Bank Of Baroda vs. The Chief Commissioner
Original PDF →Facts
The petitioner, Bank of Baroda, had granted a loan to M/s. Hari Forging Products in July 2007, secured by a mortgage of property on September 26, 2009. The loan account became a Non-Performing Asset (NPA) on June 30, 2016, leading the bank to initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and take possession of the property on December 5, 2016. Meanwhile, the Excise Department, on May 31, 2016, attached the same property to recover outstanding excise dues. This attachment prevented the bank from auctioning the property to realize its dues. The bank filed a writ petition seeking to quash the attachment order and remove the charge of the Excise Department, asserting its first charge over the property.
Held
The Court held that the petitioner-bank, as a secured creditor, has a first charge over the secured asset. This conclusion was based on the Supreme Court's decision in Punjab National Bank Vs. Union of India & Ors., which considered Section 11E of the Central Excise Act, 1944, and Section 35 of the SARFAESI Act, 2002. The Supreme Court had ruled that where property is mortgaged or hypothecated to a secured creditor, the secured creditor holds a first charge on the secured assets, and the provisions of the SARFAESI Act have overriding effect. Consequently, the attachment of the property for the realization of excise dues could not be sustained. The attachment order dated May 31, 2016, was quashed. The petitioner-bank was allowed to proceed with realizing its dues from the secured assets, and any excess amount was to be remitted to the Excise Department for satisfaction of excise dues. The Court expressly did not leave any issue undecided.
Key Issues
1. Whether the central excise dues or the dues of the Excise Department have priority over the dues of a secured creditor, specifically in relation to the mortgaged property, under the provisions of the Central Excise Act, 1944, and the SARFAESI Act, 2002? The petitioner argued that as a secured creditor, it holds a first charge over the mortgaged property. It relied on the Supreme Court's decision in Punjab National Bank Vs. Union of India & Ors. to support its claim for priority. The petitioner sought to quash the attachment order dated May 31, 2016, and have the charge of the Excise Department removed from the secured asset. The respondents, including the Chief Commissioner and Deputy Commissioner of CGST, did not appear or present arguments despite service. Therefore, no arguments were recorded for the revenue or State.
Sections Cited
Section 11E, Section 35, Section 13(7), Section 2(zc), Section 2(zd), Section 2(ze), Section 2(zf)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
Order
[2023/RJJP/000879] (2 of 4) [CW-2001/2021] 30/01/2023
Service of notice upon respondent No.5 was held to be sufficient and he was represented by Mr. Akshay Sharma, Adv. but he has not chosen to appear. No one appears for respondent No.6 also despite service to be complete as per the order of this Court dated 30/03/2021. 2. The short controversy raised in this writ petition is regarding who will have priority over the property in dispute i.e. the petitioner-bank or the State.
It appears from the facts as stated in the writ petition that M/s. Hari Forging Products – respondent No.6 had borrowed a certain amount from the petitioner-bank in July, 2007. The said borrowing was secured by mortgaging the property in dispute on 26/09/2009. Thus, the property in question became the secured asset for the purpose of the loan granted by the petitioner-bank.
The aforesaid loan account became Non Performing Asset (NPA) on 30/06/2016 and accordingly, proceedings under Section 13 of The Secularization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the “Act of 2002”) were initiated against respondent No.
The petitioner- bank took possession of the said property on 05/12/2016 and proceeded to auction the same.
In the meantime, on account of the outstanding excise dues, the Excise Department proceeded to attach the property in question so as to realize the excise dues and the attachment was carried out on 31/05/2016. Since then, the property is lying attached with the result that the petitioner-bank is unable to proceed further in the matter so as to realize its dues.
[2023/RJJP/000879] (3 of 4) [CW-2001/2021]
It is in the above background that the petitioner-bank has to invoke the writ juri iction of this Court for quashing of the attachment order dated 31/05/2016 and for a direction to remove the charge of the Excise Department from the above secured asset on the ground that it has a first charge over it.
The issue whether the central excise dues or the dues of the Excise Department would have priority over the dues of the secured creditors, came up for consideration before the Apex Court in Civil Appeal No.2196/2012 : Punjab National Bank Vs. Union of India & Ors. decided on 24/02/2022. The Apex Court answered the above question and after considering the provisions of Section 11E of the Central Excise Act, 1944 (for short the “Act of 1944”) as well as Section 35 of the Act of 2002 came to the conclusion that where the land, building, plant and machinery etc. have been mortgaged or hypothecated to a secured creditor, the secured creditor will have a first charge on the secured assets. The relevant paragraph of the aforesaid opinion of the Supreme Court as contained in paragraph 43 of the judgment reads as under:- “43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions
[2023/RJJP/000879] (4 of 4) [CW-2001/2021] contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.”
In view of the above decision and the provisions of Section 11E of the Act of 1944 and Section 26E read with Section 35 as well as Section 13(7) of the Act of 2002, undoubtedly, the petitioner-bank has first charge over the secured asset i.e. the property in question.
Accordingly, we are of the opinion that the attachment for the purposes of realization of the excise dues cannot be sustained. The attachment order dated 31/05/2016 as such is quashed and the petitioner-bank is allowed to proceed to realize its dues from the secured assets and to put the excess amount if any with the Excise Department for the satisfaction of the excise dues.
The writ petition is allowed. (SHUBHA MEHTA),J (PANKAJ MITHAL),CJ ANIL KUMAR GOYAL /49
Reproduced from the public record of the Rajasthan High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.