TMI Blog2009 (2) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ukti Chowdhary, Anant Prakash, Amit Singh, Shantanu Krishna, S.K. Dholakia, Ravindra K. Adsure, Chinmoy Khaladkar, Ms. Malvika Trivedi, T. Mahipal, Ranjith K.C., V.B. Joshi, Kailash Pandey, V.K. Sidharthan, Ms. Nina Gupta, Ms. Akanksha, Ms. Neha S. Verma, Ms. Swigin George, Ms. Bina Gupta, Ramesh Singh, A.V. Rangam, Buddy A. Ranganadhan, K. Rajeev and Harshad V. Hameed, Advocates with them) for the respondents. -------------------------------------------------- The judgment of the court was delivered by G.S. SINGHVI J. Leave granted in S.L.P. (C) No. 24767 of 2005. Whether section 38C of the Bombay Sales Tax Act, 1959 (for short, "the Bombay Act") and section 26B of the Kerala General Sales Tax Act, 1963 (for short, "the Kerala Act") and similar provision contained in other State legislations by which first charge has been created on the property of the dealer or such other person, who is liable to pay sales tax, etc., are inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, "the DRT Act") for recovery of "debt" and the Securitisation and Reconstruction of Financial Assets and Enforcem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee [2000] 101 Comp Cas 64 (SC)., and pleaded that being a Central legislation, the DRT Act would prevail over the Kerala Act by which first charge was created in favour of the State. The learned single judge of the Kerala High Court negatived the bank's challenge by observing that the proceedings under the Kerala Act had been initiated before the issue of certificate by the Tribunal and that even if the Tribunal has got exclusive jurisdiction to recover the amount due to the bank, the Tehsildar was not obliged to approach it for recovery of the State dues. The learned single judge referred to section 46 of the Kerala Revenue Recovery Act, 1968, which provides that within 14 days from the date of attachment of any immovable property any person other than the defaulter can lodge objection to the attachment of the whole or any portion of such property on the ground that such property was not liable for the arrears of public revenue, and held that as the bank had claimed first charge or prior charge over the attached property, it can file appropriate objections under section 46 of the Kerala Revenue Recovery Act, 1968 and make a prayer that public revenue can be recovered after paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate legislation. It was also contended that under section 169 of the Maharashtra Land Revenue Code, 1966, the State Government can claim priority over unsecured dues, but being a secured creditor, the bank has first and exclusive charge over the properties of the company and has priority over the sales tax dues of the State. The Division Bench of the High Court analysed the provisions of the Securitisation Act, the State Act and observed See page 39 of [2006] 148 STC.: "...if any Central Act provides for first charge, the charge created under section 38C of the Bombay Sales Tax Act is overridden. Conversely, if the Central Act does not provide for first charge in respect of the liability under the said Act, the first charge created under section 38C of the Bombay Sales Tax Act shall hold the field..." The Division Bench then noted that section 13 of the Securitisation Act does not create first charge in favour of the banks; that it merely provides the machinery for realisation by a secured creditor of the security interest without intervention of the court or Tribunal; that it overrides the provisions contained in section 69 or 69A of the Transfer of Property Act which empowers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament under article 246(1) read with entry 45 in List I in the Seventh Schedule to the Constitution for speedy recovery of debts due to banks or financial institutions or for enforcement of security interest by the secured creditors and overriding effect has been given to these legislations vis-a-vis other laws, the provisions contained therein will have primacy over State legislations which have been enacted under article 246(2) read with entry 54 in List II in the Seventh Schedule and under which first charge has been created in favour of the State in respect of the dues of sales tax, etc. Shri Dushyant Dave relied upon the judgments in State of West Bengal v. Kesoram Industries Ltd. [2004] 10 SCC 201 and Government of A.P. v. J.B. Educational Society [2005] 3 SCC 212, and argued that even though the Central and State legislations have not been enacted with reference to a particular entry in List III in the Seventh Schedule, article 254 will get attracted, and the Kerala and Bombay High Courts committed an error by refusing to accept the submission that banks, financial institutions and secured creditors have priority in the matter of recovery of debts or enforcement of securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been enacted to speed up the recovery of the dues of banks, financial institutions and secured creditors but there is no provision in the two enactments by which first charge has been created in favour of banks, etc., and, therefore, the provisions contained in State legislations creating first charge in respect of the dues of sales tax, etc., cannot be treated as inconsistent with Central legislations. Shri Dwivedi further submitted that levy and collection of tax, etc., is sovereign function as well as necessity of the State and as such the State has exclusive plenary power to legislate on that subject and in the absence of any provision in the DRT Act or Securitisation Act creating first charge in favour of the banks, etc., in lieu of their dues, these legislations cannot be given overriding effect qua the provisions contained in the State legislations and right of the State to recover the dues of sales tax, etc., cannot be frustrated merely because a bank or financial institution or secured creditor has initiated action for recovery of debt, etc., by filing application under section 19 of the DRT Act or by resorting to the procedure contained in section 13 of the Securitisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State." Article 254 was interpreted by the Constitution Bench in Zaverbhai Amaidas v. State of Bombay [1955] SCR 799 in the context of challenge to Bombay Act No. 36 of 1947 on the ground that the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be raised in the trial of all criminal cases, as are those enacted in the Evidence Act. They are to be raised only in the trial of offences under section 4(1) of the Act. They are therefore purely ancillary to the exercise of the legislative power in respect of entry 31 in List II. So also, the provisions relating to search, seizure and arrest in sections 28 to 32 are only with reference to offences committed or suspected to have been committed under the Act. They have no operation generally or to offences which fall outside the Act. Neither the presumptions in section 4(2) nor the provisions contained in sections 28 to 32 