Claim of Bank-Secured Creditor Would Prevail Over Claim of Sales Tax Dept.

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  • 2 Min Read
  • By Taxmann
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  • Last Updated on 27 February, 2024

Bank-Secured Creditor

Case Details: Madhaviben Jitendrabhai Rupareliya v. State of Gujarat - [2024] 159 642 (HC-Gujarat)

Judiciary and Counsel Details

    • Nirzar S. Desai, J.
    • Monal S Chaglani for the Petitioner.
    • Jay Trivedi for the Respondent.

Facts of the Case

In the instant case, ‘Helios’ availed various financial facilities from respondent No. 4 bank (R4) by mortgaging the subject property and a charge was created in favour of R3 and the same was recorded in the revenue record. Upon Helios having defaulted on repayment of the loan and being declared an NPA, the bank initiated proceedings under the SARFAESI Act before the Debt Recovery Tribunal (DRT).

As Helios also did not make any payment towards the liability of the sales tax department, respondent no 3 department (R3), a charge over the subject land was registered. Subsequently, pursuant to a public auction conducted by the bank in respect of the subject land, the petitioner participated in the bidding and as she was the highest bidder, the bank issued a certificate of sale in her favour.

Subsequently, a registered sale deed was executed by the bank in favour of the petitioner. The petitioner applied before Mamlatdar to mutate her name in the revenue record. Mamlatdar rejected the said application on the ground that the seller’s name did not tally and that over the land in question, there was already a charge registered in favour of R3.

It was noted that when the property was purchased pursuant to an auction carried out pursuant to the order passed by DRT, the auction was held to recover dues of the secured creditor, i.e. bank under an order passed by DRT in relevant proceedings before the DRT. Therefore, being a secured creditor, the bank was enjoying priority in terms of section 26E of the Act.

High Court Held

The High Court held that an instant petition to direct respondent authorities to mutate the name of the petitioner in revenue records succeeds by quashing and setting aside any charge over property in question by the State or its authorities as there was a first charge of respondent bank.

The High Court, further held that the charge of the secured creditor will precede over the charge of an unsecured creditor (crown debt).

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