TMI Blog2006 (4) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Securitisation Act. We hold that section 35 of the Securitisation Act has no effect whatsoever in the operation of section 38C of the Bombay Sales Tax Act. Section 35 of the Securitisation Act does not override section 38C of the Bombay Sales Tax Act and, therefore, based on section 35 of the Securitisation Act, the Bank does not get precedence or for that matter priority over the statutory first charge under section 38C of the Bombay Sales Tax Act. Rather the statutory first charge under section 38C of the Bombay Sales Tax Act has precedence over the Bank s charge based on contract. It what we have discussed, we find no substance in any of the contentions raised by the counsel for the Bank. It is not in dispute that before the process was initiated by the Bank u/s 13 of the Act by issuance of notice dated 20-12-2004, the sales tax authorities had already attached the properties of the company for recovery of sales tax dues. Despite the recovery process for outstanding sales tax dues having been initiated by the sales tax authorities who had a first charge u/s 38C of the Bombay Sales Tax Act, the Bank in grossly illegal manner proceeded u/s 13 of the Securitisation Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said sales tax dues, the proceedings under the Maharashtra Land Revenue Code were initiated. The notice in Form No. 39 dated 7-11-2003 was also served upon the bank asking them to discharge the sales tax liability of the company. The sales tax authorities also executed warrant of attachment; took possession of the properties of the company and put seals thereon. 3. The case of the Bank is that on 25-11-2004 when its officer conducted a visit to the company, it was found that the sales tax authorities had affixed seals on the properties of the company. On 2-12-2004, the bank sent a letter to the Assistant Commissioner of Sales Tax (respondent No. 2) pointing out that the Bank has first charge in respect of the company s movable and immovable properties. The information about the sales tax proceedings was also sought. The respondent No. 2 was also asked not to take further action in respect of the movable and immovable properties of the company without prior notice to the bank. 4. The Bank thereafter issued notice on 20-12-2004 under section 13(2) of the Securitisation Act in respect of the hypothecated and mortgaged properties. It became necessary, according to the Bank, sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there being conflict under section 38C of the Bombay Sales Tax Act, 1959 and section 35 of the Securitisation Act, the Securitisation Act being Central Act must prevail. (II)That even otherwise the Securitisation Act, being later enactment having been enacted in the year 2002, must prevail over the Bombay Sales Tax Act. (III)That under section 169 of the Maharashtra Land Revenue Code, 1966, the State Government can claim priority over the unsecured debts but the Bank being secured creditor, the Bank has first and exclusive charge over the properties of the company and has priority over the sales tax dues. 9. The counsel for the Bank relied upon the following decisions : ( i ) Dena Bank v. Bhikhabhai Prabhudas Parekh Co. [2000] 5 SCC 694, ( ii ) Maruti Udyog Ltd. v. Ram Lal [2005] 2 SCC 638 and ( iii ) State of West Bengal v. Kesoram Industries Ltd. [2004] 10 SCC 201. 10. Mr. Vinay Sonpal, the Assistant Government Pleader would submit that the Securitisation Act provides for speedy machinery for recovery of the Bank s debt. The Securitisation Act is an Act to regulate the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest. The said Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment for the purpose of examining banking sector reforms considered the need for changes in the legal system in respect of the said areas. These committees suggested amongst others, enactment of a new legislation for Securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. The recommendations of these committees led to the enactment of the Securitisation Act. 13. Section 13 of the Securitisation Act provides for enforcement of the security interest by the secured creditor without the intervention of the court or the Debt Recovery Tribunal. It overrides sections 69 and 69A of the Transfer of Property Act, 1882 and empowers the secured creditor to enforce the security interest in accord with the procedure prescribed therein. 14. Section 35 of the Securitisation Act upon which much stress has been placed by the counsel for the bank provides that the provisions of the Securitisation 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. 15. Sections 13 and 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for realisation of the security without intervention of the court or the Tribunal by a secured creditor. It overrides the provisions contained in sections 69 and 69A of the Transfer of Property Act which empowered the mortgagee to sell or concur in selling the mortgaged property or any part thereof in default of payment of the mortgage money without intervention of the court in the circumstances referred to in section 69 and for payment of Court Receiver as provided in section 69A. Section 13 of the Securitisation Act is a procedural provision for expeditious realisation of security interest by a secured creditor in substitution of normal process of recovery of debts through the Court or the Tribunal. It does not create the charge by itself much less first charge, rather it provides for process for enforcement of charge that has been created under the contract in favour of the securited creditor. No other provision was cited by the counsel for the bank either with reference to the Securitisation Act or any other Central Act which provides for first charge in favour of the Bank. As a matter of fact, basis of the charge is the mortgage that has