TMI Blog2021 (10) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16.07.2014, from the recoveries being sought by the revenue authorities. Section 34(2) of the Act insulates a 'charge' or 'transfer' made in favour of a banking company , as defined under the Banking Act. Hence, spoken in the literal sense, that transfer may not appear to be directly protected under subsection (2) of section 34. Though the debt of the State Bank of India may remain a secured debt against its charge existing on the property-in-dispute and it may remain entitled to recover its dues upon sale of the property-in-dispute , to the exclusion of the Crown/state dues, however, that sale may be obtained only in its own name - there is absolutely no warrant to allow for such an anomalous, uncertain, and therefore undesirable and even absurd result to arise. Plainly, there is nothing in the language of the Act, to allow for such a restrictive condition to be read into the words in favour of prefixed to the words banking company appearing in section 34(2) of the Act. That narrow meaning (as discussed above) would lead to results that are wholly absurd and may defeat the very object of enactment of Section 34(2) of the Act. In the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the respondent- Bank. 2. Present writ petition has been filed, effectively to restrain the respondent-State authorities from adopting coercive measures against the property purchased by the petitioner company, under a registered sale-deed dated 16.07.2014. Thereby, Plot Nos.126/1, 10 and 126M situate at Village- Gathauna, Pargana Ujhani, District - Badaun (hereinafter referred to as 'the property-in-dispute') were purchased by the petitioner, from another company - M/s Kanha Vanaspati Ltd.- respondent no.7 (hereinafter referred to as 'assessee-in-default'). Relief has also been sought against the citation dated 26.05.2015, seeking those recoveries from the petitioner. 3. Undisputedly, the assessee-in-default was assessed to tax for the A.Ys. 1992-93 (U.P. and Central), 1993-94 (Central), 2006-07 (Central) and 2006-07 (Entry Tax), under the provisions of U.P. Trade Tax Act, 1948, Central Sales Tax Act, 1956 and The U.P. Entry Tax Act. It was further faced with other demands of tax etc. raised against it for the A.Ys. 1994-95 to 2000-01. Those arrears of tax were stated to be ₹ 17,64,83,574/-, in the impugned recovery citation dated 26.05.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Undisputedly, it is a banking company as defined under the Banking Regulation Act, 1949 (hereinafter referred to as the Banking Act). Therefore, by virtue of Section 34(2) of the Act, nothing contained in Section 34(1) of the Act, would apply to the transaction in question. Consequently, the sale-deed dated 16.07.2014 was wholly valid and the petitioner cannot be deprived of its property on account of outstanding tax dues, of the assessee-in-default . Alternatively, it has been submitted, even if Section 34(1) of the Act was applicable, no fraud was committed by the petitioner. In that regard, it is submitted, the respondent bank was a secured creditor of the assessee-in-default and undisputedly, full, and fair consideration had been paid; no rights had been reserved in favour of the transferor and the parties to the sale deed were unrelated. Even then, if at all, the only remedy available to the revenue authority was to institute a proper suit proceeding as in any case such a transaction would remain voidable and it is not void ab initio. No suit proceeding having been instituted within limitation, the revenue authorities cannot resist the absolute right and title of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (under the taxation enactments), were in existence against the assessee-in-default , since long, from A.Y. 1992-93 onward. These dues were in the knowledge of the petitioner. Though the petitioner asserts, it first acquired that knowledge in the year 2015, at the same time, it is the own case of the petitioner that its registration application filed under the Act had been rejected, in the year 2015 itself i.e., prior to be attachment order. That rejection order was passed, for reason of pre-existing tax dues against the assessee-in-default . 11. Last, reliance has been placed on the recital contained in the sale-deed dated 16.07.2014; the letter issued by the Bank dated 15.7.2014 (annexed to the writ petition) and letter dated 01.10.2015. Relying on the same, the learned Standing Counsel has vehemently urged - on 15.07.2014 itself the State Bank of India lifted its charge over the property-in-dispute . Thus, no charge existed on 16.07.2014 when the sale-deed was executed by the assessee-in-default . There is a complete absence of any recital in that sale-deed of any existing charge in favour of the State Bank of India. Also, with equal vehemence, it has been stressed, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract that provision, in entirety. It reads as below. 34(1) Transfer to defraud revenue void.