TMI Blog2019 (9) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bank of India vs. State of Kerala ors, [ 2009 (2) TMI 451 - SUPREME COURT ]. The Supreme Court, in the said decision took the view that if the State Act creates first charge on the property, then the secured creditors cannot have the claim against the statutory provision. The Supreme Court also took into consideration Section 100 of the Transfer of Property Act, 1882. Indisputably, the judgment of the Apex Court in the case of Central Bank of India was prior to the amendment in the Act, 2002 and 1993 respectively. However, what is important are the observations of the Supreme Court as contained in para-126 of this decision. The Supreme Court observed that while enacting the DRT Act, the Parliament was aware of the law laid down by the Supreme Court, wherein priority of the State dues was recognized. If the Parliament intended to create the first charge in favour of the Banks, Financial Institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding the series of judicial pronouncements, the dues of Banks, Financial Insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a substantive provision giving priority to the secured creditors , the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(la) of the RDB Act defines the phrase secured creditors to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. Thus, an interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors. The insertion of Section 31B of the RDB Act will give priority to the secured creditors even over the subsisting charges under other laws on the date of the implementation of the new provision, i.e. 1.9.2016. Section 48 of the VAT Act would come into play only when the liability is finally assessed and the amount becomes due and payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act. ( C ) This Hon'ble Court may be pleased to hold that the learned Respondents can claim right only over the excess sale proceeds, if any, from sale of mortgaged properties by the Petitioners after adjusting the sale proceeds towards the secured dues of the Petitioners. ( D) This Hon'ble Court may be pleased to hold that the learned Respondents cannot proceed against purchasers of properties sold under the SARFAESI Act. ( E) Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to prohibit the learned Respondent authorities from taking any further steps in relation to the properties mortgaged by the Petitioners from M/s. M.M. Traders. ( F) Ex parte ad interim relief in terms of prayer E may kindly be granted. ( G) Such other relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray. 2. The writ applicant No.1 is a Multi-State Cooperative Scheduled Bank, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Temple, Rasala Marg, Ahmedabad. ( c) Residential Bungalow No. 30, Golden Tulip, Behind Shreyas Foundation, Bhudarpura Char Rasta, Shreyas Cross Road, Ahmedabad. Copy of renewal letter 9.10.2013 regarding the loan/credit facilities is annexed herewith and marked as Annexure C. 4. Mortgage deed was entered into with the borrower in respect of the immovable properties offered as security for the purpose of securing the loans/credit facilities. The secured interest in the properties was duly registered by the Petitioners with the Central registry under the SARAFAESI Act. Copy of challans showing registration of secured interest are annexed and marked as Annexure D. 5. The borrower thereafter committed defaults in terms of the conditions of the loan/credit facilities and hence the Petitioners initiated action for recovery of outstanding amount of ₹ 7,87,49,127/- plus interest in terms of the provision of the Securitization and Reconstruction of Financial Assets Act, 2002 (hereinafter referred to as the SARAFAESI Act ). Copy of notice dated 26.2.2015 sent to the borrower is annexed herewith and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter the possession of the assets was taken over by the learned Court Commissioner and handed over to the Petitioners on 21.1.2018. The Petitioners duly gave possession notice in newspapers. Copies of the advertisements for possession notice are collectively annexed herewith and marked as Annexure K. 13. In the meantime it appears that the borrower had possible future dues under the Vat Act for which purpose the learned Commercial Tax authorities imposed provisional attachment on the properties which were already mortgaged with the Petitioners. Intimation of such attachment was sent to the revenue department with request for entering charge on the property. Copy of letter dated 1.10.2016 sent by the learned Commercial Tax authorities to the revenue department is annexed herewith and marked as Annexure L. 14. The learned Officer of the Vat department thereafter addressed a letter to the Petitioners on 18.3.2017 contending that they had first charge over the properties of the borrower on the basis of Section 48 of the Vat Act. It was further alleged that the Petitioners were not covered by the provisions of the SARAFAESI Act. Copy of lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgaged properties. The petitioners may point out that offers received in response to the public auction notice were below the reserve price and therefore the Petitioners proceeded to sell the property through private agreement after giving due notice under the SARAFAESI Act. The offices were sold for a sum totaling for approximately ₹ 1.21 crores which were appropriated by the Petitioners towards the outstanding dues of the borrower. 