Section 31 (RDB Act)
Central Bank of India v. State of Kerala [2009] 4 SCC 94, (distinguished).
Wherein the Supreme Court took the view that if the State Act creates first charge on the property, then secured creditor cannot have claim against the statutory provision. The Supreme Court was considering the provisions of Section 38-C of the Bombay Sales Tax Act 1959 and Section 26-B of the Kerala General Sales Tax Act 1963, vis-a-vis the provisions of Section 34(1) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (now the RDB Act) and Section 35 of the SARFAESI Act. However, firstly, since Section 31-B was not on the statute book then, the impact of this Section did not come up for consideration while deciding the matter. Also with respect, it must be observed that the judgment in the case of Central Bank of India (supra) was prior to the amendment in the RDB Act as well as the SARFAESI Act, which inserted Section 31-B in the RDB Act and Section 26-E in the SARFAESI Act. #2021 SCeJ 149 (Bom.)
#2021 SCeJ 149 (Bom.) STATE BANK OF INDIA v. THE STATE OF MAHARASHTRA
"16. Indisputably, the judgment of the Apex Court in the case of Central Bank of India (supra) was prior to the amendment in the Act, 2002 and 1993 respectively. However, what is important are the observations of the Supreme Court as contained in para-126 of this decision quoted above. The Supreme Court observed that while enacting the DRT Act, the Parliament was aware of the law laid down by the Supreme Court, wherein priority of the State dues was recognized. If the Parliament intended to create the first charge in favour of the Banks, Financial Institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding the series of judicial pronouncements, the dues of Banks, Financial Institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax etc. The Supreme Court proceeded to observe that the fact of the matter was that no such provision had been incorporated in either of those enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal.
17. In our prima facie opinion, such observations probably might have weighed with the Parliament which ultimately might have led to the introduction of Section 31B in the RDB Act, 1993 and 26E in the SARFAESI Act, 2002."
Kalupur Commercial Co-operative Bank ltd. Vs. State of Gujarat., Civil Application No.17891 of 2018
Priority of debt - Whether secured creditor or state taxes will get priority (Maharashtra Value Added Tax Act, 2002 (MVAT Act), Section 37)
Recovery of Debts and Bankruptcy Act , 1993 (RDB Act), Section 31-B - Priority of debt - Whether secured creditor or state taxes will get priority – Mortgage of the secured creditor viz. the Petitioner Bank gets prior charge over the charge of the Respondents for tax/VAT dues.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), Section 26-D, 26-E
#2021 SCeJ 149 (Bom.) STATE BANK OF INDIA v. THE STATE OF MAHARASHTRA
If any Central statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the value added tax of the State (Maharashtra Value Added Tax Act, 2002 (MVAT Act), Section 37)
Recovery of Debts and Bankruptcy Act , 1993 (RDB Act), Section 31-B - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), Section 26-D, 26-E – Maharashtra Value Added Tax Act, 2002 (MVAT Act), Section 37 - If any Central statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the value added tax of the State - Though it would not be necessary for us to deal with the contention of the Respondents relating to the date of effectiveness of Section 26-E of the SARFAESI Act, however we are of the view that even if Section 26-E was effective only prospectively from 24th January, 2020 and not applicable to the facts at hand, that would not make any difference; as according to us Section 31-B of the RDB Act itself would be sufficient to give priority to a secured creditor over the Respondent's charge for claiming tax dues. -
2019 SCeJ 1050 (Bom.) ASREC (India) Limited Vs. The State of Maharashtra Followed
Central Bank of India Vs. State of Kerala [2009] 4 SCC 94, distinguished.
#2021 SCeJ 149 (Bom.) STATE BANK OF INDIA v. THE STATE OF MAHARASHTRA
Recovery of Debts and Bankruptcy Act , 1993 (RDB Act), Section 31-B - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), Section 26-D, 26-E – Maharashtra Value Added Tax Act, 2002 (MVAT Act), Section 37 - If any Central Statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due under the Value Added Tax of the State
2019 SCeJ 1050 (Bom.) ASREC (India) Limited Vs. The State of Maharashtra
Rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority
There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016.
Assistant Commissioner Vs. Indian Overseas Bank & Ors. , AIR 2017 Madras 67 (FB)
"The writ petitions have been listed before the Full Bench in pursuance to the reference order in W.P.No.6267 of 2006 and W.P.No.253 of 2011, in respect of the following issues:-
''a) As to whether the Financial Institution, which is a secured creditor, or the department of the government concerned, would have the 'Priority of Charge' over the mortgaged property in question, with regard to the tax and other dues.
b) As to the status and the rights of a third party purchaser of the mortgaged property in question.''
