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TMI Blog2019 (9) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor vis-a-vis the first charge of the property under the State Legislation was considered by the Supreme Court in the case of Central Bank of India vs. State of Kerala ors, [ 2009 (2) TMI 451 - SUPREME COURT ]. The Supreme Court, in the said decision took the view that if the State Act creates first charge on the property, then the secured creditors cannot have the claim against the statutory provision. The Supreme Court also took into consideration Section 100 of the Transfer of Property Act, 1882. Indisputably, the judgment of the Apex Court in the case of Central Bank of India was prior to the amendment in the Act, 2002 and 1993 respectively. However, what is important are the observations of the Supreme Court as contained in para-126 of this decision. The Supreme Court observed that while enacting the DRT Act, the Parliament was aware of the law laid down by the Supreme Court, wherein priority of the State dues was recognized. If the Parliament intended to create the first charge in favour of the Banks, Financial Institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase secured creditors to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. Thus, an interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors. The insertion of Section 31B of the RDB Act will give priority to the secured creditors even over the subsisting charges under other laws on the date of the implementation of the new provision, i.e. 1.9.2016. Section 48 of the VAT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m sale of mortgaged properties by the Petitioners after adjusting the sale proceeds towards the secured dues of the Petitioners. ( D) This Hon'ble Court may be pleased to hold that the learned Respondents cannot proceed against purchasers of properties sold under the SARFAESI Act. ( E) Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to prohibit the learned Respondent authorities from taking any further steps in relation to the properties mortgaged by the Petitioners from M/s. M.M. Traders. ( F) Ex parte ad interim relief in terms of prayer E may kindly be granted. ( G) Such other relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray. 2. The writ applicant No.1 is a Multi-State Cooperative Scheduled Bank, whereas the writ applicant No.2 is the Chief Manager and the Authorized Officer of the Bank. 3. The case of the writ applicants, in their own words, as pleaded in the writ application, is as under; 1. By way of this petition under Article 226 of the Constitution of India the Petitioners pray for writ of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties was duly registered by the Petitioners with the Central registry under the SARAFAESI Act. Copy of challans showing registration of secured interest are annexed and marked as Annexure D. 5. The borrower thereafter committed defaults in terms of the conditions of the loan/credit facilities and hence the Petitioners initiated action for recovery of outstanding amount of ₹ 7,87,49,127/- plus interest in terms of the provision of the Securitization and Reconstruction of Financial Assets Act, 2002 (hereinafter referred to as the SARAFAESI Act ). Copy of notice dated 26.2.2015 sent to the borrower is annexed herewith and marked as Annexure E. 6. The Petitioners sent another notice on 27.4.2015 for taking over possession of the securities under Section 13(4) of the SARAFABI Act for default committed by the borrower. Copy of the notice dated 27.4.2015 sent to the borrower is annexed herewith and marked as Annexure F. 7. The Petitioners point out that there was litigation on the issue as to whether cooperative banks were governed by the provisions of the SARAFAESI Act or not. The SARAFAESI Act was amended on 15.1.2013 to include multi-state co-operatwe bank and validity of such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned Commercial Tax authorities to the revenue department is annexed herewith and marked as Annexure L. 14. The learned Officer of the Vat department thereafter addressed a letter to the Petitioners on 18.3.2017 contending that they had first charge over the properties of the borrower on the basis of Section 48 of the Vat Act. It was further alleged that the Petitioners were not covered by the provisions of the SARAFAESI Act. Copy of letter dated 18.3.2017 received by the Petitioners is annexed herewith and marked as Annexure M. 15. The Petitioners immediately responded by letter dated 21.3.2017 wherein it was pointed out that it had been held by this Hon. Court that the Petitioners being Multi-State Scheduled Bank were covered by the provisions of the SARAFAESI Act. It was further pointed out that the Petitioners had first charge over the property by virtue of Section 26E of the SARAFAESI Act which would have an overriding effect over Section 48 of the Vat Act. Copy of reply dated 21.3.2017 given by the Petitioners to the Vat authorities is annexed herewith and marked as Annexure N. 16. Thereafter on 24.10.2017 a garnishee notice was issued by the learned Vat authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marked as Annexure S. 24. The Petitioners responded by letter dated 29.8.2018 informing the learned Vat authority that the sale of property was conducted in exercise of powers conferred by the SARAFAESI Act and that even after adjustment of sale proceeds towards the outstanding dues of the borrower, huge loan amount still remained outstanding. Copy of letter dated 29.8.2018 submitted by the Petitioners to the learned Vat authority is annexed herewith and marked as Annexure T. 25. The learned Vat authorities however again wrote a letter to the Petitioners on 6.9.2018 requiring the Petitioners to give details about the purchaser of the property. Copy of letter dated 6.9.2018 received by the Petitioners