22. The Petitioners thereafter received a letter on 25.5.2018 from the Vat department inquiring about the auction sale as well as asking for details of the buyer of the property. Copy of letter dated 25.5.2018 received by the Petitioners is annexed herewith and marked as Annexure R. 23. Reminder in this regard was given by the Vat department on 20.8.2018. Copy of reminder dated 20.8.2018 received by the Petitioners is annexed herewith and marked as Annexure S. 24. The Petitioners responded by letter dated 29.8.2018 informing the learned Vat authority that the sale of property was conducted in exercise of powers conferred by the SARAFAESI Act and that even after adjustment of sale procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the properties and attaching the properties for such purpose is wholly without jurisdiction, bad and illegal. 30. It is respectfully submitted that the learned Respondent authorities can claim right only over the excess sale proceeds, if any, from sale of mortgaged properties by the Petitioners after adjusting the sale proceeds towards the secured dues of the Petitioners. The learned Respondent authorities cannot go after the purchasers of the properties for enforcement of the charge since if the purchasers are held to be liable for the secondary charge then this would deflate the sale value of the properties when sold by the Petitioners under the SARAFAESI Act thus effectively encroaching over the statutory first charge of the Petitioners. The action of the learned Respondents in claiming charge over the property even after it is sold in accordance with the provisions of the SARAFAESI Act is also therefore wholly without jurisdiction, bad and illegal. 4. Thus, the issue that falls for our consideration is with regard to the first priority of the Bank over the dues vis-a-vis the sales tax dues which the State Government wants to recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sheth submitted that in case of conflict between the law enacted by the Parliament and the law enacted by the State legislature, the Parliamentary law will prevail. He referred to Article 246 of the Constitution of India which is the source of power for both Parliament and the State legislature. While Article 246(1) of the Constitution of India gives exclusive power to the Parliament to make laws with respect to any matters enumerated in List 1 in the Seventh Schedule, the power of the State legislature as flowing from Article 246(2) is expressly subject to clause (1). Moreover, it is provided in Article 254 of the Constitution that in case of inconsistency between the laws made by the Parliament and the laws made by the State legislature, it is the law made by the Parliament which shall prevail. Therefore also Section 31B of the RDB Act will prevail over Section 48 of the VAT Act. Mr. Sheth seeks to rely upon the decision of the Supreme Court in the case of Government of A.P. vs. J.B. Educational Society Anr. , AIR 2005 SC 2014 . 5.5 He further submitted that while it is true that the Bank has taken over the possession of the assets of the defaulter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready taken over the possession of the properties of the dealer, and by that time, Section 31B of the RDB Act had already been enforced by the Central Government. According to Mr. Sheth, whether Section 31B of the RDB Act will give priority over the subsisting charge under the VAT Act as on 01.09.2016, i.e., the date on which Section 31B of the RDB Act came into force. 5.9 Mr. Sheth, in support of his aforesaid submission, has placed strong reliance on a Full Bench decision of the Madras High Court in the case of The Assistant Commissioner (CT) vs. The Indian Overseas Bank, Writ Petition No.2675 of 2011 decided on 10.11.2016. 5.10 In the last, Mr. Sheth submitted that the respondents cannot proceed against the purchasers of the properties in satisfaction of the charge. In other words, according to Mr. Sheth, the respondents cannot chase the purchasers of the properties for enforcement of the charge since if the purchasers are held to be liable for the secondary charge, then the same would deflate the sale value of the properties when put to auction by the Bank, thereby directly encroaching over the statutory first charge of the Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993 29 8 of Debts Due to Banks and Financial Institutions Act, 1993 30 11 of Debts Due to Banks and Financial Institutions Act, 1993 31 of Debts Due to Banks and Financial Institutions Act, 1993 6.2 Ms. Mehta further submitted that, even otherwise, Section 26(E) had not come into force at the relevant point of time and it has no retrospective applicability. She also submitted that assuming for the moment that the same had come into force, still the charge of the State Government cannot be nullified. 