TaxTMI 
TaxTMI 
2024 (8) TMI 3
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....are some what different, the core issue is related to who will have first charge over the property in question i.e. Secured Creditor or the State / Central Government (Crowns debt) on account of non-payment of dues of Sales Tax department and, therefore, all the matters were heard together and are now being decided together. 2. On 9.10.2023, this Court had passed the following order :- "1. Heard learned advocate Mr. Ajay Mehta with learned advocate Mr. Anmol Mehta, learned advocate Mr. Pathik Acharya and learned advocate Mr. Monal Chaglani for the respective petitioners in each of the petitions. Learned AGP Mr. Jay Trivedi for the State and learned advocate Mr. Sankhala in Special Civil Application No. 13188 of 2023 for the Bank of Baroda. Learned advocate Mr. Bhaskar Sharma for the respondent No.4 in Special Civil Application No. 12848 of 2023. In rest of the petitions, though the respondents banks were served, on one appears. However, the matter was taken up finally as there was no prayer made against the bank and the prayer as can be seen from the prayer clause is against the State. 2. Rule. Learned respective advocates appearing for the State as well as for the bank as st....
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....ing Unique Property Identification Number : 10601033001090000;" 3.1 The factual matrix of the case are that the dispute pertains to a land bearing Block No.496 (old Revenue Survey No.388/1, 401 and 414) situated at village Rakanpur, Tal. Kalol, Dist. Gandhinagar admeasuring 17,401 Sq. Mts. paiki Sub-plot Nos.5 and 6 admeasuring 1343.50 Sq. Mts. The aforesaid land was originally owned by Shakarabhai Jesingbhai Patel and seven others. The said was a non-agricultural land for which N.A. order was passed in the year 1993 and the land was thereafter sub-divided for industrial purpose by Shakarabhai J. Patel and other co-owners. The petition is concerned with parcel of land bearing Sub-plot No.5, admeasuring 1343 Sq. Mts. in Block No.496 paiki as well as Sub-plot No.6. 3.2 On 17.3.1994, Shakarabhai J. Patel and other co-owners of the land sold the land bearing Block No.496 paiki Sub-plot No.5 (part) admeasuring 671.75 Sq. Mts. to M/s. Pramukh Pharmaceuticals for which Entry No.1753 was mutated. Similarly, on the same day, land bearing Block No.496 paiki Sub-plot No.6 admeasuring 671.75 Sq. Mts. was sold to Akshar Steel Feb Industries for which revenue Entry No.1754 was mutated on 26.8....
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....in respect of movable and immovable property lying inside the property. Subsequently on 2.5.2008, registered Sale Deed was executed by the Bank in favour of respondent No.5 - Meenaxiben for which Entry No.1146 was mutated mentioning that the Bank through its authorized signatory had sold the subject land in favour of respondent No.5 - Minaxiben. 3.10 The respondent No.5 - Minaxiben on 5.1.2011 applied before the Mamlatdar to mutate her name in the revenue record on the basis of registered Sale Deed executed in her favour. On 18.2.2011, Mamlatdar rejected the said application with an endorsement that the seller's name does not tally. Thereafter, respondent No.5 - Minaxiben sold the subject land to petitioner No.1 who was represented through petitioner No.2 by way of registered Sale Deed. On 31.5.2022, the respondent No.4 Bank issued No Objection Certificate for entering the name of the petitioner in the revenue record. Therefore, the petitioner No.1 once again approached Mamlatdar for mutation of its name in the revenue record. However, Mamlatdar, Kalol on 21.11.2022 passed an order rejecting the application of the petitioner on two grounds i.e. that seller's name does not ....
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.... and has prayed for a direction that the charge recorded in the revenue record in favour of Sales Tax department Khambhat be quashed. The said petition was preferred in respect of three lands purchased by the petitioner by participating in public auction, details of which are as under :- 7. It is pertinent to note that in respect of each of these petitions, Sale Certificate has been issued in favour of the respective successful auction purchaser. 8. Learned advocates Mr. Ajay R. Mehta assisted by Mr. Anmol Mehta, Mr. Monal S. Chaglani and Mr. Pathik Acharya appearing for the petitioners in respective petitions have made the following submissions :- 8.1 It is a well settled doctrine that the respective Banks which are Secured Creditors and are having charge over the subject property, their charge over the property would prevail over the Unsecured Creditor i.e. Sales Tax Department (Crown's Debt) and hence, the claim of Secured Creditor would prevail over the claim of Unsecured Creditor. According to the petitioner, in view of Section 26 E of the SARFAESI Act, this is the settled proposition of law and, therefore, all these petitions are covered by the aforesaid proposition of....
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.... relied upon the following decisions :- (i) Punjab National Bank v. Union Bank of India and others, (2022) 7 SCC 260. (ii) Dena Bank v. Bhikhabhai Prabhudas Parekh & Company and others, (2000) 5 SCC 694. (iii) M/s. Mahadev Cotton Industries v. Department of Central Sales Tax, 2023 (0) AIJEL - HC 245523. (iii) Bank of Baroda through its Assistant General Manager Prem Narayan Sharma v. State of Gujarat and others, 2019 LawSuit (Guj.) 572. (iv) Amidhara Developers Private Limited v. State of Gujarat and others, 2015 Law Suit (Guj.) 1945. (v) Unreported decision of Bombay High Court in the case of Ronak Industries v. Assistant Commissioner Central Excise & Customs, Daman and others, Writ Petition (L) No.1747 of 2023 delivered on 28.6.2023. (vi) Unreported decision of this Court in the case of M/s. Mani Laxmi Metal and Alloys Private Limited v. State of Gujarat, Special Civil Application No.6283 of 2022 delivered on 8.4.2022. (vii) Unreported decision of this Court in the case of Odhavjibhai Mohanbhai Gadhiya v. State of Gujarat and others, Special Civil Application No.9394 of 2021 delivered on 30.9.2022. (viii) Unreported decision of this Court in the case of Vinod Re....
