HC Gujarat (2024.08.06) in Kuberbhai Madhabhai Kher & Ors. Vs. Department of State Tax and Ors. [(2024) ibclaw.in 819 HC, R/Special Civil Application No. 20230 of 2023] held that;
Provisions of Chapter IVA and declares that after the registration of security interest, the debts due to any secured creditor shall be paid in priority over; (a) all other debts (b) revenues (c) cesses, and; (d) other rates, payable to the (i) Central Government; (ii) State Government, or (iii) any local authority. The section has carved out an exception to the common law principle that a sovereign debt has priority over all other private debts.
In the opinion of this Court, the charge of the secured creditor shall precede over the charge of the unsecured creditor. The petitioner herein being auction purchaser by auction proceedings conducted under the SARFAESI Act, 2002 by the respondent No.4 – Bank, the respondent No.4- Bank being the secured creditor shall have priority over all the debts and revenues, taxes, cesses and other rates payable to the State Authorities.
Excerpts of the Order;
# 1. Issue Rule, returnable forthwith. Ms. Pooja K. Ashar, learned AGP waives service of notice of rule for and on behalf of the respondent Nos.1 to 3 and Mr. Manish S. Shah, learned advocate waives service of notice for and on behalf of the respondent No.4.
# 2. Heard Mr. B.C. Thakkar, learned advocate with Ms. Noopur K. Dalal, learned advocate appearing for the petitioner, Ms. Pooja K. Ashar, learned AGP appearing for the respondent Nos.1 to 3 and Mr. Manish S. Shah, learned advocate appearing for the respondent No.4.
# 3. By way of present petition, the petitioner herein has prayed for quashing of the impugned charge or mortgage on the property being non-agriculture land with factory, land and building bearing survey No. R.S. No.423/paiki 6, Vaghel Road, PO. Harij, Taluka-Harij, District: Patan, admeasuring about 4755 Sq. Mtrs. in the name of Tirupati Cotton Ginning Partners and the property being non-agriculture land with factory, land and building bearing Survey No. at R.S. No.423/paiki1/P, Vaghel Road, PO.Harij, Taluka-Harij, District : Patan, admeasuring about 6171 Sq. Mtrs. in the name of Bhagwanbhai Parsottambhai Patel, in the registration, Sub-Registrar Office at Harij, Patan, by the Department of State/Central Sales Tax.
# 4. The petitioner herein purchased the aforesaid property by way of E-Auction sale process undertaken by the respondent No.4 – Bank under the provisions of the SARFAESI Act, 2002. The respondent No.4 is a Scheduled Public Sector Bank registered with the Reserve Bank of India and protected under the SARFAESI Act, 2002, in case of any charge created on any of the property against loan provided.
4.1 The property-in-question being sold through E-Auction sale by the respondent No.4 – Bank, wherein, the petitioner bidded for the said property by depositing Earnest Money Deposit (EMD) of Rs.8,74,000/- on e-B kray and deposited Rs.78,76,000/- in the no lien account of the Bank on 07.04.2023; duly produced at Annexure – C and Annexure – D respectively. Upon receipt of the bid, EMD and lien amount submitted by the petitioner, the respondent No.4 – Bank sent an E-mail to the petitioner accepting the Bid submitted by the petitioner for the purchase of the property on 24.03.2023 and further, instructed the petitioner to deposit the remaining Bid amount by 08.04.2023. The said amount was also deposited by the petitioner herein in terms of the auction. The sale certificate came to be issued by the respondent No.4 – Bank on 11.04.2023 and sale deed for the purchase of the property also came to be executed by Sale Deed No.968/2023 on 01.07.2023 at Sub-Registrar, Harij, Patan. When the petitioner approached the Sub-Registrar, Harij, Patan, for releasing the registered sale deed of the said property, the petitioner was informed that the Department of Sales Tax, Office of Commissioner of State Tax, had registered a charge against the said property before the Sub-Registrar, Harij, Patan. Subsequently, Talati of Harij also informed the petitioner through communication dated 18.07.2023.
4.2 The petitioner issued notice through Advocate on 10.08.2023 to the respondent Department of Sales Tax to cancel/withdraw the charge and mortgaged created by the said Department along with the extract of provision of Section 26E of the SARFAESI Act, 2002. The said notice was not responded by the respondent authority.
