TaxTMI 
TaxTMI 
2022 (1) TMI 57
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....e attachment on the property viz. Industrial Property having Block No.1148/A paiki admeasuring 24000 Sq. Mtrs. along with factory premises and other structure thereon at village: Jamla. Further, the said Company had furnished other properties which includes properties bearing Nos.1530/1, 1530/2, 1530/3, 1530/4, 1530/5 and 1530/6 situated within the local limits of village Jamla under Jamla Gram Panchayat, Ta. Himmatnagar, Dist. Sabarkantha with all consequential reliefs; (B) This Hon'ble Court may be pleased to declare that the petitioners have first charge over the subject properties under Section 26E of the SARFAESI Act, 2002, which would override the charge of the respondents under Section 48 of the Gujarat Sales Tax Act. (C) Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to prohibit the respondent No.2 authorities from taking any further steps in relation to subject property. 2. Brief facts which has emerged from the record of the petition are as under: 2.1 Dena Bank has advanced certain loan facilities to M/s. Umiya Industries Pvt. Ltd., (hereinafter referred as 'Borrower company') which was secured inter....
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....borrower Company with all rights, titles and interest and benefits accrued therein in favour of the present petitioner as envisaged under Section 5(1)(b) of the SARFAESI Act. The said deed of assignment was registered before the Sub-Registrar, Jasdan. 2.7 The petitioner company had thereafter made attempt to hold auction of the subject property on 18.12.2019 and 21.01.2020, however, in absence of any bidder, the auction had failed. In the month of February, 2020, the petitioner learnt about outstanding dues of Sales Tax Department pursuant to which the charge was created by the Sales Tax Department over the recovery of outstanding dues of Sales Tax amounting to Rs. 4,17,40,000/-. The petitioner company immediately approached the office of the Mamlatdar as well as Sales Tax Department in the month of March, 2020 to resolve the issue, however, due to pandemic situation prevailing over the whole country, the petitioner company was refrain from pursuing the Department. The representative of the petitioner company again approached the office of Sales Tax Department on 31.12.2020 with a request to lift the charge over the subject properties for which a representation was also addresse....
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....ct, 2003 vis-a-vis whether the bank will have priority to recover the secured dues under Section 26E of the SARFAESI Act or the State will have first charge by virtue of Section 48 of the VAT Act. 6. On the other side, learned AGP Mr. Trupesh Kathiriya has vehemently objected this petition and has submitted that dues of the State Government has accrued much before the auction proceedings made in favour of the petitioner. He has further relied upon the provisions of the VAT Act and has submitted that the statutory charge is created over the property of the dealer and being first in point of time, the said charge shall have the precedence over the existing mortgagee. The emphasize is made that when the first charge is created by virtue of operation of provisions of law then such charge have the precedence over existing mortgage and therefore, subsequent creation of charge by way of mortgage or auction process ipso facto will not destroy or dilute the implication of the charge which is already in existence. It is further submitted that there is outstanding tax dues to the tune of Rs. 4,17,40,000/- approximately and therefore, in order to protect the interest of public ex-chequer, s....
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....egal position, the learned advocate for the petitioner has prayed to grant relief. 9. We have heard learned advocates for the respective parties and have also perused and examined the material placed before us on the record. Only question which arises for our consideration is that whether the Central legislation will prevail over Section 48 of the Gujarat Value Added Tax, 2003. In other words, whether the petitioner who is a secured creditor will have first priority to recover its dues in view of Section 26E of the SARFAESI Act or the State will have first priority by virtue of Section 48 of the VAT Act. 10. Before answering the aforesaid issue, the undisputed facts which have transpired from the record are that the petitioner is a secured creditor, who has derived his right, title and interest and all other ancillary benefits in terms of registered deed of assignment executed by Dena Bank vide registered deed dated 07.02.2017. Admittedly, the physical possession of the subject property was taken over by the Dena Bank on 04.02.2014 after following due procedure of law under Section 13(4) of the SARFAESI Act read with Rule 9 of the Security Interest (Enforcement) Rules, 2002. ....
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....e enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. 112. Under Section 13(1) of the Securitisation Act, limitedprimacy has been given to the right of a secured creditor to enforce security interest vis-`-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that subsection, 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 Narasimham Committee's 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficultyfaced by the secured creditor which may include a bank or a financial institution, Parliament incor....