have any operation apart from offences created by the Act, and must, in our opinion, be held to be wholly ancillary to the legislation under entry 31 in List II. The Madras Prohibition Act is thus in its entirety a law within the exclusive competence of the Provincial Legislature, and the question of repugnancy under section 107(1) does not arise." In Hoechst Pharmaceuticals Ltd. v. State of Bihar [1983] 4 SCC 45 See [1984] 55 STC 1 (SC)., this court considered the question whether there is any conflict between the Drugs (Price Control) Order, 1979 made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in List I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. (6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State law with respect to the 'same matter'. Even though the subsequent law made by Parliament does not expressly repeal a State law, even then, the State law will become void as soon as the subsequent law of Parliament creating repugnancy is made. A State law would be repugnant to the Union law when there is direct conflict between the two laws. Such repugnancy may also arise where both laws operate in the same field and the two cannot possibly stand together." In State of West Bengal v. Kesoram Industries Ltd. [2004] 10 SCC 201, the majority of the Constitution Bench recognised the possibility of overlapping of legislations enacted under different entries in Lists I and II in the Seventh Schedule and observed: "While reading the three Lists, List I has priority over Lists III and II and List III has priority over List II. However, still, the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I. In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r field of legislation be ignored? Once it is so determined if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incidental encroaching in/trenching on the field assigned to another Legislature is to be ignored." In Government of A.P. v. J.B. Educational Society [2005] 3 SCC 212, the court was called upon to decide whether there was any conflict between the provisions of All India Council for Technical Education Act, 1987 and the A. P. Education Act, 1982 and whether the State legislation was liable to be declared void and inoperative on the ground that the State Legislature was not competent to enact law in the field occupied by the Central legislation. A two-judge Bench analysed the provisions of the two enactments and held: "Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I, notwithstanding anything contained in clauses (2) and (3) of article 246. The non obstante clause under article 246(1) indicates the predominance or supremacy of the law made by the Union Legislature in the event of an overlap of the law made by Parliament with respect to a matter e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures under entry 54 in List II in the Seventh Schedule. To put it differently, two sets of legislations have been enacted with reference to entries in different Lists in the Seventh Schedule. Therefore, article 254 cannot be invoked per se for striking down State legislations on the ground that the same are in conflict with the Central legislations. That apart, as will be seen hereafter, there is no ostensible overlapping between the two sets of legislations. Therefore, even if the observations contained in Kesoram Industries' case [2004] 10 SCC 201 are treated as law declared under article 141 of the Constitution, the State legislations cannot be struck down on the ground that the same are in conflict with Central legislations. Before proceeding further we may notice the background in which the DRT and Securitisation Acts were enacted, and schemes of the two legislations. After independence, the Government of India decided to give impetus to the industrial development of the country. Central and State Governments encouraged banks and other financial institutions to liberalise the grant of loans and other credit facilities to the industrial entrepreneurs. With the nationalisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that as on September 30, 1990 more than 15 lakhs cases filed by public sector banks and 304 cases filed by financial institutions were pending in various courts for recovery of debts, etc., amounting to Rs. 6,000 crores, the Central Government introduced "The Recovery of Debts Due to Banks and Financial Institutions Bill, 1993" in Lok Sabha on May 13, 1993. It, however, appears that before the Bill could be passed, Lok Sabha was adjourned. Therefore, the President of India in exercise of the powers conferred by article 123(1) of the Constitution, promulgated "The Recovery of Debts Due to Banks and Financial Institutions Ordinance, 1993", which was replaced by the DRT Act. The new legislation facilitated creation of specialised forums, i.e., the Debts Recovery Tribunals and Debts Recovery Appellate Tribunals for expeditious adjudication of disputes relating to recovery of the debts due to banks and financial institutions. Simultaneously, the jurisdiction of the civil courts was barred and all pending matters were transferred to the Tribunals from the date of their establishment. For some years, the new dispensation of adjudication worked well. However, with the passage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application". The provisions contained in Chapter II envisage establishment of the Debts Recovery Tribunals and the Debts Recovery Appellate Tribunals, qualifications of Presiding Officers and Members, term of their office, staff of the Tribunals, salaries, allowances, etc. Section 17(1) of the DRT Act declares that a Tribunal shall have the jurisdiction, powers and authority to entertain and decide applications made by banks and financial institutions for recovery of debts due to them. Under section 17(2), the Appellate Tribunal has been vested with jurisdiction, powers and authority to entertain appeal against any order made or deemed to have been made by a Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 529A of the Companies Act, 1956 and pay the balance/surplus, if any, to the debtor-company. Section 20(1) lays down that any person aggrieved by an order made, or deemed to have been made, by a Tribunal may prefer an appeal to the Appellate Tribunal. Sub-section (2) of section 20 declares that no appeal shall lie from an order made by the Tribunal with the consent of the parties. Sub-section (3) prescribes the period of limitation, i.e., 45 days. Proviso to this sub-section empowers the Tribunal to entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing the appeal within the prescribed period. Sub-sections (4) to (6) contain the procedure to be followed by the Appellate Tribunal for disposal of an appeal. Section 21 lays down that the Appellate Tribunal shall not entertain an appeal unless the person preferring appeal deposits 75 per cent of the amount determined by the Tribunal under section 19. Section 22 lays down that the Tribunal and the Appellate Tribunal shall not be bound by the procedure contained in the Code of Civil Procedure, but shall