Case Note & Summary
The Bank of Baroda, a secured creditor under the SARFAESI Act, had sanctioned credit facilities to M/s. Gajanan India Chemco between September 2009 and 2012, secured by a first mortgage created on 29 November 2010. The borrower defaulted, and the Bank initiated recovery proceedings under the SARFAESI Act. Meanwhile, the Assistant Commissioner of Sales Tax issued an order on 18 March 2020 attaching the secured asset for recovery of sales tax dues, with a copy marked to the Bank. The Bank challenged this attachment by filing a writ petition under Article 226 of the Constitution, arguing that as a secured creditor, its claim has priority over crown debts under Section 26E of the SARFAESI Act, which was inserted by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012, with retrospective effect from 1 November 2012. The court noted that the attachment order was passed without notice to the Bank and that the SARFAESI Act, being a later special law, overrides the Maharashtra Value Added Tax Act, 2002. The court held that the secured creditor's dues have priority over government dues, including sales tax, and that the attachment order was invalid. The petition was allowed, the impugned order was quashed, and any charge created by the department over the secured asset was set aside. The court also directed that the Bank be at liberty to proceed under the SARFAESI Act.
Headnote
A) Securitisation - Priority of Secured Creditor - Section 26E SARFAESI Act, 2002 - Crown Debt - The court held that the secured creditor's dues have priority over government dues, including sales tax, as per Section 26E of the SARFAESI Act, which overrides the MVAT Act. The attachment order passed by the Sales Tax Department without notice to the Bank was set aside. (Paras 1-10) B) Constitutional Law - Writ Jurisdiction - Article 226 Constitution of India - Alternative Remedy - The court entertained the writ petition despite availability of alternative remedy under the MVAT Act, as the issue involved a pure question of law regarding priority of secured debts over crown debts. (Paras 1-10)
Issue of Consideration
Whether the attachment order passed by the Sales Tax Department under the MVAT Act over the secured asset of the Bank is valid in light of the priority given to secured creditors under Section 26E of the SARFAESI Act.
Final Decision
The petition is allowed. The impugned order dated 18 March 2020 is quashed and set aside. The charge, if any, of the Respondent No.1 over the secured asset is set aside. The Bank is at liberty to proceed under the SARFAESI Act.
Law Points
- Priority of secured creditor over crown debts
- SARFAESI Act Section 26E overriding MVAT Act
- attachment order without notice to secured creditor invalid
