TMI Blog2008 (9) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings of the first respondent. Despite, recovery process for the outstanding sales tax dues, the action of the bank in proceeding under the SARFAESI Act is unauthorised and the petitioner bank is not entitled to the reliefs sought for in the writ petition. W.P. dismissed. - W.P. No. 18975 of 2007 - - - Dated:- 17-9-2008 - BANUMATHI R. , J. ORDER:- Mrs. R. BANUMATHI J. The petitioner-bank has filed this writ petition to issue certiorarified mandamus to quash Tamil Nadu Government Gazette No. 1 dated January 5, 2007 (Vellore District) and consequential order bearing No. NK A3/2310/2002 dated March 16, 2007 and quash the same in so far as it relates to the property situate at Plot No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet and to direct the first respondent to stop further proceedings from recovery of any arrears of sales tax payable by Tajura Leathers-second respondent from out of the sale proceeds which have been appropriated by the petitioner-bank. Facts in nutshell are as follows: (i) Second respondent-a partnership concern has availed various credit facilities from the petitioner-bank. As a security for the due repayment of the loan, second respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. NK. A3.2310/2002 dated March 16, 2007, first respondent informed the petitioner that second respondent-company has committed default in payment of sales tax of a sum of Rs. 37,09,966 and therefore, they are invoking the provisions of section 34(2) of the Tamil Nadu General Sales Tax Act, 1959 (for short, the TNGST Act ) and as the company had committed default, a sum of Rs. 37,09,966 from and out of the sale proceeds should be remitted to the first respondent as contemplated under section 24(3) of TNGST Act. (vii) On January 5, 2007 in the Vellore District Gazette, Government had gazetted a notification about the attachment of the properties. By the impugned proceedings dated March 16, 2007, first respondent informed the petitioner that second respondent has committed default in payment of sales tax of a sum of Rs. 37,09,966 and therefore, they are invoking the provisions under section 34 of the TNGST Act and as the company had committed default, a sum of Rs. 37,09,966 should be remitted to the first respondent as contemplated under section 24(3) of the TNGST Act. (viii) Case of the petitioner is that the action of the first respondent is contrary to law and the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the third respondent, possession of the property was given to them on March 16, 2007 and sale certificate dated March 16, 2007 was also issued in its favour. It is further averred that there were no encumbrances shown in the encumbrance certificate to show that the property was attached by the sales tax department. According to the third respondent, they are the bona fide purchaser of the property and not being aware of the attachment of the property. Laying emphasis upon section 35 of the SARFAESI Act and Transcore's case [2006] 5 CTC 753, Mr. Jayesh B. Dolia, learned counsel for the petitioner has contended that notwithstanding anything contained in any other law, provisions of section 13(4) shall override the local law and the action initiated by the petitioner-bank under the SARFAESI Act will have priority over and above the provisions of the TNGST Act. The learned counsel for the petitioner has further contended that crown debt cannot prevail over the secured creditor and that preferential right of crown would be subservient to the rights of a secured creditor and the right of the bank as a mortgagee will prevail upon. Mr. Haja Nazirudeen, Special Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic auction for a total sum of Rs. 62.91 lakhs. The subject-matter of dispute, i.e., Plot No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet measuring an extent of 19520 sq. ft. was sold for a sum of Rs. 19.23 lakhs to the highest bidder-third respondent. The question whether withdrawal of O.A. prior to taking recourse under the Securitisation Act is no more res integra, in Transcore v. Union of India [2006] 5 CTC 753, Supreme Court has held as under: (13) . . . The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 ( SFC Act ), in particular sections 29 and 31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process. These two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given a right to choose one or more of the cumulative remedies. The object behind section 13 of the NPA Act and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Notice of final assessment in form U , form B3, form N3 and form 54 were issued on the same day December 31, 2001. The learned Special Government Pleader (Taxes) has contended that by operation of law a statutory charge has been created and in view of the priority conferred on the liability arising under the Act, State is entitled to recover the statutory dues settled in preference to all other creditors. Whether secured or unsecured notwithstanding the existence of any right under mortgage anterior in point of time. The learned counsel for the petitioner-bank inter alia raised the following contentions: There being a conflict under section 24 of the TNGST Act and section 35 of the Securitisation Act, Securitisation Act being a Central Act must prevail. Even otherwise Securitisation Act being a later enactment having been enacted in the year 2002 must prevail over the TNGST Act, 1959. Under