TaxTMI 
TaxTMI 
2006 (12) TMI 2
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.... Finance, Government of India from bringing the property situated at Plot No.55, Ambattur Industrial Estate, Ambattur, Chennai 600 058 into auction for any alleged dues payable by the debtor company, namely M/s.Sumeet Research and Holdings Private Limited, since the said property has already been taken possession by the petitioner in pursuance to its statutory rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002) (in short SARFAESI Act). 3. M/s.Sumeet Research and Holdings Private Limited, (hereinafter called the 'borrower company') sought financial assistance from the writ petitioner/UTI Bank, of a sum of Rs.635 lakhs towards working capital besides term loan of Rs.150 lakhs, which was sanctioned by the Bank, as per Sanction Letter No.Adv./1650/2002-03 dated 28.9.2002. For the total working capital provided and enjoyed by the borrower, the borrower company had created a mortgage by deposit of title deeds, in respect of various properties, including the factory land and building situate at Plot Nos.54 and 55, ....
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....ot maintainable and liable to be dismissed. 8. When the writ petition came up before M. Thanikachalam,J. the learned Judge, after hearing the arguments of both parties at length, and after noticing that two Division Bench decisions of this Court in ICICI BANK LTD. vs. THE OFFICIAL LIQUIDATOR (2005 (1) CTC 758) and COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY vs. INDIAN BANK [2006 (198) E.L.T. 334 (Madras)], though relied on the judgment of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., 2000 (4) CTC 170 : 2000 (5) SCC 694, had taken different views, referred the matter to a Larger Bench and on the orders of the Hon'ble Chief Justice, now the matter is before us. 9. We have already referred to the fact that since there was no response from the borrower company for the notice issued under section 13(2) of the SARFAESI Act on 17.4.2004, after lapse of time as provided under the SARFAESI Act, the petitioner ban....
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....tated that since the SARFAESI Act has already been invoked, the first respondent will not have jurisdiction to proceed under Section 142 or any other provision of the Customs Act, but it must take a claim under Section 13(7) of the SARFAESI Act. According to the petitioner, any action taken by the first respondent is totally without jurisdiction. It is also projected before us that since a statutory first charge is created in favour of the petitioner Bank by the provisions of SARFAESI Act, the same will prevail over all other subsequent charges. It is also pointed out that the first respondent, viz., Department of Central Excise does not have a first charge over the property. 11. Before considering various decisions on this subject, it is useful to refer the relevant provisions. Chapter I of the SARFAESI Act 2. Definitions: 2(zd) "secured creditor' means any bank or financial institution or any consortium or group of banks or financ....
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....; (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) .... (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (5) .... (6) .... (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incid....
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.... succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining written approval from the Commissioner of Central Excise, for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.] Section 12. Application of the provisions of Act 8 of 1878 to Central Excise Duties.- The Central Government may, by notification in the Official Gazette, declare that any of the provisions of the [Customs Act, 1962 (52 of 1962)], relating to the levy of and exemption from customs duties, drawback of duty, warehousing, offences and penalties, confiscation and procedure relating to offences and appeals shall, with such modifications and alterations as it may consider necessary or desirable to adapt them to the circumstances, be applicable in regard to like matters in respect of the duties imposed by Section 3."  ....
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.... payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus, if any, to such person. [Provided that where the person (hereinafter referred to as predecessor) by whom any sum payable under this Act including the amount required to be paid to the credit of the Central Government under this Act including the amount required to be paid to the credit of the Central Government under section 28B is not paid, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached ....
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....State of Karnataka purchased the property on auction held on 30.4.1976. Upon a prayer made by the bank, the State of Karnataka was impleaded as a defendant in the suit. The trial Court found all the material plaint averments proved and the bank entitled to a decree. The charge created on suit properties by mortgage was also held proved. The trial Court also held that the State could not have attached and sold the said properties belonging to partners for recovery of sales tax dues against the firm. However, the suit was directed to be dismissed as in the opinion of the trial Court the Chief Manager and Power of Attorney Holder of the bank was not proved to be a person duly authorised to sign and verify the plaint and institute the suit. The bank preferred an appeal before the High Court. During the course of hearing of the appeal, on 27.01.1992, a compromise was entered into between the bank and the borrowers; and the settlement as arrived at between the bank and the borrowers provided for a mode of payment of the decretal amount as a....
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....d we are concerned with the first issue raised. The relevant findings rendered are as under: " 7. What is common law doctrine of priority or precedence of crown debts ? Halsbury, dealing with general rights of the crown in relation to property, states that where the Crown's right and that of a subject meet at one and the same time, that of the Crown is in general preferred, the rule being "detur digniori" (Laws of England, Fourth Edition Vol. 8 para 1076 at page 666). Herbert Brown states - "Quando just domini regis et subditi concurrunt jus regis. praeferri debet - Where the title of the king and the title of a subject concur, the king's title must be preferred. In this case detur digniori is the rule ....where the titles of the king and of a subject concur, the king takes the whole ....where the king's title and that of a subject concur, or are in conflict, the king's title is to be preferred" (Legal Maxims 10th edition, pp. 35-36). This common law doctrine of priority of State's debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence the doctrine....
