TaxTMI 
TaxTMI 
2006 (4) TMI 258
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....pany was indebted to the Bank in the sum of Rs. 2,32,00,000 against the cash credit facility and Rs. 10,00,000 towards the working capital term loan. For availing the credit facilities, the company had mortgaged factory, land and building by way of equitable mortgage in favour of the bank on 18-2-1997. The account of the company was classified as non-performing assets and the bank decided to recover the due amount against the company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter to be referred to as 'Securitisation Act'). Before the Bank decided to initiate recovery proceedings against the company under the Securitisation Act, 2002, it is pertinent to notice that the sales tax dues from the company amounting to Rs. 3,27,24,096 for the assessment period from 1995-96 and 1999-2000 were outstanding under the Bombay Sales Tax Act and Central Sales Tax Act. The company had also not paid with returns an amount of Rs. 35,58,672 that they collected as sales tax. In other words, an amount of Rs. 3,62,82,768 was already outstanding against the company towards the sales tax dues. For recovery of the said sales tax d....
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....issioner of Sales Tax and the Bank asserting and reiterating their respective stand about the first charge on the movable and immovable properties of the company. The Assistant Commissioner of Sales Tax emphasized that the recovery of sales tax dues has priority even over the secured creditors and requested the Bank to deposit the proceeds of the sale with the sales tax department. On the other hand, the Bank refused to accede to the request of the Assistant Commissioner of Sales Tax. By the notice dated 16-8-2005, the Assistant Commissioner of Sales Tax called upon the Bank to show cause as to why the action may not be taken against them under section 39 of the Bombay Sales Tax Act and for repayment of the sum of Rs. 49,68,614 in addition to the auction proceeds. The Bank responded to the show-cause notice by giving reply on 18-8-2005 and then filed the present writ petition. The Bank has prayed that the notice dated 16-8-2005 issued by the respondents be quashed and set aside and for direction to the respondent No. 2 to withdraw and cancel the said notice and from initiating any action against the Bank. 8. The counsel for the bank raised the following contentions : (I)That ....
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....0; (vi) Bank of Maharashtra v. Konkan Chemicals (P.) Ltd. [2000] 3 Mh. L.J. 801^1 ; (vii) State of Maharashtra v. Official Liquidator 2004 Mah. LJ 486; (viii) Syndicate Bank v. Official Liquidator, Wester Works Engineers Ltd. [1999] 2 Comp. L.J. 211; (ix) Janata Sahakari Bank Ltd. v. Assistant Provident Fund Commissioner and Recovery Officer [Writ petition No. 639 of 2005, decided on 23-6-2005] and (x) Herbert v. Vaughan [1972] 3 All E.R. 122. 12. The Securitisaticn Act came into effect from 17th December, 2002. Inter alia, the object for enactment of the said Act is to empower the banks and financial institutions in India to take possession of securities and sell them without pursuing the cumbersome legal remedy provided in the Civil Procedure Code or for that matter the special remedy provided under Recovery of Debts due to Banks and Financial Institutions Act, 1993. The necessity of enactment of the Securitisation Act arose as the Legislature found that legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. Narasimhan Committee I and II and Andhyarujina Committee constituted by the Central Gov....
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....ests that liability under the Bombay Sales Tax Act shall be first charge. It overrides anything contained in any contract which is contrary to section 38C. It provides that any amount of tax, penalty, interest or any other sum payable by a dealer or any other person under this Act shall be first charge on the property of the dealer or that person but subject to any provision regarding first charge in any Central Act for the time being in force. In other words, if any Central Act provides for first charge, the charge created under section 38C of Bombay Sales Tax Act is overridden. Conversely, if the Central Act does not provide for first charge in respect of the liability under the said Act, the first charge created under section 38C of Bombay Sales Tax Act shall hold the field. We wanted to know from the counsel for the petitioner as to under which provision of the Securitisation Act, the provision for first charge is made. The counsel, in answer, referred to section 13 of the Securitisation Act. Having read section 13 carefully, we are unable to agree with the counsel for the Bank that this provision creates first charge. Section 13 is not a provision regarding first charge. It pr....
