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TMI Blog2025 (3) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ment debts. In this regard, the respondent no. 3, as a secured creditor, had priority over the revenue's claims and, accordingly, was entitled to exercise its rights over the secured assets and subsequently sell the concerned helicopters. In the present case, the hypothecation agreement was executed well before the issuance of the prohibitory order. This establishes the legal foundation for the respondent no. 3's rights over the helicopters, which predate any action taken by the Income Tax Authorities. Objection raised by the Income Tax Department regarding inadequate prior notice of the auction is without merit. It is well-documented that, on 06.09.2023, the respondent no. 3 formally communicated its intention to auction the helicopters to the Income Tax Department. However, despite receiving this communication, respondent no. 2 failed to respond. Section 222(1)(a) explicitly states "attachment and sale," signifying a sequential process where the property, once attached, must subsequently be sold to recover the arrears. Despite this, respondent no. 2 failed to take any action beyond the issuance of the prohibitory order. This Court finds merit in the petitioner's contention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. In W.P.(C) 15237/2023, respondent no. 3 is Punjab National Bank, whereas, in W.P.(C) 15238/2023, respondent no. 3 is Phoenix ARC Private Limited, a financial institution. Given the substantial similarity in facts and issues involved, it is deemed appropriate to address and dispose of both petitions through a common order. 2. The petitioner has filed W.P.(C)-15237/2023, inter alia, praying as under: "A. Allow the present Petition; B. Issue the writ of Certiorari quashing the prohibitory order dated 18.11.2019 bearing no. ITBA/COM/F/2019-20/1020400042(1); C. Issue the writ of Mandamus directing the Respondent No. 1 and 2 to forthwith intimate the DGCA and maintenance agencies i.e. M/s Yathi Air Services located at RZ-97A, Street No.9, Road No. 5, NH-8, Mahipalpur, New Delhi-110037 and SAR Aviation Services Ltd. located at Q-23, Jangpura Extension, New Delhi-110014 regarding release of (i) Bell 407, Helicopter VT NBB Serial No. 53696 Metallic Red Faun with Golden Strips and (ii) Bell 407, Helicopter VT NBA Serial No. 53083, Dark Metallic Blue with Golden Strips and withdrawal of prohibitory order dated 14.11.2019 bearing no. ITBA/COM/F/2019-20/1020400042(1)" 3. The petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office on 18.11.2019." 5. Helicopters bearing no. VT-NBA, BELL 407, S. No. 53083 and VT-NBB, BELL 407, S No. 53696 are the subject matter of W.P.(C)-15237/2023 and helicopter bearing no. VT-NBC, AS350B3, S No. 4978 is the subject matter of W.P.(C)-15238/2023. 6. In view of the above, for consideration of these petitions, W.P.(C)-15237/2023 captioned as Fasttrack Tieup Pvt. Ltd. v. Union of India & ors., is taken up as the lead matter. The reference to the facts as noted, unless the context indicates otherwise, are the facts as obtaining in the said petition. 7. The factual background is that in 2008, Summit Aviation Private Limited obtained financial assistance from respondent no. 3, Punjab National Bank, for the purchase of helicopters. This financial assistance was secured through a hypothecation agreement dated 12.05.2008. As per the hypothecation agreement three helicopters were hypothecated, two existing helicopters namely VT-NBA, BELL 407, S. No. 53083 and VT-NBB, BELL 407, S No. 53696 and one proposed helicopter that was to be purchased by the original owner (Summit Aviation Private Limited), out of the fresh term loan. The relevant portion of the hypothecation agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any officer or officers of the bank as receiver or receivers of the hypothecated assets and/or by public auction or private contract or other wise dispose of or deal with all or any part of the hypothecated assets and to enforce, realise settle, compromise and deal with all or any loss in the aforesaid without being bound to exercise any of these powers or being liable for any loss in the exercise thereof and without prejudice to the Bank's rights and remedies of suit against the Borrower and to apply the net proceeds of such sales in or towards liquidation of the balance due to the bank and the Borrower hereby agree to accept the Bank's account of sales and realization therefore as correct and fully binding on them and to pay any short fall or deficiency shown thereon. 