Bombay High Court
Bank Of Baroda vs Assistant Commissioner Of Sales Tax on 11 September, 2025
Author: M. S. Karnik
Bench: M. S. Karnik, N. R. Borkar
2025:BHC-OS:15003-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO.3959 OF 2025
Bank of Baroda
a body corporate constituted under the
provision of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970
and having its Registered Office at Baroda House
Mandvi, Baroda- 390001 and one of its
branch offices at Zonal Stressed Asset
Recovery Branch, Meher Chambers,
Ground Floor, Dr. Sunderlal Behl Marg,
Ballard Estate, Mumbai 400 001 .. Petitioner
Vs.
1. Assistant Commissioner of Sales Tax (D-033)
Investigation A, GST Bhavan, A Wing,
2nd Floor, Mazgaon, Mumbai - 400010
E : [email protected]
2. State of Maharashtra
Through Government Pleader .. Respondents
------------
Adv. Savita Nangare a/w Adv. Sisha Shah i/b. Law Focus, for
the Petitioner.
Ms. Gaurangi Patil, AGP, for the Respondent Nos. 1 and 2.
------------
CORAM : M. S. KARNIK &
N. R. BORKAR, JJ.
RESERVED ON : 14th AUGUST , 2025
PRONOUNCED ON : 11th SEPTEMBER, 2025
JUDGMENT (PER M. S. KARNIK, J.) :
1. Invoking the jurisdiction of this Court under Article
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226 of the Constitution of India, the Petitioner-Bank of
Baroda ("the Bank", for short) prays for quashing and
setting aside the impugned order dated 18 th March 2020 in
respect of the secured asset and for setting aside the
charge, if any, of the Respondent No.1- Assistant
Commissioner of Sales Tax ("department", for short) over
the said secured assets.
2. By the impugned order dated 18 th March 2020, the
department ordered Mr./Mrs. Haresh Dharmani, Proprietor
of M/s. Gajanan India Chemco ("borrower", for short),
prohibiting and restraining them from transferring or
charging the property as specified in the Schedule, by sale,
gift or otherwise. Clause 7 of the said notice dated 18 th
March 2020 stipulates that the copy is marked to the
Manager of the Bank for information.
3. The facts of the present case in brief are as under :-
The Bank is a secured creditor under Section 2(1)(zd) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 ("SARFAESI Act",
for short). The Bank sanctioned various credit facilities to
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the borrower between the period from September 2009 to
2012.
4. Pursuant to the above sanction, the borrower has
created first mortgage of the secured asset in favour of the
Petitioner on 29th November 2010 and thereafter the
mortgage was extended on 10th October 2012. The
Petitioner has registered its charge with the Central Registry
of Securitisation Asset Reconstruction and Security Interest
of India ("CERSAI", for short) portal on 30 th June 2012. The
borrower's account was declared as Non-Performing Asset
("NPA", for short) on 31st March 2013.
5. Demand notice under Section 13(2) of the SARFAESI
Act was issued to the borrower on 23 rd September 2013. As
the borrower failed to make repayment of the outstanding
dues, the Petitioner has taken symbolic possession of the
secured asset on 22nd September 2014.
6. The Respondent No.1-department passed an order
of attachment of the secured asset on 18 th March 2020. The
Bank intimated to the department on 4 th August 2020 that
the Bank has priority over the dues of the department. This
Petition is filed in January 2025 for quashing and setting
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aside the order of attachment dated 18th March 2020 passed
by the department.
7. An affidavit-in-reply of Smt. Prerna Deshbhratar
(IAS), Joint Commissioner of State Tax, Investigation-A
Branch, Mumbai has been filed on behalf of the department.
A stand is taken in the affidavit that an investigation visit
was conducted by the department from 23rd September
2013 to 1st October 2013 in the case of Gajanan India
Chemco (unregistered dealer - URD) owned by the borrower.
It was noticed during investigation that the dealer was not
registered under the Maharashtra Value Added Tax Act,
2002 ("MVAT Act", for short) and Mr. Haresh Dharmani
operates bank account of the company wherein huge
deposits and withdrawals were noticed. Mr. Haresh
Dharmani in his statement has accepted that these are
financial transactions and are operated by him.
