AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2007 (9) TMI 563
X X X X Extracts X X X X
X X X X Extracts X X X X
....r adjudicating the controversy in the present writ petition are as under: For various loans/advances received from respondent No. 6-Bank, Eastman Rubber and Eastman Tread (hereinafter referred to as, "the borrower") mortgaged their property comprising Khasra No. 254/2/1, Khatauni No. 7 min, 13 min, measuring 3 bighas 7 biswas, situated at Mauza Moginand, Tehsil Nahan, District Sirmaur, Himachal Pradesh (hereinafter referred to as, "the property"). Due to various defaults on account of repayments the bank classified their account as Non-Performing Asset (NPA) in its books and in terms of section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as, "the Act") served a notice asking the borrower to make good the payment and regularise the account. Further, another notice under section 13(4) of the Act, intending to take over the property, was issued to the borrower and the possession of the assets, i.e., the property was in fact taken over on October 7, 2004. In exercise of its rights and powers under the Act, the bank put the property to auction vide public notice dated December 17, 2004 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred to, "the Tenancy Act"), the petitioner sought permission from respondent No. 1 to effect the transfer of the property in its name by getting the sale deed executed. The State of H.P., after collecting information required from the District Collector and various departments and fully satisfying itself with regard to the petitioner's requirement of the property, accorded permission vide order dated August 17, 2006 and consequently petitioner was able to get the sale deed executed and registered on September 6, 2006, inter alia, containing the following clause: "And it is thereby further declared that the said land, building and machinery, etc., is free from all encumbrances, charge and demands." "And that he, the seller or any other person have not done anything whereby the said property may be subject to any attachment of liens of any person, court or banks, etc." Thereafter on September 7, 2006, the bank again informed respondent No. 3 of the auction sale and on petitioner's another application for getting the property mutated in its name, an order of rejection was passed on December 22, 2006 for the reason that on the asking of respondent No. 5, respondent N....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In its return filed by respondent No. 6, the bank has taken the stand that it was a mortgaged and secured creditor qua the property of borrower and the said borrower was classified as NPA in the books of account of the bank. The Revenue record of rights relating to the property was not only silent but clearly established the unencumbered status of the property and the respondent-bank accordingly accepted the property as security for securing the loans. It has been stated that respondent Nos. 4 and 5 are acting arbitrarily, highhandedly and contrary to law in staking their claim to the property. The action of the said respondents is an act of colourable exercise of their official authority to deplete and curtail the exclusive first charge of the respondent-bank over the property. The learned counsel for the petitioner has referred to the decisions in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. reported in [2001] 3 SCC 71, Collector of Aurangabad v. Central Bank of India reported in [1968] 21 STC 10 (SC); AIR 1967 SC 1831, UTI Bank Ltd. v. Deputy Commissioner of Central Excise, Chennai reported in AIR 2007 Mad. 118. The learned counsel for the bank has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e repayment by any borrower of any financial assistance; 2(1)(ze) 'Secured debt' means a debt which is secured by any security interest; . . . 13.. Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or Tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4) . . . (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he returns or production of evidence that the returns furnished in respect of any period are correct and complete, he shall serve on such dealer a notice in the prescribed manner requiring him, on a date and at a place specified therein, either to attend in person or to produce or to cause to be produced any evidence on which such dealer may rely in support of such returns. . . . (4) If a dealer, having furnished returns in respect of a period, fails to comply with the terms of a notice issued under sub-section (2), the assessing authority shall, within five years after the expiry of such period, proceed to assess to the best of his judgment the amount of tax due from the dealer. (5) If a dealer does not furnish return in respect of any period by the prescribed date, the assessing authority shall, within five years (1)Here italicised. after the expiry of such period, after giving the dealer a reasonable opportunity of being heard, proceed to assess, to the best of his judgment, the amount of tax, if any, due from the dealer. . . . (7) The amount of any tax, penalty or interest payable under this Act shall be paid by the dealer in the manner prescribed by such date as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of tax and penalty including interest, if any, payable by a dealer or any other person under this Act shall be a first charge on the property of the dealer or such other person. . . . 36.. Directors of defaulting companies to be liable to pay tax, etc.- Where any tax assessed or penalty imposed under this Act on a company cannot be recovered by reason of the company having gone into liquidation or for any other reason, then every person, who was director of such company at any time during the relevant period for which the tax is due or in respect of which the default for which the penalty is imposed was committed, shall be jointly and severally liable for the payment of such tax and penalty unless he proves that the non-payment or non-recovery cannot be attributed to any neglect, misfeasance or breach of duty on his part in relation to the affairs of the company." (emphasis(1) supplied) H.P. Land Revenue Act: "35. Making of that part of the periodical record which relates to land owners, etc., assignees of revenue and occupancy tenants.-(1) to (4) . . . (5) A Revenue Officer shall from time to time inquire into the correctness of all entries in the register of mut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egarded as an essential and integral part of the basic Government functions of the State, and seeks to recover debts from its debtors arising out of such commercial activities, the applicability of the doctrine of priority shall be open for consideration. . . . 