Disposed

Union Bank of India v. The State of Telangana and 5 Others

Telangana HC17 Aug 2023WP/6628/2022

Case brief

AI extract

What is this about?

A bank sought registration of a sale certificate issued under SARFAESI Act for property mortgaged before a tax attachment. The court held that under Section 26(E) SARFAESI Act and Section 31B RDB Act, the secured creditor's charge has priority over government tax dues, directing registration of the sale certificate.

What did the court decide?

The respondent No. 5 is directed to receive and register the sale certificate presented by petitioner Bank, without referring to the attachment order of respondent No. 3 dated 18.03.2019.

Union Bank of India Vs The State of Telangana and 5… — Banking and Recovery | Telangana HC (2023)

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HIGH couRT FoR THE srATF oc TE, ^ r,^ - .. [^33Bo ] t^s o".,, i 6,I5,,'i 1fff"ry ;",fli A r H YD E RA B AD

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THURSDAY, THE ST rwo iH ii i &.JS II.,H! rr#f i_t u G u s r

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PRESENT

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THE HONOURABI

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P'sAM KosHy rHE HoNouRABLE sRr;::!!#ttrcE ,STICE LAXMI NARAYANA ALISHETTY

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Between:

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WRITPE TITI ONN o.6 628 oF2o22

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Union Bank of lndia oranch, Hanmakonda

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ffi :.x#i: lls8,.s,?uJ,{:[?3Ji#,".,,j;i,,Sn",,lisi,3jr,,.

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AND

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...PETITIONER

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The State of of Revenue_ Hyderabad. '%?l]fl ;i"?;Tioi:.,"*390?l-35J[ij?,:i.EJi, j?fi o.sjmil:

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2 Jil%,o?:3:tIr"t"#l;;';33i^commerciar rax Departmenr, Karimnasar

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' 3l#il;:"*:'r,Ifi:r913& 0- 1rr,^co,,"rciar rax Department, Karimnasar

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^Y;?*':Ji1X"-:#"JJ:i,"#t:Xif ZffiTy:Jfl.,1i,i,:i,tX###",,.:

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Sub Registrar of Assurar

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u ;[i,.,3],u,., Resistrar, 11"]i.'l"r'tJ.#'il:ll'"n,, n,,.,,n,n,,.

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...RESPONDENTS

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Petition under Articre 226 0f the constitution of India praying that in the circumstances stated in the affidavit filed .therewith, the High Court may be pleased to issue a writ or order or direction more particurarry one in the nature of writ of Mandamus decraring the Attachment order RC rrro.- ezrn.rearsrro rl,'0, 1810312019 issued by Respondent No. 3 directing Respondent No. 5 not to entertain any sare or transfer in respect of the properties beronging to the partners of M/s. Jadala Traders Respondent No. 4 herein i.e., House No. 8_1_.104, Situated

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at Jammikunta Villagr: and Mandal, Huzurabad, Karimnagar District and House No 2-7-104rC in prot No. 4 and 5 in Survey No. 720rAt1 Situated at Jammikunta village and rvlandar, Huzurabad, Karimnagar District and open rand admeasuring 560 94 Square yard in Survey No. 778rAr1 situated at Jammikunta Virage and lvlandar' Huzurabad, Karimnagar District untir the payment and production of the clearance certificate from the commercrar rax Department as arbitrary. i,egar, capricious and violative of prrncipres of naturar Justice and against the provrsions of section 26 ( E) of the SARFAEST Act and Section 31 (B) of the RDB Act and Section 48 of Transfer of property Act and consequen y directing Respondent No. 5 to register the sale r:ertificate/s issued by petitioner Bank under SARFAEST Act.

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lA NO: 1 o F 2022

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petition under Section i 51 CpC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to direct the Respondent No. 5 to regrster the sare certificate/s issued by petitioner Bank under SARFAEST Act in respect of House No. 2-7-104 rc in prot No.4 and 5 in survey No. 720rAr1 Situated at Jammikunta Virage and Mandar, Huzurabad, Karimnagar District, pending disposar of the writ petition.

