Karnataka High Court
The Canara Bank vs The State Of Karnataka on 23 September, 2025
Author: Suraj Govindaraj
Bench: Suraj Govindaraj
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R
IN THE HIGH COURT OF KARNATAKA,AT DHARWAD
DATED THIS THE 23RD DAY OF SEPTEMBER, 2025
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
WRIT PETITION NO. 103730 OF 2025 (GM-RES)
BETWEEN:
THE CANARA BANK
REPRESENTED BY THE DIVISIONAL MANAGER,
CANARA BANK REGIONAL OFFICE NO.4834/41,
2ND FLOOR, GEET GANGA BUILDING,
CIVIL HOSPITAL ROAD,
KRISHNA DEVARAYA CIRCLE, BELAGAVI.
...PETITIONER
(BY SRI. SANTOSH KUMAR B. MALLIGAWAD AND
SRI. B. DINKAR SHETTY, ADVOCATES)
AND:
1. THE STATE OF KARNATAKA
Digitally signed REPRESENTED BY PRINCIPAL SECRETARY TO THE
by SAROJA
HANGARAKI GOVERNMENT FINANCE DEAPRTMENT OF KARNATAKA,
Location: High VIDHANA SOUDHA, BANGALORE-01.
Court of
Karnataka,
Dharwad Bench, 2. THE DEPUTY COMMISSIONER
Dharwad COMMERCIAL TAX, COMMERCIAL TAX DEPARTMENT,
ENFORCEMENT 4TH FLOOR,
SUMOULYA SOUDHA, CLUB ROAD,
BELGAUM-590001.
3. THE ASSISTANT COMMISSIONER
COMMERCIAL TAX, COMMERCIAL TAX DEPARTMENT,
SOUTH ZONE, BELAGAVI-590001.
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4. SANJAY S. GOUR,
AGE: MAJOR, OCC. BUSINESS,
R/O. FLAT NO.502, 5TH FLOOR,
A WING SKY PARK, GODSEWADI, BELAGAVI-590001.
5. AMIT ASHOKE KUMAR PERIWA
H.NO. 301, 3RD FLOOR, SRI SAI APRTMENT,
2ND CROSS, SHASTRI NAGAR, BELAGAVI-590001.
6. THE ASST. DIRECTOR OF LAND RECORDS
AND CITY SURVEY OFFICE,
BELAGAVI-590001.
...RESPONDENTS
(BY SRI.SHARAD V. MAGADUM, AGA FOR R1 TO R3 AND R6;
NOTICE TO R4 AND R5 IS DEFERRED)
THIS WP IS FILED UNDER ARTICLE 226 AND 227 OF
CONSTITUTION OF INDIA, PRAYING TO 1. ISSUE A WRIT THE NATURE
OF MANDAMUS DIRECTING RESPONDENT NO. 1 TO 3 TO REMOVE THE
ENCUMBRANCE/CHARGE CREATED OVER THE SUBJECT PROPERTY
BEARING RESIDENTIAL FLAT BEARING NO. A 502 LOCATED ON THE
5TH FLOOR, A- WING SKY PARK COMPLEX SITUATED AT GODSEWADI
BELAGAVI BY RESPONDENTS NO.1 TO 3 VIDE ANNEXURE A. 2. GRANT
ANY OTHER RELIEF, WHICH THE HON BLE COURT MAY DEEM FIT IN
THE INTEREST OF JUSTICE AND EQUITY.
THIS WRIT PETITION, HAVING BEEN HEARD AND RESERVED ON
15.09.2025, COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY,
THE COURT DELIVERED THE FOLLOWING:
CAV ORDER
(PER: THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ)
1. The petitioner is before this court seeking the following
reliefs:
i. Issue a writ the nature of mandamus
directing respondent no. 1 to 3 to remove the
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encumbrance/charge created over the subject
property bearing residential flat bearing no. A
502 located on the 5th floor, A- wing sky Park
complex situated at Godsewadi Belagavi by
respondents No.1 to 3 vide Annexure A.
ii. Grant any other relief, which the Hon'ble
Court may deem fit in the interest of justice
and equity.
