Gujarat High Court
Indian Overseas Bank vs State Of Gujarat on 4 August, 2025
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C/SCA/12196/2024 JUDGMENT DATED: 04/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 12196 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE Sd/-
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Approved for Reporting Yes No
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INDIAN OVERSEAS BANK
Versus
STATE OF GUJARAT & ORS.
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Appearance:
MR AAYAN PATEL WITH MR DHANESH DESAI FOR SINGHI & CO.(2725)
for the Petitioner(s) No. 1
MS NIDHI VYAS AGP for the Respondent(s) No. 1
MR RASHESH SANJANWALA, SR. COUNSEL, WITH MR NIHAR THAKKAR
WITH MR DIGANT M POPAT(5385) for the Respondent(s) No. 7
NOTICE SERVED BY DS for the Respondent(s) No. 1,2,3,4,5,6,8
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CORAM:HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE
Date : 04/08/2025
ORAL JUDGMENT
1. The present writ petition has been filed praying for the
following reliefs:-
"26.A. This Hon'ble Court be pleased to issue a writ of mandamus
and/or certiorari or a writ, order or direction in the nature of mandamus
and/or certiorari or any other appropriate writ, order or direction to
quash and set aside the Revenue Entry No. 8058 dated 02.03.2024, in
respect of the said Property recording the purported charge of
Respondent No. 4 over the said Property on the basis of Respondent
No.4's application dated 02.03.2024;
B. This Hon'ble Court be pleased to issue a writ of mandamus or a
writ, order or direction in the nature of mandamus or any other
appropriate writ, order or direction to:
(a) the Respondent No. 3 to forthwith and without any
demur accept the sale certificate dated 02.05.2024 annexed at
Annexure G" hereto for the purpose of registration and issue a
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certificate under Section 60 of the Registration Act, 1908 in
respect of the sale certificate dated 02.05.2024;
(b) the Respondent No.5 to mutate necessary entries in the
relevant revenue records, recording the sale of the said
Property in favour of the Respondent No.7;
C. This Hon'ble Court be pleased to issue a writ of mandamus or a
writ, order or direction in the nature of mandamus or any other
appropriate writ, order or direction, granting a mandatory injunction
against the Respondent Nos.1 to 6, their men, agents, staffs,
subordinates, employees, officers and associates, restraining them from
dealing with, creating any charge and/or attempting to do any of the
foregoing in respect of the said Property or any portion thereof in any
manner whatsoever;
D. Pending hearing and final disposal of this Petition, this Hon'ble
Court by way of ad-interim/interim relief be pleased to direct the
Respondent No. 3 to accept and lodge the application for registration of
the Sale Certificate dated 02.05.2024;
E. Pending hearing and final disposal of this Petition, this Hon'ble
Court may be pleased to restrain the Respondent Nos.1 to 6, their men,
agents, staffs, subordinates, employees, officers and associates from
dealing with, creating any charge and/or attempting to do any of the
foregoing in respect of the said Property or any portion thereof in any
manner whatsoever;
F. Ex-parte ad interim and/or interim relief in terms of Prayers D
and E be granted;
G. For Costs; and
H. Such other and further relief as may be considered fit and
expedient in the facts of the present case be granted."
2. The brief facts of the case are that, the petitioner is a Bank
duly constituted under the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970. A piece and parcel of land
being Survey No.556, Village Mithirohar, Taluka Gandhidham,
Kutch admeasuring 52,913 sq. mts. came to be mortgaged in
favour of the petitioner as a security for a credit facility extended
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to the respondent No.8 i.e. Patel Woods Products Limited by way
of equitable mortgage on deposit of title deeds. That accordingly
a charge on the said property came to be registered under the
provisions of the Companies Act, 1956 with the Registrar of
Companies. That the respondent No.8 company defaulted in
repayment of its loan and therefore, the account of the
respondent No.8 came to be declared as Non Performing Asset
('NPA' for short) on 27.02.2012 in accordance with the applicable
directives and guidelines of the Reserve Bank of India. That
pursuant to the declaration of the account of the respondent
No.8 as NPA, the petitioner Bank issued a notice dated
03.12.2012 under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 ("SARFAESI Act" for short) to the respondent
No.8 to repay its liability aggregating to Rs.79,40,71,061.66 as
on 26.11.2012. Since the respondent No.8 failed to make the
payment, the petitioner invoked its statutory right under Section
13(4) of the SARFAESI Act and took symbolic possession of the
property on 04.06.2013. Thereafter, the petitioner made
attempts to sell the said mortgaged property for realizing its
outstanding dues. In the public e-auction conducted on
22.02.2024, the respondent No.7 participated in the said e-
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auction and gave a highest bid and was consequently declared
successful auction purchaser in respect of the sale of the said
mortgaged property. That thereafter the petitioner received full
bid amount and accordingly issued a sale certificate dated
02.05.2024 in respect of respondent No.7 in accordance with
Rule 9(6) of the SARFAESI Rules. In the meantime, it has come
to the knowledge of the petitioner that the respondent No.4 i.e.
