Allowed

State Bank of India v. The Deputy Commercial Tax Officer

Telangana HC13 Jun 2023WP/42450/2018

Case brief

AI extract

What is this about?

The High Court held that under Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993, a secured creditor has priority over government tax dues. The court allowed the bank's writ petitions challenging attachment and sale of mortgaged property by the State Tax Department, and set aside the orders of the Recovery Officer and Debts Recovery Tribunal.

What did the court decide?

The attachment order dated 30.11.2016, the auction sale notice dated 03.07.2018, and the auction conducted thereafter were set aside. The order of the Recovery Officer and the Debts Recovery Tribunal

State Bank of India Vs The Deputy… — Constitutional and Fundamental Rights | Telangana HC (2023)

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i t N t]IrI t:I i I I I

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction)

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TUESDAY, THE THIRTEENTH DAY OF JUNE TWO THOUSAND AND TWENTY THREE

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PRESENT

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THE HONOURABLE SRI JUSTICE P NAVEEN RAO AND THE HONOURABLE SRI JUSTTCE NAGESH BHEEMAPAKA

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WRIT PETITION NOS: 41691 ANO 42450 0F 2018

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W.P No.4169 1 ot 2018

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Between:

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The State Bank of lndia, Stressed Assets lvlanagement Branch-l Secu nderbad.Rep. by its Assistant General Manager

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...PETITIONER

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AND

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1 The Deputy Commercial Tax Officer Jogipet Unit, Office of Medak Circle Nizamabad Division.

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The Deputy Commercial Tax Officer Begumpet Circle, Begumpet Division Hyderabad.

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3 y/g-V[af -qharma Limited, Represented by its Managing Director D.No.7_1_ 5411, Flat No.204, Sai Satya R'esidency Arireerpet, U"VO jraOa+SOOOf O.

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Sri KRaghava Reddy, S/o Sri K.V.Subba Reddy H.No.6-3-609/105, Ftat N9.392. Uday Tulasi Niketan, Anand Nagar Coldny Khairatabad, Hyderabad_ 500004

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S. 9qt Kf.ajan!, W/o Sri K.Raghava Reddy H.No.6-3-609/105, Ftat No.302 Uday Tulasi Niketan, Anand Nagar Colohy Khairatabad, Hyderabad-5OOO04

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Sri Avula Edukondala Reddy, S/o Late A.Venkata Subba Reddy H.No.6-3609/105, Flat No.302 Uday Tulasi Niketan, Anand Nagar Cotony Khairatabad, Hyderabad-500004

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SriK.Anil Reddy, S/o Late K.Venkbta Subba Reddy H.No.7-1-31, Flat No.1O.l Mahalaxmi M-ansion, Dharam Karam Road Leela Nagar, Ameerpet, Hyderabad-500016

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9mt.K.Eswaramma, Wo Late K.Venkata Subba Reddy H.No.7-1-31, Flat No.10'l Mahalaxmi Mansion, Dharam Karam Road Le6la Nagar, Ameerpet, Hyderabad-500016

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Ihe State o!Telang_ana Commercial Tax Department Secretariat, Hyderabad Rep. by its Principal Secretary.

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...RESPONDENTS

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I rl, li

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i 1 I d { I J Iitri I I

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Petiti,rn un le r Articre 226 of rhe constitutior of rr<r : p'aying that in the circumstances s;t:t.d in the affidavit filed therewith, th: High Court may be pleased to issu() a writ or order or direction mor€ parti( r.larly the one in the nature writ of \li rtiamus declaring the order of attachn ..rt passed by the 1'r Respondent date;r liO/1 112016 against the property mortgir red to the petitioner Bank viz., propCrl zdmeasurrng 9,317 sq yds i.e. Acres 1 ,1,' Gtntas of site with RCC buildinrl arrci ;heds thereon situated in survey No.15, l) ot I'lo.7A situated in Gaddapotharam ,/ llzrge, Jinnaram Mandal, Sangareddy Dir;.r ct, Telangana State and also the subr;r q-rent auction sale notice daled olloll2(r:g communicated to the Petitioner arc rl:;o the auction held thereafter in .elaticrr to the said property as vord, illegal, a r .,ilrary, high handed and without rurisdi:ticn and contrary to Section 3'1 B ol he Recovery of Debts and Bankrupt,,y Act,^.1993 and consequentiarly tr set aside the same or in the alterr:;tiver to direct the Respondents 1 en< 2 to remit the entire sale proceeds of t-r: auctron in relation to the properly^-.( rtlaged to the^petitioner Bank viz., p-rperty admeasuring 9,317 sq yds i.e. A c .es 1 37 Guntas of site with RCC buildin; ,lnd sheds situated in survey No.15^:,ktt No.7A situated in Gaddapotharar" Vrllage, Jinnaram Mandal, Sangarerl,i^,[)istrict, Telangana State with the petiti,trrer t]ank.

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lA NO:^'l OF 2018

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Petitron un(i() siection 1 51 cpc praying that in the c roum stances stated in the affidavit filed n support of the petition, the High coun rnay be pleased to pass interim orders lirecting the Respondents'1 and 2 to de:osit :he entire sale proceeds realized irr relalion to the auction of the property m:rrgaged to petition Bank viz., admea:;rrr nq 9,317 sq. yds ie., Acres 1.37 guntar; of r;i{s v/;16 p66 building and shed s hrrreon srtuated in Survey No.'r 5, prot t,b. r'A situated in Gaddapotharanr Vrlla:-', Jinnaram lvlandal, sangareddy Districl, Telangana state in a no lien acc:ourr ,vith the petitioner Bank pending dispos:l of .he main writ Petition

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Counsel for the Pe iiti :rrrer: SRl. E. MADAN MOHAN RAO

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Counsel for the Rer; c rndent No. 1,2 and 9: Gp FOR COMMEROTAL TAX (TG)

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Gounsel for the Respondent No.3 to 8: NONE APPARED

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WRIT PETITION NO: 42450 OF 2018

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Between:

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State Bank of lndia, Stressed Assets Management Branch-l Secunderbad Rep. by its Assistant General Manager

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...PETITIONER

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AND

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The Deputy Commercial Tax Officer, Jogipet Unit, Office of Medak Circle Nizamabad Division.

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The Deputy Commercial Tax Officer, Begumpet Circle, Begumpet Division Hyderabad.

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S. \419 V{ak iharma Limited, Represented by its Managing Director D.No,7-15411. Flal No.204, Sai Satya Residency Ameerpet, Htderabad-S00O1 6.

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Sri K.Raghava Reddy, S/o Sri K.V.Subba Reddy H.No.6-3-609/105, Ftat No302 Uday Tulasi Niketan, Anand Nagar Colony Khairatabad, Hyderabad500004

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Smt K.Rajani, W/o Sri K.Raghava Reddy H.No.6-3-609i105, Ftat No.302 Uday Tulasi Niketan, Anand Nagar Colony Khairatabad, Hyderabad-500004

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Sri Avula Edukondala Reddy, S/o Late A.Venkata Subba Reddy H.No.6-3609/105, Flat No.302 Uday Tulasi Niketan, Anand Nagar Colon, Khairatabad, Hyderabad-500004

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Sri K.Anil Reddy, S/o Late K.Venkata Subba Reddy H.No.7-1-31, Ftat No.101 Mahalaxmi Mansion, Dharam Karam Road Leela Nagar, Ameerpet, Hyderabad-500016

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B. Smt.K.Eswaramma, Wo Late K.Venkata Subba Reddy H.No.7-1-31 , Flat No.101 Mahalaxmi Mansion, Dharam Karam'Road Leela Nagar, Ameerpet, Hyderabad-500016.

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...RESPONOENTS

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Petition under Article 226 ot the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a writ or order or direction more particularly the one in the nature Writ of Certiorari calling for the records relating to Recovery Appeal No.6/2018 on the file of The Debts Recovery Tribunal-ll, Hyderabad filed against the order passed by the Recovery Officer-1 of The Debts Recovery Tribunal-ll, Hyderabad in MP.No.2'l 1/2018 in RP.No.178412017 in OA.No.286l2O17 and to quash the order passed by the Presiding Officer of The Debts Recovery Tribunal-ll,

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Hyderabad in th, said Recovery Appear No. 61201t) d.-ed r1r1or2o1B and consequenti:r lly t) itl ow the said Appeal as prayed for.

