Dues Of Secured Creditor Have Preference Over Crown Debts Unless Otherwise Provided By Statute: Gujarat High Court
"Once any immovable property is mortgaged / hypothecated towards secured creditors then having regard to the provisions contained in Section 2(zc) to (zf) of the SARFAESI Act, 2002 read with the provisions contained in Section 13 of the SARFAESI Act, 2002, the secured creditor will have the first charge on the secured assets", the Gujarat High Court has affirmed recently. The...
"Once any immovable property is mortgaged / hypothecated towards secured creditors then having regard to the provisions contained in Section 2(zc) to (zf) of the SARFAESI Act, 2002 read with the provisions contained in Section 13 of the SARFAESI Act, 2002, the secured creditor will have the first charge on the secured assets", the Gujarat High Court has affirmed recently.
The Bench comprising Justice JB Pardiwala and Justice Nisha Thakore was hearing a writ petition filed by a secured creditor, aggrieved by a letter issued by the Sub-registrar, imposing charges and encumbrances over the secured assets.
The facts of the case were that 12 plots of land were owned by the company M/S Salar Polyfab Limited which had availed certain loan facilities from the State Bank of India (Respondent 3) by mortgaging these plots. The Company created a security interest with respect to the 12 plots in favour of the State Bank of India within Section 2(lb) of the Recovery of Debts and Bankruptcy Act 1993. Therefore, the bank was the secured creditor for the said plots.
Thereafter, the company defaulted in repayment of debts to the tune of INR 85,41,51,495 and consequently, the bank proceeded against the Company before the Debts Recovery Tribunal. All 12 plots were put to auction and the writ applicants were the highest bidders by offering INR 1,30,00,000 towards sale consideration.
However, the Applicants were confronted with two problems, namely:
- The sale deed was not released by the sub-registrar
- The Talati-cum-Mantri declined to mutate the entry of such sale in the revenue records.
The Bench noted that these problems arose because the State had put forth its claims towards the dues yet to be recovered from the company towards income tax.
The Bench identified the primary issue worth consideration was determining whether the bank will have precedence over the secured assets or the Income Tax Department will have precedence. To that end, reliance was placed in Punjab National Bank Vs. Union of India and Others, Civil Appeal No.2196 of 2012 wherein it was opined that secured creditors ought to have precedence as per Sections 2(zc) to (zf) of the SARFESI Act, 2002 read with Section 13 of SARFESI Act.
The Supreme Court had held that Section 35 of the SARFESI Act, 2022 inter alia provides of the SARFESI Act shall have overriding effect on all other laws.
Reference was also made to Connectwell Industries Private Limited Vs. Union of India C/SCA/10314/2021, wherein it was held:
"It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts."
Accordingly, the High Court set aside the attachment order by the Income Tax Department. The writ applicants were entitled in law to get their names mutated in the revenue records on the strength of the sale deed.
Case Title: Alok Kistuchand Agarwal vs Sub Registrar
Case No.: C/SCA/10314/2021