Sharad Ashok Agarwal vs. State Of Maharashtra Through G.P. And Ors

Facts

The petitioner, Sharad Ashok Agarwal, is an auction purchaser of a secured asset. Respondent No. 5, the borrower, had mortgaged land and building with Respondent No. 4, Union Bank of India. The mortgage was registered under Section 26B of the SARFAESI Act with CERSAI on June 22, 2012. Respondent No. 5 defaulted, leading Respondent No. 4 to auction the property. The petitioner was the highest bidder and received the sale certificate on February 10, 2025, with the property handed over free from encumbrances. However, Respondent Nos. 2 and 3 (GST Department) had issued notices on January 13, 2017, and January 10, 2023, claiming dues from Respondent No. 5 and asserting a first charge on the secured asset, preventing Respondent No. 6 (Indrayani Industrial Co-operative Estate Limited) from transferring lease rights to the petitioner. The petitioner sought to quash these notices and compel the transfer of rights.

Held

The Court held that the charge of the secured creditor (Respondent No. 4) registered under Section 26B of the SARFAESI Act, 2002, has priority over the dues claimed by the GST Department. The Court reasoned that Respondent No. 4's security interest was registered with CERSAI on June 22, 2012, and there was no mention of any prior CERSAI registration by the GST Department. Furthermore, Section 26E of the SARFAESI Act mandates that debts due to any secured creditor shall be paid in priority over all other debts and government revenues, taxes, etc. The Court found that the GST Department's attempts to register their charge were initiated much later, and the impugned notices were issued after the bank's charge was registered. The Court also noted that the GST Department's affidavit was silent on compliance with specific steps for attachment. Therefore, the Court quashed and set aside the impugned notices and the order of attachment issued by the GST Department, directing Respondent No. 6 to transfer the rights of the secured asset to the petitioner. The Court clarified that this does not preclude the GST Department from recovering dues from other assets of Respondent No. 5.

Key Issues

1. Whether the charge of the secured creditor (Respondent No. 4) registered under Section 26B of the SARFAESI Act, 2002, has priority over the dues claimed by the GST Department (Respondent Nos. 2 and 3) under the Maharashtra Value Added Tax Act, 2002 (MVAT Act)? Petitioner's arguments: The petitioner contended that their case is covered by the Full Bench judgment in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax and others, and that Section 26E of the SARFAESI Act grants priority to the secured creditor's charge over all other government dues, including sales tax. They relied on several High Court judgments supporting this position. Revenue's arguments: The respondent GST Department argued that they had a first charge on the secured asset due to Respondent No. 5's outstanding dues. They placed on record correspondence and notices indicating steps taken to claim the charge, including an order of attachment of immovable property. They also relied on the amended Section 37 of the MVAT Act.