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lA NO: I OF 20'|t

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Petitio'r urJ .r Sr:ction r51 cpc praying thal in the c r.um:itances stated in the affidavit fileri rr support of the petition, the Higrr cour: may be preased to dispense witi f r r .y of certrfied copy of order passecr irr R.A.No.06/20r g dt. 11.1O.2018 on the te of the Recovery Tribunal at Hyderabar!

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lA NO: 2 OF 2018

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Petition unde riection 151 cpc praying that in the cir( (.ms.ances stated in the affidavit filed r ;ucport of the petition, the High court me,, be lleased to pass interim orders d r'-' ;ti^-rg the respondents '1 and 2 to detr,rr;it ..he entire sare proceeds realizec ir r-'ration to the auction of the property rr-ortg:rged to petition Bank vrz., admeasr.,irrg g,317 sq.yds r.e. Acres 1.37 Gunt,rs of site with RCC building and shr:,J I situated in Survey NO.1 5, plot NO. 7A situated in Guddapothararr Vi ii g,:, Jinnaram Mandal, Sangareddy Distl,)i. Tr:langana State in no lien account r iith the petitioner Bank, pending dispos;.:r of the main writ petition.

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Counsel for the P()lil ioner: SRl.E. MADAN MOHAN RAO

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counsel for the Rersrr orrdent No.1 and 2: Gp FoR coMMERcTAL TAx (TG)

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Counsel for the Resg ondent No.3 to g: NONE APPARED

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The Court made the l:liowing: COMMON ORDER

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tt l' \as tl6rl tt t:ttt)o/:t)t\

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HON'BLE SRI JUSTICE P.NAVEEN RAO AND HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA

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WRIT PETITION NOs.41691 and 4245O of 2O18

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COMM N ORDER i^(Per Hon'ble Sni Justice^P. Naueen Rao)

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In W.P.No.42450 of 2018, petitioner-Bank is aggrieved by the orders passed by the Recovery Officer, Debts Recovery^Tribunalin rejecting the application to direct the^{respondentstocomplythe} provisions under Section 31-B of Recovery of Debts and^{BankruptcyAct,} 1993 (for short, 'Act. 1993') and to enforce^{the recovery order,which} decision is affirmed by the Debts Recovery^{Tribuna-l. ln W.P.No.4169lof} 2018, petitioner-Bank is challenging the attachment^{order issued by the} Deputy Commercial Tax Ofhcer^{(lst respondent)attaching the secured} ASSCT

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The third respondent borrowed^{money.from the petitionerbank} and respondent Nos.4 to 8 stood^{as guarantorsfor the loan facilities} availcd by the third respondent.^{The loan facilities extendedto third} responden t were secured by way of^{mortgagingdifferent properties} inctuding the property admeasuring^{9,317 square yards with RCC} building and sheds situated in^{Sy.No.15, Plot No.7-A, Gaddapotharam} Village, Jinnaram Mandal, Sangareddy District^{TelanganaState.}

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fr
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t!

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I I i

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/,<sup>,r,t /l/(./ ,\ lr^{,rr {J.rI rrri r '/)/ I} +

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I lrtlcling th^{t thc thirrl rcspottrlcntlailcd to 1is':l-rz e I .]c (1(. 1]l Lh(]} bank^{rlcclarrr. th€ lotttlrlccoLlllt. of thethi;-d tcsltondctltas} non^{pr:rlorlnirets;et anclthe bank Iras taken recr)ulscthc.pr'rvtsions} of Sccrlrilizilt^{( lrrlt-tdll(l cons t ru cLion ofFin;rnc tl'\sset sand} Enforccmerlt^{ol ie:urity Interest Act (for Short"2 lOl) Act') and Rer:overy} o[ Dcbts^{atrd E; ]]:ntptcv Act'19g3(for Short "l()93 1'lt ) tc recovcr the} moncv duc.^{'i.rpetitioncrhled O A'No1 179 ol} irr Dcllts^Rccovery ":O13 Tribrrnal,^{IIt'ctr:bad subscquetltll rc numbered as O r \o 286 ol 2Ol7} on the^{file of ttt ]rts Rccoverl Tribunal-ll' Hydera >ari l'l.Le said O'A was} decrccd^{lor th: d':bt amount of { 9' 16'6 1'397lvriLlly' enLlentlite ar.d} futrtrc inler€st^{ancl crtsts'Rt-'covervcertific:Lt(l 'vas issr-tcd on} 13.O9.2Ol'7^{. (lallengingthes:tmcthough th(': r:';porldentsliled} W.P.No.2626l]^{c i O t8, but the sarnc was rvithdrawn'}

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The pt til o.lcr^{bank has filcri an applicat on b( li)re the R( covery} Officer I^{r,lqu€s irtg the Recovcry Olficer to'comr)lyth( provisionunder} Section 3^{B cI le1993 Act and to enforce th€ rcco/lJorderalready} passed.^{'fhe s ricl :Lpplicalion was rejectedby r'rdt:r ltrted 28 O7 2018'} Thc Reco^{ver,' )f licerhelcl that hc is not conrpeLer to declere that} petitioner Bani'^{1-as priorityoverthe dues to bc reco r:'ed by the State} 82 ot the^{TGSTA,:t.TL r: Debts} Recovery Governmcnt^{rl rder Section} Tribunirl-l d.s r riristd^APPeal No.6of 2018^{bY orcler rlrtetl11} .10.2018

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P\R./.( /JAJ ul'\ostla9l <( l)J5t) aj )hl6

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)

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afflrmin€i the opinion cxpressed by the Recovery Officer. Challenging these t\r'o orders, pctitioner filed W.P.No.42450 of 2018.

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On 30. 11.2O16 respondent Nos. 1 and 2 passed attachment ordcr attaching the secured assets and on 03.07.2O18 they have issued sale notice under the Revenue Recovery Act. W.P.No.4169 I of 2018 is hled challenging the attachment order by the Deputy Commercial Tax Officer, Government ol Telangana, Jogipet unit of Medak Circle, Nizamabad Division, dated 30.1 l.2016, attaching 9,317 square yards of land with RCC building and sheds in Sy.No.15, Plot No.7A situated in Gaddapotharam Vitlage, Jinnaram Mandal, Sangareddy District on the ground that the borrower of the Bank is due in taxes to the State.

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The borrower of petitioner-Bank is a dealer. He has availed Sales Tax deferment incentive for setting up the industrial unit available for a period of 14 years from the date of setting up the unit. As per the scheme formulated by the Government as incentive the tax payable under TSGST, CST and VAT Act is treated as interest free loan. The unit has to pay deferrcd sales tax at the end of the 14ft year. If not paid, it is treated as dues and interest @ 21.5% is levied. The State alleges that though 3.d respondent availed the incentive but failed to repay and became a defaulter. As per Government Orders, the amount due is recoverable. On 11.17.2013, demand notice was issued demanding to pay the tax arrears, going back to rcg}-|-9gg, a total of { 1,73,36,581/-.

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t,. I^/')l 4 /'^.t'1)t ', li., \ I )l)lll"r3(./ 6

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Tht: Olficlals I the Statc Govelrtmcnt havc :rl^.;r, l rro rcd Rcvcnue Recovcrv Acl t r recover thc monr:y due.^'I'hc sr- bj,r: l)-ollcr-lY was auctioned on :l^).1)7.2018 lor sale considi:r:rtion o[ { ,:)0.()0.000/ and salc ccrtificat: r a s eLlso registercd in Lhe n:rme of thc hr11 rcsr biddcr.

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In botl- t Lt: writ petitions, the parties :rr(' s.lrn(.^'[hc orrlers of De puty C,rm"ru r-cial Tax Olficr:r dt. 30.11.2016 :rncI lh: Orders of Recoverv Offi::' rrnd Debts Rc('ovcry Tribunal^Lronc(-'': :ianre property mortgagcd b1 I c borrotver. Thr:refore, th<:v rrc r:o^- ;idr:red b_v this common or der',

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We lrave rr: ard lcarned serror counsel folLl.rc pctitioner bank Sri E Malan '"4,>han Rao and learnerl slal .ling cr un;cl lor the respondent Ncs. zurd 2 Sri Venkateshu,ar Rao.

