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JC - Insights - Superiority of Secured Creditor’s Rights vis-à-vis Revenue’s Right to Recover Tax Dues


09 Feb 2022

Superiority of Secured Creditor’s Rights vis-à-vis Revenue’s Right to Recover Tax Dues

Published by Taxsutra

The Revenue and Secured Creditors have always been on loggerheads, which has led to numerous judgments being passed by the Courts endeavoring to address and clarify this debacle from time to time. Recently, in a matter before the Division Bench of Bombay HC wherein Revenue had attached one of the secured assets of the borrower prior to the initiation of action under SARFAESI Act, HC upheld the right of the Petitioner as a secured creditor to be superior to Revenue’s right to recover tax dues in the light of overriding effect of Section 26-E of SARFAESI Act.

Given this backdrop, in this insightful podcast, Smriti Jha (Principal Associate, Juris Corp) gives a brief account of the facts of the case as well as the submissions made before HC, while doing an in-depth analysis of the said ruling. The Speaker inter alia highlights HC’s key finding that there is no provision in the Income Tax Act which provides that Revenue’s claim w.r.t. recovery would have preference over other benefits favoring the secured creditors under the SARFAESI Act, basis which HC ruled that the Tax Authorities cannot come in the way of petitioner’s right as a secured creditor.

Taking an account of HC’s observations, she lists down 3 points which arise for evaluation, including – (i) whether registration of security with the Central Registry is the litmus test for deciding priority, (ii) what is given priority w.r.t. charge creation while considering a claim, (iii) the interplay between SARFAESI and IBC. In conclusion, referring to the “notwithstanding” provisions under IBC, the Speaker asserts that the hierarchy of creditors set out under the IBC will have preference over SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions Act.

Click here to access the Published Podcast.