TaxTMI 
TaxTMI 
2010 (5) TMI 774
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..... 4196 of 2009. Similar is the grievance of the petitioner in S.C.A. No. 12958 of 2009 with regard to the property of Survey Nos. 173/1, 174/1, 174/2, 174/3 and 176 situated at Taluaka Sanand, District Ahmedabad purchased by the said petitioner from Assets Reconstruction Company (India) Ltd. (ARCIL). A prayer has been made to direct the respondent, Joint Commissioner of Commercial Tax, Division-I and its officials to remove the charge on the said property. The appellant of L.P.A. No. 1676 of 2009, who was the original petitioner of S.C.A. No. 35 of 2009, made a grievance against the Mamlatdar, Anand (Rural), District Kheda against the steps taken under section 151 of the Bombay Land Revenue Code ("the BLR Code", for short) pursuant to the recovery certificate issued by the Labour Court, Anand on July 21, 2003. The petitioner of S.C.A. No. 11615 of 2009 is the auction purchaser of the immovable property, i.e., plant and machinery of Mahendra Petrochemicals Ltd. As there is charge created by the Mamlatdar, Taluka Sanand, District Ahmedabad in favour of the Assistant Commissioner of Sales Tax, Ahmedabad, the petitioner's name could not be entered in the revenue record. A prayer ....
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....nment to any moneys recoverable 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." Section 151 of the BLR Code, restricts recovery of arrears for the current year as is evident from the said provision and quoted hereunder: "151. Revenue demands of former years how recoverable.-The said processes may be employed for the recovery of arrears of former years as well as of the current year, but the preferences given by sections 137 and 138 shall apply only to demands for the current year: Provided that any process commenced in the current year shall be entitled to the said preferences, notwithstanding that it may not be fully executed within that year." Sections 137 and 151 of the BLR Code fell for consideration before a Division Bench of the Bombay High Court in Secretary of State v. Vedavyas Venkatesh Bhatta reported in AIR 1936 Bom 213. The court noticed that section 151 restricts prerogative of Crown to make demand for current years only. The Crown has priority claim under comm....
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.... that given by common law. . ." The court further held that it includes not only the right of priority over secured debts which is new, but also declare the right of priority over debts of all sorts. In Bank of India v. John Bowman reported in AIR 1955 Bombay 305, honourable Mr. Justice Chagla, Chief Justice (as he then was), noticed that the priority given to the Crown is not on the basis of its debt being a judgment-debt or a debt arising out of statute, but the principle is as enunciated by Halsbury that if the debts are of equal degree and the Crown and the subject are equal, the Crown's right will prevail over that of the subject. In the said case, the court held that: "'. . . It cannot be denied that the Crown had the right of priority in payment of debts due to it. It is a right which has always existed and has been repeatedly recognized in India. If the Crown is entitled as it is, to prior payment over all unsecured creditors, the position of secured creditors does not arise. I see no reason why the Crown should not be allowed to apply to the court for an order directing its debt to be paid out of moneys in court belonging to the debtor, without having to file a ....
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....rivate debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements their Lordships have summed up the law as under: 1.. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts. 2.. The common law doctrine about priority of Crown debts which was recognized by Indian High Courts prior to 1950 constitutes 'law in force' within the meaning of article 372(1) and continues to be in force. 3.. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State th....
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....M Ltd. reported in [2009] 147 Comp Cas 531 (SC); [2009] 2 SCC 121. In the said case, the Supreme Court while held that a debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one, observed as follows: 9.. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the 'debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors' (see Advanced Law Lexicon by P. Ramanatha Aiyar (Third Edition), page 1147). Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of article 13 of the Constitution is saved in terms of article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is se....
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....the Securitization Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-a-vis section 69 or section 69A of the Transfer of Property Act. In terms of that sub-section, secured creditor can enforce security interest without intervention of the court or Tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimhan Committee's Second Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in section 13 and gave primacy to the right of secured creditor vis-avis other mortgagees who could exercise rights under section 69 or 69A of the Transfer of Prop....
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....egislations. Section 38C of the Bombay Act and section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State's charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc., but also give them overriding effect over other laws. . . . . . 43.. While enacting the DRT Act and Securitization Act, Parliament was aware of the law laid down by this court wherein priority of the State dues was recognized. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like section 529A of the Companies Act or section 11(2) of the EPF Act and ensured that notwithstanding a series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sale....
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....der: '(i) Arrears of tax due to the State can claim priority over unsecured debts. (ii) The common law doctrine about priority of Crown debts/State debts is recognized law in force within the meaning of article 372(1) of the Constitution of India. (iii) The doctrine will not apply if first charge by way of priority is not claimed under the statute. (iv) The doctrine of first charge/priority of the State over the property will prevail over the private debts, which is an unsecured debt, but such doctrine of first charge/priority over the property cannot prevail over secured debts of a person. If the statute permits to have first charge/priority over the property having regard to the plain meaning of article 372 of the Constitution of India, then only the State can claim priority over an unsecured debt.'" In two cases, first charge claim of the State is based on section 47A of the Gujarat Sales Tax Act, which is quoted hereinabove. In the other case, the claim is based on section 33C of the Industrial Disputes Act, 1947 as quoted hereunder: "33C. Recovery of money due from an employer.-(1) Where any money is due to a workman from an employer under a settlement or an awar....
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....ject to such rules as may be made in this behalf, a single application for the recovery of the amount due may be made on behalf of or in respect of any number of such workmen. Explanation.-In this section 'Labour Court' includes any court constituted under any law relating to investigation and settlement of industrial disputes in force in any State." Under the aforesaid provisions, the recovery can be effected as arrears of land revenue. It has already been noticed that arrears of land revenue can be recovered under section 137 of the BLR Code which is restricted to the current year under section 151 of the said Code. The question of validity of section 137 of the BLR Code fell for consideration before a Division Bench of this court in Surendrabhai & Company v. State of Gujarat reported in [1985] GLH (UJ) 53. Though the judgment was rendered on April 26, 1971, taking into consideration the importance of the judgment, it was reported after 14 years in 1985. In the said case, this court declared section 137 of the BLR Code as void, relevant portion of which is quoted hereunder: The provision of section 137 of the Code does affect the right of citizen to hold the property....
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....ision reported in [2007] 1 Law Weekly 50. In the said case, while dealing with the Central Excise Act, 1944, Customs Act, 1962 and the Securitization Act, the Full Bench considered whether the Crown's debts, for which there is no priority or charge is created under the statute, should have precedence over the secured creditors or not. Considering the facts of the said case that the bank had taken possession of the property under section 13 of the Securitization Act and having noticed that there are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government, i.e., tax, duties, etc., (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others and in absence of any such provision to claim first charge, the Government cannot claim precedence over the claim of the secured creditor under the Securitization Act. From the judgments referred to above, it will be evident that- 1.. The arrears o....