TaxTMI 
TaxTMI 
2008 (9) TMI 882
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.... 97, SIDCO Industrial Estate, (ii) Mukuntharayapuram-2548 sq. ft. S. No. 476/5B and [2] S. Nos. 114/4 and 114/5 situated at Manthangal village, Ranipet Town as its security by availing equitable mortgage apart from the hypothecation of plant and machinery. In addition to the above, three immovable properties of the guarantors were also mortgaged with the bank. As the company and its guarantors/ mortgagors failed to repay the dues and committed default, the petitioner filed O.A. No. 1275/99 before D.R.T. Chennai for recovery of Rs. 43,20,860 as on December 10, 1999. The said O.A. is said to be still pending before DRT, Chennai. (ii) As there was enormous delay in recovery of the dues, even through DRT, after the implementation of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "SARFAESI Act"), bank issued a notice dated August 1, 2005 under section 13(2) of the said Act to the second respondent, its guarantors/ ortgagors for the recovery of Rs. 89,36,269.25 together with interest from March 31, 2005 till payment in full. (iii) Since there was a default inspite of the said notice, bank invoked the provisions of....
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....f India reported in [2006] 5 CTC 753. The action of the first respondent attaching the property after bank had taken possession of the same on December 15, 2006 is not legally tenable and the first respondent ought to have seen that the mortgage in favour of the bank was created as early as on March 15, 1991 and secured creditor has a prior charge. It is the further case of the petitioner that only after adjustment of its dues, the excess balance if any, can be claimed by the first respondent. According to the petitioner, bank having initiated action under SARFAESI Act will have priority and SARFAESI Act being a special enactment and a later enactment will have priority over and above the provisions of the TNGST Act. Challenging the G.O. No. 1 dated January 5, 2007, the petitioner has filed this writ petition to quash the same. The first respondent-Commercial Tax Officer has filed the counter stating that second respondent-firm had paid taxes only up to the year 1990-91, but failed to pay taxes due for the year 1991-92 and a sum of Rs. 37,09,966 is due. The second respondent had closed their business with effect from April 1, 1999 and the arrears of sales tax had not been paid. ....
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....1 and 2 has contended that as per section 24(1) and (2) of the TNGST Act, in the event of default made by any dealer in respect of taxes assessed under the Act, the outstanding amount shall become immediately due and shall be a charge on the properties and any amount due under the Act shall have priority over all other claims against the properties of dealer. The learned counsel for the first respondent further submitted that as per section 24 of the TNGST Act, by operation of law a statutory charge has been created on the property and therefore, the SARFAESI Act can have no overriding effect over such statutory charge. The learned counsel for the third respondent has contended that after sale made under the SARFAESI Act and when sale certificate was issued, the auction purchaser takes the property free of all encumbrances, known or unknown to the creditor. Laying emphasis upon section 35 of the Act and observations of Transcore's case [2006] 5 CTC 753, learned Special Government Pleader (Taxes) further submitted that in view of non obstante clause, the sale under the SARFAESI Act will prevail. It was further argued that if sale made under the SARFAESI Act is subject to any ....
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....same, namely, recovery of debt. Conceptually, there is no inherent or implied inconsistency between the two remedies. Therefore, as stated above, the object behind the enactment of the NPA Act is to accelerate the process of recovery of debt and to remove deficiencies/ obstacles in the way of realisation of debt under the DRT Act by the enactment of the NPA Act, 2002. . . . . 22.. On reading section 13(2), which is the heart of the controversy in the present case, one finds that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice failing which the secured creditor shall be entitled to exercise all or any of the rights given in section 13(4). Reading section 13(2) it is clear that the said sub-section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or FI is classified as sub-standard, doubtful or loss. The NPA Act comes into....
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....Bhikhabhai Prabhudas Parekh & Co. [2000] 120 STC 610 (SC); [2000] 5 SCC 694, Allahabad Bank v. Canara Bank [2000] 4 SCC 406, Transcore v. Union of India [2006] 5 CTC 753, Asset Reconstruction Company (India) Limited, rep. by its Vice President v. Official Liquidator, High Court, Madras as the Liquidator of SIV Industries Ltd. (in liquidation) [2006] 3 CTC 529, Misons Leather Ltd. v. Canara Bank [2007] 139 Comp. Cases 302 (Mad), Ramco Super Leathers Ltd. rep. by its Director v. UCO Bank, rep. by its Authorised Officer, IBB, Chennai [2007] 5 MLJ 986, Prestige Lights Ltd. v. State Bank of India [2007] 5 MLJ 1100 (SC) and Lakshmi Shankar Mills (P) Ltd. Kallai v. The Authorised Officer/Chief Manager, Indian Bank, Madurai [2008] 2 LW 381. The learned Special Government Pleader (Taxes) would submit that Securitisation Act is an Act to regulate the securitisation and reconstruction of financial assets and enforcement of security interest. The learned Special Government Pleader further contended that two enactments deal with entirely different subjects and operate in different fields. According to him, there is no conflict in section 24 of the TNGST Act and section 35 of the Securitisati....
