TaxTMI 
TaxTMI 
2021 (10) TMI 846
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....ati Ltd.- respondent no.7 (hereinafter referred to as 'assessee-in-default'). Relief has also been sought against the citation dated 26.05.2015, seeking those recoveries from the petitioner. 3. Undisputedly, the 'assessee-in-default' was assessed to tax for the A.Ys. 1992-93 (U.P. and Central), 1993-94 (Central), 2006-07 (Central) and 2006-07 (Entry Tax), under the provisions of U.P. Trade Tax Act, 1948, Central Sales Tax Act, 1956 and The U.P. Entry Tax Act. It was further faced with other demands of tax etc. raised against it for the A.Ys. 1994-95 to 2000-01. Those arrears of tax were stated to be Rs. 17,64,83,574/-, in the impugned recovery citation dated 26.05.2015. 4. Though the revenue authorities deny, yet, upon exchange of affidavits, it appears, the 'assessee-in-default' owed dues to the State Bank of India, against loan facility availed by it. According to the petitioner, amongst others, the 'property-in-dispute' had been mortgaged by the 'assessee-in-default', to the State Bank of India. Thus, a first charge existed over the same which was duly registered with the Registrar of Companies, Kanpur. In this regard, a Certificate dated 06.08.2014, issued by the ....
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....Act was applicable, no fraud was committed by the petitioner. In that regard, it is submitted, the respondent bank was a secured creditor of the 'assessee-in-default' and undisputedly, full, and fair consideration had been paid; no rights had been reserved in favour of the transferor and the parties to the sale deed were unrelated. Even then, if at all, the only remedy available to the revenue authority was to institute a proper suit proceeding as in any case such a transaction would remain voidable and it is not void ab initio. No suit proceeding having been instituted within limitation, the revenue authorities cannot resist the absolute right and title of the petitioner over the 'property-in-dispute'. 7. Reliance has been placed on two decisions of the Privy Council in Musahar Sahu and another vs Hakim Lal and another reported in AIR 1915 PC 115 and Ma Pwa May and another vs S.R.M.M.A. Chettyar Firm reported in AIR 1929 PC 279. That principle of law was applied and followed by the Supreme Court in Chogmal Bhandari vs Deputy Commissioner Tax Officer reported in (1976) 3 SSC 749 and in Union of India vs Rajeshwari and Co. and others reported in (1986) 3 SCC 426. Still later, thi....
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....n-default'. 11. Last, reliance has been placed on the recital contained in the sale-deed dated 16.07.2014; the letter issued by the Bank dated 15.7.2014 (annexed to the writ petition) and letter dated 01.10.2015. Relying on the same, the learned Standing Counsel has vehemently urged - on 15.07.2014 itself the State Bank of India lifted its charge over the 'property-in-dispute'. Thus, no charge existed on 16.07.2014 when the sale-deed was executed by the 'assessee-in-default'. There is a complete absence of any recital in that sale-deed of any existing charge in favour of the State Bank of India. Also, with equal vehemence, it has been stressed, the sale-deed dated 16.7.2014 was neither executed in favour of nor, it has been executed by the State Bank of India. Instead, it has been executed by the 'assessee-in-default', itself. Hence, the sale-deed dated 16.07.2014 is not protected under Section 34(2) of the Act. 12. Next, relying on a decision of a co-ordinate Bench of this Court in the case of Reflex Industries and another vs. State of U.P. and others reported in 2004 (4) ACC 3471, it has been submitted, in similar circumstances, such a transaction was found to fraudulent an....
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....said proceedings: Provided that nothing in this section shall impair the rights of a transferee in good faith and for consideration. (2) Nothing in sub-section (1) shall apply to a charge or transfer in favour of a banking company as defined in the Banking Regulation Act, 1949, or any other financial institution specified by the State Government by notification in this behalf. 17. Undisputedly, the State Bank of India is a 'banking company' defined under the Banking Act. Therefore, it became open to it to raise a plea based on Section 34(2) of the Act. A plain reading of that provision brings out the existence of a non obstante clause created by the legislature. Thus, nothing contained in Section 34(1) of the Act, 1948 shall apply to (i) a charge created in favour of the State Bank of India or (ii) transfer made 'in favour' of the State Bank of India. 18. Undisputedly, on 15.07.2014, State Bank of India wrote to the 'assessee-in-default', as below: "SAMB/CL-II/693 DT: 15/07/2014 M/S Kanha Vanaspati Ltd. 126, Ayodhya Nagar, Ujhani, Distt. Budaun (U.P.) Dear Sirs, STRESSED ASSETS MANAGEMENT BRANCH ....