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Lcarr ed s r-rior counsel contended thal a s sccrrr ilr intcrest is created in lavr-t r[ petitioner bank, the bank has r].re lirst ch.rrgc to recover its lcar il ni)unt.

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9.1. He woukl i rrther conlend that in view of provisicrr unler Section 318 ol the I 993 . 'c'-,^'Lhe Bank's claim shall prevail over . r v other claims even if thert: is :u y conflict in the tno enacLments and tL, bank has the priority to recovo thr: debts while selling the secl rerl as:;cts mortgaged with the barLk.

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r,'RJd)I1KJ utP Nos 1 169l & ! )t50 ol )018

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9.2. ln support of his contentions learned senior counsel placcd reliance on STATE BANK OF INDIA, KACHIGUDA, HyDERABAD Vs. UNION OF INDIA AND OTHERSI, STATE BANK OF M.P AND ANOTHER Vs. STATE BANK OF INDORE AND OTHERS2, STATE BANK OF INDIA Vs UNION OF INDIA AND OTHERS3, 9 HOMES PROJECTS AND ANOTHER Vs. THE SUB REGISTRAR, QUTHBULLAPUR4,

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According to the learned standing counsel, Section 31-B of the Act, 1993 cannot take away right of the State Government recovering arrears under Section 16C of the APGST Act, 1957 and the Telangana Value Added Tax Act, 2005 as the said right accrued from 1998 to 2013, whereas Section 3 1-B was inserted on O 1 .09.2016. The dealer is required to pay sales tax from the date of operation of the industria] unit. The Unit commenced operations in the year 1998. In view o[ the incentive scheme, the payment of sales tax due from the year 1998 was deferred by 14 years. Since the amounts are not paid, the due relates back to the year 1998 and tax is required to be paid from that year and, therefore, the amount due is much prior to the introduction of SecLion 31-B in the Act, 1993. The said provision is prospective effect only.

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'^{2o2o (4) ALD26t(TS)(DB)} '12ooz;^{to scc+at} r zoz r 1sy nlt r8s (D.8.)

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o w.P.No 15i79 oF 2o2o

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1 l. Ile rvor I L further submit that sectron 3l-ll .iirs notificd on 01.09.20 1 i, 'r'l- 'r:as Tclangana Goods and Servi.es {r' 20lT carne u.r to force lror t Cl 07.2017. Sec:tion 82 ol th( .('t r ls,r cnr plovees non abst:lntc r a rse and it bcing a latcr cltac lr(l rt. ',e r if tllere rs conflict br:l rvccr two provisions, Scction 82 being tl' t l;rr:r' lau'. shall prevail anri t1o Stale govcrnmcnt shall have thc Ilr':i ,:lrarqe over the properties rl tLe d:aler to rccover the tax due to tlle :jta[:

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He wo,rk further submit that auctioL^.\ir i co tducr<d on 30.O7.201t arrr; :rf ter' 28 rounds of bidding M/s.'.'isirrrrr Jhr rr.ricals l-td., was dcclar< d zL:; Lirlhest bidder for sale consideration <r1'? l.9i) crorcs and sale certificat: ,vrrs registcred in their favour I:.r c r though said informalion is ,L'a lablc Bar-rk has not choscn to irrrpl: rrl the lntction purchaser rnrt i r the abse nce of auction purch rsr r. rrr rr:iief citn be grarrted.

¶90

Thc que:itir n for consideration is whether n: tcrm: rf llt:ction 318 of thc Act, 993 h,r bank h:rs priority over thc claim of r ;mrnerclal Tax DepartmcnL of t1 I :ltate Government, in spitc of ertplor.irL,l n()n-abstante clause rn Sectic,rr^-i2 of Telangana State Goods and Ser.,",icr.., Atl,2017.

¶91

Section 3I t c f the 199t3 Act is inserted bl rr a1. of rrrner Ldme nt Act 44 of 2016 znd r:z me into force with cffect from 01.09 2C r. Scction 31B of the 1993 ,\c( re ds as under:-

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It'P Nos ll69l & 1215Aof2t)ti

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"318.^{Priority tosecured} creditors.-Notwithstandlng aBything cotrtaiued in any other law for the time being in force, the rights of secured creditors to realise secured debts due atd payable to them by sale of assets over which security iEterest is creatcd, shall have priority a[d shall be paid in priority over all other debts and Goveruoent dues includiag revenue!, taxes, cesses and rates due to the Ceutral GovernDeEt, State GovernEeat or local authority."

¶95

According to this provision notwithstanding anything contained in any other law, the rights of secured creditors to realize 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 rcvenues, taxes etc. [n terms of this provision, the bank has the priority to recover the dues by selling the security asset created with the bank.

¶96

i6. Section 82 of the Telangana State Goods and Scrvices Act, reads as

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under

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"82. Tax to be first charge on property: Notwithstanding anything to the contrary contained in any law for the trme being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payabte by a taxable person or any other person on account of tax, interest or penalt5r which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person."

¶99

According to this section, on any amount payable by a taxable person on account of tax, interest or penalfy, the Government shall have the frrst charge on the property of such taxable person.

¶100

Act,2077 is made with objective to make a provision for levy and collection of tax on intra-State supply of Goods or Services or both.

¶101

¶102

iJaving rcrtli:r,'( Ihat exjsung procedure for reccvcrl r,-Ccl,rs (luc lo Lhc Banks anrl tlrr f nurncial tnstitutions has blocked siprriftc; nr jlortion of their irrncs ir Lrproductivc asscts the Act, 1993 rva: n:l( c lo expcditc the proce:is^ol 3( o.ery. Bv Amcndment Act 44 of 20 l( Sr ctron 31 B is insertccl t,t^l itt /rct, 1()93. Section 31-B assiqr.rs pri,)rili to se(.urecl crcdit o^rs.

¶103

It is tL ur l;er:n that both sections of trv I r i[[r.. ,r.tl cr-t:rr.tmcnLs, e mplol, rrd lotwithstanding' implying thereb,.^.ltar lltr' cot,tcernecl provisron r,i trr: A:ts shall prevail over any other pro/.:, lr ilt ar)\ other enactment

¶104

The c1u:s ioe for consideration is whethlr tlrr,: i; a cor.rflict bet*een Sr:.ti, r ,l -B of Act., 1993 and Section 81, o1 .\r. 20 L7 :r.d rf so which provisior rrr:v:rils ?

¶105

2I. It is apor', p^-iate to note that Act, 2017 is a - 1 il(, lcglslaLion, whereas A.r[, t,) )3 is a central legislation. It har t) t,] as.jumcd {hat Indian Parl 'arrLt r - lvas aware that there are staLutes .'hicI vcst lirst chargc on the Sl, tr'/Central Government to recov( r arn() - nLs due to the State/Centr:rI :l rvernment, more particularly taxtll j()n icgislation. Therefore. rl h: s ( arefully employed the termin )log, r <1:aftir-ig the section. Sec tio. r I 1 B of Act 1993 assigns priority to secur,rd (.reditors ro realize secured c e :)ts due and pal,allg to them by r;al: o^- r.ccr red :lsscts

¶106

{

¶107

P\R,J & t'AK..l tP Nos.ttott & lH5aof?ot8

¶108

¶109

over all other debts and Government dues. Thus, by the time Section 82 of Act,2Ol7 was made, the filed is already occupied by Section 31-B of Act, 1993. It makes abundantly clear that notwithstanding any law governing recovery of dues to the Govcrnment including Revenue, Taxes etc in so far as secured creditor is concerned, he shall have^priority to realize secured debts. Thus, having regard to language employed in Section 31-B of Act, 1993 it shall prevail over Section 82 of the Act, 2017.

¶110

Next question for consideration is since AcL,2017 is later law, will that prevail over Act, 1993.

