TMI Blog2019 (9) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... the SARFAESI Act shall be in addition to, and not in derogation of inter-alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. 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. It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer. Thus, the first priority over the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed mortgage deed referred to above came to be executed on 20th August 2012 and the same was registered with the office of the Sub-Registrar, Kalol. (2)On 19th June 2013, a supplementary mortgage-deed came to be executed by the partners of the borrowing firms, namely Shri Navinbhai Dahyabhai Patel and Smt.Pallaviben Navinbhai Patel, in their personal capacity by mortgaging their bungalow bearing No.2/A, Plot No.B/1 admeasuring 290 sq.yards with undivided share in the land known as 'Maruti Hills' situated on Final Plot No.6/2/p and 7/2/p, Sub-Plot No.1 7/2/B of Survey No.965/6 of Mouje Vejalpur and also residential immovable property bearing City Survey No.906/A admeasuring 256.85 sq.meters situated at Visnagar, Taluka Visnagar, District Mehsana. (3)On 31st January 2014, a third mortgage-deed was executed by the two partners referred to above in their personal capacity registered with the Sub-Registrar, Kalol, on the very same day and date. (4) It appears that over and above the credit facility aggregating to ₹ 140.00 lakh which was sanctioned first in point of time, the said facility later came to be enhanced to ₹ 320.66 lakh and from ₹ 320.66 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been amended by the Amendment Act No.44 of 2016. The Notification was published in the Government Gazette on 16th August 2016 in Part-II Sec.1. The effective date of the notice of the Amendment Act No.44 of 2016 as far as Section 26E is concerned, is 1st September 2016. Section 26E came into effect from 12th August 2016, which reads as under : 26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. (2) It is submitted that the Bank had made several efforts to sell the properties but the Bank could not get offer as per the upset price. (3) It is submitted that for the first time the attachment order had been passed on 29th July 2017 by the Commercial Tax Officer to the partners of M/s.Waterforce Pumps. (4) It is submitted that the Bank had taken symbolic possession of the property in 2016 and since then made all the efforts to sell the properties. (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MISSIONS ON BEHALF OF THE STATE : 8. Mr.Ronak Raval, the learned AGP has also tendered his written arguments. The arguments are as under : (1) Section 26E of the SARFAESI Act is not notified by the Central Government in the Official Gazette and, therefore, it has not come into force and therefore, Section 26E of the SARFAESI Act would not have applicability and therefore, the State Government would have first charge over the property of M/s.Water Force Pumps in view of Section 48 of the GVAT Act, 2003. Annexed herewith and marked as Annexure R1 is the copy of the Amendment Act No.44 of 2016 bringing into the statute several amendments. Suffice it to say that Section 26E, which the petitioner is relying upon, is falling within Section 18 of the Amendment Act No.44 of 2016 which is not made effective which is very evident from the appointed dates prescribed by the Government, bringing the Amendment Act No.44 of 2016 into effect. The SO 2831 (E) dated 1st September 2016 issued by the Central Government prescribing the dates of coming into force of Sections is annexed herewith and marked as Annexure R2. To be precise, the said clarification issued by the Central Government clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have the precedence over an existing mortgage. (5) The said aspect of statutory first charge is having precedence over the SARFAESI Act, 2002. The Supreme Court, in the case of E.P.F. Commissioner v. O.L. of Esskay Pharma, reported in (2011)5 GLR 3739, has taken a very categorical view on considering the SARFAESI Act, 2002 visa- vis E.P.E. Act, interpreting the said legal proposition, has held considering several judgments if there is a specific provision in these enactments creating first charge but the Parliament has not made any such provisions in the enactments, the first charge created by the State legislation on the property of the dealer cannot be destroyed by implication or inference, notwithstanding the fact that banks fall in the category of secured creditors. (6) The Supreme Court, in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh and Company, reported in (2000)5 SCC 694, has considered the doctrine of priority or comprehend of the State debts as a rule of necessity and public policy. The basic justification for the claim of priority of the State debts rests on the well recognized principle that the State is entitled to raise money by taxation because unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The core issue herein in the present case is that the Gujarat Value Added Tax Act, 2003 is enacted having its legislation competence falling within the term 'banking' which find its place in List 1 Schedule 7 Entry 45 and 94 hence both the said enactments operate in different areas, hence there is no question of repugnancy between the State enactment and the Central legislation. (9) This High Court, in the Special Civil Application No.3372 of 2012 passed an order dated 23.7.2012 and held that the first charge over the property shall be of the department/government under Section 48 of the GVAT Act, 2003. (10) Considering the above, the petitioner is required to be dismissed and the amount fetched in the auction conducted by the petitioner Bank, may be directed to be transferred to the State Government. 