Secured creditor will have first charge over state/ central government

Madhaviben Jitendrabhai Rupareliya Vs State of Gujarat (Gujarat High Court)

Gujarat High Court held that charge in favour of secured creditor would precede over the unsecured creditor. Thus, secured creditor will have first charge over the property as against State Government (crowns debt).

Facts- The core issue involved herein is related to who will have first charge over the property in question i.e. Secured Creditor or the State / Central Government (Crowns debt) on account of non-payment of dues of Sales Tax department.

Conclusion- When each of the properties were purchased pursuant to an auction carried out pursuant to the orders passed by DRT, the aforesaid auction was held to recover the dues of Secured Creditors e. respective Banks under an order passed by DRT in the relevant proceedings before DRT. Therefore, being the Secured Creditor, the Banks were enjoying priority in terms of Section 26 E of the SARFAESI Act.

This court has already held that 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 provisions 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.

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