2. Brief facts of the case are as under:
2.1. The petitioner contends that Respondents No. 4 and 5
had availed a mortgage loan from the petitioner bank
for their partnership concern.
As regards which the residential flat bearing No. A-502
located on the 5th floor, A Wing, Sky Park Complex
situated at Godsewadi, Belagavi, it was provided as
security for the loan. The loan became a non-
performing asset on 1.12.2020.
2.2. Pursuant thereto, a notice under Subsection (2) of
Section 13 of the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as 'the SARFAESI
Act') was issued on 16.11.2022, calling upon
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Respondents No. 4 and 5 to clear the outstanding loan
amount of Rs.42,09,855/- as of 31.10.2022.
2.3. Since Respondents No. 4 and 5 did not repay the loan,
a notice under Subsection (4) of Section 13 of the
SARFAESI Act was issued on 24.05.2024. A further
notice was issued on 3.08.2024 to the guarantor.
Possession of the property along with the keys was
taken on 17.09.2024.
2.4. At this stage, it came to light that Respondents No. 4
and 5 also owed certain amounts to the Commercial
Taxes Department as GST to the tune of
Rs.1,38,25,684/-.
2.5. Respondent No.1 recovered Rs.80,54,200/- by sale of
various assets but also created a charge/encumbrance
on the aforesaid apartment, which was duly entered in
the property card of apartment No. A-502.
2.6. The petitioner bank contends that it had a prior charge
and issued a notice on 17.11.2024, to Respondents
No. 2 and 3 stating that the said property is secured
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and possession thereof had been taken in terms of the
SARFAESI Act. The liability of Respondents No. 4 and
5 towards the Bank is to the extent of Rs.
1,07,80,517/-.
2.7. In terms of Section 26-E of the SARFAESI Act, the
Bank has a first, prior, and exclusive charge on the
property and asset, and requested Respondents No. 2
and 3 to remove the charge/encumbrance initiated by
them, reflected in the property card, so as to enable
the Bank to conduct and complete the auction.
2.8. The said letter was followed up by a further proposal
dated 24.12.2024, giving a detailed overview and
seeking permission from the respondents to remove
the encumbrance. No action having been taken by the
respondents, the petitioner is before this court seeking
an official release.
3. Shri Santosh B Malligwad, learned counsel for the
petitioner Bank, would submit that
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3.1. Any encumbrance or charge under the SARFAESI Act
has precedence and preference over the charge of any
other authority, including taxing authorities and
governmental authorities, until and unless a charge of
the secured creditor is discharged, no other authority
or entity, including taxing authorities, can claim any
interest in a secured asset offered as security towards
a loan disbursed by a bank.
3.2. The security in respect of the said apartment was
created in favor of the Bank as on the date of the
disbursal of the loan amount i.e. on 21.12.2017. The
charge claimed by the GST authorities was created on
6.11.2019, which is subsequent to the security
interest created in favor of the Bank.
3.3. Therefore, both on account of the priority of the Bank
under the SARFAESI Act and on account of the priority
in point of time of creation of charge, it is the Bank
which gets precedence until the dues of the Bank are
discharged, the question of the GST authorities
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claiming any right, title, interest, or creating any
charge or encumbrance on the said property would
not arise.
3.4. He relies upon the decision of the Division Bench of
this court in Sri Abdul Khader V/s Sadath Ali
Siddiqui and ors.1 more particularly paragraph 18
thereof which is reproduced hereunder for easy
reference:
"18. On plain reading of Section 26-E of
the SARFAESI Act, we would find that the
secured creditor has precedence over all other
charges. By Amendment Act 44 of 2016 which
came into effect from 01.09.2016, a new
provision was incorporated into the SARFAESI
Act and therefore, under Section 26-E of the
SARFAESI Act, priority in payment has been
statutorily created in favour of the secured
creditor over all other debts including taxes
payable to the Central Government or the
State Government on registration of security
interest. The non obstante clause under the
provision makes the intention of the
Parliament explicit that even against statutory
charges created under the Central Act,
secured creditor shall have the right for
priority in payment and priority to release the
debt for bringing the secured asset for sale.