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....s. But neither section 13 nor any other provision under the Securitisation Act makes a provision for first charge. 20. There being no provision in the Securitisation Act providing for first charge in favour of the banks, section 35 of the Securitisation Act cannot be held to override section 38C of the Bombay Sales Tax Act, 1959 that specifically provides that the liability under the said Act shall be the first charge. The overriding provision contained in section 38C is only subject to the provision of the first charge in the Central Act holding the field. The case of the Bank is not covered by the expression, "subject to any provision regarding first charge in any Central Act for the time being in force" and that being the position, section 38C is not overridden by section 35 of the Securitisation Act. 21. In Janata Sahakari Bank Ltd. v. Assistant Provident Fund Commissioner and Recovery Officer [Writ Petition No. 639 of 2005, decided on 23-6-2005], the Division Bench of this Court was concerned with an issue relating to the impact of the provisions of the Securitisation Act on the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. Dealing wi....
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....bution to the Employees Provident Fund shall be made a first charge on the assets of the establishment and that, notwithstanding anything contained in any other law for the time being in force, it shall be paid in priority against all other dues. The reason for this is obvious. The Legislature intended to secure the terminal social security benefit made available by the statute to the working class. Taking into consideration that EPF and MP Act is a social benefit legislation, and the evil consequences of Provident Fund dues being defeated by prior claim of the secured and unsecured creditors, the Legislature took care to declare that irrespective of when the debt is created the dues under the EPF and MP Act would always remain first charge and shall be paid first out of the assets of the establishments. The non obstante clause contained in section 35 of the Securitisation and Reconstruction Act has to be construed and given effect to having regard to the object and purpose of the said Act and so construed it does not in any way effect the operation of the provisions of EPF and MP Act. We are therefore of the view that the respondent No. 1 shall be entitled to exercise power as a R....
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....the property and all the provisions in the Transfer of Property Act which apply to a simple mortgage shall, so far as may be, apply to such charge. A mortgage on the other hand, is defined under section 58 of the Transfer of Property Act as a transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this Court in the case of Dattatreva Shanker More v. Anand Chintaman Datar. The Court has observed (at pages 806-807) that a charge is a wider term as it includes also a mortgage, in that, every mortgage is a charge, but every charge is not a mortgage. The Court has then considered the application of the second part of section 100 of the Transfer of Property Act which inter alia deals with a charge not being enforceable against a bona fide transferee of the property for value without notice of the charge. It has held that the phrase 'transferee of property' refers to the transferee of entire interest in the property and it does not cover the transfer of only an interest in the property by way of a mortgage. 8. In the present ca....
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....er the bank's charge based on contractual mortgage. 25. In the case of Bharat Co-operative Bank Ltd. (supra), it was held by us that section 38C of the Bombay Sales Tax Act read with section 169 of the Maharashtra Land Revenue Code leaves no manner of doubt that the recovery of sales tax dues has priority over the secured creditors. The said judgment is not elaborate as it was given at the motion hearing stage while considering whether writ petition deserved to be admitted or not. However, we considered section 38C of the Bombay Sales Tax Act and section 38C of the Bombay Sales Tax Act and section 169 of the Maharashtra Land Revenue Code in the light of the submission made by the counsel for the bank that the bank being the secured creditor and the property having been mortgaged with the bank, such property could not be put to sale under section 38C of the Bombay Sales Tax Act. After referring sections 38C and 169, we held thus- "6. We are afraid, section 169 of the Maharashtra Land Revenue Code, 1966 does not support the submission of the learned Counsel for the petitioner at all as contended. By virtue of section 38C of the Bombay Sales Tax Act, the recovery of sales tax du....
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.... clause are special statutes, an endeavour should be made to give effect to both of them. In case of conflict, the later shall prevail. There cannot be any doubt about the aforesaid legal position but in what we have already observed above, there is no conflict in section 35 of the Securitisation Act and section 38C of the Bombay Sales Tax Act. There is no inconsistency and both provisions can be given effect to without any difficulty. 29. Insofar as Kesoram Industries Ltd. (supra) is concerned, the counsel relied upon the observations made in paragraph 31 of the report. Paragraph 31 of the report reads thus- "31. Article 245 of the Constitution is the fountain source of legislative power. It provides subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. The legislative field between Parliament and the Legislature of any State is divided by article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the 'Union List'. S....
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....ployed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeration of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of the Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in List I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three lists containing a large number of entries, there is bound to be some overlapping among them. In Such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Leg....