15. That if the Borrower fail to maintain the margin as aforesaid as and when called upon by the Bank or fail or neglect to repay on demand such balance of principal and interest as may be then due to the bank on the said account or in the event of the Borrower becoming bankrupt or insolvent or executing any deed or agreement of composition, inspector-ship or go in liquidation or if the Borrower commit breach of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited and the said loan account had been classified as Non-Performing Asset. The said credit facilities were granted against hypothecation of helicopters and hypothecation agreement executed on 12.05.2008 empowering the hypothecate to take possession of the goods and sell the same in the event of default in the payment, in such a case bank can proceed ahead without intervention of the court. As the account has been classified as NPA, the bank is intending to enforce the securities i.e. hypothecated helicopters by taking possession and by sale of these helicopters. Further with regard to your outstanding arrears due from it in respect of Certificate No 46/2019 amounting Rs.2783.73 lacs from captioned borrower. It is informed that the bank's charge on the hypothecated assets have been created on 12.05.2008 and as such the bank is a secured creditor and secured creditor has priority of charge/prior Charge over the income tax dues. The said has been reiterated by below mentioned High Court and Supreme Court Judgements:- Hon'ble SC in Bombay Stock Exchange Vs. V.S. Kandalgaokar (2015) 2 SCC 1 has held that "Government debts have precedence only over unsecured creditors. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opters in light of the completed sale. However, no response or action was received from respondent no. 2. 16. The petitioner made a separate representation to respondent no. 2 on 12.10.2023, urging the withdrawal of the prohibitory order dated 18.11.2019. Despite this, respondent no. 2 failed to act or provide any response. 17. The petitioner submits that the continued existence of the prohibitory order has prevented the DGCA, M/s Yathi Air Services and SAR Aviation Services from releasing the helicopters to the petitioner. 18. In the above backdrop, the present petition has been filed by the petitioner challenging the said prohibition order. 19. It is the case of the petition that respondent no. 3 is the secured creditor and is having precedence over the dues of revenue. In order to substantiate the said averments of the petitioner, reliance has been placed on Bombay Stock Exchange v. V.S. Kandalgaokar (2015) 2 SCC and Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. & Ors. (2000) 5 SCC 694. These cases affirm that the rights of secured creditors prevail over revenue dues. 20. The petitioner submits that that the hypothecation of the helicopters by respondent no. 3 and the defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Department contends that the auctions conducted by respondent no. 3 are illegal as they violated the prohibitory order and failed to prioritize tax recovery. The department seeks to safeguard the outstanding revenue demand of Rs. 40.63 crore, including interest and penalties. 24. Respondent no. 3 in its affidavit dated 05.07.2024 has averred that as a secured creditor, the respondent no 3's rights over the helicopters take precedence over the claims of the income tax authorities. The Bank, under the provisions of the Hypothecation Agreement, exercised its legal right to sell the helicopters to recover the outstanding dues from the borrower. Following the sale and issuance of the sale certificates, the petitioner is now the legal owner of the helicopters and is entitled to take possession of them. 25. It is further submitted that given the completed sale of the helicopters and the issuance of sale certificates in favor of the petitioner, the respondent no. 3 requests respondent No. 2 to remove the prohibitory order. The respondent no. 3's position is that the prohibitory order is obstructing the petitioner's lawful possession of the helicopters, now that the sale has been comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moment the Stock Exchange has a lien over the member's securities, it would have precedence over income tax dues. We find there is force in this submission. xxx 39. The first thing to be noticed is that the Income Tax Act does not provide for any paramountcy of dues by way of income tax. This is why the Court in Dena Bank case6 held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles v. Grover7 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, Collector v. Central Bank of India 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 Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low, in accordance with the rules laid down in the Second Schedule- (a) attachment and sale of the assessee's movable property; (b) attachment and sale of the assessee's immovable property; (c) arrest of the assessee and his detention in prison; (d) appointing a receiver for the management of the assessee's movable and immovable properties. Explanation.-For the purposes of this sub-section, the assessee's movable or immovable property shall include any property which has been transferred, directly or indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor child or son's wife or son's minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property so transferred to his minor child or his son's minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the assessee's movable or immovable property for recovering any arrears due from the assessee in respect of any period prior to such date. (2) The Tax Recovery Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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