The non obstante clause used in Section 26-E
is a tool by which legislature gives complete
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WA.No.1102 of 2021
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predominance to that provision over all other
provisions of law."
3.5. Relying on Abdul Khader's case, he submits that
priority in payment has been statutorily created under
SARFAESI Act in favor of the secured creditor over all
other debts, including taxes payable to the Centre or
State Government on registration of a security
interest. This non-obstante clause in Section 26-E of
the SARFAESI Act gives complete predominance to the
charge of the Bank over all other provisions or claims.
3.6. He relies upon the decision of the Hon'ble Telangana
High Court in State Bank of India V/s. Deputy
Commercial Tax Officer, Jogipet Unit, Office of
Medak Circle and Ors.2 more particularly paragraphs
12, 13, 38, and 41 thereof which are reproduced
hereunder for easy reference:
"12. He would further submit that auction
was conducted on 30.07.2018 and after 28
rounds of bidding M/s.Vishnu Chemicals Ltd.,
was declared as highest bidder for sale
consideration of ₹ 1.90 crores and sale
certificate was registered in their favour. Even
though said information is available Bank has
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2023(6)ALT353
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not chosen to implead the auction purchaser
and in the absence of auction purchaser, no
relief can be granted.
13. The question for consideration is
whether in terms of Section 31B of the Act,
1993 the Bank has priority over the claim of
Commercial Tax Department of the State
Government, in spite of employing non-
abstante clause in Section 82 of Telangana
State Goods and Services Act, 2017.
38. Thus, the secured creditor shall have
precedence to recover its dues from the
secured asset over claims of a State
Government to recover taxes. It is therefore
open to the petitioner-bank to take such
measures as required to recover the amounts
due from the secured asset."
41. It is made clear that if the secured
assets are likely to yield more money than
the actual money due to the Bank, after
adjusting the amounts due to the Bank, the
balance amount shall be credited to the
account of the State and respondent Nos.1
and 2 shall be updated about the measures
taken by the Bank and the amounts secured
by them on the secured assets.
3.7. By relying on the State Bank of India's case, he
submits that Hon'ble Telangana High Court had
considered a similar issue regarding priority under
Section 31B of the Recovery of Debts and Bankruptcy
Act, 1993 (hereinafter referred to as 'the RDB Act'),
and the claims of the Commercial Tax Department
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under Section 82 of the Goods and Services Tax Act,
2017 (hereinafter referred to as 'the GST Act').
3.8. The Hon'ble Telangana High Court came to a
categorical conclusion that though the GST Act is a
later law, the SARFAESI Act will prevail. Section 31B
of the SARFAESI Act is emphatic that the secured
creditor shall have priority rights to realise secured
debts over all other debts and government dues,
including revenues, taxes, cess, and rates due to the
Central Government, State Government, or local
authority etc.,.
3.9. He relies upon the decision of the Hon'ble Madras High
Court in Indian Bank V/s. The Commercial Tax
Officer, Ambattur Assessment Circle and Ors.3
more particularly paragraph 41 thereof, which is
reproduced hereunder for easy reference:
"41. In view of the detailed discussion
above, it is very clear that it is the provisions
of Section 26E of the SARFAESI Act and
Section 34 of the RDB Act would prevail over
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the provisions of Section 24 of the TNGST
Act. Additionally, this is a case where security
interest has been created by the Bank as
early as in 1991, prior to the charge imposed
by the Sales tax Department. Section 24 does
not provide for priority by creation of a first
charge in respect of the demands raised
under that Act. Hence, Section 26E of the
SARFAESI Act and Section 34 of RDB Act
would prevail, in public interest."
