The Commissioner Of GST And Central Excise vs. M/S.Indian Overseas Bank

Facts

The Commissioner of GST and Central Excise (appellant) filed a writ appeal against an order dated 25.11.2024 by the Madurai Bench of Madras High Court. The original writ petition was filed by Indian Overseas Bank (R1) seeking a mandamus to the Sub-Registrar, Dindigul (R2) to delete an attachment made by the GST Commissioner on 24.03.2003 and release a sale certificate dated 07.03.2024. The property in question was mortgaged by Memoranda of Deposit of Title Deeds between 2010 and 2015 in favour of the Bank. After default, the property was brought to auction under the SARFAESI Act, 2002, and purchased by private respondents (R3-R6). The Writ Court allowed the petition, prioritizing the secured creditor's charge under Section 26E of the SARFAESI Act. The appellant argued that Section 26E, inserted in 2020, is not retrospective and thus cannot override their prior charge.

Held

The Court held that the appeal is devoid of merit. While acknowledging that a question of law arises regarding the prospective or retrospective operation of Section 26E of the SARFAESI Act, 2002, in relation to anterior charges, the Court noted that the respondents (auction purchasers) are bona fide purchasers who paid valuable consideration. Crucially, the Court observed that the factual assertions made by the appellant regarding the property's pledging being collusive were not part of the record before the Writ Court, as no counter was filed by the Revenue. The facts set out in the writ affidavit thus remained uncontroverted. The Court also noted the delay in the appeal, which was admitted only after condonation, by which time the purchasers had acquired title. The Department's laxity in pursuing remedial measures in a timely manner was highlighted. In the absence of a counter, the Court was unaware of when a statutory demand for GST dues was raised on the purchasers or if a charge was registered for that demand. Therefore, undoing the sale in favour of the purchasers did not arise. The appellant was advised to approach the civil court for appropriate remedy if so advised. The writ appeal was dismissed.

Key Issues

1. Whether Section 26E of the SARFAESI Act, 2002, which grants priority to secured creditors, has retrospective effect to override charges registered prior to its insertion in 2020? (Question of law) Petitioner's arguments (GST Commissioner): Section 26E was inserted by the Amendment Act of 2020 and therefore does not have retrospective effect. Consequently, it cannot override a charge held by the Central Excise Department of an anterior date, rendering Section 26E irrelevant for prior registration charges. Respondent's arguments (Indian Overseas Bank): Section 26E was introduced to protect the interests of secured creditors, especially where public money is involved. It contains a non-obstante clause, giving priority to secured debts over all other debts, including revenues, taxes, cesses, and rates payable to the Central or State Governments or local authorities. The Writ Court's order is therefore justified. Respondent's arguments (Auction Purchasers): Significant developments have occurred since the Writ Court's order, including the issuance and registration of the sale certificate in March 2025. It is too late to reverse these actions, and their interests as bona fide purchasers should be protected.