Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(AP) 62

IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
JOYMALYA BAGCHI, A.V. SESHA SAI, JJ.
State Bank of India, Represented by its Authorised Officer and Others - Petitioners
Versus
The Deputy Commercial Tax Officer-II and Others - Respondents
Writ Petition Nos. 4063 of 2019, 18852 of 2019, 20579, 23218, 23198, 23902, 24719 and 24031 of 2020
Decided On : 18-02-2021

Advocates Appeared:
For the Petitioners: Sri S. Satyanarayana Moorthy.
For the Respondents: Sri T.C.D. Shekar.

Point of law: It would be seen that so far as clause (1) of Article 254 is concerned it clearly lays down that where there is a direct collision between a provision of a law made by the State and that made by Parliament with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the State law would be void to the extent of the repugnancy. This naturally means that where both the State and Parliament occupy the field contemplated by the Concurrent List then the Act passed by Parliament being prior in point of time will prevail and consequently the State Act will have to yield to the Central Act

Headnote:
Recovery of Debts and Bankruptcy Act, 1993 – Sections 31, 26 – Debts – Sum and substance of the stance of the petitioners in all these writ petitions is that in view of the provisions of Section 26E of the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, the debts advanced by the banks/financial institutions do have precedence over all the revenues due to the Central or State Governments – Only objection/contention raised by the learned Government Pleader, Sri T.C.D. Shekar, is that since above mentioned provisions came into force with effect from 26.12.2019, the said provisions are required to be enforced only in the cases where there is creation of security interest posterior to the said debts.
Finding of court: With regard to the contention of the learned Government Pleader on the aspect of applicability of Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, in the considered opinion of this Court, a reading of the language of the said provisions of law makes it very much manifest that the security interest, existing as on the date of commencement of the said provisions of law, is required to be taken as a criteria for extending the safeguard and benefit of the said provisions of law to the secured creditors. – By any stretch of imagination, it cannot be construed that the said provisions of law are applicable only to the security created subsequent to the advent of the said provisions of law and such an interpretation sought to be pressed into service by the learned Government Pleader, undoubtedly, frustrates the very intention of the Parliament in introducing such drastic provisions of law to protect and safeguard the interest of the secured creditors. – Therefore, the contention contra advanced by the learned Government Pleader is liable to be rejected and is, accordingly, rejected.
Result: Writ Petitions Allowed

ORDER :

A.V. Sesha Sai, J.

(Taken up through video conferencing)

Since the issues that fall for consideration in all these writ petitions are substantially the same and as the contentions advanced are also the same, this Court deems it appropriate and apposite to dispose of this batch of writ petitions by way of this common order.

2. The sum and substance of the stance of the petitioners in all these writ petitions is that in view of the provisions of Section 26E of the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (for short, ‘the SARFAESI Act’) and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, the debts advanced by the banks/financial institutions do have precedence over all the revenues due to the Central or State Governments. In order to adjudicate the said issue, it would be appropriate to refer to the said provisions of law, which read as under:

Section 26E of SARFAESI Act, 2002:- 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.

Section 31B of Recovery of Debts and Bankruptcy Act, 1993:- Priority to secured creditors.-Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.”

3. The only objection/contention raised by the learned Government Pleader, Sri T.C.D. Shekar, is that since above mentioned provisions came into force with effect from 26.12.2019, the said provisions are required to be enforced only in the cases where there is creation of security interest posterior to the said debts.

4. In fact, the issue raised in the present batch of writ petitions is no longer res integra. The composite High Court in W.P.No.23620 of 2017 while dealing with the provisions of Section 26E of the SARFAESI Act held in the following manner:

Chapter IV A of the SARFAESI Act, 2002 (from Section 26B to Section 26E) was inserted by Section 18 of Act 44 of 2016 with effect from 01.09.2016. Section 26E of the SARFAESI Act relates to the priority of secured creditors, and stipulates that, notwithstanding anything contained in any other law for the time being in force, after the registration of a 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. The debt due, in the present case, is the income-tax payable by the eighth respondent to the Union of India; and as Section 26E of the SARFAESI Act gives priority in payment of the debts of a secured creditor over other dues, including the taxes payable to the Union of India, the attachment notice is liable to be and is, accordingly, set aside. Needless to state that on the sale of the subject property, if any amount is available, after the entire loan of the borrower with interest and other charges are satisfied, it shall be made available to the Deputy Commissioner, Income Tax for its adjustment to the income-tax dues of the eighth respondent. The Writ Petition is, accordingly, disposed of. There shall be no order as to costs. Miscellaneous petitions, if any, pending shall stand closed.”

5. Another Division Bench of this Court, in identical set of circumstances, allowed W.P.No.5630 of 2020 by way of an order dated 01.10.2020. In the said judgment at paragraph Nos.9 to 15 this Court held as follows:

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