The Andhra Pradesh High Court has ruled in favor of the Central Bank of India, upholding its right to recover secured debts by selling mortgaged assets under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). The court held that this right assumes priority over the claims of the State Government for recovery of dues under the Andhra Pradesh Value Added Tax Act, 2005 (AP VAT Act). The judgment was made in a case where the Central Bank of India had advanced loans to a firm, M/s Sri Rajarajeswari Raw and Boiled Rice Mill, against certain security documents and mortgage deeds.
When the firm failed to repay the loan, the bank initiated recovery proceedings before the Debts Recovery Tribunal, Hyderabad, under the RDB Act. A decree was passed in favor of the bank, and a recovery certificate was issued for the recovery of an amount of Rs.79,74,57,988.09. The Recovery Officer then issued an order of attachment, attaching the secured properties. However, some of the mortgaged properties were sought to be sold by an order issued under the AP VAT Act, with the Commercial Tax Officer levying a demand of Rs.15,02,102 for assessment year 2015-16 and Rs.13,91,168 for 2016-17.
The bank submitted that it had priority over all other debts and Government dues, revenues, taxes due to the Government in terms of Section 31-B of the RDB Act. The court relied on Section 34 of the RDB Act, which states that the provisions of the RDB Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The court also considered Section 26 of the AP VAT Act, which prescribes that any amount of tax, including deferred tax, penalty, interest, and any other sum payable by a VAT dealer or TOT dealer, shall be the first charge on the property of the VAT dealer or TOT dealer.
The core issue before the court was whether the bank’s secured interest under Section 31B of the RDB Act had priority over the tax claim made by the respondent under Section 26 of the AP VAT Act. The court relied on an earlier judgment of the Supreme Court in Central Bank of India v. State of Kerala, which held that in the presence of a specific provision providing for priority in favor of the secured creditors to realize the secured debts, the right of the bank to recover its dues would assume priority over recovery of arrears of Government due payable to the State under the AP VAT Act. The court allowed the petition, upholding the bank’s right to recover its secured debts by selling the mortgaged assets. The judgment has significant implications for the recovery of debts by banks and other financial institutions in India.