2008 (8) TMI 1006 - HC - Indian Laws

Summary

Issues involved: Challenge to notice u/s 146 of M.P. Land Revenue Code regarding attachment and sealing of property purchased from M.P. Financial Corporation.

Judgment Summary:

Challenge to Attachment by Commercial Tax Department:
The petitioner, a proprietorship concern, challenged a notice dated January 30, 2002, issued under section 146 of the M.P. Land Revenue Code, attaching and sealing the property purchased from M.P. Financial Corporation. The borrower-company, M/s Prominent Cement Limited, defaulted on a loan obtained from M.P. Financial Corporation, leading to the Corporation taking over the industrial unit and selling it to the petitioner. The Commercial Tax Department claimed a first charge on the property for tax dues, but the Corporation argued that the attachment was without legal authority and the petitioner acquired the property free from encumbrances u/s 29 of the State Financial Corporation Act.

Legal Standoff:
The Commercial Tax Department contended that the tax recovery was a first charge on the defaulter's property, while the Corporation maintained that the petitioner's rights were protected u/s 29 of the Act. The Court noted that the borrower-company's property was under prior mortgage to the Corporation, and the attachment by the Tax Department was invalid due to the pending BIFR proceedings and the Corporation's superior rights.

Precedence of Mortgage Liability:
The Court emphasized that the mortgage liability to the Corporation took precedence over tax recovery, citing section 46B of the Act, which overrides other laws. Referring to a Supreme Court judgment, it clarified that government debt does not have precedence over a prior secured debt, affirming the petitioner's protection from the attachment.

Judgment and Relief:
The Court allowed the petition, quashing the notice and seizure memo issued by the Commercial Tax Department, as the attachment of the petitioner's property was deemed unjustified and lacking in legal basis.

This judgment highlights the importance of legal precedence in property attachments and upholds the rights of a purchaser protected u/s 29 of the Act against tax recovery claims.