PRIORITY OF BANKS' DUES VIS-À-VIS THOSE OF SALES TAX

  During this year a three judge bench of Supreme Court
had disposed off four  cases related to the above matter
where the Kerala State Sales Tax law was considered.

The gist of the judgements is as under:  Section 26 B of the 
Kerala Act gives priority over the banks' dues and the state 
government can even revoke the sale effected by the bank
in its efforts of recovery of state revenue. 

Further the invocationcan be at different
stages of litigation and can even be done with
retrospective effect. Some details are as under:

1. In C.A. No. 95/2005 between
Central Bank of India and State of Kerala,
the state authorities had invoked their priority
of charge before the suit filed by the bank is
decreed and their priority was upheld.

  2. In C.A.3549/2006 between IOB and state of Kerala,
the suit filed by the bank in DRT was decreed
but the bank's appeal against the quashing of their
request to restrain the state sales tax officials from
claiming their dues was declined despite the fact that
the said section 26B was inserted in Kerala Act
w.e.f. 01.04.1999 after the suit was filed by the
bank was decreed in their favour. 

3. In C.A. 3973/2006 between BOB and State of Kerala,
the supreme court had upheld the decision of the bench
of High court where they expressed that "State has
got priority in the matter of recovery of debts due
and specific statutory charge created under the Sales
Tax notwithstanding the equitable mortgages created by
defaulters in favour of banks prior to the liability in favour
of the state".

In had opined further that till the decree passed by a
civil court is executed through executing court, the title
of the mortgaged property remains with the  mortgagor
and the state's overriding rights would not be disturbed.

4. In C.A. 4174/2006 involving one
Mr. Ahmad Koya and the District collector, the Canara Bank
which was a creditor had obtained a decree in the DRT
on17.02.2000 and obtained recovery certificate on 24.08.2000
.Before actually recovery was effected the District collector
had invoked Recovery Act on 18.07.2000 and attached the
property and on 13.02.2001 had tried to sell the property.

On a petition from the bank the sale notice was stayed. Bank
sold a part of the property to Mr. Koya for Rs. 60,60,010/- 
as it sufficed their dues. State of Kerala had sought and obtained
a decree nullifying the sale by the recovery officer since he did no
give notice to the state though he is aware of the attachment of 
the property by the state.  

Mr. Koya contended that since the attachment is
after the date of decree the bank is not wrong in
disposing of the property and further that  there is
another piece of property which can be auctioned by
the state for recovering its dues.

However the court had upheld the High court order
which nullified the sale as the state is not informed of
the same despite the property under attachment.
The bench of the Supreme Court had given the freedom
to Mr. Koya to take appropriate remedial steps 
for getting back the amount paid by him.