Tax dues have priority over bank claims

The Rajasthan High Court has reiterated that though banks and financial institutions might fall in the category of secured creditors, the state’s dues will come first when the property is attached for non-payment of dues. In this case, Gmc Engineers & Contractor Ltd vs State of Rajasthan, the property of SR Foils and Tissue Ltd was attached by sales tax officers. ICICI Bank, which provided loan to the failed company, auctioned it and transferred title documents to Gmc, the highest bidder. However, the government invalidated the auction and offered the property for sale for recovering its tax dues. This was challenged by Gmc in the high court. It argued that the amended Section 26E of the Securitisation Act and the Debt Recovery Act granted priority to secured creditors and, therefore, the ICICI auction was valid. The high court rejected the argument analysing various laws and following the Supreme Court ruling in a similar case.