Introduction: The legal landscape surrounding the priority of secured creditors versus various state departments, including Excise & Revenue, was recently addressed by the Himachal Pradesh High Court in the case of Nugenic Pharma Pvt. Ltd. vs. Indian Bank and others. This article provides an in-depth analysis of the judgment, drawing insights from the authoritative Supreme Court decision and its implications.
1. Key Question: The central question in this case revolves around determining whether different state departments, such as Excise & Revenue, hold priority over the debts of secured creditors. The complexity of this issue has been a matter of contention, prompting a comprehensive examination by the court.
2. Supreme Court Precedent: The Himachal Pradesh High Court referred to the Supreme Court’s authoritative judgment in Punjab National Bank vs. Union of India & Ors. (2022) 7 Supreme Court Cases 260, dated 24.02.2022. The court highlighted relevant excerpts, emphasizing the misinterpretation of the issue by the High Court and the primacy of secured creditors in certain scenarios.
3. Legal Interpretation: The detailed analysis delves into the legal intricacies, focusing on Section 11E of the Central Excise Act, 1944, inserted in 2011, and its interaction with the SARFAESI Act, 2002. The court’s opinion, as reflected in the Supreme Court judgment, establishes the first charge of secured creditors on mortgaged assets.
4. Court’s Decision: Based on the legal position outlined in the judgment, the Himachal Pradesh High Court directed respondents No.4 and 5 to attest mutation of the sale deed in favor of the petitioners. It further instructed the inclusion of the petitioners’ names as owners in revenue records, nullifying red entries related to the property.
5. Implications and Observations: The article discusses the broader implications of the court’s decision, emphasizing the removal of red entries in revenue records and the protection of the petitioners’ legal rights, particularly regarding loans and NOCs.
Conclusion: The Himachal Pradesh High Court, guided by the Supreme Court’s precedent, resolved the Nugenic Pharma vs. Indian Bank case by prioritizing the rights of secured creditors. The court’s directives for mutation and record correction underscore the legal clarity provided in the judgment. This decision has implications for similar cases, emphasizing the supremacy of the SARFAESI Act, 2002, and securing the rights of parties involved.
FULL TEXT OF THE JUDGMENT/ORDER OF HIMACHAL PRADESH HIGH COURT
The moot question in this petition is as to whether the different departments of State including Excise & Revenue will have priority over the secured creditor’s debt?
2. The issue in question is no longer res integra in view of the authoritative judgment of the Hon’ble Supreme Court reported in (2022) 7 Supreme Court Cases 260, titled as, ‘Punjab National Bank Vs. Union of India & Ors.’ decided on 24.02.2022. It will be apt to reproduce the relevant paras of the judgment, which read as under:
“37. Coming to the issue of priority of secured creditor’s debt over that of the Excise Department, the High court in the impugned judgment has held that “In view of the matter, the question of first charge or second charge over the properties would not arise.” In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. Xxxxxx 38-42.
43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944, w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provision contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.xxxxx 44-46. …………………. .
47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Stature books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellantbank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. xxxx”
3. In view of the legal position, set out here-in-above, this Court is left with no other option, but to allow this petition by directing respondents No.4 and 5 to attest mutation of sale deed dated 18.9.2021 (Annexure P-5) issued by the Indian Bank, in favour of the petitioners and further respondents No.4 and 5 are directed to enter the names of the petitioners as owner of the property in question in the revenue records having been purchased by them in an auction conducted by the Indian Bank under the provisions of SARFAESI Act and respondents No.2 to 5 are further directed to remove the red entries made in the revenue record/jamabandi of the property in question. Ordered accordingly.
4. It is made clear that red entries as appearing in the revenue records shall not affect the legal right of the petitioners in case they are entitled to grant of loans, NOC etc. 5. With the above directions/observations the present petition is disposed of. Pending application(s), if any, also stand disposed of accordingly. Parties are left to bear their own costs.
1 Whether reporters of Local Papers may be allowed to see the judgment?