¶111

There is €rn apparent inconsistency between these two^provisions. This Court requires to consider whether there is repugnancy^{of State law} compared to Central law.

¶112

The Doctrine of repugnancy has been enshrined^{in Article 254 of} The Constitution of India, to deal with conflicting Centre^{and State laws} with respect to legislative enactments on^{the same subject matter. Article} 254 reads as under:

¶113

'254.^{trcoasistency betweenlaws Eade by Parliameatand laws Eade} by the Leglslatures of States

¶114

(1) tf any provision of a law made by the trgislature^{of a State is repugnant} to any provision of a law made^{by Parliamentwhich Parliament is competent} to enact, or to any^provision of an^{existinglaw *ithrespectto one of the} matters enumerated in Lhe^{ConcurrentList, then, subject to the provisions} of clause ( 2 ), the law made by^{Parliament,whetherpassedbeforeor after} the law made by the Legislature^{of suchState,or, as the case maybe, the}

¶115

¶116

|^{) "t,} ) .,t)t^,i t: ili )t:t)1t

¶117

exrslrnil lil'r' silrrlt prevail and thc law madc bv the l-cgr., al,:^.e oi thc Slali' slrirLl, r) rnx .nt of the r eplrgnancv, l)e vo,d

¶118

(21 ['l-cre r .u made ilv the tegislaturc of a State w th (.ri[(! t to onc oi ill( malie r s l m:rrated^jr. the concurrent List c(,nteir:s n\ provisrot) rellugr r a n L the pror.isrons of an earlier larv made bv F:r iarrcnt or an exlstir.q lir'\ !\ lh respecr to that matter, rhcn, th,. l::$' ; I rlalr b,, 'lt| Lr:gisl: tr rr- r such Statc shatl, if it has been reser-vr d for tt. col.sidcritt.orl oI ll]c I'rc ir(l n ancl has reccived his assenl, prevail in lra :l[at( Pr-or rr,cr] th;rl 1r rthir l in this clause shalJ prevcnt Parlianen fr,ln rractrng al allr tin re ar\ li \r \ ith respe( I to the same matter inclltdit g z lrm' iclcllng :o. anrcncling^v r'rng or repealirtg the lalv so made by thr' 1,r 11,rlat rre ol th( Stilrc

¶119

As l-e lc t Hon'ble Supreme Court in Deep Cha nd Vs State of

¶120

U.P.5 rcpuqnzut, . betlveen tu,o statutory provisi( ns n1l\ bt ascr:tlainccl on the l)asrs cf I ese principles. They are

¶121

I Wt⁽ iher therc is direct conflict betwe< n lhe^.."ro |r'ovisi ,ns;

¶122

2 Wl e her the Parli:rment intendecl to lay do.r r ari exhaustive coc( irr respcct of the subject matter l'eplac D 3 tiLe Act Ol thc Sta l, I egislature; and

¶123

3 Wh:: .-r:r the law made by Parliament arrd .-e li u, rnade by thc S LErte legislature occupy the same Iielrl.

¶124

Tl.re Hon [:1, S ultreme Court held:

¶125

"28.^{Nicholar;n his Australian} Constitution, 2nd E<ln p. I(r3. refers t(l threc tests ol ir "onsistencv or repugnancy:

¶126

"{1) Thele rr,r' l)e inconsistency in the actual terrr s (,f tt( cotnpctinp sta tu tes.

¶127

, AIR I959 SC (,4i

¶128

*.*ll-

¶129

P !R .,/ * ,!B/(./ ttl) ,)s !1691 < !J.t5l)o-f)01t

¶130

¶131

(2) Though there may be no direct conflrct, a State iaw mal be inoperative because the Commonwealth [aw, or thc award of lhe Commonrvealth Court, is intended to be a complete exhaustive code; and

¶132

(3) Even in the absence of intention, a conflict may arise nhen both State and Commonwealth seek to exercise their^powers over the samc sublectmatter."

¶133

This Court in Ch. Tika Ramji v. State of Uttar PradeshlS accepted the said three rules, among others, as useful guides to test the^questron of repugnancy. [n Zaverbhai Amaidas v. State of Bombayl9 this Court laid down a similar test. At p. 807, it is stated:

¶134

"The principle embodied in Section 107(2) and Artrcle 254121 is that when there is legislation covering the same^ground both by the centre and^{bv thc} Province, both of them being competent to enact thc samc the la$,'of^the Centre should prevail over that of the State."

¶135

Repugnancy between two statutes may thus be ascertaineci on the^basisof the following three principles:

¶136

(1) Whether tl'rere is direct conflict between the two provisrons;

¶137

(2) Whether Parliament intended to lay down an exhaustive code in respect of the subject-matter replacing the Act of the^{State L€gislatureand}

¶138

(3) Whether the law made by Parliament and the law made by the^Statc l,€gislature occupy the same field."

¶139

In the case of State Of Maharashtra vs^{Bharat Shanti Lal Shah}

¶140

&Ors6 on 1 September, 2008, the Supreme Court^{interpreted the}

¶141

provision of Article 254 in the lollowing manner.

¶142

'32,Articte 254 of^the Constitution^{succinctlydeals with the law relatingto} inconsistency between the laws made by the^{Parliamcntand the State} trgislature. The questloE of rePugEaDcy^{uEder Artlcle 254 wlll arlse} when a law made by PatllaEelt asd a law^{made by State Legislature} occuples the saEe fleld 9ith resPect to^one of the^{Eatters eau.Eerated} lD Concurrent List and there is a dlrect^{contllct lE two laws. IB other} words, the question of repugEa8cy arlses^{oaty itrconnectioEwlth} subjects enumerated ir CoEcurrent List.^{In suchsituation the provisions} enacted by Parliament and State l€gislature^{cannotunitedly standand the} State law will have to make the^{way for theUnion Law- Once itis proved} and established that the^{State law is repugnant to the Union law, the State} law would become void but only^{to the extent of repugnancy.At the same}

¶143

u (2008) t3 scc 5

¶144

¶145

/'\7t /,t \ /il' / l) , \ /)A')l tt t)t.t)t)t :01\

¶146

ttmai l1 tli^" [-(] rroted th,tl ,nele possiltilih of rcltuen:.rll:r \t.ill .tot rnilkc il Statc larr rI :tlid [or re]rrg:tancY Il.1S to exisl in fart i t.l I rnLlsl lrc slrr>uIl c lcarlr an,i u ficlentlv tltrt Slate iarr is repugnant t,) Ur)l(,rL I \ _

¶147

ir :s ;, Le nently argued bv the learnecl star rl,l1g counscl that Arr-iclc 2'1()-1\ (^- h. conslitution ol India cmporvcr s ti, st 1tc lt'gislalrrre to makc .ax ii ,r'; ,1nd lhcrcfore lhc 2Ol7 Act !va:i v: I dlr m,ck, a,cl iL berng rl're lat:t a','shall prcvai)

¶148

29 .\r'ticlc -1, 6 r\ of thc Constitution of India rcarls .rs undcr

¶149

'A.245-A. i rc<ial provision $ith rcspect togoo(lsand ser,ccs lt._

¶150

(i No !'iths ut.ling anythrng cont.lrncd in Articles 2.,6 anl )it1 I ar.lianrr nr and. strlrl,'r't o clause {21. the Leglslature ofeverv Stzrte, hitrr 1>o\ tr to r)r.rke la\s \iilll l(.iptct to goocls and senices tax impos,td i).,, tl U,tron or ltr su( ll 'ltar '

¶151

i2r^Par lrart: : ras; exciusr!'c llou/er to make larvs wrlh r,,stt,:t to sooals artrl spT\r^,s ljr. .h.re llte Sul pl\ ol goodS. or ol'snrvt.es ot l)o lr tak,.\ pla/..rr thc co u sr. ) it)ter State trade or commerce.

