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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SONIA GOKANI, SANDEEP N. BHATT, JJ.
DINESHKUMAR MANEKLAL PATEL – Petitioner
Versus
BANK OF BARODA – Respondent
Special Civil Application No. 17567 of 2022
Decided On : 12-01-2023
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 35 - VAT Act, 2005 - Section 46 - Recovery of Debts and Bankruptcy Act, 1993 - Sections 31B and 34 - Securities Contracts (Regulation) Act, 1956 - Sections 8 and 9 - Income Tax Act, 1961 - Section 226 - Constitution of India, 1950 - Article 372 - Property - Purchased under public e-auction - Quashment of attachment in revenue record - Seeking quashment of attachment in revenue record by respondent No. 3 vide Revenue Entry and seeking direction by holding that petitioners are absolute owner of property in question with legal and valid title as once purchased under public e-auction – Held, According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after tax has become due, then such transfer would be a void transfer - Reason why court is referring to Section 47 is that phrase therein ‘after any tax has become due from him’ assumes significance - Same is suggestive of fact that before assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of dealer, such transfer would not be a void transfer - Therefore, condition precedent is that tax should become due and such tax which has become due shall be payable by a dealer - Once this part is over, then Section 48 of VAT Act would come into play – Court have no hesitation in coming to conclusion that first priority over secured assets shall be of Bank and not of State Government by virtue of Section 48 of VAT Act, 2003 - Impugned attachment notice (Annexure-A) and impugned communication (Annexure-B) issued by respondent No. 2 is hereby quashed and set aside - Application allowed.
JUDGMENT :
SANDEEP N. BHATT, J.
1. The petitioners are before this Court seeking quashment of the attachment in revenue record by respondent No. 3 vide Revenue Entry No. 15661 and 18595 dated 22.09.2020 and further seeking direction by holding that the petitioners are the absolute owner of the property in question with legal and valid title as once purchased under the public e-auction.
2. The brief facts of the case are epitomized as under:
2.2 The petitioners purchased the said properties in the said public e-auction conducted by respondent no. 1-Bank of Baroda on 12.5.2022 for a sale consideration of Rs. 2,21,14,810/- and the respondent no. 1-Bank issued a sale certificate in favour of the petitioners.
2.3 Thereafter, on 14.7.2022, the sale deed was executed in favour of the petitioner and the possession was handed over to the petitioners, free from all encumbrances by respondent No. 1-Bank.
2.4 After the execution of the sale deed, the petitioners came to know that respondent no. 3-The State Tax Officer created a charge over the property in the revenue records vide entry no. 15661 and 18595 for the recovery of the dues. Therefore, the petitioners, by way of this petition, seek to hold that they are the absolute owners of the properties in question with legal and valid title.
3. Heard learned advocate Mr. Vijay H Patel for the petitioners and learned AGP for respondent nos. 2 and 3. None for respondent No. 1-Bank of Baroda.
4.1 Learned advocate Mr. Patel for the petitioners has submitted that the petitioners have purchased the subject properties in public e-auction conducted by respondent no. 1-Bank. He has submitted the charge of respondent no. 3 is subsequent of the creation of mortgage by respondent no. 1. He has submitted that the erstwhile owner/mortgagor had created security interest over the properties in question on 31.1.2014 and the impugned entries are of the year 2015 and 2020 and therefore, the entries registered before the revenue records are nullity.
4.2 He has further submitted that the petitioner is the absolute owners of the properties once purchased under public auction and cannot be held liable for any unpaid dues of either parties. The priority created under Section 35 of the SARFAESI Act shall have overriding effect on all other laws. He has submitted that the priority has been given for the recovery of bank dues by way of enactment of central legislation. The state tax dues under VAT Act shall not have priority over the debt of the bank.
4.3 In support of this submission, he has relied upon the decision rendered by this Court in case of Kalupur Commercial Cooperative Bank vs. State of Gujarat recorded on Special Civil Application No. 17891 of 2018 dated 23.9.2019 and has submitted that the issue is no more res integra.
4.4 He has also relied upon the following decisions:
(ii) Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat, Special Civil Application No. 17891 of 2018
(iii) Bank of India vs. State of Gujarat, Special Civil Application No. 13863 of 2014
(iv) Ski Special Ties Pvt. Ltd. vs. State of Gujarat, Special Civil Application No. 11870 of 2015
(v) Bank of Baroda vs. State of Gujarat, Special Civil Application No. 15298 of 2020
(vi) Bank of Baroda vs. State of Gujarat, Special Civil Application No. 3025 of 2021
(vii) Punjab National Bank vs. Union of India, Civil Appeal No. 2196 of 2012
(viii) Axis Bank Limited vs. State of Gujarat, Special Civil Application No. 124 of 2019
(ix) The Cosmos Co-operative Bank Ltd. vs. State of Gujarat, Special Civil Application No. 7485 of 2021
5. He has submitted that this petition may be allowed.
6. Learned AGP Ms. Foram Trivedi for respondent
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 have priority to recover their dues from the property under Section 26E of the SARFAESI Act, overriding State tax dues.
Secured creditors' debts take precedence over state tax claims, as established by Section 26E of the SARFAESI Act.
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 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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