section 24 of the TNGST Act, State Government can claim priority only over the unsecured debts. But the bank being a secured creditor, bank has first and exclusive charge over the properties of the company and has priority over the sale tax dues. The learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re v. Union of India [2006] 5 CTC 753. Noting importance of section 35 of the Act in Transcore's case [2006] 5 CTC 753, the honourable Supreme Court has held as follows: In our view, section 17(4) shows that the secured creditor is free to take recourse to any of the measures under section 13(4) notwithstanding anything contained in any other law for the time being in force, e.g., for the sake of argument, if in the given case the measures undertaken by the secured creditor under section 13(4) comes in conflict with, let us say the provision under the State land revenue law, then notwithstanding such conflict, the provision of section 13(4) shall override the local law. This position also stands clarified by section 35 of the NPA Act which states that the provisions of NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 is also important from another angle. As stated above, the NPA Act is not inherently or impliedly inconsistent with the DRT Act in terms of remedies for enforcement of securities. Section 35 gives an overriding effect to the NPA Act with all other laws if such other laws are inconsistent with the NPA Act. As far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special statutes, an endeavour should be made to give effect to both of them. In case of conflict, the later shall prevail. There cannot be any doubt about the aforesaid legal position. In my considered view, there is no conflict in section 35 of the Securitisation Act and section 24 of the TNGST Act. There is no inconsistency and both provisions can be given effect to without any difficulty. The learned Special Government Pleader (Taxes) has contended that section 35 of the Act and the observation of the Transcore's case [2006] 5 CTC 753 are not applicable. His submission is that section 24(1) and (2) of the TNGST Act gives precedence to the sales tax dues and such dues have priority over other charges. The question falling for consideration is whether the SAFAESI Act will prevail upon the statutory charge created for the sales tax payable is the point for consideration. The point to be resolved is whether section 35 of the Securitisation Act is inconsistent with section 24(2) of the TNGST Act and consequentially whether section 35 of the Securitisation Act would override section 24 of the TNGST Act? As held by the Supreme Court in Morgan Securities Credit (P) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce or any instrument having effect by virtue of any such law. 15.. Sections 13 and 35 of the Securitisation Act have non obstante clauses. By virtue of section 13(1), the provisions contained in section 69 and 69A of the Transfer of Property Act are overridden and any security interest created in favour of any secured creditor is capable of being enforced without the intervention of the court or Tribunal in accordance with the provisions of the Securitisation Act while section 35 overrides other laws or instruments in the case of inconsistency. . . . . . 18.. The Bombay Sales Tax Act and the Securitisation Act have been enacted by competent Legislatures for different purposes and operate in different fields. The Bombay Sales Tax Act is enacted by the State Legislature under entry 45 of List II in the Seventh Schedule for levy of tax on the sale or purchase of certain goods in the State of Bombay (now the State of Maharashtra). On the other hand, the Securitisation Act has been enacted by Parliament under entry 45 of List I for regulating the securitisation and reconstruction of financial assets and for enforcement of security interest. There is neither any conflict in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act. (2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the land development bank in regard to the property mortgaged to it under section 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934 (Tamil Nadu Act X of 1934), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered . . . Reading of section 24(1) and (2) of the TNGST Act makes it clear that charge for liability under the TNGST Act shall have priority. The statutory charge created under section 24 of the TNGST Act overrides anything contained in any contract which is contrary to section 24. While section 24(1) gives the tax dues only the status of a simple mortgage over the properties of the defaulter, sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this court in the case of Dattatreya Shanker Mote v. Anand Chintaman Datar [1974] 2 SCC 799. The court has observed (at pages 806-807) that a charge is a wider term as it includes also a mortgage, in that, every mortgage is a charge, but every charge is not a mortgage. The court has then considered the application of the second part of section 100 of the Transfer of Property Act which, inter alia, deals with a charge not being enforceable against a bona fide transferee of the property for value without notice of the charge. It has held that the phrase 'transferee of property' refers to the 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. 