be guided by the principles of natural justice and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 1993. These Rules regulate the procedure for filing application in the prescribed form, scrutiny thereof, fee for application, contents of application, documents to be filed with the application, filing of reply and documents by the respondent, date and place of hearing of the application, the manner of recording the order, publication of order and communication thereof to the parties. By an amendment made in 1997, rule 5A was added to enable a party to apply for review of the order made by the Tribunal on the ground of some mistake or error apparent on the face of the record. For regulating the procedure of the Appellate Tribunal, the Central Government has framed the Debts Recovery Appellate Tribunal (Procedure) Rules, 1994. The provisions contained in these Rules are similar to those contained in the Rules regulating the procedure of the Tribunal. Scheme of the Securitisation Act and Rules made thereunder. Section 2(b) defines "asset reconstruction" to mean acquisition by any securitisation company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realisation of such financial assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution or any consortium or group of banks or financial institutions and includes (i) debenture trustee appointed by any bank or financial institutions, or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be, or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance. Section 2(ze) defines a "secured debt" to mean a debt which is secured by any security interest. Section 2(zf) defines "security interest" to mean right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation and assignment. Chapter II which contains sections 3 to 12 deals with regulation of securitisation and reconstruction of financial assets of banks and financial institutions. Chapter III deals with enforcement of security interest. It comprises of seven sections including section 13 which is crucial for decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is relatable to security. The secured creditor can appoint any person to manage the secured asset, the possession of which has been taken over. The secured creditor can also, by notice in writing, call upon a person who has acquired any of the secured assets from the borrower to pay the money, which may be sufficient to discharge the liability of the borrower. Sub-section (7) of section 13 lays down that where any action has been taken against a borrower under sub-section (4), all costs, charges and expenses properly incurred by the secured creditor or any expenses incidental thereto can be recovered from the borrower. The money which is received by the secured creditor is required to be held by him in trust and applied, in the first instance, for such costs, charges and expenses and then in discharge of dues of the secured creditor. Residue of the money is payable to the person entitled thereto according to his rights and interest. Sub-section (8) imposes a restriction on the sale or transfer of the secured asset if the amount due to the secured creditor together with costs, charges and expenses incurred by him are tendered at any time before the time fixed for such sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in clauses (a) to (d) of sub-section (4) in relation to the secured assets. Sub-section (12) lays down that rights available to the secured creditor under the Act may be exercised by one or more of its officers authorised in this behalf. Sub- section (13) lays down that after receipt of notice under sub-section (2), the borrower shall not transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice without prior written consent of the secured creditor. Section 14 represents semblance of court's intervention by way of assistance to a secured creditor in taking possession of the secured asset. The secured creditor can, for the purpose of taking possession or control of any secured asset, request in writing to the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction the secured asset or other document relating thereto is situated or found to take possession thereof. If such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset and document and forward the same to the secure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken under the Securitisation Act or DRT Act. Section 35 of the Securitisation Act is substantially similar to section 34(1) of the DRT Act. It declares that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37, which is similar to section 34(2) of the DRT Act lays down that the provisions of this Act or the Rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or any other law for the time being in force. In exercise of powers vested in it under section 38(1) and (2)(b) read with section 13(4), (10) and (12) of the Securitisation Act, the Central Government framed the Security Interest (Enforcement) Rules, 2002. Rule 3 prescribes the mode of service of demand notice. Rule 4 details the procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isation of financial assets of banks and financial institutions, easy transferability of financial assets by the securitisation company or reconstruction company to acquire financial assets of banks and financial institutions by issue of debentures or bonds or any other security in the nature of debenture, empowering the securitisation companies or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers, facilitating reconstruction of financial assets acquired by exercising power of enforcement of securities or change of management, declaration of any securitisation company or reconstruction company as a public financial institution for the purpose of section 4A of the Companies Act, defining "security interest" as any type of security including mortgage and charge on immovable properties given for due payment of any financial assistance given by any bank or financial institution, classification of borrowers account as non-performing asset and above all empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or take over the management. In the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person under this Act shall be the first charge on the property of the dealer, or, as the case may be, person." Kerala General Sales Tax Act, 1963 "26B. Tax payable to be first charge on the property. Notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any another person under this Act, shall be the first charge on the property of the dealer, or such person." Section 14A of the Workmen's Compensation Act, 1923, section 11 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short, "the EPF Act"), section 74(1) of the Estate Duty Act, 1953, section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, section 30 of the Gift Tax Act, 1958 and section 529A of the Companies Act, 1956 are some of the Central legislations by which statutory first charge has been created in favour of the State or workers, read as under: Workmen's