SARFAESI Act | Charge Of Secured Creditor Will Precede Over The Charge Based On Dues Of Sales Tax: Gujarat High Court

The above ruling came in a writ petition whereby the core issue raised was - 'Who will have the first charge over the property in question i.e. Secured Creditor or the State / Central Government (Crowns debt) on account of non-payment of dues of the Sales Tax department?'

In this matter, several petitions were filed pertaining to disputes over primary charge on properties arising from Sales Tax dues non-payment, and challenges emerged for auction purchasers attempting to alter names in revenue records.

The lead petition centered around the dismissal of mutation applications after an auction. The factual context included prior land transactions, auctions, and ensuing legal intricacies. The other petitions also involved similar issues, aiming for resolutions tailored to individual situations through a joint court proceeding.

The major question was of priority regarding the property in question – whether it would be the Secured Creditor or the State/Central Government (Crowns debt) holding the first charge due to outstanding dues from the Sales Tax department.

The matter was being heard by a single judge bench of Justice Nirzar S Desai.

The Court noted that when each of the properties were purchased pursuant to an auction carried out pursuant to the orders passed by DRT, the aforesaid auction was held to recover the dues of Secured Creditors i.e. respective Banks under an order passed by DRT in the relevant proceedings before DRT.

Therefore, the Court opined, "being the Secured Creditor, the Banks were enjoying priority in terms of Section 26 E of the SARFAESI Act."

The Court placed reliance on several judgments of the Apex Court, including Vinod Realities Private Limited v. State of Gujarat and others [Special Civil Application No.7807 of 2011 delivered on 25.8.2011] and Punjab National Bank v. Union of India [2022 (7) SCC 260], wherein it was held that the charge of the Secured Creditor will precede over the charge of an Unsecured Creditor (Crowns Debt).

The Court rejected the AGP Mr. Trivedi's submission that the State and its authorities have rightly rejected the application for mutation of entry of the petitioners in respect of the property in question cannot be accepted.

Further, the Court also rejected the submission regarding the delay for the reason that, “the petitioners are the bonafide purchasers of the property in question by way of auction or from successful auction purchaser and they have invested huge amount in the property, they have acquired the title of the property by way of Sale Certificate, they are the holder of the title in respect of property in question as on today.”

“Reflection of their names in the revenue record by way of mutation entry is merely a consequential action based upon their title over the property in question. When their title is unquestionable, as the respective Banks have issued Sales Certificate in favour of petitioners, the petitions cannot be thrown away on the ground of alleged delay,” the Court added.

Resultantly, all these petitions succeeded and were allowed.

The Court directed the respondent authorities to mutate the names of each of the petitioners in the revenue record by quashing and setting aside any attachment / charge over the property in question by the State or its authorities as there was a first charge of the respondent Bank in each of the petitions.

Case Title: Madhaviben Jitendrabhai Rupareliya vs State of Gujarat

LL Citation: 2024 LiveLaw (Guj) 4

Case No.: R/SPECIAL CIVIL APPLICATION NO.9565 of 2023

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