanding dues of the Sales Tax/ VAT Department in view of the charge created prior in point of time, i.e. in the year 2018, as the auction took place in the year 2021. 7.2. It was submitted that the provisionof Section 26E of the Act has come into effect from 24.01.2020, whereas respondent Sales Tax Department has created charge in the year 2018 and as such as per the provisions of Section 48 of the VAT Act, the respondent shall have priority of the charge over the land in question and not respondent no. 6-Bank. 7.3. Reliance was also placed on the decision of the Hon'ble Supreme Court in case of State Tax Officer Vs. Rainbow Papers Ltd. reported in (2023) 9 SCC 545, wherein the Apex Court after considering the provisions of Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (for short 'the IBC') read with Regulation 12 as existing prior to 04.07.2018 and Regulations 10 and 14 of Regulations 2016, has analysed the provisions of the IBC vis-a-vis the provisions of Section 48 of the GVAT Act as under: "27. Mr. Tushar Mehta, learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Resolution Plan cannot be approved by way of an empty formality." 7.4. Referring to the above decision of the Hon'ble Apex Court, it was submitted that the provision of Section 48 of GVAT Act will have an overriding effect over the provisions of the IBC Act and therefore, it was submitted that when the provisions of Section 48, which are more general in nature, the decision of the Hon'ble Apex court would be squarely applicable in the facts of the case. It was therefore submitted that as per the provisions of Section 48 of the VAT Act, the petitioners would be liable to discharge outstanding dues of the defaulter company as the charges would subsist on the land in question, even after the same is purchased by the petitioners in the auction held by the respondent no. 6-Bank. 7.5. It was further submitted that on perusal of Section 48 of the VAT Act in view of the subsequent decision of the Apex Court and Full Bench decision of the Bombay High Court in case of Rainbow Papers Ltd. (Supra), the decision of this Court in case of Kalupur Commercial CoOperative Bank Ltd.(Supra) would require a relook and when the statutory charge is created for recovery of the outstanding dues of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditors. If they seek to invoke the provisions of Chapter III of the SARFAESI Act and enforce the security interest, the same needs to have a CERSAI registration. Such creditors would be entitled to seek 'priority' in terms of section 26E only after the security interest is registered and other provisions of the SARFAESI Act are complied with. Provisions in Chapter IV-A cannot be construed in a manner so as to disturb, impair or divest the State of its accrued rights. Sections 26D and 26E of the SARFAESI Act no doubt begin with non-obstante clauses. However, such non- obstante clauses would override any law for the time being in force evincing a result contrary to or inconsistent with sections 26D and section 26E but may not be so read so as to override and nullify an exercise of right by the relevant department of the State under any other law for the time being in force, and action taken in pursuance thereof, leading to accrual of some legal interest or benefit." 7.9. Learned AGP Mr. Dave further submitted that as per the provisions of Section 152 of the Bombay Land Revenue Code, the respondent State has complied with all the formalities as provided in Rule 118 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the IBC. Under Section 53(l)(b) (ii), the debts owed to a secured creditor, which would include the State under the GVAT Act are to rank equally with other specified debts including debts on account of workman's dues for a period of 24 months preceding the liquidation commencement date. 57. As observed above, the State isa secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority." 27. In view of the above stated position, we are of the opinion that the well-considered judgment sought to be reviewed does not fall within the scope and ambit of Review. The learned Counsels for the Review Petitioners have failed to make out any mistake or error apparent on the face of record in the impugned judgment and have failed to bring the case within the parameters laid down by this Court in various decision for reviewing the impugned judgment. Since we are not inclined to entertain these Review Petitions, we do not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Kalupur Commercial Co-Operative Bank Ltd.(Supra). 8.1. It was further submitted that the Hon'ble Division Bench of this Court in case of Kalupur Commercial Co-Operative Bank Ltd.(Supra) has analysed in detail the provisions of the Securitisation Act as well as provisions of the VAT Act and it has been held that once the property is sold by secured creditor under the provision of Securitisation Act and Securitisation Rules, the amount realized will have to be appropriated towards the satisfaction of the charge of the secured creditor and not the charge as per operation of law under Section 48 of the VAT Act. 9. It was further submitted that reliance placed by the learned AGP on the decision of this Court in case of Shree Radhekrushna Ginning And Pressing Pvt. Ltd. Through Director Yash Pareshbhai Khachar Vs. State of Gujarat in Special Civil Application no. 5413 of 2022 rendered on 29.03.2022 would not be applicable in the facts of the case. As in the facts of said case, the Court has considered the issue of continuing of charge during the pendency of the proceedings before the appellate authority. It was pointed out that the issue before the Court was with regard to as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be relooked or not. "The Securitization Act: 2(z) "securitisation" means acquisition of financial assets by any [asset reconstruction company] from any originator, whether by raising of funds by such [asset reconstruction company] from 3 [qualified buyers] by issue of security receipts representing undivided interest in such financial assets or otherwise; (zc)"secured asset" means the property on which security interest is created; (zd) "secured creditor" means- (i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l); (ii) debenture trustee appointed by any bank or financial institution; or (iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or (iv) debenture trustee registered with [the Board and appointed] for secured debt securities; or (v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;] (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice inwriting, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. 