Secured creditors have priority to recover their dues from the property under Section 26E of the SARFAESI Act, overriding State tax dues.

JUDGMENT :

SANDEEP N. BHATT, J.

1. The petitioner is before this Court seeking to challenge the action of respondent No.11 – State Tax Authority and respondent No.12 – Revenue Authority vide communication dated 27.04.2022 issued by respondent No.11 and the entry made by respondent No.12 in revenue record pursuant to the said communication, qua the property in question.

2. The short facts leading to this petition are epitomized as under :

2.1 Respondent No.1 is the firm and respondents No.2 to 10 are the partners and guarantors of the firm, which has borrowed the money as loan from the petitioner Bank in the year 2014. Various mortgaged deeds were executed by and between the petitioner Bank and the respondent firm which were registered with the authority concerned time and again, from the year 2015 to 2018.

2.2 There was a major fire in the respondent firm in the year 2019.

2.3 Respondent firm declared NPA in the year 2019.

2.4 Respondent firm has tried to settle the issue with the petitioner bank under the One Time Settlement Scheme, but could not finalise for the reasons for the reasons best known to them.

2.5 On 27.04.2022, a communication has been sent by respondent No.11 – State Tax Authority to respondent No.12 – Revenue Authority at Gondal for initiating proceedings for attachment of the property in question which is mortgaged with the petitioner Bank since long for recovery of dues under the Gujarat Value Added Tax along with interest.

2.6 Respondent No.12 - the Revenue Authority has mutated the entry in the revenue record reflecting the dues of respondent No.11 and thereby causing attachment of the property in question.

3. Ms.Raval, learned advocate for the petitioner - Bank has submitted that the petitioner Bank is a secured creditor under the SARFAESI Act and its dues may be protected first. She has relied upon the decision of this Court recorded on Special Civil Application No.3025 of 2021 dated 27.10.2021 in the case of Bank of Baroda versus State of Gujarat and has submitted that this petition may be allowed by cancelling the entry recorded in the revenue record, so that the property in question will be free from all encumbrances and title of the property in question may not be affected. She has submitted that since the petitioner Bank is a secured creditor and has first right to recover its dues from the property in question which is in fact mortgaged with the petitioner bank first, if title of the property in question is marketable. She has submitted that this petition may be allowed.

4. Learned AGP Ms. Pooja Ashar for the respondents – State Authorities has submitted that the Authorities have rightly sent the communication to the concerned revenue authority. She has submitted that there was a huge dues pending qua them under the VAT. She has submitted that the respondents – Tax Authorities may not be left with the huge dues. She has submitted that the rights of the State may be protected while allowing it to proceed against the assessee.

5. Rule. Learned AGP waives service of notice of rule on behalf of the State.

6. The issue involved in this petition is as to whether the dues of secured financial institution will have priority over State tax dues or not.

7. It is important to note here some disputed facts, which are as under :

7.1 The respondent firm has borrowed money as loan from the petitioner bank in the year 2014 and thereafter.

7.2 Various mortgage deeds were executed by and between the petitioner Bank and the respondent firm in the year 2015 to 2018. The same were registered with the authorities concerned.

7.3 The proceedings under the SARFAESI Act were initiated and ultimately, the respondent firm declared NPA in the year 2019.

7.4 Respondent No.11 – State Tax Authority has sent a communication for recovery of dues under the Gujarat Value Added Tax to respondent No.12 – the revenue authority and intimating them for