3.10. By relying on Indian Bank's case he submits that the
Hon'ble Madras High Court categorically held that the
provisions of Section 26E of the SARFAESI Act and
Section 34 of the RDB Act would prevail over the
provisions of Section 24 of the GST Act. Additionally, it
was held that where a security interest has been
created at the Bank prior to the charge imposed by
the sales tax department, then the GST Act would not
provide priority by creation of a first charge in respect
of demands raised under that Act.
3.11. On the basis of the above judgments and submissions,
he submits that the charge created in favour of the
Bank would have precedence over the claim of the
GST authorities. Further, the charge in favour of the
Bank, created on 15.07.2017, is prior in point of time
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compared to the charge created by the GST authority
on 16.04.2019, for the period April 2018 to October
2018. As such, the GST authorities cannot claim any
interest to the detriment of the Bank. On that ground,
he submits that a direction is required to be issued to
the GST authorities to remove the
charge/encumbrance recorded in respect of the
apartment bearing No. A-502 in the property card, by
allowing the writ petition.
4. Shri Sharad Magdum, learned AGA appearing for the
respondent Nos.1 to 3 and 6, would submit that
4.1. The GST Act is a subsequent Act and that Parliament,
being aware of the existence of the SARFAESI Act, has
categorically held that the GST Act will prevail over
any other enactment, including the SARFAESI Act.
4.2. In this regard, he places reliance on Section 82 of the
GST Act, which is reproduced hereunder for easy
reference.
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"82. Tax to be first charge on
property - Notwithstanding anything to the
contrary contained in any law for the time
being in force, save as otherwise provided in
the Insolvency and Bankruptcy Code, 2016
(31 of 2016), any amount payable by a
taxable person or any other person on
account of tax, interest or penalty which he is
liable to pay to the Government shall be a
first charge on the property of such taxable
person or such person."
4.3. He submits that the GST Act, being a central
enactment applicable to both CGST and SGST, and the
SARFAESI Act also being a central enactment, the GST
Act, being the subsequent enactment, would prevail
over the earlier SARFAESI Act.
4.4. The learned AGA's submission is that the only
exception is as regards claims under the Insolvency
and Bankruptcy Code, 2016 (hereinafter referred to as
'IBC Code'), which would have precedence over a
claim for GST. Apart from claims under the IBC Code,
no other entity, including a bank, can claim priority of
charge over dues to GST.
4.5. In this regard, he reliance upon the decision of the
Hon'ble Apex Court in State Tax Officer V/s.
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4
Rainbow Papers Limited , more particularly
paragraph 54, which is reproduced for easy reference.
"54. In our considered view, the
Committee of Creditors, which might include
financial institutions and other financial
creditors, cannot secure their own dues at the
cost of statutory dues owed to any
Government or Governmental Authority or for
that matter, any other dues"
4.6. By relying on Rainbow Papers's case he submits that
the Hon'ble Apex Court categorically held that the
committee of creditors, which may include financial
institutions and other financial creditors, cannot
secure their own dues at the cost of statutory dues
owed to any government or governmental authority or
any other dues. In that regard, reference was made to
Section 53 of the IBC code, which is reproduced for
easy reference. [
"53. Distribution of assets.--(1)
Notwithstanding anything to the contrary
contained in any law enacted by the Parliament or
any State Legislature for the time being in force,
the proceeds from the sale of the liquidation
assets shall be distributed in the following order
of priority and within such period and in such
manner as may be specified, namely:--
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(a) the insolvency resolution process costs and
the liquidation costs paid in full;
(b) the following debts which shall rank equally
between and among the following:--
(i) workmen's dues for the period of twenty-
four months preceding the liquidation
commencement date; and
(ii) debts owed to a secured creditor in the
event such secured creditor has
relinquished security in the manner set out
in section 52;
(c) wages and any unpaid dues owed to
employees other than workmen for the
period of twelve months preceding the
liquidation commencement date;
(d) financial debts owed to unsecured
creditors;
(e) the following dues shall rank equally
between and among the following:--
(i) any amount due to the Central
Government and the State
Government including the amount to
be received on account of the
Consolidated Fund of India and the
Consolidated Fund of a State, if any,
in respect of the whole or any part of
the period of two years preceding
the liquidation commencement date;
(ii) debts owed to a secured creditor for
any amount unpaid following the
enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
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(h) equity shareholders or partners, as the
case may be.