Compensation Act, 1923 "14A. Compensation to be first charge on assets transferred by employer. Where an employer transfers his assets before any amount due in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout prejudice to the provisions of sub-section (1), if any amount is due from an employer, whether in respect of the employee's contribution deducted from the wages of the employee or the employer's contribution, the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law, for the time being in force, be paid in priority to all other debts." Estate Duty Act, 1953 "74. Estate duty a first charge on property liable thereto. (1) Subject to the provisions of section 19, the estate duty payable in respect of property, movable or immovable, passing on the death of the deceased, shall be a first charge on the immovable property so passing (including agricultural land) in whomsoever, it may vest on his death after the debts and encumbrances allowable under Part VI of this Act; and any private transfer or delivery of such property shall be void against any claim in respect of such estate duty." Mines and Minerals (Development and Regulation) Act, 1957 "25(2). Any rent, royalty, tax, fee or other sum due to the Government either under this Act or any rule made thereunder or under the terms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern." As a prelude to the consideration of question relating to conflict between Central and State legislations and priority, if any, given to the dues of banks, financial institutions and other secured creditors under the DRT Act and Securitisation Act, it will be useful to notice some rules of interpretation of statutes, one of which is the rule of contextual interpretation. This rule requires that the court should examine every word of a statute in its context. In doing so, the court has to keep in view Preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. Context often provides the key to the meaning of the word and the sense it carries. Its setting gives colour to it and provides a cue to the intention of the Legislature in using it. In his famous work on Statutory Interpretation, Justice G.P. Singh has quoted Professor H.A. Smith in the following words: "'No word', says Professor H.A. Smith 'has an absolute meaning, for no words can be defined in vacuo, or witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With those glasses, we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the court construed the expression 'prize chit' in Srinivasa [1980] 4 SCC 507 See [1981] 51 Comp Cas 464 (SC). and we find no reason to depart from the court's construction." In R. v. National Asylum Support Services [2002] 4 All ER 654, Lord Steyn observed "the starting point is that language in all legal texts conveys meaning according to the circumstances in which it was used. It follows that context must always be identified and considered befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apable of a clear interpretation on a plain and grammatical construction of the words the non obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the Legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules." In A.G. Varadarajulu v. State of Tamil Nadu [1998] 4 SCC 231, this court relied on Aswini Kumar Ghose's case AIR 1952 SC 369. The court while interpreting non obstante clause contained in section 21A of the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 held: "It is well-settled that while dealing with a non obstante clause under which the Legislature wants to give overriding effect to a section, the court must try to find out the extent to which the Legislature had intended to give one provision overriding effect over another provision. Such intention of the Legislature in this behalf is to be gathered from the enacting part of the section. In Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369, Patanjali Sastri, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person acting on his behalf cannot sell the mortgaged property or appoint a receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimham Committee's 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in section 13 and gave primacy to the right of secured creditor vis-a-vis other mortgagees who could exercise rights under section 69 or 69A of the Transfer of Property Act. However, this primacy 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler or any other person liable to pay sales tax, etc., but also give them overriding effect over other laws. In Builders Supply Corporation v. Union of India [1965] 2 SCR 289 See [1965] 56 ITR 91 (SC)., the Constitution Bench considered the question whether tax payable to the Union of India has priority over other debts. After making a reference to the judgments of the Bombay High Court in Bank of India v. John Bowman AIR 1955 Bom 305, Madras High Court in Kaka Mohamed Ghouse Sahib Co. v. United Commercial Syndicate [1963] 49 ITR 824 and Manickam Chettiar v. Income-tax Officer, Madura [1938] 6 ITR 180, the court held: "(i) The common law doctrine of the priority of crown debts had a wide sweep but the question in the present appeal was the narrow one whether the Union of India was entitled to claim that the recovery of the amount of tax due to it from a citizen must take precedence and priority over unsecured debts due from the said citizen to his other private creditors. The weight of authority in India was strongly in support of the priority of tax dues. (ii) The common law doctrine on which the Union of India based its claim in the present proceedings had been applied an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements their Lordships have summed up the law as under: 1.. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts. 2.. The common law doctrine about priority of Crown debts which was recognised 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 basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of retrospectivity here, as, on the date when it was introduced, section 33C operated in respect of all charges that were then in force and gave sales tax dues precedence over them..." Section 529A of the Companies Act and section 11(2) of the EPF Act both of which are Central legislations also contain non obstante clauses giving statutory recognition to the priority of workers' dues over other debts. In Allahabad Bank v. Canara Bank [2000] 4 SCC 406 See [2001] 101 Comp Cas 64., a two-judge Bench recognised the priority of workers' dues under section 529A of the Companies Act over other debts. In Recovery Officer, Employees Provident Fund v. Kerala Financial Corporation [2002] 3 ILR Ker 4, a Division Bench of the Kerala High Court considered the primacy of first charge created under section 11(2) of the EPF Act vis-a-vis section 46B of the SFC Act. The facts of that case were that a company by name M/s. Darpan Electronics (P) Ltd., had taken loan from the Kerala Financial Corporation and mortgaged its immovable property for securing repayment. During March 1990 and December 1990, the company defaulted in