TaxTMI 
TaxTMI 
2019 (7) TMI 1340
X X X X Extracts X X X X
X X X X Extracts X X X X
....tire property of the Society in an open auction and then settle its disputes. 2 It appears that the properties of the Society were put to sale in CWP No. 200/2005 and therefore, the petitioner did not press the writ petition and as regards CWP No. 3/2006, the same as observed above, was ordered to be dismissed. 3 Since the sale proceeds realized out of the sale amounting to Rs. 31,25,000/- are lying deposited in the registry of this Court, therefore, the petitionerSociety has filed the instant application for release of the same. 4 Notice of the application was served upon the respondents and the same has been contested by respondent No.4, i.e. The CollectorcumAssistant Excise and Taxation Commissioner, Hamirpur and respondent No.5, i.e. The Kangra Central Cooperative Bank Limited, Dharamshala (hereinafter referred as to the KCC Bank). 5 In reply filed on behalf of respondent No.4, it is averred that an amount of Rs. 17,74,029/- as additional demand and an amount of Rs. 18,88,055/- as interest worked out upto 30.6.2007 (total amount Rs. 36,62,084/- ) is recoverable by respondent No.4 from the petitionerSociety. It is averred that under statutory provisions of Himachal Pradesh ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntention of the appellant that after the Constitution was adopted the position of the Union of India in regard to its claim for priority in the present proceedings had been alerted could not be upheld. (iii) The basic justification for the claim for priority of government debts rests on the wellrecognised principle that the State is entitled to raise money by taxation, otherwise it will not be able to function as a sovereign Government at all. This consideration emphasises the necessity and wisdom of conceding to the State the right to claim priority in respect of its tax dues." (emphasis supplied) 10 The ratio of the judgment in Builders Supply Corporation 's case (supra) was applied to the cases State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation (1995) 2 SCC 19, Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694 and State of M.P. v. State Bank of Indore (2002) 10 SCC 441 in which statutory first charge was created in favour of the State in the matter of recovery of tax, penalty, interest etc.. 11 In State of M.P. v. State Bank of Indore (supra), the Hon'ble Supreme Court considered an identical question whether statutory first char....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that subsection, a 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 the Narasimham Committee's Second Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. I13. n 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` vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ament was aware of the law laid down by this Court wherein priority of the State dues was recognised. 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 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 sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies. 127. The definition of "secured creditor" includes securitisation/ reconstruction company and any other trustee holding securities on behalf of bank/financial instit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis` vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as Parliament has not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the dealer or any other person, liable to pay sales tax, etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors." (emphasis supplied) 15 Thus, what can be taken to be more than settled is that Section 16(b) of the Act creates a statutory first charge that prevails over any charge that may be in existence. Therefore, the charge thereby created in favour of the State in respect of the sales tax dues of the petitionerSociety prevailed over the charge created in favour of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... ii) prorata refund share capital and iii) prorata payment of dividend on the shapes at the rat and in the manner fixed in rule 111. In any other case, if the assets of cooperative society with limited liability are inadequate to meet the remaining liabilities even after having issued the contribution order, the liquidator in that event, shall after realizing all the assets and bringing asset portion of the balance sheet to proceed to submit his final report to the registrar. The final report as submitted by the liquidator shall, inter alia, contain the details of remaining liabilities and reasons for nonpayment thereof, the Registrar, on receipt of the final report of the liquidator under Section 83(2) shall pass a reasoned and detailed order of cancellation of registration of the society." 17 Admittedly, instructions as quoted above, are nonstatutory and will have to give way to the statutory provisions as contained in Section 16(b) of the Act. 18 Thereafter, the learned counsel for the petitioner has placed reliance on Three Judge Bench decision of the Hon'ble Supreme Court in Bombay Stock Exchange vs. V.S. Kandalgaonkar and others, (2015) 2 SCC 1 to contend that since ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....covery of dues on account of salestax assessed against the partnership firm under the provisions of the Kartanaka Sales Tax Act, 1957? 20 It was while answering first question, the Hon'ble Supreme Court held 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 where the Crowns 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 jus domini regis et subditi concurrunt jus regis praeferri debetWhere the title of the king and the title of a subject concur, the kings title must be preferred. In this case detur digniori is the rulewhere the titles of the king and of a subject concur, the king takes the whole.where the kings title and that of a subject concur, or are in conflict, the kings title is to be preferred (Legal Maxims 10th edition, pp.3536). This common law doctrine of priority of States debts has been recognised by the High Courts of India as applicable in British India before 1950 and henc....