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Counsel for the petitioner: SMT. V. DYUMANI

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Counsel forthe Respondent Nos. 1 to 3:SRt A. RAJASHEKHAR REDDYS.c. FoR coMMERcIAf iAxE;,,

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Counsel forthe Respondent No.4: Ms. SRTLALITHA

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COUNSEI fOr thc RESPONdENT NOS.5 & 6: GP FOR STAMPS AND REGISTRATION

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The Court made the following: ORDER

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HONOURABLE SRI JUSTICE^{P.SAM KOSHY} AND HON'BLE SRI JUSTICE LAXMI^{NARAYANAALISHETTY}

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WRIT PETITION No.6628 of²⁰²²

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ORDER:^(per llotl'ble Si^{Justice Loxmi NarolJattal\lislleltli)}

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The instant writ^{petition has becn hled by the petitioner}

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seeking following relief

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'...to issue a writ^or order^{or directionmore particularlyone} in the nature of Writ^{of Mandamus declaring the Attachment} order R.C.No.82 lArrearsl20lg,^{dated18.03.2O19issuedtr1'} Respondenl No.3 directing^{respondentNo 5 not lo cnlertarn} any sale or transfer in^{respectof thc propcrties bciongingto} the partners of M/s.Jadala^{Traders,resPondent No'1herein} i.e.. House No. 8-.1-104,^{situatedat JammikuntaVillage and} Mandal, Huzurabad,^{KarimnagarDistrict and f{ousc No 2-7} lO4/C in PIot^No.4 and^{5 in SurveyNo 720/A/1 situatedat} Jammikunta Vitlage^{and Mandal, Huzurabad,Kanmnagar} District and open land^{admeasuring 560.94 squareyardsin} Survey No.778/A/1^{situatedat Jammikunta Village and} Mandal, Huzurabad,^{KarimnagarDistrict,untilthe} Payment and production of the^{clearance certificate fromthe} Commercial Tax Department,^{as arbitrary,illegal, capricious} and uiolative of principles^{of natural justice andagainstthe} provisions of Section 26(E) of^{the SARFAESIAct and Section} 3l(B) of the RDB^Act and^{Section48 of Transfer o[ ProPerty} Act and consequently, direct^{respondentNo.5 to registerthe} sale certificate(s)^{issued by petitioner Bank under SARFAESI} Act and^pass.....-"

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The brief facts^{as. narratedin the writ petition arc that 4s} respondent^{i.e., M/s.Jadala Traders, approached the petitioner-}

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:vi

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Psi; 'r & /"\A " W P.No at:)S al 20):

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\r\

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Union Bank of India (erstu,hile Andhra Bank) to takeover the limits lrom thc then Slate Bank of Hyderabad and the petitionerBank grantcd cash credit limir of Rs.40O.O0 lakhs for takeover from SBII ancl additional I'inance of Rs.20O.0O lakhs was also grantecl i-c., total $'orking capital limit of Rs.60O.OO lakhs vidc sanction letter dated^'26.O5.2017. As a securitlz, 4th respondent and ils guarantors mortgaged the propertics including the properties on 15.O6.20 17 and 05.lO.2Ol7 by way of deposit of titlc deeds and the same were registered vide MODT Nos.2119/2017 and 4138/2017, respectively and same were also registr:r<:d with Central Registry of Securitisation Asset Reconstruction and Security Interest of lndia (for short, 'CERSAI ) as pe r the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Securif)Interest Acl, 2OO2 (for short, Act,2OO2).

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Respondent no.4 defaulted in repayment of the loan amount and therefore, the loan account was classified as Non Performing Asset (NPA) and the petitioner-bank had issued notice dated Ol .O2.2O19 demanding payment of Rs.6,28,28,5.55..58 Ps. as on 01.O2.2019 together with interest with costs and the said notice was served on the respondent and Ot h|r gua ra r )l OrS.

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PS!: i .1,L-NA,.J W L) No t,.)S of 2022

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Respondent no.4 failed to pay the amount demanded within the statutory period and, therefore, petitioner-Bank issued possession notice dated 02.O5.2Oi9, followed by 30 days notice Rule 8(6) 30 days notice dated 13.06.2019 undcr Rule 8(6) of Security Interest (Enforcement) Rules, 2002 (Rutes, 2OO2) by following the procedure contemplated under the Act. Petitioner-Bank also issued e-auction notice dated 07 .1O^{.2O 19} for sale of the subject properties on 15.11.2019. On 15-11.20i9 e-auction was conducted in respect of^properly i.e.,^House No.2-7-lO4/C in Plot Nos.4 & 5 in Sy.No.72OlA/^Isituatedat Jammikunta village and mandal,^{admeasuring 300 square yards} and Mrs. Gundla Saroja was^{declared as successful bidder'}

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In the meanwhile, respondent no.4^{filed W P.No.2496Oof} 2019 before this Court^{challengingthe said e-auctionand} obtained interim stay^{orders restraining the petitioner Bank} from confirming the^{sale in favour of auction purchaser' This} Court by order^{dated 24.11.2021,dismissed the w P'No'24960} of 2Ol9 on^merits.

