Case Law Details
City Union Bank Limited Vs Tax Recovery Officer (Madras High Court)
Madras High Court clarifies charge priority in City Union Bank vs. Tax Recovery Officer case. First charge holder’s dues have precedence over tax recovery.
Introduction: The Madras High Court recently addressed the priority of charge over secured creditors in a case involving City Union Bank Limited and the Tax Recovery Officer. The petitioner sought to challenge an attachment order and sought direction for removal of the first respondent’s name from Encumbrance Certificate (EC) related to certain properties.
Background:
i. The petitioner, City Union Bank Limited, claimed that the guarantors of the third respondent had mortgaged various properties with the bank to avail credit facilities.
ii. The bank proceeded for the recovery of outstanding loan amounts, and when attempting to register a sale certificate with the second respondent, they found an attachment by the first respondent (Tax Recovery Officer) on the mortgaged property.
iii. The petitioner argued that they held a registered mortgage deed executed by the guarantors and that the attachment by the first respondent for tax dues should not take precedence over their mortgage.
Court Proceedings:
i. The court considered the submissions of both parties. The petitioner and the first respondent (Tax Recovery Officer) both agreed that the first respondent, as a second charge holder, is entitled to recover tax dues of the third respondent after the settlement of the entire dues of the petitioner bank.
ii. The court clarified that as the first charge holder, the petitioner bank is entitled to recover their entire dues first. If any amount remains after settling the bank’s dues, the first respondent, as a second charge holder, can recover the same towards the tax dues of the third respondent from the sale proceeds.
Court’s Decision:
i. The court disposed of the writ petition, making it clear that the first respondent, as a second charge holder, can recover tax dues only after the settlement of the entire dues of the petitioner bank.
ii. The petitioner, being the first charge holder, has priority in recovering their dues from the sale proceeds of the attached properties.
Conclusion: The judgment emphasizes the order of priority in recovering dues from attached properties. It ensures that the first charge holder, in this case, City Union Bank Limited, has priority in recovering its dues before the second charge holder, the Tax Recovery Officer, can claim any remaining amount for tax dues.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This writ petition was filed challenging the impugned attachment order dated 14.04.2020 passed by the first respondent and also seeking a direction to the 2nd respondent to strike the name of the 1st respondent from the EC with respect to the Item No.1 & 8 as mentioned in FORM No.I.T.C.P.16 in TRC No.5/201 1-12/SLM dated 14.01.2020.
2. The case of the petitioner is that in order to avail the credit facilities, Mr.S.Devaraj and Mrs.D.Ellammal who are the guarantors of the third respondent had mortgaged various properties with the petitioner Bank by way of memorandum of deposit of title deeds dated 31.07.2017 and 21.08.2017. The third respondent failed to repay the loans within the stipulated time period and therefore the petitioner Bank proceeded for the recovery of the outstanding loan amount, as per RBI norms. However, when the petitioner Bank approached the second respondent for registration of sale certificate, they were informed that there was an attachment by the first respondent towards the mortgaged property. The mortgage registered by the 4th and 5th respondent in favour of the petitioner Bank was by way of a registered mortgage deed. The date of deposit of title deeds is on 31.07.2017 & 21.08.2017 and duly registered with CERSAI on 17.09.2017, whereas, the first respondent has made an attachment on 22.01.2020. Hence, the petitioner is entitled as a priority mortgagor.
3. The learned counsel appearing for the petitioner would submit that originally the property of the fourth and fifth respondents were mortgaged by virtue of the registered mortgage deeds dated 2017 and 21.08.2017. However, the first respondent, for the tax dues of the third respondent, attached two properties, viz. Property measuring about 0.13 1/2 acres (5880 sq. ft.) in S .No .61/1, Nallampatty Village, and property measuring about 0.35 acres in S.No.61/3B, 61/3, Nallampatty Village, Salem District (mentioned in the writ affidavit dated 28.04.2022 filed in W.P.No.15011 of 2022), Since the mortgage deeds were executed in favour of the petitioner Bank for the money borrowed by the third respondent, according to the petitioner, the first respondent is not entitled to any right over the properties of the third respondent to recover the tax dues. Hence, this writ petition.
4. Per contra, Mr.R.S.Balaji, learned Senior Standing Counsel appearing for the first respondent would submit that they are entitled to collect the tax dues out of the sale proceeds of those two properties mortgaged with the petitioner, as a second charge holder. He would further submit that as a first charge holder, the petitioner is entitled to collect money out of the sale proceeds of the properties under attachment and after the clearance of the dues of the petitioner, if anything is left over, as a second charge holder, the first respondent is entitled to recover me towards the tax dues of the third respondent.
5. In reply, the learned counsel for the petitioner, in agreement with the submissions made by the learned Senior Standing Counsel for the first respondent, would submit that in a similar case, the Hon’ble First Bench of this Court also passed an order dated 27.09.2023 in WP 19742 of 2021 & etc. batch.
6. In view of the submissions made by the learned counsel for the petitioner as well as the learned Senior Standing Counsel for the first respondent, this Court makes it clear that the first respondent, as a second charge holder is entitled to recover the tax dues of the third respondent, as a second charge holder, after the settlement of the entire dues of the petitioner Bank. Also being the first charge holder, the petitioner is entitled to recover their entire dues thereafter, if any amount is left over, as a second charge holder, the first respondent is entitled to recover the same towards tax dues of the 3rd respondent from and out of the said sale proceeds.
7. With the above, this Writ Petition is disposed of. No costs. Consequently, connected Miscellaneous Petition is closed.
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