2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41of the same seeking to introduce Section 31B in the Principal Act, which reads as under:-
''31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.
Explanation. - For the purposes of this section, it is hereby clarified Chetan Patil 28/33 29 WPST-92816-2020 .doc that on or after the commencement of the Insolvency and Bankruptcy Code, 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.''
3. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016.
4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.
5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property.
6. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes ''secured debts due and payable to them by sale of assets over which security interest is created''.
7. We, thus, answer the aforesaid reference accordingly.
8. The matters be placed before the roster Division Bench for dealing with the individual cases."
Amendment made by Parliament is to give priority to the secured creditors vis a vis State dues without speaking about the first charge (Rajasthan VAT Act, Section 47)
Recovery of Debts and Bankruptcy Act , 1993 (RDB Act), Section 31-B - Rajasthan VAT Act, Section 47
"We are yet considering the effect of the amended provision. The Apex Court has made analysis of a provision of first charge vis a vis secured creditor in the case of Central Bank of India (supra). The first charge was given supremacy than rights under mortgagee or to a secured creditor. The distinction between "first charge and secured creditor" is necessary to analyse scope of Section 26E of the Act of 2002 and Section 31B of the Act of 1993. The amended provisions are having overriding effect and give priority to the secured creditors vis a vis State dues. It does not, however, nullify the effect of first charge created on the property under the State Act. If intention of Parliament would have been to nullify the effect of first charge, the language of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). It should have been with non-obstante clause and that secured creditors would have priority over the first charge created under a State legislation. The amendment made by Parliament is to give priority to the secured creditors vis a vis State dues without speaking about the first charge."
G.M.G. Engineers & Contractor Pvt. Ltd., (S.B. Civil Writ Petition No.6872 of 2017, decided on 5.7.2017, Rajasthan),
Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provision (Amendment) Act, 2016 came into force w.e.f. 01.09.2016 has an overriding effect over all other enactments including the provisions the provisions of MP VAT Act, Central Sales Tax Act, Entry Tax Act and any other Tax Act. (MP VAT Act, 2002, Section 33)
" In our considered opinion, the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provision (Amendment) Act, 2016 came into force w.e.f. 01.09.2016 and by virtue of the said amendment, the right of the secured creditors to realise the secured dues and debt due, which are payable to the secured creditors by sale of assets over which security has been created, shall have priority over all other debts and government dues in including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authorities.
Not only this, it also has an overriding effect over all other enactments including the provisions the provisions of MP VAT Act, Central Sales Tax Act, Entry Tax Act and any other Tax Act. Though, an attempt has been made to demonstrate before this Court that the amendment will not dis-entitle to recover the dues by them as the dues are outstanding since 2012, nothing prevented the State Government to recover the dues since 2012 and the State Government woke up from slumber only after the amendment came into force and by virtue of the amendment in the Central Act, this Court is of the considered opinion that by no stretch of imagination, the State Government can be permitted to auction the property in question as Bank of Baroda has priority charge over the said property in light of the amendment which has been quoted above."
Bank of Baroda Vs. Commissioner of Sales Tax, M.P. Indore , (2018) 55 GSTR 210(MP)
Section 31 B of the RDB Act being a substantive provision giving priority to the "secured creditors", the same will be applicable irrespective of the procedure through which the recovery is sought to be made (Gujarat Value Added Tax 2003)
While it is true that the Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31 B of the RDB Act being a substantive provision giving priority to the "secured creditors", the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase "secured creditors" to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. Thus, an interpretation that, while secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors.
Kalupur Commercial Co-operative Bank ltd. Vs. State of Gujarat., Civil Application No.17891 of 2018
Held
36. The insertion of Section 31B of the RDB Act will give priority to the secured creditors even over the subsisting charges under the other laws on the date of the implementation of the new provision i.e. 1.9.2016 .The Supreme Court ,in the cases of State of Madhya Pradesh v. State Bank of Indore ,(2001) 126 STC1(SC), has held that a provision creating first charge over the property would operate over all charges that may be in force. The following observations made in para 5 of the said judgment are relevant:
"5. Section 33-C creates a statutory charge that prevails over any charge that may be inexistence. Therefore, the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the bank in respect of the loan taken by the second respondent .There is no question of retrospectivity here,as on the date when it was introduced, section 33-C operated in respect of all charge that where then in force and gave sales tax dues precedence over them ...."