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Thereafter,^{the petitioner-Bank confirmed thesale in} favour of^{auction purchaser and after receiving the entire price,} sale certificate^{dated Ig 'Ol '2022was issued in lavour of the}

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,\i'.I (t tl.1^. 1./ t, ,1, . ,.2s o. )n)) w

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aruclron I)u rchascr. Thc J)etitioner- bank and the auction purchaser approached the Sub Registrar of Assurances, IJ uzurabad (5tl' respondent) lor registration o[ sale ccrtificate. Ilot'cr.cr, the respon<.lcnt no.5 refused to register the same on thc ground that the rnortgaged property was under attachment b1' thc Commr:rcial Tax Dcpartment (3.d respondent) vidc order R.C No.82lAr-rcars / 20 19, darcd 18.O3.20 19.

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'I'he mortgage crcerted by the partners of the respondent no.4 in lilrl Ll r- .1 thc petttioner_Bank on 15.O6.2017 and, 05.10.2017 is much prior to lhe attachment orders passed by Lhc 3,(r rcsponclcnt i.r:., 1g.03.2019. As per Section 26(E) of the AcL, 2OO2, a secure cl r:rcditor will have priorily over all other debts create,l in respcct of secured asset.

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Whcn the pctitioner-Bank came to know about the atLachment order dated 18.03.2019, petitioner_Bank immediatt:I1 approached the Srh respondent and apprised that the attachment ordcr rvould not be applicable to the Bank when the propertv was sold under the Act, 2OO2 by exercising its mortgage rights and requcstcd the 5e respondent to receive and register the sale certificate. However, Sft respondent refused to ente.rain the sa.le certificate. Hence, this Writ petition.

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,.!lfV!l;!

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I I ! :

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No counter_affidavit has been filed on behalf cf the respondents.

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tO. Heard learned cor V'D}'umani for the petitionerBank, sri Rajashekar, ,.'""t' '" "t"to^{standrng counsel} for commercial Tax, rearned counser ," rearned Government o,.u^{"t"u"tnrfor respondentno.4 and the} der for respondent no.5.

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Consideration : 11 Now the points for consideration are, (i) Whether the charge created in favour of the secured creditor over the secured interest shall have overriding effect over all other debts rncluding reven ue, Government, etc. ? (ii) Whether the petitioner is entitied to the relief sought in the writ petition for registration of Sale Certificate? 72. Dur rng the course of hearing, leamed counsel for petitioner submitted that attachment order of 3.d respondent wouid not be applicable to the Bank when it rnrtiated measures under the Act, 2OO2 inciuding sale and the action of the respondent no.3 in not registering the sale certificate is in violation of the provisions of Section 26(E) otthe Act, 2OO2 read with Sprion 3t(B) of R / ecovery of Debt and Bankruptcy Act,

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151.:.r .r' l-lI,'1..,r tY P No.tn'lii ai 202)

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1993 (fbr shorr, Act, 1993). He further submitted that the date of mortgagc oi the petitioner B:rnk relates back to 15.06.2017 and 05.l(J.2O17 ar-rd said mortgage was duly registered rvith the Registrzrr of Assurancc zrs well as the Ccntral Registry under the Act, 2OO2.

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Thc petrtioner-Bank zrlso filed O.A.No.680 of 2019 before the Debts Rcr:overy Tribunal I at Hyderabad (DRT) against the 4ft respondent for recovery of Rs.6, 14,83,844. 58 ps with future interest. Thc DRT by an order <iated 2.01.2023 allowed the said O.A.. and held tha r pctitioncr bank is entitled to proceed against the pcrson and propertrcs of defendants 2 to 4 and properties ol dclendant no. I Lherein for realization of the debt due. The learned counscl strenuously argued that the action of the 5h respondent in rclusing to register the sale certificate by referring attachment order of 3.,1 respondent, is illegal, arbitrary and u nconstilu lional.

