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October 2, 2021

The secured creditor’s charge over the premises has priority over the dues of the Income Tax department: HC

The secured creditor’s charge or mortgage over the premises has priority over the dues of the Income Tax department: HC

Fact and Issue of the case

Petitioner is a company incorporated under the Companies Act, 1956 and registered as a Securitization and Asset Reconstruction Company pursuant to Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act/Securitisation Act”).

Petitioner, as assignee of right, title and interest of the credit facilities to one Classic Diamonds (India) Ltd. (the “Borrower”) (now in liquidation) purporting to have a superior secured and prior charge in time over the attached properties, having commenced proceedings under the SARFAESI/Securitisation Act by issue of notices under Sections 13(2) and 13(4) and having taken possession of one of the attached properties (as will be described hereinafter), is aggrieved by the order of attachment dated 17th January 2013 passed by the Respondent No.1 Tax Recovery Officer (“TRO”), seeking recovery of Income Tax dues of the Borrower.

Observation of the court

The Court heard Dr. Birendra Saraf, Learned Senior Counsel for Petitioner as well as Mr. Sham Walve, Learned Standing Counsel for the Respondent-Revenue as well as Mr. Jejeebhoy, Learned Counsel for the Official Liquidator. We have, with their able assistance, perused the papers and proceedings in the matter.

Facts are not in dispute. Petitioner is a secured creditor of the Borrower company (now in liquidation), having earlier acquired the rights, title and interest in the facilities granted by the banks to the Borrower alongwith security over properties including the said premises, and has been substituted in the original applications filed by the respective banks before the Debts Recovery Tribunal, Mumbai under RDB Act. Petitioner has taken possession of the said premises after issuance of notice under Section 13(2) of the SARFAESI Act and also issued a possession notice under Section 13(4) of the SARFAESI Act and Rule 8(1) of the Securitisation Rules. Petitioner had also informed Respondent No. 3 and also published necessary public notices about the said possession. Petitioner’s repeated requests to Respondent- TRO to lift/raise attachment over the said premises have not been attended to. The provisions of Section 31-B of the RDB Act as well as Section 26-E of the Securitization Act being applicable to the case of Petitioner, the Revenue is saying that TRO was not aware of the charge in favour of Petitioner and that there is no provision in the Income Tax Act empowering the TRO to lift/raise the attachment once levied.

With reference to the decision of Central Bank of India Vs. State of Kerala (supra) relied upon by the counsel for the Revenue, we note that the said decision was also distinguished in the above decision of the State Bank of India Vs. State of Maharashtra & Ors. (supra) observing that the Hon’ble Supreme Court had considered the provision 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) the RDB Act and Section 35 of the SARFAESI Act, whereas Section 31-B was not on the statue book then and therefore did not come into consideration in the said matter; moreover, the decision in the case of Central Bank of India Vs. State of Kerala (supra) was prior in time to the amendment inserting 31-B in the RDB Act and Section 26E in the SARFAESI Act. Paragraph 41 of the decision in the case of State Bank of India Vs. State of Maharashtra and Ors.(supra) is usefully quoted.

Court is therefore, of the view that Petitioner’s charge/mortgage over the said premises has priority over the dues of the Income Tax department and the said attachment dated 17th January 2013 by Respondent No.1 cannot come in the way of Petitioner’s rights as secured creditor.

In view of the aforesaid discussion, we direct Respondent No. 1 to, within a period of two weeks from the date of this order, (i) raise the said attachment levied pursuant to the order of attachment dated 17th January 2013 on the said premises viz. office premises No. 1004, 10th Floor, Prasad Chambers, Opera House, Mumbai-400 004 and (ii) to grant and issue No Objection Certificate permitting the Petitioner to sell the said premises.


The Court has allowed the petition and ruled in favour of the petitioner

Read the full order from here


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