The rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority.
(2017) 171 AIC 795 : (2017) AIR(Madras) 67 : (2016) 6 CTC 769 : (2017) 1 MLJ 769
MADRAS HIGH COURT
FULL BENCH
( Before : Sanjay Kishan Kaul, CJ., T.S. Sivagnanam and R. Mahadevan, JJ. )
THE ASSISTANT COMMISSIONER (CT) ANNA SALAI-III — Appellant
Vs.
INDIAN OVERSEAS BANK — Respondent
W.P. Nos. 2675, 253 and 9750 of 2011, 46458 of 2002, 27409 and 31060 of 2005, 6267 and 469 of 2006, 21496 of 2008, 21358 of 2009
Decided on : 10-11-2016
Recovery of Debts Due To Banks And Financial Institutions Act, 1993 – Section 31-B
Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016
Counsel for Appearing Parties
N.A.S. Richard, Advocate, for the Respondent No. 2; F.B. Benjamin George, Advocate, for the Respondent No. 1; S. Kanmani Annamalai, Addl.G.P. (T), for the Petitioner
ORDER
Sanjay Kishan Kaul, C.J. – The writ petitions have been listed before the Full Bench in pursuance to the reference order in W.P. No. 6267 of 2006 and W.P. No. 253 of 2011, in respect of the following issues:-
(a) As to whether the Financial Institution, which is a secured creditor, or the department of the government concerned, would have the ‘Priority of Charge’ over the mortgaged property in question, with regard to the tax and other dues.
(b) As to the status and the rights of a third party purchaser of the mortgaged property in question.”
2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principal Act, which reads as under:-
“31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.
Explanation. – For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.”
3. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with “notwithstanding” clause and has come into force from 01.09.2016.
4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.
5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property.
6. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes “secured debts due and payable to them by sale of assets over which security interest is created”.
7. We, thus, answer the aforesaid reference accordingly.
8. The matters be placed before the roster Division Bench for dealing with the individual cases.