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In s,pport of his contention, learned counsel placed reliance on the lollowing decisions:

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(i) Pridhvi Asset Reconstruction and Securitization Co.Ltd., vs. State ofAndhra Bank and othersr;

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2021 (3) ALT 101

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PSK,,J &, I-NA I W.P No 6628 ot r;;;

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(i,) city union Bank Ltd., v Sub-Registrar, Peddapalli and others2; (iii) State Bank of others3. India vs. Union of India and

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Learned counsel further contended that by an Amendment Act, 44/2016, dated 16.08.2O16, Section 31E} is rnserted to Recovery of Debt and Bankruptcy Act, i 993 (for short, Act, 1993) w.e.f. 07.O9.2076 artd further, Section 26E is rnserted to the Act, 2OO2 w.e.f . 24.O1.2O2O. As Per which, secured creditors have gtven priority over a]l other debts including revenue, taxes, cesses etc.

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It is relevant to extract the Section 31B of the Acr, 1993 and Section 26E of the Act, 2OO2:

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(i) Section 3 18 of the Act, 1993 reads as under:

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'S.3 tB. priority to secur

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anythins contained ,,,", ";': ff:T;: *J".I',JH# the rights of secured creditor to realize secured debts due and payable to them by "ut. or., created, shall have priorit5r ";Tffr":::; ;::il:::tj: other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.,

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(ii) Section 26tr of Act,2OO2 reads as under:

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J^{2ot8(6) ALD} 16 r 2021 (5)ALT 1Ss

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lr.s(,^{d t NA,J} ".^{P Nob6:S of )O22}

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<br>

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(S.26E. Not \'ithstandjng^{anything containetlin anv other Iawfor} the time^{being in force' utttt tt'tt registration of securitl. interest'} the debts^{clue to anl securedcreditor shall be paid in priority} an(l all^{revcnues' taxes' cesses and other} over^{all other} '1ebts rates^{pa] ablc to the Ccntral Government or StateGovernmentor}

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iocal authoiit''" i, ," herebv clarihed^thal Expra^{na tiorI orthe} -pu I pL'ps's :l I i]i,:::li'll:l l*":'[lo;'u* ;'" t,)0" I"^-.i ,rt".^{rhc, ommen'rmen'} :'^'"":"'j;:i;r:.^{'pr.,.""ains.are pending} 2 o, o,^{i nca s..s* h.} r", " l'' ?:). :i. l:;[t:';i;^{J i:J'iioJl,,1,".0.*0} "" ."r".p".,^{o' securcd,css'rsdb:::,?} l;:';;.;,"ions^{o[ that Code."} tn PaYment^{ol debt shallDP:}

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17.^{ln view ol the above' thc Bank has priority over all other}

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debts^{and Go,ernmentdues includingrevenue,Laxes, CeSSeS} and^{rates due to the CcntralGovernment' State Governmentor}

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local authoritY'

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18.^{Per contra, the learned standing counsel for Commercial} Tax,^{Sri Rajasekhar vehementlyargued that the attachment of} shall^{have priority over the chargeof} the Tax^DePartment further^{submittedthat the attachment} secured^creditorsHe affected^{by the Departmentis prior to effectivedate of insertron} of Section^{26E of the AcL, 2OO2 i'e} '^{24 07 2O2Oand' therefore'} attachment^{of the Tax Departmentwill sustain and shall have} priority over^{the charge of securedcreditor' When' this Court} reminded^{him of judgments of State Bank of India v'State of} Maharashtra^{and othersa and also State Bank of India vs'}

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2020 SgC^{onlineBom 4190}

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PSK,.I & I,NA,J W.P.No.662s .f 2022

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()

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Union of India and others (supra), Sri Rajasekhar tried to distinguish the same that in^vier.r, of the^judgment of Hon'ble Apex Court in Central Bank of India vs. State of^Keralas,the debt of revenue shall have priority over all^{the debts and,} therefore, the attachment of the Tax^{Departmentover the} subject properly shall sustain^{and the writ petitionis iiable to} be dismissed on that^ground.

