1993 (7) TMI 333 - HC - VAT and Sales Tax

Government Corporation vs. State of Uttar Pradesh: Emphasis on Amicable Dispute Resolution

The Allahabad High Court addressed a dispute between a government corporation and the State of Uttar Pradesh regarding loan recovery and sales tax dues. ... Obligation to avoid litigation between government departments and public undertakings - inter-departmental dispute resolution and clearance before litigation - protection of secured mortgage interests against attachment by another government department - stay of confirmation of auction pending executive resolutionObligation to avoid litigation between government departments and public undertakings - inter-departmental dispute resolution and clearance before litigation - Duty of the court to insist that disputes between government departments, government companies or public sector undertakings be first examined and cleared through executive inter-departmental mechanisms before proceeding to litigation. - HELD THAT: - The Court applied the principle enunciated by the Supreme Court in M/s. Oil and Natural Gas Commission v. Collector of Central Excise that courts and tribunals must discourage inter-departmental litigation and should, where appropriate, demand a prior clearance from the executive committee constituted to examine such disputes. The State has a corresponding internal obligation, supported by the State Government Order dated January 16, 1991, to attempt to resolve issues between its departments before resorting to courts. In the present matter the corporation's representation seeking inter-secretarial consideration was rejected; the High Court held that this rejection was not consonant with the obligation to avoid intra-State litigation and that the executive must be given an opportunity to resolve the conflict before judicial proceedings continue. [Paras 10, 11, 12, 13, 14]The Court required that disputes between departments/public undertakings be examined and cleared by the executive mechanism before litigation proceeds and directed adherence to the principle in the cited Supreme Court decision.Protection of secured mortgage interests against attachment by another government department - inter-departmental dispute resolution and clearance before litigation - Whether the Sales Tax Department's action in attaching and auctioning assets subject to a mortgage in favour of the Corporation could proceed without executive resolution, and direction to the State to resolve realisation of tax dues without frustrating the corporation's mortgage. - HELD THAT: - The Court noted that confirmation of a sale by auction would transfer assets subject to the Corporation's mortgage to a third party and thereby jeopardise the mortgage and the public purpose of loans advanced by the Corporation. Balancing the Sales Tax Department's right to recover arrears against the public interest in protecting secured public monies, the Court held that the State (through its Secretaries for Finance and Industries) must confer to devise a method by which sales tax dues can be realised without frustrating or weakening the Corporation's mortgage. The Court thereby mandated executive inter-departmental negotiation as the appropriate forum to reconcile these competing public interests, rather than immediate judicial sanction of the auction. [Paras 15, 16, 17]The Court directed the Secretaries of the State Government to meet and resolve how sales tax dues may be realised without jeopardising the Corporation's mortgage; the matter was to be addressed by the executive rather than proceeded with in court.Stay of confirmation of auction pending executive resolution - Immediate judicial relief to preserve the status quo pending executive consideration. - HELD THAT: - In view of the obligation placed on the State to obtain an inter-departmental resolution and to prevent frustration of the Corporation's mortgage, the Court stayed the confirmation of the auction sale executed in the recovery proceedings by the Sales Tax Department. The stay was limited to the specific act of confirmation of sale and was imposed until the State arrived at a decision on the executive resolution sought between the departments. [Paras 18]The confirmation of the auction sale in the recovery proceedings shall remain stayed until the State Government takes a decision pursuant to inter-departmental consideration.Final Conclusion: The High Court, invoking the Supreme Court's injunction against inter-departmental litigation, directed the State's Secretaries to resolve the conflict between the Sales Tax Department and the Corporation so as to protect the Corporation's mortgage while enabling recovery of sales tax; meanwhile the Court stayed confirmation of the auction sale pending that executive resolution. Issues:1. Dispute between a government department and a government company regarding recovery of loans and sales tax dues.2. Validity of attachment and auction of assets by Sales Tax Department.3. Obligation of the court to discourage conflicts between government departments and public sector undertakings.4. Rejection of corporation's representation and the need for a solution.5. Obligation of the State Government to resolve disputes before entering into litigation.6. Protection of the corporation's mortgage rights and public moneys.Analysis:The judgment of the Allahabad High Court dealt with a petition filed by a government corporation against the State of Uttar Pradesh and other entities seeking relief regarding the recovery of loans granted to a debtor. The corporation had transferred assets to a third party to recover part of the outstanding loan amount. However, the Sales Tax Department initiated recovery proceedings against the assets, leading to an attachment and impending auction. The court highlighted the obligation to discourage conflicts between government departments and public sector undertakings, citing a Supreme Court decision emphasizing amicable dispute resolution. The rejection of the corporation's representation by the Sales Tax Department raised concerns about the need for a solution and compliance with government orders to resolve disputes internally before resorting to litigation.Furthermore, the court emphasized the protection of the corporation's mortgage rights and public funds invested in encouraging industries. It highlighted the State Government's obligation to consider the Supreme Court's directive and convene a meeting between relevant secretaries to resolve the issue without jeopardizing the corporation's financial interests. Until a decision was reached by the State of Uttar Pradesh, the court stayed the confirmation of the auction to prevent further complications and potential losses to the corporation. The judgment underscored the importance of proactive dispute resolution mechanisms within the government to prevent unnecessary litigation and protect public resources.