Banks Have Priority Over Tax Dues Under SARFAESI & RDB Act: Andhra Pradesh HC

State Bank of India Vs Deputy Commercial Tax Officer (Andhra Pradesh High Court)

The Andhra Pradesh High Court disposed of a batch of writ petitions through a common order, observing that the issues involved and the contentions advanced in all the petitions were substantially the same. The principal issue raised by the petitioners was that, by virtue of Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, debts due to banks and financial institutions as secured creditors have priority over all revenues, taxes and other Government dues.

The learned Government Pleader contended that the above provisions, having come into force with effect from 26.12.2019, could be enforced only where the security interest was created after that date.

The High Court observed that the issue was no longer res integra and referred to earlier decisions of the composite High Court and the Andhra Pradesh High Court interpreting Section 26E of the SARFAESI Act. The Court noted that an earlier Division Bench had held that Section 26E, inserted by Act 44 of 2016, gives priority to the debts of secured creditors over Government dues, including taxes payable to the Union of India, and accordingly set aside an attachment notice issued by the Income Tax Department. The Court also referred to another Division Bench decision directing registration of property in favour of auction purchasers while providing that any surplus remaining after discharge of the secured debt be made available for adjustment towards tax dues.