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.] 35. The provisions of this Act to override other laws.-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the custody of any person authorized or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorized officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction including through e-auction mode; or [Substituted by Notification no. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).] (d) by private treaty. (6) the authorized officer shall serve to the borrower a notice of thirty days for sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).] (2) The sale shall be confirmed in favor of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of [rule 8] [Substituted by Notification no. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).]: Provided further that if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;] [Substituted by Notification no. G.S.R. 1046 (E), dated 3.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limits of whose jurisdiction- (a) the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or] [(aa)] the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or (c) the cause of action, wholly or in part, arises: [Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (30 of 2004) for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act: Provided further that any application made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency 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." The Bombay Land Revenue Code "152. When notice of demand may issue- A notice of demand may be issued on or after the day following that on which the arrear accrues. The [State Government] may from time to time frame rules for the issue of such notices, and [**] shall fix the costs recoverable from the defaulter as an arrear of revenue, and direct by what officer such notices shall be issued." The VAT Act: "Special powers of tax authorities for recovery of tax as arrears of land 46. (1) For the purpose 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 Commissioner, the Special Commissioner, Additional Commissioner and the Joint Commissioners shall have and exercise all the powers and perform all the duties of the Collector under the Bombay Land Revenue Code, 1879 (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following: (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be." The Transfer of Property Act, 1882 "100. Charges.-Where immoveable property of one person is by act of parties or operation of law made security for the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re prescribed for the signing and verification of pleadings and containing, so far as they are known to or can be ascertained by the person making the verification, the matters required by sub-rule (2) to be specified in the proclamation. (4) For the purpose of ascertaining the matters to be specified in the proclamation, the Court may summon any person whom it thinks necessary to summon and may examine him in respect to any such matters and require him to produce any document in his possession or power relating thereto." 13. This Court in case of Kalupur Commercial Cooperative Bank(Supra) has held as under: "14. We may also quote the statement of objects 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priority of the secured creditor visa-vis the first charge of the property under the State Legislation was considered by the Supreme Court in the case of Central Bank of India vs. State of Kerala & ors, reported in (2009) 4 SCC 94. The Supreme Court, in the said decision took the view that if the State Act creates first charge on the property, then the secured creditors cannot have the claim against the statutory provision. The Supreme Court also took into consideration Section 100 of the Transfer of Property Act, 1882 The relevant paras of the judgment in the case of Central Bank of India (supra) are quoted hereunder for ready reference. "111. However, what is most significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. 112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-`-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that subsection, secured creditor can enforce security interest without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. 126. While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognized. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court as contained in para-126 of this decision quoted above. The Supreme Court observed that while enacting the DRT Act, the Parliament was aware of the law laid down by the Supreme Court, wherein priority of the State dues was recognized. If the Parliament intended to create the first charge in favour of the Banks, Financial Institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding the series of judicial pronouncements, the dues of Banks, Financial Institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax etc. The Supreme Court proceeded to observe that the fact of the matter was that no such provision had been incorporated in either of those enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal. 17. In our prima facie opinion, such observations probably might have weighed with the Parliam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 Reasons of the SARFAESI Act. Thus, an interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim or the dues payable to the secured creditor is no longer res integra. In Bank of Bihar vs. State of Bihar [(1972) 3 SCC 196], the supreme court laid down certain well known principles which were followed by the supreme court in its own judgment in Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. [(2000) 5 SCC 694]. The law laid down is that the preferential right of the Crown to recover the debt over the creditors is limited to the class of unsecured creditors. The common law of England or the principles of equity and good conscience would not allow the Crown to have preferential right for recovery of debt over the mortgagee or pledgee of goods or secured creditors. The law was further settled by the Supreme Court in Punjab National Bank Vs. Union of India [(2022) 7 SCC 260] on this score. 