JUDGMENT :

The Punjab & Sind Bank is in appeal before us against a judgment of the Punjab & Haryana High Court delivered on 24.04.2015 holding in substance sustaining the State’s claim of priority in respect of dues under the Punjab Value Added Tax Act, 2005 (hereinafter called “the 2005 Act”) of a corporate entity, M/S Sumit Engineering Pvt. Ltd., superseding the bank’s claim based on a charge created over the immovable property of that entity (being respondent no.2 in this appeal). The said respondent, however, goes unrepresented before us when the appeal is taken up for hearing. The proceeding under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter called “the 2002 Act”) was initiated on 06.09.2013 as the respondent no.2 had made default in repayment of borrowed amount, which was in principle approximately Rupees 2.60 crores apart from interest. On the other hand, the sum owed to the State on account of dues under the 2005 Act was little above Rupees 4.50 crores.

2. The State claimed first charge over the property. By a communication dated 23.05.2014, the Assistant Collector-cum Excise and Taxation Officer intimated the Bank of initiation of proceeding against the respondent no.2 under the Land Revenue Act, 1887 for recovery of the aforesaid tax dues. The bank was also apprised of attachment of the property of the defaulting respondent. The provision of Section 35 of the 2005 Act was also brought to the notice of the said respondent. It is a letter which was subject of the writ petition brought by the bank before the High Court. Section 35 of the 2005 Act, which stipulates:

“35. Notwithstanding anything to the contrary contained in any contract or law for the time being in force, any amount of tax, penalty, interest and any other sum, payable by a taxable, registered or any other person under this Act, shall be the first charge on the property of such person from the date on which the amount becomes due and payable.”

3. The bank on the other hand relied on Section 35 of the 2002 Act, in support of their claim of primacy over the assets of the defaulting borrower. This provision reads:

“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.

4. Notice under Section 13(2) of the 2002 Act was issued on 06.09.2013. The 2002 Act was subsequently amended with effect from 24.01.2020 upon introduction of Section 26E. This provision reads:

“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.”

There is a Full Bench judgment of the Bombay High Court in the case of Jalgaon Janta Sahakari Bank Ltd. & Anr. vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai & Anr., reported in 2022 (5) Maharashtra Law Journal 691, in which it has been held that the operation of Section 26E of the 2002 Act would be prospective.

5. As the State action had commenced in the year 2014, the provision of Section 26E of the 2002 Act would not be applicable in this case. The said provision, having prospective effect cannot come to the aid of the bank. Thus, we will have to examine the implication of Section 35 of