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.... 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. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, Section 30 of the Gift- Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitisation Act. 130. Undisputedly, the two enactments do not contain provision similar to Workmen's Compensation Act, etc. I....
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.... statutory first charge in the matter of recovery of the dues of sales tax etc. The Supreme Court proceeded to observe that the fact of the matter was that no such provision had been incorporated in either of those 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. 17. In our prima facie opinion, such observations probablymight have weighed with the Parliament which ultimately might have led to the introduction of Section 31B in the RDB Act, 1993 and 26E in the SARFAESI Act, 2002. 18. Section 31B of the RDB Act also starts with a non-obstante clause 'notwithstanding anything contained in any other law for the time being in force'. 19. Section 26E of the SARFAESI Act also starts with a non obstante clause 'notwithstanding anything contained in any other law for the time being in force'. 20. As regards the non-obstante clause, this Court deems it fit to consider few decisions : (i) In State of West Bengal v. Union of India, AIR 1963 SC 1241, it is observed as under: "The Court must as....
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....clause the Legislature devices means which are usually applied to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other statute. In other words such a clause is used to avoid the operation and effect of all contrary provisions. The phrase is equivalent to showing that the Act shall be no impediment to measure intended. To attract the applicability of the phrase, the whole of the section, the scheme of the Act and the objects and reasons for which such an enactment is made has to be kept in mind." (vi) In ICICI Bank Ltd. v. SIDCO Leathers Ltd., [2006] 67 SCL383 (SC), the Supreme Court, at Paragraphs 34, 36 and 37, held as follows: "34. Section 529-A of the Companies Act no doubt contains a non-obstante clause but in construing the provisions thereof, it is necessary to determine the purport and object for which the same was enacted.... 36. The non-obstante nature of a provision although may be of wide amplitude, the interpretative process thereof must be kept confined to the legislative policy.... 37. A non-obstante clause must be given effect to, to the extent the P....
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.... necessarily and always be coextensive with the operative part so as to have the effect of cutting down the clear terms of an enactment and if the words of the enactment are clear and are capable of a clear interpretation on a plain and grammatical construction of the words the non-obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non-obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules." 107. In A.G. Varadarajulu v. State of Tamil Nadu[(1998) 4 SCC 231], this Court relied on Aswini Kumar Ghose's case. The Court while interpreting non obstante clause contained in Section 21-A of Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 held :- "It is well settled that while dealing with a non-obstante clause under which the legislature wants to give overriding effect to a section, the court must try to find out the extent to which the legislature had intended to give one provision overriding effect over anothe....
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....prevail over the other provisions in the Act. Thus, the non-obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non-obstante clause is attached. [See Bipathumma & Ors. v. Mariam Bibi; 1966(1) Mysore Law Journal page 162, at page 165] 24. Having regard to the nature of the controversy which I am called upon to resolve, I would like to look into two decisions of the Supreme Court; one, in the case of Kumaon Motor Owners' Union Ltd. and another v. State of U.P., reported in AIR 1966 SC 785, and another, in the case of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. and others, reported in (2001)3 SCC 71. Although the ratio of the two decisions referred to above may not be directly applicable to the case on hand, yet having regard to certain principles of law enunciated, I would like to follow and apply the same for the purpose of resolving the controversy as regards Section 48 ....
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....t read with S.6(4) of the Act on the other, and that conflict has to be resolved. The only way to do it is to decide whether in such a situation, S.43 of the Act will prevail or S.68-B of the Motor Vehicles Act will prevail. We are of opinion that S.43 of the Act must prevail. In the first place, S.43 appears in an Act which is later than the Motor Vehicles Act and therefore in such a situation unless there is anything repugnant, the provisions in the later Act must prevail. Secondly, if we look at the object behind the two statutes, namely, the Act and the Motor Vehicles Act, there can be no doubt that the Act, which was passed to meet an emergency arising out of the Chinese invasion of India in 1962, must prevail over the provisions contained in Ch.IV-A of the Motor Vehicles Act which were meant to meet a situation arising out of the taking over of motor transport by the State. Thirdly, if we compare the language of S.43 of the Act with S.68-B of the Motor Vehicles Act we find that the language of S.43 is more emphatic than the language of S.68-B. Section 43 provides that the provisions of the Act or any rule made thereunder shall have effect notwithstanding anything inconsistent....