8. By orders dated 31st March 2015 and 18th November
2019, the dealer was assessed under Section 23(4) of the
MVAT Act for the periods from 2006-07 to 2013-14 and
liability at Rs.1,43,54,91,326/- has been raised by the then
officer. As the dealer has failed to discharge the said
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liability, recovery action has been initiated against the
dealer and order of attachment of immovable property has
been issued as per Section 34 of the MVAT Act on 18 th March
2020. This order of attachment is in respect of the property
situated at 2-A, the Sindhi Immigration Co-operative
Housing Society Limited, Chembur, Mumbai ("the property",
for short) owned by Mr. Haresh Dharmani, Proprietor of
Gajanan India Chemco (Unregistered dealer-URD).
9. The Bank replied to the order of attachment of the
department on 4th September 2020. The Appellate Authority
under the MVAT Act has rejected the appeals filed by the
dealer against the assessment orders for the periods from
2006-07 to 2013-14 having the liability aforestated by the
orders dated 3rd October 2019 and 7th July 2023. In the
affidavit-in-reply it is thus the contention of the department
that the State of Maharashtra has on 18th December 2024
amended Section 37 of the MVAT Act with retrospective
effect and therefore, the department will have first charge
over the secured asset.
10. Learned counsel for the Petitioner submitted that
the issue involved in the present Petition is no longer res
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integra in view of the decision of the Full Bench of this Court
in Jalgaon Janta Sahakari Bank Ltd. & Anr. Vs. Joint
Commissioner of Sales Tax Nodal 9, Mumbai & Anr. (Writ
Petition No.2935 of 2018, judgment dated 30 th August
2022). It is submitted that the Full Bench of this Court has
conclusively settled the legal position regarding priority of
claims between secured creditors and State revenue
authorities. It is submitted that the Bank has registered its
security interest with CERSAI on 30th June 2012, which is
very much prior to the attachment order dated 18 th March
2020 of the department. It is submitted that where a
secured creditor has registered its security interest under
the SARFAESI Act, the claim of such secured creditor must
prevail over tax or revenue dues of the State, even if such
dues are declared as first charge under State laws. It is
therefore submitted that the Bank has priority in realization
of dues over the dues of the department and the
department, having even failed to register its charge with
CERSAI, cannot claim any first charge over the said secured
asset.
11. Learned AGP on behalf of the department
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vehemently opposed the Petition. Our attention is invited to
the stand taken by the department in the affidavit-in-reply
filed on their behalf. Inviting our attention to amended
Section 37 of the MVAT Act, it is submitted that in view of
the said amendment, State dues will have priority over
other dues. It is submitted that as Mr. Haresh Dharmani has
defaulted in making the payment of the assessed dues, the
said property was attached by the order of attachment
dated 18th March 2020 passed by the department under the
provisions of Sections 34 and 37 of the MVAT Act read with
the provisions of the Maharashtra Land Revenue Code,
1966. It is submitted that Maharashtra State Government
has made an amendment to Section 37 of the MVAT Act on
18th December 2024 and given retrospective effect to the
said provision from 1st April 2005. Learned AGP was at pains
to point out that in view of the said amendment, State dues
will have priority over other dues.
12. Heard learned counsel for the parties.
13. Relevant in the context of the present case and as
is the emphasis of the learned AGP in support of his
contention that the State dues will have priority over other
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dues, it will be advantageous to extract amended Section 37
of the MVAT Act for convenience. Section 37 reads thus :-
"37. Liability under this Act to be the first charge
-
(1) Notwithstanding anything contained in any law for
the time being in force, or any contract to the contrary,
any amount of tax, penalty, interest, sum forfeited, fine
or any other sum, payable by a dealer or any other
person under this Act, shall be first charge on the
property of the dealer or, as the case may be, person.
(2) The first charge as mentioned in sub-section (1)
shall be deemed to have been created on the expiry of
the period specified in sub-section (4) of section 32 for
the payment of tax, penalty, interest, sum forfeited, fine
or any other amount.
14. In our opinion, the issue involved in the present
case is squarely covered by the decision of the Full Bench of
this Court in Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra).
The Full Bench has conclusively settled the legal position
regarding priority of claims between secured creditors and
State revenue authorities. It has been authoritatively held
that "In view of the introduction of Section 26E of the
SARFAESI Act and Section 31B of the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 ("RDDB Act",
for short), secured creditors have statutory priority in
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realization of dues from the sale of secured assets, over and
above all other debts including government revenues, taxes,
cesses and rates, subject only to compliance with the
statutory conditions, such as registration under the
SARFAESI Act.