the Assistant State Tax Commissioner, Gandhidham had created
a charge on the said mortgaged property which came to be
recorded in the revenue record vide entry No.8058. The said
charge came to be created in the revenue record pursuant to an
application dated 02.03.2024 by the respondent No.4 in respect
of recovery of outstanding dues amounting to Rs.67,35,38,675/-.
Upon coming to know of such entry creating charge in favour of
the respondent No.4, the petitioner addressed a letter dated
21.03.2024 to the respondent No.4 to withdraw its charge on the
said mortgaged property as the petitioner Bank had first and
prior right to recover its dues from the said property. That when
the petitioner Bank and the respondent No.7 proceeded for the
registration of the sale certificate dated 02.05.2024 in favour of
the respondent No.7, the respondent No.3 Sub-Registrar,
Gandhidham refused to register the said sale certificate and the
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mutation in the name of the respondent No.7 in the revenue
record in furtherance of such sale certificate due to the charge of
respondent No.4 registered over the said property. Aggrieved by
the action of the respondent No.3 in not registering the said sale
certificate issued in favour of the respondent No.7 and further
denying the mutation of the name of the respondent No.7 of the
mortgaged property, the petitioner has filed the present writ
petition.
3. Mr. Aayan Patel, learned counsel for the petitioner Bank
submits that the action of the respondent No.4 in denying the
registration of the sale certificate and mutation of the name of
the respondent No.7 in the revenue record in view of entry
No.8058 at the instance of the respondent No.4 creating a charge
on the mortgaged property is contrary to law. He submits that
the petitioner Bank is a secured creditor under the SARFAESI
Act in whose favour the borrower had created a security interest
by way of mortgage on 30.03.2005. He submits that the
petitioner was the first charge holder and has a prior and
superior share over the mortgaged property. He submits that
under the provisions of the SARFAESI Act, statutory priority has
been created in favour of the secured creditor over all other
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debts including tax, interests, penalty, etc. payable to the
Central or the State Government. He submits that the Section
31B of the Recovery of Debt and Bankruptcy Act, 1993 ["Act of
1993" for short] notified w.e.f. 01.09.2016 contains a clear right
in favour of the secured creditor to realize debts due and payable
to the secured creditor in priority over all other debts including
tax dues. He submits that the said provision is clear and
unambiguous. He submits that Section 35 of the SARFAESI Act
provides an overriding effect to the provisions contained therein
notwithstanding with any inconsistency contained in any other
law. He, therefore, submits that the provisions of the SARFAESI
Act will prevail over the provisions of Gujarat Value Added Tax
Act, 2003 ["VAT Act" for short] since the SARFAESI Act is a
Central statute and would prevail over the VAT Act which is a
State legislation. He has further submitted that the mortgage in
favour of the petitioner Bank and the charge on the property was
created and registered prior in point of time then the charge
registered by the respondent No.4. He submits that the
purported charge created by the respondent No.4 over the said
mortgaged property cannot prevent the petitioner from enforcing
its right and realizing its dues by way of sale of the said
property. He further submits that the respondent No.4 has
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created a charge over the said property pursuant to the recovery
proceedings initiated by the petitioner Bank. The substantive
right of the petitioner cannot be defeated by the respondent No.4
for realizing its tax dues. He submits that further the petitioner
Bank is also duty bound to protect its interest and to ensure
that there is a conclusion of the sale of the property in favour of
the respondent No.7 since the respondent No.7 had paid the
complete sale consideration and is entitled for mutation of its
name in the revenue record. He submits that if the purported
charge of the respondent No.4 is not quashed, the consideration
amount deposited by the respondent No.7 will have to be
refunded which would nullify the e-auction sale conducted by
the petitioner and thereby the recovery of its legitimate claim. He
submits that it is open for the respondent No.4 to recover its
dues by creating charge over the unencumbered properties of the
respondent No.8. He submits that the action of the respondent
No.4 by creating a charge on the mortgaged property renders the
provisions of the SARFAESI Act nugatory. He, therefore, submits
that the subsequent charge created by the respondent No.4 on
the mortgaged property is null and void and the prayers prayed
for in the present writ petition be allowed.
