The judgment establishes the principle that tax arrears under the TNGST Act create a first charge over the property, giving them priority over the claims of secured creditors under the SARFAESI Act.

1. The Petitioners, who are the purchases of the property in the auction conducted by the Third Respondent under the provisions of SARFAESI Act, have approached this Court challenging the auction notice dated 24.4.2009 issued by the First Respondent for recovery of arrears of commercial tax, which are payable by M/s. Pioneer Cashew Limited to which the property originally belonged to.

2. The case of the Petitioners is that the Third Respondent advertised for tender-cum-auction for sale of the property of one M/s. Pioneer Cashew Limited under Section 13(4) of the SARFAESI Act, 2002. The said property is land and building bearing No.300 Poonamallee High Road, Maduravoyal, Chennai – 600 095. The said auction was conducted by the Third Respondent for recovery of loan availed by M/s. Pioneer Cashew Industries Limited. The Petitioners were successful bidder and the sale was concluded in their favour by way of Sale Certificate dated 19.5.2008 and subsequently physical possession was also given.

3. When things stand so, the Petitioners received a communication dated 29.09.2008 issued under Section 36 of the TNGST Act from the First Respondent stating that for arrears of sale tax due and payable by M/s. Pioneer Cashew Limited, the properties purchased by the Petitioner were sought to be auctioned by the First Respondent on 24.12.2008. A suitable reply was given by the Petitioners on 20.12.2008. Subsequently another notice dated 24.4.2009 was served on the Petitioners by the First Respondent intimating about the proposed auction of the said property on 11.6.2009 for recovery of arrears of sales tax payable by the said Pioneer Cashew Industries Limited. The said auction notice is challenged before this Court.

4. Mr. Lakshminarayanan and Mr. P.B. Balaji, the learned Counsel appearing for the Third Respondent and Petitioner contended that:

(1) The purchase of the property by the Petitioners is under the provisions of SARFAESI Act, 2002 from the Bank, which is a secured creditor.

(2) The said auction sale conducted by the Third Respondent-Bank is valid.

(3) The sale by the Third Respondent was concluded as early as on 19.5.2008 by issuance of Sale Certificate and handing over possession of the property to the Petitioners.

(4)SARFAESI Act, 2002 is a special Act and it would override the provisions of Tamil Nadu General Sales Tax Act, 1959.

(5) There is no “First charge” created over the property regarding arrears of tax under Section 24 of the TNGST Act.

(6) There is no non-obstante clause in TNGST Act.

(7) In the absence of any specific statutory provisions, creating first charge for the tax arrears in the TNGST Act, the claim of the secured creditors (Third Respondent-Bank) would prevail over crowns debt (Sales Tax arrears).

He relied on the following judgments in support of his contentions:

1. Union of India and others v. SICOM and another, 2009 (2) SCC 121;

2. Central Bank of India v. State of Kerala and others, 2009 (6) CTC 656 (SC) : 2009 (4) SCC 94;

3. AI Champdany Industries Limited v. Official Liquidator and another, 2009 (3) CTC 881 (SC) : 2009 (4) SCC 486;

4. The Indian Bank, rep. by Authorised Officer, Vellore Circle Officer v. Commercial Tax Officer, Office of CTO Navalpur, Ranipet and others, 2009 (6) MLJ 659 (DB);

5. M. Nagarajan v. Deputy Commercial Tax Officers and Deputy Commercial Tax Officer and State of Tamil Nadu, 2009 (6) CTC 646 (DB) : MANU/TN/1292/2009 (DB);

6. Indian Bank, Kilpauk Branch v. The Sub-Registrar, Periyamet Sub-Registration Office and others,

7. Tamil Nadu Mercandile Bank Limited v. Commercial Tax Officer, 2009 (6) CTC 635 : MANU/TN/0605/2009.

5. Relying upon the above judgments the learned Counsel submitted that the claim of the secured creditor will prevail over the crowns debt (Sales tax arrears) and therefore, the sale conducted by the Third Respondent-Bank is valid and the Respondents 1 and 2 cannot bring the property for sale for the alleged tax arrears payable by M/s. Pioneer Cashew Ind