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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
PRADEEP NANDRAJOG, BHARATI DANGRE, JJ.
ASREC (India) Limited - Petitioner
Versus
The State of Maharashtra Through the Office of the Govt. Pleader, Public Works Deptt. & Others - Respondents
Writ Petition No. 1039 of 2017 with Notice of Motion Nos. 323 of 2017 & 342 of 2017 with Chamber Summons No. 80 of 2018
Decided On : 13-12-2019
Recovery of Debt and Bankruptcy Act, 1993 - Section 31B - MVAT Act, 2002 - Section 37 - Companies Act, 1956 - Section 350 - Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provision Act, 2016 - Recovery of Debt - Physical possession of flat – Claim of compensation - Bank resorted to proceedings under SARFAESI 2002 by issuing a notice under Sub-section (2) of Section 13 thereof on August - Physical possession of the flat was taken over by the petitioner as the assignee of the debt in November - Respondent No.2 initiated recovery proceedings for recovery of tax dues of Noble Enterprises and published an auction notice under the provisions of Maharashtra Land Revenue Code, 1966 on September which envisages recovery of tax dues against the Company by attaching the assets of its directors - Needless to record here that respondent Nos. 4 and 5 are claimed to be the directors of Noble Enterprises - It is this notice which has been challenged by the Petitioner in the present Petition - Issue concerns priority of charge – Held, Court respectfully agree with consistent view taken by three Division Benches of three High Courts and the view taken by the Full Bench of the fourth High Court - Only contention which needs to be noted which was made by learned counsel for Respondent Nos. 1 and 2 which was not made before the four learned Benches of the four High Courts in their opinions above noted is that Chapter IVA which was inserted in SARFAESI 2002 comprising Sections 26B to 26E warrants a record to be made in Central Register by the Central Registry creating a security interest - As per learned Counsel as per Sub-section (2) of Section 26B which is a part of Chapter IVA a secured creditor has to ensure that the security interest is recorded in the record of the Central Registry - Argument therefore was that unless this is done priority of interest contemplated by Section 26E would not be applicable - 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 favor of a secured creditor same will rank above the charge in favor of a State for a tax due under the Value Added Tax of the State - Court note the fact that security interest has been entered in the record of Central Registry - Writ Petition is accordingly allowed
JUDGMENT :
Pradeep Nandrajog, J.
1. The petitioner is an assignee of the debt payable by respondent No.3 which is under liquidation. It seeks to preserve its right to proceed against the secured asset by taking recourse to SARFAESI 2002.
2. It is the case of the Petitioner that Flat No. B-2202, 22nd floor, ad-measuring 4072 sq.ft., situated at Mahindra Eminente CHS Ltd., S.V.Road, Goregaon (West), Mumbai – 400062 (“said property”) was mortgaged by respondent Nos. 4 and 5 to secure the dues payable by respondent No.3 to the predecessor in interest of the petitioner who was the assignee of the debt as per Memorandum of Equitable Mortgage created on 11th November 2011.
3. Bank of India; the original Lender initiated proceedings under Recovery of Debt and Bankruptcy Act, 1993 which has been registered as O.A. No. 54/2014. The petitioner has been substituted as the applicant on debt being assigned.
4. The Bank resorted to proceedings under SARFAESI 2002 by issuing a notice under Sub-section (2) of Section 13 thereof on 30th August 2013. Physical possession of the flat was taken over by the petitioner as the assignee of the debt in November 2016.
5. Respondent No.2 initiated recovery proceedings for recovery of tax dues of M/s Noble Enterprises and published an auction notice under the provisions of the Maharashtra Land Revenue Code, 1966, on 30th September 2016 which envisages recovery of tax dues against the Company by attaching the assets of its directors. Needless to record here that respondent Nos. 4 and 5 are claimed to be the directors of Noble Enterprises.
6. It is this notice which has been challenged by the Petitioner in the present Petition.
7. The issue concerns priority of the charge.
8. During the pendency of the Petition, the Petitioner and Respondent No.2 agreed to sell the property and deposit the sale proceeds with this Court. Accordingly, the Petitioner conducted an auction and as recorded in order dated 13th June 2018, deposited the entire sale proceeds in sum of 8.02 Crore Rs. 8.02 Crore with the Prothonotary with the Prothonotary and Senior Master of this Court. The Petitioner therefore prays the amounts be released to it because outstanding dues of Crystal Mirage Pvt. Ltd. are in excess of 50 crores.
9. Since the respondents Nos. 1 & 2 rely upon the statutory charge created in favour of the Sales Tax Department under Section 37 of the Maharashtra Value Added Tax, it is the case of the petitioner that the said Section itself records that it would be subject to a Central Legislation and thus highlight that the Recovery of Debt and Bankruptcy Act 1993 (“RDB Act”) is the Central Legislation and as per Section 31(B) whereof the first priority created is in favour of the secured creditor; above Government dues including revenues, taxes. It is the case of the petitioner that Section 31B of RDB Act is not restricted to the sale conducted under the provisions of RDB Act only. It will also operate in respect of the sale conducted under any other mechanism including provisions of SARFAESI 2002. Since the provision creates statutory charge in favour of a 'secured creditor', which admittedly the Petitioner is, therefore, it is immaterial whether Section 26E of SARFAESI 2002 has not been brought into force. In support of its contention, the Petitioner placed reliance on the judgments delivered by the High Court of Rajasthan; by the High Court of Madhya Pradesh in the decision reported as (2018) 55 GSTR210 (MP) Bank of Baroda Vs. Commissioner of Sales Tax, M.P., Indore & Anr. and by the High Court of Gujarat in Special Civil Application No. 17891 of 2018 Kalupur Commercial Co-operative Bank Ltd. Vs. State of Gujarat & the Full Bench Decision of the Madras High Court reported as AIR 2017 Madras 67, the Assistant Commissioner Vs. Indian Overseas Bank & Ors.
10. It is the case of Respondent Nos. 1 and 2 that Section 26E of SARFAESI 2002 has not been brought into force till date and notwithstanding Section 31B of RDB Act 1993 being in forc
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