2017 (7) TMI 1339 - HC - VAT and Sales Tax

Recovery of debt - Auction - attachment of Land - Section 47 of the Rajasthan Value Added Tax Act, 2003 - first charge on the property is of the department - applicability of amended provisions of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 - HELD THAT - It is for the reason 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 - 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 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 charge on the property under the State legislation was considered by the Supreme Court in the case of CENTRAL BANK OF INDIA VERSUS STATE OF KERALA AND OTHERS 2009 (2) TMI 451 - SUPREME COURT . If State Act creates first charge on the property then secured creditors cannot have claim against the statutory provision. Therein, consideration was also made even in reference to Section 100 of the Act of 1882. In the instant case, there exists no repugnancy in two legislations. The intention of Parliament is not to nullify the State enactment providing first charge on the property. The legislations have been made by the Central Government and State under Entry I and II of the Schedule and not out of Concurrent List - The aforesaid aspect has also been considered by the Apex Court in the case of Central Bank of India. The petitioner-company has failed to make distinction between priority right of the secured creditors vis a vis first charge. In view of the above, amended provisions cannot be applied and otherwise it was made in the year 2016, whereas, the attachment of the property was made in the year 2014. It has already been observed that if intention of the Central Government was to nullify first charge, the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank of India. It is otherwise a case where attachment of the property in pursuance of first charge of the State Government is much prior to the amended Act of 2002 and 1993 thus those amendments would not apply even if subsequently auction of the property was made. It is nothing but auction of the property already attached by the Government, that too, after initiation of proceedings under the Act of 1956. Petition dismissed.

Issues Involved:
1. Validity of the attachment and auction of the property under conflicting statutory provisions.
2. Priority of secured creditors versus state government dues.
3. Application of amended provisions of Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act of 2002) and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (Act of 1993).
4. Constructive knowledge and its implications.
5. Application of Section 31 of the Specific Relief Act, 1963.
6. Interpretation of Section 100 of the Transfer of Property Act, 1882.
7. Precedent cases and their applicability.

Detailed Analysis:

1. Validity of the Attachment and Auction of the Property:
The property of SR Foils and Tissue Ltd. was attached by the respondent-department in 2014 under Sections 230 and 239 of the Rajasthan Land Revenue Act, 1956 (Act of 1956). The petitioner-company later purchased the property in an auction conducted by the respondent-Bank under the Act of 2002. The petitioner challenged the attachment and subsequent auction, arguing that the first charge on the property should be in favor of the secured creditors as per the amended Section 26E of the Act of 2002 and Section 31B of the Act of 1993.

2. Priority of Secured Creditors versus State Government Dues:
The petitioner-company argued that the amendments in the Act of 2002 and Act of 1993, which prioritize secured creditors over state dues, should nullify the attachment. However, the court noted that the attachment was made in 2014, prior to the amendments in 2016. Section 47 of the Rajasthan Value Added Tax Act, 2003 (Act of 2003) creates a first charge on the property for state dues, which was upheld by the court, citing that the amendments do not have retrospective effect.

3. Application of Amended Provisions:
The court emphasized that the amended provisions of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 are prospective and do not apply to attachments made before the amendments. The court stated, "The property already attached towards recovery of State dues cannot be nullified by the subsequent legislation when it has not been given retrospective effect."

4. Constructive Knowledge and Its Implications:
The petitioner-company claimed they had no knowledge of the attachment. The court referred to the case of The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenghai, which held that constructive knowledge cannot be presumed. However, the court found that the petitioner-company had constructive knowledge of the attachment process under Sections 230 and 239 of the Act of 1956, stating, "The petitioner-company was under an obligation to find out as to whether property is subject to attachment."

5. Application of Section 31 of the Specific Relief Act, 1963:
The petitioner-company argued that the instruments executed in their favor could not be canceled without following the procedure under Section 31 of the Specific Relief Act, 1963. The court dismissed this argument, noting that the petitioner-company did not challenge the attachment under the Act of 1956, and thus, the attachment remains valid.

6. Interpretation of Section 100 of the Transfer of Property Act, 1882:
The petitioner-company invoked Section 100 of the Transfer of Property Act, 1882, arguing that the charge is not enforceable against a bona fide purchaser. The court rejected this argument, referencing the Supreme Court's judgment in Central Bank of India Vs. State of Kerala, which upheld the supremacy of statutory first charges over secured creditors.

7. Precedent Cases and Their Applicability:
The court considered various precedents, including the judgments of the Supreme Court and High Courts. The court noted that the judgment in Central Bank of India Vs. State of Kerala remains applicable, as it was given prior to the amendments and emphasized the distinction between first charge and secured creditors. The court also referenced judgments from the Madras and Bombay High Courts but found them not directly applicable to the present case.

Conclusion:
The court concluded that the attachment of the property by the respondent-department in 2014 under the Act of 1956 remains valid and cannot be nullified by the subsequent amendments to the Act of 2002 and Act of 1993. The writ petition was dismissed, upholding the priority of the state's first charge over the property. The court stated, "The writ petition is, accordingly, dismissed."

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