Secured Creditor claim will prevail over crown debts: HC

Chennai, Dec 21 (UNI) Madras High Court today held that the claim of a secured Creditor will prevail over the crown debts (Government dues).

The Full Bench comprising Justices P Sathasivam, A Kulasekaran and S Tamilvanan gave the ruling and said the petitioner UTI Bank Limited being a secured Creditor was entitled to get preference over the claim of the Deputy Commissioner of Central Excise, Chennai.

The Bench allowed the petition filed by UTI Bank Limited, Mugapair, Chennai, seeking to restrain the Deputy Commissioner (DC) of Central Excise, Chennai and Secretary, Union Ministry of Finance, from bringing the property situated at Plot No 55 in Ambattur Estate into auction for the dues payable by Sumeet Research and Holding Private Limited as the said property had already been taken possession by the bank in pursuance of its statutory rights under the Securitisation and Reconstruction of Financial Asset and Enforcement of Securities Industries Act.

According to the petitioner, Sumeet borrowed Rs 6.35 crore towards working capital besides a term-loan of Rs 1.5 crore on September 28, 2002. The company mortgaged its properties at Plot No 54 and 55 consisting factory land and building. As the company did not discharge the loan amount, the bank took proceedings under the act and took physical possession of the properties on March 29, 2005.

Meanwhile, the DC of Central Excise issued a letter dated March 28, 2005 to the bank informing that a sum of Rs 41.17 lakh was due from the company and requested the bank to hold the money or the property. The company sold Plot No 54 and repaid a part of the amount due to the bank and the property now available as secured asset was plot no 55.

The Petitioner contended that under the provisions of Central Excise Act, the DC did not have any statutory first charge over the property secured by the bank. Ignoring the said settled position, the DC was taking action to sell the property, which was in possession of the bank, as if, DC was having first charge over the property, which was legally incorrect.

When the petition came for hearing before Mr Justice M Thanickachallam, referred the matter to Chief Justice for placing it before a full bench, as there were conflicting judgement on the similar issue. Accordingly it was placed before this bench.

The DC of Central Excise contended that the Government was entitled to claim its dues like taxes duties in defference to other ordinary debts.

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