is annexed herewith and marked as Annexure U. 26. The learned Vat authorities are refusing to give. up the claim of first charge over the properties mortgaged with the Petitioners based on Section 48 of the Vat Act despite there being clear overriding provision contained in Section 26E of the SARAFAESI Act. The learned Vat authorities also want to recover the tax dues from purchaser of property already sold by the Petitioners under the SARAFAESI Act. 27. In the respectful submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dues vis-a-vis the sales tax dues which the State Government wants to recover from the assets of the defaulter. In other words, the case of the writ applicants is that the Bank has the first charge over the properties mortgaged by M/s. M.M. Traders by virtue of Section 26E of the SARFAESI Act. According to the writ applicants, Section 26E of the SARFAESI Act would override the charge of the State Government under Section 48 of the Act. 5. Submission on behalf of the writ applicants: 5.1 Mr. Uchit Sheth, the learned counsel appearing for the Bank submitted that Section 31B has been inserted in the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as the RDB Act ) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 w.e.f 1.9.2016 which contains a non-obstante clause and which expressly provides that the secured debts shall be paid in priority over all other debts and Government dues including the State taxes. In the light of such provision the dues of the Petitioner clearly have priority over the alleged tax dues of the defaulter under the Gujarat Value Added Tax Act, 2003 (hereinafter referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 31B of the RDB Act being a substantive provision giving priority to the 'secured creditors' the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(Ia) of the RDB Act defines the phrase secured creditors to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to secured creditors without intervention of the court. This is apparent from the statement of Objects and Reasons of the SARFAESI Act. Thus an interpretation that while the secured creditors will have priority in case of they proceed under the RDB Act while they will not have such priority if they proceed under the SARFAESI Act will lead to an absurdity and in fact frustrate the object of the SARFAESI Act which is to enable fast recovery to secured creditors. 5.6 He also submitted that the insertion of Section 31B of the RDB Act will give priori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted. 6. Submissions on behalf of the respondents ; 6.1 Ms. Mehta, the learned AGP appearing for the respondents, while vehemently opposing this writ application, submitted that Section 26E of the SARFAESI Act is not notified by the Central Government in the Official Gazette and, therefore, it has not come into force. She submitted that, therefore,, Section 26E of the SARFAESI Act would not have any applicability in the case on hand and that the State Government would have the first charge over the property of M/s. M.M. Traders in view of Section 48 of the GVAT Act, 2003. Ms. Mehta also submitted that Section 26E, which the writ applicants are relying upon, is falling within Section 18 of the Amendment Act No.44 of 2016 which has not given effect to which is evident from the appointed dates prescribed by the Government, bringing the Amendment Act No.44 of 2016 into effect. Ms. Mehta submitted that to be precise, the said clarification issued by the Central Government clearly mentions that Sections 22 to 31 of the Amendment Act No.44 of 2016 refers to the following sections of the SARFAESI Act and of the Debts Due to Banks and Financial Institutions Act, 1993. The details of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Dena Bank v. Bhikhabhai Prabhudas Parekh and Company , reported in (2000)5 SCC 694 , has considered the doctrine of priority of the State debts as a rule of necessity and public policy. The basic justification for the claim of priority of the State debts rest 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. 6.6 She also submitted that the SARFAESI Act, 2003 falls within the subject 'banking' in the Schedule 7 List I Entry 45 read with Entry 95 by virtue of Article 246 of the Constitution of India. 6.7 Ms. Mehta also submitted that the Apex Court, in the case of State of Maharashtra v. Bharat Shanti Lal Shah and others , reported in (2008)13 SCC 5 , has held that where a challenge is made to the constitutional validity of a particular State Act with reference to a subject mentioned in any Entry in List I, the court should look into the substance of the State Act, If it is found that it falls under an entry in the State List but there is only an incidental encroachment on the subjects in the Union List, the State Act wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995)2 SCC 23; ( 3) State of M.P. and another v. State Bank of Indore and others , (2002)10 SCC 441 ; ( 4) Assistant Collector of Central Excises and another v. Kashyap Engineering Metallurgicals (P) Ltd. , (2002)10 SCC 443 ; ( 5) Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited , (2011)10 SCC 727 ; ( 6) Laxman alias Laxman Mourya v. Divisional Manager, Oriental Insurance Company Limited and another , (2011)10 SCC 756 ; ( 7) Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and others , (2000)5 SCC 694 ; ( 8) State of Maharashtra v. Bharat Shantilal Shah and others, (2008)13 SCC 5 ; ( 9) Central Bank of India v. State of Kerala and others , ( 2009)4 SCC 94 ; 6.11 In such circumstances, referred to above, Ms. Mehta prays that there being no merit in this writ application, the same may be rejected and the amount fetched in the auction conducted by the writ applicant Bank may be directed to be transferred to the State Government. ANALYSIS 7. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the Central Legislation would preva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dar under the said Code. ( 2) Every order passed in exercise of the powers conferred buy sub-section (1) shall, for the purpose of section 73, 75, 79, or 94, be deemed to be an order passed under this Act. 11. Sections 31B and 34 of the Recovery of Debts and Bankruptcy Act, 1993, read as under : 31B. Priority to secured creditors .- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured 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 purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 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. 34 . Act to have over-riding effect .- (1) Save as provided under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read as under: THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 ( Act No.54 of 2002) STATEMENT OF OBJECTS AND REASONS The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; ( h) Empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or takeover management in the event of default, i.e., classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time; ( i) The rights of a secured creditor to be exercised by one or more of its officers authorized in this behalf in accordance with the rules made by the Central Government; ( j) An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal; ( k) Setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration of transactions relating to securitisation, asset reconstruction and creation of security interest; ( l) Application of the proposed legislation initially to banks and financial institutions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of public money in litigation prevents proper utilization and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunal and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill. ACT 51 OF 1993 The Recovery of Debts Due to Banks and Financial Institutions Bill having been passed by both the Houses of Parliament received the assent of the President on 27th August 1993. It came on the Statute Book as THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (51 of 1993):) 15. The plain reading of Section 48 of the VAT Act indicates that it starts with a non-obstante clause 'notwithstanding anything to the contrary contained in any law for the time being in force. Section 48 of the VAT Act creates first charge on the property. The issue as regards the claim of priority of the secured creditor vis-a-vis the first charge of the property under the State Legislation was considered by the Supreme Court in the case of Central Bank of India vs. State of Kerala ors , reported in (2009) 4 SCC 94 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Bombay Act and Section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State's charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. 126. While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis a vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as the Parliament has not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the dealer or any other person, liable to pay sales tax etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors. 16. Indisputably, the judgment of the Apex Court in the case of Central Bank of India (supra) was prior to the amendment in the Act, 2002 and 1993 respectively. However, what is important are the observations of the Supreme Court as contained in para-126 of this decision quoted above. The Supreme Court observed that while enacting the DRT Act, the Parliament was aware of the law laid down by the Supreme Court, wherein priority of the State dues was recognized. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is usually employed to give overriding effect to certain provision over some contrary provision that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions. ( iv) In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram , [1986] 4 SCC 447 , at Paragraph 67, the Supreme Court held as follows: 67. A clause beginning with the expression notwithstanding any thing contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the nonobstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non-obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the nonobstante clause would not be an impediment for an operation of the enactment. See in this connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs. 105. In Madhav Rao Jivaji Rao Scindia v. Union of India and another [(1971) 1 SCC 85], Hidayatullah, C.J. observed that the non obstante clause is no doubt a very potent clause intended to exclude every consideration arising from other provisions of the same statute or other statute but for that reason alone we must determine the scope of that provision strictly. When the section containing the said clause does not refer to any particular provisions which it intends to override but refers to the provisions of the statute generally, it is not permissible to hold that it excludes the whole Act and stands all alone by itself. A search has, therefore, to be made with a view to determining which provision answers the description and which does not. 106. In R.S. Raghunath v. State of Karnataka and another [(1992) 1 SCC 335], a three-Judge Bench referred to the earlier judgments in Aswini Kumar Ghose v. Arabinda Bose [AIR 1952 SC 369], Dominion of India v. Shrinbai A. Irani [AIR 1954 SC 596], Union of India v. G.M. Kokil [1984 (Supp.) SCC 196], Chandravarkar Sita Ratna Rao v. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by Justice G.P. Singh Chapter V, Synopsis IV at pages 318 319] 22. When two or more laws or provisions operate in the same field and each contains a non-obstante clause stating that its provision will override those of any other provisions or law, stimulating and intricate problems of interpretation arise. In resolving such problems of interpretation, no settled principles can be applied except to refer to the object and purpose of each of the two provisions, containing a non-obstante clause. Two provisions in same Act each containing a non-obstante clause, requires a harmonious interpretation of the two seemingly conflicting provisions in the same Act. In this difficult exercise, there are involved proper consideration of giving effect to the object and purpose of two provisions and the language employed in each. [See for relevant discussion in para 20 in Shri Swaran Singh Anr. v. Shri Kasturi Lal; (1977) 1 SCC 750] 23. Normally the use of the phrase by the Legislature in a statutory provision like 'notwithstanding anything to the contrary contained in this Act' is equivalent to saying that the Act shall be no impediment to the measure [See Law Lexicon words 'notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergency arising out of the Chinese invasion of India in 1962 must prevail over the provisions contained in Chapter IV-A of the Motor Vehicles Act which were meant to meet a situation arising out of the taking over of the motor transport by a State. ( 3) The language of Section 43 was found to be more emphatic than the language of Section 68-B. The Supreme Court took notice of the fact that Section 43 provided that the provisions of the Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than the Act. This, according to the Supreme Court, was indicative of the intention of the legislature that the Act shall prevail over the other statutes. 26. The observations made in para-12 of the judgment are relevant. The observations are as under : 12. This argument is met on behalf of the State by reference to S. 43 of the Act which lays down that the provisions of this Act or any rule made thereunder or any order made under any such rule shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument having effect by virtue of any enactment other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is understandable in view of the emergency which led to the passing of the Act. 27. The principles discernible from the decision of the Supreme Court in the case of Kumaon Motor Owners' Union Ltd. (supra) are that, if there is a conflict between the provisions of the two Acts and if there is nothing repugnant, the provisions in the later Act would prevail. The second principle discernible is that, while resolving the conflict, the court must look into the object behind the two statutes. To put it in other words, what necessitated the legislature to enact a particular provision, later in point of time, which may be in conflict with the provisions of the other Acts. The third principle discernible is that the court must look into the language of the provisions. If the language of a particular provision is found to be more emphatic, the same would be indicative of the intention of the legislature that the Act shall prevail over the other statutes. 28. The Supreme Court, in the case of Solidaire India Ltd. (supra), had the occasion to consider the effect of conflict between two special Acts. In the case before the Supreme Court, the conflict was between the provisions of the Spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this contention, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The head note which brings out succinctly the ratio of the said decision is as follows : Where there are two special statutes which contain nonobstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was 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. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions and Securities) Act, 1992, provides in Section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction against considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced grant time or instalments. 11. We are in agreement with the aforesaid decision or the case, more so when we find that whenever the Legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mrs. Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2016 (44 of 2016), the Central Government hereby appoints the 1st day of September, 2016 as the date on which the following provisions of the said Act shall come into force, namely :- Sr. No. Sections 1 Sections 2 and 3 (both inclusive); 2 Sections 4 [except clause (xiii)]; 3 Section 5 and 6 (both inclusive); 4 Sections 8 to 16 (both inclusive); 5 Sections 22 to 31 (both inclusive); 6 Sections 33 to 44 (both inclusive). [ F.No. 3/5/2016 DRT] ANANDRAO VISHNU PATIL, Jt. Secy. 32. Section 31B has been inserted in the Recovery of Debts and Bankruptcy Act, 1993 (herein after referred to as the RDB Act ) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, w.e.f. 1.9.2016, which contains a non-obsante clause and which expressly provides that the secured debts shall be paid in priority over all other debts and Government dues including the State taxes. 33. Apart from the fact that Section 31B of the RDB Act is a later enactment, the language of the said provision also clearly indicates the intention of the Parliament to give precedence even over the Government dues notwithstanding anything to the contrary in any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) , has held that a provision creating first charge over the property would operate over all charges that may be in force. The following observations made in para 5 of the said judgment are relevant: 5. Section 33-C creates a statutory charge that prevails over any charge that may be in existence. Therefore, the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the bank in respect of the loan taken by the second respondent. There is no question of retrospectivity here, as on the date when it was introduced, section 33-C operated in respect of all charge that where then in force and gave sales tax dues precedence over them... 37. The Rajasthan High Court, in the case of G.M.G. Engineers Contractor Pvt. Ltd. (supra), has taken the view as under : The first issue for my consideration is as to whether amended provisions of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would apply to the present case. 