been created in favour of the Bank by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of this Court in paragraph 8 held thus "8. The contention of Mr. Borkar based on the overriding effect of the provisions of section 35 of the Securitisation and Reconstruction Act has no substance in our judgment. Normally the use of a phrase by the Legislature in an enactment stating that its provisions will have the effect "notwithstanding anything inconsistent therewith contained in any other law for the time being in force" is another way of saying that the enactment in which the non obstante clause occurs usually would prevail over the other law. The non obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provisions of the law, but merely as clauses which remove all obstructions which might arise out of the operation of the enactment which contains a non obstante clause. The conflict in such cases is resolved on consideration of purpose and policy underlying the enactments and the language used in them. If we examine the scheme of the two Acts in question i.e ., The Securitisation and Reconstruction Act and the EPF and MP Act, they seem to operate in two different fields and there is no conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent Fund dues." 22. What has been emphasised by the Division Bench in the case of Janata Sahakari Bank Ltd. ( supra ) is that the intention of the Legislature by enacting the Securitisation Act is not to give precedence to the dues of the banks and the financial institutions over the statutory dues. Of course, that case related to the statutory dues under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the present case relates to the Bombay Sales Tax Act but the observation made in para 8 of the aforesaid judgment applies aptly to the scheme of section 35 of the Bombay Sales Tax Act. 23. The three Judges Bench of the Supreme Court in the case of State Bank of Bikaner Jaipur ( supra ) dealt with the question of first charge over the property of the dealer under section 11AAAA of the Rajasthan Sales Tax Act vis- -vis sections 58 and 100 of the Transfer of Property Act. Section 11AAAA of the Rajasthan Sales Tax Act like section 38C of the Bombay Sales Tax Act provides for the liability under the said Act to be first charge. Section 11AAAA reads, "Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax, penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is created under section 11AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax and/or other dues under the Rajasthan Sales Tax Act, is created in respect of the entire interest in the property or only the mortgagor s interest in the property when the dealer has created a mortgage on the property. In other words, will the statutory first charge have priority over an earlier mortgage. It was urged by Mr. Tarkunde, learned counsel for the appellant-bank that at the time when the statutory first charge came into existence, there was already a mortgage in respect of the same property. Therefore, the only property which was possessed by the dealer and/or person liable to pay tax or other dues under the Rajasthan Sales Tax Act, was equity of redemption in respect of that property. The first charge would operate, therefore, only on the equity of redemption. The argument though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgagor dues. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a conjoint reading of section 38C of the Bombay Sales Tax Act and section 169 of the Maharashtra Land Revenue Code, 1944 leaves no manner of doubt that the recovery of sales tax dues has priority over the secured creditors." 26. Section 169 of the Maharashtra Land Revenue Code, 1966 reads thus- "169. Claims of State Government to have precedence over all others. (1) The arrears of land revenue due on account of land shall be a paramount charge on the land and on every part thereof and shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage judgment-decree, execution or attachment, or otherwise howsoever, against any land or the holder thereof. (2) the claim of the State Government to any monies other than arrears of land revenue, but recoverable as a revenue demand under the provisions of this Chapter, shall have priority over all unsecured claims against any land or holder thereof." 27. Sub-section (1) provides that the arrears of land revenue outstanding on account of land shall be paramount charge on the land and on every part of it. Such charge shall have precedence over any other debt, demand of claim. Sub-section (2) provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to any of the matters enumerated in List III, called the Concurrent List . Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the State List . Under Article 248 the exclusive power of Parliament to make laws extends to any matter not enumberated in the Concurrent List or State List. The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarised and restated by a Bench of three learned Judges of this Court on a review of the available decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar. They are : (1) The various entries is the three lists are not powers of legislation but fields of legislation. The Constitution effects a complete separation of the taxing power and the Union and the States under article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. (2) In spite of the fields of legislation having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incidental encroaching in the field assigned to another Legislature is to be ignored. 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 effect any item in List I." 30. It is difficult to see how the aforesaid observations of the Supreme Court can assist the case of the petitioner in the present case. 31. We, accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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