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TMI Blog2012 (8) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property in question, as against any claim in respect of any tax or any other sum payable by the assessee as a result of completion of any proceeding or otherwise by the petitioner-Revenue. - 3786 and 6961 of 2010 - - - Dated:- 22-6-2011 - MUKHOPADHAYA S. J., THAKER K. M., JJ. JUDGMENT S. J. Mukhopadhaya C. J.- The first writ petition-Special Civil Application No. 3786 of 2010-has been preferred by the Tax Recovery Officer, Income-tax Commissioner's Office, Gandhinagar, against the action taken by the first respondent-M/s. Industrial Finance Corporation of India (hereinafter referred to as "the first respondent-financial institution") under section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act"). A prayer has been made to restrain the first respondent-financial institution from parting with possession, transferring or otherwise dealing with the properties of the second respondent-Parekh Platinum Ltd. (hereinafter referred to as "the second respondent-borrower company"). The question involved in the first writ petition is whether, in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he local daily Business Standard and Gujarat Samachar. The petitioner-Revenue had no knowledge that the measures have been taken by the first respondent-financial institution, the secured creditor, for recovery of their dues by taking recourse under section 13(4) of the SARFAESI Act and, therefore, the petitioner- Revenue could not approach the Debts Recovery Tribunal at the appropriate time. Further case of the petitioner-Revenue is that the second respondent, who is an assessee, being defaulter, has not paid huge outstanding income-tax demand with interest and penalty till date for the assessment years 1996-97, 1998-99, 1999-2000, 2000-01, 2001-02 and for the block assessment period ; the secured assets have already been attached by the petitioner-Revenue on December 20, 2004. Therefore, such property of the second respondent-asses- see could not have been attached nor possession of the same could have been taken by the first respondent-financial institution claiming it to be the secured creditor, the charge created by mortgage on the same property by the second respondent-borrower assessee in favour of the first respondent being void in view of sub-section (1) of section 281 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Office, Gandhinagar, before the Debts Recovery Tribunal, Ahmedabad, on March 12, 2010. Therein, as the action of 2002 and 2009 is challenged, the petition for condonation of delay has been filed and the matter is pending. The second respondent, the assessee of the petitioner-Revenue as also the borrower of the first respondent-financial institution, has also challenged the measures taken by the first respondent under section 13(4) of the SARFAESI Act by filing another appeal under section 17 of the SARFAESI Act, being Securitization Appeal No. 35 of 2009 pending in the court of the Debts Recovery Tribunal, Ahmedabad. Therein also, similar plea has been taken by the second respondent against the measures taken by the first respondent apart from the other pleas relating to pendency of the appeal before the Appellate Authority constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 ; the steps taken for one-time settlement between the second respondent-borrower and the first respondent-financial institution and also alleged violation of certain provisions of the SARFAESI Act and the Rules framed thereunder. Before this court also, similar plea has been ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent about the outstanding customs duty amount to be recovered from the second respondent-company. The Customs Department has also issued certificate under section 142(1)(ii)(C) of the Customs Act, 1962, and under the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, and forwarded the same to its Ahmedabad office and Gandhinagar office. The Customs Department has also submitted an application dated October 8, 2009, before the Debts Recovery Tribunal-I, Ahmedabad, in the pending Securitization Application No. 35 of 2009 filed by the second respondent under section 17 of the SARFAESI Act and lodged its claim of recovery of the amount from the second respondent. The Customs Department had appeared and attended the hearing of the said Securitization Application No. 35 of 2009 before the Debts Recovery Tribunal-I, Ahmedabad, and on April 1, 2010, the Tribunal recorded the statement of the first respondent-financial institution regarding disclosure of the events of the sale process in respect of the properties of the second respondent. The Customs Department has submitted its application dated April 5, 2010, for intervening as a party respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a security for the due repayment of the dues, the second respondent-borrower company created security interests in favour of the first respondent-financial institution by way of