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3.1 In support of his contention, learned counsel for the
petitioner has relied upon the following judgments:-
1. In case of Bank of Baroda through its Asst. General
Manager Prem Narayan Sharma v. State of Gujarat - Special
Civil Application No.12995 of 2018 dated 16.09.2019.
2. In case of Kalupur commercial Cooperative Bank Ltd.
v. State of Gujarat - Special Civil Application No.17891 of
2018 dated 23.09.2019.
3. In case of Madhaviben Jitendrabhai Rupareliya v.
State of Gujarat - Special Civil Application No.9565 of 2023
and allied matters dated 04.01.2024.
4. In case of Punjab National Bank v. Union of India &
Ors. - (2022) 7 SCC 260.
4. Mr. R.S. Sanjanwala, learned Senior Counsel appearing on
behalf of the respondent No.7 while supporting the case of the
petitioner Bank has submitted that the law in respect of the
priority on the charge created over the property by various
authorities is now well settled. He submits that after the
amendment in the SARFAESI Act, the intention of the legislature
is clear. The Central Act stipulates that the mortgagor under the
SARFAESI Act shall have first charge over the mortgaged
property and other Government agencies shall have a secondary
charge which can be satisfied only after the primary charge of
the mortgagor under the SARFAESI Act. He submits that in the
present case, the subject property has been sold to realize the
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outstanding dues of the petitioner Bank. The answering
respondent is successful bidder and has paid the full bid
amount to the petitioner Bank and in lieu thereof the sale
certificate dated 02.05.2025 has also been issued to the
answering respondent in accordance with Rule 9(6) of the
SARFAESI Rules evidencing the sale of the said property to the
respondent No.7. He submits that in view of the settled legal
position, the prayers prayed for in the present writ petition be
allowed.
5. Per Contra, Ms. Nidhi Vyas, learned AGP appearing for the
respondent No.4 Assistant State Tax Commissioner,
Gandhidham submits that since the financial year 2006-2007
till the financial year 2017-2018, the respondent No.8 has
completely failed to make the payment of dues under Section 42
of the VAT Act and Section 9 of the Central Service Tax Act, 1956
and there are dues amounting to Rs.67,33,22,207.62 ps. She
submits that for the assessment order dated 28.03.2017, the
respondent No.8 company had filed appeal before the learned
Dy. Sales Tax Officer, Rajkot which came to be rejected vide
order dated 10.11.2020. Thus, the respondent No.8 was liable to
make the payment of the outstanding dues of the State Tax
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Department. It is submitted that after issuing various reminders
to the respondent No.8 over a period of years since the payment
remained outstanding, accordingly, an order under Section 154
of the Bombay Land Revenue Code, 1879 came to be passed on
25.08.2018 against the respondent No.8. Learned AGP further
submits that pursuant thereto, the respondent authorities had
issued letter dated 24.08.2018 to the Talati, village Mitihirohar
to record charge in the mutation entry for land bearing Survey
Nos.556/557. It is submitted that the said letter was not
complied with and thereafter again letters were issued to the
Mamlatdar to record the charge of the VAT Authority, however,
the same were also not complied with. That upon a reminder
letter issued on 16.02.2024, the charge came to be recorded in
favour of the respondent No.4 vide mutation entry No.8058 on
02.03.2024. It is submitted that notices have been issued under
Section 44 of the VAT Act to various banks regarding
outstanding dues of the respondent No.8. She submits that such
notices were issued to the ICICI Bank, AXIS Bank, HDFC Bank
and State Bank of India. She submits that the respondents have
been extremely vigilant to take steps in respect of the
outstanding dues. She submits that the petitioner Bank was also
very well aware of the outstanding dues of the respondent No.8
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as series of communications were addressed to the petitioner
Bank regarding the same. She submits that though the
petitioner Bank was very well aware about the outstanding dues
of the state authorities, yet it did not adopt any such procedure
as per Rule 9 of the SARFAESI Rules. She submits that the sale
certificate dated 02.05.2024 issued in favour of the respondent
No.7 auction purchaser states as "ENCUMBRANCE NOT
KNOWN". She submits that such an action of the petitioner Bank
in issuing the said sale certificate is dehors the Rules and illegal.