9. Mr.Raval has placed strong reliance on the following decisions : (1) State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation and others, (1995)2 SCC 19; (2) Nisar and another v. State of U.P., (1995)2 SCC 23; (3) State of M.P. and another v. State Bank of Indore and others, (2002)10 SCC 441; (4) Assistant Collector of Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that, the Bank has a registered mortgage in his favour executed on 28.08.2012, 19.06.2013 and 31.01.2014. On the date of registration of mortgage, there was no order of State Government under GVAT Act, and order of State Government has been passed for the first time for assessment year 2012-2013 on 24.03.2017. Before the order of assessment has been passed, the account has been declared as N.P.A. on 30.04.2016 by the Bank of Baroda (pg. 100 of the petition) and notice under Section 13 (2) has been issued on 03.05.2016 and thereafter, symbolic possession has been taken on 02.09.2016 (pg. 121 Annexure-E of the petition). Therefore, the Bank has first charge, has taken steps in advance. 7. It is submitted that, the State Government has for the very first time passed the order of assessment on 24.03.2017, 25.05.2017 and 07.05.2017 cannot march over the right of the bank. It is submitted that, assessment has to be done under Section 34 of the GVAT Act for each year. In the present case, assessment of 2012-2013 was held only on 24.03.2017. 8. It is submitted that, when the bank has declared account as N.P.A. and issued Notice under Section 13 (2) and taking symbolic posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29.07.2017. Therefore, letter issued by the CTO, Kalol on 28.05.2017 is also against the provisions of law. It is submitted that, no such notices and documentary evidences have been produced before this Hon ble Court by the State Government. 12. It is submitted that, as far as the case of the petitioner is concerned, the account of the borrower become N.P.A. on 30.04.2016, notice under Section 13 (2) has been issued on 03.05.2016. 13. It is submitted that, all action taken by the CTO is after the symbolic possession been taken over by the petitioner bank on 02.09.2016. It is submitted that, merely because notice under Section 200 of the Bombay Land Revenue Code on 29.07.2017 issued by the C.T.O. does not give preferential treatment to the State Government. 14. As far as judgment of the Hon ble Supreme Court in the case of State Bank of Bikaner Jaipur v. National Iron and Steel Rolling Corporation and others, reported in (1995) 2 SCC 19 is concerned, it is pertaining to charge and mortgage. It is submitted that, in Rajasthan Sales Tax Act, Section 11AAAA was existence in the statute book since 1989. Not only that, the suite has been filed by the Bank in the court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .8.1992 and is yet to be executed. Therefore, looking to the case on hand before the Hon ble Supreme Court, the Hon ble Supreme Court has held that, Karnataka Sales department has priority over the bank dues. 17. In the case of State of Maharashtra v. Bharat Shantilal Shah Ors. reported in 2008 (13) SCC 5, in this case, the question before the Hon ble Supreme Court was the constitutional validity of the Maharashtra Control of Organised Crime Act, 1999 (for short the `MCOCA' or the `Act') on the ground that the State Legislature did not have the legislative competence to enact such a law and also that the aforesaid law is unreasonable and is violative of the provisions of Article 14 of the Constitution of India. The said judgment has already on a different subject and the issue was under Articles 245 and 246 of the Constitution of India, wherein, doctrine of pith and substance has been invoked, meaning thereby subject of the State Act falls under an entry within the competence of the State Legislature, mere incidental encroachment on topics in the Union List would not make the State Act invalid and ultra vires the Constitution. That is not the issue over here. SARFAESI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia of Gujarat Act. The judgment of the Hon ble Supreme Court in the case of Central Bank of India was prior to the amendment of the Act, 2000 and 1993, Thus would not apply to the amended provisions of the Act. In the case hand also the amended provision does not apply. It is submitted that, the Rajasthan High Court has examined the Section 26 (E) of the Act and it is held in view of the amended provisions of Section 26 (E), looking to the language of section, the effect of Section 48 has been nullified, because Section 26 (E) specifically stated that secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. In the