5.3 In view of above position of law, in other words, the charge in respect of the property in question created for sales tax dues is of no avail and has no efficacy in law. The property in question was sold by the bank which was a secured creditor, to enforce its secured debt under the SARFAESI Act, of which the petitioners were successful auction purchaser. They were issued sale certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid by the Supreme Court in the aforesaid decision is that the State's preferential right to the recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Supreme Court took the view that the Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for the recovery of its debts over a mortgagee or pledgee of the goods or a secured creditor. It is true that ultimately the bank was not granted any relief, but the same was not granted in the peculiar facts of the case. Otherwise, the principle of law as explained is very clear. In no uncertain terms, the Supreme Court held that the appellant, i.e. the bank, was right in submitting that on the date on which the State of Karnataka proceeded to attach and sell the property of the partners of the firm mortgaged with the bank, it could not have appropriated the sale proceeds to the sales-tax arrears payable by the firm, thereby defeating the bank's security. In taking such view, the Supreme Court relied on its earlier decision in the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588. 48. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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." 17. The full Bench of the Bombay High Court has framed following issues for consideration: "44. Keeping in view the rival submissions, we have considered it appropriate to formulate the following substantial questions of law for answers: a. Having regard to the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are considered as under: "a. Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant department of the Government [under the BST Act/MVAT Act/MGST Act] to appropriate the amount realized by the sale of a secured asset? b. Whether, despite section 26E in the SARFAESI Act or section 31B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of 'first charge' created over any property by operation of law (viz. the legislation in force in Maharashtra) giving such dues precedence over the dues of a secured creditor? c. Are the provisions, inter alia, according 'priority' in payment of dues to a secured creditor for enforcing its 1-WP-2935-2018 & Connected-FD security interest under the provisions of the SARFAESI Act prospective?" 19. So far as issue A is concerned, after considering the position of law as per the decision of the Hon'ble Apex Court in case of Central Bank of India Vs State of Kerala reported in (2009) 4 SCC 94 and the decision of the Rajasthan High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersy arose as to who between the petitioner and the Sales Tax Officer would be entitled to the proceeds of sale of the subject property in a sum of Rs. 8.02 crore, which was fetched upon the same being sold in terms of the liberty granted by the Division Bench. The State of Maharashtra and the Sales Tax Officer, respondents 1 and 2, respectively, relied upon the statutory charge created in favour of the sales tax department under section 37 of the MVAT Act. On behalf of the petitioner, it was contended that section 37 itself records that it would be subject to any Central legislation creating first charge and highlighted that the RDDB Act being the Central legislation and section 31B thereof having accorded first priority in favour of the secured creditor over and above the Government dues, including revenues, taxes, etc. and also because section 31B of the RDDB Act is not restricted to any sale conducted under the provisions of such legislations only and it would operate in respect of sale conducted under any other mechanism, including provisions of the SARFAESI Act, it was immaterial whether section 26E of the SARFAESI Act had not been brought into force. 57. Reliance was place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The argument is without any substance because the law declared in the four opinions above referred to is 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. But we note the fact that the security interest has been entered in the record of the Central Registry." 61. What follows from a reading of the aforesaid paragraphs (20 and 21) is that the contention advanced by the respondents 1 and 2 regarding mandatory registration of the security interest with the Central registry prior to invocation of section 26E of the SARFAESI Act was, in the opinion of the Division Bench, an "argument without substance"." 