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....ntention of the legislature i.e. in respect to the Rules so framed with respect to the providing details of the encumbrances of the State Authorities. Conjoint reading of the Section 13(7) read with Rule 8(6) and Rule 9(7), makes it abundantly clear that, statutory duty is casted upon the Authorised Officer to give details of the encumbrances created under the statute and so also to recover the outstanding the money from the auction purchaser before finalizing the sale as Rule 9 of the Rules, 2002. 9.4 That admittedly the auction was held on "as is where is whatever there is basis" and therefore the right of the authorities with respect to the charge does not go away. 9.5 In support of his submissions, he relied upon the decision of the Bombay High Court in the case of Medineutrina Pvt. Ltd versus District Industries Centre, Nagpur and Ors reported in AIR 2021 Bom 35, more particularly para 31, 32, 36 to 40, 42 and 44, by which the Hon'ble Division Bench of the Bombay High Court gives broader principles as far as the inter play between Section 13(7), Rule 8(7) and 9(7) of the Rules, 2002 are concerned. The Hon'ble Division Bench of the Bombay High Court has also laid down the pro....
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....further submitted that order dated 18.11.2021 of the Hon'ble Supreme Court dismissing the petition of the Bank in Civil Appeal No.6350 of 2021 in case of Kotak Mahindra Bank Limited v. District Industries Centre (D.I.C.) and others, would not be applicable in the facts of the present case for the reason that there, it was the Bank which had preferred the appeal before the Hon'ble Supreme Court. They further submitted that the decision of the Full Bench of Bombay High Court in the case of Jalgaon Janta Sahakari Bank Limited and another v. Joint Commissioner of Sales Tax Nodal 9, Mumbai also cannot be relied upon as there are judicial pronouncement of the Hon'ble Supreme Court as well as this Court on the issue on hand available as the same canvasses correct proposition of law considering the facts of the case. 11. I have heard learned advocates appearing for the respective parties and perused the record as well as the decisions relied upon by the advocates for the parties. What is undisputed fact in each of the petitions is that all the petitioners herein are bonafide purchasers of various properties which were put to auction upon default in repayment of loan committed ....
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.... founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognized principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and it order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builder Supply Corpn., AIR 1965 SC 1061). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this 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. On the very principle on which the rule is founded, the p....
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....ver a pledgee of goods. In Bank of Bihar vs. State of Bihar, (1972) 3 SCC 196, the principle has been recognized 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 (TLL, 7th Edn., p. 386) - "It seems a government debt in India is not entitled to precedence over a prior secured debt.". 10. Priority or precedence of Crown debts under the Central Excise Act vis-à-vis secured debts under the State Financial Corporations Act, 1951 fell for consideration before the Supreme Court in Union of India vs. Sicom Ltd., reported in (2009) 2 SCC 121. In the said case, the Supreme Court while held that a debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one, observed as follows :- "9. G....
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....e given by the bank to the original owner of the property, security interest was created by mortgaging the property. The debt becoming due to the bank was a secured debt. The charge sought to be created by the sales tax authorities in no way could discount the a priori rights of the bank to recover its dues as the bank was secured creditor. 5.2 The dues in the nature of sales tax or VAT payable by the original owner cannot claim priority over the dues of the secured creditor. The principle that the state debt or crown debt has no prior claim or the dues payable to the secured creditor is no longer res integra. In Bank of Bihar vs. State of Bihir [(1972) 3 SCC 196], the supreme court laid down certain well known principles which were followed by the supreme court in its own judgment in Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. [(2000) 5 SCC 694]. The law laid down is that the preferential right of the Crown to recover the debt over the creditors is limited to the class of unsecured creditors. The common law of England or the principles of equity and good conscience would not allow the Crown to have preferential right for recovery of debt over the mortgagee or pledgee of goo....
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....r to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant - bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant - bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods." (emphasis supplied) 48. The Bombay High Court in Krishna Lifestyle Technologies Ltd. Vs. Union of India & Ors. [2008 SCC Online Bombay 137], wherein the issue for consideration was "whether tax dues recoverable under the provisions of The Central Excise Act, 1944 have priority of claim over the claim of secured cre....
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.... of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. (emphasis supplied). 50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 i....
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....cation for mutation of entry of the petitioners in respect of the property in question cannot be accepted. Further, as far as the submission of delay is concerned, the same also cannot be accepted for the reason that the petitioners are the bonafide purchasers of the property in question by way of auction or from successful auction purchaser and they have invested huge amount in the property, they have acquired the title of the property by way of Sale Certificate, they are the holder of the title in respect of property in question as on today. Reflection of their names in the revenue record by way of mutation entry is merely a consequential action based upon their title over the property in question. When their title is unquestionable, as the respective Banks have issued Sales Certificate in favour of petitioners, the petitions cannot be thrown away on the ground of alleged delay. 21. Further, as far as the reliance upon the decision of the Hon'ble Supreme Court in the case of Kotak Mahindra Bank v. District Industries Centre (D.I.C.) and others (Supra), considering the fact that the said appeal was filed by the Bank, whereas all the present petitions are preferred by the bona....