-(1) Where, during the pendency of any proceedings under this Act, any person liable to pay any tax or other dues creates a charge on, or transfers any [movable or immovable] property belonging to him in favour of any other person with the intention of defrauding any such tax or other dues, such charge or transfer shall be void as against any claim in respect of any tax or other dues payable by such person as a result of the completion of the said proceedings: Provided that nothing in this section shall impair the rights of a transferee in good faith and for consideration. (2) Nothing in sub-section (1) shall apply to a charge or transfer in favour of a banking company as defined in the Banking Regulation Act, 1949, or any other financial institution specified by the State Government by notification in this behalf. 17. Undisputedly, the State Bank of India is a banking company defined under the Banking Act. Therefore, it became open to it to raise a plea based on Section 34(2) of the Act. A plain reading of that provision brings out the existence of a non obstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. ₹ 250.00 lacs through RTGS by 15.07.2014(+/- 5 days). We would also like to bring to your notice that the MOU dated 27.06.2014 entered between M/s Gem Aromatics Pvt. Ltd. Mumbai (Buyer) and M/s Kanha Vanaspati Ltd. (seller) states that the seller has agreed to sell the said plot/ property for a total consideration of ₹ 2.61 crores and the buyer agrees to buy the same and further states that the buyer will be idemnified for any statutory or other liabilities including any defective title found if any at a later date by the seller. It is encumberance upon M/s Kanha Vanaspati Ltd.(seller) to discharge such statutory or other liabilites on the said property and to disclose details any encumbrances or statutory liabilities etc. We reiterate once again that nowhere at any point of time, have we ever represented that there is no charge, liability, encumbrance, and proceedings over the property except our charge. Therefore, the allegations made by you are baseless and we are not responsible for any kind of loss referred by you. 20. Reading the above letters along with the Certificate issued by the Registrar of Companies, Kanpur, dated 06.08.2014, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'charge' or 'transfer' made in favour of a banking company , as defined under the Banking Act. Hence, spoken in the literal sense, that transfer may not appear to be directly protected under subsection (2) of section 34. 23. Interestingly, the meaning of the word charged (used in Articles 291 and 112(2) of the Constitution of India), came up for consideration in the context of the challenge raised to the Presidential Orders de-recognising the erstwhile Rulers of the former Indian States, in Madhav Rao Jivaji Rao Scindia v. Union of India, reported in (1971) 1 SCC 85. While dealing with that question, the majority view of the nine-Judge Constitution bench of the Supreme Court, took note of the meaning attached to the word charged , under the general law relating to transfer of property. It was thus observed: 122. In support of his contention that by using the expression charged in Articles 291 and 112(2) it is only intended to enact that the expenditure is not subject to the vote of the Parliament and that no priority in payment in respect of expenditure is declared, and in any event the expression charged creates no obligation enforceable at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India clearly gave rise to a right to the State Bank of India to receive payment, out of the specified property i.e., the property-in-dispute , in preference over others. Section 34(1) seeks to create a part exception to that well established rule under the general law , in certain circumstances, in favour of the Crown/state dues. At the same time, Section 34(2) of the Act, overrides Section 34(1) of the Act and thus completely negates the exception and makes that pre-existing preferential right absolute. That effect arises in law, by virtue of the charge created in favour of a banking company as defined under the Banking Act. 25. Thus, it cannot be disputed - had the charge created over the property-in-dispute , continued to exist till date, the respondent revenue authorities would continue to stand restrained from proceeding against the property-in-dispute , for recovery of their dues. Also, that direct consequence of section 34(2) of the Act would have been caused, if the State Bank of India had obtained the sale-deed of the property-in-dispute , in its favour, either pursuant to that charge or otherwise, to recover its dues. It is so because, Section 34(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1948 . (emphasis supplied) 27. Therefore, to accept the objection raised by Shri. Hajela - that the protective gaze of section 34(2) of the Act did not extend to the sale-deed dated 16.07.2014 executed by the assessee-indefault (in favour of the petitioner), may lead to unintended, anomalous, inconvenient, and even absurd results, in law. If accepted, a secured creditor may hold safe a secured asset till eternity, both against the debtor and the world at large, and no other creditor may attach it, till all dues of that secured creditor were satisfied. However, that secured creditor may never be enabled to negotiate a sale of such secured asset, to recover its dues, without first obtaining a prior transfer, in its favour. 