TMI Blog2006 (12) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenging the order passed against them in this regard, whereas 3 writ petitions have been filed by the private individuals, challenging the auction proceedings. All the 36 writ petitions are being disposed of by the common judgment. Main submissions in this case made on behalf of Union of India were from Civil Writ Petition No. 3413 of 2005 (Union of India Ropar v. Punjab Financial Corporation, Chandigarh and another). Accordingly, the facts necessary to determine the legal issue raised have been taken from the said writ petition. It may require a mention at the outset that pleadings in this writ petition are lacking in detail, may be because of the fact that Union of India- petitioner was mainly concerned with the legal issue raised relating to crown debt priority only. The brief facts, as mentioned in this writ petition, are accordingly being taken note of. (3) THIS writ petition has been filed on behalf of Central Excise Department. M/s Kishan Organics Private Limited, Chanalon, (hereinafter called the Company ) is stated to be registered with the Central Excise Department for manufacture of excisable goods. This concern was debtor of Punjab Financial Corporation Limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the writ petition and hence the writ petitions suffered from delay and laches. The objection in regard to focus (locus ?) of the Petitioner Union of India on the ground that the answering respondent PFC was a secured creditor has also been raised. In this regard, support has been sought from certain judgments of the Hon'ble Supreme Court. It has further been pleaded that the rule of priority in favour of crown as pleaded by the petitioner-Union of India cannot be enforced against the secured creditors like PFC. Otherwise, there is not much dispute between the parties so far as the facts pleaded in the case are concerned. PFC, in reply, has disclosed that even after selling the Unit, it has still to recover a sum of ₹ 41,07,268/-from respondent No. 2. It is thus, submitted that the writ petition deserves to be dismissed. As already noticed, almost identical claim has been made by Union of India in 24 writ petitions filed on behalf of Central Excise Department. On the other hand Financial Corporations have filed the writ petitions impugning the notices or attachment orders issued by the Collector-cum-Deputy Excise and Taxation Commissioner etc. for sale of immovabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Range, Ludhiana. ( 7. ) I have heard all the counsel appearing for respective parties in these writ petitions. ( 8. ) AS can be seen, the basic issues in these cases relate to the priority claimed by Union of India in recovering its dues like taxes or excise duty by invoking the doctrine of 'crown priority debt'. This has been resisted by the PFC and other respondents like banks etc. on the ground that such priority would not be available against those who are secured creditors. Further submissions have also been made to the effect that this doctrine may not be available for its applicability in the present cases, not being a law of the land and in this regard certain judgments have also been referred to and relied upon. Both the parties have placed very strong reliance in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. and others, 2000(2) RCR(Civil) 729 : AIR 2000 Supreme Court 3654 in support of their respective submissions. Accordingly, this case would require detailed analysis to see if it can be said to be applicable to the facts and law involved in the present writ petitions. Since the issue relating to the crown debt priority has been addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound by necessary implication or unless the statutes being for the public good, it would be absurd to exclude the King from it. Noticing this to be a law applicable to India, until the advent of the Constitution, the Hon'ble Supreme Court observed that the Constitution has also not made any change in that position. It was noticed that there are no words in the Constitution, which can be cited in support of the proposition that the position has changed after the republican form of Government had been adumbrated by our Constitution. The immunity of Government from the operation of certain statute, and particularly statutes creating offences is based upon the fundamental concept that the Government or its officers cannot be a party to committing a crime - analogous to the prerogative of perfection that the King can do no wrong. Whatever may have been the historical reason of the rule, it has been adopted in our country on grounds of public policy as a rule of interpretation of statutes. In short, it was held that the State is not bound by a statute unless it is so provided in express terms or by necessary implication, which was stated to be a good law till then. In this case, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w becomes a part of the law of India or in any particular part thereof. The rule of construction that the Crown is not bound by a statute save by express provision or necessary implication was not accepted as