hypothecation of movable properties and by mortgage of immovable properties by executing the loan agreement/security documents in the year 1997 as per the details given hereunder : (i) Joint mortgage created on January 21, 1999, by deposit of title deeds with IFCI on pari pasu basis with SBI, on the company's immovable properties situated at GIDC Gem and Jewellery Park, Village Bhat, District Gandhinagar in the State of Gujarat. (ii) Deed of hypothecation dated January 15, 1997, executed by the company in favour of IFCI Ltd. creating a first charge on the company's movables at Bhat including movable machinery, machinery spares, tools and accessories, present and future. (iii) Personal guarantee furnished by Shri Jaisukhlal J. Parekh, Shri Rajesh J. Parekh and Shri Rajnikant J. Parekh on January 16, 1997. (iv) Corporate guarantee of Arraycom (India) Ltd. (formerly Parekh Micro Electronics (India) Ltd.) furnished on January 15, 1997. (v) Pledge agreement, executed on January 27, 1999, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SARFAESI Act, thereby given consent as per section 13(9) of the SARFAESI Act. The first respondent-financial institution has taken consent of the secured creditors representing more than 75 per cent. of the value of the amount outstanding as required under section 13(9) of the SARFAESI Act, as detailed below : S. No. Date Consent of secured creditors 1 18-2-2003 Dena Bank 2 19-2-2003 Corporation Bank 3 20-2-2003 State Bank of India 4 20-2-2003 Gujarat State Financial Corporation S. No. Date Consent of secured creditors 5 22-2-2003 Indian Bank 6 26-2-2003 Allahabad Bank 7 28-2-2003 Bank of India 8 28-2-2003 State Bank of Saurashtra 9 10-3-2003 Industrial Investment Bank of India Ltd. ARCIL, assignee of debts of Dena Bank, appointed "resolution commercial management company" as a facilitator for resolving the loan account of the second respondent-borrower company. On August 28, 2008, the "resolution commercial management company" inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sures taken by the first respondent-financial institution under section 13(4) of the SARFAESI Act. The auction of the immovable property is under challenge. The second respondent has also filed Securitization Appeal No. 35 of 2009 against such measures taken by the first respondent under section 13(4) of the SARFAESI Act and the said matter is also pending before the Debts Recovery Tribunal, Ahmedabad. In this background, it is not desirable to decide the question whether the measures taken by the first respondent under section 13(4) of the SARFAESI Act are against any of the provisions of the SARFAESI Act or the Rules framed thereunder and thereby illegal or not. The secured assets having already been sold, the auction purchaser having not been impleaded as a party respondent to the present writ petition, the other financial institutions and banks with whom the auction amount has already been distributed being not parties to the present petition, it is not desirable to decide the question of validity of the measures taken by the first respondent under section 13(4) of the SARFAESI Act. The only question which is required to be determined, for which the case was heard, as alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise), claims and demands, and that "no proceedings are pending or initiated against the borrower under the Income-tax Act, 1961, Public Demands Recovery Act or under other law in force in India for the time being and that no notice has been received or served on the company under rules 2, 16, 21 and 51 of the Second Schedule to the Income-tax Act, 1961, and/or any other law that there is no pending attachments whatsoever issued or initiated against the said immovable properties or any of them or any part thereof". It was further declared that "the company has paid all rents, royalties and all public demands including provident fund dues, gratuity dues, employees' State insurance dues, income-tax, sales tax, corporation tax and all other taxes and revenues payable to the Government of India or to the Government of any State or to any local authority and that at present there are no arrears of such dues, rents, royalties, taxes and revenues due and outstanding and that no attachments or warrants have been served on the company in respect of sales tax, income-tax, Government revenues and other taxes." The aforesaid facts have not been disputed by the petitioner-Revenue. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid does not form part of the stock-in- trade of the business of the assessee." The petitioner-Revenue, the Tax Recovery Officer, has not disputed the fact that no notice of pendency of any income-tax proceeding was served on the first respondent-financial institution on or before the equitable mortgage made by the second respondent-borrower company in favour of the first respondent-financial institution. It is not the case of the petitioner- Revenue that no adequate consideration was made before creating the charge by equitable mortgage by the second respondent in favour of the first respondent-financial institution. The learned counsel for the petitioner referred to the annual reports of 1993-94 onwards of the second respondent-borrower company to show that in the report dated September 30, 1997, i.e., much prior to the creation of the equitable mortgage, the second respondent has shown under the heading "Contingent liabilities not provided for", including "the taxation matter under appeal" Rs. 815.98 lakhs (previous year Rs. 54.01 lakhs). It was contended on behalf of the petitioner-Revenue that the first respondent-financial institution before allowing the loan in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 33A of the Madhya Pradesh General Sales Tax Act, 1958, contended that the transfer as against the Revenue was void. The Indore Bench of the Madhya Pradesh High Court having noticed the provision of section 33A of the Madhya Pradesh General Sales Tax Act, 1958, which was almost similar to the present sub-section (1) of section 281 of the Income-tax Act, 1961, held that the transfer was for a valuable consideration and it was without notice of the pendency of the proceeding under the Sales Tax Act and, therefore, the transfer falls under the exception created by the proviso to section 33A of the said Act. The finding of the lower court was upheld and the second appeal preferred by the State of Maharashtra was dismissed. Similar finding was also given by a Division Bench of the Madhya Pradesh High Court (Gwalior Bench) in the case of Pooranchand Ved Prakash v. State of Madhya Pradesh reported in [1973] 31 STC 170 (MP). Therein, the Division Bench of the Madhya Pradesh High Court, taking into consideration the object of the proviso to section 33A of the Madhya Pradesh General Sales Tax Act, 1958, held that such proviso was to give protection to a bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Customs or Deputy Commissioner of Customs or such other officer of customs ; or (c) if the amount cannot be recovered from such person in the manner provided in clause (a) or clause (b),- (i) the Assistant Commissioner of Customs or Deputy Commissioner of Customs may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector on receipt of such certificate shall proceed to recover from such person the amount specified thereunder as if it were an arrears of land revenue ; or (ii) the proper officer may, on an authorization by a Commissioner of Customs and in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid ; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevail over the private debt which is an unsecured debt. (d) In normal course, the doctrine of first charge/priority cannot prevail over secured debts, but if first charge of the State is over the secured debts, both debts being equal, the State can claim priority even over the secured debts, and (e) The secured debts under the Securitization Act or debt under the RDDB Act has no first charge and thereby cannot compete with first charge/priority claim of the State if made under the statute." A specific question whether the Central Excise Department can claim priority over the secured debt of a secured creditor under the Central Excise Act, 1944, also fell for consideration before different High Courts and the Supreme Court. A Full Bench of the Madras High Court in the case of UTI Bank Ltd. v. Deputy Commissioner of Central Excise reported in [2007] 1 LW 50 (Mad) while dealing with the Central Excise Act, 1944, the Customs Act, 1962, and the SARFAESI Act, 2002, considered whether the Crown's debts, for which there is no priority or charge is created under the statute, should have precedence over the secured creditors or not. Considering the facts of the said case that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the Assistant Commissioner of Customs in SCA No. 6961 of 2010 being covered by the decision of the Madras High Court in the case of UTI Bank Ltd. v. Deputy Commissioner of Central Excise reported in [2007] 1 LW 50 (Mad), the decision of the Supreme Court in the case of Union of India v. Sicom Ltd. reported in [2009] 147 Comp Cas 531 ; [2009] 2 SCC 121 ; [2010] 1 GSTR 346 (SC) and the decision of a Division Bench of this court in the case of Kotak Mahindra Bank v. District Magistrate reported in [2011] 1 GLR 18, we hold that the Customs Department cannot claim any priority of claim over the claim of the secured creditor, the first respondent-financial institution. No relief can be granted in the second writ petition, SCA No. 6961 of 2010, which is accordingly rejected. So far as the question of taking over possession of the property under section 13(4) of the SARFAESI Act or auction of sale of the said property under said section 13(4) or distribution of the assets between the different secured creditors are concerned, they being the matters pending consideration before the Debts Recovery Tribunal, Ahmedabad, in Securitization Appeal No. 35 of 2009 filed by the second resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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