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TMI Blog2006 (7) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 51,00,000/- by way of term loan to one M/s. Nihal Cast Nylon Pvt. Ltd. ("the borrower" for short). In consideration of the petitioner advancing the said term loan, the borrower created a first charge by way of legal mortgage of its fixed assets situate at its factory premises at Satara as well as the first charge by way of hypothecation/charge on the plant and machinery, electrical and other installation furniture and fixtures acquired by them lying in the factory, and/or to be acquired by them; described in the Schedule annexed to the said Indenture of Mortgage. The borrower, for having borrowed additional loan amount, has also executed second indenture of mortgage dated 22nd December 1986 so as to create charge on its movable and immovable assets. 4.The borrower committed several defaults in repayment of principals as well as interest accrued thereon. Hence, the petitioners in exercise of its power under Section 29 of the said Act issued notice to take possession of the said securities and, thereafter took actual possession thereof. However, since some repayments were made by the borrower to the Corporation as such Corporation appears to have handed over properties back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner's securities) has crystalized much prior in point of time, than the purported claim of the respondents- customs authorities. 10.Mr. Dhond urged that by virtue of the security documents i.e. the Indenture of Mortgage and the indenture of further charge, the properties of the borrower on which the respondents seek to levy attachment, are already charged and/or mortgaged in favour of the petitioner. By virtue of this charge and/or mortgage the petitioner is exclusively entitled to utilise and/or realise these properties/securities in the repayment of its dues (which are due and payable by the borrower). That the petitioner is entitled to have the entire sale proceeds of the securities so as to effect their recovery in toto leaving surplus if any, for the respondents. He submits that the custom authorities cannot claim priority preferential charge on the properties of the borrower. 11.Mr. Dhond, learned Counsel for the petitioner further submits that it is a settled law that the Government's preferential right for recovery of debts, over other creditors, is confined only to ordinary and/or unsecured creditors, and not secured creditors such as the petitioner. That in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditor, but also the petitioner's right to carry on business, guaranteed by Article 19(1)(g) of the Constitution of India. 15.Mr. Dhond submits that despite repeated requests to the respondents, did not remove their seal/attachment. Such an approach on the part of the statutory authority clearly demonstrates the arbitrary and high handed approach of the respondent. 16.In the circumstances aforesaid, Mr. Dhond submits that petitioners' rights as a secured creditor are liable to be protected by this Court. The attachment and/or action of the respondents against the petitioner's security is arbitrary and contrary to law. He thus submits that the respondents are liable to remove their seal from the said properties and hand over to the petitioners the said properties which belong to the borrower and constitutes the security of the petitioner. He, therefore, prayed that the petition be allowed and the relief as prayed for be granted in favour of the petitioner. Per Contra : 17.Learned Counsel for the respondents submits that the action of the respondents in sealing the factory is in accordance with law, since the statutory provision viz. Rule 230 of the Central Excise R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The common law doctrine 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 applying 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 doctrine of priority shall be open for consideration. 21.The Apex Court in the above judgment further observed that the Crown 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the correctness of law laid down in Isha Marble's case, supra. 24.In the case of Macson Marbles Pvt. Ltd. v. Union of India, 2003 (158) E.L.T. 424 (S.C.) = 2003 (111) ECR 810 (S.C.), the Apex Court while considering the question, whether industrial unit sold in terms of Section 29 of the State Financial Corporation Act would be sale made by the owner of the property and whether Rule 230(2) of the Central Excise Rules, 1944 would be attracted, held, that when sale made in favour of Financial Corporation provisions of Rule 230(2) of the Central Excise Rules would be attracted. The Court further held that the Act and the Central Excise Act are the special enactments and that unless in the operation of the same any conflict arises, it would not be necessary to examine which of them would prevail as there was no conflict in that particular case. 25.In the case of Sitani Textiles Fabrics (P) Ltd. v. Asst. Collector of Customs and Central Excise, 1999 (106) E.L.T. 296 (A.P.)= 1998 Company Cases 165, the Andhra Pradesh High Court was pleased to hold that in the case of secured creditor, the right of a secured creditor prevail over the excise dues of the Excise Department and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioner sometime in the year 1986 and 1988. Admittedly, liability of the Customs Department is subsequent to the execution of the mortgage deed. In this view of the matter, Customs can hardly claim priority over the dues of the petitioner-Corporation- SICOM. 28.Now, the contention of Mr. Pakale, learned Counsel appearing for the Customs, relying upon judgment of the Apex Court in the case of Isha Marbles or Macson Marbles P. Ltd. in the light of Rule 230(2) of the Central Excise Rules needs to be considered. The said Rule 230(2) reads as under : 230(2). Where any such person transfers or otherwise disposes of his business in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in the business or trade or part thereof by any other person or persons, all excisable goods, materials, preparations, plant, machinery, vessels, utensils, implements and articles in the custody or possession of the person or persons succeeding may also be detained for the purpose of exacting duty due from the producer, manufacturer or dealer up to the time of such transfer, disposal or change, whether such dulty has been assessed before such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan by sale of assets under Section 29 of the Act. (2) Under Section 31(1), the Corporation may applv before the District Judge for attachment and sale of the industrial concern and realise the amount due. (3) By sale of mortgaged property also the Corporation could realise the loan amount under the provisions of Section 68 of the Transfer of Property Act. Section 32-G provides the fourth mode of recovery of loan amount as arrears of land revenue through Collector by issuing certificate. It is simply a summary procedure and most effective method. This section can be invoked when any amount is due to the Financial Corporation from industrial concern. This amount must be due in respect of any accommodation granted by Corporation to the industrial concern. The amount due includes the principal amount and the interest accrued thereon according to agreed rate of interest. When payment has become and it is not paid the occasion arises to invoke the provisions of the section. This is a special provision under the Act to enforce recovery of dues without effecting other modes of recovery. 30.Turning to provisions of Section 169 of the Code, sub-section (1) provides that the arrears ..... 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