10.. However, the Crown's preferential right to recovery of debts, over other creditors is confined to ordinary or unsecured creditors. The Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. . ." The court found that by virtue of provisions of section 15 of the Karnataka Sales Tax Act, 1957,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e its right to priority by making an application to the executing court for payment out. If however, the State does not choose to apply to the court for payment of its dues from the amount lying in deposit in the court but allows the amount to be taken away by some other attaching decree holder, the State cannot thereafter make an application for payment of its dues from the sale proceeds since there is no amount left with the court to be paid to the State. However, if the State had already effected an attachment of the property which was sold even before its sale, the State would be entitled to recover the sale proceeds from whoever has received the amount from the court by filing a suit. Section 73(3) read with 73(2), CPC contemplates such a relief being granted in a suit." To the same effect is the decision in Lakshman Swarup Om Parkash v. Union of India reported in [1997] 7 SCC 245. Applying the aforesaid principles there is no doubt that the amount due under the Tax Act is a State debt. We are not in agreement with the learned counsel for the petitioner that the Full Bench of the Madras High Court in UTI Bank AIR 2007 Mad. 118 has decided that the provisions of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said. " "While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary." Here the court was dealing with the question as to whether the proceedings for recovery initiated by the Uttar Pradesh Financial Corporation under the Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972 were maintainable in view of section 34(2) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. After observing the provisions of section 34(2) of DRT Act containing the non obstante clause, the court observed that it was not open for the corporation to have proceeded for recovery of its debt under the Uttar Pradesh Act. The aforesaid judgment has been followed in Pawan Kumar Jain v. Pradeshiya Industr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stante clause, in a subsequent legislation would prevail over the non obstante clause in a prior legislation unless it is found that subsequent legislation is a general statute and the earlier legislation is a special one. Solidaire India Ltd. [2001] 3 SCC 71, followed subsequently in Maruti Udyog Ltd. v. Ram Lal reported in [2005] 2 SCC 638, has held that in the event of conflict between two special statutes the later would prevail. In Krishi Utpadan Mandi Samiti v. Pilibhit Pantnagar Beej Ltd. reported in [2004] 1 SCC 391, it has been held as under: "Fiscal statute must not only be construed literally, but also strictly." "59. The matter may be considered from another angle: 'expressio unius personae vel rei est exclusio alterius' is a well known maxim which means the express intention of one person or thing is the exclusion of another. The said maxim is applicable in the instant case. [See Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra [1975] 35 STC 571 (SC); paras SCC 47 and 48 ([1975] 2 SCC 22).' 57.. Although the dictionary meaning of "business " may be wide, in our opinion, for the purpose of considering the same in the context of regula....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at is created is a 'fixed' charge. The floating charge refers to a charge created generally against the assets held by the debtor at any given point of time during the subsistence of the deed of hypothecation. For example where a borrower hypothecates his stock-in-trade in favour of the bank creating a floating charge, the stock-in-trade, held by the borrower as on the date of hypothecation may be sold or disposed of by the debtor without reference to the creditor. But as and when new stock-in-trade is manufactured or received, the charge attaches to such future stock-in-trade until it is disposed of. The creditor has the right at any given point of time to exercise his right by converting the hypothecation into a pledge by taking possession of the stock-intrade held by the debtor at that point of time." While construing the provisions of the relevant Acts and applying the principles of law laid down by the apex court referred to as above, we are of the view that keeping in view the object and the purpose of the Act, absolute right has been given to the bank to take all measures as provided for under the provisions of section 13 of the Act. Under section 13(4) of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in acting upon the request of respondent No. 5 to make entries (in red ink) of arrears of tax due recoverable as land revenue in the Revenue record is thus bad in law. For the very same reason, the action of the respondent in not mutating the name of the petitioner, in spite of no-objection issued by the State for getting the sale deed executed is thus in gross violation of the provisions of the Tax Act. Further the right of the respondent-State to have a first charge on the property of the dealer can be only if there is proper adjudication and determination of the amount due under the Tax Act and in the absence thereof, it cannot be said that the tax is due and payable by the dealer. Till such time, the same is done, there cannot be any crystallisation of charge. The charge of the State is not a floating charge. In the instant case the bank had already exercised its right and taken possession of the property much prior to the assessment order dated January 18, 2005 passed by the assessing authority. In fact before the said date the property itself had been advertised to be sold by public auction. No notice of demand was ever issued under sections 14 and 16A before action ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion under the Act which would fasten the liability of the predecessor-in-interest on the auction purchaser. In fact rule 9 framed under section 38 of the Act stipulates that the secured creditor on deposit of money shall issue a certificate of sale specifically mentioning that the property purchased is free from encumbrances known to the secured creditor. In the present case the terms of the sale certificate, as referred to above, would show that sale of the property was made free from all encumbrances known to the secured creditor. The secured creditor had taken all steps and due precautions in informing the authorities about the actions taken by them. It had not only taken the possession of the property but put the same to sale by way of public auction and informed the authorities of having sold the same to the petitioner and requesting them for effecting the entries in the Revenue record. Apparently, the respondentsauthorities have been sleeping over the matter and not taken any action in determining the amount or raising the demand. That the functionaries of the State did not act on the letters dated July 8, 2004 or May 18, 2006 would not matter. These letters have not been pla....