(2) Any contractual arrangements between
recipients under sub-section (1) with equal ranking, if
disrupting the order of priority under that sub-section
shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be
deducted proportionately from the proceeds payable to
each class of recipients under sub-section (1), and the
proceeds to the relevant recipient shall be distributed
after such deduction.
Explanation.--For the purpose of this section--
(i) it is hereby clarified that at each stage of
the distribution of proceeds in respect of a
class of recipients that rank equally, each
of the debts will either be paid in full, or
will be paid in equal proportion within the
same class of recipients, if the proceeds are
insufficient to meet the debts in full; and
(ii) the term "workmen's dues" shall have the
same meaning as assigned to it in section
326 of the Companies Act, 2013 (18 of
2013)."
4.7. His submission is that even in respect of claims under
IBC, the Apex Court held that a claim of a creditor,
which may include a bank or financial institution,
cannot have preference over amounts owed to the
Government as taxes under the GST Act.
4.8. On this basis, he submits that the claim of the Bank,
which claims to be a secured creditor, must yield to
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the claim of the Government, the tax being public
money and forming part of the public exchequer.
Hence, the Bank cannot claim superintendence over
the GST claim by the State.
5. Heard Shri Santosh B Malligwad, learned counsel for the
petitioner and Shri Sharad Magdum, learned AGA for the
respondent Nos.1 to 3 and 6, and perused the papers.
6. The points that would arise for consideration are:
i. Who would have preference or priority of
charge/encumbrance by reading the
SARFAESI Act and GST Act in conjunction?
ii. In the facts of the present matter,
whether this court is required to
intercede?
iii. What order?
7. I answer the above points as under:
8. Answer to Point No.(i): Who would have preference
or priority of charge/encumbrance by reading the
SARFAESI Act and GST Act in conjunction?
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8.1. The relevant provisions for consideration are:
Section 26-E of the SARFAESI Act, which is
reproduced hereunder for easy reference.
"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.]
8.2. Section 34 of the RDB Act, which is reproduced for
easy reference.
Section 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
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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 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), 1[,the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of
1986) and the Small Industries Development
Bank of India Act, 1989 (39 of 1989)].
8.3. Section 53 of the IBC which is reproduced hereunder
for easy reference.
53. Distribution of assets.--(1)
Notwithstanding anything to the contrary
contained in any law enacted by the Parliament or
any State Legislature for the time being in force,
the proceeds from the sale of the liquidation
assets shall be distributed in the following order
of priority and within such period and in such
manner as may be specified, namely:--
(a) the insolvency resolution process costs and
the liquidation costs paid in full;
(b) the following debts which shall rank equally
between and among the following:--
(i) workmen's dues for the period of twenty-
four months preceding the liquidation
commencement date; and
(ii) debts owed to a secured creditor in the
event such secured creditor has
relinquished security in the manner set out
in section 52;
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(c) wages and any unpaid dues owed to
employees other than workmen for the
period of twelve months preceding the
liquidation commencement date;
(d) financial debts owed to unsecured
creditors;
(e) the following dues shall rank equally
between and among the following:--
(i) any amount due to the Central
Government and the State
Government including the amount to
be received on account of the
Consolidated Fund of India and the
Consolidated Fund of a State, if any,
in respect of the whole or any part of
the period of two years preceding
the liquidation commencement date;
(ii) debts owed to a secured creditor for
any amount unpaid following the
enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the
case may be.
(2) Any contractual arrangements between
recipients under sub-section (1) with equal ranking, if
disrupting the order of priority under that sub-section
shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be
deducted proportionately from the proceeds payable to
each class of recipients under sub-section (1), and the
proceeds to the relevant recipient shall be distributed
after such deduction.
