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IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
Ajay Mohan Goel, J.
Punjab National Bank & Anr. - Appellants
Versus
State Of Himachal Pradesh & Ors. - Respondents
CWP No. 1638 of 2017
Decided On : 19-05-2021
WRIT - SARFAESI ACT - SECTION 26E - SECTION 31B - RDB ACT - SECTION 26 HP VAT ACT - PRIORITY OF CHARGE - CENTRAL STATUTES PREVAIL OVER STATE STATUTES - FIRST CHARGE IN FAVOUR OF BANKS/FINANCIAL INSTITUTIONS - REVENUE'S CLAIM OVERRIDDEN.
Fact of the Case:
Petitioners, body corporates constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, challenged the impugned actions of the official respondents attaching the property in question already mortgaged with petitioners by respondent No. 4, by creating and claiming their first charge upon the same and also quashing of the Notice dated 24.06.2017 (Annexure P-10) vide which the respondents have claimed the first charge over the secured assets of the petitioners notwithstanding the fact that the mortgagee rights of the petitioner over the mortgaged assets of a borrower prevails upon the tax liability of a defaulting borrower and all other actions undertaken by the respondents No. 1 to 3 in this regard.
Finding of the Court:
The Court held that the petitioners being "Secured Creditors" have preference over the respondent-State with regard to the debts due from respondent No. 4. Accordingly, the writ petition was allowed by quashing Annexure P-10, dated 24.06.2017 and by holding that the respondent-Department cannot claim first charge over secured assets of the petitioners belonging to the private respondent-Company, as the petitioners have first charge over the secured assets in view of the provisions of the SARFAESI Act 2002 and Recovery of Debts and Bankruptcy Act, 1993, as amended from time to time. It was further held that the provisions of Section 26 of the H.P. VAT Act, 2005 shall have to give way to the provisions of Section 26E of the SARFAESI Act 2002 and Section 31B RDB Act, 1993.
Issues: Whether the petitioners will be having first charge upon the property of the dealer in terms of the provisions of the RDB Act and the SARFAESI Act, as amended from time to time or, whether the first charge shall be that of respondents No. 1 to 3 in terms of the provisions of Section 26 of the Himachal Pradesh Value Added Tax Act, 2005?
Ratio Decidendi: The Court held that after the incorporation of Section 26E in SARFAESI Act 2002 and Section 31B in the Recovery of Debts and Bankruptcy Act, 1993, these Statutes were not operating in a manner so as to create a better right for recovery in favour of the Banks/Financial Institutions over the revenue. These provisions were incorporated in the respective Statutes post the judgment of the Hon'ble Supreme Court to override this lacunae. After amendments in the SARFAESI Act and the RDF Act, the situation has altered. Thereafter, by virtue of the amendments incorporated in the Central Statutes, the Financial Institutions now have priority over the rights claimed by the Revenue. 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 Institutions de hors any non obstante Clause contained in any Local Statute.
Final Decision: The writ petition was allowed by quashing Annexure P-10, dated 24.06.2017 and by holding that the respondent-Department cannot claim first charge over secured assets of the petitioners belonging to the private respondent-Company, as the petitioners have first charge over the secured assets in view of the provisions of the SARFAESI Act 2002 and Recovery of Debts and Bankruptcy Act, 1993, as amended from time to time. It was further held that the provisions of Section 26 of the H.P. VAT Act, 2005 shall have to give way to the provisions of Section 26E of the SARFAESI Act 2002 and Section 31B RDB Act, 1993.
JUDGMENT
Ajay Mohan Goel, J. - By way of this writ petition, the petitioners have primarily prayed for the following relief:
"(a) A writ in the nature of certiorari be issued quashing the impugned actions of the official respondents attaching the property in question already stands mortgaged with petitioners by respondent No. 4, by creating and claiming their first charge upon the same and also quashing of the Notice dated 24.06.2017 (Annexure P-10) vide which the respondents have claimed the first charge over the secured assets of the petitioners notwithstanding the fact that the mortgagee rights of the petitioner over the mortgaged assets of a borrower prevails upon the tax liability of a defaulting borrower and all other actions undertaken by the respondents No. 1 to 3 in this regard."
2. The case of the petitioners is that they are "Body Corporates" constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and are carrying on business as Bankers. Their grievance is primarily against respondents No. 1 to 3, who according to the petitioners have acted in contravention of law and failed to discharge their statutory duties.
3. Respondent No. 4, which is a private limited company, had started banking with petitioner No. 1 in the year 2004. Said respondent was released a cash credit hypothecation limit of Rs.140.00 lacs, cash credit (book debt) facility of Rs.100.00 lacs, term loan facility of Rs.1000.00 lacs, FLC DP within Term Loan of Rs.60.00 lacs and ILC/IFC facility of Rs.200.00 lacs by petitioner No. 1. In consideration thereof and in addition to the security documents having been executed, respondent No. 4 also created an equitable mortgage of its factory land and building. The facilities so extended to respondent No. 4 were enhanced on the request of respondent No. 4 and said respondent was also advanced financial facilities by way of cash credit against stock and book debts, term loan for project expansion and letter of credit (F) for import of raw materials under DP/DA in the year 2006.
4. Petitioners No. 1 and 2 formed a consortium and combined all fund based working capital facilities and non-fund based facilities, which were granted to respondent No. 4. Petitioner No. 1 was acting as a lead Bank. An agreement in this regard was duly executed between the petitioners. Thereafter, a joint deed of hypothecation and working capital consortium agreement was also executed between the petitioners in favour of the consortium members in the year 2007.
5. Apart from other properties and secured assets, the land and building constructed on land measuring 71 bighas 13 biswas, situated in Village Bir Plasi, Hadbast No. 101, Pargana Plasi, Tehsil Nalagarh, District Solan, Himachal Pradesh in the name of M/s Rupana Paper Mills Private Ltd. and the plant and machinery lying therein was duly mortgaged in favour of petitioner No. 1 by respondent no. 4 while availing the loan facilities etc. and a mutation was duly sanctioned vide report No. 471, dated 12.07.2013 and the same was duly recorded in the revenue record by the concerned Department, evidencing the charge of the petitioner-Bank upon the said property.
6. The petitioner-Bank also got recorded the said charge in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (see Annexure P-3). Petitioner-Bank also got recorded the charge of the said loan facility with the Registrar of Companies in the account of respondent No. 4-Company in terms of the provisions of the Companies Act.
7. As respondent No. 4 failed to adhere to the financial discipline enshrined in the loan documents and constantly defaulted in the timely payments of loan premiums, the petitioners classified the accounts of respondent No. 4, as Non Performing Assets. Petitioners jointly filed a recovery suit, i.e., Original Application bearing OA No. 151 of 2016, titled as Punjab National Bank and another Vs. M/s Rupana Paper Mills Pvt. Ltd. and others unde
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