She submits that the auction purchaser is also duty bound to
comply with the payment of the liability of the pending dues and
to ensure that all encumbrances are discharged. She submits
that no relief can be granted to the petitioner Bank since the
property in dispute has been sold on "AS IS WHERE IS BASIS"
and therefore, the liability of the State Tax Authority will still
subsist over the subject property. She submits that even if as
per the provision of Section 26 of the SARFAESI Act, the Bank's
charge will have priority over other charges, the charge which
are over due shall still subsist. The petitioner Bank cannot take
benefit of such provision and seek deletion of said entry as the
deletion of the said entry will render the authorities remedy less
and there would be no recovery of outstanding dues. She
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submits that if the writ petition is allowed, the final liability of
the respondent No.8 would be a bad debt and result in financial
loss to the public exchequer. She submits that the present writ
petition be dismissed.
6. Heard learned counsels for the parties and perused the
documents on record.
7. By the present writ petition, the petitioner Bank is seeking
a direction to quash and set aside the revenue entry No.8058
dated 02.03.2024 which has recorded the charge of the State
Tax Authorities towards the outstanding tax dues of the
respondent No.8 who was the erstwhile owner. The subject
property has been sold in auction under the SARFAESI
proceedings by the petitioner Bank to recover its dues since the
respondent No.8 borrower had defaulted in repayment of the
loan availed. The questions which arise for consideration are
whether Section 26E of the SARFAESI Act would prevail over
Section 48 of the VAT Act and whether the petitioner Bank has
first priority to recover its dues being a secured creditor under the
SARFAESI Act.
8. The relevant Sections under the SARFAESI Act read as
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under:-
"26E. Priority to secured creditors. --Notwithstanding anything
contained in any other law for the time being in force, after the registration
of security interest, the debts due to any secured creditor shall be paid in
priority over all other debts and all revenues, taxes, cesses and other rates
payable to the Central Government or State Government or local authority.
Explanation.--For the purposes of this section, it is hereby clarified that on
or after the commencement of the Insolvency and Bankruptcy Code, 2016
(31 of 2016), in cases where insolvency or bankruptcy proceedings are
pending in respect of secured assets of the borrower, priority to secured
creditors in payment of debt shall be subject to the provisions of that Code.]
35. The provisions of this Act to override other laws. --The provisions
of this Act shall have effect, notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or any
instrument having effect by virtue of any such law.
37. Application of other laws not barred.--The provisions of this Act or
the rules made thereunder shall be in addition to, and not in derogation of,
the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation)
Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act,
1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993) or any other law for the time being in
force."
8.1 The relevant provisions of Recovery of Debts and
Bankrupcy Act, 1993 are as under:-
"31B. Priority to secured creditors.--Notwithstanding anything
contained in any other law for the time being in force, the rights of secured
creditors to realise secured debts due and payable to them by sale of
assets over which security interest is created, shall have priority and shall
be paid in priority over all other debts and Government dues including
revenues, taxes, cesses and rates due to the Central Government, State
Government or local authority. Explanation.--For the purposes of this
section, it is hereby clarified that on or after the commencement of the
Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where
insolvency or bankruptcy proceedings are pending in respect of secured
assets of the borrower, priority to secured creditors in payment of debt
shall be subject to the provisions of that Code.