Explanation.--For the purpose of this section--
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(i) it is hereby clarified that at each stage
of the distribution of proceeds in
respect of a class of recipients that rank
equally, each of the debts will either be
paid in full, or will be paid in equal
proportion within the same class of
recipients, if the proceeds are
insufficient to meet the debts in full;
and
(ii) the term "workmen's dues" shall have
the same meaning as assigned to it in
section 326 of the Companies Act, 2013
(18 of 2013)."
8.4. Section 82 of the GST Act, which is reproduced
hereunder for easy reference.
82. Tax to be first charge on property
- Notwithstanding anything to the contrary
contained in any law for the time being in
force, save as otherwise provided in the
Insolvency and Bankruptcy Code, 2016 (31 of
2016), any amount payable by a taxable
person or any other person on account of tax,
interest or penalty which he is liable to pay to
the Government shall be a first charge on the
property of such taxable person or such
person."
8.5. Reading Section 26-E of the SARFAESI Act indicates
priority of a secured creditor for recovery of amounts
due to the secured creditor over any other claim by
any other person or entity, including that of taxes due
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to the Government, however makes it subject ot the
IBC.
8.6. Reading Section 34 of the RDB Act indicates that a
bank, as a secured creditor, has priority of right of
recovery over any other claimant.
8.7. Reading Section 53 of the IBC indicates that proceeds
from sale or liquidation of assets would be distributed
as per priority indicated therein and in terms thereof
the dues to the Government on account of taxes and
the dues to the secured creditor have equal status.
8.8. Reading Section 82 of the GST Act indicates that GST
authorities have precedence over the claim of anyone
else except claims under the IBC.
8.9. All these sections contain non-obstante clauses
indicating that the provisions shall be effective
irrespective of any other law in force.
8.10. As long as these provisions are applied independently,
there is no conflict. Specifically, if a claim is made by
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the Bank under either the SARFAESI Act or the RDB
Act, and there is no claim under the IBC or GST Act, it
is clear that the claim under the SARFAESI Act or the
RDB Act may be enforced. If a claim is made under
the IBC Act and there is no claim under the SARFAESI
Act, RDB Act, or GST Act, the claim under the IBC Act
can be implemented without issue. Similarly, if a claim
is made under the GST Act and there are no claims
under the SARFAESI Act, RDB Act, or IBC Act, the
claim under the GST Act can be executed without
difficulty.
8.11. The issue arises when two or more of these
enactments are invoked concerning the same property
or security. In such cases, it becomes necessary to
determine the priority of charges and the order of
recovery under the conflicting enactments.
8.12. The Hon'ble Apex Court in Rainbow Papers's case
has categorically held that, in the event of a conflict
between the IBC and statutory dues, the statutory
dues will take precedence over the claim under the
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IBC. Similarly, the Hon'ble Madras High Court in
Indian Bank's case has held that, in the case of a
conflict between the TNGST Act and the SARFAESI Act
or RDB Act, it is the SARFAESI Act or RDB Act that
would prevail. However, in that case, Section 24 of the
TNGST Act was considered, not section 82 of the GST
Act currently under discussion. The Telangana High
Court in State Bank of India's case has specifically
held that a secured creditor has precedence in
recovering dues from secured assets over claims by
the state government to recover taxes.
8.13. Additionally, the Division Bench of this Court in Abdul
Khader's case held that, due to the non-obstante
clause in Section 26-E of the SARFAESI Act, the
charge created under SARFAESI would have priority,
even over statutory charges created under other laws.
8.14. The only case that directly addresses a similar conflict
is Rainbow Papers's case, which dealt with a conflict
between the IBC and tax claims. State Bank of
India's case concerned a conflict between the RDB
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Act and the TNGST Act, while Indian Bank's case
dealt with Section 26-E of the SARFAESI Act, Section
34 of the RDB Act, and Section 24 of the TNGST Act.
While all of these cases address interse conflicts, the
present case specifically concerns the conflict between
Section 26-E of the SARFAESI Act and Section 82 of
the KGST Act. Section 26-E of the SARFAESI Act
indicates that a secured creditor has priority over any
other claim. Section 82 of the KGST Act indicates that
tax recovery under the GST Act takes precedence over
all other claims except those under the IBC.
