State Taxes have priority over bank claims

The State’s dues shall be priority when a property is attached for recovery, even though the banks and financial institutions may fall in the category of secured creditors. The same was emphasized by the Rajasthan High Court in case of GMC Engineers & Contractor Ltd vs. State of Rajasthan, where the property of SR Foils and Tissue Ltd was attached by sales tax department. The failed company had taken a loan from the ICICI Bank which auctioned it and transferred title documents to the highest bidder – GMC. The auction was termed invalid and the State Government sold the property for recovery of its dues. The same being challenged in the High Court was argued that the amended Section 26E of the Securitisation Act and the Debt Recovery Act granted priority to secured creditors and, therefore, the auction was valid. The High Court rejected the argument analysing various laws and following the Supreme Court ruling in a similar case.