payment of contributions to the employees provident fund. It al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or any other person under the Act, shall be the first charge on the property of the dealer, or such person. On behalf of the State Bank of Bikaner, section 100 of the Transfer of Property Act was relied upon to contend that, since there was a mortgage in favour of the bank, the bank would have precedence over the claim of sales tax dues, which was only by way of a charge. After analysis of section 100 of the Transfer of Property Act, and considering the distinction drawn between a mortgage and charge as discussed in the earlier decision in Dattatreya Shanker Mote v. Anand Chintaman Datar [1974] 2 SCC 799, it was held that the expression "transferee of property used in section 100 refers to transferee of entire interest in the property and it does not cover the transfer of only an interest in the property by way of a mortgage. It was further held that the charge created under section 11AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax or other dues was created in respect of the entire interest in respect of the property, since the section declares the dues of the Sales Tax Department as a first charge, the first charge would op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocial benefit legislation, and the evil consequences of provident fund dues being defeated by prior claims of secured or unsecured creditors, the Legislature took care to declare that irrespective of when a debt is created, the dues under the EPF and MP Acts would always remain first charge and shall be paid first out of the assets of the establishment. We are also not impressed by the contention of the first respondent upon usage of non obstante clause in section 46B of the SFC Act. Sub-section (2) of section 11 of the EPF Act is of subsequent date. No doubt, both section 46B of the SFC Act and section 11(2) of the EPF and MP Acts declare their intent by usage of the non obstante clause. But, since section 11(2) of the EPF and MP Acts has been enacted later, we must ascribe to the Parliament the intention to override the earlier legislation also. It is, therefore, clear that section 11(2) of the EPF and MP Acts overrides all provisions of other enactments including section 46B of the SFC Act." While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this court wherein priority of the State dues was recognised. If Parliament intended to crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11(2) of the EPF Act, section 74(1) of the Estate Duty Act, 1953, section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, section 30 of the Gift-tax Act, and section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and the Securitisation Act. Undisputedly, the two enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and the Securitisation Act on the one hand and section 38C of the Bombay Act and section 26B of the Kerala Act on the other and the non obstante clauses contained in section 34(1) of the DRT Act and section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. The court could have given effect to the non obstante clauses contained in section 34(1) of the DRT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g policy untouched." In Shyamlal Mohanlal Choksi's case AIR 1965 SC 1251, the Constitution Bench considered whether section 94 of the Code of Criminal Procedure, 1898 applies to accused person under trial and held that it does not. The court referred to article 20(3) of the Constitution which declares that the accused cannot be compelled to incriminate himself and observed: "The Indian Legislature was aware of the above fundamental canons of criminal jurisprudence because in various sections of the Criminal Procedure Code it gives effect to it. For example, in section 175 it is provided that every person summoned by a police officer in a proceeding under section 174 shall be bound to attend and to answer truly all questions other than questions the answers which would have a tendency to expose him to a criminal charge or to a penalty or forfeiture. Section 343 provides that except as provided in sections 337 and 338, no influence by means of any promise or threat or otherwise shall be used on an accused person to induce him to disclose or withhold any matter within his knowledge. Again, when the accused is examined under section 342, the accused does not render himself liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded provisions. The legislative intention being the speedy disposal of cases with a view to relieving the litigants and the courts alike of the burden of mounting arrears, the word 'parties' must be so construed as to yield a beneficent result, so as to eliminate the mischief the Legislature had in mind. 30.. There is no reason to assume that the Legislature intended to curtail the implied authority of counsel, engaged in the thick of proceedings in court, to compromise or agree on matters relating to the parties, even if such matters exceed the subject-matter of the suit. The relationship of counsel and his party or the recognised agent and his principal is a matter of contract; and with the freedom of contract generally, the Legislature does not interfere except when warranted by public policy, and the legislative intent is expressly made manifest. There is no such declaration of policy or indication of intent in the present case. The Legislature has not evinced any intention to change the well recognised and universally acclaimed common law tradition of an ever alert, independent and active bar with freedom to manoeuvre with force and drive for quick action in a battle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 SCC 121 See [2009] 147 Comp Cas 531 (SC).. In Allahabad Bank's case [2000] 4 SCC 406 See [2009] 101 Comp Cas 64 (SC)., a two-judge Bench was called upon to consider the question whether an application can be filed under the Companies Act, 1956 during the pendency of proceedings under the DRT Act. The facts of that case show that Allahabad Bank filed an O.A. before the Delhi Bench of the DRT under section 19. The same was decreed on January 13, 1998. The debtor-company filed appeal before DRAT, Allahabad. Canara Bank also filed application under section 19 before DRT, Delhi. During the pendency of its application, Canara Bank filed interlocutory application before the Recovery Officer for impleadment in the proceedings arising out of O.A. filed by Allahabad Bank. That application was dismissed on September 28, 1998. In the auction conducted by the Recovery Officer, the property of the debtor-company was auctioned and the sale was confirmed. Thereupon, Canara Bank filed applications under section 22 of the DRT Act. During the pendency of the applications, Canara Bank filed company application in Company Petition No. 141 of 1995 filed by Ranbaxy Ltd., against M. S. Shoes Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd priority under section 446(2) and (3) read with sections 529, 529A and 