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of <h1>State's Priority in Debt Recovery Upheld by Supreme Court</h1> <h3>Union of India Versus Somasundaram Mills Pvt. Limited And Another</h3> Union of India Versus Somasundaram Mills Pvt. Limited And Another - [1985] 152 ITR 420 (SC) Issues:- Priority of the State over other creditors in recovering dues- Effect of attachment by the Collector and executing court on recovery process- Interpretation of Section 73(3) and Section 73(2) of the Civil Procedure Code- Precedent regarding priority of State debts in recovering sale proceedsAnalysis:The Supreme Court addressed the issue of the State's priority in recovering dues over other creditors in a case involving income-tax arrears. The case involved certificates issued under s. 46(2) of the Indian I.T. Act, 1922, for the recovery of tax as arrears under the Revenue Recovery Act. The Collector of Coimbatore issued prohibitory orders against the transfer of shares owned by defaulting assessees, which were later attached by a creditor and sold. The Union of India filed a suit to recover the sale proceeds taken by the creditor. The key argument was the State's entitlement to priority over other creditors due to the attachment by the Collector preceding the attachment by the executing court.The Court emphasized the general principle that debts due to the State hold priority over all other debts. It clarified that if the State had already attached the property before its sale, it could recover the sale proceeds from the party who received the amount. The Court highlighted the application of Section 73(3) read with Section 73(2) of the Civil Procedure Code, which allows for such relief in a suit. The judgment also distinguished a prior decision of the Madras High Court, emphasizing that the prior attachment by the State fastens itself to the sale proceeds, enabling the State to recover the amount from the decree-holder who received the proceeds.Ultimately, the Court allowed the appeal, setting aside the High Court's judgment and restoring the trial court's decree in favor of the Union of India. The decision clarified the State's right to priority in recovering dues from sale proceeds, particularly when the State had previously attached the property. The judgment underscored the importance of upholding the State's priority status in debt recovery matters.
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