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TMI Blog2012 (10) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts Due to Banks and Financial Institutions Act, 1993 (for brevity 'the DRT Act') or while enforcing the security interest under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity the SARFAESI Act). Other common incidental issues would also arise and therefore, it is expedient to dispose of these by a common order. Background facts 2. For better appreciation, we may sum up the pleadings in W.P. No. 17742 of 2005 before noticing the short facts in each of the cases. Writ Petition No. 17742 of 2005 is filed by Hyderabad branch of the Industrial Development Bank of India Limited (IDBI) and its subsidiary, namely, Stressed Assets Stabilization Fund. A wholly owned GoI Company IDBI is a public financial institution within the meaning of Section 4A of the Companies Act, 1956 (for brevity 'the Companies Act'). In 1996, IDBI sanctioned the term loan of Rs. 3.25 Crores to the third respondent, an incorporated company. Besides giving irrevocable guarantee, its directors (respondents 4 to 7), offered land in an extent of Acs. 4.00 in S.No. 261/3 of Annaram Village of Narsapur Mandal in Medak District ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the auction was conducted in accordance with the Central Excise Act. 6. The counter affidavit of the first respondent is silent on material facts. The Central Government Standing Counsel however narrated the following factual back ground leading to the auction of the immovable property to recover excise dues. The third respondent fell in arrears to a tune of Rs. 80,00,000/- towards central excise amount; first respondent initiated action for recovery under Section 11 of the Central Excise Act read with Notification No. 68/63-C.E., dated 4-5-1963 as amended from time to time which empowers the jurisdictional Commissioner to attach and sell the movable and immovable properties of the assessee. By order dated 10-12-2004, property was attached giving one month notice to pay the dues before 9-1-2005. Assessee did not pay. The land vested in the Dept. The Dept., then obtained valuation report and issued auction notice. The counsel would emphasize that the property was attached on 10-12-2004, whereas the DRT passed the decree on 12-4-2005 in favour of IDBI. He would, therefore, urge that the Dept., has priority right in recovering the central excise dues. Writ Petition No. 2710 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethyl cellulose. Having obtained Letter of Permission as EOUs from the Commissioner, Visakhapatnam SEZ in 2001, these units can import customs duty free goods and export finished products. They are required to pay the duty if the goods are cleared for sale in domestic market. 11. The two EOU units availed credit facilities from Andhra Bank. They defaulted in repayment. Treating the loans as non-performing assets (NPA) the Bank issued demand notice under Section 13(2) of the SARFAESI Act. This was followed by possession notice under Section 13(4). Thereafter on 19-3-2011, the authorized officer of the Bank issued public notice inviting sealed tenders-cum-auction. The Assistant Commissioner therefore filed writ petitions seeking a direction to the Bank to safeguard the revenue of the Central Government department and the raw materials, finished goods and capital goods of the assessee. Writ Petition No. 5993 of 2012 12. The Assistant Commissioner, Chittoor, filed this petition seeking a direction to the authorised officer of SBI, Settipalli branch, Tirupati to safeguard the revenue of the Central Excise department on the finished goods and semi-finished goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Uttar Pradesh - (2001) 5 SCC 519 : AIR 2001 SC 1723 : 2001 (130) E.L.T. 3 (S.C.), Rajasthan State Financial Corporation v. Official Liquidator - (2005) 8 SCC 190, ICICI Bank Ltd. v. SIDCO Leathers Ltd. - (2006) 10 SCC 452 : AIR 2006 SC 2088, Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. - (2007) 8 SCC 353 : AIR 2007 SC 2804, UTI Bank Ltd. v. Deputy Commissioner of Central Excise, Chennai - AIR 2007 Mad 118 (1) = 2007 (208) E.L.T. 3 (Mad.) = 2007 (6) S.T.R. 82 (Mad.), Union of India v. SICOM Ltd. - (2009) 2 SCC 121 : (2009) 233 E.L.T. 433 (S.C.) = 2010 (18) S.T.R. 673 (S.C.), Central Bank of India (2) v. State of Kerala - (2009) 4 SCC 94, AI Champdany Industries v. Official Liquidator - (2009) 4 SCC 486 and Maharashtra State Co-operative Bank Ltd. v. Provident Fund Commissioner - (2009) 10 SCC 123. Principle of priority of Government debts 16. In their pleadings the Dept., has not specifically claimed priority or precedence of government debt over the DRT certified amount and/or the amount sought to be recovered under the SARFAESI Act. Submissions are made with considerable vehemence that the Central Excise department has such priority in recovering the dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. (emphasis supplied) 19. In Dena Bank, it was also held that, "Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already". 