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....tary to each other and, therefore, the doctrine of election has no application to the present case." A non obstante clause confers a power to the law, to the effect that if any comes in the way of enforcing the provisions of the law, such other provisions of law cannot be given effect to. Ordinary rule of construction is that where there are two non obstante clauses, the latter shall prevail. But it is equally well-settled that ultimate conclusion would depend upon the limited context of the statute. In Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd. [2006] 12 SCC 642, Supreme Court considered the question whether provisions of the Arbitration and Conciliation Act, 1996 would prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Observing that the endeavour of the court would, however, always be to adopt a rule of harmonious construction, Supreme Court has held as follows: "62. In Sarwan Singh v. Kasturi Lal [1977] 1 SCC 750, this court opined: 'When two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulati....
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....ur of the court would, however, always be to adopt a rule of harmonious construction. Considering the object of Securitisation Act vis-a-vis Bombay Sales Tax Act and observing that two enactments operate in different fields and section 38C of the Bombay Sales Tax Act is not overridden by section 35 of the Securitisation Act, in Thane Janata Sahakari Bank Ltd. v. Commissioner of Sales Tax [2006] 148 STC 32, Division Bench of the Bombay High Court has held as under: "12. The Securitisation Act came into effect from December 17, 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 the 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 the legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. The Narasimhan Committee I and II and the Andhyaryjina Comm....
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....mbay Sales Tax Act can be said to be inconsistent with section 35 of the Securitisation Act. The area of operation is entirely different and there is no overlapping anywhere. 19.. Section 35 of the Securitisation Act may have had some bearing, if there was some provision in the Securitisation Act for a first charge in favour of the banks and financial institutions. 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." ....
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....r all other claims against that property except claims for land revenue and of land development bank. In State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation [1995] 96 STC 612, Supreme Court dealt with the question of first charge over the property of a dealer for payment of arrears of sales tax under section 11AAAA of the Rajasthan Sales Tax Act, 1954 vis-a-vis section 58 and section 100 of the Transfer of Property Act. Section 11AAAA of the Rajasthan Sales Tax Act like section 38C of the Bombay Sales Tax Act provides for the liability under the said Act to be first charge. Section 11AAAA reads, "Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, penalty, interest and any other sum, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person." The language of section 11AAAA is a bit different from section 38C of the Bombay Sales Tax Act. However, the creation of first charge in favour of the bank being not under any Central Act, the decision of the Supreme Court in the case of State Bank of Bikaner & Jaipur v. Na....
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....st in the property when the dealer has created a mortgage on the property. In other words, will the statutory first charge have priority over an earlier mortgage. It was urged by Mr. Tarkunde, learned counsel for the appellant-bank, that at the time when the statutory first charge came into existence, there was already a mortgage in respect of the same property. Therefore, the only property which was possessed by the dealer and/or person liable to pay tax or other dues under the Rajasthan Sales Tax Act, was equity of redemption in respect of that property. The first charge would operate, therefore, only on the equity of redemption. The arguments though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgage dues. This does not, however, mean that the property ceases to be the property of the mortgagor. The title to the property remains with the mortgagor. Therefore, when a statutory first charge is created on the property of the dealer, the property subjected to the first charge is the ....
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....envisages the creation of a charge by the 'operation of law' and therefore, a law creating a charge by operation of such law cannot constitute any inconsistency of the said law creating the charge with the general law relating to transfer of property, necessitating the obtaining of any consent of the President under article 254(2) of the Constitution of India . . ." In State of Tamil Nadu v. M. Cauvery Ammal [2004] 134 STC 562 (Mad), it was held that although the term "first charge" is not mentioned under section 24 of the TNGST Act, 1959, it was clear that a statutory charge had been created and even prior to sale, the final order of assessment had been made by the competent authority and under the circumstances, the respondent was not entitled to the relief. Eventhough, the word "first charge" is not found in section 24(2), language of section 24(2) that sales tax dues will have priority over all other claims against those properties assumes significance. Contending that crown has preferential right only as against the unsecured debts on behalf of the petitioner-bank and third respondent- auction purchaser much emphasis was laid upon in Dena Bank case [2000] ....
