Secured creditors under the SARFAESI Act have priority over State tax claims, provided that security interests are registered with the Central Registry, emphasizing non-retroactive application of provisions.

JUDGMENT:

INTRODUCTION

1. A Division Bench of this Court (cor. Chief Justice and M.S. Karnik, J.) while considering this batch of writ petitions was of the view that the issues emerging for decision therein can be advantageously heard and disposed of by a larger Bench. In deference to the order dated 25th November 2021 passed by such Bench and in exercise of power conferred on the Chief Justice by rule 8 of Chapter I of the Bombay High Court Appellate Side Rules, 1960, this larger Bench was constituted. The parties were put on notice and heard at length on multiple legal and factual issues.

2. The controversy lies in a narrow compass, with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 (hereafter “SARFAESI Act”, for short) and the Recovery of Debts and Bankruptcy Act, 1993 (hereafter “RDDB Act”, for short) taking centre-stage. Who between a secured creditor [as defined in section 2(1)(zd) of the SARFAESI Act and section 2(1)(la) of the RDDB Act], and the taxing/revenue departments of the Central/State Governments, can legally claim priority for liquidation of their respective dues qua the borrower/dealer upon enforcement of the ‘security interest’ [as defined in section 2(1)(zf) of the SARFAESI Act] and consequent sale of the ‘secured asset’ [as defined in section 2(1)(zc) of the SARFAESI Act], in view of the extant laws, is the broad question that we are tasked to decide. This question, in turn, raises certain other substantial questions of law, which would also call for answers and we propose to answer them too.

3. The parties have, in course of their arguments, referred to the provisions of the Maharashtra Land Revenue Code, 1966 (hereafter “MLR Code”, for short), the Maharashtra Value Added Tax Act, 2002 (hereafter “MVAT Act”, for short), the Bombay Sales Tax, 1959 (hereafter “BST Act”, for short) and the Maharashtra Goods and Services Tax Act, 2017 (hereafter “MGST Act”, for short), more particularly sections 37 and 38C of the MVAT Act and the BST Act, respectively. These similarly worded sections, starting with non-obstante clauses, provide that any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person shall be the first charge on the property of the dealer or the person, as the case may be, subject to any provision regarding creation of first charge in any Central Act for the time being in force. Section 82 of the MVAT Act is similarly worded, except that creation of such first charge would be subject to any Central Act for the time being in force is not to be found there. These provisions have necessarily to be read with section 26E of the SARFAESI Act and Section 3 1B of the RDDB Act to ascertain the correct legal position.

4. Several decisions of various High Courts, including decisions rendered by Division Benches of this Court, have been brought to our notice by learned advocates appearing for the secured creditors on the effect of ‘priority’ that section 26E of the SARFAESI Act and section 31B of the RDDB Act accord to secured creditors, but none directly on the point rendere