¶152

l!>.plar;rttol, Tte provrsior.rs of this article, shall, irL rcsltelt of rloods ancj ser-rrcrs ta)^,'[r rrr:d to rn r:lausc (5) of article 2TgA,tlke elf(( I frorn the {lirte rc.omrncrce i tv the Goods and Senices Tax Councii.,

¶153

Tl.ris alt:, le grants power to Centre and 51att. ,_)overnm(:nts to make la$'s wit:t rc spect to GST imposed by Centrc or s _ r;h Sitate. Centre has thc eri ch r,ri 'e power to make laws u'ith respe(:t 1() (]S.l. in i.asc of inter-Statc sr p1 11, o[ goods andf or services. Sta]e legrslirturc can makc law govcrn rn g rz (z tion on intra-state supply of goods ar.l services.

¶154

11 is'hus, :is.cernible trom Article 246A that thr_- gi35" Lcgislature is vested witlt J)o|e. lo make laws dealing with La_xa1i:rr orr intrzr-state goods and se;',,i e;. The nrrn-obstante clause empkrl.c,l Ln {rticle 246A

¶155

¶156

r' \4,/ ( !84.J IP \o\ J1691 d l-'Jjr' rrlr,/L\

¶157

¶158

viv a-vis Article 254 is only rvith reference to such taxation and is not a sweeping provision.

¶159

Having regard to lalguage employed in these two statutory provisions, it is clearly discernible that even though Act, 2O17 is later law. Act, 2O02 shall prevail. Section 31-B is emphatic in its tonc and tenor conveying in clear terms that secured creditor shall have priority right to realize secured debts over all other debts and Government dues including revenues, taxes, cess and rates due to Central Govcrnment, State Government, Local Authority. In other words, if securcd intercst is created in a property, the secured creditor shall have first right to recover. As the held is occupied by the Central legislation, clearly holding that the secured creditor sha-ll have priority right to rcalize secured debts, a State Legislature even if made later can not seek to encroach upon such field and to that extent Central legislation^shall prevail. Further, as per Section 34 of the Act,- the provisions of Act, 1993 shatl have over riding effect over any other Statute.

¶160

We also have the advantage of these issues^{delineated and} considered lucidly by Gujarat and Bombay High^{Courts in the following} decisions:

¶161

\r -f_{1

¶162

1^),t)< iitti i,t t)lit),)t _.ttl\

¶163

¶164

l. ir-r Kalr:.1 u:' Commercial Co-Operative Bank t,td. v. State of GujaratT, b<'fo: ,: G-rjarat High Court, issue fell frtr :onsidcratitrn u'as r,vhen a llta r: t:x act lSection 48 of Gujrat VA'l' .r.ct) also has a non-obstante t^l-ouse, would it give first charge Lo ilte s,t:rtr: govcr-nmcnt over rht: t,irnks (:;er ured c:rcditors) in tight ol tl'reir rv t non-obstante clauses 11 rle rron 26 D of SARFESI act and 3 t -r of RDI)ll Act. After an:rlvzir: g; . a rious decisions passed by the Su1,lr'e trr: C curt .rnd the othcr High Cor I ts. lhe Gu.rrat High Court, held thal ir tl-re light of the first prioritr^{( -(,-i} rcd on the banks Via Section 31E} of tlx. l:lDI)U Acl. I993 rvhich cam,: irrr ( e Tcct or-r 01 .09.2016, the banks shall : r ve prior.ity over Statr: Gover:tnrrl t. The l{on'ble Gujarat High Court }rckl:

¶165

"43- <sup>Don c L^.t. nt(-' clause rs gencralll appended to a sectior r. ith I vieu, to give lhe r-'nzrr t rrg pirrt ol the section. in case of conJlicl, an o,,:..ridtne efli:ct over tlle l)r(),i ol in the salne or other Act mentione(t in thr: I on lbstaltte clausc. lt rs 1r^{ivzrlentro savingthat} in spite of re prcri,,iont of .\ct rnenlloncd iD r re non-obstanfe clause. the provision follov.iDg-t will have its full operaticr , lhe provisiolts embraced in the llon otstanle cl Lusc rvill Dot be arr irnpcCirLelrt for the ()peration of the enactment ol-thr oro\rsron irr rvhich thc 1 I cbstante clause occurs. [See ?rirrcipbs trf Statuton. I nter-l)relati(,r r' 9rh Edition bv Justice G.P. Singh Chapter V. :iy ropr;is IV at pages 318 & l, ll

¶166

44, \'he r tv'o^,T nore la{s or provisions operate in th( same f .Ld and each contairls a rc. ol)stiute clause stating that its provistrn rvill tr,:rrirle thos<r oI an] )th( r rrovisions of law, stimulating and ittri( ate I rob elts of rnterpretrtion i^-ire. [n resolying such problems of interpretati!n, nc settled prin.iples r:ar : rp1>lied exccpt to Iefer to the object and purpr r;e of eacl] of the t$o pro,, s.rns, containing a non-obstante clausr_ Two 1r ovisrons rn same Ac c.ch c()ntaining a non-obstante clause, requirr:s r Larnronious irltcrprct:rtioi ( tlre two seentingly conflicting provision; in tlt( s rmc Act. In llris difficrrlt eti' c se. there arc involved proper consider ation < I :living effer:t lo thc obicct ,:r 1 purposc of t\r'o pro,isions and the langr;ag€ ( 11pl),vcd in

¶167

'2019 SCC On.inc(ir I892,

¶168

l rl

¶169

I' VH ./ ,t .!r,(.J trp \o\ lt69t .( 1:!5noilOIS

¶170

¶171

each [See^{for relevant discussionin para20 in Shn Sruaran StnghvSlui} Rostun Lali^{(1977) I SCC7501}

¶172

The^{principles discerniblefromthe decisionof theSupremeCourt in the} caseolKumoonMotorowners'UnionLtd.(Supra)arethat,ifthereiSa conflict between^{the provisionsof the two Acts and ifthere isnotlling} repugnant, the^{provisionsinthe later Act wouldprevail The second} o.i""lprc^{al"ce.nltte is that, while resolvingthe conflict' the courtmust look} into the object^{behindthe two statutes'To Put it in otherwordsuhat} necessitated the^{legislatureto enact a Particular provision' Iaterin porntof} trme, which -ay^{be i., conflictwith the provisionsof the other ActsThe} if,iJ p.in.lpf.^{iiscernibte is that the court mustlook into the language of} the^{provisions.tf the languageof a particular provisionis fonnd to be morc} "-oi",r.,^{the same *or.ld bt indicativeof the intention of thelegislature} thai thc Act shall^{prevail over the other statutes'}

¶173

The^{principlesof law discernible from the decisionof the Supreme Court} rn the case of^{Solidaire India Ltd" (supra)are that' ifthere is a conflict} between the^{two specialActs, the later Act mustprevail To put it in other} rvord.s, when^{there are twospecialstatutes which contain the non obstante} clauses, the^{later statute must prevail This is because} -at^{the time of} enactment of^{the later statute, the legislature couldbe said to be aware of} the earlier^{legislationand its non-obstanteclauselfthe legislature still} confers the^{laterenactmentwith a non-obstanteclause' it means thatthe} legislature^{wanted thatenactmentto prevail'}

¶174

The^{languageof Section 48 of the VAT Act is plain and simple and the} Onr^".^{'""r"a*".untpayable by a dea.leror any other personon account of} iur, i.,t"."",^{or penalty'thereinassumessignifrcance The amount couldbe} said to^{be p^y^bt"bya dealer on account of tax' interest or penalw once the} sameisassessedintheassessmentproceedingsandtheamountiS determined^{accordingly by theauthorityconcernedwithoutanv} assessment^{proceedings,the amount carnot be determined'and ifthe} arnount is^{y.,to U" determined,thenprior to such determinationthere} cannot be^{any applicationof Section 48 of theVAT Act' Wemay also referto} Section 47 of^{tt" vntAct. Section 47 of ttLe VAT Act is with respectto} *"i". of ProPertv^{by the dealer to defraud the Revenue According to} Section 47, it a^{dealercreatesa chargeover his property by way of sale'} -oag^g",^{exchange or any other mode of transferafter the tax has become} due,'tn"e.t such^{transfer would be a voidtransfer' The reasonwhywe are} referring to^{Section47 is that the phrasetherein 'after any tax hasbecome} due froir him,^{assumes significance. The same is suggestiveof the fact that} before the^{assessment proceedings,or, to Put it in otherwords' beforea}

¶175

's:Fl.L ;,1r:i i l

¶176

tt4/t \ !:t;Aai l"!,(./ ^,^\34 )t1t.<sup>i

¶177

¶178

palllcLllat ir |]( unt is dctermined an(l becontes due o l,e ptrtltl< tI tlt,.re is anv l itoril:.j .)- propert\ r)f thc dealcr, strch transl:r \vou]l nol be a r.orr1 tra^sier rh . lbrc the ( r)rlditior'r prccedenI is that tl]( ta i -hol l(l b.( ornc duc a rcl r.t ( i Iiix wltich l as l)ecolu{t tlue shall lx: pavatrL: lI I dcalcr. ( )r-rcr: thrs p':irr rs ( , e . then Sectron 48 of the VA'l- Act rroulrl c,t)il( lo plal.