a rule of construction throughout India and even in the Presidency Towns it was not regarded as inflexible rule of construction. In short it had not become a law of the land. Even assuming that the rule had been accepted as a rule of construction, throughout India, the rule cannot be called the law of the land after the Constitution came into force. It is true that the expression law in force in Article 372 of the Constitution includes not only enactments of the Indian Legislature but also the common law of the land which was being administered by the Courts in India. But it is not possible to hold that a mere rule of construction adopted by English Courts and also by some of the Indian Courts to ascertain the intention of the legislature was a law in force within the meaning of this term. There is an essential distinction between a law and a canon of construction. A rule of construction is not a law in force within the meaning of Article 372 of the Constitution. The rule of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It was not to apply for interpretation as was held by the Constitutional bench decision of the Hon'ble Supreme Court. In case of Collector of Aurangabad and another v. Central Bank of India and another, AIR 1967 Supreme Court 1831, the Hon'ble Supreme Court went into the question of priority of Crown Debt doctrine. The Court held that English Common Law Doctrine of the Priority of Crown Debts was given judicial recognition in territory known as British India prior to 1950 in regard to the recovery of tax dues in priority to other private debts of the tax payer. It was further held that the doctrine having been incorporated into Indian law, is a law in force in the territory of India and by virtue of Article 372(1) of the Constitution of India, it continues to be in force in India until it is validly altered, repealed or amended. While so holding, the Hon'ble Supreme Court relied upon a judgment in the cases of M/s. Builder Supply Corporation v. Union of India, AIR 1965 SC 1061 and distinguished the case of Superintendent and Remembrance of Legal Affairs case (supra). Despite so holding, the Hon'ble Supreme Court found that the doctrine of priority of Crown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial Syndicate, 1963-49 ITR 824 (Mad). All these authorities have been quoted with approval by this Court in Builders Supply Corporation v. Union of India, 1965-56 ITR 91, in which it was held that the Government of India was entitled to claim priority for arrears of income tax due to it from a citizen over debt from him to unsecured creditors and that the English common law doctrine of the priority of Crown debts has been given judicial recognition in the territory known as British India , prior to 1950 in regard to the recovery of tax dues in priority to other private debts of the taxpayer. It was pointed out, therefore that the English Common Law doctrine having been incorporated into Indian law, was a 'law in force' in the territory of India, and, by virtue of Art 372(1) of the Constitution of India it continued to be in force in India until it was validly altered, repealed or amended. ( 11. ) WHILE dealing with the Constitution Bench's decision in the case of Superintendent and Remembrance of Legal Affair's case (supra), the Hon'ble Supreme Court in the case of Collector Aurangabad (supra) observed as under : It was, however argued for the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an arrears of land revenue. This provision, as observed, would not convert the arrears of tax into arrears of land revenue either, and it was found that all that it purported to do was to indicate that after receiving the certificate from the income-tax Officer, the Collector had to proceed to recover the arrears as if the arrears were arrears of land revenue. This provision accordingly was found to confer no priority rights of the one which may provide for the principle of priority of tax dues at all, though in this case, if was held that the consensus of judicial opinion was that arrears of tax due to the State can claim priority over private debt and that the law was confined to this narrow part. In this regard, it was laid down as under :- At this stage, we ought to make it clear that in the present appeal we are dealing with a very narrow point, and that relates to respondent No. 1's claim that arrears of tax due to it have precedence or priority over money debts due to a private creditor from the same debtor. We think it necessary to emphasise this aspect of the matter, because the basic doctrine of Crown privileges as originally evolved by Common Law in England may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who has parted with money neither in favour of Pawnor on the security of the goods. While determining the right of priority in such a case, the Hon'ble Supreme Court held that the Pawnee has special property and lien on the goods and so long as his claim is not satisfied, no other creditor of the pawnor has any right to take away the goods or its price. ( 14. ) THEN came Dena Bank's case (supra), on which strong reliance has been placed by both the parties. The counsel for Union of