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In Edelweiss Asset Reconstruction Co. Ltd. v. Tax Recovery Officer, Income-Tax Department and Ots [Writ Petition (L) No. 7964 OF 2021 dated July 28, 2021] Edelweiss Asset Reconstruction Co. Ltd (Petitioner) has filed the current petition being aggrieved with the Order of Attachment dated January 17, 2013 passed by Tax Recovery Officer (Respondent) for seeking recovery of Income Tax dues from the Classic Diamonds (India) Ltd. (Borrower).

Business illustration showing the concept of secured creditor

The Petitioner is an assignee of right, title and interest of the credit facilities to Borrower which is now in liquidation and the Petitioner has a secured and a prior charge over the attached properties of the Borrower. The Petitioner, due to the prior charge, has been aggrieved by the order of the Respondent which is seeking Income Tax dues from the Borrower.

The Petitioner contends that the Respondent has not appreciated the information furnished by the Petitioner which provides that it is the secured creditor with valid prior charge and an equitable mortgage in its favour. Therefore, it has prior charge over the properties of the Borrower.

Further, the Petitioner places reliance on Section 26-E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“the SARFAESI Act”) and Section 31-B of the Recovery of Debts Due to Banks and Financial Institutions Act, 2002 (“the RDDBFI Act”) which accords priority to the dues of secured creditor which is applicable on the Petitioner over the Respondent in the current case.

The Hon’ble Bombay High Court accepting the contentions put forth by the Petitioner held that the Petitioner’s charge over the said premises has priority over the dues of the Income Tax department and the attachment by Respondent cannot come in the way of Petitioner’s rights as secured creditor.

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(Author can be reached at info@a2ztaxcorp.com)

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