Allowed

Indusind Bank Ltd. v. Sales Tax Officer & Ors.

DRAT28 Aug 2023MISC APPEAL/126/2009

Case brief

AI extract

What is this about?

On appeal, the tribunal allowed the bank's challenge. It held that Sec. 34 of the RDDB & FI Act gives overriding effect, preventing the Sales Tax Officer from claiming priority over the bank's secured recovery from sold mortgaged property.

What did the court decide?

Impugned order set aside and appeal allowed. The Sales Tax Officer's application for priority claim from the sale proceeds was dismissed.

Indusind Bank Ltd. versus Sales Tax Officer & Ors. — Banking and Recovery | DRAT (2023)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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Misc. Appeal No. 126/2009

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Between

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IndusInd Bank Ltd. … Appellant/s

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V/s.

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Sales Tax Officer & Ors.

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…Respondent/s

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Mr Gajendra Rajput, Advocate for Appellant Bank.

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IndusInd Bank, the third Respondent in Misc. Application (M.A.) No. 03 of 2007 in O.A. No. 159P/2001 on the files of the Debts Recovery Tribunal, Pune (D.R.T.) is the Appellant which is aggrieved by the order dated 27.02.2009 which directs the Bank to deposit ₹4,40,908/with the D.R.T. in consequence to the allowing of M.A above filed by the first Respondent Sales Tax Officer under Sec. 19(19) of the Recovery of the Debts Due to Bank and Financial Institution Act, 1993 (‘RDDB & FI Act’, for short) for recovery of sales tax and other incidental dues from the borrower M/s Hotel Amir Pvt. Ltd. and its Chairman and Managing Director who are Respondents Nos. 2 and 3 respectively in this appeal.

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The facts, in brief, are thus:

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The Appellant Bank had filed two Original Applications, O.A. No. 159P/2001 & O.A. No. 160P/2001 before the D.R.T. for the realisation of the debt due from the borrower company. On 07.03.2002, O.A. No. 159P/2001 was allowed for recovery of a sum

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of ₹3,87,49,312.43 and O.A. No. 160P/2001 was allowed for recovery of ₹27,64,26,930.90.

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The mortgaged property belonging to the borrower company was sold in public auction for ₹10,01,00,000/- in R.P. No. 182/2001 in O.A. No. 159P/2001. Consequent to the receipt of the sale proceeds, the Ld. Presiding Officer had called for information regarding the pendency of applications/claims of third party made against the borrower company. Three Misc. Applications filed in 2003 were pending. M.A. No. 22/2003 was filed by Amir Kamgar Union for ₹1,08,18,119/-, M.A. No. 28/2003 was filed by one Mr Vinay R. Kakade for ₹16,64,098/- and M.A. No. 29/2003 was filed by Mr Sampat Patil for ₹17,998/-. The Appellant Bank filed an application for releasing part of the recovered amount towards the Recovery Certificate issued in favour of the Bank and requested the D.R.T. to retain ₹1,25,00,215/- for settling the claims referred to above. On 27.03.2003, the D.R.T. passed an order directing payment of ₹6,56,99,839/- to M/s IndusInd Bank Ltd. and ₹2,18,99,946/- to be paid to IndusInd Enterprises Finance Ltd. The Appellant was directed to furnish an undertaking to the D.R.T. that in case the amount is recalled, the same shall be deposited. Consequent to the receipt of the amount, R.P. No. 182/2001 in O.A. No. 159P/2001 was closed as satisfied.

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Thereafter, on 04.01.2006, the Appellant filed M.A. No. 09 of 2006 requesting the release of the balance of ₹98,80,839/- together with accrued interest lying with the D.R.T., in its favour. On 23.02.2006, the D.R.T passed an order stating thus:

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“Claims of some of the workers stand satisfied. However, the claims of the some workers are yet to be adjudicated. Their claims do not exceed ₹3 lakhs. Keeping the said amount earmarked the Applicant is allowed to appropriate the balance in the loan account on condition to deposit the balance or part thereof in the Tribunal on recall by debiting the borrower’s account.”(sic)

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M.A. No. 03 of 2007 with which we are concerned, was filed by the first Respondent Sales Tax Officer (STO) only on 11.12.2006 claiming an amount of ₹20,86,899/- from out of the sale of the mortgaged property belonging to Hotel Amir Pvt. Ltd.

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On 27.02.2009, the D.R.T. allowed the claim of the STO stating that priority has to be given to ‘Crown Debts’. Accordingly, the Appellant was directed to deposit a sum of ₹4,40,908/-. The Appellant is aggrieved and hence in appeal.

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The third Respondent Managing Director of the borrower company died pending appeal and these legal representatives were impleaded as additional Respondents. None of the Respondents appeared. The appeal was heard ex-parte.

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It is pertinent to note that M.A. No. 03 of 2007 was filed by the first Respondent STO under Sec. 19(19) of RDDB & FI Act. It is doubtful whether the said provision would apply because there is nothing to indicate that the Certificate of Recovery was issued against the company under liquidation, so as to distribute the sale proceeds in the manner provided under Sec. 326 of the Companies Act. The Recovery Certificate was issued in O.A. No. 159P/2001 on 07.03.2002 and the STO had never filed any claim petition like the others while the O.As. or the Recovery Proceedings were pending. The Ld. Counsel appearing for the Appellant points to the overriding effect of Sec. 34 of the RDDB & FI Act which reads thus:

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“ 34. Act to have overriding effect.- (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The Provisions of this Act or the Rules made thereunder shall be addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989).”

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The Ld. Counsel points out that even though Sec. 38 C of the Bombay Sales Tax Act, 1959 creates a first charge in favour of the Sales Tax Department over the assets of the dealer for recovery of the dues, by virtue of Sec. 34 of RDDB & FI Act and also under Sec. 35 of the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’,) which contains a similar overriding provision with regard to other laws without exception, the STO is not entitled to make a claim over the amount realised by the sale of the mortgaged property which is part of the secured assets.

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The Ld. Counsel relies on the decision in Maradia Chemicals Ltd. vs. Union of India (2004) 4 SCC 311 upholding the validity of the SARFAESI Act observing thus:

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“We are therefore unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Bank and Financial Institutions Act was in operation it was uncalled for to have yet another legislature for the recovery of the mounting dues. Considering the totality of the circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the Courts to test the legitimacy of such a measure relating to financial policy.”

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The Ld. Counsel also would submit that where there is a conflict between Central and State Acts, the Central Act should be considered as dominant legislation. The Ld. Presiding Officer had in the

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impugned judgment observed that amounts due to the Sales Tax Department come within the purview of ‘crown debt’ and get precedent in the matter of recovery. In the decision Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694, it is held thus:

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“10. However, 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 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 of 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.”

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The Hon’ble Bombay High Court has in Axis Bank Ltd. vs. State of Maharashtra 2017 SCC OnLine Bom 274 held that the Bank has priority over the statutory dues claimed by the State under Sec. 38 C of the Bombay Sales Tax Act.

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Under the circumstances, it has to be concluded that government debt in India is not entitled to precedence over a prior secured debt, more particularly where such a secured debt is protected by a specific statute like the RDDB & FI Act or the SARFAESI Act.

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The impugned judgment is, therefore, to be set aside and I do so. The appeal is allowed and the impugned order dated 27.02.2009 in M.A. No. 03 of 2007 is set aside and the M.A. is dismissed.

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Sd/Chairperson

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mks-1

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Indusind Bank Ltd. v. Sales Tax Officer & Ors.

Case brief

What is this about?

What did the court decide?

Indusind Bank Ltd. v. Sales Tax Officer & Ors.

Case brief

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