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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 ..... override the charge of the learned Respondents under Section 48 of the VAT Act. (C ) This Hon'ble Court may be pleased to hold that the learned Respondents can claim right only over the excess sale proceeds, if any, from 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 Authoriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it facilities is annexed herewith and marked as Annexure C. 4. Mortgage deed was entered into with the borrower in respect of the immovable properties offered as security for the purpose of securing the loans/credit facilities. The secured interest in the properties 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 Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commercial Tax authorities imposed provisional attachment on the properties which were already mortgaged with the Petitioners. Intimation of such attachment was sent to the revenue department with request for entering charge on the property. Copy of letter dated 1.10.2016 sent by 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 SAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sking for details of the buyer of the property. Copy of letter dated 25.5.2018 received by the Petitioners is annexed herewith and marked as Annexure R. 23. Reminder in this regard was given by the Vat department on 20.8.2018. Copy of reminder dated 20.8.2018 received by the Petitioners is annexed herewith and 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Petitioners. The action of the learned Respondents in claiming charge over the property even after it is sold in accordance with the provisions of the SARAFAESI Act is also therefore wholly without jurisdiction, bad and illegal." 4. Thus, the issue that falls for our consideration is with regard to the first priority of the Bank over 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-obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over Section 48 of the VAT Act. Mr. Sheth seeks to rely upon the decision of the Supreme Court in the case of Government of A.P. vs. J.B. Educational Society & Anr., AIR 2005 SC 2014. 5.5 He further submitted that while it is true that the Bank has taken over the possession 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(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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be liable for the secondary charge, then the same would deflate the sale value of the properties when put to auction by the Bank, thereby directly encroaching over the statutory first charge of the Bank. 5.11 In such circumstance, referred to above, Mr. Sheth prays that there being merit in this writ application, the same be allowed and the reliefs, as prayed for, be granted. 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SARFAESI Act, 2002 vis-a-vis the E.P.E. Act has held that if there is a specific provision in the State enactment creating first charge if the Parliament has not made any such provisions in its own enactments, then the first charge created by the State legislation on the property of the dealer cannot be destroyed or diluted by implication or inference, notwithstanding the fact that banks fall in the category of secured creditors. 6.5 Ms. Mehta submitted that the Supreme Court, in the case of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hta also submitted that this High Court, in the Special Civil Application No.3372 of 2012, decided on 23.7.2012 had held that the first charge over the property shall be of the department/government under Section 48 of the GVAT Act, 2003. 6.10 In support of the aforesaid submissions, Ms. Mehta has placed strong reliance on the following decisions; (1) State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation and others, (1995)2 SCC 19; (2) Nisar and another v. State of U.P., (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 other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erform all the duties of the Collector under the Bombay Land Revenue Code, 1879. (ii) The Deputy Commissioners and Assistant Commissioner shall have and exercise all the powers (except the powers of arrest and confinement of a defaulter in a civil jail) and perform all the duties the assistant Collector or Deputy Collector under the said Code. (iii) The Commercial Tax Officers shall have and exercise all the powers (except the powers of arrest and confinement of a defaulter in a civil jail) and perform all the duties of the Mamlatdar 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any instrument having effect by virtue of any such law." "37. Application of other laws not barred.-The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force." 13. The statement of objects and reasons for the two enactments 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers; (e) Facilitating reconstruction of financial assets acquired by exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions; (f) Declaration of any securitisation company or reconstruction company registered with the Reserve Bank of India as a public financial institution for the purpose of section 4A of the Companies Act, 1956; (g) Defining 'security interest' as any 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 exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a longfelt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than Rs. 5622 crores in dues of Public Sector Banks and about Rs. 391 crores of dues of the financial institutions. The locking up of such huge amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Sub-section (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad any conflict or inconsistency or overlapping between the provisions of the DRT Act and Securitisation Act on the one hand and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute; it must compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs." (ii) In Union of India v. Maj I.C. Lala, AIR 1973 SC 2204, the Supreme Court held that non-obstante clause does not mean that the whole of the said provision of law has to be made applicable or the whole of the other law has to be made inapplicable. It is the duty of the Court to avoid the conflict and construe the provisions to that they are harmonious. (iii) In Union of India v. G.M. Kokil, AIR 1984 SC 1022, the Supreme Court, at Paragraph 10, held as follows: "It is well-known that a non-obstante clause is a legislative device which 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n non-obstate clause, which are extracted, "103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting nonobstante clause, the Court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. This rule of interpretation has been applied in several decisions. 