34. Act to have overriding effect. --
(1) Save as provided under sub-section (2), the provisions of this Act shall
have effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or in any instrument having effect
by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in
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addition to, and not in derogation of, the Industrial Finance Corporation
Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of
1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial
Reconstruction Bank of India Act, 1984 (62 of 1984), [, the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small
Industries Development Bank of India Act, 1989 (39 of 1989)]."
8.2 The relevant Sections of the Gujarat Value Added Tax Act,
2003 read as under:-
"46. Special powers of tax authorities for recovery of tax as arrears
of land revenue.
(1) For the purpose of effecting recovery of the amount of tax, penalty or
interest due from any dealer or other person by or under the provisions of
this Act or under any earlier law, as arrears of land revenue -
(i) the Commissioner, the Special Commissioner, Additional
Commissioner and the Joint Commissioners shall have and exercise
all the powers and perform all the duties of the Collector under the
Bombay Land Revenue Code, 1879.
(ii) the Deputy Commissioners and Assistant Commissioners shall
have and exercise all the powers (except the powers of arrest and
confinement of a defaulter in a civil jail) and perform all the duties
of the Assistant Collector or Deputy Collector under the said Code.
(iii) the Commercial Tax Officers shall have and exercise all the
powers (except the powers of arrest and confinement of a defaulter
in a civil jail) and perform all the duties of the Mamlatdar under the
said Code.
(2) Every order passed in exercise of the powers conferred by sub- section
(1) shall, for the purpose of sections 73, 75, 78, 79 or 94, be deemed to be
an order passed under this Act.
48. Tax to be first charge on property. Notwithstanding anything to
the contrary contained in any law for the time being in force, any amount
payable by a dealer or any other person on account of tax, interest or
penalty for which he is liable to pay to the Government shall be a first
charge on the property of such dealer, or as the case may be, such person."
9. It would be pertinent to observe that all the relevant
clauses i.e. Section 26E of the SARFAESI Act, Section 31(B) of
the RDB Act and Section 46 of the VAT Act start with a non-
obstante clause. It is well settled that a non-obstante clause is
usually inserted in the provision so as to give an overriding effect
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to certain provisions over some contrary provisions that may be
existing either in the same enactment or in some other
enactment. It is inserted to avoid the operation and effect of all
contrary provisions and to give it a fully operational effect. Such
a provision cannot be an impediment for the operation of the
enactment. It is trite law that the non-obstante nature of a
provision being of wide amplitude, the interpretative process
thereof has to be confined to the legislative policy and the
intention of the legislature and not beyond the same. The scope
of the said provision has to be determined strictly.
10. A plain reading of the provisions enumerated hereinabove
would show that there is no repugnancy in the two legislations
i.e. the SARFAESI Act and the Gujarat Value Added Tax Act. The
SARFAESI Act is a Central Act and the VAT Act is a State Act.
Both the legislations have been enacted by the Central
Government as well as the State Government respectively under
the Entries 1 and 2 of the Schedule and not under the
concurrent list. The amendment made by the Parliament in
enacting Section 26E of the SARFAESI Act is to give priority to
the secured creditor vis-a-vis the State dues. The object of the
SARFAESI Act is to give priority to the secured creditors with the
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intention to allow faster recovery of the debts of the secured
creditors. Thus, the rights of a secured creditor to realize
secured debts due and payable by sale of assets over which a
secured interest has been created will have priority over all the
debts and Government dues to Central Government, State
Government or any local authority. It is well settled law by a
catena of decisions of the Apex Court as well as this Court that
the charge in favour of a secured creditor will precede over the
charge of an unsecured creditor.