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....k Industrial Companies (Special Provisions) Act, 1985. The Supreme Court took the view that the later one would prevail. I may quote the relevant observations thus : "7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: "32. Effect of the Act on other laws-(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non-obstante provision is contained in Section 13 of ....
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....e Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all property of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financ....
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....ng the 1985 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land Ceiling Act is not excluded. It is clear that in the instant case there was no intention of the Legislature to permit the 1985 Act to apply notwithstanding the fact that proceedings in respect of a company may be going on before the B.I.F.R. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act." 29. The principles of law discernible from the decision of the Supreme Court in the case of Solidaire India Ltd. (supra) are that, if there is a conflict between the two special Acts, the later Act must prevail. To put it in other words, when there are two special statutes which contain the non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non-obstante clause. If the legislature still confers the later enactment with a non-obstante clause, it means that the legislature wanted that enactment to prevail. 30. We are conscious of the fact that in the....
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....dence even over the Government dues notwithstanding anything to the contrary in any other law. 34. We are sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35. While it is true that the Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31B of the RDB Act, being a substantive provision giving priority to the "secured creditors", the same will be applicable ir....
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.... that both the provisions were inserted in the year 2016, whereas, attachment of the property in question to recover the dues was made by the respondent-department in the year 2014 itself. It is not the case of either of the parties that amended provision is retrospective and otherwise perusal of amended provision does not show it thus would apply prospectively. The 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....
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....Madhya Pradesh High Court, in the case of Bank of Baroda v. Commissioner of Sales Tax, M.P., Indore and another, reported in (2018) 55 GSTR 210 (MP), had the occasion to consider identical issue. The Madhya Pradesh High Court took cognizance of the notice of sale by the commercial department. The notice of sale was issued on 19th July 2017. The High Court took notice of the fact that Section 31-B came into force with effect from 1st September 2016, and by virtue of the said amendment, the right of the secured creditors to realize the secured dues and debts dues, which are payable to the secured creditors by sale of assets over which security has been created, has priority over all other debts and Government dues including revenue, taxes, cesses and rates due to the Central Government, State Government and local authorities. The relevant observations are as under : "8. In the present case, undisputedly a notice of sale by the respondent/Commercial Department has been issued on 19.07.2017. The Amendment Act, 2016, which incorporates Section 31B reads as under:- "31B. Notwithstanding anything contained in any law for the time being in force, the rights of secured cre....
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....and Miscellaneous Provision (Amendment) Act, 2016 came into force w.e.f. 01.09.2016 and by virtue of the said amendment, the right of secured creditors to realise the secured dues and debts dues, which are payable to the secured creditors by sale of assets over which security has been created, is having priority over all other debts and government dues including revenue, taxes, cesses and rates due to Central Government, State Government and local authorities. Not only this, it is having overriding effect over all other enactment including the provisions of MP VAT Act, Central Sales Tax Act, Entry Tax Act and any other Tax Act. Though, an attempt has been made by the State Government to demonstrate before this Court that the amendment will not dis-entitle to recover the dues by them as the dues are outstanding since 2012. Nothing prevented the State Government to recover the dues since 2012 and the State Government woke up from plumber only after the amendment has come into force and by virtue of the amendment in the Central Act, this Court is of the considered opinion that by no stretch of imagination, the State Government can be permitted to auction the property....
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....ause and has come into force from 01.09.2016. 3. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 4. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 5. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured creditor having a mortgage of the property. This aspect is also covered by the introduction of Section 31B, as it includes ''secured debts due and payable to them by sale of assets over which security interest is created." 41. The Full Bench decision of the Madras High Court referred to above has been referred to and relied upon by a Division Bench of the Bombay High Court in the case of Punjab National Bank, Bandra (E), Mumbai v. Maa Banbhori Steel Industry Pvt. Ltd. & Ors. (Writ Petition No.11018 of 2018, decided on 29th October 2018). 42. The Division Bench was dealing with Section 37 of the Maharashtra Value Added Tax Act, 2002 ....