104. In State Bank of West Bengal v. Union of India, [(1964) 1 SCR 371], it was observed that: "68... the Court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it is clear, be taken to control the non obstante clause where both cannot be read harmoniously;" 21. A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in the non-obstante clause. It is equivalent to saying that inspite of the provisions or Act mentioned in the non-obstante clause, the provision following it will have its full operation or the provisions embraced in the non-obstante clause will not be an impediment for the operation of the enactment or the provision in which the nonobstante clause occurs. [See 'Principles of Statutory Interpretation', 9th Edition 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court noticed that there was an apparent conflict between Section 43 of the Defence of India Act on the one hand and Section 68-B of the Motor Vehicles Act, 1939 read with Section 6(4) of the Act on the other. The Supreme Court resolved the conflict by holding that the provisions of Section 43 of the Act would prevail over the provisions of Section 68-B of the Motor Vehicles Act for the following reasons : (1) Section 43 appears in an Act which is later than the Motor Vehicles Act and, therefore, unless there is anything repugnant, the provisions in the later Act must prevail. (2) If the object behind the two statutes is to be looked into, namely, the Act and the Motor Vehicles Act, the Act which was passed to meet an emergency 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistent therewith contained in Ch.IV of the Motor Vehicles Act or in any other law for the time being in force. The intention seems to be clear in view of the collocation of the words "in Chapter IV of this Act" with the words "in any other law for the time being in force" that Ch.IV-A was to prevail over Ch.IV of the Motor Vehicles Act or over any other law of the same kind dealing with motor vehicles or for compensation. On the other hand s. 43 of the Act emphatically says that the Act will prevail over any enactment other than the Act, and this suggests that the legislature intended that the emergency legislation in the Act will be paramount if there is any inconsistency between it and any other provision of any other law whatsoever. Such a provision 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 conflic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y court, tribunal or other authority." 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. & Anr., [1993 ] 2 SCC 144; Sarwan Singh & Anr. v. Kasturi Lal, [1977] 2 SCR 421; Allahabad Bank v. Canara Bank & Anr., [2000] 4 SCC 406 and Shri Ram Narain v. The Simla Banking Industrial Co. Limited, [1956] SCR 603. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. [1997] v. 89 Company Cases 547, it had been contended that recovery proceedings 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under section 11(2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. In other words, what necessitated the introduction of the two provisions in the two enactments and what object the two provisions would subserve. 31. We may, at the outset, clarify that the Government of India, Ministry of Finance, notified the provisions of Section 26(E) on 1st September 2016. The copy of the Notification issued by the Government of India, published in the Official Gazette Part-II, Section 3, at Serial No.2142 dated 1st September 2016 has been placed on record. The Notification reads as under : "MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 1st September, 2016 S.O. 2831 (E).--In exercise of the powers conferred by sub-section (2) of section 1 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) 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); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as enacted only with the intention of allowing faster recovery of debts to the 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 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. 36. 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. The Supreme Court, in the case of State of Madhya Pradesh v. State Bank of Indore, (2001) 126 STC 1 (SC), 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 ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Central Bank of India (supra). 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. It is submitted that judgment of the Apex Court in the case of Central Bank of India (supra) was prior to the amendment in the Act of 2002 and 1993 thus would not apply to the cases governed by the amended provisions. In the case in hand, the attachment of property by the State is prior to the amendment thus amended provision would not apply. Section 47 of the Act of 2003 was invoked prior to the amendment. We are yet considering the effect of the amended provision. The Apex Court has made analysis of a provision of first charge vis a vis secured creditor in the case of Central Bank of India (supra). The first charge was given supremacy 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 secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptcy 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." 