6.3 Ms. Mehta further submitted that the dues of the State Government could be said to have accrued from the year 2012 onwards and prior to 2016. She submitted that where the Statute (VAT Act) creates a first charge over the property of a dealer, the said charge shall have the precedence over the other existing mortgages. Ms. Mehta submitted that the word 'charge' is wider than a mortg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncroachment on the subjects in the Union List, the State Act would not become invalid merely because there is incidental encroachment on any of the subjects in the Union List. It is further held by the Apex Court that if it could be shown that the area and subject of the legislation is also covered within the purview of the entry of the State List and the Concurrent List, in that event, incidental encroachment to an entry in the Union List will not make a law invalid. 6.8 Ms. Mehta further submitted that the aspect of conflict between the Central Legislation vis-a-vis the State legislation and the non-obstante clause in the State legislation by way of first charge and its overriding effect over Section 35 of the Securitization Act has been dealt by the Supreme Court in C entral Bank of India v. State of Kerala and others , reported in (2009)4 SCC 94 , whereby the Supreme Court has held that the sales tax dues shall prevail over any other charge being the charge created under the provisions of the Kerala General Sales Tax Act being the statutory first charge. The Supreme Court while dealing with the aspect of legislative competence and repugnancy has held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is writ application, the same may be rejected and the amount fetched in the auction conducted by the writ applicant Bank may be directed to be transferred to the State Government. ANALYSIS 7. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the Central Legislation would prevail over Section 48 of the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as, 'the VAT Act'). To put it in other words, whether the Bank will have the first priority to recover its dues being a secured creditor in view of Section 26E of the SARFAESI Act or the State will have the first priority by virtue of Section 48 of the VAT Act. 8. Before adverting to the rival submissions canvassed on either side, it is necessary to look into few relevant provisions of the statutes. 9. The Value Added Tax Act, 2003, came into force from 1st April 2006 in the State of Gujarat. The Act was enacted to consolidate and amend the laws relating to the levy and collection of tax on the value added basis in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 34 . Act to have over-riding effect .- (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. ( 2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENT OF OBJECTS AND REASONS The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956; ( g) Defining 'security interest' as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; ( h) Empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or takeover management in the event of default, i.e., classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time; ( i) The rights of a secured creditor to be exercised by one or more of its officers authorized in this behalf in accordance with the rules made by the Central Government; ( j) An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal; ( k) Setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than ₹ 5622 crores in dues of Public Sector Banks and about ₹ 391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunal and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill. ACT 51 OF 1993 The Recovery of Debts Due to Banks and Financial Institutions Bill having been passed by both the Houses of Parliament received the assent of the President on 27th August 1993. It came on the Statute Book as THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (51 of 1993):) 15. The plain reading of Section 48 of the VAT Act indicates that it starts with a non-obstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Sub-section (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation 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 Securitisation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the DRT Act and Securitisation Act on the one hand and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis a vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs. ( ii) In Union of India v. Maj I.C. Lala , AIR 1973 SC 2204 , the Supreme Court held that non-obstante clause does not mean that the whole of the said provision of law has to be made applicable or the whole of the other law has to be made inapplicable. It is the duty of the Court to avoid the conflict and construe the provisions to that they are harmonious. ( iii) In Union of India v. G.M. Kokil , AIR 1984 SC 1022 , the Supreme Court, at Paragraph 10, held as follows: It is well-known that a non-obstante clause is a legislative device which is usually employed to give overriding effect to certain provision over some contrary provision that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions. ( iv) In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram , [1986] 4 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f wide amplitude, the interpretative process thereof must be kept confined to the legislative policy.... 