4.3 In light of the aforesaid, the petitioner herein has approached this Court and has prayed for the following reliefs:
“7. The petitioner, therefore, prays that this Hon’ble Court be pleased to:
A. Admit this petition.
B. By way of interim order be pleased to restrain the concerned respondent no.1 to 3 from conducting any further actions or issuance of notice in relation to the property till final hearing of this petition;
C. By way of interim order be pleased to direct Sub-Registrar, Sihor to not take any adverse action against the sale deed no.968/2023 dated 01.07.2023, and reverse any action taken by Sub-registrar, if any, before filing of this petition; (Annex. I)
D. Be pleased to issue appropriate writ, order or direction to release the charge created by the Respondent;
E. Be Pleased to direct and order the Department of the Sales Tax to withdraw/cancel the charge created by the on the property said Property;
F. Be pleased to direct and order the Department of the Sales Tax to not to initiate any proceeding of recovery of any amount with regards to previous owners of the property from the Petitioner herein.
G. Be Pleased to pass such other orders as thought fit in the interest of justice.”
# 5. Mr. B.C. Thakkar, learned advocate appearing with Ms. Noopur K. Dalal, learned advocate appearing for the petitioner, placed reliance on Section 26E of the SARFAESI, 2002 and submitted that Section 26E provides that notwithstanding anything contained in any other law for the time being in force, after the registration of the 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 the State Government or the local authority. Placing reliance on the aforesaid, it is submitted that the issue-in-question is no longer res-integra.
5.1 Reliance is placed on the ratio laid down in case of Mahadev Cotton Industries vs. Department of Central Sales Tax in Special Civil Application No.15391 of 2022 whereby, by order dated 18.01.2023, the Hon’ble Division Bench held that the charge created by the respondent on the property, is required to be cancelled or withdrawn as the same would be sold by the Financial Institution through the right conferred to the Financial Institution under the SARFAESI Act. The aforesaid was also subject matter of consideration in case of Bank of Baroda vs. State of Gujarat in Special Civil Application No.12995 of 2018, order dated 16.09.2019 whereby, it was held that Secured Creditor would have priority over the first charge created under a State legislation. It is submitted that the aforesaid issue was also considered in Special Civil Application No.9565 of 2023.
5.2 Placing reliance on the aforesaid submissions, Mr. Thakkar, learned advocate submitted that the prayers, as prayed for by the petitioner, in the present petition, are required to be allowed.
# 6. Ms. Pooja K. Ashar, learned AGP appearing for the respondent Nos.1 to 3, vehemently submitted that no interference is called for in the present petition and the charge of State created by the respondent authorities, is just and proper.
Analysis:-
# 7. Having heard the learned advocates appearing for the respective parties, it is not in dispute that the petitioner herein has purchased the property being non-agriculture land with factory, land and building bearing R.S. No.423/ paiki 6, Vaghel Road, PO. Harij, Taluka : Harij, District : Patan, admeasuring about 4755 sq. mtrs. in the name of Tirupati Cotton Ginning Partners and property, land and building bearing survey no. R.S. No.423/paiki 1/P, Vaghel Road, PO. Harij, Taluka : Harij, District : Patan, admeasuring about 6171 sq. mtrs. in the name of Bhagwanbhai Parsottambhai Patel (Secured Asset) from Bank of India – respondent No.4 herein who sold the property through E-Auction sale process under the provisions of the SARFAESI Act, 2002. The respondent No.4 issued Sale Certificate on 11.04.2023 and a sale deed came to be executed between the petitioner and the respondent No.4 – Bank on 01.07.2023 at Sub-Registrar, Harij, Patan, bearing Sale Deed No.968/2023.
# 8. In light of the aforesaid, it is apposite to refer to Section 26E of the SARFAESI Act, 2002, which reads thus:
“Section 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.”
# 9. Section 26E of the SARFAESI Act, 2002, as referred above, has an overriding effect on any other provision of any other law for the time being in force. The aforesaid section provides that the benefit of compliance of the provisions of Chapter IVA and declares that after the registration of security interest, the debts due to any secured creditor shall be paid in priority over; (a) all other debts (b) revenues (c) cesses, and; (d) other rates, payable to the (i) Central Government; (ii) State Government, or (iii) any local authority. The section has carved out an exception to the common law principle that a sovereign debt has priority over all other private debts.
In the facts of the present case, the respondent No.4 sold the aforesaid property to the petitioner by following due procedure under the SARFAESI Act, 2002 and exercising the rights referred to the Financial Institutions under Section 26E of the SARFAESI Act, 2002.
