Provisions Of Section 26E SARFAESI Act & Section 34 RDB Act Prevails Over Section 24 Of TNGST Act: Madras High Court

The Madras High Court stated that provisions of Section 26E of the SARFAESI Act and Section 34 of the Recovery of Debts and Bankruptcy Act would prevail over the provisions of Section 24 of the Tamil Nadu General Sales Tax Act. The Division Bench of Justices Anita Sumanth and G. Arul Murugan observed that “in the juxtaposition of Section 26E of the SARFAESI Act with Section 34 of the RDB Act, it is Section 26E of the SARFAESI Act that will provide the necessary impetus for determining the priority of a charge of security interest in favour of the Financial Institution, as Section 34 of the RDB Act is, by comparison, only a general provision.” Section 26E of the SARFAESI Act, 2002 states that when a creditor has a legally registered claim on a borrower's assets (known as a security interest), they get first dibs on being paid back. Section 34 of the Recovery of Debts and Bankruptcy Act, 1993 states that the provisions of this Act shall prevail over any conflicting provisions in other existing laws or instruments. Section 24 of the Tamil Nadu General Sales Tax Act, 1959 says that tax assessed must be paid within the time specified in the notice of assessment, not being less than 21 days from the date of service of notice. In default the whole outstanding amount becomes due and shall be charge on the property of person liable to pay tax. In this case, the assessee/petitioner is a Nationalised Bank and had sanctioned secured overdraft facilities to the assessees and a loan to another assessee in connected case. As a collateral, the assessees created an equitable mortgage over their half undivided share of the land together with a property by deposit of title deeds. Documents of title were deposited with the assessee in the bank and the creation of equitable mortgage was confirmed. The bank had been a tenant of the assessees, occupying a portion in the basement, ground and first floors of the property. While this is so and the aforesaid arrangement had continued since 1991, the bank was in receipt of notices in Form B-6 issued under Section 26 of the Act. The notice was to the effect that the assessees were in arrears of sales tax and hence any money which is either due or that may become due to the assessee from the defaulting assessee or any money held by the assessee on account of the defaulting assessee is required to be paid forthwith to the Sub-Treasury Officer in favour of the Commercial Tax Officer. The bank communicated with the Commercial Tax Authorities intimating them that the defaulting assessees had availed credit facilities from the bank and were defaulters also in respect of those credit facilities, vide letter dated 02.01.2002. A show cause notice was issued Commercial Taxes Department was assured by the bank that as and when the demands of the bank were fully settled, any amount over and above the same would be paid over to the Department, if their demand still subsisted. The counsel for the assessee relied on the provisions of Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in terms of which, financial institutions and secured creditors hold priority of charge over all other creditors in respect of the outstanding dues. The bench looked into Section 26E of the SARFAESI Act and observed that as far as SARFAESI Act is concerned and with respect to the question of priority, it is Section 26E, which is a specialized section, that would apply. The provisions of Section 34 of the RDB Act are, by contrast, general in nature. The bench opined that “the provisions of Section 26E of the SARFAESI Act and Section 34 of the RDB Act would prevail over the provisions of Section 24 of the TNGST Act. Additionally, this is a case where security interest has been created by the bank as early as in 1991, prior to the charge imposed by the Sales tax Department.” Section 24 of the TNGST Act does not provide for priority by creation of a first charge in respect of the demands raised under that Act. Hence, Section 26E of the SARFAESI Act and Section 34 of RDB Act would prevail, in public interest, added the bench. In view of the above, the bench allowed the petition. Case Title: Indian Bank v. The Commercial Tax OfficerCitation: 2025 LiveLaw (Mad) 156 Case Number: W.P.Nos.31572 Counsel for Petitioner/ Assessee: Jayesh B. Dolia Counsel for Respondent/ Department: Haja Nazirudeen Click Here To Read/Download Judgment

Provisions Of Section 26E SARFAESI Act & Section 34 RDB Act Prevails Over Section 24 Of TNGST Act: Madras High Court

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