11. A Division Bench of this Court in KALUPUR COMMERCIAL
CO-OPEARATIVE BANK LTD. Versus STATE OF GUJARAT vide
order dated 23.09.2019 in Special Civil Application No. 17891 of
2018 has held that: -
"27. The principles discernible from the decision of the Supreme Court in
the case of Kumaon Motor Owners' Union Ltd. (supra) are that, if there is a
conflict between the provisions of the two Acts and if there is nothing
repugnant, the provisions in the later Act would prevail. The second
principle discernible is that, while resolving the conflict, the court must look
into the object behind the two statutes. To put it in other words, what
necessitated the legislature to enact a particular provision, later in point of
time, which may be in conflict with the provisions of the other Acts. The
third principle discernible is that the court must look into the language of
the provisions. If the language of a particular provision is found to be more
emphatic, the same would be indicative of the intention of the legislature
that the Act shall prevail over the other statutes.
29. The principles of law discernible from the decision of the Supreme
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Court in the case of Solidaire India Ltd. (supra) are that, if there is a conflict
between the two special Acts, the later Act must prevail. To put it in other
words, when there are two special statutes which contain the non-obstante
clauses, the later statute must prevail. This is because at the time of
enactment of the later statute, the legislature could be said to be aware of
the earlier legislation and its non-obstante clause. If the legislature still
confers the later enactment with a non obstante clause, it means that the
legislature wanted that enactment to prevail.
37. The Rajasthan High Court, in the case of G.M.G. Engineers &
Contractor Pvt. Ltd. (supra), has taken the view as under :
"The first issue for my consideration is as to whether amended provisions
of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would
apply to the present case. It is for the reason that both the provisions were
inserted in the year 2016, whereas, attachment of the property in question
to recover the dues was made by the respondent-department in the year
2014 itself. It is not the case of either of the parties that amended provision
is retrospective and otherwise perusal of amended provision does not show
it thus would apply prospectively. The property already attached towards
recovery of State dues cannot be nullified by the subsequent legislation
when it has not been given retrospective effect. If argument of the learned
counsel for petitioner about priority rights of the secured creditors vis a vis
Government dues is accepted, it would apply from the date of amendment,
whereas, attachment of the property was made in the year 2014, thus it
was not free for auction. The enforcement of statutory first charge by
attachment cannot be nullified by subsequent auction when no priority
right was existing in favour of the secured creditors at the relevant time.
Section 47 of the Act of 2003 is relevant for it, thus quoted hereunder for
ready reference:
"47. Liability under this Act to be the first charge- Notwithstanding
anything to the contrary contained in any law for the time being in force,
any amount of tax and any other sum payable by a dealer or any other
person under this Act, shall be the first charge on the property of such
dealer or person."
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Section 47 of the Act of 2003 starts with non-obstante clause and creates
first charge on the property. The issue about priority claim of the secured
creditor vis a vis first charge on the property under the State legislation
was considered by the Supreme Court in the case of Central Bank of India
(supra). If State Act creates first charge on the property then secured
creditors cannot have claim against the statutory provision. Therein,
consideration was also made even in reference to Section 100 of the Act of
1882. It is submitted that judgment of the Apex Court in the case of Central
Bank of India (supra) was prior to the amendment in the Act of 2002 and
1993 thus would not apply to the cases governed by the amended
provisions. In the case in hand, the attachment of property by the State is
prior to the amendment thus amended provision would not apply. Section
47 of the Act of 2003 was invoked prior to the amendment. We are yet
considering the effect of the amended provision. The Apex Court has made
analysis of a provision of first charge vis a vis secured creditor in the case
of Central Bank of India (supra). The first charge was given supremacy
than rights under mortgagee or to a secured creditor. The distinction
between "first charge and secured creditor" is necessary to analyse
scope of Section 26E of the Act of 2002 and Section 31B of the Act
of 1993. The amended provisions are having overriding effect and
give priority to the secured creditors vis a vis State dues. It does
not, however, nullify the effect of first charge created on the
property under the State Act. If intention of Parliament would have
been to nullify the effect of first charge, the language of Section
26E of the Act of 2002 and Section 31B of the Act of 1993 would
have been different as indicated by the Apex Court in the case of
Central Bank of India (supra). It should have been with non-
obstante clause and that secured creditors would have priority over
the first charge created under a State legislation. The amendment
made by Parliament is to give priority to the secured creditors vis a
vis State dues without speaking about the first charge.""]
