Summary
The Supreme Court upheld Punjab’s statutory first charge for VAT dues over the bank’s secured claim in proceedings commenced before Section 26E of the SARFAESI Act became operative. The general overriding clause in Section 35 of SARFAESI did not displace the specific statutory priority under Section 35 of the Punjab VAT Act.
Issues
- Whether the bank’s secured debt prevailed over the State’s statutory first charge for VAT dues.
- Whether Section 26E of SARFAESI applied to the earlier recovery action.
Provisions considered
- Section 35, Punjab Value Added Tax Act, 2005The express first charge for tax and associated dues prevailed over the bank’s security in the applicable pre-Section 26E regime. (¶¶ 2, 6, 7, 8)
- Section 35, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The general overriding provision created no secured-creditor priority inconsistent with the State’s specific statutory first charge. (¶¶ 3, 5, 6, 7)
- Section 26E, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The provision operates prospectively and did not govern the State action commenced in 2014. (¶¶ 4, 5)
Held
- Section 26E could not assist the bank because it operated prospectively and the State’s action predated its commencement. Priority therefore fell to be determined under the two statutes without that provision. (¶¶ 4, 5)
- SARFAESI’s general non obstante clause did not itself confer priority on secured creditors. The Punjab VAT Act expressly created a first charge, and there was no relevant inconsistency for SARFAESI Section 35 to override. This statutory priority was distinct from the common-law priority of crown debts against unsecured creditors. (¶¶ 6, 7)
- Authorities concerning confiscation under central excise rules or crown debts without an equivalent statutory first charge did not govern this dispute. (¶ 8)
Result
Appeal dismissed; the High Court judgment sustaining the State’s priority affirmed. Pending applications disposed of; no order as to costs.