15. The Full Bench rejected the contention that the
phrase "priority in payment" under Section 26E falls short of
creating a first charge. It ruled that, "Statutory priority given
to secured creditors under the SARFAESI and RDDB Acts
shall override any charge created under State laws,
including Sections 37 and 38C of the MVAT Act and Bombay
Sales Tax Act ("BST Act", for short) respectively, in view of
their express subordination to Central enactments."
16. The Bank has registered its security interest with
CERSAI on 30th June 2012, which is very much prior to the
attachment order dated 18th March 2020 of the department.
Therefore, in view of the legal position settled by the Full
Bench, the Bank has priority to realize its dues.
17. The unamended Section 37 of the MVAT Act made
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the MVAT Act expressly subordinate or subservient to any
central legislation creating first charge and by way of
amendment, the State of Maharashtra has in essence only
removed such subordination or subservience to the central
legislation. The Full Bench discussed and dealt with similar
provisions and scenario at length in paragraphs 81 to 92.
The Full Bench in paragraph 82 and 83 observed thus :-
"82. Each of the aforesaid several legislations
operate in their particular field. Pertinently, wherever the
legislature of the State intended the particular provision
to be the dominant legislation or subordinate or
subservient to any other legislation, it has expressed
such an intention in no uncertain terms. Section 169(1)
of the MLR Code is the dominant legislation providing
that the arrears of land revenue due on account of land
shall be a paramount charge on the land and on every
part thereof and shall have precedence over any other
debt, demand or claim whatsoever, whether in respect
of mortgage, judgment-decree, execution or attachment,
or otherwise howsoever, against any land for the holder
thereof. The municipal laws and the MRTP Act, however,
despite creation of first charge on property taxes due to
the Corporations and sums due to a planning authority,
respectively, are expressly made subordinate to the
paramount charge on a land if in respect of such land,
land revenue is in arrears. Viewed from this angle, there
is no magic in the words 'first charge'. Even a 'first
charge', by express statutory intendment, can be made
subordinate or subservient to a paramount charge such
as arrears of land revenue. We, therefore, are unable to
accept the argument of the State/respondents that since
neither the SARFAESI Act nor the RDDB Act uses the
words 'first charge' but the word 'priority', such 'priority'
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cannot have precedence over 'first charge' created by
the State legislations.
83. However, notwithstanding that section 169(1) of
the MLR Code is the dominant legislation and does not
expressly say that it would be subordinate or
subservient to any Central Act creating 'first charge',
nothing really turns on it. The express language of
section 26E of the SARFAESI Act and section 31B of the
RDDB Act, wherever applicable, is sufficient to off-set the
'paramount charge' created by sub-section (1) of section
169. Similarly, even if there were no express intendment
in the relevant provisions of the BST Act (section 38C)
and the MVAT Act (section 37) to the effect that such
provisions would be subordinate to any Central Act
creating 'first charge', the same would obviously have to
be read, invoked and exercised subject to section 26E of
the SARFAESI Act and section 31B of the RDDB Act,
wherever applicable."
18. We are therefore in agreement with the contention
of learned counsel for the Petitioner that where a secured
creditor has registered its security interest under the
SARFAESI Act, the claim of such secured creditor must
prevail. We have no hesitation in holding that the Bank has
priority in realization of dues over the dues of the
department. The department having even failed to register
its charge with CERSAI cannot claim any first charge over
the said secured asset.
19. The Writ Petition is thus allowed in terms of prayer
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clauses (a) and (b) which read thus :-
"(a) This Hon'ble Court be pleased to issue Writ
of Mandamus and/or Certiorari and/or any writ in
the nature of Mandamus and/or Certiorari and/or
any appropriate writ, order or direction, to quash
and set aside the Impugned Order dated 18 th
March 2020 in respect of the said Secured Asset;
(b) This Hon'ble Court be pleased to issue Writ
of Mandamus and/or Certiorari and/or any writ in
the nature of Mandamus and/or Certiorari and/or
any appropriate writ, order or direction to quash
and set aside charge, if any, of the Respondent
No.1 over the said Secured Assets."
20. It is however made clear that on sale of the secured
asset, if the Bank recovers any amount exceeding the
amount of debt, such excess amount should be paid to the
Respondent No.1-department. The amount realized through
the sale of the secured asset shall be communicated to the
Respondent No.1-department.
21. Rule is made absolute in the above terms. No order
as to cost.
(N. R. BORKAR, J.) (M. S. KARNIK, J.)
Signed by: Pradnya Bhogale
Designation: PA To Honourable Judge
Date: 12/09/2025 17:43:44
