TaxTMI 
TaxTMI 
2017 (7) TMI 1339
X X X X Extracts X X X X
X X X X Extracts X X X X
....jiv Bansal assisted by Mr.Sandeep Pathak submits that property belonging to SR Foils and Tissue Ltd. was purchased by the petitioner-company in auction conducted by the respondent-Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act of 2002"). The auction of the property in question was made on 31st January, 2017. It was due to default of SR Foils and Tissue Ltd. in payment of loan amount thus Section 13 of the Act of 2002 read with Rule 12 of the Security Interest (Enforcement) Rules, 2002 (for short "the Rules of 2002") were invoked. The petitioner-company participated in the auction and being highest bidder, the respondent-Bank declared the petitioner- company to be successful bidder vide letter dated 24th February, 2017. They were asked to deposit a sum of Rs. 3,60,00,000/-. The company deposited the amount. The respondent-Bank thereupon delivered the documents relating to the property so as the possession. The impugned order dated 19th April, 2014 (corrected as 19th April, 2017) came as a shock to the petitioner-company to declare action to be void. The petitioner-company gave reply to the noti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenghai, reported in 1971 (1) SCC 757. It was held that constructive knowledge about attachment of the property cannot be presumed, though it is to be decided on the facts of each case. In the instant case, petitioner-company was not knowing about first charge and attachment of the property by the State Government and having purchased the property bonafidely for consideration, the attachment should not be allowed to stand. A reference of the judgment of the Full Bench of the Madras High Court in the case of The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank & Ors., reported in AIR 2017 Mad67 has been given. Therein, the issue in reference to Section 26E was decided by the Full Bench of Madras High Court. A further reference of judgment of the Bombay High Court in the case of M/s. Sonoma Management Partners Pvt. Ltd. Vs. Bank of Maharashtra, reported in 2017 (1) BC 187 has been given. The Bombay High Court has even considered the earlier judgment of the Supreme Court in the case of Central Bank of India Vs. State of Kerala & Ors., reported in (2009) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is prior to amendment in the Act of 2002 and 1993. The amended provision does not otherwise nullify first charge provided under the State legislation, rather, judgment of the Apex Court in the case of Central Bank of India (supra) applies to this case. A further reference of earlier judgment in the case of State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation, reported in (1995) 2 SCC 19 has been given. The prayer is made to dismiss the writ petition. I have considered the rival submissions made by learned counsel for the parties and perused the record. The petitioner-company is an auction purchaser of the property attached by the respondent-department in the year 2014 under Sections 230 and 239 of the Act of 1956. The challenge to the impugned order has been made in reference to Section 26E of the Act of 2002, as amended vide the Act No.44 of 2016. The similar provision was inserted in the Act of 1993 vide the same Act of 2016. Section 26E of the Act of 2002 and Section 31B of the Act of 1993 are quoted hereunder for ready reference: "26E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... property already attached towards recovery of State dues cannot be nullified by the subsequent legislation when it has not been given retrospective effect. If argument of the learned counsel for petitioner about priority rights of the secured creditors vis a vis Government dues is accepted, it would apply from the date of amendment, whereas, attachment of the property was made in the year 2014, thus it was not free for auction. The enforcement of statutory first charge by attachment cannot be nullified by subsequent auction when no priority right was existing in favour of the secured creditors at the relevant time. Section 47 of the Act of 2003 is relevant for it, thus quoted hereunder for ready reference: "47. Liability under this Act to be the first charge- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of such dealer or person." Section 47 of the Act of 2003 starts with non-obstante clause and creates first charge on the property. The issue about priority claim of the secured creditor vis a vis first....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. 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. 126. While enacting the DRT Act and Securiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 a 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 the 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. It is submitted that judgment of the Apex Court in the case of Central Bank of India (supra) was prior to the amendment in the Act of 2002 and 1993 thus would not apply to the cases governed by the amended provisions. In the case in hand, the attachment of property by the State is prior to the amendment thus amended provision would not apply. Section 47 of the Act of 2003 was invoked prior to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t free for auction. The petitioner-company has not challenged the attachment under the Act of 1956 and without its challenge, it cannot be nullified due to subsequent auction. Section 31 of the Act of 1963 goes against them for it. If petitioner-company is aggrieved by the attachment due to priority given under Section 26E, it could have been challenged. Learned counsel for petitioner-company has referred Section 100 of the Act of 1882 also. The argument in reference to the aforesaid provision was raised before the Apex Court also in the case of Central Bank of India (supra). It has been dealt with in Para 162 to 174 of the said judgment. The reference of the judgment in the case of Dattatreya Shanker Mote Vs. Anand Chintaman Datar, reported in (1974) 2 SCC 799 has been given. The charge in the property can be created either by the act of the parties or by operation of law to make security for payment of money. It is stated that charge is not enforceable against the purchaser of property for consideration. In the instant case, the property in question was purchased by the petitioner-company much subsequent to its attachment under Sections 230 and 239 of the Act of 1956. It was in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unicipal Corporation created first charge over the property of the defaulter. The property was, however, sold on the direction of the court. When the Municipal Corporation proposed to exercise their charge over the property, the purchaser filed a suit for declaration. It was to pray that municipal dues are not recoverable from him. The Municipal Corporation urged that State law permits creation of charge against the property for settlement of municipal dues. The constructive knowledge of the charge created against property was imputed. It was not accepted by the Apex Court on the facts of that case. It was, however, held that constructive knowledge has to be determined on the facts of each case as is a mixed question of fact and law. In the instant case, the respondent-department has not enforced recovery of dues after sale of the property and its purchase by the petitioner- company, but attachment to enforce first charge is prior to it. The attachment of the property under Sections 230 and 239 of the Act of 1956 was made in the year 2014 itself. The petitioner-company was under an obligation to find out as to whether property is subject to attachment. It could have been from the o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is a vis first charge. The Apex Court in the case of Central Bank of India (supra) found that Parliament has not made a provision to create first charge in favour of the secured creditor. The Parliament, while amending Section 26E, could have provided for first charge in favour of the secured creditor. The different legislations providing for first charge against the dues were also considered by the Apex Court in the case of Central Bank of India (supra). It was in reference to Workmens' Compensation Act, Employees' Provident Fund Act, Excise Duty Act and Companies Act, etc. Therein also, statutory first charge is provided against the dues. The reference of those enactments were given to make distinction between priority rights of the secured creditor vis a vis statutory first charge on the property. Learned Senior Counsel appearing for the petitioner- company submits that Section 26E of the amended Act gives priority to the secured creditor against all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured credito....