Ker HC | [SARFAESI Act] Whether the State has better right in comparison to Banks and other Financial Institutions over secured assets for recovery of its dues; legal position reiterated

Kerala High Court: A.M. Badar J., allowing the present petition, quashes the attachment made by the State authorities to recover tax dues.

Background

Counsel appearing for the petitioner argued that for repayment of loan availed by its borrower, the property comprised in Mannanchery village was mortgaged by the borrower. As the loan account became irregular, by following due process of law, it was declared as Non-Performing Asset and demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’) came to be issued on 02-07-2015. Standing Counsel further submitted that as the borrower failed to settle the loan amount by repayment, physical possession of the mortgaged property was taken by the petitioner bank on 30-11-2019. It is to be further noted that, on 22-02-2019, the respondents had attached the said property alleging to have the ‘First Charge’ over the secured assets for recovery of sales tax dues. This act of the State, as per the Standing Counsel, is grossly illegal, arbitrary and misconstrued. Prayer sought by the petitioner, therefore, seeks to quash the aforementioned attachment made by the respondent authorities and further set aside the related communication letters.

Decision

Allowing the present petition, the Court relied on Travancore Devaswom Board v. Local Fund Audit, 2020 (3) KLT 296 and State Bank of India v. State of Kerala, 2019 (4) KLT 521, both of which, make it clear that, Section 26E of the SARFAESI Act and Section 31B of the RDB Act create a ‘First Charge’ by way of a priority to the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any statutory ‘First Charge’ in favour of the Revenue.

[Bank of Baroda v. State of Kerala, 2020 SCC OnLine Ker 7152, decided on 15-12-2020]


Sakshi Shukla, Editorial Assistant has put this story together

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