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Consideration^:

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Point No.lil:

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It is appropriate^{to refer to three judgmentsrelied upon by} the counsel for Petitioner'

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In Pridhvi^{Asset Reconstructiol(supra), the Division} Bench of Hon'ble^{High Court of AndhraPradesh at Amaravati}

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held as under:

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"1O. A reading^{of the aboveprovi-sionsof lawmakesit} abundantly clear that^{the said provisions areanalog-ous} though under two different^{legislationsSection 26E of the} Act, ;hich came^{into forcew e.f 24-O|-2O2O beginswith} 'non obstante'clause^{and stipulates that after registration} of the security interest,^{the debts due toanysecured} creditor shalt^{be paid in priority over all other debts and all} revenLtes, taxes,^{cessesand other rates payableto the} Central or State^{Governmentsor localauthority'} Section.3tB of^{the BankruPtcyAct is also to the same} effect.^When the^{language of theprovisionsof law is very} Iucid and clear,^{no other interpretation is possible'}

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In the instant^{case, the3rd resPondentcreated} mortgage over the^{subject property by way of a registered}

s (zoo9) 4 scc 94

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',1. ;'i,lo 6ta-... )t )0)2

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(leed in favour oI Andhr-a B;tnk ers long back as on ] 6-O320 l3 and as thc account of tlre loanec bcc:ame NIrA on 31 07 2016, the Bank authoriti('s initiated actron under the provisions of the Act b-r. issuing noticcs under Section 13(2) and (4) o, the Act Ir is absolurely not in controversY that lhe ])etitioner herein clearh. [alls under the dcfinirion of "sectLrcd credrtor" as defincd ullder Section 2(z.d) of the Act, sinr:e the petitioner hcrcilr is an Asset Reconstruction Companv in whose lavour Andhra Bank assigned the debt lry nay of registcred document on 26 O9-2O17.ln fact, the material available on record [urther reveals that on l8-11 2O2O i.c., immediatcl1' after the sale notice came to be issued by the 2nd rcspondent, the petitioner herein brought to the notice of the Office of the 2nd respondent about Lhe existence of thc securit-v interest in favour of the petitioncr herein. In fact, \ihen the provisions of Section 26E of the Act and 318 of the Bankruptc_v Act fcll for considcration of this court in W.P.No.4384l of 2018, u,hen the registering authoritY failcd to registcr the sale certificate, a Division Bench o[ this collrt, whiie holding that the secured creditor $.ould have the prioritl of thc chargr: over the mort6laged property, allorved the said writ petition directing the rcgistering authoritl. to registcr the salc certificate. In the said judgment, the Divrsion Bench also hcld that the rcvenue has no priority of chargc over the mortgaged propertv in question. Having regard to the Ianguage employcd in Section 26Fl of the Act and 318 of the Bankruptcl, Act, the contention o[ the learned Government Pleader that mortgage in favour of the petitioner herein should yield to crown debt coupled u,ith charge cannot be sustained in the eye of law."

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21. In City Union Bank Ltd., (supra), the Division Bench of

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this Hon'b1e Court held as under:

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"13. The preponderance of judicial opinion leads to the irresistible conclusion that the sale of the mortgaged property in favour of the auction purchaser and tnJ slale certiftcate under the SARFAESI Act in such circumstances is free of all encumbrances. The attachments effected subsequent to thc mortgage created rn favour of the bank do not affect thc rights of the secured creditor over the subject property. Such attachments have no impact on the sale conducted under the Act and the same ceases to have any effect or fall to the ground the moment the same is conhrmed in favour of the secured creditor Bank and auction purchaser. Otheruise, those attachments would remain as a permanent taboo prejudiciall_v affecting the marketability and titlc to the property even though the.

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PSK,,] & LNA,J

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W.P.No.6623 ol2022

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ceased to have an1. legal cfficacy and thereby it becomes necessan to register the sale certrficate. ..."

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However, the facts of above cases and the facts of present

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case are slightly different. In thc present case, the attachment of Tax Department ',,ras in the interregnum period o[ insertion of Section 31-B of RDB Act and Section 26-E of the Act,^2O02, whereas, in the above cases, the altachment of^{Tax Department} was after 24.O1.2O2O.

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In State Bank of India^{vs. Union of India and others}

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(supra), the Division Bench of this^{Courtheldas under:}

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Regarding the inclusion^{ot thesubject land inthe} prohibitory List prepared under^{Section 22-A ofthe} ilegistration Act, 1908 on^{accountol alleged VATduesto the} 3rd respondent and^{alleged IncomeTaxdues tothe} 4th respondent, it is undisputed^{that thesecurity} interest/charge of thc Bank^{over the subject propertywas} registered way back^{on O8 O4.2000and was reiteratedon} 2l.Og-2O12 lvhen the 5th^{respondentwas in possessionof the} property and had crcated^{such charge for its workingcaPital} Ioan requirements.

