The Bombay High Court has ruled that the charge or mortgage has priority over premises, Income Tax Dues cannot come in the way of a Secured Creditor.
The petitioner, Edelweiss Asset Reconstruction Co. Ltd. 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 the 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, Tax Recovery Officer (TRO), seeking recovery of Income Tax dues of the Borrower.
Dr. Saraf, Learned Senior Counsel appearing on behalf of Petitioner submits that Respondent has erred in not appreciating that the information furnished by Petitioner revealed that Petitioner is a secured creditor with valid prior charge and an equitable mortgage in its favour and thus has prior and superior charge over the properties of the Borrower. He would submit that as a result of the equitable mortgage in favour of Petitioner with effect from the year 2005, Petitioner has a prior and superior charge which cannot be disturbed in any manner whatsoever. The provisions of 26-E of the Securitisation Act accord priority to the dues of the secured creditor viz. dues of Petitioner over the dues of Respondent. He further submits that the priority of the charge of Petitioner over the dues of the Income Tax Department stands clarified by the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 whereof, introduces Section 31-B under the Recovery of Debts Due to Banks and Financial Institutions Act, 2002. Section 26-E of the Securitisation Act is equivalent to Section 31-B of the RDDB Act.
The division bench of Justice Abhay Ahuja and Justice Sunil P.Deshmukh ruled that the 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 a secured creditor.
The court directed the Respondent 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 and issue no Objection Certificate permitting the Petitioner to sell the said premises.
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