37. A non-obstante clause must be given effect to, to the extent the Parliament intended and not beyond the same. ( vii) The Supreme Court, in the case of Central Bank of India v. State of Kerala , [2009] 4 SCC 94 , at Paragraphs 103 to 107, considered many cases on non-obstate clause, which are extracted, 103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting nonobstante clause, the Court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. This rule of interpretation has been applied in several decisions. 104. In State Bank of West Bengal v. Union of India, [(1964) 1 SCR 371], it was observed that: 68... the Court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Act, 1961 held :- It is well settled that while dealing with a non-obstante clause under which the legislature wants to give overriding effect to a section, the court must try to find out the extent to which the legislature had intended to give one provision overriding effect over another provision. Such intention of the legislature in this behalf is to be gathered from the enacting part of the section. In Aswini Kumar Ghose v. Arabinda Bose [AIR 1952 SC 369], Patanjali Sastri, J. observed: The enacting part of a statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously; 21. A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provision in the same or other Act mentioned in the non-obstante clause. It is equivalent to saying that inspite of the provisions or Act mentioned in the non-obstante clause, the provision following it will have its full operation or the provisions embraced in the non-obstante clause will not be an impediment for the operation of the enactment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fairgrowth Financial Services Ltd. and others , reported in (2001)3 SCC 71 . Although the ratio of the two decisions referred to above may not be directly applicable to the case on hand, yet having regard to certain principles of law enunciated, I would like to follow and apply the same for the purpose of resolving the controversy as regards Section 48 of the VAT Act, Section 31B of the RDB Act and Section 26E of the SARFAESI Act. 25. In Kumaon Motor Owners' Union Ltd. (supra), the Supreme Court had the occasion to resolve the conflict between the provisions of the Defence of India Act (No.51 of 1962) and the Motor Vehicles Act. The Supreme Court noticed that there was an apparent conflict between Section 43 of the Defence of India Act on the one hand and Section 68-B of the Motor Vehicles Act, 1939 read with Section 6(4) of the Act on the other. The Supreme Court resolved the conflict by holding that the provisions of Section 43 of the Act would prevail over the provisions of Section 68-B of the Motor Vehicles Act for the following reasons : ( 1) Section 43 appears in an Act which is later than the Motor Vehicles Act and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Ch.IV-A of the Motor Vehicles Act which were meant to meet a situation arising out of the taking over of motor transport by the State. Thirdly, if we compare the language of S.43 of the Act with S.68-B of the Motor Vehicles Act we find that the language of S.43 is more emphatic than the language of S.68-B. Section 43 provides that the provisions of the Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than the Act. This would show that the intention of the legislature was that the Act shall prevail over other statutes. But we do not find the same emphatic language in S.68-B which lays down that the provisions of Ch.IV-A would prevail notwithstanding anything inconsistent therewith contained in Ch.IV of the Motor Vehicles Act or in any other law for the time being in force. The intention seems to be clear in view of the collocation of the words in Chapter IV of this Act with the words in any other law for the time being in force that Ch.IV-A was to prevail over Ch.IV of the Motor Vehicles Act or over any other law of the same kind dealing with motor vehicles or for compensation. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar nonobstante provision is contained in Section 13 of the Special Court Act which reads as follows: 13. Act to have overriding effect-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any: instrument having effect by virtue of any law, other than this Act, or in any decree or order of any court, tribunal or other authority. 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act. Recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the Appellate Authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act to give directions to recover and to distribute the assets of the notified persons in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in the case of Solidaire India Ltd. (supra) are that, if there is a conflict between the two special Acts, the later Act must prevail. To put it in other words, when there are two special statutes which contain the non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non-obstante clause. If the legislature still confers the later enactment with a nonobstante clause, it means that the legislature wanted that enactment to prevail. 