The Bombay High Court ruled that security creditors registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India ( CERSAI ) have priority over other debts and taxes under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest ( SARFAESI ) Act, 2002.
The writ petition was filed by Indian Bank through its Chief Manager, challenging the orders of attachment dated 14th and 15th September 2022 initiated by the Deputy Commissioner of Sales Tax, Pune. The respondents included the State of Maharashtra and others.
The petitioner bank had extended various credit facilities to M/s. Anupama Enterprises (Respondent No. 6) and secured the credit through equitable mortgages on three residential flats in Pune. When the borrower failed to maintain the loan account, the bank declared the account as Non-Performing Asset (NPA) on 28.02.2017 and subsequently took steps under the SARFAESI Act to recover the dues.
Despite the bank’s actions, including taking physical possession of the secured assets and initiating e-auction sales, the Deputy Commissioner of Sales Tax issued orders of attachment on the secured assets for arrears of sales tax.
Charles Desouza, counsel for the petitioner, argued that there was no prior charge or notice of publication regarding the sales tax claim before the creation of the bank’s security interest, registered with CERSAI on 4th October 2022. He cited the Full Bench judgement in Jalgaon Janta Sahakari Bank Ltd. vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai (2022) to support the priority of secured creditors over other claims.
N.C Walimbe, the Additional Government Pleader, contended that the Sales Tax Department had a claim over the secured assets due to arrears and referred to the Division Bench judgment in Purushottam Prabhakar Chavan vs. CST (2024).
The court examined the documents and submissions from both sides and referenced the Full Bench judgement in Jalgaon Janta Sahakari Bank Ltd., which clarified the priority of secured creditors under Section 26E of the SARFAESI Act.
The court noted that the petitioner bank registered its claim against the secured assets with CERSAI on 4th October 2022, while the Sales Tax Department registered its claim only in February 2023.
The bench of Justices A.S Chandurkar and Rajesh S. Patil concluded that the secured creditors registered with CERSAI have priority over other debts and taxes under Section 26E of the SARFAESI Act.
The writ petition was allowed, quashing the attachment orders dated 14th and 15th September 2022. The court also clarified that the Sales Tax Department is free to pursue recovery of dues from Respondent No. 6 as per law.
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