SARFAESI Act | Charge of Secured Creditor Will Precede Over Charge Of An Unsecured Creditor: Gujarat HC

The Gujarat High Court reiterated that the charge of the Secured Creditor will precede over the charge of an Unsecured Creditor.

The Bench of Justice Nirzar S Desai was considering a writ petition that raised this issue: Who will have the first charge over the property in question i.e. Secured Creditor or the State / Central Government (Crowns debt) on account of non-payment of dues of Sales Tax department? 

Counsel Monal S Chaglani appeared for the petitioners, while AGP Jay Trivedi appeared for the respondent. 

In this case, various petitions revolved around disputes over primary charge on properties arising from Sales Tax dues non-payment. Challenges emerged for auction purchasers attempting to alter names in revenue records.

The lead petition dealt with rejected mutation applications following an auction. The factual backdrop involved past land transactions, auctions, and subsequent legal complexities. Other petitions echoed similar concerns, seeking resolutions based on individual circumstances in a collective court hearing.

The core issue was related to who will have first charge over the property in question, i.e., Secured Creditor or the State / Central Government (Crowns debt) on account of non-payment of dues of Sales Tax department.

The Court noted that when each of the properties were purchased pursuant to an auction carried out pursuant to the orders passed by DRT, the aforesaid auction was held to recover the dues of Secured Creditors i.e. respective Banks under an order passed by DRT in the relevant proceedings before DRT. With that background, it was held that, "being the Secured Creditor, the Banks were enjoying priority in terms of Section 26 E of the SARFAESI Act"

The Court also placed reliance on certain judgments of the Apex Court, including Vinod Realities Private Limited v. State of Gujarat and Punjab National Bank v. Union of India and others, wherein it was held that the charge of the Secured Creditor will precede over the charge of an Unsecured Creditor (Crowns Debt).

Subsequently, the petitions succeeded and were allowed. The authorities were directed to mutate the names of each of the petitioners in the revenue record by quashing and setting aside any attachment / charge over the property in question by the State or its authorities as there was a first charge of the respondent Bank in each of the petitions. 

Cause Title: Madhaviben Jitendrabhai Rupareliya vs State of Gujarat

Click here to read/download the Judgment