present case, the bank has taken steps to recover the amount from 03.05.2016, taken symbolic possession on 03.09.2016 and process in taking physical possession, at that time, for the very first time, in March, 2017, first order has been passed and thereafter, three orders have been passed. This is done only after the bank has given advertisement in the newspaper to Section 13 demand notice and possession notice, and merely because the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in auction. Therefore, that first charge over the property cannot be made applicable in the present case. Therefore, when the bank has taken possession of the property in question in advance/first point of time, before first order which has been passed by the assessment authority/ State Government, the State Government cannot be has preference over the same. ANALYSIS : 11. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for my 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. 12. Before adverting to the rival submissions canvassed on either side, it is necessary to look into few relevant provisions of the statutes. 13. The Value Added Tax Act, 2003, came into force from 1st April 2006 in the State of Gujarat. The Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it fit to consider few decisions : (i) In State of West Bengal v. Union of India, AIR 1963 SC 1241, it is observed as under: 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 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 non obstante 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 the other parts of the law and the setting in which the clause to be interpreted occurs. 105. In Madhav Rao Jivaji Rao Scindia v. Union of India and another [(1971) 1 SCC 85], Hid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision 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 or the provision in which the non-obstante clause occurs. [See 'Principles of Statutory Interpretation', 9th Edition by Justice G.P. Singh Chapter V, Synopsis IV at pages 318 319] 22. When two or more laws or provisions operate in the same field and each contains a non-obstante cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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, unless there is anything repugnant, the provisions in the later Act must prevail. (2) If the object behind the two statutes is to be looked into, namely, the Act and the Motor Vehicles Act, the Act which was passed to meet an emergency arising out of the Chinese invasion of India in 1962 must prevail over the provisions contained in Chapter IV-A of the Motor Vehicles Act which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained 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 other hand s. 43 of the Act emphatically says that the Act will prevail over any enactment other than the Act, and this suggests that the legislature intended that the emergency legislation in the Act will be paramount if there is any inconsistency between it and any other provision of any other law whatsoever. Such a provision is understandable in view of the emergency which led to the passing of the Act. 27. The principles discernible from the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: 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 Industrial Investment Corporation of Maharashtra Ltd. Anr., [1993 ] 2 SCC 144; Sarwan Singh Anr. v. Kasturi Lal, [1977] 2 SCR 421; Allahabad Bank v. Canara Bank Anr., [2000] 4 SCC 406 and Shri Ram Narain v. The Simla Banking Industrial Co. Limited, [1956] SCR 603. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. [1997] v. 89 Company Cases 547, it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the manner set down under section 11(2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iament. The conflict is with the State Act and the Central Act. I am 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. 31. Let me, at the outset, clarify that the Government of India, Ministry of Finance, notified the provisions of Section 26(E) on 1st September 2016. The copy of the Notification issued by the Government of India, published in the Official Gazette Part-II, Section 3, at Serial No.2142 dated 1st September 2016 has been placed on record. The Notification reads as under : MINISTRY OF FINANCE (Department of Financial Services) NOTIFICATION New Delhi, the 1st September, 2016 S.O. 2831 (E).--In exercise of the powers conferred by sub-section (2) of section 1 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016), the Central Government hereby appoints the 1st day of September, 2016 as the date on which the following provisions of the said Act shall come into force, namely :- Sl. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured creditors without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI 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. 36. 