In GMG Engineers & Contractor Pvt. Ltd v. State of Rajasthan & ors, the Rajsthan High Court held that the sale made under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is cannot be deemed as valid when State sales tax Department has First Charge on the Property
The petitioner-Company, in the instant case, purchased a property auctioned by the Bank. After the purchase, the Sales Tax department sent notice to the assessee claiming that sales tax due against the original owner of the property was pending. Further, the department claimed that the first charge on the property is of the department and therefore, the sale is void.
Against the action of the department, the petitioner Company approached the High Court contending that in view of Section 47 of the Rajasthan Value Added Tax Act, 2003 first charge on the property is of the department thus action is void and illegal.
Before the High Court, the petitioner company submitted that per section 26E of the amended SARFAESI Act gives priority to the secured creditor against all other debts and Government dues and as per this, the effect of first charge gets nullified. The bench found that Section 26E of the Act of 2002 gives priority to the secured creditor. “It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as provided in Workmens’ Compensation Act, Employees’ Provident Fund Act, etc.”
Dismissing the petition, Justice M.N Bhandari said that “The State dues may be without a provision of first charge and in that situation, the secured creditors would have priority over the State dues and, accordingly, amended provision is to be given interpretation. It cannot, however, nullify a provision for first charge on the property. The first charge on the property creates right even as per the Act of 1882. It has already been observed that if intention of the Central Government was to nullify first charge, the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank of India (supra). It is otherwise a case where attachment of the property in pursuance of first charge of the State Government is much prior to the amended Act of 2002 and 1993 thus those amendments would not apply even if subsequently auction of the property was made. It is nothing but auction of the property already attached by the Government, that too, after initiation of proceedings under the Act of 1956.”
Read the full text of the Judgment below.
