Page 120 - GSTL_21st May 2020_Vol 36_Part 3

366 GST LAW TIMES [ Vol. 36
110. The DRT Act facilitated establishment of two-tier system of tri-
bunals. The tribunals established at the first level have been vested with the
jurisdiction, powers and authority to summarily adjudicate the claims of
banks and financial institutions in the matter of recovery of their dues
without being bogged down by the technicalities of the Code of Civil Pro-
cedure. The Securitisation Act drastically changed the scenario inasmuch as
it enabled banks, financial institutions and other secured creditors to recov-
er their dues without intervention of the courts or tribunals. The Securitisa-
tion Act also made provision for registration and regulation of securitisa-
tion/reconstruction companies, securitisation of financial assets of banks
and financial institutions and other related provisions.
111. However, what is most significant to be noted is that there is no
provision in either of these enactments by which first charge has been cre-
ated in favour of banks, financial institutions or secured creditors qua the
property of the borrower.
112. Under Section 13(1) of the Securitisation Act, limited primacy
has been given to the right of a secured creditor to enforce security interest
vis-a- vis Section 69 or Section 69A of the Transfer of Property Act. In terms
of that sub-section, a secured creditor can enforce security interest without
intervention of the court or tribunal and if the borrower has created any
mortgage of the secured asset, the mortgagee or any person acting on his
behalf cannot sell the mortgaged property or appoint a Receiver of the in-
come of the mortgaged property or any part thereof in a manner which
may defeat the right of the secured creditor to enforce security interest. This
provision was enacted in the backdrop of Chapter VIII of the Narasimham
Committee’s Second Report in which specific reference was made to the
provisions relating to mortgages under the Transfer of Property Act.
113. In an apparent bid to overcome the likely difficulty faced by the
secured creditor which may include a bank or a financial institution, Par-
liament incorporated the non obstante clause in Section 13 and gave primacy
to the right of secured creditor vis-a-vis other mortgagees who could exer-
cise rights under Sections 69 or 69A of the Transfer of Property Act. How-
ever, this primacy has not been extended to other provisions like Section
38C of the Bombay Act and Section 26B of the Kerala Act by which first
charge has been created in favour of the State over the property of the deal-
er or any person liable to pay the dues of sales tax, etc. Sub-section (7) of
Section 13 which envisages application of the money received by the se-
cured creditor by adopting any of the measures specified under sub-section
(4) merely regulates distribution of money received by the secured creditor.
It does not create first charge in favour of the secured creditor.
…..
126. While enacting the DRT Act and the Securitisation Act, Parlia-
ment was aware of the law laid down by this Court wherein priority of the
State dues was recognised. If Parliament intended to create first charge in favour
of banks, financial institutions or other secured creditors on the property of the bor-
rower, then it would have incorporated a provision like Section 529A of the Com-
panies Act or Section 11(2) of the EPF Act and ensured that notwithstanding se-
ries of judicial pronouncements, dues of banks, financial institutions and other se-
cured creditors should have priority over the State’s statutory first charge in the
matter of recovery of the dues of sales tax, etc. However, the fact of the matter is
that no such provision has been incorporated in either of these enactments despite
conferment of extraordinary power upon the secured creditors to take possession
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