TMI Blog2019 (7) TMI 1340X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court and only if further residuary amount is still left undisbursed, only then it would be respondent-KCC Bank, which shall be entitled to such residuary amount. Application disposed off. - CMP No. 6710/2018 in CWP No.3/2006 - - - Dated:- 19-6-2019 - Mr. Justice Tarlok Singh Chauhan, Judge. For the Petitioner : Mr. Sanjay Dutt Vasudeva, Advocate. For the Respondents : Mr. Vinod Thakur and Mr. Sudhir Bhatnagar, Addl. A.Gs. with Mr. Bhupinder Thakur, Dy.A.G. and Mr. Ram Lal Thakur, Asstt. A.G. ORDER TARLOK SINGH CHAUHAN, JUDGE: The writ petition filed by the petitionerSociety was dismissed by this Court vide judgment dated 29.9.2009. As a matter of fact, the petitionerSociety had filed two writ petitions being CWP No.200/2005 and CWP No.3/2006. In CWP No. 200/2005, the petitionerSociety has challenged the proclamation of sale dated 16.2.2005, whereby its properties were sought to be put to auction to recover the amount of ₹ 17,74,029/-. This amount was payable to the respondentsState towards arrears of sales tax. In CWP No. 3/2006, the petitionerSociety had prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the time being in force, any amount of tax and penalty including interest, if any, payable by a dealer or any other person under this Act shall be a first charge on the property of the dealer or such other person. 9 The nature of priority given to the taxes payable to the State over other debts was considered by the Constitution Bench of Hon ble Supreme Court in Builders Supply Corporation v. Union of India AIR 1965 SC 1061 , wherein it was observed as under:. (i) The common law doctrine of the priority of Crown debts had a wide sweep but the question in the present appeal was the narrow one whether the Union of India was entitled to claim that the recovery of the amount of tax due to it from a citizen must take precedence and priority over unsecured debts dues from the said citizen to his other private creditors. The weight of authority in India was strongly in support of the priority of tax dues. (ii) The common law doctrine on which the Union of India based its claim in the present proceedings had been applied and upheld in that part of India which was known as `British India' prior to the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing statutes enacted by State legislatures will prevail over the debts due to secured creditors was considered by a Three Judge Bench of the Hon ble Supreme Court in Central Bank of India v. State of Kerala, (2009) 4 SCC 94 and answered in affirmative. In that case, the Hon ble Supreme Court was called upon to consider whether the first charge created on the property of the dealer by the legislations enacted by State legislatures for levy and collection of sales tax would prevail over the debts due to banks, financial institutions and other secured creditors, which could be recovered under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the DRT Act ) and/or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Securitisation Act ). 13 The Hon ble Supreme Court referred to the relevant provisions contained in the DRT Act, the Securitisation Act and Sales Tax legislations of different States as also Section 14A of the Workmen's Compensation Act, 1923, Section 11 of the EPF Act, Section 74 of the Estate Duty Act, 1953, Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956. This and other provisos do not create first charge in favour of the worker of a company in liquidation for the first time but merely recognise the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to subsection (9) of Section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up. 115. It is thus clear that provisos referred to above are 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 in liquidation whose assets are subjected to the provisions of the Securitisation Act and are disposed of by the secured creditor in accordance with Section 13 thereof. (emphasis supplied) 14 The Hon ble Supreme Court then ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legislations were enacted and the purpose sought to be achieved by their enactment, it becomes clear that the two legislations, are intended to create a new dispensation for expeditious recovery of dues of banks, financial institutions and secured creditors and adjudication of the grievance made by any aggrieved person qua the procedure adopted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and the Securitisation Act. 130. Undisputedly, the two enactments do not contain provision simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riority: 1) remuneration of the liquidation, if any [(see Rule 108(7)] 2) pay or remuneration of the staff/employees or exemployees of the society [(rule 108(7)] a) salary b) bonus, if any c) EPF, CPF, etc. d) T.A.D.A. etc. 3) audit fee payable to the Govt. (rule 111). 4) costs of all types (rule 111) a) legal fee b) stationary c) rent d) electricity/water bills e) other costs of liquidation viz. money paid for publication of notices, summons, postages etc. 5) Charges and expenses. a) income taxation b) sales tax, passenger tax, goods tax, etc. c) other charges or miscellaneous expenses. II. Second priority: 1) Govt. loan under State and Central sector. 2) interest on Govt. loan. 3) dues of any other local authority. III. Third Priority Secured loans (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on Three Judge Bench decision of the Hon ble Supreme Court in Bombay Stock Exchange vs. V.S. Kandalgaonkar and others, (2015) 2 SCC 1 to contend that since the KCC Bank is a secured creditor, the government debts have precedence only over unsecured creditors. Strong reliance is placed on the observations as contained in para 26, which reads as under: It is settled law that Government debts have precedence only over unsecured creditors. This was held in Dena Bank v. Bhikabhai Prabhudas Parekh Co., 2000 (5) SCC 694 as follows: 10. However, the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the king takes the whole.where the kings title and that of a subject concur, or are in conflict, the kings title is to be preferred (Legal Maxims 10th edition, pp.3536). This common law doctrine of priority of States debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence the doctrine has been treated as law in force within the meaning of Article 372 (1) of Constituiton. An illuminating discussion of the subject made by Chagla C.J. is to be found in Bank of India Vs. John Bowman AIR 1955 Bombay 305. We may also refer to Full Bench decision of Madras High Court in Manickam Chettiar Vs. Income Tax Officer, Madura AIR 1938 Mad. 360 as also to two Judicial Commissioners Court decisions in Peoples Bank of Northern India Ltd. Vs. Secretary of State for India AIR 1935 Sind 232 and Vassanbai Topandas Vs. Radhabai Tirathdas and ors. AIR 1933 Sind 368. Without multiplying the authorities we would straightaway come to the Constitution Bench decision in M/s Builders Supply Corporation Vs. Union of India AIR 1965 SC 1061. 8. The principle of priority of Government debts is founded on the rule of necessity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. 9. The Constitution Bench decision has been followed by threejudges Bench in Collector of Aurangabad Vs. Central Bank of India AIR 1967 SC 1831. 21 After taking into consideration the entire law, the Hon ble Supreme Court finally answered the two questions by concluding that (i) the State has a preferential right to recover its dues over the rights of the Bank and (ii) the property of the partners is also liable to be proceeded against. 22 Since respondent No.4 by virtue of Section 16(b) of the Act has a statutory first charge in its favour, which prevails over any charge that may be in existence, therefore, at the first instance is entitled to the sale proceeds realized out of the sale amounting to ₹ 31,25,000/-lying deposited in the registry of this Court and only if further residuary amount is still left ..... X X X X Extracts X X X X X X X X Extracts X X X X
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