TMI Blog2010 (9) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... der priority of charge over the secured debt has been created - No such law has been brought on record to suggest that the Central Government has any first charge or priority over the secured or unsecured debt - Held that the Excise & Customs Department of the Central Government cannot claim any priority over the secured debt of a secured creditor-Kotak Mahindra Bank as created under Section 14 of the Securitization Act. - 309 of 2010 - - - Dated:- 17-9-2010 - S.J. Mukhopadhaya, C.J. and K.M. Thaker, J. REPRESENTED BY : S/Shri Navin K. Pahwa, with Pratik Thakkar, for the Appellant. Ms. Krina P. Calla, AGP and Shri R.J. Oza, for the Respondent. [Judgment (CAV) per : S.J. Mukhopadhaya, C.J.]. One Amod Petrochem Pvt. Ltd. on or around 24-6-1985 was granted financial facility by State Bank of India ( DSBID for short) on hypothecation of all present and future goods, book debts and movable and immovable properties. Another Amod Transformers Pvt. Ltd. was also granted financial facility by SBI in the year 1987 on hypothecation of present and future goods, book debts and other movable and immovable properties. On the request of those two Companies, SBI sanctioned an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment having its charge over the property, it is beyond the scope and power to take possession under Section 13(4). 6. The learned counsel appearing on behalf of the appellant petitioner would contend that the 2nd respondent, Excise Customs Department of the Central Government and the Central Government do not have priority of charge over the secured creditor. There is no specific provision in the Central Excise Act or the Rules framed thereunder whereby the Central Government can claim first charge, over secured charge created in favour of the secured creditors as per the contract. 7. The learned counsel for the petitioner would further submit that the dues of the Government (Crown Debts) get priority only over ordinary debts and only when there is a specific provision in the statute claiming first charge over the property, the Central Government can claim priority over the claim of a secured creditor. 8. The learned counsel appearing on behalf of the Excise Customs Department of the Central Government, per contra, submits that the property in question having confiscated stands vested in the Central Government under Rule 211 of the Central Excise Rules, 1944. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1944 with an option to redeem the same on payment of redemption fine of Rs. 2,00,000/- in lieu of confiscation. 12. Against the aforesaid orders, the assessee preferred Appeal Nos. 2030-2035/97 wherein the CEGAT, by order dated 26-6-1997 and the order dated 4-8-1998 respectively, remanded both the cases for de novo adjudication with a direction to the competent authority to dispose of the matter. 13. The Commissioner of Central Excise Customs, Vadodara-II thereafter given opportunity of personal hearing to the assessee M/s. Amod on 27-1-2006 and 14-2-2006, but the assessee did not choose to appear. On inquiry, it was found that both the units of M/s. Amod and M/s. Apex were closed since long and their promoters/owners were not available. Therefore, without waiting for their reply, the Commissioner of Central Excise Customs, Vadodara-II passed order dated 25-2-2006, issued on 4-4-2006. With regard to the first notice dated 24-2-1987, the demand of duty of Rs. 8,67,011/- and penalty of Rs. 9,00,000/- and order of confiscation of land, building, plant, machinery, etc. was confirmed with an option to the assessee to redeem the confiscation on payment of redemption fine of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-rule (1) and the duty leviable on the excisable goods in respect of the contravention for the second or any subsequent occasion exceeds ten thousand rupees, then, in a case falling under clause (a) of this sub-rule or in a case falling under clause (b) thereof (whether the contravention under that clause has been committed for the second or any subsequent occasion), the officer adjudging the case under section 33 of the Act may, in addition to the award of confiscation and penalty under sub-rule (1), direct, for reasons to be recorded in writing, the confiscation of any or all of the following belonging to such manufacturer, producer, registered person of a warehouse or a registered dealer, namely :- i. any land, building, plant, machinery, materials, conveyance, animal or any other thing used in connection with the manufacture, production, storage, removal or disposal of such goods, or ii. any other excisable goods on such land, or in such building or produced or manufactured with such plant, machinery, materials or thing. As per Rule 211 of the Central Excise Rules, 1944, on confiscation, the property vests in the Central Government, as evident from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or order so amended, repealed, superseded or rescinded or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescinded; or. (d) affect any penalty forfeiture or punishment incurred in respect of any offence committed under on in violation of any rule, notification or order so amended, repealed, superseded or rescinded; or (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the rule, notification or order, as the case may be, had not been amended, repealed, superseded or rescinded. From the aforesaid provisions, it will be evident that while the amendment, repeal, supersession or rescinding of any rule, as referred to under Clauses (a), (b), (c), (d) and (e), in normal course will not be effected, but if the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be allowed to apply to the Court for an order directing its debt to be paid out of moneys in Court belonging to the debtor, without having to file a suit. Of course it must be a debt which is not disputed or is indisputable. In this case the debt represents money due to the Crown under the Income-tax Act and the demand of the Income-tax Officer is not open to question. Therefore, in the opinion of the learned Chief Justice it had never been disputed in India that the Crown had priority with regard to its debts over all unsecured debts. No question arose of the debts being judgment-debts or otherwise. If the other competing debts were unsecured, then the right of the Crown to priority or precedence arose. 17. But even if we come to the conclusion that the State has priority with regard to this contractual debt over the debt due to the Bank of India, the two debts being of equal degree, even so the state has no right to override a decree of a competent Court or an execution taken out in respect of a decree unless specially empowered by law. Section 11, Bombay City Land Revenue Act, is an illustration where the Legislature has empowered the State to override decrees, jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. (4) The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. 25. In the case of Bank of Bihar v. State of Bihar, (1972) 3 SCC 196, the Supreme Court recognized the principle that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. 26. In Central Bank of India v. State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments. 28. The relevant provisions of the Central Excise Act, 1944 also fell for consideration before a Full Bench of the Madras High Court in UTI Bank Ltd. v. The Dy. Commissioner of Central Excise, Chennai-II Division, reported in 2007 (1) Law Weekly, 50 = 2007 (208) E.L.T. 3 (Mad.). In the said case, while dealing with the Central Excise Act, 1944, Customs Act, 1962 and the Securitization Act, the Full Bench considered whether the Crown s debts, for which there is no priority or charge is created under the statute, should have precedence over the secured creditors or not. Considering the facts of the said case that the bank had taken possession of the property under Section 13(4) of the Securitization Act and having noticed that there are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that view of such authoritative pronouncements of the Supreme Court and the decision of the Full Bench of the Madras High Court, we hold that the Excise Customs Department of the Central Government cannot claim any priority over the secured debt of a secured creditor-Kotak Mahindra Bank as created under the Securitization Act. 31. In view of our above finding, we are of the view that the District Magistrate, Bharuch rightly directed the Mamlatdar, Amod to provide protection to the secured creditor-Kotak Mahindra Bank while disposed of the application under Section 14 of the Securitization Act. 32. The learned Single Judge failed to notice the aforesaid provisions and erred in rejecting the claim, particularly while direction has already been issued by the District Magistrate for handing over the possession of the secured assets in favour of the secured creditor. 33. The appeal and the writ petition are accordingly allowed. The District Magistrate, Bharuch and the Mamlatdar, Amod are directed to ensure compliance of the order passed by the District Magistrate and thereby assist the appellant petitioner in getting the possession of the secured asset within one month from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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