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....perty for a total consideration of Rs. 2.61 crores and the buyer agrees to buy the same and further states that the buyer will be idemnified for any statutory or other liabilities including any defective title found if any at a later date by the seller. It is encumberance upon M/s Kanha Vanaspati Ltd.(seller) to discharge such statutory or other liabilites on the said property and to disclose details any encumbrances or statutory liabilities etc. We reiterate once again that nowhere at any point of time, have we ever represented that there is no charge, liability, encumbrance, and proceedings over the property except our charge. Therefore, the allegations made by you are baseless and we are not responsible for any kind of loss referred by you." 20. Reading the above letters along with the Certificate issued by the Registrar of Companies, Kanpur, dated 06.08.2014, it is clear, a charge was created (on 08.11.2005), in favour of the State Bank of India, over the 'property-in-dispute' i.e., the land bearing Khasra Nos. 8, 9, 10 & 126, Gram Gathona, Ujhani, Distt. Budaun(U.P.). That was done almost nine years before the impugned sale-deed was executed on 16.07.2014, in favour of the ....
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....the Constitution of India), came up for consideration in the context of the challenge raised to the Presidential Orders de-recognising the erstwhile Rulers of the former Indian States, in Madhav Rao Jivaji Rao Scindia v. Union of India, reported in (1971) 1 SCC 85. While dealing with that question, the majority view of the nine-Judge Constitution bench of the Supreme Court, took note of the meaning attached to the word 'charged', under the general law relating to transfer of property. It was thus observed: "122. In support of his contention that by using the expression "charged" in Articles 291 and 112(2) it is only intended to enact that the expenditure is not subject to the vote of the Parliament and that no priority in payment in respect of expenditure is declared, and in any event the expression "charged" creates no obligation enforceable at the instance of the person for whose benefit it is charged, the Attorney-General invited our attention to different provisions of the Constitution in each of which there is both a charge on the Consolidated Fund of an item of expenditure and an express direction for payment of the prescribed sum, and contended that Article 291 whic....
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....dues. At the same time, Section 34(2) of the Act, overrides Section 34(1) of the Act and thus completely negates the exception and makes that pre-existing preferential right absolute. That effect arises in law, by virtue of the 'charge' created in favour of a 'banking company' as defined under the Banking Act. 25. Thus, it cannot be disputed - had the 'charge' created over the 'property-in-dispute', continued to exist till date, the respondent revenue authorities would continue to stand restrained from proceeding against the 'property-in-dispute', for recovery of their dues. Also, that direct consequence of section 34(2) of the Act would have been caused, if the State Bank of India had obtained the sale-deed of the 'property-in-dispute', in its favour, either pursuant to that charge or otherwise, to recover its dues. It is so because, Section 34(2) of the Act completely negates Section 34(1) of the Act by use of the words - "Nothing in sub-section (1) shall apply". That overriding effect may be avoided, only if the revenue were to contend, either that the charge was never created, or it was not created in favour of a 'banking company' as defined under The Banking Act. Clearly, t....
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....surd results, in law. If accepted, a secured creditor may hold safe a secured asset till eternity, both against the debtor and the world at large, and no other creditor may attach it, till all dues of that secured creditor were satisfied. However, that secured creditor may never be enabled to negotiate a sale of such secured asset, to recover its dues, without first obtaining a prior transfer, in its favour. 28. Thus, in absence of any statutory intervention made, if the submission raised by the learned Standing Counsel is accepted, it would introduce an unreasonable restriction on the free play of section 34(2) of the Act. It would, without any legislative intent or purpose shown to exist, dictate a material alteration of the rights of the parties and force a change in the mode and way, a 'banking company' under the Banking Act may conduct itself viz a viz its secured assets. Though the debt of the State Bank of India may remain a secured debt against its charge existing on the 'property-in-dispute' and it may remain entitled to recover its dues upon sale of the 'property-in-dispute', to the exclusion of the Crown/state dues, however, that sale may be obtained only in its own n....
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....s" appearing in section 99(1)(ii) of the Representation of Peoples Act, 1951, would include a person against whom charge of corrupt practice may have been proved, for the purpose of issue of a fresh notice preceding the order of the Election Tribunal as to corrupt practice committed at an election. Read literally, such notice was contented to be mandatory. However, that interpretation was rejected, and the requirement to issue a fresh notice was restricted to refer to any person other than one against whom proceeding had already been conducted. It was reasoned and held: "6. The object of giving notice to a person under the proviso is obviously to give him an opportunity to be heard before a finding is given under Section 99(1)(a)(i) that he has committed a corrupt or illegal practice. This clearly appears from clause (b) of the proviso, which enacts that the person to whom notice is to be given should have an opportunity of cross-examining witnesses who had been examined before and given evidence against him, of calling his own evidence and of being heard. This is in accordance with the rule of natural justice which requires that no one should be condemned without being gi....
