A bench of Justices R Mahadevan and Mohammed Shaffiq said that even if recovery proceedings are quashed for any reason in a case, “the bankers/ financial institutions right to claim priority in terms of Section 31B of the Recovery of Debts and Bankruptcy Act and Section 26E of the SARFAESI Act would be available and the right to recover under the Income Tax Act, 1961 must yield to the provisions under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act.”
The bench was hearing a bunch of writ appeals filed by financial institutions challenging a single-judge’s order that had held that the dues of the Income Tax department would take precedence over the dues of secured creditors.
The single-judge had said that though the SARFESI Act and the Debt Recovery Act grants an upper hand to secured creditors, one must keep in mind that income tax is an attribute of the nation’s sovereignty and necessary for attaining constitutional goals and objectives, therefore, recovery of tax dues should get priority.
Source: Barandbench