Position of law:-
# 10. At this stage, it is apposite to refer to the ratio laid down by the Hon’ble Division Bench in case of Mahadev Cotton Industries vs. Department of Central Sales Tax in Special Civil Application No.15391 of 2022, dated 18.01.2023. Relevant paragraph of the said decision reads thus:
“11.3 In the instant case, it is an undisputed fact that respondent No.5 – Bank is a secured creditor. Therefore, the Bank has valid first charge over the property in question by way of mortgage and has first right to sell the same in view of priority under Section 26E of the Act and recovered its dues from it. The petitioner is a bona fide purchaser, purchased the property in question from the e-auction held by the bank and paid full and total sale consideration to the bank and the bank has issued sale certificate in favour of the petitioner. Considering the law laid down by this Court as well as by the Hon’ble Apex Court and also keeping in mind the provisions of Section 26E of the SARFAESI Act, the debts due to financial institution / Bank – a secured creditor shall be paid in priority over other debts/taxes payable to the State Government. The petitioner has no concern with the dues of the State Authorities which is of the erstwhile owner. The petitioner has paid full and final sale consideration to respondent No.5 – Bank and if the State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against the appropriate person/ s. Any of the respondent has no right to disturb the right, title and interest of the petitioner qua the property in question. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected. Moreover, now it is well settled legal position that the mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government, irrespective of the fact otherwise.”
# 12. The Hon’ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Company, reported in 2000 (5) SCC 694, has observed as under:
“8. The principle of priority of government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognized principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and it order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builder Supply Corpn., AIR 1965 SC 1061). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State’s sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having received the available judicial pronouncements their Lordships have summed up the law as under :
1. There is consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.
2. The common law doctrine about priority of Crown debts which was recognized by Indian High Courts prior to 1950 constitutes “law in force” within the meaning of Article 372(1) and continues to be in force.
3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues.
4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration.
10. However, the Crown’s preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown’s right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover, (1832) 131 ER 563, it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar vs. State of Bihar, (1972) 3 SCC 196, the principle has been recognized by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., p. 386) – “It seems a government debt in India is not entitled to precedence over a prior secured debt.”
13. The Hon’ble Supreme Court in the case of Punjab National Bank v. Union of India and others (Supra), reported in 2022 (7) SCC 260, has observed in paragraphs 46 to 50 as under :-
“46. This Court in Dena Bank v. Bhikhabhai Prabhu Dass Parikh and another, [(2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under :-
“10. However, the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor.” (emphasis supplied)
47. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors. [(2007) 8 SCC 353], while adjudicating a similar matter, this Court has held as under :-
“18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant – bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant – bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant – bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods.” (emphasis supplied)
48. The Bombay High Court in Krishna Lifestyle Technologies Ltd. Vs. Union of India & Ors. [2008 SCC Online Bombay 137], wherein the issue for consideration was “whether tax dues recoverable under the provisions of The Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” held that :-
“19. Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues.
20. In so far as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of C. Excise, Chennai – II has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex Court in the matter of priority of state debts as already discussed and the provision of Section 35 of SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court.” (emphasis supplied)
49. An SLP (No. 12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was “Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951” and this Court held as under :-
“9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. (emphasis supplied).
50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.”
# 14. The Hon’ble Apex Court in the case of Kotak Mahindra Bank Limited vs. Girnar Corrugators Pvt. Ltd., reported in 2023 (1) SCALE 456, more particularly in paragraph 9, has observed as under:
“9. At this stage, the object and purpose of the enactment of SARFAESI Act is required to be considered. SARFAESI Act has been enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central debts of security interest created on property rights, and for matters connected therewith or incidental thereto. Therefore, SARFAESI Act has been enacted providing specific mechanism / provision for the financial assets and security interest. It is a special legislation for enforcement of security interest which is created in favour of the secured creditor – financial institution. Therefore, in absence of any specific provision for priority of the dues under MSMED Act, if the submission on behalf of respondent No.1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment / SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of respondent No.1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/ or redundant. Any other contrary view would be defeating the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act.”
# 15. The Division Bench of this Court in case of Kotak Mahindra Bank vs. M/s. Kailash Oil Cake Industries, in Special Civil Application No.22835 of 2022, decision dated 08.02.2023, has observed as under:
“12. Keeping the above view in mind, it is held that the SARFAESI Act is meant for enforcement of security interest which is created in favour of the secured creditor – financial institution, and provides specific mechanism / provision for the financial assets and security interest. Any other provision(s) would not defeat the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act.
13. In the instant case, the Bank is a secured creditor under the Act. Therefore, the Bank has first valid charge over the property in question by way of mortgage and has first priority under Section 26E of the Act to recover its dues from it. In the present case, respondent No.11 has sent a communication dated 27.04.2022 to respondent No.12 – Revenue Authority concerned and thereby tried to affect the title of the property in question, which cannot be permitted. The debts due to Bank / Financial Institution – a secured creditor shall be paid in priority over other debts/taxes payable to the State Government is the law laid down by the various provisions of the Act as well as by the various decisions of this Court and of the Hon’ble Apex Court as noted above. The petitioner has no concern with the dues of the State Authorities. If the State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against the appropriate person/s in accordance with law. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected by setting aside the entry mutated/recorded in the revenue record, as the petitioner is a secured creditor and the petitioner has legal and valid right to recover its dues first from the property in question. Moreover, now it is well settled legal position that the mortgagor bank/financial institution has priority to recover the dues against any charges of the State Government or Central Government.”