20. In AI Champdany Industries, the principle of priority of government debt was reiterated. In SICOM, it was clarified that "a debt which is secured or which by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the crown debt which is an unsecured one". It was further observed that the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision and "to achieve the same, the Parliament as well as the State Legislatures may insert provisions in various statues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or imposing tax, 'collect' in Article 265 would mean the physical realisation of the tax which is levied or imposed". It was also held that the collection of tax is normally a stage subsequent to the levy of the same. The enforcement of the levy would only mean realization of the tax imposed or demanded. Therefore, any revenue authority cannot take action for recovery of tax or duty of arrears de hors the provisions of the enabling Act. 23. In Delta Paper Mills, a Division Bench of this Court considered the question as to whether the Central Excise Act as it stood at the relevant time empowers the levy of interest on delayed payment of excise duty. The question was answered in favour of the assessee holding that though the expression 'levy' includes the levy as well as assessment, it does not extend to 'collection'. It was also held that Article 265 contemplates two stages; one is levy of tax and the other is collection of tax; and that the quantification of the liability follows the collection of tax which should be only by an authority of law and not by an executive. 24. We referred to the distinction between 'levy' and 'collection' and the constitutional necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962), relating to the levy of and exemption from customs duties, drawback of duty, warehousing, offences and penalties, confiscation, and procedure relating to offences and appeals shall, with such modifications and alterations as it may consider necessary or desirable to adapt them to the circumstances, be applicable in regard to like matters in respect of the duties imposed by Section 3 and Section 3A. (emphasis supplied) Customs Act 142. Recovery of sums due to Government. - (1) Where any sum payable by any person under this Act including the amount required to be paid to the credit of the Central Government under Section 28-B is not paid, - (c) if the amount cannot be recovered from such person in the manner provided in clause (a) or clause (b) - (ii) the proper officer may, on an authorisation by a Commissioner of Customs and in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59), dated 18th July, 1959, the Central Government hereby declares that the provisions of sub-section (1) of Section 105, Section 110, Section 115 [excluding clauses (a) and (e) of sub-section (1)] clause (a) of Section 118, Sections 119, 120, 121 and 124, clause (b) and sub-clause (ii) of clause (c) of sub-section (1) of Section 142 and 150 of the Customs Act, 1962, (52 of 1962), relating to matters specified therein, shall be applicable in regard to like matters in respect of the duties imposed by Section 3 of the first mentioned Act, subject to the following modifications and alterations which the Central Government considers necessary and desirable to adapt those provisions to the circumstances, namely :- (the modification i.e., (1) to (6) below notification are not extracted as not necessary) (Notification No. 68/63-C.E., dated 4-5-1963 as amended by Notifications No. 9/65-C.E., dated 6-2-1965; No. 46/68-C.E., dated 23-3-1968; No. 13/88-C.E. (N.T.), dated 29-4-1988; No. 26/95-C.E. (N.T.), dated 6-6-1995; No. 48/97-C.E. (N.T.), dated 2-9-1997 and No. 33/97-C.E. (N.T.), dated 11-5-1999) 28. There cannot be any doubt that Section 12 of the Act empowers the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are bound by New Central Jute Mills; S.K. Pattanaik and Somaiya Organics; we are not able to bring ourselves up to accept the Bombay view. We however hasten to add that as the vires of Notification No. 68/63 is not specifically challenged, we are not inclined to decide it in these cases. In all these cases we shall proceed on the assumption that Section 11 of the Central Excise Act r/w Notification No. 68/63 issued under Section 12 of the Central Excise Act enables the empowered officer to recover the excise dues also by attachment and sale of movable or immovable property belonging to the person liable to pay excise dues. Recovery of Bank Loans (a) Recovery of debts due to Banks under DRT Act. 31. A 'banking company', means any company which transacts business of banking in India [(Section 2(c) Banking (Regulation) Act, 1949] and 'banking' is defined as to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Section 6 of the said Act enumerates the forms of business in which Banking companies may engage. Section 6(1)(a) is so elaborate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denying the right of a Bank, which obtained the recovery certificate from the DRT. It was also held that at the stage of adjudication under Section 17 and execution of certificate under Section 25 of the Act; the DRT and Recovery Officer shall have exclusive jurisdiction in respect of debts payable to Bank and that the company Court cannot interfere under Section 442 r/w Section 537 or 446 of the Companies Act. 35. In Rajasthan State Financial Corporation, the principle in Allahabad Bank was reiterated observing that DRT would be entitled to order the sale of properties of the company in liquidation after