Secured Creditors granted priority charge over Sales, Commercial, and Income Tax claims: Madras HC grants Relief to ICICI [Read Order]

The Madras High Court has observed that secured creditors have priority charges over the claims of the Sales Tax, Commercial Tax and Income Tax. The high court disposed of the writ petition by granting relief to ICICI.

The case involved a petition seeking directions to remove an attachment order and register a sale certificate, providing clarity on the rights of secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act ).

The petitioner, represented by Mr. K. Balamurali, argued for the removal of an attachment order dated 21.04.2021, asserting that the property in question was mortgaged and constituted a secured asset. Additionally, they sought directions to register a sale certificate dated 26.09.2023.

The petitioner, ICICI, creditor of respondents 2 and 3, contended that the property under attachment was secured through a mortgage in 2016, registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India ( CERSAI ). As such, the petitioner claimed entitlement to the benefits conferred by Section 26E of the SARFAESI Act.

The same High Court referred its own Full Bench decision in the case of Assistant Commissioner (CT) Anna Salai-III Assessment Circle vs Indian Overseas Bank and Another, which established that secured creditors' rights to realise secured debts shall have priority over all other debts and government dues.

The bench of Chief Justice Sanjay V. Gangapurwala  and Justice D. Bharatha Chakravarthy  held that secured creditors possess priority charges over claims of sales tax, commercial tax, and income tax.

It was ordered that “In case auction is held by the secured creditor and the sale certificate is not registered, then the Registering Authority may register the same, notwithstanding the attachment of Sales Tax, Income Tax or Commercial Tax Departments.”

The High Court further directed that “In case the auction sale is conducted by the secured creditor and it has received excess amount than its dues, then it is liable to remit the excess amount to the Departments. However, if it has not received the amount in excess of the amount due and payable to it, then it is not required to remit any amount to the Departments and the Departments cannot sustain prosecution against the Authorised Officer or the Officer of the secured creditor for not remitting the amount.”

Dr. B. Ramasamy, and Mr. K. Karthik Jegannath appeared for the 1st and 4th respondents respectively.

To Read the full text of the Order CLICK HERE

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