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. The Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y amount of tax and any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of such dealer or person. Section 47 of the Act of 2003 starts with non-obstante clause and creates first charge on the property. The issue about priority claim of the secured creditor vis a vis first charge on the property under the State legislation was considered by the Supreme Court in the case of Central Bank of India (supra). If State Act creates first charge on the property then secured creditors cannot have claim against the statutory provision. Therein, consideration was also made even in reference to Section 100 of the Act of 1882. The relevant paras of the judgment in the case of Central Bank of India (supra) are quoted hereunder for ready reference: 111. 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. 112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. 126. While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognized. 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 a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, 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 the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Central Bank of India (supra) was prior to the amendment in the Act of 2002 and 1993 thus would not apply to the cases governed by the amended provisions. In the case in hand, the attachment of property by the State is prior to the amendment thus amended provision would not apply. Section 47 of the Act of 2003 was invoked prior to the amendment. I am yet considering the effect of the amended provision. The Apex Court has made analysis of a provision of first charge vis a vis secured creditor in the case of Central Bank of India (supra). The first charge was given supremacy than rights under mortgagee or to a secured creditor. The distinction between first charge and secured creditor is necessary to analyse scope of Section 26E of the Act of 2002 and Section 31B of the Act of 1993. The amended provisions are having overriding effect and give priority to the secured creditors vis a vis State dues. It does not, however, nullify the effect of first charge created on the property under the State Act. If intention of Parliament would have been to nullify the effect of first charge, the language of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the MP VAT Act, 2002 reads as under:- 33 : Tax to be first charge (1) Notwithstanding anything to the contrary, contained in any law for the time being in force and subject to the provisions of section 530 of the Companies Act, 1956 (No.1 of 1956), any amount of tax and/ or penalty or interest, if any, payable by a HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE W.P. No.4909/17 W.P. No.6297/17 (- 4-) dealer or other person under this Act shall be first charge on the property of the dealer or such person. (2) Notwithstanding anything contained in this Act, where a dealer or person is in default or is deemed to be in default under clause (a) of subsection (11) of section 24 and whose property is being sold by a bank or financial institution for recovery of its loan, the Commissioner may forgo the right of first charge as mentioned in subsection (1) against the property sold on the following conditions:- (a) if the arrears of tax, penalty, interest or part thereof or any other amounts is up to 25 percent of the total auction value, the arrears shall be paid in full by the bank or financial institution; (b) if the arrears of tax, penalty, interest or part thereof or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordship then was) observed as under : ...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. Explanation. - For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 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. 2. There is, thus, no doubt that the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Section 13 (4) merely regulates distribution of money received by the secured creditor and it does not create first charge in favour of the secured creditor. Though in normal course in view of Section 35 of the SARFAESI Act, 2002 no priority can be claimed by the bank or financial institutions over the State's statutory first charge in the matter of recovery of dues of sales tax etc. However, in respect of company under liquidation, in view of the provisions of Section 529-A of the Companies Act, a distinction has to be made and as has been laid down by the Division Bench of this Court in the matter of SICOM Ltd, which view has been upheld by the Supreme Court, the claim of the secured creditor in respect of the company being under liquidation shall have the priority in view of the language applied in Section 529-A of the Companies Act, 1956. It also must be taken note of that there is statutory recognition of priority claim of the secured creditor in view of the amendment brought into effect by virtue of Act No.44 of 2016 thereby introducing section 26E providing for priority to secured creditor over all other debts and all taxes, cess and other rates payable to Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt shall be subject to the provisions of that Code. 3. There is, thus, no doubt that the rights of a secured creditor to realise 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. 