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....mport of legislative change, in view of introduction of the Section 26-E of the SARFAESI Act. This Court had, inter alia, observed in paragraph 22 as under: "22. Though the learned counsel appearing for the respondent State is justified in contending in normal circumstances in view of the provisions of SARFAESI Act (Unamended) primacy can be extended to the provisions like Section 38-C of the Bombay Sales Tax Act or Section 37 of the MVAT Act. Section 13 envisages application of money received by the secured creditor and by adopting any of the measures specified in Section 13 (4) merely regulates distribution of money received by the secured creditor and it does not create first charge in favour of the secured creditor. Though in normal course in view of Section 35 of the SARFAESI Act, 2002 no priority can be claimed by the bank or financial institutions over the State's statutory first charge in the matter of recovery of dues of sales tax etc. However, in respect of company under liquidation, in view of the provisions of Section 529A of the Companies Act, a distinction has to be made and as has been laid down by the Division Bench of this Court in the matter of SICOM ....
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....red debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation - For the purpose of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 3. There is, thus, no doubt that the rights of a secured creditor to realise debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016. 4. The law having now come into force, naturally it would govern the rights o....
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....vity is not to be inferred unless expressed or necessarily implied in the legislation, specially those dealing with substantive rights and obligations. It is a misnomer to say that sub-s.(2A) of s. 15 of the Karnataka Sales-tax Act is being given retrospective operation. Determining the obligation of the partners to pay the tax assessed against the firm by making them personally liable is not the same thing as giving the amendment a retrospective operation. Principle of s. 25 of Partnership Act cannot be stretched and extended to such situations in which the firm is deemed to be a person and hence a legal entity for certain purpose. The Karnataka Sales-tax Act also gives the firm a legal status by treating it as a dealer and hence a person for the limited purpose of assessing under the Sales-tax Act.-CST vs. Radhakishan AIR 1979 SC 1588 and ITO vs. Arunagiri Chettiar (1996) 134 CTR (SC) 167 : (1996) 220 ITR 232 (SC) relied on. The 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 a....
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....ied on its earlier decision in the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588. 48. In the case of Stock Exchange, Bombay v. V.S.Kandalgaonkar, reported in (2014)51 taxmann.com 246 (SC), it was held by the Bombay High Court that, "By virtue of lien on securities under rule 43 of Bombay Stock Exchange Rules, BSE being secured creditor of defaulting member would have priority over dues of Income - tax department." While dealing with the tax recovery under Section 226 of the Income-tax Act, 1961, read with Sections 8 and 9 of the Securities Contracts (Regulation) Act, 1956, it was held by the Apex Court that collection and recovery of tax has to be based on proper appreciation of facts of the case. While deciding Other modes of recovery (Priority over debts), the Apex Court duly considered the power of Central Government to direct rules to be made or to make rules and observed that a membership card is only a personal permission from Stock Exchange to exercise rights and privileges that may be given subject to Rules, Bye-Laws and Regulations of Exchange and moment a member is declared a defaulter, his right of nomination shall cease and vest in Exchange be....
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.... regard to the statutory charge which is created by the State enactment. The Bombay High Court was dealing with a matter under the Income Tax Act and under the Income Tax Act, there is no provision analogous to Section 48 of the VAT Act which creates a statutory charge. 50. There is one another important argument of Mr. Sheth which is quite appealing and we are at one with Mr. Sheth on the same. Indisputably, the Bank put forward its claim over the secured assets of the Bank for the first time on 01.10.2016 and that too by way of provisional attachment of the properties under Section 45 of the VAT Act, keeping in mind the dues that may be determined in future. It is not in dispute that there were no crystallized dues as on 01.10.2016 and, therefore, there was no question of there being any charge under Section 48 of the VAT Act which could only be in respect of the actual dues. It is also not in dispute that prior to the dues being crystallized in the case of the defaulting dealer, the Bank had already taken over the possession of the properties of the dealer, and by that time, Section 31B of the RDB Act had already been enforced by the Central Government. It is prepostero....
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....of Bank of Baroda, Through its Assistant General Manager Prem Narayan Sharma vs. State of Gujarat & Ors., Special Civil Application No.12995 of 2018, decided on 16.09.2019. We may quote the relevant observations made in the said judgment. "It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer." 54. In view of the aforesaid discussion, We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003." 12. Learned advocate for the petitioner has further drawn attention of this Court to the decision delivered by this Court in the case of Ski Specialties Pvt. Ltd. (Supra). 13. In view of the aforesaid legal ....