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....eptional cases, and do not furnish any safe or useful guidance in the interpretation of Section 99". (emphasis supplied) 33. Again, in D. Saibaba v. Bar Council of India, (2003) 6 SCC 186 a question arose, if the words "sixty days from the date of that order" appearing in Section 48-AA of the Advocates Act, 1961 require computation of that time, from the date on which such order was passed or from the date when that order was served on the person aggrieved. Departing from the obvious grammatical meaning of the words, the Supreme Court reasoned and held: "16. Placing such a construction, as we propose to, on the provision of Section 48-AA is permitted by well-settled principles of interpretation. Justice G.P. Singh states in Principles of Statutory Interpretation (8th Edn., 2001): "It may look somewhat paradoxical that plain meaning rule is not plain and requires some explanation. The rule, that plain words require no construction, starts with the premise that the words are plain, which is itself a conclusion reached after construing the words. It is not possible to decide whether certain words are plain or ambiguous unless they are studied in their con....
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....s that sale-deed out of the reach and gaze of sub-Section (1) of Section 34 of the Act. 35. That piercing gaze of sub-section (1) of Section 34 of the Act would ever remain confined to tear apart the protective shield of an otherwise valid sale-deed, if it seeks to protect a transaction conducted to defraud the revenue, involving a creditor, other than a 'banking company' as defined under the Banking Act. 36. Resultantly, by virtue of Section 34(1) of the Act, a partial exception arises to the general principle in law, that exists to the benefit of all secured creditors viz a viz Crown/revenue dues. This principle was clearly laid down in Musahar Sahu (supra) as under: "As a matter of law their Lordships take it to be clear that in a case in which no consideration of the law of bankruptcy or insolvency applies there is nothing to prevent a debtor paying one creditor in full and leaving others unpaid although the result may be that the rest of his assets will be insufficient to provide for the payment of the rest of his debts. The law is, in their Lordships' opinion, rightly stated by Palles C.B. in Inre Moroney(1), where he says: "The right of the creditors, take....
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.... by the High Court in support of that contention. It was also urged that the consideration which passed for the sale of the assets was inadequate and that the assets had been undervalued. Here again there is no finding to support the submission. The questions raised are questions of fact, and this Court will not permit such questions to be raised unless there is material evidence which has been ignored by the High Court or the finding reached by the Court is perverse. 10. A point was sought to be made by learned counsel for the appellant that the transfer of the assets was effected in favour of Rajeswari & Co. which was not one of the creditors. It has been found by the High Court that the sale was effected for the purpose of discharging the debts payable by the Company. Once it is also found that the consideration was not inadequate it is immaterial, as the High Court has observed, that the transfer was effected in favour of a person who was not a creditor. It has been clearly found that the sale proceeds were employed for paying off the creditors of the Company." 38. Besides the above, in The Bank of Bihar vs The State of Bihar and others reported in (1972) 3 SCC 196,....
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....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. In Giles v. Grover 1832 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar & Ors. AIR 1971 SC 1210, the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (T.L.L., Seventh Edition, p.386) It seems a Government debt in India is not entitled to precedence over a prior secured debt." 40. The above noted principle has been consistently ....
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....ng may always be instituted to seek a declaration in that regard, as was opined by Supreme Court in Chogmal Bhandari (supra). Though that law was laid down in the context of Section 54 of the Transfer of Property Act, at the same time, those provisions being similar (in material parts) to Section 34 of the Act, that ratio is wholly applicable. In that decision, it was held as below: "10. In the special and peculiar facts of the present case which have been catalogued above, in our opinion, this is not a fit case In which the sales tax authorities can be allowed to hold that the deed of trust executed by the settlors was hit by section 53 of the Transfer of Property Act. It may be noted that under section 53 of the Transfer of Property Act if a transfer is made with intent to defeat or delay the creditors it is not void but only voidable. If the transfer is voidable, then the ' sales tax authorities cannot ignore or disregard it but have to get it set aside through a properly constituted suit after impleading necessary parties and praying for the desired relief. In Chutterput Singh & ors. v. Maharaj Bahadoor and others, (2) the Privy Council observed as follows: ....