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Case Law Details

Case Name : Tahsildar (Rr) Vs Nizamudeen. (Kerala High Court)
Appeal Number : WA No. 2114 of 2019
Date of Judgement/Order : 06/01/2023
Related Assessment Year :
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Tahsildar (Rr) Vs Nizamudeen (Kerala High Court)

Kerala High Court held that statutory charge created against dealers as per the provisions of KGST Act, 1963 and KVAT Act, 2003, prior to any mortgage made, against the dealer would remain intact, even if the property is sold by the Bank.

Facts- The captioned writ appeals are filed by the State and its officials challenging the common judgment of the learned Single Judge in W. P. (C) Nos. 28316 of 2016 and other connected matters dated 30.07.2019, whereby the writ petitions filed by the financial institutions guided by the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) are allowed; and held that a secured creditor under Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act, 1993) obtains priority over the right claimed by the Revenue, both in proceeding against the properties in question, or in recovering the secured debt, and accordingly quashed the proceedings initiated by the sales tax authorities and the registration authorities.

Conclusion- 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, it cannot be said that merely because a priority in payment is available to the financial institutions, the statutory charge created under various enactments vanishes.

Held that writ appeals are allowed. Therefore we hold that the statutory charge created against the dealers as per the provisions of the KGST Act, 1963 and the KVAT Act, 2003, prior to any mortgage made, against the dealer would remain intact, even if the property is sold by the Bank, by the rights conferred under Section 26E of the SARFAESI Act, 2002, and Section 31B of the RDB Act 1993 read with the Rules to it, till such time the encumbrances are cleared as per the provisions of the said enactments and the rules thereto.

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