30. We are conscious of the fact that in the case on hand there is no conflict between two special statutes enacted by the Parliament. The conflict is with the State Act and the Central Act. We are trying to understand the true purport and effect of Section 26E of the SARFAESI Act which came to be enacted later in point of time and also the effect of Section 31B of the RDB Act which came to be enacted later in point of time. In other words, what necessitated the introduction of the two provisions in the two enactments and what object the two provisions would subserve. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 31B of the RDB Act is a later enactment, the language of the said provision also clearly indicates the intention of the Parliament to give precedence even over the Government dues notwithstanding anything to the contrary in any other law. 34. We are sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35. While it is true that the Bank has taken over the possession of the assets of the defaulter under the SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : The first issue for my consideration is as to whether amended provisions of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would apply to the present case. It is for the reason that both the provisions were inserted in the year 2016, whereas, attachment of the property in question to recover the dues was made by the respondent-department in the year 2014 itself. It is not the case of either of the parties that amended provision is retrospective and otherwise perusal of amended provision does not show it thus would apply prospectively. The property already attached towards recovery of State dues cannot be nullified by the subsequent legislation when it has not been given retrospective effect. If argument of the learned counsel for petitioner about priority rights of the secured creditors vis a vis Government dues is accepted, it would apply from the date of amendment, whereas, attachment of the property was made in the year 2014, thus it was not free for auction. The enforcement of statutory first charge by attachment cannot be nullified by subsequent auction when no priority right was existing in favour of the secured cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been with non-obstante clause and that secured creditors would have priority over the first charge created under a State legislation. The amendment made by Parliament is to give priority to the secured creditors vis a vis State dues without speaking about the first charge. 38. The Madhya Pradesh High Court, in the case of Bank of Baroda v. Commissioner of Sales Tax, M.P., Indore and another , reported in (2018)55 GSTR 210 (MP) , had the occasion to consider identical issue. The Madhya Pradesh High Court took cognizance of the notice of sale by the commercial department. The notice of sale was issued on 19th July 2017. The High Court took notice of the fact that Section 31-B came into force with effect from 1st September 2016, and by virtue of the said amendment, the right of the secured creditors to realize the secured dues and debts dues, which are payable to the secured creditors by sale of assets over which security has been created, has priority over all other debts and Government dues including revenue, taxes, cesses and rates due to the Central Government, State Government and local authorities. The relevant observations are as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest or part thereof or any other amount is more than 15 percent of the total auction value, the 25 percent of the total auction value and the amount in the same proportion of the remaining auction value as the remaining arrears bear to the total dues of the bank or financial institution, shall be paid by the bank or financial institution. In the considered opinion of this Court, the Enforcement of Security Interest and Recovery of Debts and Loans and Miscellaneous Provision (Amendment) Act, 2016 came into force w.e.f. 01.09.2016 and by virtue of the said amendment, the right of secured creditors to realise the secured dues and debts dues, which are payable to the secured creditors by sale of assets over which security has been created, is having priority over all other debts and government dues including revenue, taxes, cesses and rates due to Central Government, State Government and local authorities. Not only this, it is having overriding effect over all other enactment including the provisions of MP VAT Act, Central Sales Tax Act, Entry Tax Act and any other Tax Act. Though, an attempt has been made by the State Government to demonstrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 2. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. 3. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 4. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 5. In so far as question (b) is concerned, the same is stated to relate only to auction sales, which may be carried out in pursuance to the rights exercised by the secured credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in subsection (4) of Section 32, for the payment of tax, penalty, interest, sum forfeited, fine or any other amount. This is further suggestive of the fact that the first charge would be deemed to be created only after the tax, penalty, interest is determined in the assessment proceedings. Section 48 of the GVAT Act, 2003 is quite general and substantially differs from Section 37 of the MVAT Act, 2002, although both the provisions are with regard to first charge on the property of the dealer. 