12. The Hon'ble Apex court in PUNJAB NATIONAL BANK
Versus UNION OF INDIA AND OTHERS in (2022) 7 SCC 260 has
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observed that:
"43. A Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE10,
while dealing with a similar issue, has held that: (SCC OnLine Mad paras
25-26)
"25. In the case on hand, the petitioner Bank which took possession
of the property under Section 13 of the SARFAFSI Act, being a
special enactment, undoubtedly is a secured creditor. We have
already referred to the provisions of the Central Excise Act and the
Customs Act. They envisage procedures to be followed and how the
amounts due to the Departments are to be recovered. There is no
specific provision either in the Central Excise Act or the Customs
Act, claiming "first charge" as provided in other enactments, which
we have pointed out in earlier paragraphs.
26. In the light of the above discussion, we conclude,
(i) Generally, the dues to Government ie, tax, duties, etc. (Crown's
debts) get priority over ordinary debts.
(ii) Only when there is a specific provision in the statute claiming
"first charge" over the property, the Crown's debt is entitled to have
priority over the claim of others.
(ii) Since there is no specific provision claiming "first charge" in the
Central Excise Act and the Customs Act, the claim of the Central
Excise Department cannot have precedence over the claim of
secured creditor viz, the petitioner Bank.
(iv) In the absence of such specific provision in the Central Excise
Act as well as in Customs Act, we hold that the claim of secured
creditor will prevail over Crown's debts.'
In view of our above conclusion, the petitioner UTI Bank, being a
secured creditor is entitled to have preference over the claim of the
Deputy Commissioner of Central Excise, first respondent herein."
(emphasis in original and supplied)"
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13. Thus, Section 26E of the SARFAESI Act provides for
priority of secured creditor notwithstanding anything contained
in any other law and the debts due to any secured creditor shall
be paid in priority over all other debts and all revenues, taxes,
cesses and other rates payable to the Central Government or
State Government or local authority. The Securitisation Act is
meant for enforcement of security interest, which is created in
favour of the secured creditor and provides for special and
specific mechanism/provision for the financial assets and
security interest. Any other provisions in other Acts would not
defeat the provision of Section 26E of the Securitisation Act and
the object and purpose of Securitisation Act.
14. In the present case, the dues, which are in the nature of
sales tax payable by the original owner/ borrower, cannot claim
priority over the dues of the secured creditor. The charge, sought
to be created by the Sales Tax Authority, can no way override the
right of the Bank to recover its dues as a secured creditor of the
subject property. The subject property was sold by the Bank to
the respondent No. 7 to enforce its secured debts under the
SARFAESI Act, in which, the respondent No. 7 was the
successful auction purchaser. The sale certificate issued to the
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respondent No. 7 entitles it to become an absolute owner of the
property. The subject property has come in favour of the
respondent No. 7 free from all encumbrances.
15. Thus, the charge in respect of the property in question
created for the sales tax dues will have no efficacy in law and the
order of the State Tax Authority registering the charge over the
subject property in relation to the sales tax dues payable by the
original owner of the property will not have any preference over
the dues of the petitioner bank. The State Tax Department shall
have its remedy to recover the dues from the original borrower.
16. In view of the aforesaid discussion and reasons, the
revenue entry No.8085 dated 02.03.2024 is hereby quashed and
set aside. It is further clarified that the excess amount, if any,
remaining after satisfying the dues of petitioner Bank shall be
adjusted towards the dues of the State Tax Department.
Considering the facts of the present case and the well settled
legal position, the action of the respondent No.3 Sub-Registrar,
Gandhidham in refusing to accept and register sale certificate in
the name of the respondent No.7 in the revenue record pursuant
to an application dated 02.03.2024 by the respondent No.4 the
Assistant State Tax Commissioner, Gandhidham cannot be
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sustained in law. As a result, the respondent No.3 Sub-
Registrar, Gandhidham is directed to accept and register the sale
certificate and mutation in favour of the respondent No. 7 based
on the Sale Certificate so issued by the petitioner Bank.
With the aforesaid observations and directions, the present
Special Civil Application is allowed. No order as to the costs.
Sd/-
(ANIRUDDHA P. MAYEE, J.)
KAUSHIK D. CHAUHAN
