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2016 Supreme(Ori) 1184
IN THE HIGH COURT OF ORISSA
Indrajit Mahanty, Biswajit Mohanty, JJ.
STATE BANK OF INDIA - APPELLANT
Versus
INCOME TAX OFFICER HIGH COURT OF ORISSA - RESPONDENT
Writ Petn. No. 16567 of 2013
Decided On : 21-10-2016
R.P. Kar, Advocate, for the Petitioners; Sanjay Acharya, Advocate, for the Revenue; None, for the Respondent Nos. 2 to 7
Crown debt/State dues in the form of income-tax dues cannot have priority over the claims of secured creditors under the SARFAESI Act unless there is a statutory backing to the same.
Headnote:
Crown Debt - Priority of Secured Creditors - SARFAESI Act, 2002 - Section 13(2) - Section 35 - Union of India & Ors. v. Sicom Ltd. & Anr. (2009) 2 SCC 121, Rana Girders Ltd. v. Union of India & Ors. (2013) SCC 746, Bombay Stock Exchange v. V.S. Kandalgaonkar & Ors. (2015) 2 SCC 1
Fact of the Case:
The case involves a dispute over the priority of secured debt versus Crown debt/State dues. The petitioner, a registered securitisation and assets reconstruction company, sought to quash an attachment order issued by the Income Tax Department (opposite party No. 1) and prevent the department from proceeding against the secured assets of the company and its directors for recovery of income-tax dues.
Finding of the Court:
The court found that the Government dues/Crown debt in the form of income-tax dues cannot have priority over the demands of secured creditors like banks and the petitioner. It held that the attachment order issued by the Income Tax Department was illegal and vitiated. The court allowed the writ application by quashing the attachment notice and allowing the petitioner to proceed with the matter in accordance with the provisions of SARFAESI Act.
Issues: The main issue was whether Crown debt/State dues in the form of income-tax dues have priority over the claims of secured creditors under the SARFAESI Act.
Ratio Decidendi: The court relied on the definitions of 'secured creditor', 'secured debt', and 'security interest' under the SARFAESI Act, as well as the provisions of section 35 of the Act, to establish that the Government dues/Crown debt cannot override the claim of secured creditors unless there is a statutory backing to the same. The court also referenced relevant decisions of the Hon'ble Supreme Court to support its finding.
Final Decision: The court allowed the writ application by quashing the attachment notice and allowing the petitioner to proceed with the matter in accordance with the provisions of SARFAESI Act.
JUDGMENT :
Biswajit Mohanty, J. - The controversy in this case revolves around the primary or secured debt vis-a-vis Crown debt/State dues.
2. Opposite party No. 2, a public limited company was incorporated as such in the year 1995 under the Companies Act. 1956. Opposite party No. 3 is its chairman and opposite party No. 4 is its managing director and opposite party Nos. 5 to 7 are its directors. Opposite party No. 2 availed several credit facilities w.e.f. the year 1998 from State Bank of India as well as from other borrowers. It also took credit facilities from a consortium of banks consisting of State Bank of India, UCO Bank, State Bank of Bikaner and Jaipur, Oriental Bank of Commerce, Andhra Bank, Induslnd Bank and Allahabad Bank for carrying on its business. The total credit facilities availed by opposite party No. 2 from the consortium of lending banks at the time of filing of writ application stood at Rs. 602 crores out of which State Bank of India, for short, SBI alone had contributed Rs. 181.01 crores. In order to secure the above-noted credit facilities, opposite party No. 2 from time to time duly created equitable mortgage of its immovable properties in favour of banks, the first of which was created on 10th July, 1999 when title deeds in respect of Ac. 19.48 decimals of land belonging to opposite party No. 2 was deposited with SBI to secure Rs. 3.05 crores besides interest, costs and other charges. Such equitable mortgaged was further created/extended on 20th Nov., 2003, 25th Oct., 2008 and 8th Dec., 2008 by deposit/constructive deposit of title deeds with SBI and on 8th April, 2009 & 13th Aug., 2010 by deposit/constructive deposit of title deeds with SBI as the leader of the consortium to secure credit facilities availed by opposite party No. 2 from time to time from SBI as well as other banks forming the consortium. The last of such deposit of title deeds for creating equitable mortgage was made on 28th March. 2011 with SBI as the leader of consortium. According to petitioner No. 2, the above-noted equitable mortgage covered a total area of Ac. 159.965 decimals of land. Memorandum of deposit of title deeds evidencing creation of equitable mortgage has been filed as part of Annex. 1 series to the writ application. However, opposite party Nos. 2 to 7 failed to operate the loan accounts in terms of their contract with the lending banks, as a result of which, the said loan accounts were classified as NPA w.e.f. 22nd Oct., 2012. When there was no response to repeated requests and demand made by the consortium to regularise the loan accounts or to repay all the dues, majority of the consortium lenders including SBI recalled the advances by notice dated 5th Feb., 2013 and called upon opposite party No. 2 to repay all their dues to the consortium by 16th Feb., 2013 under Annex. 2 series. When again there was no response from the side of opposite party Nos. 2 to 7, SBI representing the consortium served demand notice dated 25th Feb., 2013 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, for short, SARFAESI Act, demanding payment of the entire dues with interest plus further interests and costs till payment within 60 days of receipt thereof. This notice dated 25th Feb., 2013 has been filed as part of Annex. 2 Series to the writ application. Sometime thereafter, i.e., on 18th March, 2013 vide Annex. 3, opposite party No. 1 served a notice on the Branch Manager of SBI, Panposh Branch calling upon him to appear in person at 4.30 PM. on 18th March, 2013 and produce bank account details as well as details of land, building, factory building and other assets owned by opposite party Nos. 2 to 5 & 7 which might have been pledged with the bank in order to get loans. In response to Annex. 3, SBI immediately submitted the details of loan accounts, land and building standing in the name of the company (opposite party No. 2) and its directors as mortgaged to