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Section 26 E of^{the SARFAESTAct,2OO2introducedby} Act 44 of 2016 w.e.l^{24.1.2020states:}

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"26 E. ftroriry to^{sccurcd creditors - Notwithstandingan,'thing} .o.rtain.a i"'any^{ottrer law for the tlme beint in force'after the} registration ot iecuncv^{interest, thedebts due to.11V sflr!$} criditor shall^{bepard ln priontyoverall o$erdebls and-ar} iir.nu"., .", cesses and other^{ratespayablcto thecentral} ;;;;J Apf.tt.tio".^For -^{the purposes of} S,^t. Govemment^{this section' or it is local hereby authority'clalfred} that on or^{afterthe commenccment of theInsolvenry ald} E-Jrfollp,.y^Code '^{2016(3 I of20 16)'in cases whereinsolv€ncy or} uurfo"it.i^{proceed.intsarc} PcndrnB^{in respectof "11} ?t1i.: of the borrower' Pllonly^{(o se'urcd(lcditorsm paJdnen(ol oeot} sn"l b. s.,bj".t^{to tfteprovisionsof thatCode'"} ,6 tft; ii;-;uou.^{'p.o"isior' gives prioritv to claims of} ;;"r;;;"Ji;..s -s;rvice like the Tax Petition; dues/ Income^Bankover Tax dues^thedues and^{o-f the} the ;;;;J;;clause therein^{overridesthe provision^s-of the} ;;;-;;;,; i;;;;-i; Act, 1961^{andthe relansana VArAct'2005'}

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I'5-A.^, i' -.',li^,, 1',i,^,]o68o'.)())2

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<br>

Sccriorr 35 of the SARFAESI Act, 2002 gives olerriding cllect to the sard statute over an] thrng inconslstent therc$,ith in any otht r law. [t statcs:

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' Scc.15 l'hc provisions o[ tlrs Act L(, ovemdc olhcr larvs -']he provrs,tons of this Act shall have c[fcc1, nol$.rrhstandurg anvrhng incorlsrstcnt therc{ith contarnc(l rn .rlry othcr l.r\e for lhc urne bclng Ln force or an' lnstrument havrng ellecr l)! lirtue ol any such lalv

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ln our considercd oprnion, after introduction of scction 26-ll of the SARFAEST Act, 2002 \v.c.f. 24.O1.2O2O, once the securit], interest created in favour of the Bank is registered with rhe Central Registry of Securitiz.rtion Asset Reconstructlon and Secunty Interest (CERSAI), the non-obstante clause contained in Section 26'E t/*' Section 35 of the SAITFAESI Act, 2002 ,itl come into play and ovcrride the provrsion such as Scction 26 of the Tclangana VAT Act, 2005 (rvhich give priorih to VAT dues over anJ, other claim) or the order of atLachment dt-09.09.20I6 issued by thc Tax Recoverv Officcr undcr Rule 48 of the ll Schedule to the Income Tax Act, 1961."

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It is also relevant to refer to the judgment of Division

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Bench of Hon'ble High Court of Bombay passed in State Bank

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of India vs. State of Maharashtra and others (supra), wherein, the Division Bench in similar circumstances by referring to the decisions of Bank of Baroda vs. Commissioner of Sales Tax, M.p. Indore and another6; Assistant Commissioner vs. Indian Overseas Bank and othersz; Kalupur Commercial Co-operative Bank Ltd., Vs. State of Gujarats, at paragraph 35 had held as under:

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"35. In this view of the matter, though it would not bc nccessary lor us

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to derrl with the contention of thc respondcnts l.elating to rhc datc of

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r, (2ot 8) 55 GSTR 2lO (MP)

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' AIR 2017 Madras 67

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'1^{20l9SCC OnlineGujarat1892}

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PSR,J & LNA,I W.P Yo.t162B oI2r)2)

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cffecLiveness of section 26 E of rh tn"tousl Act' holvcvcr' we are of the view that even if secllon ,u o .ru," ranuary, 2o2oa,.,a not appric.rbr'J :tTl,",l:"'::r"ff[::tJ:il ::, make any difference, as according to us section 3l B of the RDB Act itself would be sufficrent to glve priorlL! Lo a securcd creditor over the respondent's charge for claiming tax dues.,

