TMI Blog2009 (6) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... ction notice dated February 5, 2007 issued for auction sale of the property, which was mortgaged with the Bank and which has already been auction sold in favour of one K.O.P. Enterprises and subsequently purchased by the petitioner, is fit to be set aside. W.P. allowed. - W.P. No. 10246 of 2007 - - - Dated:- 12-6-2009 - MUKHOPADHAYA S.J. AND DHANAPALAN V. , JJ. ORDER:- The order of the court was made by S.J. MUKHOPADHAYA J. The petitioner has challenged the auction notice Na. Ka. No. A3/626/01 dated February 5, 2007, issued by the respondent for auction sale of the land in question. While the petitioner has questioned the auction sale on the ground that the land has already been sold and transferred in his favour, the stand taken by the respondents is that the respondents having first charge over the property, they have the right to sell the property. One Jay Flash Ceramics Ltd. (hereinafter referred to as, the company ), borrowed huge amounts from a consortium headed by the Indian Bank (hereinafter referred to as, the Bank ) in the year 1990 and mortgaged the property measuring 12.92 acres on August 1, 1990 in Ongur village and Kambur village, Tindivanam, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be attached/ proceeded towards realisation of deferred tax instalments and the term movables shall include cash/shares/debentures/bank balance. As per clause 4 of the deferral agreement, the assessee shall not alienate, dispose, encumber the fixed assets nor shall it remove the fixed assets from the unit premises until deferred tax is fully repaid. Further case of the respondent is that under section 24(1) of the GST Act, tax assessed shall be paid in such manner and in such instalment and within such time as may be specified in the notice not being less than twenty-one days from the date of service of notice. In the case of the assessee, assessment falling under sub-section (2) to section 13 of the GST Act tax shall be paid without any notice on demand. Any default of such payment, the whole of the amount outstanding on the date of default shall become immediately due and shall be charged on the properties of the person or persons liable to pay the tax or interest under the GST Act. Subsection (2) of section 24 of the GST Act provides that if any tax assessed or has become payable or any other amount due under the Act shall have priority over all other claims again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Corporations Act, 1951 for recovery of term loan dues and that they are providing security incurring huge expenditure. It requested not to proceed with proposed auction sale by the Sales Tax Department. However, a publication of auction sale notice was made in the District Gazette on December 16, 2002 followed by auction sale notice dated January 7, 2003. It appears that SIPCOT vide its letter dated January 22, 2003, informed that TIIC and Indian Bank are also having pari passu first charge on the fixed assets. It also requested for remittance of the expenses incurred towards security and consent to take possession and also to share the sale proceeds on pro rata basis. The bank, by its letter dated December 1, 2004, requested the respondents to give consent to share the sale proceeds with the secured creditors before proceeding with the auction sale. It followed by auction notice dated December 11, 2004 fixing January 20, 2005 as the date of auction. On the other hand, in the meantime, the Debts Recovery Tribunal having decreed the case in favour of the bank, recovery certificate was issued on December 15, 2004, pursuant to which P.K. Peer Mohammed, being the highest bidde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State fell for consideration before the Supreme Court and other courts from time to time. Such question being settled, we are referring only to certain case laws for the purpose of disposal of the present case. In Dena Bank v. Bhikhabhai Prabhudas Parekh Co. [2000] 120 STC 610; [2001] 107 Comp Cas 157; [2005] 5 SCC 694, the Supreme Court, while noticed earlier case laws, observed: (page 635 of STC) The principle of priority of Government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognised principle that the State is entitled to raise money by taxation because, unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary Governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builders Supply Corporation [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court, while held that crown debts prevail over other debts only in relation to the unsecured debts, observed as follows: (para 11, page 535 of Comp Cas) 10. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the crown to claim priority before all other creditors. (See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edition) page 1147). Such creditors, however, must be held to mean unsecured creditors. The principle of crown debt as such pertains to the common law principle. A common law which is a law within the meaning of article 13 of the Constitution is saved in terms of article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute 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 is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn to claim priority before all other creditors. Such creditors must be held to mean unsecured creditors. Principle of crown debt as such pertains to common law principle. A debt, which is secured or by which reason of the provisions of a statute, become 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 debts, which is an unsecured one. In fact, similar case fell for consideration before a Full Bench of this court in UTI Bank Ltd. v. Deputy Commissioner of Central Excise, Chennai 2 [2007] 1 LW 50. In the said case, while dealing with the Central Excise Act, 1944 and the Customs Act, 1962 vis-a-vis the NPA Act, the question that fell before the Full Bench was whether the crown debts, for which there is no priority or charge as created under the statute should have precedence over the secured creditors or not. The Full Bench, while taking into consideration the fact that in the said case the bank had taken possession of the property under section 13 of the NPA Act, noticed that there was no specific provision under the Central Excise Act or the Customs Act claiming first char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 (a) as land revenue; or (b) on application to any magistrate, by such magistrate as if it were a fine imposed by him: Provided that no proceedings for such recovery shall be taken or continued as long as he has, in regard to the payment of such tax, other amount or fee, as the case may be, complied with an order by any of the authorities to whom the dealer or person has appealed or applied for revision, under sections 31, 31A, 33, 35, 36, 37 or 38. The aforesaid provision fell for consideration before this court in the case of Tamil Nadu Mercantile Bank Ltd. v. Commercial Tax Officer, South Aavani Moola Veedhi Circle, C.T.O. Complex, Madurai in W.P. (MD) No. 10366 of 2008 See [2009] 23 VST 151 (Mad). In the said case, the court noticed that the provision of section 24 is in contrast t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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