¶179

Ore o[u^., .i E. Parditala J., sittrng as a Single. udge. r? I t]re occirsion to co,sid( r lrir; issue in the case of Bantk of Barodtt, Ihrotitt its As-srslc/tl Gorcr,tl llrtt ttt,er F\ent Noragatt Shannav. Slate ol Glrar..l Special (ltvrl Applicrtroo i o. 11l9cl5 of 2018, decrrled on 16.09.2()19 Wr 1.rv quok, the relcvarr[ o )^j( virtions rnadc in (he sard judgment.

¶180

"It ls l.posterous to suggest in the cq.se on hojt,7 th.tt ds the cssessme4t tear wa.s 2012-13, Section 48 could be sq'l.lt. tt altplg Jrom 2012-.13 t'.ts V Even ln the absence of Sec on 26!. oJ ..te S;:4RFAESI Act or Scclitn 318 of the RDB Act, Section 4g of the tttT Act ttould come lnt<, p^1a.,1 onlg aJter the d.eter'".lr.o.tlon oJ the t,tx lnterest or peflo.ltA llab e to be pald to the Gooentment. Onlg thcrect_ftet it could. be said tl'.c t. the Goaernment shall have the .first ()tergc on the propertg <,J ttrc dealer. '

¶181

In^,,rcrr :r tl e aforesai(l discussion, We have no L csirari,, r in r oming to the conclu riio r t:1a1 the first prtorio* oYer the secured assets jlrall bc of thc Bank and nc o the Statc Covcrnmcnt by virtue of ljecr ioo ,l I ol the V.AT Act.20()3." (emphasis su Dplie d

¶182

33.2. In thc _:. st: Jcrlgaon Jantq.sahakqri Bank Ltct. u. Joint

¶183

Commissione r ( f ,S",les Td.r8, the Bombay High (tourt il.alysed whether ducs accru,-.d b-y tlle statc government departmerrt will ::rkc precedence over ducs payait 3 to the sccured creditor. Thc lligh O:urt. in light of Section 26^.- E t t-re SARFIISI Act, 2OO2 and Secrion 3 .ll of the RDDB Act, 1993 Lrelc t rat ihese acts berng a central l(.gislatir-rs would take precedence ovot ;tatc legislations pertaining to recov(1.., ot.dues/tax, prouid.ed thal ttu, secured. cred.itors had registerect th,eir charge oler the p"opert 1 uith CERSAf. Bombay High rJourt lreld :

¶184

'^{2022 SCC ont,,rrc} ]i<^,n l7O7

¶185

¶186

I I I :l i

¶187

tt'P N^ l t6rt ; ):;i,f;;;!;t's

¶188

¶189

'73- Tite 20 16 Amending^{Act also introduced a fresh chapter (Chapter IV A)} in the SARFAESI^{Act addingfour more sections thereto,i e , sections 26 B} to 26-8. The object that^{the Parliamenthad in mind whileincorporating} Chapter tV-A in the^{SARFAESIAct seems to be clearas crystalThe} dominant theme of^{the additionsin the statutewereintendedto emphasize} upon the need to register^{transactions of securidsation, reconstructionand} creation of security^{intcrest rvith the Centralregistry (hereafter "CERSAI",} tor brevity) and, accordingly,^{provisions were made tomakesuch} registration mandatory for^{a securedcreditoror othercreditor to availthe} benefits flowing therefrom,^{as wewould presently proceedto notice'}

¶190

Section 26-E,^{alsobeginningwith anon-obstanteclause,is} unambiguous in^{termsof language, effect, scope and import- A 'priority'in} pry^".ri ou.. all other dues^{is accorded to a secured creditorin enforcement} ol-the security interest,^{if it has a CERSAIregistration,exceptin cases} where proceediings^{are pendingunderthe provisions of the Insolvencyand} Bankruptcv Code.20l6.

¶191

T:ne fact that the^{BST Act and the MVAT Act, whichare under} consideration, expressly^{makeit subordinateor subservientto any Central} legislation creating first^{chargecannot be ignored'Tlne 2Ql6 AmendingAct} being of recent origin,^{the hrst query that arises in this regardis : did the} Parliarnent not kaow^{that there is a} Plethora^{of legislatioai!the} courltry, both Central^{aBd State,that speaksofcreatioE of ''itst} chatge; ia favour of^{a departneEt of the Ceatral/StateGoverament?} The ieply caErot but^{be in the affirmative' The nextquery tJrat woul'l} obviously follow^{is : whetherthe word 'Priority'apPeatinginsectioD} 26-E of the SARFAESI^{Act, i.e.,} "... Paid^{in prtorityover all otherdebts} and all reveaues,^{taxes,cessesaud other rates Payable to the CeDtral} Goverltreut or^{state GovernEentor local authority" (ltalies for} eEphasis by us),^{was used withouta} PurPose?^{Thls reply has to be itr} the uegative'

¶192

Priority means^{precedence or going before(Black's l'aw Dictionary) ln} the present context, it^{wouldmean the right to enforcea claim in preference} to others. IE vlew^{ofth.e sPlurgeof} 'Iirst^{charge' used iamultiple} legislation, the Farliarrreat^{aitvisedlyused the word'Priorityover all} other dues'i! the^{SARFAESIActto obviateany coufusion as to lEter-se} distributioD of^{ptoceedsreceivedfromsale ofPropertiesofthe} borrower/dealer.^{Ifa securedasset has beeadlsposed of by sale by} takhg recourse^{to the Security IEterest (Enforcenert)Rules' 2OO2it} woulJappear^{to be reasolableto hold,} Particularly^{havitlg regardto the} lon-obsta[te^{clausesi!'sections31 B audsection26-E' thatthe dues} ofthesecuredcreditorshatlhave.priority'overallotherincludiagall revenues, taxes,^{cesses and other ratespayableto theCentral} GoverDEelt or^{StateGoverament or localauthority'}

¶193

¶194

! "R_t.t .llli / )^t') ita/i \ 1:t:0.1 :|l\

¶195

\ c rr: r] ans\rer tll(-' qLtestioll frotn a dilfcrcnl ar r;lt: , l ( ii)l)l.l Act ilnd tho S,\ lil,-A ! 'll Acl arc Cclltrirl Acts lf any prot ision thereitr is discetncd to be see rl nely inconsistent with any provision in a Sta.:e l3gislation, reconciliir:i rn of the same ought to be attempted fa .)ing ,phich the Centtal ,':. r; will prevail over thc Statc legislations, rn vi-.w of the prirciple i f repugnancy that Article 254 of thr Constitutior coDtemplat ,s. Further, section 37 of the MGST Act an( s,_,ction 3gC of the BST .{.c expressly make lt subject to the pro.isionr of any Ccntral Act c rcal:in i^{first charge'.} Also, section 26-E of thc Ii.{RFAESI is a subseque o t legislation, as it was notifled on 24th ,a a.\ary, 2O2O. S Llilje( r tr)⁽ rn Plrance of thc tcrms of Chapter IV , sr:r: itr: 2rr Il of the SARF,:!ES,\ t ,rould, thus. ovcrridc ant provision in tll,t M. j-T Act an(j rtte BST A--t irr r: Ls( of a conflict \ ith the SARFAtisI Act."