530, etc., of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal. (4) Whether, in case it is decided that the distribution of monies is to be done only by the Tribunal, the provisions of section 73 of the CPC and sub-clauses (1) and (2) of section 529, section 530 of the Companies Act also apply apart from section 529A to the proceedings before the Tribunal under the RDB Act." The court referred to various provisions of the DRT Act (in the judgment that Act was referred to as "RDB Act") and the Companies Act and held See at pages 76 and 77 of [2000] 101 Comp Cas.: "21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under section 19(22) [formerly under section 19(7)] to the recovery officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also after a winding-up order is passed. No leave of the company court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents." On the issue of the workers' claim under section 529A of the Companies Act, the court observed/held See at page 92 of [2000] 101 Comp Cas.: "61. The respondent's contention that section 19(19) gives priority to all 'secured creditors' to share in the sale proceeds before the Tribunal/Recovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words 'in accordance with the provision of section 529A'. Hence, it is necessary to identify the above limited class of secured creditors who have priority over all others in accordance with section 529A. 62.. Secured creditors fall under two categories. Those who desire to go before the company court and those who like to stand outside the winding-up. 63.. The first category of secured creditors mentioned above are those who go before the company court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o respondent No. 1 for setting up a plant for manufacture of leather boards and for providing working capital funds, respectively. Respondent No. 1 created first charge in favour of the appellant along with other financial institutions, i.e., IFCI and IDBI by way of equitable mortgage by deposit of title deeds of its immovable property. A second charge was created in favour of Punjab National Bank by way of constructive delivery of title deeds, clearly indicating that the charge in favour of the latter was subject to and subservient to charges in favour of IFCI, IDBI and ICICI. On an application filed by respondent No. 1, the Allahabad High Court passed winding up order and appointed an official liquidator. The appellant filed suit for recovery of the amount credited to respondent No. 1. The said suit was transferred to the Debts Recovery Tribunal, Bombay. During the pendency of proceedings before the Tribunal, official liquidator was granted permission to continue in the proceedings in the suit. Punjab National Bank filed a civil suit for recovery of money payable to it by respondent No. 1. While the proceedings were pending before the Tribunal and the court of civil judge, Fatehp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s thereof must be kept confined to the legislative policy. Only because the dues of the workmen and the debts due to the secured creditors are treated pari passu with each other, the same by itself, in our considered view, would not lead to the conclusion that the concept of inter se priorities amongst the secured creditors had thereby been intended to be given a total go-by. A non obstante clause must be given effect to, to the extent Parliament intended and not beyond the same. Section 529A of the Companies Act does not ex facie contain a provision (on the aspect of priority) amongst the secured creditors and, hence, it would not be proper to read thereinto things, which Parliament did not comprehend..." In Transcore v. Union of India [2008] 1 SCC 125 See [2007] 135 Comp Cas 1 (SC)., a two-judge Bench made detailed analysis of the provisions of the DRT Act and formulated the following points for consideration See at page 23 of [2007] 135 Comp Cas.: (i) Whether the banks or financial institutions having elected to seek their remedy in terms of the DRT Act, 1993 can still invoke the NPA Act, 2002 for realising the secured assets without withdrawing or abandoning the OA filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 and 9 talk of acquisition of the secured interest so that the balance sheet of the bank/FI remains clean. Same applies to immovable property charged or mortgaged to the bank/FI. These are some of the factors which the authorised officer of the bank/FI has to keep in mind when he gives notice under section 13(2) of the NPA Act. Hence, equity exists in the bank/FI and not in the borrower. Therefore, apart from obligation to repay, the borrower undertakes to keep the margin and the value of the securities hypothecated so that there is no mismatch between the asset-liability in the books of the bank/FI. This obligation is different and distinct from the obligation to repay. It is the former obligation of the borrower which attracts the provisions of the NPA Act which seeks to enforce it by measures mentioned in section 13(4) of the NPA Act, which measures are not contemplated by the DRT Act and, therefore, it is wrong to say that the two Acts provide parallel remedies as held by the judgment of the High Court in Kalyani Sales Co See [2006] 1 BC 1 (P H). As stated, the remedy under the DRT Act falls short as compared to the NPA Act which refers to acquisition and assignment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, the authorised officer shall take such steps as he deems fit to preserve the secured asset. It is well- settled that third-party interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by rule 8 read with rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules." The court then considered three provisos inserted in section 19(1) of the DRT Act by Amending Act No. 30 of 2004 and held that withdrawal of the OA pending before Tribunal under the DRT Act is not a condition precedent for taking recourse to the Securitisation Act. In Union of India v. SICOM Limited [2009] 2 SCC 121 See [2009] 147 Comp Cas 531 (SC)., this court was called upon to decide whether realisation of the duty under the Central Excise Act will have priority over the secured debts in terms of the SFC Act. The facts of that case were that respondent No. 2 borrowed a sum of Rs. 51 lakhs from the first respondent by an indenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created in favour of banks, financial institutions, etc. Not only this, the court was neither called upon nor it decided competing priorities of statutory first charge created under Central legislation(s) on the one hand and State legislation(s) on the other nor it ruled that statutory first charge created under a State legislation is subservient to the dues of banks, financial institutions, etc., even though statutory first charge has not been created in their favour. The ratio of the judgment in Allahabad Bank's case [2000] 4 SCC 406 See [2000] 101 Comp Cas 64 (SC). is that jurisdiction of adjudicatory mechanism established under the DRT Act is exclusive and no other court or authority