4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 44. In the course of the hearing of this matter, two judgments, one of the Supreme Court, and another, of the Bombay High Court, were also discussed. The Supreme Court decision is in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and others, reported in (247) ITR 165 (SC), and the Bombay High Court decision is in the case of Stock Exchange, Bombay v. V.S.Kandalgaonkar, reported in (2014)51 taxmann.com 246 (SC). In the case of Dena Bank (supra), it was held that, The Crown s preferential right to recovery of debts, over other creditors is confined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose. The Karnataka Sales-tax Act also gives the firm a legal status by treating it as a dealer and hence a person for the limited purpose of assessing under the Sales-tax Act.-CST vs. Radhakishan AIR 1979 SC 1588 and ITO vs. Arunagiri Chettiar (1996) 134 CTR (SC) 167 : (1996) 220 ITR 232 (SC) relied on. The counsel for the appellant is right in submitting that on the day 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 sales-tax arrears payable by the firm and defeating the bank s security in view of the law as laid down by this Court in CST vs. Radhakishan (1979) 43 STC 4 : AIR 1979 SC 1588. However, still in the facts and circumstances of the case, the appellant bank cannot be allowed any relief. Sec. 15(2A) of Karnataka Sales-tax Act had come into force on 18th Dec., 1983 while the decree in favour of the bank was passed on 3rd Aug., 1992 and is yet to be executed. The claim of the appellant bank is still outstanding. Even if the sale held by the State is set aside, it will merely revive the arrears outstanding on account of sales-tax to which fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection and recovery of tax has to be based on proper appreciation of facts of the case. While deciding Other modes of recovery (Priority over debts), the Apex Court duly considered the power of Central Government to direct rules to be made or to make rules and observed that a membership card is only a personal permission from Stock Exchange to exercise rights and privileges that may be given subject to Rules, Bye-Laws and Regulations of Exchange and moment a member is declared a defaulter, his right of nomination shall cease and vest in Exchange because even personal privilege given is at that point taken away from defaulting member. It therefore held that by virtue of rule 43 of Bombay Stock Exchange Rules security provided by a member shall be a first and paramount lien for any sum due to Stock Exchange. Thus, Bombay Stock Exchange being secured creditor would have priority over Govt. dues and if a member of BSE was declared a defaulter, Income-tax department would not have priority over all debts owned by defaulter member. The first thing to be noticed is that the Income Tax Act does not provide for any paramountancy of dues by way of income tax. This is why the Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The first order of the State Government with regard to the liability under the provisions of the VAT Act was passed for the Assessment Year 2012-13 in March 2017. Legally speaking, the liability of the respondent no.4 under the VAT Act could be said to have been determined and became due only in March 2017. 49. Section 48 of the VAT Act would come into play only when the liability is finally assessed and the amount becomes due and payable. It is only thereafter if there is any charge, the same would operate. The authority under the VAT Act passed the assessment order later in point of time. 50. The language of Section 48 of the VAT Act is plain and simple and the phrase 'any amount payable by a dealer or any other person on account of tax, interest or penalty' therein assumes significance. The amount could be said to be payable by a dealer on account of tax, interest or penalty once the same is assessed in the assessment proceedings and the amount is determined accordingly by the authority concerned. Without any assessment proceedings, the amount cannot be determined, and if the amount is yet to be determined, then prior to such determination there cannot be any app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my notice an order passed by a Coordinate Bench dated 23rd August 2018. Mr.Rao invited the attention of this Court, more particularly, paragraphs 10, 11 and 12 of the order, which read as follows : 10. Heard both the learned advocates appearing for the respective parties and considering the difference in the amount of fixing upset price and considering the fact that price of sale consideration at the time when the property was purchased in the year 2015 since has been taken as a benchmark, and therefore, apprehension of the bank is that unless the public notice issued by the State is stayed, higher upset price is bound to fail the auction. Therefore, while issuing notice to the State and permitting them to file detailed affidavit-reply, the public notice issued on 20.08.2018 for the purpose of auction of the very property is stayed. The amount fetched by the bank in the public auction shall be maintained in the separate account and the detailed report shall be furnished to the court on the next returnable date. 11. If, on the scheduled date, the attempt on the part of the bank fails, 2nd auction after 21 days shall be made, if any, following the procedure, of course, on int ..... 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