¶196

(emphasis supplied)

¶197

33.3. In : r(c( nt judgment of thc Gujrat IIigl,r rlorr-r ir thc case of Odha$i bhai l lohanbhai Gad.higa Versl.ts State of la.tjarats lhe High Court reit.ra_t:r the settlcd position of law that th() Sf . to^.lax and VAT Act car-inc,t t:J-. n ltrecede nce / prt ority ovcr th( drres pa.,,able to the secured credit,r s owing to thc Amcr.rded Section 26 - 1,, ol rl-re SARFESI Act. 2OO2. It is I eld:

¶198

"5,I^Theric,t .led position of taw is that the VAT and salc! ,:ax dues has Io Preced,:i1, e over the dues of the bank for recovcry of rrb ich the bank exercise;ror ,ers uuder the SARFAESI Act. Thc ban! rvas secutcd creditor. l;r)( tirn 26 E of the SARFAESI Act provides f:r. priority of secured cre,c it('r, statiag that notwithstandiDg anythinll ,,ort"io"d io ar1y other la t', after the r,rgistration of security intc-est, ll ( lcbts duc to unsecured,tr .d tor shall bc paid in priority of all other i)t)ts and all revenu( s. tax s. cesses an(l other rates payable to th,, Ocnt.iL Cio/ernment or Stat,: G,rvt rnrent or local authority. In respect o,firrarrrrc qivrn by the bank t( the o rg nal owner of the property, securirv ir.ter^sr , i ..""t".1 tr, dcbt. morlgaglng Tlre charl: ge ' I)roperty. sought to Ttre bc debt creatcd becoming b_v the due to the sales tax autho bank rties .r,as in ,, "".rr"6no \vav could drscorr r: t te a priori tiBIr(s of thc bank to recover it.r rlt , :. as tho h;rnk was secure I c e(Litor. "

¶199

'1n/sra<:mtctv0. ' t",LlcATloN No^g3g,1 of 2o211

¶200

PNR,J & NAK.J l'l l' 'o! 1 l 09 ! .l 1 : tjtt o./ 20 1 5

¶201

¶202

5.2 The dues in the naturc of salcs ta-x or VAT payable by the original owner cannot claim prioritl oyer the dues of the secured creditor. The principte that the state debt or crown debt has no prior claim or the dues payable to the secured credrtor is no longer res integra. In Bank of Blhar vs, sto'te ot Bihlr [(1972) 3 SCC 196], t]re supreme court laid down certain well known principles .!'hich lvere followed by the supreme court in its own judgment in Dena Bank us. Bhikho.bhal Prabhudqs Po.rekh & Co. [(2OOO) 5 sCC 6941.^"flrc larv Iaid dorvn is that thc preferential right of the Cro&.n to recover the debt over the creditors is limited to the class of unsecured creditors. The common law of England or the principles of equity ald good conscience would not allow the Crown to have preferential right for recovery of debt over the mortgagee or pledgee of goods or secured creditors. The law was further settled by tlle supreme Court ln PunJab Nattonal Bank Vs. Unton oJ India [(2O22) 7 SCC 260] on thrs score." (emphasis supplied)

¶203

We are in respectful agreement with the opinion expressed by Gujarat and Bombay High Courts in the above decisions.

¶204

In DENA BANK Vs BHIKHABHAI PRABHUDAS PAREKH AND

¶205

COMPANY AND OTHERSTo, the Hon'ble Supreme Court has clearly delineated the priority right of the secured creditor. Honble Supreme Court has held as under:

¶206

sHowever, the Crowns preferenual right to recovery of debts over othet creditors is collined to ordhary or unsecured creditors. The ComEon Law of England or the priociples of equlty aud^good coasciencc (as applicable to India) do Eot accord the Crowrr a preferential right for recovery of lts debts over a raortgagee or pledgee of goods or a sccured creditor. It is oEly la cases where the crowns right and that of tJre subJect tEeet at one aEd the same time that the Crosn ls ia geaeral preferred. Where the right of the subject is complete and perfect before that of the Klug comtBe[ces, the rule does aot apply, for there is Do poht of tlEe at whlch the two rlghts are at colfllct, nor cau there be a question which of the two ought to prevall i! a case where oue, that of the subject, has prevailed already. Ia Giles v, Grover 1832 l3l ER 563 it hes been held that the Crown has no precederce over a pledgee of goods. I[ Bank of Bihar v. State of Bihar & Qrs. AIR 197f SC 1210, the principle has been recognised by this Court holdlag that the rtghts of the pawnee q'bo has parted with aouey ln favour of the pawnor on the securlty of the goods cannot bc extinguished evea by lawful selzure of goods

¶207

'o lzoooy^{s sccc694}

¶208

, , A./,\ './)l . !ttli \ 1:ljtlt)l ::)lⁱ

¶209

by makirr6; noney available to other creditors of thc par,!-or without the ctainr o ' the pawnee being first fully satisfied. R-ash re.rarrr Ghose states in 1,. rv of Mortgage (T.L.L., Seventh Edition, p.3t('r It siccms a Governmen. ciebt itr IEdia is not entitled to precedeDc( over a prior secured^([(:l r:.' (emphasis suppii() ]

¶210

In trc ,St rt,3 of M,P and another Vs. State Ban < of Indorell cited supr:r Hor r'bl l I u orr:mc Court held that Section Il3 C ( I .r,larlhva l)radesh General Selcr;^' a:< Act, 1958 creates statutorv first cl rrrge that prcvails over anv c"larg€ tllat may be in existence. It reads as ur ( cr:-

¶211

",Se, ti,rn 33-C creates d statutory Jtrst chdrge tl.tt prevqils ouer ong cl,trge thdt mag be ln exlstence, Therefore, te chd.rge therebg c-t< ted in Jquour of the Stqte ln respect o-t tlt? sales tqx dues of tl'.e ;e<:ond. respondent preualled. over the charg= ,-reoted in Jauour^{oJ tl e B(lnklnrespect} oJ the loa.n to,ke'l. bg^-.t',.e ::econd responder,.t. T\ere ls no question of retrospectivitg hen, ts, tn the date uthett I I uq.s lntroduced., Sectlon 33-C operqted ht respect of all charges ttdt u)ere then ln Jorce and. gaae sales tox dues preced3nce c ter thetn. This position ln lq.w ls dlscl{ssed 1n de.tdll in the Judgmed of thls Court l^ Dend Bank v- Bhikho.bhai F -ab,tudq.s Parekh & Co^b

¶212

1 . This jrr 1 :;nrent of Hon'ble Supreme C ourt rr'21s g21-[is1 to Amendmenl A,r , 41 of 20 16^q'herc under Scction 3l -ll is in:;crteC in thc Act, 1993. Thr::,:frre, the said decision cannot (ont0 .) thr aid of thc Commercial T€): )( partment..

¶213

In Punjatr National Bank Vs Union of Indiat2 llc,n,blc Supreme Court revievred le,v on the subject and held as undcr:

¶214

"43. A Frrll Ee c r of the Madras Hrgh Court in UTI Bank Ltl^,. CCE IL:TI Ilank Ltd. v. r't. E 2006 SCC OnLiDe Mad 1182 (FB)l , whil: rl,r tinl rvirh a similar issue. l-^,s held that : (SCC OnLine Mad paras 2I, 2(,)

¶215

Lr (2002) Io scc t,ll '' 12o2z1^{z st c :,;o}

¶216

¶217

P|RJ&\8KJ U/P.\t^ tlb9l & 1)!5noJ )018

¶218

¶219

"25. In the case on hand, the petitioner tsank which rook possession of the property under Section 13 of the SARF-AESI Act, being a special en_actment, undoubtedly is a securcd creditor. We have alieady referred to the provisions of the Central Excise Act arld the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific prouiston either in the Central Excise Act or the Custotns act, cliiming first^{charge'as prouided} in other enactments, which ue haue pointed. out in earlier paragraphs.

¶220

In the tight of the above discussron, we conclude,

¶221

'(r) Generally, the dues to Government i.e. tax, duties, etc (Crown's debts) get priority over ordinary debts.

¶222

(it) Only when there ls a specific prowision itr the statute claitaiEg ..fiirst charge'over the property, the Crow!,s debt is e[tiued to have priority over the clalE of others.