created under any other law can interfere with the proceedings initiated by banks and financial institutions for recovery of their dues. The other proposition laid down in that case which appear to have been diluted by a co-ordinate Bench decision in ICICI Bank's case [2006] 10 SCC 452 See [2006] 131 Comp Cas 451 (SC). is that while distributing the money recovered by a bank or a financial institution, priority given to workers' dues in terms of section 529A must be respected. Section 11 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to simple mortgage also apply to a charge and, therefore, the State cannot claim priority on the basis of non obstante clauses contained in section 38C of the Bombay Act or section 26B of the Kerala Act and similar other State legislations. They further argued that the provisions of the State Acts cannot apply with retrospective effect so as to affect the right of banks and financial institutions and other secured creditors to recover their dues from the borrowers. Shri Rakesh Dwivedi, learned Senior Counsel appearing for the State of Kerala argued that statutory first charge created in favour of the State will have precedence over a mortgage created in favour of bank, etc., and the judgments in State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation [1995] 2 SCC 19 See [1995] 96 STC 612 (SC); [1995] 82 Comp Cas 551 (SC). and R.M. Arunachalam v. Commissioner of Income-tax, Madras [1997] 7 SCC 698 See [1997] 227 ITR 222 (SC). do not require reconsideration. He pointed out that in Dattatreya's case [1974] 2 SCC 799 the court was not dealing with statutory first charge whereas in the other cases the court had specifically dealt with such charge created i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endency of that suit, the property was put up for sale on the darkhast of the appellants, who themselves purchased the property with the leave of the court. As a sequel to this, respondent No. 14 impleaded the appellants as parties in suit No. 57 of 1958. The appellants contested the suit on the ground that they had a prior charge and the mortgage of respondent No. 14 was subject to that charge. The trial judge decreed the suit in favour of respondent No. 14. In appeal, the High Court modified the decree of the trial judge holding that as the mortgage in favour of the respondent was protected under proviso to section 100, it is free from the charge created in favour of the appellants. The High Court also gave priority to respondent No. 15 for its dues, though it had not filed any appeal. The majority judgment of the court was delivered by Jaganmohan Reddy, J. who, after noticing various provisions of the Transfer of Property Act, observed: "...A charge not being a transfer or a transfer of interest in property nonetheless creates a form of security in respect of immovable property. So far as mortgage is concerned, it being a transfer of interest in property the mortgagee has alwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of sales tax should be paid first out of the sale proceeds and the claim of the bank could be satisfied only out of the balance amount. The trial court upheld the claim of the Commercial Taxes Officer. The revision filed by the bank was dismissed by the High Court. Before this court it was argued that the bank's claim will have precedence over the claim of the sales tax authorities because mortgage in their favour was prior in point of time. After noticing section 11AAAA of the Rajasthan Sales Tax Act which is pari materia to section 38C of the Bombay Act and section 26B of the Kerala Act as also section 100 of the Transfer of Property Act and the judgment in Dattatreya's case [1974] 2 SCC 799, the court observed At page 614 of [1995] 96 STC.: "...Section 100 of the Transfer of Property Act deals with charges on an immoveable property which can be created either by an act of parties or by operation of law. It provides that where immoveable property of one person is made security for the payment of money to another, and the transaction does not amount to a mortgage, a charge is created on the property and all the provisions in the Transfer of Property Act which apply to a simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all other charges on the property including a mortgage. The submission, therefore, that the statutory first charge created by section 11AAAA of the Rajasthan Sales Tax Act can operate only over the equity of redemption, cannot be accepted. The charge operates on the entire property of the dealer including the interest of the mortgagee therein. Looked at a little differently, the statute has created a first charge on the property of the dealer. What is meant by a 'first charge'. Does it have precedence over earlier mortgage. Now, as set out in Dattatreya Shanker Mote's case [1974] 2 SCC 799, a charge is a wider term than a mortgage. It would cover within its ambit a mortgage also. Therefore, when a first charge is created by operation of law over any property, that charge will have precedence over an existing mortgage." (emphasis added) In R.M. Arunachalam v. Commissioner of Income-tax, Madras [1997] 7 SCC 698 See [1997] 227 ITR 222 (SC)., the court reiterated the distinction between a charge and a mortgage in the context of the provisions contained in sections 53(1) and 74(1) of the Estate Duty Act, 1953, referred to the judgments in Dattatreya's case [1974] 2 SCC 799, Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax, Madras [1997] 7 SCC 698 See [1997] 227 ITR 222 (SC). are based on a correct reading of the ratio of the Dattatreya's case [1974] 2 SCC 799 and the propositions laid down therein do not call for reconsideration. At the cost of repetition, we consider it appropriate to observe that in Dattatreya's case [1974] 2 SCC 799 the court was not dealing with the statutory first charge created in favour of the State. The argument of learned counsel for the appellants that the State legislations creating first charge cannot be given retrospective effect deserves to be negatived in view of the judgment in State of Madhya Pradesh v. State Bank of Indore [2002] 10 SCC 441 See [2002] 126 STC 1 (SC).. In that case, it was held that the charge created in favour of the State under section 33C of the Madhya Pradesh General Sales Tax Act, 1958 in respect of the sales tax dues prevail over the charge created in favour of the bank in respect of the loan taken by second respondent and the amendment made in the State operates in respect of charges that are in force on the date of introduction of section 33C. We shall now deal with the individual cases. C.A. No. 95 of 2005 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that it was a secured creditor and had a prior charge over the mortgaged properties. Thereafter, recovery proceedings were initiated by the Deputy Tehsildar. The bank filed suit for injunction bearing O.S. No. 133 of 1994 with the prayer that State of Kerala and Deputy Tehsildar (RR), Ottapalam, be restrained from attaching and selling the mortgaged property as