8.15. In the present case, Shri Sharad Magdum, learned
AGA, contends that only claims under the IBC can
override those under the GST Act, and that, since the
GST Act is subsequent to the SARFAESI Act, the GST
Act should prevail.
8.16. I am unable to accept this argument for the simple
reason that the claim under the GST Act is not directly
enforceable until the tax authorities have made an
assessment and an entry is made on public records,
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like the encumberance certificate or property card. In
contrast, a secured creditor's claim under the
SARFAESI Act is based on a charge on the property,
which is usually available in the public domain and can
be acted upon by third parties.
8.17. Furthermore, the Hon'ble Apex Court in the Rainbow
Papers's case held that the claim of the taxing
authorities will prevail over the claims of secured
creditors, including financial institutions, under the
IBC. What needs to be considered is the date of
creation of the charge.
8.18. The transaction under the GST Act is not reflected in
public records until an assessment order is passed and
an entry is made. In this case, the GST order was
passed on 16-04-2019, and the entry was made on
06-11-2019, while the charge in favour of the
petitioner bank under the SARFAESI Act was created
on 15-07-2017 and was already entered into the
property card. Thus, although the Rainbow Papers's
case suggests that the claim of the GST authorities
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prevails over that under the IBC, in the present case,
the charge created under the SARFAESI Act prevails.
The principle to be applied is that if the charge under
the SARFAESI Act was created prior in time to the
charge under the GST Act, the charge under
SARFAESI Act would prevail, and vice versa.
8.19. In conclusion, I am in agreement with the judgment of
the Hon'ble Madras High Court in Indian Bank's case,
which held that the charge created earlier in time
would have precedence. Therefore, if the charge under
the SARFAESI Act was created before the charge
under the GST Act, as in the present case, the
SARFAESI Act charge would take precedence.
8.20. If there is a conflict between the GST Act and the
SARFAESI Act (or the RDB Act), the priority of the
charge must be determined based on the order in
which the charges were created. If the charge under
the GST Act was created prior to that under the
SARFAESI Act, the GST Act will prevail, and vice
versa.
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9. Answer to Point No.(ii):In the facts of the present
matter, whether this court is required to intercede?
9.1. In the present case, as noted earlier, the charge in
favor of the Bank was created on 15-07-2017, while
the charge in favor of the GST authorities was created
pursuant to an order dated 16-04-2019. However, this
charge was only recorded in the property card on 06-
11-2019, which could be said to have come to the
notice of the general public, or to be considered a
constructive notice to the public.
9.2. Regardless of the date of the order or the date of
recordal, the fact remains that the charge in favor of
the Bank was recorded on 15-07-2017, which is more
than two years prior to the charge created by the GST
authorities. In light of the above, and based on the
timeline of events as outlined, I answer point No.ii by
holding that in the present case, the Bank's charge
takes precedence over that of the GST authorities.
10. Answer to Point No. (iii): What order?
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10.1. In view of my findings in respect of all the above
points, I pass the following:
ORDER
i) Writ petition is allowed.
ii) A writ of mandamus is issued directing
Respondent Nos. 1 to 3 to remove the
encumbrance or charge created over Apartment
No. A-502, situated on the 5th Floor, A-Wing, Sky
Park Complex, Godsewadi, Belagavi, within a
period of 15 days from the date of receipt of a
certified copy of this order.
iii) Upon removal of the said charge, the petitioner-
Bank shall be entitled to proceed with bringing the
said property to auction in accordance with law.
During the auction process, the GST authorities
shall be at liberty to inform any prospective
purchaser or interested party to participate in the
auction.
iv) Upon completion of the auction, if any surplus
amount remains after full adjustment of the dues
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recoverable by the petitioner-Bank, such surplus
shall be deposited with Respondent No. 2, to be
appropriated towards the dues payable to the GST
authorities in accordance with law.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
VB/CT:PA