8.. In the present case, we have to consider whether the statutory first charge which 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortgagee, in Central Bank of India v. State of Tamil Nadu [1999] 113 STC 145 (Mad), Division Bench of this court held as follows: 8. . . . Sections 24(2) and 26(6) as amended by Tamil Nadu Act 78 of 1986, sufficiently safeguard and also enable the State to enforce the recovery of the taxes and other dues under the Tamil Nadu General Sales Tax Act, 1959, as the first statutory charge holder in supersession of even the claims of an existing mortgagee, who claims to be a secured creditor too and the contentions to the contrary are devoid of merit and are hereby rejected . . . . . . 11.. . . . The decision reported in State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation [1995] 96 STC 612 (SC), as also earlier decision relied upon therein and reported in Dattatreya Shanker Mote v. Anand Chintaman Datar [1974] 2 SCC 799 in unmistakable terms declare also the position that there are vast differences between 'charge' and 'mortgage', and that when a first charge is created by operation of law over any property, that charge will have precedence over even an existing mortgage. As a matter of fact, section 100 of the Transfer of Property Act, 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 (SC); [1972] 3 SCC 196; AIR 1971 SC 1210 the principle has been recognised by this court holding 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. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., page 386) 'It seems a Government debt in India is not entitled to precedence over a prior secured debt'. Though in para 10 of the Dena Bank case [2000] 120 STC 610 (SC); [2000] 5 SCC 694, Supreme Court held as above, noticing that Karnataka sales tax will have precedence over any other debt, the demand or claim, Supreme Court ultimately held that State shall have preferential right to recover over the right of the appellant-bank. In Dena Bank case [2000] 120 STC 610 (SC); [2000] 5 SCC 694, the Supreme Court referred to section 158 of the Karnataka Land Revenue Act which was extracted in para 12 of the judgment which reads as under: 158. Claim of State Government to have precedence over all others. (1) Claims of the State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decisions without looking into the factual background of the case before it is clearly impermissible. A decision is a precedent on its own facts. Each case presents its own features. It is not everything said by a judge while giving judgment that constitutes a precedent. The only thing in a judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petent Legislature for different purposes in different fields. Apart from the statutory priority charge, in fact, first respondent has actually attached the property before ever the bank could initiate action under the Securitisation Act. As pointed out earlier, for the tax payable for the assessment year 1991-92 has become charge which has priority. As per section 24(2) of the TNGST Act arrears could be recovered: (a) as land revenue; or (b) on application to any Magistrate by such Magistrate as if it were a fine imposed by him. After assessment order was passed on December 31, 2001, form B3 and notice of final assessment and demand were issued to the second respondent on December 31, 2001. Form N3 Notice of final annual assessment and demand; form 54 notice of demand of penalty were also issued on December 31, 2001. Form I distraint order and form IV demand notice under the Revenue Recovery Act were issued to all partners of second respondent firm on May 13, 2005. Section 27 of the Revenue Recovery Act deals with mode of attachment of property to be sold under the Revenue Recovery Act. Notice of attachment was also served on July 15, 2005. Then form V Notice of att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the bank is wholly illegal and unauthorised, in Thane Janata Sahakari Bank Ltd. v. Commissioner of Sales Tax [2006] 148 STC 32, Division Bench of the Bombay High Court has held as under (in paras 31 and 33 at page 48): We, accordingly 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 is not in dispute that before the process was initiated by the bank under section 13 of the Act by issuance of notice dated December 20, 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently hold money for, or on account of the dealer, which was become liable to pay any amount, to pay to the assessing authority so much of the money as is sufficient to pay the amount due by the dealer. Accordingly, first respondent had sent the impugned letter to the bank informing the bank about the attachment of property and publication in the Gazette for recovery of sales tax arrears of Rs. 37,09,966. Since Government charge has priority over all other claims against the property, bank is burdened with the obligation of making payment to the Government and the bank cannot challenge the impugned proceedings of the first respondent. The learned counsel for the third respondent-auction purchaser contended that encumbrance certificate was obtained on February 5, 2007 and March 16, 2007 and there was no encumbrance to show the attachment of the property by sales tax department and the bank as secured creditor has sold the property to the third respondent and the third respondent being bona fide purchaser, not being aware of the attachment of the property cannot be penalised. Third respondent also seeks for appropriate direction to register the document executed in its fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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