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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S. SUNIL DUTT YADAV, J.
M/s. VPP Agri Tech Private Limited – Appellant
Versus
State Of Karnataka – Respondent
Writ Petition No.1398 of 2022 (T-RES)
Decided on : 09-02-2022
SARFAESI Act - Priority of Secured Creditors - Section 26E
Fact of the Case:
The petitioner, an auction purchaser, sought to set aside the attachment order and declaratory orders issued by the respondents, and requested the issuance of writs of certiorari and mandamus. The petitioner argued that as a bonafide purchaser for value under the SARFAESI Act, the secured creditor's charge would override the State's dues.
Finding of the Court:
The court found that the charge created under the SARFAESI Act was prior in point of time and, in light of Section 26E, the rights of secured creditors would rank higher and override the charge of the State created subsequently. The court set aside the attachment order made by the State and directed suitable action for transfer of revenue entries.
Issues: The main issue was the priority of the secured creditor's charge under the SARFAESI Act over the State's dues and the legality of the attachment order and declaratory orders issued by the respondents.
Ratio Decidendi: The court relied on Section 26E of the SARFAESI Act, which provides that after the registration of secured interest, debts of the secured creditors 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.
Final Decision: The court set aside the attachment order made by the State and directed suitable action for transfer of revenue entries. The petition was disposed of.
ORDER :
The petitioner is stated to be an auction purchaser of property and has obtained Sale Certificate in the auction conducted by the respondent no.4-Bank and has sought for issuance of writ of certiorari to set aside the attachment order dated 10.08.2018 issued by the respondent no.2 and the order dated 10.08.2018 issued by the respondent no.3 restraining the respondent no.6 from selling or alienating the property bearing Sy.No.80/1P1, 80/1P3, 80/1P4 and 80/1P2 measuring 15 Acres 21 Guntas, situated at Mahajenahalli Village, Harihar Taluk, Davangere District and also as regards Sy.No.11/4, 11/5 and 11/6, totally measuring 3 Acres 17 Guntas situated at Hanagavadi Village, Harihar Taluk, Davangere District. The impugned orders are at Annexure-'A' and 'A1'.
2. The petitioner has also sought for issuance of writ of mandamus seeking declaration that action of respondent nos.2 and 3 in passing declaratory orders restraining respondent no.6 from alienating the schedule property as being illegal and without authority of law. The petitioner has sought issuance of writ of mandamus directing the respondent nos.2 and 3 to consider the representation dated 21.12.2021 of respondent no.4 Bank and to remove the entries relating to the attachment order to enable the petitioner to transfer the Katha with respect to the schedule property.
3. The petitioner has also sought for issuance of writ of mandamus seeking directions to respondent nos.2 and 3 to consider the representation dated 21.12.2021 issued by the petitioner and further sought for issuance of writ of mandamus to direct the respondent no.5 to issue Katha Certificate with respect to the schedule property.
4. The petitioner submits that the 6th respondent had taken a loan from the 4th respondent bank and had mortgaged the properties which is the subject matter of the present writ petition while availing term loan and financial assistance from the 4th respondent bank in the year 2003.
It is submitted that the account of the borrower company ie., respondent no.6 had become non-performing asset in December, 2017 and accordingly auction was initiated by the bank under the provisions of the SARFAESI Act, and possession notice was issued as per Annexure-'Q' dated 15.06.2018 and symbolic possession of the property was taken.
5. It is submitted that the property was put to auction under the provisions of the SARFAESI Act through Public e-action on 20.09.2021 and the petitioner was the auction purchaser in such proceedings. It is submitted that in light of certain dues by the 6th respondent, the Department of Commercial Taxes had also initiated proceedings and recovery notice was issued to the 6th respondent by notice dated 10.08.2018 and attachment was also made of the immovable property by order dated 10.08.2018.
6. It is pointed out that in light of petitioner being a bonafide purchaser for value and in light of provisions of Section 26E of the SARFAESI Act, the secured creditor would have over-riding charge even as regards dues by the State. It is pointed out that amendment to Section 26E having come into force in 2020 and the State not having enforced its order of attachment is now subject to the rigor of Section 26E of the SARFAESI Act which provides for priority of the secured creditors even over the States dues also.
7. The learned counsel for the State however would point out that the charge under SARFAESI Act was not notified and accordingly, the State was not aware even on the date of attachment regarding the proceedings initiated under the SARFAESI Act and charge not being known to the State would be subject to the charge of the Department of Commercial Taxes by virtue of Section 48 of the KVAT Act.
8. It is pointed out that Section 48 of the KVAT Act provides that "Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, penalty or interest or any amount which a dealer is required to
The main legal point established in the judgment is that the charge created under the SARFAESI Act takes priority over the State's dues, as per Section 26E of the Act.
The bar to create any lien, charge or liability on property, after receipt of a notice under Section 13(2) of Act, is only against debtor, and not applicable to a civil court.
The auction purchaser's title prevails over subsequent attachments, as the attachment occurred after the auction sale, reaffirming the priority of security interests under Section 26(E) of the SARFAE....
The actions of the state in attaching property already mortgaged to a secured creditor are illegal and violate the prioritization established under the SARFAESI Act.
The main legal point established in the judgment is that the claim of the secured creditor under the SARFAESI Act has priority over other debts and attachments, and attachments made by other parties ....
Secured creditors have priority over government dues only after tax assessments are finalized, reaffirming the principle of secured interests in property.
The main legal principle established in the judgment is the priority of the secured creditor over government dues as per the SARFAESI Act, particularly in relation to the registration with CERSAI and....
Section 26(E) of the SARFAESI Act and Section 31B of Act 51 of 1993, there cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which ....
The provisions of the SARFAESI Act grant secured creditors priority over state tax dues, rendering any conflicting claims by tax authorities ineffective.
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