Janaseva Sahhakari Bank LTD vs. State Of Maharashtra And Ors Thou Secretary

Facts

The Petitioner, Janaseva Sahakari Bank Ltd., a lead bank in a consortium, provided loan facilities to Respondent No. 4, M/s. Shree Ganesha Packaging Co., commencing in 2013. The borrower defaulted, and the loan account was classified as NPA in September 2018. The Petitioner initiated recovery proceedings under the SARFAESI Act, 2002, taking symbolic possession of secured assets in June 2019 and physical possession in November 2021. Meanwhile, the Sales Tax Department and GST Department issued demand notices and orders for recovery of dues from Respondent No. 4, including orders for recording charges on the secured assets. The Petitioner challenged these demand notices and orders, arguing their prior secured interest under the SARFAESI Act should take precedence over the tax dues.

Held

The Court held that the Petitioner Bank, as a secured creditor, has priority over the tax dues of the State Government. The Court reasoned that Section 26E of the SARFAESI Act, 2002, explicitly states that secured creditors shall be paid in priority over all other debts and taxes, notwithstanding anything contained in any other law. The Petitioner had registered its security interest with CERSAI on March 17, 2017, which was significantly prior to the attachment orders issued by the Sales Tax Department (April 19, 2022) and the GST Department. The Court emphasized that the SARFAESI Act, being a Central legislation, would prevail over the State's MVAT Act, particularly concerning the priority of secured debts. The Court cited its own previous judgments in Indian Bank thr. Chief Manager and the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd. and another, reinforcing the principle that a prior registered security interest under SARFAESI Act grants precedence. The Court directed that the Petitioner Bank's claim as a secured creditor would have preference. The Respondent tax authorities were permitted to pursue recovery against Respondent No. 4 separately.

Key Issues

1. Whether the Petitioner Bank, as a secured creditor under the SARFAESI Act, 2002, has priority over the tax dues of the State Government (GST and MVAT) when the Petitioner registered its security interest with CERSAI prior to the State authorities initiating recovery proceedings and attaching the secured assets? Petitioner's Arguments: The Petitioner contended that Section 26E of the SARFAESI Act, 2002, clearly grants priority to secured creditors over all other debts and taxes, irrespective of any other law. They argued that their security interest was registered with CERSAI on March 17, 2017, which predates the attachment orders issued by the Sales Tax and GST Departments. They relied on the Full Bench judgment of this Court in Jalgaon Janta Sahakari Bank Ltd. and another and a Division Bench judgment in Indian Bank thr. Chief Manager. They also argued that the SARFAESI Act, being a Central Act, would prevail over the State's MVAT Act. Revenue's Arguments: The Respondents (State of Maharashtra, Commissioner of GST, and State Tax Officer) argued for the precedence of Sales Tax dues over bank dues based on Section 37 of the MVAT Act. They contended that their recovery proceedings and attachment orders were valid and that the Petitioner's claim should not supersede their statutory right to recover tax dues.