20. From the above observation of the Full Bench of the Bombay High Court, it was sought to be canvassed before us that the decision of this Court in case of Kalupur Commercial Cooperative Bank (Supra) in relation to the analysis of section 26E of the SARFAESI Act and Section 31B of the RDB Act is required to be reconsidered in the circumstances and once the secured creditor exercised to recover its outstanding dues under the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State/respondents and answer the question by holding that (a) a secured creditor, finding that itis disabled from obtaining the benefit of 'priority' in terms of section 1-WP 2935-2018 & Connected-FD 26E of the SARFAESI Act for want of CERSAI registration, cannot fall back on section 31B of the RDDB Act to claim 'priority'; (b) the overwhelming factor of determination of a lis by the DRT has to be given its due worth and hence, the benefit of 'priority' that section 31B envisages is for a secured creditor who institutes proceedings under the RDDB Act and is successful in having an interim or final determination in its favour that a sum is due and payable (in section 31B) as distinguished from the debts due (in section 26E). (c) section 31B of the RDDB Act being a substantive provision, it cannot be invoked by a secured creditor faced with the disability posed by section 26E of the SARFAESI Act; and (d) without recourse having been taken to the procedure envisaged in the RDDB Act for recovery of its dues and without there being a determination of its claim by the DRT to the effect that any sum due from the borrower is payable to it, a secured credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of section 26B at its own peril. We hold that attachment orders issued post 24th January 2020, if not filed with the Central Registry, any department of the Government to whom a person owes money on account of unpaid tax has to wait till the secured creditor by sale of the immovable property being the secured asset mops up its secured dues. 151. However, there could be attachments orders which might have been issued much prior to giving effect to the 2011 Rules, as amended. In respect of such orders of attachment, we consider it appropriate to express our views. 152. The procedure to be followed in terms of the CPC when an immovable property is put up for auction sale to satisfy a decree of the court is to be found in Order XXI Rules 54 and 66 of the CPC. It is mandatory for the court executing the decree, to comply with the following stages before such property is sold in execution of a particular decree: (a) attachment of the immovable property; (b) proclamation of sale by public auction; (c) sale by public auction. At each stage of the execution of the decree, when a property is sold, it is mandatory that notice shall be served upon the person whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not get attracted." 24. So far as the facts of the present case are concerned and the prayer of the petitioner is concerned, the consideration of the issue G by the Full Bench is relevant. 25. The Full Bench has determined the issue G as to whether the successful auction purchaser is liable to pay the charge created by the State over the property purchased or not. However, answer to this question as held by the Hon'ble Full Bench of the Bombay High Court is as under: "155. To answer this question, we need to take note of some provisions of the Security Interest (Enforcement) Rules, 2002 (hereafter '2002' Rules, for short). However, it must be borne in mind that while a secured creditor is concerned only with sale of the immovable property, being the secured asset, and no other property of the defaulting borrower, the concern of the department need not necessarily be confined only to the secured asset but could well spill over and any other asset of the defaulter in payment of State's dues could be put up for sale to realize such dues in terms of the MLR Code and the 1967 Rules. 156. The procedure for 'sale of an immovable secured asset' and 'time of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey as specified in sub-rule (7) above. 158. A conjoint reading of the aforesaid rules admits of no doubt that the authorized officer while putting up an immovable property, i.e., the secured asset, for sale, is under a duty to notify, inter alia, the details of the encumbrances (in respect of such property that is proposed to be sold) which are known to the secured creditor as well as to require the purchaser to deposit money to discharge the encumbrances. 159. The Supreme Court in its decision in AI Champdany Industries Ltd. (supra) after considering the definition of 'encumbrance' in several law dictionaries, held that an 'encumbrance' "must be capable of being found out either on inspection of the land or the office of the Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement. Encumbrance, thus must be a charge on the property. If by 1-WP-2935-2018 & Connected-FD reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance". 160. Till 24th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far less actual notice." 26. From the above analysis, it is discernible that the secured creditor with a view to recover its dues after taking possession of secured assets under Section 13(4) of the SARFAESI Act is required to follow the procedure prescribed in Rule 8 and Rule 9 of the Securitisation Rules for conducting the auction sale. As per the Clause (f) of Sub-Rule 7 of the Rule 8, the secured creditor is required to disclose as a part of terms and conditions which are necessary for a purchaser to know the nature and value of the property. The respondent no. 6-Bank which is secured creditor is therefore bound by the provision of Rule 8 (7)(f) of the Rules to disclose the nature and value of the property. When there is a statutory rule which provides for disclosure of nature of the property, it would also include any subsisting charge over the property which is put for auction sale. In absence of such disclosure by the secured creditor made in the auction sale notice, as a part of terms and conditions of the sale and only mentioning "as is where is, whatever basis" is not sufficient so as to enable the participants in the auction sale to put to notice about the charge subsis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to a mortgage, the latter person is said to have a charge on the property and all the provisions would apply which applied to simple mortgage would apply to the charge. Therefore, once the secured creditor has realised its dues by sale of the property, then further charge would not subsist over such property as the entire value of the property would stand realised. In such circumstances, even the charge of the respondent State cannot be said to have subsisted, and the auction purchaser would not be liable to make any payment in satisfaction of the charge as the respondent auction purchaser has purchased such property after payment of full consideration and it cannot be said that the charge created on the property would travel along with the property, when the respondent secured creditor has already recovered the amount on sale of the property by realizing its charge created over the property. 