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....rable under the provisions of this Chapter shall have precedence over any other debt, demand or claim whatsoever whether in respect of mortgage, judgment, decree, execution or attachment, or otherwise howsoever, against any land or the holder thereof. (2) In all cases, the land revenue for the current revenue year, of land for agricultural purposes, if not otherwise discharged, shall be recoverable, in preference to all other claims, from the crop of such land." Noticing section 158 of the Karnataka Land Revenue Act, Supreme Court has held that section 158 not only gives statutory recognition to the doctrine of the State's priority for recovery of debts, but it also extends its applicability over private debts forming the subject-matter of mortgage, judgment, decree, execution of attachment and the like. The Supreme Court has further held that effect of section 158 is to accord a primacy to all the moneys recoverable under the Karnataka Land Revenue Act which will include sales tax arrears. In Dena Bank case [2000] 120 STC 610 (SC); [2000] 5 SCC 694, Supreme Court has ultimately held that State shall have preferential right to recover its dues over the right of the appell....
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.... along binding as a precedent. [See State of Orissa v. Sudhansu Sekhar Misra AIR 1968 SC 647 and Union of India v. Dhanwanti Devi [1996] 6 SCC 44]" In support of his contention that secured credit will prevail over crown debts, learned counsel for the petitioner's-bank placed reliance upon ICICI Bank Ltd., Chennai v. The Official Liquidator, High Court, Madras, Liquidator of Vibrant Investments & Properties Ltd. (in liquidation), Chennai [2005] 1 CTC 758. In the said case, question involved was whether the claim of the petitioner will prevail over the claim of income-tax department and Karnataka sales tax department. Referring to Dena Bank case [2000] 120 STC 610 (SC); [2000] 5 SCC 694, First Bench of this court held that the issue is no longer res integra in view of the decision of the Dena Bank case [2000] 120 STC 610 (SC); [2000] 5 SCC 694 where in para 10, it was observed that the claim of a secured creditor will prevail over crown debts. Judgment in ICICI Bank Ltd. v. Official Liquidator [2005] 1 CTC 758 is a very short judgment and facts of which are not known. Noticing section 158(c) of the Karnataka Land Revenue Act, in Dena Bank case [2000] 120 STC 610 (SC); [200....
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....5 as contemplated under section 27 of the Revenue Recovery Act was also served on August 1, 2006. Form 7 and form 7A notice of sale of land, i.e., No. 97 SIDCO Industrial Estate, SIPCOT, Ranipet were also served on August 1, 2006. Attachment and public auction were duly published in Vellore District Gazette on January 5, 2007 which amounts constructive notice to all and the charge was created long ago in the manner as contemplated under section 24(1) of the TNGST Act. As noted earlier, property was attached and notice of sale of the land dated August 25, 2005 was served on August 1, 2006. Only at that stage, petitioner-bank had issued notice under section 13(2) of the SARFAESI Act on August 1, 2005. Notice under section 13(2) is akin to show-cause notice. Issuance of notice under section 13(2) is based on the footing that the debtor is under liability and that crown in respect of such liability has become sub-standard doubtful or loss. On receipt of notice under section 13(2) the borrower may make payment or might sent his representation or objection and the secured creditor shall consider such representation or objection and the secured creditor shall communicate within one wee....
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....ection 38C of the Bombay Sales Tax Act, the bank in grossly illegal manner proceeded under section 13 of the Securitisation Act and sold the property of the company for recovery of its outstanding dues. The action of the bank is wholly illegal and unauthorised." In State of Kerala v. Rajmohan Cashew Pvt. Ltd. [2005] 142 STC 283 (Ker), it was held that State has priority over banks holding a charge over properties of dealers, in the manner of recovery of debts due and the specific statutory charge created under the Kerala General Sales Tax Act, 1963, notwithstanding the equitable mortgages created by the defaulters in favour of banks prior to the liability in favour of the State. In State Bank of Travancore v. Recovery Officer, Employees State Insurance Corporation [2007] 7 VST 469 (Ker), question arose whether recovery of debts due to banks and financial institutions would have precedence over the statutory charge for recovery of sales tax. Observing that there is no conflict between the provisions of the Kerala General Sales Tax Act, 1963 and Recovery of Debts due to Banks and Financial Institutions Act, 1993, Kerala High Court has held that the Recovery of Debts due to Bank....