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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G. S. Kulkarni, Firdosh P. Pooniwalla, JJ.
Union Bank of India - Petitioner
Versus
Deputy Commissioner of Sales Tax & Ors. – Respondents
Writ Petition No. 248 of 2020
Decided On : 22-01-2024
SARFAESI Act - Priority of Secured Creditor over Government Dues - 2002 (SARFAESI Act) - Section 13(2), Section 14, Section 26E, Section 26B, Section 26C - The court held that the Sales Tax Department cannot claim priority over the dues payable to the petitioner who is the secured creditor as held by the Full Bench.
Fact of the Case:
The petitioner sought to quash the attachment order and refrain the respondent from taking any action in furtherance of the said order. The petitioner, a secured creditor, had issued notices to recover outstanding dues and had taken possession of secured assets. The Sales Tax Department attached the assets for recovery of sales tax dues, leading to the petitioner filing the petition.
Finding of the Court:
The court found that the Sales Tax Department cannot claim priority over the dues payable to the petitioner, a secured creditor, as held by the Full Bench. The petitioner was allowed to appropriate its entire dues from the sale proceeds of the secured assets and remit the surplus, if any, to the respondent. The respondent was also free to adopt appropriate proceedings against other parties to recover the amount.
Issues: The main issue was whether the Sales Tax Department could claim priority over the dues payable to the secured creditor, and whether the attachment order on the secured assets was valid.
Ratio Decidendi: The court's decision was based on the interpretation of the SARFAESI Act and the priority of the secured creditor over government dues as established by the Full Bench. The court emphasized the registration with CERSAI and the rights of the secured creditor in recovering its dues from the sale proceeds of the secured assets.
Final Decision: The petition was allowed, and the petitioner was permitted to appropriate its entire dues from the sale proceeds of the secured assets. The Sales Tax Department's attachment order was set aside, and the petitioner was directed to remit any surplus to the respondent. The respondent was also given the freedom to pursue legal proceedings against other parties to recover the amount. No costs were awarded.
ORDER :
G. S. Kulkarni, J.
1. Rule, made returnable forthwith. Respondents waive service. By consent of the parties, heard finally.
2. This petition under Article 226 of the Constitution of India is filed on 20 December 2020 praying for the following reliefs:
(b) Pending the hearing and final disposal of this petition, this Hon’ble Court be please to refrain the Respondent no. 1, his agents, servants and representatives from taking any action/steps in furtherance of the said order dated 20th February 2019.
(c) ad-interim reliefs in terms of prayer clause (c) above.
(d) For Cost of this Petition.
(e) For such and other further reliefs as the nature and circumstances of this case.”
3. Briefly the facts are :- Respondent No.3 Mr. Vinod Kainya had availed loan / credit facilities from the petitioner as proprietor of M/s Kainya Steel Corporation. To secure such credit facilities, Respondent No.4 Mrs. Sunita Kainya had stood as a guarantor. They also created mortgage of the said secured assets on 2 December 2008, 20 January 2009, 18 April 2009 and 4 February 2011 in favour of the petitioner.
4. It is the case of the petitioner that on 1 October 2012 proprietorship of Mr. Vinod Kainya/respondent No.3, was taken over by M/s. Tarachand International Pvt. Ltd./respondent No.2 under an agreement to take over of business entered on the even date between the respondent Nos. 2 and 3. Thereafter on 28 December 2012 and 18 January 2013, the petitioner had issued further sanction letters in regard to the import letters of Credit Facilities of Rs.50 crores, having sub-limit of cash credit facility of Rs.7 crores, as granted to respondent No.2. It appears that respondent Nos.3 & 4 had executed letters of continuing Guarantee dated 26 February 2013 thereby unconditionally, absolutely, and irrevocably guaranteeing repayment of entire dues under the credit facilities together with interest, costs charges and expenses. Subsequent thereto on 18 March 2013 in relation to such credit facilities, respondent Nos.3 & 4 also deposited title deeds of the secured assets by way of constructive delivery and recorded Memorandum of entry dated 18 March 2013 in order to secure limits granted to respondent No.2. The petitioner had issued a further sanction letter dated 15 December 2014 and sanctioned Ad hoc cash credit limit of Rs. 7 crores, as requested by respondent No.2. Again on 17 December 2014 respondent Nos.3 & 4 had issued a letter of continuing guarantee, guaranteeing such repayment.
5. It is the case of the petitioner that on 13 July 2015 respondent Nos. 2, 3 & 4 failed and neglected to keep regular the loan account of respondent No.2 after which it was classified as a Non-Performing Asset (NPA) according to the directives issued by the Reserve Bank of India. As on 23 August 2015, a large sum of Rs.22,16,62,046.25/- was due and payable as outstanding dues.
6. The petitioner so as to recover the amounts due and payable, issued a notice to respondent Nos.2, 3 & 4 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “SARFAESI Act”) calling upon them to pay a total sum of Rs.22,16,62,046.25/-. As there was a default in not honoring such payment, as per the time lines as set out in the said notice, on 30 December 2015 the petitioner took symbolic possession of the secured assets. Thereafter, on 5 May 2016, the petitioner again issued a notice calling upon the respondent Nos.2, 3 & 4 to pay the outstanding dues with interest to the petitioner within a period of seven days, however, as the same was not paid, the petitioner approached the learned Chief Metropolitan Magistrate, Esplanade, Mumbai, on 28 Nove
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....
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 ....
The main legal point established in the judgment is the priority of the secured creditor's dues over other creditors' claims, as determined by the SARFAESI Act and relevant case law.
Secured creditors' debts take precedence over state tax claims, as established by Section 26E of the SARFAESI Act.
The main legal point established in the judgment is the priority of secured creditors, the overriding effect of the SARFAESI Act, and the protection of rights of auction purchasers.
Secured creditors have priority over government dues only after tax assessments are finalized, reaffirming the principle of secured interests in property.
A mortgagee bank's sale certificate cannot be denied registration due to prior attachment orders, as secured creditors' rights under the SARFAESI Act prevail over tax attachment claims.
Secured creditors have priority to recover their dues from the property under Section 26E of the SARFAESI Act, overriding State tax dues.
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