TMI Blog2009 (12) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... Cashew Industries Limited. The petitioners were successful bidder and the sale was concluded in their favour by way of sale certificate dated 19.5.2008 and subsequently physical possession was also given. 3. When things stand so, the petitioners received a communication dated 29.9.2008 issued under Section 36 of the TNGST Act from the first respondent stating that for arrears of sale tax due and payable by Pioneer Cashew Industries Limited, the properties purchased by the petitioner were sought to be auctioned by the first respondent on 24.12.2008. A suitable reply was given by the petitioners on 20.12.2008. Subsequently, another notice dated 24.4.2009 was served on the petitioners by the first respondent intimating about the proposed auction of the said property on 11.6.2009 for recovery of arrears of sales tax payable by the said Pioneer Cashew Industries Limited. The said auction notice is challenged before this Court. 4. Mr. Lakshminarayanan and Mr. P.B. Balaji, the learned counsel appearing for the third respondent and petitioner contended that: l) The purchase of the property by the petitioners is under the provisions of SARFAESI Act 2002 from the bank, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of TNGST Act, as charge is created, over the property statutorily. He relied upon the following judgements: 1) Central Bank of India v. State of Kerala and Others (2009) 4 SCC 94, 2) Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and Others, AIR 2000 SC 3654: (2000) 5 SCC 694: (2000) 120 STC 610 (SC). 3) Central Bank of India and Another v. State of Tamil Nadu and Another, 1999 (113) STC 145 (DB). 4) Punjab National Bank, Assets Recovery Branch v. Commercial Tax Officer-II, Theni and Another (2006) 3 MLJ 919 (DB). 5) Unreported judgment in Indian Bank v. Tamil Nadu Industrial Investment Corporation Limited and 9 Others O.S.A. No. 164 of 2001. In fine, referring to the above judgments, he submitted that the statutory dues will have priority over all other debts including the claim of the Secured Creditor. He particularly relied upon judgement in Central Bank of India v. State of Kerala and Others (supra). 7. Heard the respective counsel for the parties and perused the records. Both the parties relied upon different paragraphs of the very same judgement in Central Bank of India v. State of Kerala and Others (supra). Hence, it is usefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the secured creditor. It does not create first charge in favour of the secured creditor. (Para - 113). (c) While enacting the DRT Act and Securitisations Act, Parliament was aware of the law laid down by the Court wherein privity of the State dues was recognised. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated provisions like Section 529-A of the Companies Act or Section 11(2) of the EPF Act and ensured that not withstanding series of judicial pronouncement, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of dues of sales tax etc. However, the fact of the matter is that no such provision has been incorporated in either of these enhancements despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without intervention of the Court or Tribunal The reasons for this omission appears to be that new legal regime envisages transfer of secured assets to private companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was a specific provision in the two enactments creating first charge in favour of the banks, financial -institutions and other secured creditors but as Parliament has not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the dealer or any other person, liable to pay sales tax, etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors. (emphasis supplied) (h) 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 at tract non obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the Securitisation Act. 9. The Hon'ble Supreme Court clearly held in the above case, viz. Central Bank of India that: 1) There is no provision either in DRT Act or SARFAESI Act by which first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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, 31-A, 33, 36, 37 or 38. 24(3) On any amount remaining unpaid after the date specified for its payment as referred to in sub-section (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, interest at one and half percent per month of such amount for the first three months of default and at two percent per month of such amount for subsequent period of default: Provided that if the amount remaining unpaid is less than one hundred rupees and the period of default is not more than a month, no interest shall be paid : Provided further that where a dealer or person has preferred an appeal or revision against any order of assessment or revision of assessment under this Act, the interest payable under this sub-section, in respect of the amount in dispute in the appeal or revision, shall be postpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes as first charge . The legislature thought it fit to incorporate substantive provision in Section 24(2) in the Act by including priority over all other claims and also mode of recovery of the tax revenue as land revenue under Section 26 and to recover the tax revenue as if a fine imposed by the Magistrate would certainly denote that priority over other claims would mean Statutory first charge which overrides other claims. 12. Therefore this Court holds that: 1) First charge is created by Section 24 of the Act for tax arrears. 2) Tax claim will override all other claims and against the property of the dealer except the claim of the development bank. 3) The words priority over other claims means and denotes First charge . 13. As per judgment of the Hon'ble Supreme Court, in Central Bank of India v, State of Kerala and Others (supra) in paras 126, 129, 130, 131 and 158, this Court holds that the tax due would be the first charge as per Section 24 of the TNGST Act over the claim of the secured creditors. 14. A number of judgements have been cited by both the parties. In Al Champdany Industries Ltd. v. Official Liquidator and Another ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker Mote and Others v. Anand Chintaman Datar and Others (1974) 2 SCC 799 , which held that a charge is a wider term than mortgage and it would cover within its ambit a mortgage also. Therefore, when a first charge is created by operation of law over any property, that charge will have precedence over the existing mortgage. Paragraph 13, 16 and 19 of the Division Bench judgment in Punjab National Bank Assets Recovery Branch v. Commercial Tax Officer, (2006 (3) MLJ 919) are extracted as follows at p. 923 of MLJ: 13. Under Section 26(6) of the TNGST Act, if the tax remains unpaid, it will be a charge. As per the provisions of Sections of Section 26(6) of the Act, any amount which an assessee is required to pay to the assessing authority or for which he is personally liable to the assessing authority, if it remains unpaid, be a charge on the properties of the assessee. It is clear from the provisions of Section 24(2) of the Act, any tax assessed on or has become payable under the act, have priority over all other claims. against the property of the dealer. So, it is evident from the said Sections that the claim of the tax department will have priority over other debts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchaser cannot claim the right on the said property. The aforesaid communication would show that the encumbrance (tax arrears) certificate was only reflected on 24.12.2008. Whereas the encumbrance certificate dated 15.5.2008 issued by the Sub Registrar office, Virugambakkam did not reflect any encumbrance except the sale deed dated 9.6.1998 and no claim of the first respondent was reflected. The sale was conducted on 19.5.2008 and subsequent only the encumbrance of the first respondent was made on 24.12.2008. It is clear from sale notice dated 20.9.2008 by the first respondent the sales tax arrears were due from 1991-92 to 1996-97. However, the petitioners had no notice of charge over the property in question, in-spite of their due verification of Encumbrance Certificate dated 15.5.2008. Hence, it has to be held that the petitioners are bona fide purchasers without notice of charge under Section 24(2) of the TNGST Act and the rights accrued to them cannot be interfered with. For the reasons stated above, the respondents I and 2 belatedly could not proceed against the petitioner's property for the arrears of sales tax due of the company which availed the loan from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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