TMI Blog2010 (5) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... DAVE , JJ. The judgment of the court was delivered by S.J. MUKHOPADHAYA C.J. In all these cases, as a common question of law is involved, they were heard together and are disposed of by this common judgment. The State of Gujarat through its Commercial Tax Department took steps to bring the property situated at plot No. 486/B-2, GIDC, Makarpura, Vadodara, the assessee having failed to pay the tax. Baroda City Co-operative Bank Ltd., which is the secured creditor of the very same property under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( the Securitization Act , for short), being aggrieved, preferred the writ petition in S.C.A. No. 4196 of 2009. Similar is the grievance of the petitioner in S.C.A. No. 12958 of 2009 with regard to the property of Survey Nos. 173/1, 174/1, 174/2, 174/3 and 176 situated at Taluaka Sanand, District Ahmedabad purchased by the said petitioner from Assets Reconstruction Company (India) Ltd. (ARCIL). A prayer has been made to direct the respondent, Joint Commissioner of Commercial Tax, Division-I and its officials to remove the charge on the said property. The appellant of L.P.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the powers of arrest and confinement of a defaulter in a civil jail) and perform all the duties of the Mamlatdar under the said code. (iiia) the Sales Tax Inspectors shall have and exercise all the powers of the Sales Tax Officers specified in clause (iii) (except the powers of confirmation of sale). (2) Every order passed in exercise of the powers conferred by subsection (1) shall, for the purpose of sections 64, 65, 66, 67, 69 and 72 be deemed to be an order passed under this Act. Section 137 of the Bombay Land Revenue Code, 1879 stipulates precedence of State claim over all other claim, which is extracted below: 137. Claims of State Government to have precedence over all others. The claim of the State Government to any moneys recoverable under the provisions of this Chapter, 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. Section 151 of the BLR Code, restricts recovery of arrears for the current year as is evident from the said provision and quoted hereunder: 151. Revenue demands of former years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority is given to the claim of the Government under section 137 of the BLR Code both over the secured and unsecured creditors was the finding of the Bombay High Court in the aforesaid case, relevant portion of which is quoted hereunder: It follows that the priority given to the claim of Government by section 137, Bombay Land Revenue Code, is very much more extensive than that given by the common law, since it creates on behalf of the Government a right to priority over all debts of every kind whether secured or unsecured, and the learned Advocate-General contends that section 151 which restricts the preference given by section 137 to the demands for the current year, merely takes away this statutory priority and does not interfere with that given by common law. . . The court further held that it includes not only the right of priority over secured debts which is new, but also declare the right of priority over debts of all sorts. In Bank of India v. John Bowman reported in AIR 1955 Bombay 305, honourable Mr. Justice Chagla, Chief Justice (as he then was), noticed that the priority given to the Crown is not on the basis of its debt being a judgment-debt or a debt arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled 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 emphasizes 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 v. Union of India [1965] 56 ITR 91 (SC); AIR 1965 SC 1061). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's soverei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 591 (SC); [1972] 3 SCC 196; AIR 1971 SC 1210, the principle has been recognized 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, Seventh Edition page 386) 'It seems a Government debt in India is not entitled to precedence over a prior secured debt'. Priority or precedence of Crown debts under the Central Excise Act visa-vis secured debts under the State Financial Corporations Act, 1951 fell for consideration before the Supreme Court in Union of India v. SICOM Ltd. reported in [2009] 147 Comp Cas 531 (SC); [2009] 2 SCC 121. In the said case, the Supreme Court while held that 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, observed as follows: 9.. Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statutory Act, relevant portion of which are quoted hereunder (page 543 in 21 VST): 36.. . . . The Securitization Act drastically changed the scenario inasmuch as it enabled banks, financial institutions and other secured creditors to recover their dues without intervention of the courts or Tribunals. The Securitization Act also made provision for registration and regulation of securitization/reconstruction companies, securitization of financial assets of banks and financial institutions and other related provisions. However, what is most significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. Under section 13(1) of the Securitization Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-a-vis section 69 or section 69A of the Transfer of Property Act. In terms of that sub-section, secured creditor can enforce security interest without intervention of the court or Tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only part of the distribution mechanism evolved by the Legislature and are intended to protect and preserve the right of the workers of a company-inliquidation whose assets are subjected to the provisions of the Securitization Act and are disposed of by the secured creditor in accordance with section 13 thereof. 37.. The non-obstante clauses contained in section 34(1) of the DRT Act and section 35 of the Securitization Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitization Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Bombay Act and section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State's charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... men's Compensation Act, etc. In absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and the Securitization Act. . . The judgments of the Supreme Court in SICOM Ltd. [2009] 147 Comp Cas 531 (SC); [2009] 2 SCC 121 and Central Bank of India [2009] 21 VST 505 (SC); [2009] 4 SCC 94 fell for consideration before a Division Bench of the Madras High Court in M. Nagarajan v. Deputy Commercial Tax Officer in W.P. No. 10246 of 2007. By its (unreported(1)) judgment dated June 12, 2009, the court held as follows (page 184 in 25 VST): (1)Reported in [2009] 25 VST 175. 21. Having regard to the judicial pronouncements rendered by courts and noticed above, we may sum up the law as under: '(i) Arrears of tax due to the State can claim priority over unsecured debts. (ii) The common law doctrine about priority of Crown debts/State debts is recognized law in force within the meaning of article 372(1) of the Constitution of India. (iii) The doctrine will not apply if first charge by way of priority is not claimed under the statute. (iv) The doctrine of first charge/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recorded in writing, extend such period by such further period as he may think fit. (3) For the purposes of computing the money value of a benefit, the Labour Court may, if it so thinks fit, appoint a Commissioner who shall, after taking such evidence as may be necessary, submit a report to the Labour Court and the Labour Court shall determine the amount after considering the report of the Commissioner and other circumstances of the case. (4) The decision of the Labour Court shall be forwarded by it to the appropriate Government and any amount found due by the Labour Court may be recovered in the manner provided for in sub-section (1). (5) Where workmen employed under the same employer are entitled to receive from him any money or any benefit capable of being computed in terms of money, then, subject to such rules as may be made in this behalf, a single application for the recovery of the amount due may be made on behalf of or in respect of any number of such workmen. Explanation. In this section 'Labour Court' includes any court constituted under any law relating to investigation and settlement of industrial disputes in force in any State. Under the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the nature of immovable properties and law enacted before the Constitution which created unreasonable restriction would be void under article 13 of the Constitution.' On the same reasoning the provisions of section 137 of the Code cannot be sustained. The State cannot be given a right of preference in respect of its unsecured debt over the debt of petitioner No. 2 which is a secured one. The provision of law which gives the State a right of preference when the debts are unequal cannot also be sustained under article 14 of the Constitution which guarantees equality and equal protection of law. The question of priority of State debt vis-a-vis Securitization Act fell for consideration before a Full Bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of Central Excise, Chennai II Division reported in [2007] 1 Law Weekly 50. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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