The priority of State debt under TNGST Act does not apply to secured creditors under SARFAESI Act.

Indian Bank (for brevity "Bank"), which is a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "SARFAESI Act, 2002") has preferred this writ appeal against the judgment dated 19. 2008 passed by the learned single Judge in W.P.No.18975 of 2007.

2. The said writ petition was preferred by the Bank against the Tamil Nadu Government Gazette No.01 dated 1. 2007 and consequential order bearing No.NK.A3.2310/2002 dated 13. 2007, so far as it relates to the property situated at Plot No.97, SIDCO Industrial Estate, SIPCOT, Ranipet. By the aforesaid proceedings, the auction conducted by the Bank in regard to the property in question was held to be void on the ground that the State Government has priority over the property for the owner having not paid the arrears of tax due to the Government, which is outstanding and the said action has been initiated under Revenue Recovery Act for the purpose of recovering the arrears of tax.

3. Similar matter, earlier, fell for consideration of a Division bench and the issue raised has already been decided. Hence, it is not necessary to discuss all the facts except the relevant one.

4. The second respondent, Tajura Leathers and Partnership Firm (hereinafter referred to as the "Company"), obtained credit facilities from the Bank. As security for the dues, the Company offered its following immovable properties by availing equitable mortgage, apart from hypothecation of plant and machinery, viz.

.(1) (i) Plot No.97, SIDCO Industrial Estate; and

.(ii) Mukuntharayapuram-2548 sq.ft. S.No.476/5B;

.(2) S.Nos.114/4 and 114/5 situated at Manthangal Village, Ranipet Town. and In addition to the above, three immovable properties of the guarantors were also mortgaged with the Bank. As the Company defaulted, the Bank filed O.A.No.1275 of 1999 before the Debt Recovery Tribunal, Chennai for recovery of Rs.43, 20,860/-as on 12. 1999. The said O.A. was pending. As there was enormous delay, the Bank took steps under SARFAESI Act, 2002 and issued notice under Section 13(2) on 8. 2005. Subsequently, action was taken under Section 13(4) by taking possession of the mortgaged property. After publication of notice in the newspaper on 12. 2007, the auction took place on 3. 2007 and immovable properties mortgaged with the Bank were sold in public auction for a sum of Rs.62.91 lakhs and thereafter, the Bank issued sale certificate in favour of the auction purchaser. Similarly, the property comprised in S.No.476/5B was also sold and registered in favour of a third party/purchaser.

5. The third respondent purchased the property comprised in Plot No.97, SIDCO Industrial Estate, SIPCOT, Ranipet, measuring to an extent of 19,520 sq.ft., together with shed, on 3. 2007 for a sum of Rs.19.23 lakhs. A sale certificate was issued to the third respondent.

6. While so, the first respondent/State issued the impugned proceedings dated 13. 2007 informing that since the owner of the property, viz. the second respondent has committed default in payment of sales tax to the tune of Rs.37,09,966/-, the provisions of Section 24 of the Tamil Nadu General Sales Tax Act (in short "TNGST Act") has been invoked and requesting the Bank to remit to the first respondent the defaulted sum of Rs.37,09,966/-from the sales proceeds, as contemplated under section 24(3) of the TNGST Act.

7. Before the learned single Judge, the Bank took a plea that the State has no jurisdiction to invoke the provisions of Section 24 of the TNGST Act, the property being mortgaged with the bank and having auction sold under SARFAESI Act, 2002. On behalf of the State, it was contended that as per Section 24(1) and (2) of the TNGST Act, in the event of default made by any dealer in respect of taxes assessed under the Act, the outstanding amount shall become immediately due and shall be a charge on the properties and any amount due under the Act shall have priority over all oth