informing official liquidator. In view of these precedents and also the over riding effect of the DRT Act, we hold that the Officer empowered under Section 11 of the Central Exercise Act or the proper officer authorized by the Commissioner of Customs under Section 142(1)(c)(ii) of the Customs Act cannot proceed against the movable and/or immovable property of an assessee claiming priority and precedence over the bank/secured creditor, because a debt which is secured by reason of the provisions of the statute becomes the first charge over the property, which is sought to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory first charge has been created in respect of the dues of workmen or gift tax, etc. On the basis of the above discussion, we hold that the DRT Act and the Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors and the provisions contained in Section 38-C of the Bombay Act and Section 26-B of the Kerala Act are not inconsistent with the provisions of the DRT Act and the Securitisation Act so as to attract non obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the Securitisation Act. 38. Thus unless and until a special enactment creates first charge in the matter of recovery of money due to the creditor (including the government) it is not safe to decide about the prior or first charge. When the Central Excise Act or Customs Act, do not specifically and explicitly create first charge in the matter of recovery of excise and customs duty dues, we are afraid the department of Central Excise cannot succeed in their plea. (b) Recovery of Bank debts under the SARFAESI Act 39. DRT Act came into force on 24-6-1993. Even after working of the said Act and a decade thereafter, the Parliament en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the DRT Act and the SARFAESI Act would favour the Banks and Financial Institutions in the matter of recovery of dues from the defaulting borrowers. This Court, therefore, is compelled to hold that the Dept., cannot claim any priority in the recovery of government dues over the claim of the Bank, an order under DRT Act or an order or proceedings taken out under the SARFAESI Act. 42. As held by the Supreme Court in Transcore v. Union of India - (2008) 1 SCC 125 : 2007 (3) SCJ 201, the non-adjudicatory process for enforcement of security interest by the banks or financial institutions is without fetters and even in a situation of competing creditors' rights being a secured creditor statutorily recognised, the recovery procedure under SARFAESI Act takes priority and precedence. In Transcore, while referring SARFAESI Act as NPA Act, it was observed as follows : We have already analysed the scheme of both the Acts. Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of the NPA Act is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Though, they deal with levy and collection of excise and customs, they are general Acts and the DRT and the SARFAESI Act, are special enactments with overriding effect over all other laws. Yet again as between the DRT Act and the SARFAESI Act, the latter is special one [Bank of India v. Ketan Parekh - (2008) 8 SCC 148 : AIR 2008 2361]. In Transcore, the Supreme Court held that even where a Bank invoked remedy in terms of DRT Act, they can still invoke the SARFAESI Act without withdrawing the recovery proceeds from DRT. 45. The Counsel for the Central Excise Department invites the attention of this Court to the provisions of Section 62 and 68 of the Customs Act and the Customs (Attachment of Property of Defaults for Recovery of Government Dues) Rules 1995, in support of their submission that from the date of attachment by the empowered Officer, the first charge is created in favour of the Dept., for recovery of excise/customs arrears. In view of the ratio in Central Bank of India (2) that unless such a statutory charge is created, it cannot be implied ignorance of the subsequent overriding special enactments, which facilitate special speedy recovery bank loans. The legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, DRT Act and the SARFAESI Act. Thus these two provisions would also do not support the Dept. 49. Unless otherwise specifically provided the Finance Act will come into force from 1st of April of the financial year commencing of that day (Commissioner of Income Tax, Visakhapatnam v. M/s. Vijayawada Bottling Co. Ltd. - R.C. No. 85 of 1997, dated 6-1-2012). We have no doubt that though Section 11E of the Central Excise Act and Section 142A of the Customs Act, seemingly are enforceable from 1-4-2011, they would also exempt all the measures taken under DRT Act or the SARFAESI Act, which have not attained finality. As long as the property is not sold by the RO or authorised officer under the SARFAESI Act, and possession not handed over to highest auction bidder, all the transactions are saved by Section 11E of the Central Excise Act and Section 142A of the Customs Act. 50. In W.P. Nos. 27102 of 2008, W.P. Nos. 10515 and 10516 of 2011 and W.P. No. 5993 of 2012, the respective Banks initiated action under the SARFAESI Act. When they were about to conduct auction or about to confirm auction sale, the Assistant Commissioner intervened objecting Bank sale. So also the auction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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