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....iewed 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 recongnised by the 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 the right to claim priority in respect of its tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercia....
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.... Act, 1957 for holding that the arrears of Sales Tax would be entitled to a preference even over the debt secured by mortgage in favour of the appellant Bank. We would notice the relevant legal provisions. 15. We have seen that the common law doctrine of priority of crown debts would not extend to providing preference to crown debts over secured private debts. ... 21. The learned counsel for the appellant is right in submitting that on the day on which the State of Karnataka proceeded to attach and sell the property of the partners of the firm mortgaged with the Bank, it could not have appropriated the sale proceeds to sales tax arrears payable by the firm and defeating the Bank's security in view of the law as laid down by this Court in Commissioner of Sales Tax, M.P. v. Radhakrishan (AIR 1979 SC 1588) (supra). However, still in the facts and circumstances of the case, the appellant Bank cannot be allowed any relief. Section 15(2-A) of Karnataka Sales Tax Act had come into force on 18-12-1983 while the decree in favour of the....
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....58), the Division Bench consisting of Markandey Katju, C.J. and D. Murugesan,J. considered the ratio laid down in Dena Bank case. In that case, the revision petitioner is ICICI Bank - secured creditor and the borrower is M/s.Vibrant Investments & Properties Ltd., which went in liquidation and the question arose is, whether the claim of the revision petitioner Bank would prevail over the claims of Income-tax Department and Karnataka Sales Tax Department. The conclusion of the Division Bench reads as follows. "3. This issue is no longer res integra in view of the decision of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., 2000 (4) CTC 170 : 2000 (5) SCC 694 vide para 10 where it has been held that the claim of a secured creditor will prevail over crown debts." By holding so, the Division Bench modified the judgment of the Debts Recovery Appellate Tribunal dated 27.08.2004 and directed that the claim of the petitioner will prevail over that of the Income-tax Department and the Karnataka Sales Tax Department, but this will be subject to the provisions of Section 529-A of the Companies Act. The Division Bench relying on para 10 of....
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....s any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawnor making a default in payment of debt. 8. The approach of the trial Court was unexceptionable. The plaintiff's right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawn....
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.... is also an agreement for the pledge of movables dated 7-1-1980 executed by the first respondent in favour of the appellant-bank. The appellant-bank filed Civil Suit No.5/86 in the court of the Additional District Judge II, Bharatpur against the respondents for the recovery of a sum of Rs.3,79,672 due and payable under the above cash credit facilities and for future interest @ 16.25% p.a. with quarterly rests. In this suit the appellant-bank also asked for the realisation of the mortgage security under Order 34, Rule 4 of the Code of Civil Procedure. While the suit was pending, the Commercial Taxes Officer, Bharatpur got himself impleaded in the suit on 18-5-1990 on the ground that he had a prior claim for the recovery of a sum of Rs.1,19,122/- as sales tax dues from Respondent-1 and was entitled to realize it by sale of the mortgaged property. The property which is the subject-matter of the mortgage was sold by auction under the orders of the court for a sum of Rs.4,02,000/- to one Kamlesh Goel. Under orders of the court, the sale proceeds were deposited in court. It was contended by the Commercial Taxes Officer, Bharatpur that the sales tax dues of the first respondent were....
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....ansfer 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 immoveable 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 Dattatreya Shanker Mote v. Anand Chintaman Datar - 1974 (2) SCC 799. 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. &nb....
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....perty of the dealer including the interest of the mortgage therein." 20. Mr.V.T. Gopalan, learned Additional Solicitor General appearing for the first respondent heavily relied on the following decisions of the Supreme Court in Builders Supply Corporation vs. Union of India [AIR (1965) SC 1061]; Collector, Aurangabad vs. Central Bank of India [AIR (1967) SC 1831] and State of West Bengal vs. Corporation of Calcutta [AIR (1967) SC 997]. In Builders Supply Corporation vs. Union of India [AIR (1965) SC 1061], which is a Constitution Bench judgment, while construing Article 372 (1) of the Constitution, their Lordships have held that the r....
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....ly show that the Government is entitled to claim its dues/taxes/duties in preference to other ordinary debts. In all those cases there is no provision as found in SARFAESI Act or a specific provision claiming to have "first charge" as provided in Rajasthan Sales Tax Act in State Bank of Bikaner & Jaipur vs. National Iron & Steel Rolling Corporation [1995 (2) SCC 19 - Three Judge Bench], Madhya Pradesh General Sales Tax in State of M.P. vs. State Bank of Indore [2002 (10) SCC 441 - Three Judge Bench], and Karnataka Sales Tax Act in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [(2000) 5 SCC 694]. As explained in the case of Constitution Bench judgment in Builders Supply Corporation vs. Union of India [AIR (1965) SC 1061], the arrears of tax due to the State can claim priority over private debts and thus the 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. In Dena Bank case (cited supra) it is held that the Crown's preferential right to recover all debts over other creditors is confined to ordin....