India would urge that Dena Bank's case (supra) clearly laid down a ratio that the arrears of tax due of the State can claim priority over the other debts. On the other hand, counsel for PFC strenuously submitted that such priorities, even if available to claim, would be over the private debts and not the secured debts like that of the Financial Corporations. The submission made before the Hon'ble Supreme Court on behalf of Dena Bank was that right of the State to realize its arrears of tax could not take precedence over the right of the bank to enforce its security, it being a secured creditor. The question that arose for consideration in this case before the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues. (See M/s Builders Supply Corporation, AIR 1965 SC 1061 (supra). In the same case the Constitution Bench has noticed the 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 sovereign power of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. 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. In Giles v. Grover, (1832)131 E.R. 563 it has been held that the Crown has no precedence over a pledge of goods. In Bank of Bihar v. State of Bihar, 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 (T.L.L., Seventh Edition, P. 386) : It seems a Government debt in India is not entitled to precedence over a prior secured debt. As can be noticed from the above quoted observation, the preferential right of the Crown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect as I am of the view that it is clearly deducible from various judgments referred to above that the doctrine of Crown priority debt is required to be established in a part of a country where it is sought to be applied and further that this will ordinarily be confined to unsecured creditors and it may not be available as a law outside the territories known as British India. It was basically because of this reason that doctrine of priority of Crown debts was not applied in the case of Collector of Aurangabad (supra) as, it was found that the same had not been recognized in Hyderabad State. Basically, the doctrines of Common law of England, as noticed in Superintendent and Remembrancer of Legal Affairs case (supra) were administered as the law in the precedence towns of Calcutta, Bombay and Madras. It has been observed that this Common law doctrine of England was not adopted in rest of India. It is in this background that it was held that it would be a question of fact in each case where any particular branch of any law became part of law of India or in any particular part thereof. Apart from other considerations as such, it is required to be seen if this common law doctrine ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the doctrine of State Priority. ( 20. ) SUBMISSIONS were then made to urge that right of priority to recover excise dues, in view of the provisions contained in the Excise and the Customs Acts are available which give State a priority. Submission is that Section 11 of the Excise Act and Sections 120 and 142 of the Customs Act and so also Section 232 of the Central Excise Act would clearly show that they would give priority of recovery of the dues of the Government over the debts of the Financial Corporation or the other secured creditors. In this regard, counsel has not only referred to Dena Bank's case but has placed strong reliance on the case to Macson Marble Pvt Ltd. v. Union of India, 2003(158) ELT 424 (SC). In Macson Marbles' case (supra), the Hon'ble Supreme Court, while considering the question as to whether industrial Unit sold in terms of Section 29 of the State Financial Corporation would be sale made and whether Rule 230(2) of the Central Excise Rules would be attracted, has held that when the sale is made in favour of the Financial Corporation, the Central Excise Rules would be attracted. The Supreme Court, however, did not feel the necessity of examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act shall apply, which has a preferential right to recover its dues over the rights of the appellant-bank. It is in this background of preferential right having been recognized and created by a statute that the priority was given to the recovery of sale tax. However, that apparently is not the situation in the present cases. Though reliance has been placed on the provisions of the Excise Act and the Sales Tax Act, yet no provision is noticeable, which can give priority to the dues recoverable by the Excise Department or the Custom Department as the case may be. The provisions, which were pointed out before me, mainly related to the fact that the arrears of excise dues etc. are recoverable as arrears of land revenue. In this regard, observation of Hon'ble Supreme Court in the case of M/s Builders Supply Corporation (supra) in regard to Section 46(2) of the Income Tax Act has already been made to show that it did not deal with principle of Crown debts at all. Counsel for the respondents were justified in replying upon the case of Union of India v. Matherukunju Moosakutty and others, AIR 1980 Kerala 182 to say that Section 11 of the Central Excise and Salt Act, which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