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 respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remacy than rights under mortgagee or to a secured creditor. The distinction between first charge and secured creditor is necessary to analyse scope of Section 26E of the Act of 2002 and Section 31B of the Act of 1993. The amended provisions are having overriding effect and give priority to the secured creditors vis a vis State dues. It does not, however, nullify the effect of first charge created on the property under the State Act. If intention of Parliament would have been to nullify the effect of first charge, the language of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). It should have been with non-obstante clause and that secured creditors would have priority over the first charge created under a State legislation. The amendment made by Parliament is to give priority to the secured creditors vis a vis State dues without speaking about the first charge. 38. The 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property is being sold by a bank or financial institution for recovery of its loan, the Commissioner may forgo the right of first charge as mentioned in subsection (1) against the property sold on the following conditions:- ( a) if the arrears of tax, penalty, interest or part thereof or any other amounts is up to 25 percent of the total auction value, the arrears shall be paid in full by the bank or financial institution; ( b) if the arrears of tax, penalty, interest or part thereof or any other amount is more than 15 percent of the total auction value, the 25 percent of the total auction value and the amount in the same proportion of the remaining auction value as the remaining arrears bear to the total dues of the bank or financial institution, shall be paid by the bank or financial institution. In the considered opinion of this Court, the Enforcement of Security Interest and Recovery of Debts and Loans 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government, State Government or local authority. Explanation. - For the purposes 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. 2. There is, thus, no doubt that the rights of a secured creditor to realise secured 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. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified in subsection (4) of Section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount. This is further suggestive of the fact that the first charge would be deemed to be created only after the tax, penalty, interest is determined in the assessment proceedings. Section 48 of the GVAT Act, 2003 is quite general and substantially differs from Section 37 of the MVAT Act, 2002, although both the provisions are with regard to first charge on the property of the dealer. 44. The Division Bench observed as under : A Division Bench of this Court in Writ Petition No. 1796 of 2015 in the case of Axis Bank Limited Vs. State of Maharashtra and Ors. Decided on 07.03.2017 had an occasion to consider the import 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 envisag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India Vs the Joint Sub-Registrar No.1, wherein this Court has held as follows:- 7. In Assistant Commercial Tax Officer (CT) v. Indian Overseas Bank reported in 2016 (6) CTC 769, the Full Bench of this Court has held as under: ... 2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principal Act, which reads as under:- 31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tends its applicability over private debts forming subject matter of mortgage, judgment-decree, execution or attachment and the like.-Builders Supply Corporation vs. Union of India AIR 1965 SC 1061 relied on; Collector of Aurangabad vs. Central Bank of India AIR 1967 SC 1831 distinguished. A legislation may be made to commence from a back date, i.e., from a date previous to the date of its enactment. To make a law governing a past period on a subject is retrospectivity. A legislature is competent to enact such a law. The ordinary rule is that a legislative enactment comes into operation only on its enactment. Retrospectivity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is true that ultimately the bank was not granted any relief, but the same was not granted in the peculiar facts of the case. Otherwise, the principle of law as explained is very clear. In no uncertain terms, the Supreme Court held that the appellant, i.e. the bank, was right in submitting that on the date 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 the sales-tax arrears payable by the firm, thereby defeating the bank's security. In taking such view, the Supreme Court relied 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 Incometax Act, 1961, read with Sections 8 and 9 of the Securities Contracts (Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution (at page 861, 862). In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. 49. The two decisions referred to above, one of the Supreme Court and another of the Bombay High Court, as such may not be helpful to the Bank because the principal issue in the case on hand is with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat before the assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of the dealer, such transfer would not be a void transfer. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer. Once this part is over, then Section 48 of the VAT Act would come into play. 53. One of us, J.B. Pardiwala, J., sitting as a Single Judge, had the occasion to consider this issue in the case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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