The Kerala High Court held that when the secured creditors have a right in priority to have their debts extinguished, obviously, their right to proceed against the property would also rank high than that is claimed by the Revenue.
The bench of Justice Devan Ramachandran opined that whoever sells the property or in whatever manner it is sold, the secured debts will require to be paid off first and all others will have to wait for their turn.
The petitioners are auction purchasers and they seek that the Revenue authorities and the Village authorities be directed to effect transfer of registry of the concerned properties in their names and that they be permitted to remit the basic tax, notwithstanding the attachments effected on them at the instance of the Revenue. They assert that since they have purchased the properties under the provisions of the SARFAESI Act/RDB Act, they are entitled to own and possess the same free of all charges and encumbrances.
The court found that a ‘Charge’ does not create any right over the property but allows the charge holder to deal with the property in the same manner as a simple mortgagee would be entitled to under the various Sections of the TP Act.
“While every Mortgage is a Charge over the property, every Charge is not a Mortgage and does not create any rights over the same in favor of the charge holder,” the court said.
The court said that even though the KGST Act/KVAT Act creates a ‘First Charge’ in favour of the Revenue to recover the arrears of tax, the afore provisions of the SARFAESI Act and RDB Act make the secured dues entitled to be paid in priority over such taxes and in fact, elevates the rights of the secured creditor, to recover such dues, also to a position of priority.
Case Title: SBI V/S State of Kerala