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25. In Kalupur (supra), the Division Bench of Ahmedabad

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High Court at paras 57 & 5g held as under:

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'57. While it is true that the Bank has taken ovcr the possession o[ the assets of the defaulter uncler-the SARFAESI Act and not under the RDB Act, Section 3lB of the RDB Act, being a substantive provision giving priority to the^.secured creriitors,,, thc same rvill be applicable irrespecLive of the procedure through which the recovery is sought to be made. This is particularly bccause Secrion 2(la) ol the RDB Act defines the phrase "secured creditors" to have the same mcaning as assigned to it under the SARFAESI Acr. Morcover, Section 37 of rhe SARFAESI Act clearly provides that the provisions ol the SARFAESI Act shall be in addition to, and not in dcrogation of inter alia the RDB Act. As such, the SARFAESI Act was enacted only lvith the intention of allowmg faster recovery of debts to the secured credits wiLhout interwention of the court. This is apparent from the Statement of Objccts and Rcasons of the SARFAESI Act. Thus, an inte.pretation 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 Lhe object of the SARFAESI Act which is to enable fasL recovery to thc secured creditors.

¶134

The insertion of Section 3lE} of the RDB Act^{will give priority to the} secured creditors even ovcr the subsisting charges under^{other laws on} the date o{ the implementaLion o[ the new^{provision, i.e. 01.092016.The} Supreme Court, in the case^{of State of MadhyaPradeshv. State Bankof} Indore, (2001) 126 STC t^{(SC),hasheld thata provision creating first} charge over the^{propertywouldoperateover a1l charges that may t'e in} force. The following observations^{madc inpara5 of the sardjudgment} are relevant:

¶135

t.;

¶136

<I!Ff'""j.:-=f, .-. -"iH P-iK, /.i -r'irA,,.i tar. .:. i '(r a,()-rS -' -'r:'2

¶137

'': Sectrorr :13 C creatcs a statuton chargc that prcvaLls ovrl any clrirrgc thar may be rn .xistcnce Thercfore, the chargc tlrclcbl' (:reated in lavour of the Slatc in respect of the sales Lax ducs ol thc sccon<i respondent prcvailccl ovcr lhe charge creatcd in favour ol the baDk in rcspcct oi Lhe loan takcn by thc second respondcn(Therc is Do qucsLion of rctrospectivit] here, as on Lhe daLc rvhen it \'as rntroduccd, secrion 33 C operated in respect of.rl1 chargc rhat thur-t: llren in forcc arnd gavc sales tax ducs prccedencc ovcr

¶138

In Indian Oversea Bank (supra), Full Bench of Madras

¶139

l ligh C' ,r r rt held as u ndt r:

¶140

"3.^{'l'hcrc is,} thus, no doubt that rhe rights of a sccured credrlor ro rr';rlrsc ser:urcd debts due and pal,able by sate of assets over which scuulll' intcrcsr rs crcated, would have priorrtv over all debts and (iovr.nm€nt dues including revcnues. tajKes, ccsses and ratcs cluc to thc CtnLral Covcrnment, State Government or l,ocal Authortty. This section rnt|oduced in rhe Ccntral Act 1s with .notwrthstanding" clausc and has (omc ioto force from O1.09.2016."

¶141

Thc sequencc of e.i.ents, facts of the case in State Bank of India vs. State of Maharashtra (supra) and present are icicntical i.e., prior charge of secured creditor, noticc of a achmon'. by tax department prior to effective date of section 26E, SARFAtrSI, but after insertion of Section 3Its of RDB Act; .luction of property in the interregnum period. Therefore, in the facts and r:ircumstances of case, we are in respecUul agreement u,ith thc vieu, taken by the Division Bench of High Court of []om bav

¶142

2u. Thc borrower/4ff respondent availed credit lacilities from t hc petir ioner-Bank and r)reated charge oyet.the propertr.es vide

¶143

PSK,,J &, ],;iA,J lv t'.No.6628 oi -!O22

¶144

¶145

iI ii I I

¶146

MOD No.2119/20tT dared 15.06.2017 and MOD No.413/2017 dated 07.1O.2017 and the petitioner-Bank initiated measures under the Act, 2OO2 and conducted e-auction on 15.17.2O1g. Whereas, 3.d respondent-Tax Department atLached the properry on 18.03.2019, which is subsequent to creation of charge and initiation of measures under the Act, 2OO2 (which is subsequent to insertion of Section 31-B of the Act, 1993) and therefore, the charge of secured creditor has priority over the attachment of Tax Department.

