Creating false charges against the petitioner for the recovery of sales tax dues: Bombay HC

The action of attachment and creating a charge over the secured assets of the Union Bank of India initiated by the Joint Commissioner of Sales Tax and The Profession Tax Officer, for the recovery of sales tax dues outstanding against the M/s. Linkson Coal & Minerals Pvt. Ltd., and the attachment order dated 31/10/2017 is set aside to the extent of the secured assets of the petitioner-Bank mentioned in para Nos. 6 and 7 of the petition.

Union Bank of India 

V/S 

State of Maharashtra  

WRIT PETITION NO. 1025 OF 2018 

Issue  

Petition filed with regard to issue of the priority of a secured creditors with regard to the secured assets over the priority of all other debts.  

Facts  

• M/s. Linkson Coal & Minerals Pvt. Ltd., the Respondent no. 4 had initially applied for the facility of cash credit limit and Inland Letter of Credit limit to the extent of Rs.10 crores. 
• The petitioner – Bank had sanctioned and granted the said credit facilities to the Respondent no. 4 and accordingly disbursed the said limits to the respondent No.4. 
• Thereafter, on the request of respondent Nos.4 to 6, the aforesaid credit facilities were enhanced and renewed from time to time and lastly, it was enhanced to the extent of Rs.55 crores.  
• The aforesaid credit facilities granted to respondent No.4 were secured by mortgage of the immovable property of the respondent Nos.4, 5 and 6. The respondent Nos.4 to 6 and other guarantors and mortgagors failed to clear the outstanding loan and failed to operate the loan account as agreed. The loan accounts of respondent No.4 were declared as Non-Performing Assets (NPA). 
• The petitioner Bank issued notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘SARFAESI Act’) and called upon the respondent Nos.4 to 6 to pay the outstanding amount of Rs.59,11,28,808.59 within sixty days. 
• The respondent Nos.4 to 6 did not comply the notice. 
• The petitioner – Bank, therefore, under Section 13(2) of the SARFAESI Act issued notice to take possession of the said assets on 31/03/2014. On failure of the respondent Nos.4 to 6 to deliver possession of the secured assets, the petitioner – Bank made an application to the District Magistrate, Nagpur under Section 14 of the SARFAESI Act and which came to be allowed on 31/07/2015.  

Findings  

Section 26-E of the SARFAESI Act with effect from 01/09/2016, the right of the secured creditors to realize the secured dues and debts, which are payable to the secured creditors, by sale of assets, over which security interest has been created, shall have priority over other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. 

In the case of the Cosmos Cooperative Bank .v/s. State of Maharashtra and other (supra), the Division Bench of this Court at the Principal seat at Bombay has held that on harmonious reading of Section 26-E of the SARFAESI Act and Section 37 of the MVAT Act it would be clear that the secured creditor would have a first charge over an asset and the charge created in Favour of the State of Maharashtra under Section 37 of the MVAT Act would be subject to the first charge created by the Central Legislation namely, Section 26-E of the SARFAESI Act. 

Judgment:

The action of attachment and creating a charge over the secured assets of the Union Bank of India initiated by the Joint Commissioner of Sales Tax and The Profession Tax Officer, for the recovery of sales tax dues outstanding against the M/s. Linkson Coal & Minerals Pvt. Ltd., and the attachment order dated 31/10/2017 is set aside to the extent of the secured assets of the petitioner-Bank mentioned in para Nos. 6 and 7 of the petition.

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