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TMI Blog2011 (8) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... and further be pleased to direct the respondents to enter the name of the petitioner in the revenue record. B) Pending hearing and final disposal of this petition, Your Lordships may be pleased to issue a writ of mandamus or any other appropriate writ, order or direction directing the respondents to cancel the charge of the Sales Tax Department on the property purchased by the petitioner situated at Block No.75/B paiki admeasuring 4076 Sq. Mtrs. situated, lying and being at Village : Santej, Taluka : Kalol, Dist: Gandhinagar and property situated at Block No.234 having land admeasuring 3449 Sq. Mtrs. together with construction standing thereon at Village : Santej, Taluka : Kalol, Dist: Gandhinagar and further be pleased to direct the respondents to enter the name of the petitioner in the revenue record. C) To pass any other and further orders as may be deemed, fit and proper in the interest of justice. Facts in brief giving rise to this petition, can be summarized as under: 2. The petitioner is a Private Limited Company registered with Registrar of Companies. It appears that M/s. Aditi Exports Pvt. Ltd. obtained loan from Bank of Baroda and as security, the property bearing Block N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned advocate for the petitioner would contend that the action of the respondent Authorities to create a charge in favour of the Sales Tax Department is illegal and is contrary to the settled position of law. That the doctrine of first charge/priority of State will prevail over the private dues which is unsecured debts. He would further contend that the action of the respondents Authorities in refusing to mutate necessary entry as regards sale of the secured assets in revenue record is illegal and arbitrary. He would further contend that the petitioner has already paid an amount of Rs.1,51,49,350/-. Even as per the sale certificate issued by M/s. J.M. Financial Assets Reconstruction company Private Limited, the sale of the scheduled property was made free from all encumbrance and therefore, the petitioner is not liable for any payment of other dues. He would also contend that the petitioner cannot be made liable to pay the dues of Sales Tax Department. Lastly, he contended that the entire issue is now squarely covered by the Division Bench decision of this Court delivered in case of Baroda City Cooperative Bank Ltd. Vs. State of Gujarat reported in 2010(2) GLH 525. 8. Per Contra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to which effective steps were taken by them before issuing the Sale Certificate showing 'Nil' encumbrances. I say that the said Sale Certificate is issued under sub-rule (6) of the rule 9 of the Security Interest Enforcement Rules, 2002 which reads as under: (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix-V to these rules . I respectfully say and submit that subrule (7) of the rule 9 provides and mandates that the authorized officer shall require the purchaser to deposit with him the money required to discharge the encumbrances. I further say that sub-rule (8) of rule 9 provides that on such deposit of the money for discharge of the encumbrances, the authorized officer will take steps to make payment to the persons interested in or entitled to the money deposited with him. I say and submit that the sub-rule (9) of rule 9 specifically mandates that the authorized officer shall deliver the property to the purchaser free from encumbrances. The responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure R-I. 6. I respectfully say and submit that, as stated, auction of the properties belonging to M/s. Aditi Exports Pvt. Ltd. by J.M. Financial Assets Reconstruction Company Private Ltd. on 30.11.2009, was not within the knowledge of the respondent department, and therefore, entire proceedings of auction have taken place behind the back of respondent No.2 and it can only be stated that M/s. Aditi Exports Pvt. Ltd. is a defaulter in payment of the dues to the respondent department, which dues, as on the date of attachment were Rs.136.64 Lakhs, but clubbing therewith the dues raised thereafter and along with statutory interest up to 30.6.2011, have swollen to Rs.344.41 Lakhs. I reiterate, at the cost of repetition and it is pertinent to note that the respondent department's attachment on the stated properties of M/s. Aditi Exports Pvt. Ltd. was much earlier, in point of time, than the stated auction. It is also pertinent to note that J.M. Financial Assets Reconstruction company Private Ltd. doesn't seem to have taken abundant precaution prior to issuance of the stated Sale Certificate dated 22.12.2009 as, had it done so, the charge created by the respondent department in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner was not on the scene. Secondly, creation of the said charge cannot be said to be illegal as it was done after following the due procedure as permitted by statutory provisions. I say that in light of aforesaid facts, the respondent therefore, craves leave to submit that the judgment cited and relied upon by the petitioner, cannot be made applicable considering the provision of Rule 9. 10. Affidavit-in-reply has also been filed by Talati-Cum-Mantri of village Santej. In reply filed by Talati-Cum-Mantri, it has been averred as under: 3. I respectfully say that since 26.1.2005 work with regard to the making Entry in Village Form No.6,8A as well as Village Form No.7/12 have been shifted from the office of the Talati-Cum-Mantri to the office of the Mamlatdar, Kalol in E-Dhara Centre. I further say that Entry No.6368 dated 27.01.2008 has been made by the office of Mamlatdar, E-Dhara Centre, Kalol which came further certified on 08.04.2008 by the Circle Officer, Kalol and therefore, the answering deponent has no role to play in the present petition. I further say that if any person wants to delete any Entry mutated in Village Form No.6, an application is required to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -vis Securitization Act fell for consideration before a Full Bench of the Madras High Court in UTI Bank Ltd. Vs. The Dy. Commissioner of Central Excise, Chennai II Division, reported in 2007 (1) Law Weekly 50. In the said case, while dealing with the Central Excise Act, 1944, Customs Act, 1962 and the Securitization Act, the Full Bench 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 the bank had taken possession of the property under Section 13 of the Securitization Act and having noticed that there are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others and in absence of any such provision to claim first charge, the Government cannot c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctrine about priority of Crown debts which was recognized by Indian High Courts prior to 1950 constitutes law in force within the meaning of Article 372(1) and continues to be in force. 3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. 10. However, the Crown s preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. 10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments. 11. In Central Bank of India vs. State of Kerala, reported in (2009) 4 SCC 94, the Supreme Code decided the question whether the Crown debt was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right of secured creditor vis- -vis other mortgagees who could exercise rights under Section 69 and 69A of the Transfer of Property Act. However, this primary 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. By enacting various provisos to sub-section (9), the legislature has ensured that priority given to the claim of workers of a company in liquidation under Section 529A of the Companies Act, 1956 vis- -vis secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have priority over the State s statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal. 39. If the provisions of the DRT Act and Securitization Act are interpreted keeping in view the background and context in which these legislations were enacted and the purpose sought to be achieved by their enactment, it becomes clear that the two legislations, are intended to create a new dispensation for expeditious recovery of dues to banks, financial institutions and secured creditors and adjudication of the grievance made by any aggrieved person qua the procedure adopted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst 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. 17. Taking into consideration the aforesaid provisions of law, judgments rendered by the Courts and the observations made by us in the preceding paragraphs, we will have to decide in this case whether the State can recover its dues of tax under Section 47A of the Gujarat Sales Tax Act, 1969 and the dues of the workmen under Section 33-C of the Industrial Disputes Act, 1947, as arrears of land revenue under Section 137 of the BLR Code. 18. In the present case, as we have noticed that Section 137 has been declared void, we hold that the State Government cannot recover the dues under Section 137 of the BLR Code. 19. For the reasons aforesaid, while we answer the issue in favour of the appellants - petitioners, allow the prayers made in their appeal and the writ petitions, but there shall be no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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