9. Thus, the aforesaid statute makes it very clear that the dues of the bank are to be recovered at the first instance. Section 33 of the MP VAT Act, 2002 reads as under:- "33 : Tax to be first charge (1) Notwithstanding anything to the contrary, contained in any law for the time being in force and subject to the provisions of section 530 of the Companies Act, 1956 (No.1 of 1956), any amount of tax and/ or penalty or interest, if any, payable by a dealer or other person under this Act shall be first charge on the property of the dealer or such person. (2) Notwithstanding anything contained in this Act, where a dealer or person is in default or is deemed to be in default under clause (a) of subsection (11) of section 24 and whose 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed property in question, with regard to the tax and other dues, and (ii) As to the status and the rights of a Third party Purchaser of the Mortgaged property in question." 40. Sanjay Kishan Kaul, CJ. (as His Lordship then was) observed as under : "...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 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 procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person. [(2)(2) The first charge as mentioned in sub-section (1) shall be deemed to have been created on the expiry of the period specified in sub-section (4) of section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount." 43. Thus, Section 37 of the MVAT Act, 2002, although starts with a non-obstance clause "notwithstanding anything contained in any contract to the contrary", yet it clarifies that the same shall be subject to any provision regarding creation of the first charge in any Central Act, any amount of tax, penalty, interest, sum forfeited or any other sum payable by a dealer or any other person under the Act shall be the first charge on the property of the dealer. Clause (2) proceeds to explain the term "first charge". The first charge is deemed to have been created on the expiry of the period specified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of RDB Act which is pari materia to Section 26E of the SARFAESI Act was subject matter for consideration before the Full Bench of the Madras High Court in the matter of Assistant Commissioner (CT) Chennai vs. the Indian Overseas Bank decided on 11.11.2016 and the Full Bench has observed in paragraph 4 of the Judgment that "the law having now been come into force naturally it would govern the rights of the parties in respect of even lis pendence" We do not propose to analyse the Full Bench judgment delivered by the Madras High Court." 45. The Madras High Court (Madurai Bench), in the case of Indian Overseas Bank v. The Sub Registrar, Tuticorin Keelur, Tuticorin District and others, (Writ Petition No.14618 of 2018, decided on 18th December 2018), had the occasion to consider Section 31B of the RDB Act. The Division Bench of the Madras High Court observed as under : "Similar issue came up for consideration before this Court in W.P.(MD).No.10724 of 2018, dated 06.12.2018, Central Bank of 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 Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. Sec. 158(1) of the Karnataka Land Revenue Act specifically provides that the claim of the State Government to any moneys recoverable under the provisions of Chapter XVI shall have precedence over any other debts, demand or claim whatsoever including in respect of mortgage. Sec. 158 of the Karnataka Land Revenue Act not only gives a statutory recognition to the doctrine of State's priority for recovery of debts but also extends its applicability over private debts forming subject matter of mortgage, judgment-decree, execution or attachment and the like.-Builders Supply Corporation vs. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply. The State shall have a preferential right to recover its dues over the rights of the appellant bank and the property of the partners shall also be liable to be proceeded against. No useful purpose would therefore, be served by allowing the appeal which will only further complicate the controversy.-CST vs. Radhakishan AIR 1979 SC 1588 distinguished. State had preferential right to recover sales-tax dues over the rights of bank and property of the partners could also be liable to be proceeded against for the dues of the firm." 47. Thus, the dictum of law as laid by the Supreme Court in the aforesaid decision is that the State's preferential right to the recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Supreme Court took the view that the Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for the recovery of its debts over a mortgagee or pledgee of the goods or a secured creditor. 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have priority over unsecured debts and in so holding the Court referred to a judgment in Giles v. Grover (1832) (131) English Reports 563 in which it has been held that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad v. Central Bank of India [1967] 3 SCR 855 after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore "law in force" in the territory of India before the Constitution and was continued by Article 372 of the Constitution (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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person on account of tax, interest or penalty' therein assumes significance. The amount could be said to be payable by a dealer on account of tax, interest or penalty once the same is assessed in the assessment proceedings and the amount is determined accordingly by the authority concerned. Without any assessment proceedings, the amount cannot be determined, and if the amount is yet to be determined, then prior to such determination there cannot be any application of Section 48 of the VAT Act. We may also refer to Section 47 of the VAT Act. Section 47 of the VAT Act is with respect to transfer of property by the dealer to defraud the Revenue. According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after the tax has become due, then such transfer would be a void transfer. The reason why we are referring to Section 47 is that the phrase therein 'after any tax has become due from him' assumes significance. The same is suggestive of the fact that 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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