¶147

It is relevant to nole that the petitioner-Bank had also filed O.A., vide O.A.No.680 of 20i9 before^{the DRTfor recovcry} of outstanding amount^{from the borrowerand the samewas} decreed by the DRT on02.O7.2023.

¶148

The^{Division Bench of this Court in State Bank of India} vs. Unior of^{India and others (supra)at paragraph-28 has} ( rfter introduction of Section 26-E of the categorically^{held thatz} SARFAESI^{Act, 2OO2 w'ej '24'01 2020' once the securiff} interest^{createdin favour of the Bank is registered with the} Central^{Registry of Securitization Asset Reconstructionand} Security^{Interest (CERSAI)' the non-obstanteclause contained} in Section^{26-E rlw Section 35 of the SARFAESIAct' 2oO2 wili}

¶149

¶150

I l)

¶151

\t-'r'?q+fi. . !)rw'+ ', /)sfi^{:r1. ..1,..'} 1' ') Vo 6a,:'s,rr t,irr,-l \ -!t-

¶152

comc rnlo pliry and ovcrride the^{provisionsuch as Section 26 of} thc^{'l('lang.rrla} VAT Act, 2OO5 (r,vhir:h give^{priorityto VATdues} o\rer iLnv other claim) or the order of attachment dt.09.09.20 l6 issued lrr thc Tax Rccovery Officer under Rule 48 o[ the U Schcdrrlt' l() the Income Tax Act, I961."

¶153

3 1 In vir:rv ol the f:rcts and legal position, the charge of scr:urrccl crcditor shall have priority over all other debts of (io [,cr] i nt(.n t, reve tlue including the attachment of the Tax Dcparrr.rtcnt This point is ansrvered in favour of petitioner Bank

¶154

Point no iit:

¶155

In consicierecl vieq, o[ this Hon,ble Court, the submission of learncd standing counsel for Commercial Tax Department is that the charge of revenue shall have priorily over secured creditor is liablc to be rejected in view of the observations made b1' rhe F'r.rll Bcnch of Honble Madras High Court, Hon,ble Divisror.r Bench of Bombay High Court and also the Division Bcnch of this Court.

¶156

In vieu,o[ the abovc facts, legal position and in the light of an Swer to polnt no. l, there rs no doubt that the rights of a ricc ur(,./ cr.cdi tor ot,er secured asset would have priori$r ovcr all

¶157

E1@pY . :\r' . ///

¶158

PSK,J & I,\A,.J \Y P.No.6628 al')O22

¶159

¶160

: I

¶161

debts and Government dues including revenucs,^{taxes, cesses} etc., due to the Central Government,^{State Governmentor Local} authority.

¶162

Since the^{petitioner-Bank has followed the procedurcas} contemplated under Section^{26(E)of the Act, 20o2and also} under Section 31B of^{the Act, 1993,the auctionpurchaseris} entitled for registration^{of sale certihcateissued by the security} creditor over the^{subject property. Therespondentno'Scannot} refuse registration^{ofsale cerliltcate onthe groundof} attachment by^{the 3'd respondentsince the attachment of 3'd} respondent^{does not affect the rights of the secured creditor} over the subject^{propertyand therefore' the sale certihcateis} deserved^{to be registered' This point is answeredaccordingly'}

¶163

For^{the aforesaid reasons'the Writ Petition is disposed of} with the^{iollowing directions:}

¶164

(i) The^{petitioner-Bankshall present thesale} certihcate^{beforethe sth respondent for registration} preferably^{within a periodof four weeks from the} date^{of receipt of copy of this order'}

¶165

(ii) On^{presentationof sale certiFrcatefor registration'} the 5h^{respondentshall receiveand register the}

¶166

YTH

¶167

¶168

1's'A.i.i ,- i. i.. i '.r i) No 662t1al Ja))

¶169

salrtr: irr zrccordancc s.irh the lau,, without referring

¶170

to the order ol attachment oi the 3.d respondent

¶171