Point of Law: Recovery of Income Tax dues of Borrower - Charge of secured creditor would have priority over Government dues under Income Tax Act - No provision in Income Tax Act which provides for any paramountcy of dues of Income Tax department over secured debt.

JUDGMENT :

(THROUGH VIDEO CONFERENCING )

ABHAY AHUJA, J

1. Petitioner is a company incorporated under the Companies Act, 1956 and registered as a Securitization and Asset Reconstruction Company pursuant to Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act/Securitisation Act”).

2. Petitioner, as assignee of right, title and interest of the credit facilities to one Classic Diamonds (India) Ltd. (the “Borrower”) (now in liquidation) purporting to have a superior secured and prior charge in time over the attached properties, having commenced proceedings under the SARFAESI/Securitisation Act by issue of notices under Sections 13(2) and 13(4) and having taken possession of one of the attached properties (as will be described hereinafter), is aggrieved by the order of attachment dated 17th January 2013 passed by the Respondent No.1 Tax Recovery Officer (“TRO”), seeking recovery of Income Tax dues of the Borrower.

3. Submissions on behalf of the Petitioner in brief are that earlier in the year 2003, the assignor viz. State Bank of India (“SBI”) amongst other banks and financial institutions had sanctioned facilities to the Borrower to the tune of 105 Crores and to secure the same, the Borrower had executed facility and security documents in favour of SBI. Similarly, in the year 2011, IndusInd bank had sanctioned facilities to the Borrower to the tune of Rs. 35 Crores and to secure the same facility and security documents were executed by Borrower in favour of IndusInd Bank.

4. On 17th January 2013 the Respondent No.1 Tax Recovery Officer, vide order of attachment dated 17th January 2013, levied attachment prohibiting and restraining the Borrower from transferring or charging Office No. 1004, Prasad Chambers, Opera House, Mumbai-400 004 (the “said premises”). It is submitted that, it is only in December 2019, when Petitioner’s representative visited the said premises, that Petitioner learnt of the order of attachment by Respondent No.1.

5. In the meanwhile, by a deed of assignment dated 19th March 2014, Petitioner acquired all rights, title and interest in the facilities granted by SBI to the Borrower. On 29th March 2017, Petitioner acquired similar rights to the facilities granted by IndusInd Bank to the Borrower. The aforesaid assignments were alongwith the benefits of security of equitable mortgages created by way of deposit of title deeds in respect of various immovable properties including the said premises, which were created in favour of State Bank of India/IndusInd Bank earlier.

6. However, in view of defaults committed by the Borrower in repayment of debts to SBI and IndusInd bank, assignors SBI and IndusInd bank filed separate proceedings before the Debts Recovery Tribunals-II, Mumbai being: (i) Original Application no. 205 of 2013 filed by SBI and (ii) Original Application no. 189 of 2012 filed by IndusInd Bank. It is submitted that in both the original applications, Petitioner has been substituted as original applicant being the assignee, vide orders dated 17th November 2014 and 7th December 2017 respectively.

7. On 25th May 2017, Petitioner issued a notice under Section 13(2) of the SARFAESI Act, recording defaults and calling upon the Borrower to pay the balance outstanding amounts. On 28th September 2017, this Court in Company Petition No. 317 of 2012 filed by ICICI Bank Ltd. against the Borrower appointed Official Liquidator, High Court Bombay as liquidator of the Borrower by allowing the said Company Petition. The Petitioner took possession of the said premises and issued possession notice under Section 13 (4) of the SARFAESI Act and Rule 8(1) of the Securitisation Rules on 8th November 2017. On 9th November 2017, the authorised officer of Petitioner informed Respondent No.3 about possession of all the secured assets under Section 13(4) of the SARFAESI Act including the said premises and also published the necessary public notices in respect of t