described in the Schedule attached with the plaint. The bank filed another suit against respondent Nos. 3 and 4 for recovery of its dues. On the establishment of Chennai Bench of Tribunal, the second suit was transferred and numbered as T.A. No. 1284 of 1997. By an order dated December 31, 1998, the Tribunal allowed the application of the bank and issued recovery certificate for a sum of Rs. 23,80,430.95. Thereafter, Recovery Officer, DRT, Chennai, issued notice dated October 6, 1999 to respondent Nos. 3 to 5 to pay the dues of bank in terms of the decree passed by the Tribunal. The suit for injunction filed by the bank was dismissed by sub-judge, Ottapalam vide judgment dated December 21, 1999. The trial court held that the plaintiff has not produced any evidence to show that it had got a mortgage from defendant N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment in South Indian Bank Limited v. State of Kerala [2006] 1 KLT 65 in which the following view was expressed: "Right of the State to have priority in the matter of recovery of sales tax from the defaulters over the equitable mortgages created by them in favour of Banks and Financial Institutions is no more res integra. Dealing with the provisions parallel to section 26B of the Kerala General Sales Tax Act by the various sales tax laws of other States, Supreme Court has already recognised the statutory first charge in respect of sales tax arrears. Reference may be made to the decisions of the apex court in State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation [1995] 96 STC 612, Delhi Auto and General Finance Pvt. Ltd. v. Tax Recovery Officer [1999] 114 STC 273, Dattatreya Shanker Mote v. Anand Chintaman Datar See [1974] 2 SCC 799., Dena Bank v. Bhikhabhai Prabhudas Parekh Co See [2000] 120 STC 610 (SC); [2005] 5 SCC 694; [2004] 247 ITR 165 (SC); [2001] 107 Comp Cas 157 (SC).. and various other decisions. We may refer to the latest decision of the apex court in State of Madhya Pradesh v. State Bank of Indore See [2002] 126 STC 1 (SC); [2002] 10 SCC 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to the suit. State which has got a statutory first charge under section 26B of the KGST Act would prevail over the rights created in favour of the bank by an unexecuted decree. We therefore hold that the decree obtained by the bank will not have any precedence over the first charge created in favour of the State under section 26B of the KGST Act." In our opinion, the High Court has rightly held that the first charge created by section 26B of the Kerala Act will have primacy over the bank's dues. C.A. No. 4174 of 2006 Ahmad Koya, Kollam v. District Collector, Kollam In 1974, the respondent No. 7, Thomas Stephen and Company, Kollam took loan from Canara Bank. The company mortgaged two of its properties by deposit of title deeds as a continuing collateral security. On August 24, 1992, the bank filed suit for recovery of its dues. On creation of Bench of the Tribunal at Cochin, the suit was transferred to the Tribunal, which passed decree dated February 17, 2000 for a sum of Rs. 41,25,451.64 with interest at the rate of 15 per cent per annum from August 24, 1992. On August 24, 2000, the bank obtained recovery certificate against the company. In the meanwhile, Tehsildar (Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Tribunal is illegal because no notice was given to the Revenue Officers despite the fact that the property which was subjected to auction had already been attached. The Division Bench further held that the State was entitled to enforce the first charge on the property of the company by conducting fresh auction. The review petition filed by the appellant was dismissed by another Division Bench by recording the following observations: "We have already found that the various provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 would not affect the statutory charge of the State Government. Therefore the contention raised on the basis of the Second Schedule to the Income- tax Act, 1961 need not be examined. Since we have already found that State Government stands outside the purview of the DRT Act and that the State need not stand in the queue for claiming priority, the contention of the counsel for the review petitioners that the sale effected by State is vitiated cannot be sustained. We therefore find no reason to accept the contention raised by Senior Counsel. We also find no substance in the arguments raised by the counsel for the Canar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al which passed decree dated March 31, 2000 in T.A. No. 1032 of 1997, July 25, 2001 in T.A. No. 1009 of 1997 and August 9, 2001 in T.A. No. 1015 of 1997. The bank also issued recovery certificate dated December 1, 2003. However, before the bank could execute the decrees, Tehsildar (Revenue Recovery), Kollam, initiated proceedings under the Kerala Revenue Recovery Act for sale of the mortgaged properties which was attached for recovery of the arrears of sales tax. The petitioner challenged the sale notices issued by Tehsildar in Writ Petition No. 13425 of 2004. The learned single judge by relying on the judgment of this court in Dena Bank v. Bhikhabhai Prabhudas Parekh Co. [2000] 5 SCC 694 See [2000] 120 STC 610 (SC); [2004] 247 ITR 165 (SC); [2001] 107 Comp Cas 157 (SC). and of the Division Bench of the High Court in Sherry Jacob v. Canara Bank [2004] 30 KLT 1089 dismissed the writ petition. The Division Bench dismissed the writ appeal. In our opinion, the High Court rightly held that the Tehsildar was entitled to give effect to the primacy of statutory first charge created on the property of the dealer under section 26B of the Kerala Act. C.A. No. 1288 of 2007 UCO Bank v. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... month from the date of receipt of a copy of this judgment. The appeal and the writ petition are disposed of as above. I.A. No. 14420 of 2005 would stand dismissed." Since we have already expressed the view that in terms of section 26B of the Kerala Act, the State has got prior charge over the property of the dealer and the facts of the case show that the revenue authorities had already attached the property, there is no valid ground to interfere with the order passed by the Division Bench. C.A. No. 1318 of 2009 [arising out of S.L.P. (C) No. 24767 of 2005] South Indian Bank Ltd., Trichur-1 v. State of Kerala In the year 1984, the appellant-bank granted loan to respondent Nos. 3 to 5, who mortgaged their immovable properties as security for repayment. After 8 years, the bank filed O.S. No. 720 of 1992 for recovery of amount of loan with interest. The suit was decreed on January 30, 1995 for a sum of Rs. 3,51,36,973. After lapse of three years, the bank filed O.A. No. 1081 of 1998 for recovery of the amount in terms of decree dated January 30, 1995. On July 26, 2000, the Tribunal issued recovery certificate in favour of bank. In the meanwhile, Tehsildar, Ottapalam issued noti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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