Legal principle

A secured creditor whose charge is registered prior in time prevails over a later-created charge for State dues by virtue of Section 26E of the SARFAESI Act and Section 31B of the RDB Act, the Crown's preferential right to recover its debts being limited to the class of unsecured creditors.

Court decision

The Court held that, as an undisputed fact, the petitioner-Bank had created a prior charge in 2011 as against the State's charge of 2018, so the Bank had a prior charge over the property sold in auction to petitioner No.2; the impugned orders dated 26.09.2018 and 07.09.2019 were quashed and set aside and Mutation Entry Nos. 1412 and 1452 stand deleted, and the petition was disposed of in those terms - i.e., in favour of the Bank and the auction purchaser.

Facts

Petitioner No.1, Karur Vysya Bank, advanced financial assistance in 2011 to M/s. Mahesh Industries Private Limited and created an equitable mortgage over that company's land at Survey No. 22/2/P1/p1, Village Varsana, Taluka Anjar, District Kachchh, registering the charge on 09.03.2011 with CERSAI; the Bank later sold the property in auction to petitioner No.2. The State of Gujarat, by orders/communications dated 26.09.2018 and 07.09.2019, directed respondent No.3-Mamlatdar to register a charge for the State's outstanding dues over that land, and consequential mutation Entries Nos. 1412 and 1452 were made in the revenue record. The petitioners, proceeding under Articles 226 and 227 of the Constitution, challenged those orders and entries, contending that under Section 26E of the SARFAESI Act the Bank held the prior charge and the auction sale was free of the State's encumbrance.

Key provisions

• Section 33(5), Customs Act, 1962 — Unloading and loading of goods at approved places only
• Section 14, Customs Act, 1962 — Valuation of goods
• Section 142A, Customs Act, 1962 — Liability under Act to be first charge