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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SONIA GOKANI, SANDEEP N. BHATT, JJ.
M/S NUEVA MOSAICS LLP – Petitioner
Versus
DEPARTMENT OF CENTRAL SALES TAX – Respondent
Special Civil Application No. 14194 of 2022
Decided On : 20-01-2023
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 26E, 35 and 37 - Insolvency and Bankruptcy Code, 2016 - Recovery of Debts and Bankruptcy Act, 1993 - Sections 31B and 34 - Mortgage on property - Paid full sale consideration - Withdraw/release of charge - Petitioner seeking quashment of charges or mortgage on property in question before in revenue record by the Tax Authority vide impugned notice and further to restrain respondents from conducting any further actions, as petitioner is a bona fide purchaser of property in question through sale transaction held by financial institution – Held, Petitioner has paid full and final sale consideration to financial institution and if State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against appropriate person/s - It is well settled legal position that mortgagor bank/financial institution has priority to recover dues against any charges of State Government or Central Government, more particularly mortgage is created prior to registration of such charge by Authority - It is held that SARFAESI Act is meant for enforcement of security interest which is created in favour of secured creditor-financial institution, and provides specific mechanism/ provision for financial assets and security interest - Any other provision(s) would not defeat provision of Section 26E of SARFAESI Act and also object and purpose of SARFAESI Act - Respondent No. 1 is directed to release/to withdraw charge created over property in question, forthwith, since petitioner is a bona-fide purchaser of property in question - Petition allowed.
JUDGMENT :
SANDEEP N. BHATT, J.
1. The petitioner is before this Court seeking quashment of the charges or mortgage on the property in question before in the revenue record by the Tax Authority vide impugned notice dated 17.05.2022 and further to restrain the respondents from conducting any further actions, as the petitioner is a bona fide purchaser of the property in question through the sale transaction held by the financial institution.
2. The brief facts of the case are epitomized as under:
2.2 The Bank has registered the mortgage on 20.06.2011.
2.3 The Tax Authority has created charge over the said property and registered it on 01.04.2012 and sent a letter to the Deputy Collector, Morbi and the Mamlatdar, Morbi for non-payment of sales tax dues by the borrower-M/s. B'sons Ceramics.
2.4 The borrower-M/s. B'sons Ceramics has committed default and declared Non-Performing Asset (NPA) by the Bank. The Bank has taken actions against the said borrower under the SARFAESI Act.
2.5 The Bank has assigned the said debt to one financial institution-Raj-Radhe Finance Limited on 07.04.2021. The said financial institution has listed the property in question for private sale.
2.6 The petitioner herein has intended and shown willingness to purchase the property and has given offer to the said financial institution. The said financial institution has issued a letter for terms and conditions of sale of the said property. The petitioner has given letter of acceptance of said terms and conditions and sale offer for purchase of the said property to the financial institution. The financial institution has issued offer acceptance letter for sale of the said property to the petitioner.
2.7 The petitioner has paid full sale consideration to the financial institution on 30.11.2021. The financial institution has in turn issued sale certificate to the petitioner under the SARFAESI Act on 07.12.2021.
2.8 The registration of sale deed is executed by and between the petitioner and the financial institution on 14.12.2021.
2.9 Thereafter, now since the petitioner is the owner of the property in question, the petitioner has written a letter to the Tax Authority as well as to the Collector, Morbi and to the Mamlatdar, Morbi on 14.05.2022 to withdraw/release of charge.
2.10 The Tax Authority has written a letter to the petitioner to pay the dues of the erstwhile owner of the property in question and written a letter to the petitioner on 17.05.2022.
2.11 Hence, this petition before this Court by the petitioner.
3. Heard learned advocate Mr. B.C. Thakkar for the petitioner, learned AGP Ms. Pooja Ashar for respondent nos.1 to 3 and learned advocate Mr. Moneal Davawala for respondent No. 5. Rule. Learned advocates waive service of notice of rule on behalf of the respective respondents.
4.1 Learned advocate Mr. Thakkar for the petitioner has submitted that the petitioner has purchased the subject property in sale proceedings conducted by respondent no. 5- Financial Institution. He has submitted the charge of the Tax Authority is subsequent of the creation of mortgage by respondent Bank. He has submitted that the erstwhile owner/ mortgagor had created security interest over the properties in question in the ear 2011, whereas the Tax Authority has created charge over the property in question in the year 2012.
4.2 He has further submitted that the petitioner is the absolute owner of the property once purchased under private sale and cannot be held liable for any unpaid dues of either parties. The priority created under the SARFAESI Act s
Secured creditors have priority to recover their dues from the property under Section 26E of the SARFAESI Act, overriding State tax dues.
Section 26E of the SARFAESI Act establishes that secured creditors have priority over State revenue claims, reinforcing the enforceability of secured debts post-registration.
Secured creditors have priority over State debts under Section 26E of the SARFAESI Act, 2002, invalidating conflicting State charges on mortgaged assets.
The main legal point established is the priority of secured creditors over State tax dues as per Section 31B of the RDDBI Act.
Secured creditors' debts take precedence over state tax claims, as established by Section 26E of the SARFAESI Act.
The provisions of Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 create "First Charge" by way of priority in favour of the Banks and Financial ....
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