32. In such circumstances, the question, therefore would arise as to whether the respondent State would be entitled to recover any amount from the Bank, having the priority over the charge for sale consideration which was realized on the sale of the property, as the property once sold, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BC, set out herein below :- "Section 3(30) and 3(31) of the Code read: "3(30) "secured creditor" means a creditor in favour of whom security interest is created; 3(31) "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee;" 28. The learned Solicitor General ofIndia submitted that a reading of Sections 3(30) and 3(31) of the IBC makes it clear that the finding of the NCLAT that the State is not a secured creditor is erroneous and contrary to the clear definition of secured creditor under the IBC. 29. As argued by the learned Solicitor General, the term "Secured Creditor" as defined under the IBC is comprehensive and wide enough to cover all types of security interests namely, the right, title, interest or a claim to property, created in favour of, or provided for a secured credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sole ground for rejecting the claim." 35. From the above observations of the Hon'ble Apex Court, it is clear that the Apex Court has considered the provisions of Section 53 of the IBC vis-a-vis Section 48 of the VAT Act and has come to the conclusion that Section 53 of the IBC does not override the provisions of Section 48 of the VAT Act and outstanding dues of the State Act as per the provisions of Section 48 of the VAT Act would be at pari passu with the dues of the secured creditor as provided under Section 53(1)(d)(2) as stated in para no. 56 extracted herein above. This decision of the Apex Court was referred subsequently in case of Paschimanchal Vidyut Vitran Nigam Limited Vs. Raman Ispat Private Limited and Others reported in (2023) 10 SCC 60 while considering the waterfall mechanism as envisaged in Section 53 of the IBC Act, wherein it was observed as under: "52. PVVNL had relied upon the decision Rainbow Papers (supra). In that case, the issue involved was interpretation of Section 48 of the Gujarat Value Added Tax Act, 2003 which enacted that any amount payable towards tax or penalty by any person would constitute a 'first charge' on the property of such dealer or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers (supra) or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government. 54. The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. It would be possible to hold [in the absence of a specific enumeration of government dues as in the present case, in Section 53(1)(e)] that the State is to be treated as a 'secured creditor'. However, the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the government on the other clearly signifies Parliament's intention to treat the latter differently - and in the present case, having lower priority. As noticed earlier, this intention is also evident from a reading of the preamble to the Act itself. 55. According to the principles of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (concerning customs dues/ operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority. 56.3. In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC." 57. Similarly, in Duncans Industries Ltd. v. AJ Agrochem 39, Section 16G of the Tea Act, 1953 which required prior consent of the Central Government (for initiation of winding up proceedings) was held to be overridden by the IBC. In a similar manner, it is held that Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with nonobstante clauses (i.e., Section 173 and 174). The position of law with respect to primacy of the IBC, is identical with the position discussed in Sundaresh Bhatt and Duncan Industries (supra) [refer also: Innoventive Industries (supra), CIT v. Monnet Ispat & Energy Ltd., Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., and Jagmohan Bajaj v. Shivam Fragrances Private Limited. 58. In view of the above discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of the Crown to recover the debt over the creditors is limited to the class of unsecured creditors and the common law of England or the principles of equity and good conscience would not allow the Crown to have preferential right for recovery of debt over the mortgagee or pledge of goods of secured creditors. 39. In view of the above settle legal position, the charge in respect of the property in question created for sales tax dues or VAT dues is of no avail and has no efficacy in law in view of the provisions of SARFAESI Act and the RDB Act. The property in question was sold by respondent no. 6-Bank under the provisions of SARFAESI Act and the petitioners were successful purchasers and the sale certificate is issued and sale deed is also executed by which the petitioners have become absolute owners of the property and therefore considering the existing position of law, the charge created by the respondent State over the property in question in the year 2018, cannot be sustained and is accordingly quashed and set aside and as a consequence the mutation entries in revenue records also stands deleted. The petition accordingly succeeds in the aforesaid terms. Rule is made absol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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