¶223

(rir) Srnce there G no specific prouision claiming^.fi.rst charge" in the Central Excise Act and the Customs Act, the claim of the Central ixcise Department cannot haue precedence ouer the claim of secured creditor uiz. the petttioner Bar.lc

¶224

li4^{In the absenceof such spectftc prouision} in the Central Excise Act as well as ia Customs Act, ue hold that the claim of secured creditor will preuail ouer Croun's debts.'

¶225

In view of our above conclusion, the petitioner WI Bank, being a secured creditor i.s entitled to haue preference ouer the claim of the Deputg Commissioner of Central Excise, fr.rst respondenl herein."

¶226

(emphasis in original and supplied)

¶227

5O. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the appellant, on Issue 2, hold merit. Evidently, prior to insertion of Section 1l-E in the Central Excise Act, 1944 w.e.f. 8-42011, there was no provision in the 1944 Act inter alia, providing for first charge on the property of the assessee or any person under the 1944 Act. Therefore, lD the eveEt like in the preseat case, where the laad, building, plaut, machiaery, etc. have beetr Eortgaged/ hypotheceted to a secured creditor, haviEg regard to the provlsloEs coltained iE Sectiou.s 2(Lllzcl to (z/) of the SARFAEsT Actr 2OO2, read with provisioas coltalaed la Section 13 of the SARFAETSI Act, 2OO2, the Secured Credltor wlll have a first cherge on the secured assets. Moreover, Sectto[ 35 of the SARTAEaI Act, 2OV2 hter alia, provldes that the provlsiors of the SARFAF,$T Act, shau have overrldlng effect oD all other laws. It is further pertineat to note th.at even the prot isioas cotrtaitrcd h Section ll-E of the Certral Excise Act, 1944 are subject to the provisions contsiDed itr the SAR-FAESI Act,2OO2.

¶228

¶229

r'^, { \3i.,,

¶230

T tlts l .las bccn aLrthorrtativel-' establishcd I), tlt€ i i)r(,lnentto|(.(l cascs ln I1( r 'rrrl, and Urrron of tnrlia v Stct,tl 71,1 | trtttt, , ntlt,, J. ,.n, SARrrAr,sr 1.td.. )()(.(.^,\r: . 2 _S(lC 2002, even l2l] in after particular, rnscrtion thc of Sectiorr prorrsrorr; ll-E lu c,r arrrr.tl tl ,, i",,i^frn rIr<, Iixcisc Acl .944 u..e.f. 8-4 2Oll. u,ill have an orr:rrLrlrrr eift,rL on thc ;trovis:otrs^oI rh,' 1944 A.r

¶231

Frrrlircr tre contention that in tlle presenL .,rs,t. li| r:onliscation proceelrrrrs, ere jnitialed alnrost g-g 1,ears prior to Lt ,-'..f,r,.t, trc:rrg cre;itccl in reslcct ,t the verv samc properties in favour of lh] r:rrr< is als. rncons,.llt,.r)l tl The fact that the charge has been c catetl :t -r solle tllilc perrod has l,r ,s(d l)ost the initialion of iire confiscatro,r 1r.oc,,,,,i,rg,r. o.ill nnr l-xtslrnr' pro'id€ lcpil, \t: Irt ary rtt.provisloD._to a conliscation order th"t i" ";a;.,"'r,,;l i, ,,r .,^ti. ,,,,,1

¶232

{l)m1)r,^srs su^ppJir:rl)

¶233

38.^'fl'rus. tltl: slcurcd credilor shall hrtve pre, erier,, l( r.(,.,r\r.t ils dues lrom r]rc s€.ruaed asset over claims of a State Gc,r,,er nrncnI to r(,covcr taxes. It is th:r lcre open to the petitioner_bank o t.ak: juch mr_.asures as rcquired to -,r, 3,,g. the amounts due from the s( curea a ssct.

¶234

l{aving r-c13 :r,1 Lo the laq, on the subject, th,, ltcc )!,]r.-, Offic(.r_-l in Debts Reco'e.r r'itru,ar-IJ, Hyderabad grossrv erre i irl n. r !rriulting rcrief claimcd in I,,t.p. \ ,.ilt of 2OI8 in R.A.No. 1874 ot 2017 ir ().1.No..286 of 2017 The De lrt s F:ecovery Tribunal-ll, Hyclerabad aJso 11 osslv crrr.d in dismissing tee F e ::cvery Appeal No.6 of 2Otg. Sairl orrl<; r, itr.c se1 zrside and W.P.No.12z:;( r (,f 201g is allowed. We hold that thc [,, nl< is entir]ed to see k enforcc.rrr nt. of the order of Recovery Offir:er l. [)cbtr; Recovcry Triburral-ll, Iiydcr rbad made in O_A.No.2g6 of 2Ol7 dated 2 5.3.2017.

¶235

We als,r hol that the action of first respondent da_:rl 30.11 .2016 attaching the prrlt.:rry mortgaged to the petitioner b:rnk, r,.uirrg aucrion

¶236

PNR.J .l \BK J ltl) \i)\ 6qt ,,t J,iaq 1018

¶237

¶238

¶239

sale notice dated 3.7.2018 and conducting auction of securcd asset is ex-facie illegal and without jurisdiction and competence and they are accordingly set aside and the W.P.No.41691 of 2OI8 is allowed.

¶240

4 1. It is made clear that if the secured assets are likely to yield more money than the actual money due to the bank, after adjusting the amounts due to the bank, the balance amount shall be credited to the account of the State and respondent Nos. I and 2 shall be updated about the measures taken by the bank and the amounts secured by them on the secured assets.

¶241

In the result, Writ Petition Nos.41691 of 2018 and 42450 of 2018 are allowed. Miscellaneous applications, if any pending, shall stand closed.

¶242

That Rule Nisi has been made Absolute as^abovewitness the Hon'ble The Chief Justice SRl. UJJAL^{BHUYAN, on this TUESDAY,THE} THIRTEENTH OAY OF JUNE

¶243

TWO THOUSAND AND TWENW THREE

¶244

SD/. MOHD. SANAULLAH ANSARI

¶245

ASSISTANIEEGISTRAR //TRUE COPY// (Y5

¶246

SECN6NOFFICER

¶247

One Fair Copy to the Hon'ble Sri Justice^{P.NAVEEN RAO} (For His Lordships Kind Perusal)

¶248

AND

¶249

One Fair Copy to the Hon'ble Sri Justice^{NAGESH BHEEMAPAKA} (For His LordshiPs Kind Perusal)

¶250

To,

¶251

't. The Deputy Comrnercial Tax Officer Jogipet^{Unit, Office of MedakCircle} Nizamabad Division.

¶252

The Deputy Commercial Tax Officer Begumpet^{Circle, Begumpet Division} Hyderabad.

¶253

The Managing Director M/s Viilak Pharma^{Limited, D.No.7-1-5411'Flat} No.204, Sii Sitya Residency Ameerpet,^{Hyderabad-S0OO1 6.}

¶254

The Principal 56cretary The State of^{TelanganaCommercialTax Department} Secretariat, Hyderabad.

¶255

5 One CC to Sri. M. Srinivas, Advocate IOPUCI b Two CCs to GP for Commercial^{Tax(TG),High Court fortheState of} Telangana. [OUTI

¶256

¶257

¶258

1'l LR co pt( s. 8. The Und€ Affa irs. N, Union of tndia Ministryof Law, Jrr;rice and Company I; B;fijr"

¶259

The Sr:crt Ita y, Telangana Advocates Association Library Hi,lh Court

¶260

Buildirgs, l1^,d,rrabad.

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DATED:1310t5121123

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¶269

coMMoN otlt)ER

¶270

WRIT PETIT! ON NOS: 41691 AND 42450 orF:t018

¶271

I t

¶272

ALLOWING l-l E: WRIT PETITION NOS. 41491 OF 2018 AND 424,1i0 0F 2018

¶273

WITHOUT COS;TS.

¶274

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State Bank of India v. The Deputy Commercial Tax Officer

Case brief

What is this about?

What did the court decide?

State Bank of India v. The Deputy Commercial Tax Officer

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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