44. The Division Bench observed as under : A Division Bench of this Court in Writ Petition No. 1796 of 2015 in the case of Axis Bank Limited Vs. State of Maharashtra and Ors. Decided on 07.03.2017 had an occasion to consider the import of legislative change, in view of introduction of the Section 26-E of the SARFAESI Act. This Court had, inter alia, observed in paragraph 22 as under: 22. Though the learned counsel appearing for the respondent State is justified in contending in normal circumstances in view of the provisions of SARFAESI Act (Unamended) primacy can be extended to the provisions like Section 38-C of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similar issue came up for consideration before this Court in W.P.(MD).No.10724 of 2018, dated 06.12.2018, Central Bank of India Vs the Joint Sub-Registrar No.1, wherein this Court has held as follows:- 7. In Assistant Commercial Tax Officer (CT) v. Indian Overseas Bank reported in 2016 (6) CTC 769, the Full Bench of this Court has held as under: ... 2. We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principal Act, which reads as under:- 31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the State Government to any moneys recoverable under the provisions of Chapter XVI shall have precedence over any other debts, demand or claim whatsoever including in respect of mortgage. Sec. 158 of the Karnataka Land Revenue Act not only gives a statutory recognition to the doctrine of State s priority for recovery of debts but also extends its applicability over private debts forming subject matter of mortgage, judgment-decree, execution or attachment and the like.-Builders Supply Corporation vs. Union of India AIR 1965 SC 1061 relied on; Collector of Aurangabad vs. Central Bank of India AIR 1967 SC 1831 distinguished. A legislation may be made to commence from a back date, i.e., from a date previous to the date of its enactment. To make a law governing a past period on a subject is retrospectivity. A legislature is competent to enact such a law. The ordinary rule is that a legislative enactment comes into operation only on its enactment. Retrospectivity is not to be inferred unless expressed or necessarily implied in the legislation, specially those dealing with substantive rights and obligations. It is a misnomer to say that sub-s.(2A) of s. 15 of the Karnataka Sales-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Supreme Court took the view that 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 the recovery of its debts over a mortgagee or pledgee of the goods or a secured creditor. It is true that ultimately the bank was not granted any relief, but the same was not granted in the peculiar facts of the case. Otherwise, the principle of law as explained is very clear. In no uncertain terms, the Supreme Court held that the appellant, i.e. the bank, was right in submitting that on the date on which the State of Karnataka proceeded to attach and sell the property of the partners of the firm mortgaged with the bank, it could not have appropriated the sale proceeds to the sales-tax arrears payable by the firm, thereby defeating the bank's security. In taking such view, the Supreme Court relied on its earlier decision in the case of CST vs. Radhakishan , (1979) 43 STC 4 : AIR 1979 SC 1588 . 48. In the case of Stock Exchange, Bombay v. V.S.Kandalgaonkar , reported in (2014)51 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a [1967] 3 SCR 855 after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore law in force in the territory of India before the Constitution and was continued by Article 372 of the Constitution (at page 861, 862). In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. 49. The two decisions referred to above, one of the Supreme Court and another of the Bombay High Court, as such may not be helpful to the Bank because the principal issue in the case on hand is with regard to the statutory charge which is created by the State enactment. The Bombay High Court was dealing with a matter under the Income Tax Act and under the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the VAT Act is with respect to transfer of property by the dealer to defraud the Revenue. According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after the tax has become due, then such transfer would be a void transfer. The reason why we are referring to Section 47 is that the phrase therein 'after any tax has become due from him' assumes significance. The same is suggestive of the fact that before the assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of the dealer, such transfer would not be a void transfer. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer. Once this part is over, then Section 48 of the VAT Act would come into play. 53. One of us, J.B. Pardiwala, J., sitting as a Single Judge, had the occasion to consider this issue in the case of Bank of Baroda, Through its Assistant General Manager Prem Narayan Sharma vs. State of Gujarat Ors. , Special Civil Application No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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