# 16. This Court in case of Madhaviben Jitendrabhai Rupareliya vs. State of Gujarat in Special Civil Application No.9565 of 2023, decision dated 04.01.2024, has observed as under:
“3. All the petitioners in each of these petitions are the successful auction purchasers or their successors who have purchased the property by way of auction from the Bank or are subsequent purchasers from the auction purchaser and essentially, their grievance is about the fact that name in the revenue record are not mutated and are denied and, therefore, all these set of petitions are preferred with different prayers which are worded differently, but for the same purpose. Therefore, SCA No.12848 of 2023 is treated as lead petition and facts are stated from the said petition.
4. Similarly, Special Civil Application No.9565 of 2023 is preferred against the communication dated 21.3.2023 of Mamlatdar, Manavadar whereby Mamlatdar informed the petitioner that the petitioner’s application for mutating her name in the revenue record cannot be accepted as there is a charge over the land of the petitioner in favour of Sales Tax Officer, Junagadh.
8.1 It is a well settled doctrine that the respective Banks which are Secured Creditors and are having charge over the subject property, their charge over the property would prevail over the Unsecured Creditor i.e. Sales Tax Department (Crown’s Debt) and hence, the claim of Secured Creditor would prevail over the claim of Unsecured Creditor. According to the petitioner, in view of Section 26 E of the SARFAESI Act, this is the settled proposition of law and, therefore, all these petitions are covered by the aforesaid proposition of law.
8.2 That in case of Surendrabhai & Company and another v. State of Gujarat and others, 1985 GLH (U.J.) 53, this Court has held that the State cannot claim any right of preference in respect of its unsecured claim or a secured debt and to the extent of Section 137 of the Gujarat Land Revenue Code is declared to be void.
That this view was again confirmed by this Court in the case of Dahod Urban Cooperative Bank v. State of Gujarat in Special Civil Application No.3585 of 2008. Therefore, in view of this settled legal position, the petitioners have purchased the property in question by way of public auction as a bonafide purchaser from a Secured Creditor, the refusal of the respondents to mutate the name of the petitioners in the revenue entry in revenue record is contrary to law and hence, illegal.
8.3 That each of the petitioners are bonafide purchasers of the property in question and they have purchased the property by way of auction conducted under the provisions of law and more particularly, pursuant to the proceedings before the Debts Recovery Tribunal and, therefore, after having invested huge amount and after having succeeded in getting the Sales certificate, denial to mutate the name of the petitioners in the revenue records would amount to penalizing the petitioners.
8.4 From the catena of decisions of the Hon’ble Supreme Court as well as this Court taking a view that the charge in favour of Secured Creditor would precede over the Unsecured Creditors (State in the instant case) and, therefore, the stand taken by the State Government is contrary to the settled proposition of law.
8.5 That the common law of England or principles of equity and good conscience would not allow Crowns Debt to have priority over the recovery of debts over the mortgagee or pledgee of goods or secured creditors and the aforesaid proposition of law is followed by the Hon’ble Supreme Court in the case of Bank of Bihar v. State of Bihar, 1972 (3) SCC 196, Dena Bank v. Bhikhabhai Prabhudas Parekh & Company, 2000 (5) SCC 694 and Punjab National Bank v. Union of India, 2022 (7) SCC 260.
8.6 That Sales Tax Department can always recover their dues from the defaulter through alternative forum and means, if any available, as per law, but the petitioners being bonafide purchasers cannot be permitted to be penalized.
17. In light of the position of law, as referred above and considering Section 26E of the SARFAESI Act, 2002, as also considering the undisputed facts, in the opinion of this Court, the charge of the secured creditor shall precede over the charge of the unsecured creditor. The petitioner herein being auction purchaser by auction proceedings conducted under the SARFAESI Act, 2002 by the respondent No.4 – Bank, the respondent No.4- Bank being the secured creditor shall have priority over all the debts and revenues, taxes, cesses and other rates payable to the State Authorities.
# 18. For the foregoing reasons, this is a fit case to exercise extra-ordinary jurisdiction under Article 226 of the Constitution of India. The prayers, as prayed for, in the present petition are required to be allowed and the same are allowed. The respondent authorities are directed to mutate the name of the petitioner in the revenue record by quashing and setting aside the attachment or charge over the property-in-question by the State authorities. Liberty is reserved in favour of the respondents to take appropriate actions in accordance with law with respect to the other dues.
# 19. For the foregoing reasons, the present petition is allowed. Rule is made absolute.
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