TMI Blog2017 (7) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... priority right was existing in favour of the secured creditors at the relevant time. 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 VERSUS STATE OF KERALA AND OTHERS [ 2009 (2) TMI 451 - SUPREME COURT] . 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. In the instant case, there exists no repugnancy in two legislations. The intention of Parliament is not to nullify the State enactment providing first charge on the property. The legislations have been made by the Central Government and State under Entry I and II of the Schedule and not out of Concurrent List - The aforesaid aspect has also been considered by the Apex Court in the case of Central Bank of India. The petitioner-company has failed to make distinction between priority right of the secured creditors vis a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany participated in the auction and being highest bidder, the respondent-Bank declared the petitioner- company to be successful bidder vide letter dated 24th February, 2017. They were asked to deposit a sum of ₹ 3,60,00,000/-. The company deposited the amount. The respondent-Bank thereupon delivered the documents relating to the property so as the possession. The impugned order dated 19th April, 2014 (corrected as 19th April, 2017) came as a shock to the petitioner-company to declare action to be void. The petitioner-company gave reply to the notice but the impugned order has not been withdrawn. The petitioner-company was even informed that irrespective of purchase of property in auction, the State Government may auction it for recovery of their dues. A challenge to the impugned order has been made alleging it to be arbitrary and illegal. Learned counsel submits that an amendment was made in the Act of 2002 to bring Section 26E. The priority is given to the secured creditors and it is with non-obstante clause. The secured creditors have been given priority over all other debts and revenues dues, taxes, cesses and other rates payable to the Central or the State Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank Ors., reported in AIR 2017 Mad67 has been given. Therein, the issue in reference to Section 26E was decided by the Full Bench of Madras High Court. A further reference of judgment of the Bombay High Court in the case of M/s. Sonoma Management Partners Pvt. Ltd. Vs. Bank of Maharashtra, reported in 2017 (1) BC 187 has been given. The Bombay High Court has even considered the earlier judgment of the Supreme Court in the case of Central Bank of India Vs. State of Kerala Ors., reported in (2009) 4 SCC 94. The judgment in the case of Central Bank of India (supra) has not been applied as it was given prior to the amendment in the Act of 2002 and 1993. A reference of another judgment of the Bombay High Court in the case of Axis Bank Limited Vs. State of Maharashtra, reported in 2017 (3) AIR Bom.R 305 has been given. Therein also, same issue was determined. A further reference of the judgment of the Apex Court in the case of UCO Bank Anr. Vs. Dipak Debbarma Ors., reported in (2017) 2 SCC 585 has been given. The prayer is to set aside the impugned order with a direction to the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the record. The petitioner-company is an auction purchaser of the property attached by the respondent-department in the year 2014 under Sections 230 and 239 of the Act of 1956. The challenge to the impugned order has been made in reference to Section 26E of the Act of 2002, as amended vide the Act No.44 of 2016. The similar provision was inserted in the Act of 1993 vide the same Act of 2016. Section 26E of the Act of 2002 and Section 31B of the Act of 1993 are quoted hereunder for ready reference: 26E. 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. 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 secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent auction when no priority right was existing in favour of the secured creditors at the relevant time. Section 47 of the Act of 2003 is relevant for it, thus quoted hereunder for ready reference: 47. Liability under this Act to be the first charge- Notwithstanding anything to the contrary contained in any law for the time being in force, any 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 obstante clauses and give statutory recognition to the priority of State's charge over other debts, which was recognized 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors 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 etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors. It is submitted that judgment of the Apex Court in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred Section 100 of the Act of 1882 also. The argument in reference to the aforesaid provision was raised before the Apex Court also in the case of Central Bank of India (supra). It has been dealt with in Para 162 to 174 of the said judgment. The reference of the judgment in the case of Dattatreya Shanker Mote Vs. Anand Chintaman Datar, reported in (1974) 2 SCC 799 has been given. The charge in the property can be created either by the act of the parties or by operation of law to make security for payment of money. It is stated that charge is not enforceable against the purchaser of property for consideration. In the instant case, the property in question was purchased by the petitioner-company much subsequent to its attachment under Sections 230 and 239 of the Act of 1956. It was in reference to first charge as per Section 47 of the Act of 2003. The petitioner-company was having constructive knowledge of the process under Sections 230 and 239 of the Act of 1956. Para 11 of the judgment of the Apex Court in the case of The Ahmedabad Municipal Corporation of the City of Ahmedabad (supra) is quoted hereunder: 11. Now the circumstances which by a deeming fiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat State law permits creation of charge against the property for settlement of municipal dues. The constructive knowledge of the charge created against property was imputed. It was not accepted by the Apex Court on the facts of that case. It was, however, held that constructive knowledge has to be determined on the facts of each case as is a mixed question of fact and law. In the instant case, the respondent-department has not enforced recovery of dues after sale of the property and its purchase by the petitioner- company, but attachment to enforce first charge is prior to it. The attachment of the property under Sections 230 and 239 of the Act of 1956 was made in the year 2014 itself. The petitioner-company was under an obligation to find out as to whether property is subject to attachment. It could have been from the office of the Collector. The negligence cannot be to their benefit. The judgment in the case of The Ahmedabad Municipal Corporation of the City of Ahmedabad (supra) is to be applied after taking into consideration the facts of the case. In the case (supra), purchase of property was prior to the action of Municipal Corporation, whereas, in the instant case, it is j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding for first charge against the dues were also considered by the Apex Court in the case of Central Bank of India (supra). It was in reference to Workmens' Compensation Act, Employees' Provident Fund Act, Excise Duty Act and Companies Act, etc. Therein also, statutory first charge is provided against the dues. The reference of those enactments were given to make distinction between priority rights of the secured creditor vis a vis statutory first charge on the property. Learned Senior Counsel appearing for the petitioner- company submits that Section 26E of the amended Act gives priority to the secured creditor against all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured creditor. It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as provided in Workmens' Compensation Act, Employees' Provident Fund Act, etc. The State dues may be without a provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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