28. Thus, in absence of any statutory intervention made, if the submission raised by the learned Standing Counsel is accepted, it would introduce an unreasonable restriction on the free play of section 34(2) of the Act. It would, without any legislative intent or purpose shown to exist, dictate a material alteration of the rights of the parties and force a change in the mode and way, a banking company under the Banking Act may conduct itself v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial that the pre-existing charge over the property-in-dispute was satisfied on 15.07.2014 or that the State Bank of India did not first obtain title in it. 32. We are supported in our approach by the decision of the Supreme Court in Tirath Singh v. Bachittar Singh, AIR 1955 SC 830. In that case a question arose if the words all persons appearing in section 99(1)(ii) of the Representation of Peoples Act, 1951, would include a person against whom charge of corrupt practice may have been proved, for the purpose of issue of a fresh notice preceding the order of the Election Tribunal as to corrupt practice committed at an election. Read literally, such notice was contented to be mandatory. However, that interpretation was rejected, and the requirement to issue a fresh notice was restricted to refer to any person other than one against whom proceeding had already been conducted. It was reasoned and held: 6. The object of giving notice to a person under the proviso is obviously to give him an opportunity to be heard before a finding is given under Section 99(1)(a)(i) that he has committed a corrupt or illegal practice. This clearly appears from clause (b) of the proviso, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the accused is not bound to cross-examine the prosecution witnesses before charge is framed, and in the case of civil servants, the decision that they are entitled to a second opportunity was based on the peculiar language of Sections 240(2) and (3) of the Government of India Act, 1935, and Article 311 of the Constitution. They are exceptional cases, and do not furnish any safe or useful guidance in the interpretation of Section 99 . (emphasis supplied) 33. Again, in D. Saibaba v. Bar Council of India, (2003) 6 SCC 186 a question arose, if the words sixty days from the date of that order appearing in Section 48-AA of the Advocates Act, 1961 require computation of that time, from the date on which such order was passed or from the date when that order was served on the person aggrieved. Departing from the obvious grammatical meaning of the words, the Supreme Court reasoned and held: 16. Placing such a construction, as we propose to, on the provision of Section 48-AA is permitted by well-settled principles of interpretation. Justice G.P. Singh states in Principles of Statutory Interpretation (8th Edn., 2001): It may look somewhat paradoxical that pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king company as defined under the Banking Act. Therefore, that transaction was covered within the meaning of the words - in favour of the banking company . In such undisputed facts, the non-obstante clause pre-fixed to sub-Section (2) of Section 34 of the Act, wholly insulates the sale-deed dated 16.07.2014. In fact, it takes that sale-deed out of the reach and gaze of sub-Section (1) of Section 34 of the Act. 35. That piercing gaze of sub-section (1) of Section 34 of the Act would ever remain confined to tear apart the protective shield of an otherwise valid sale-deed, if it seeks to protect a transaction conducted to defraud the revenue, involving a creditor, other than a banking company as defined under the Banking Act. 36. Resultantly, by virtue of Section 34(1) of the Act, a partial exception arises to the general principle in law, that exists to the benefit of all secured creditors viz a viz Crown/revenue dues. This principle was clearly laid down in Musahar Sahu (supra) as under: As a matter of law their Lordships take it to be clear that in a case in which no consideration of the law of bankruptcy or insolvency applies there is nothing to prevent a debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain unpaid does not attract the provisions of section 53 of the Transfer of Property Act. It is not disputed that the debts satisfied by payment of the sale proceeds are genuine. A faint attempt was made to show that some of the debts discharged were owed to persons who were also Directors of the Company. There is no findings by the High Court in support of that contention. It was also urged that the consideration which passed for the sale of the assets was inadequate and that the assets had been undervalued. Here again there is no finding to support the submission. The questions raised are questions of fact, and this Court will not permit such questions to be raised unless there is material evidence which has been ignored by the High Court or the finding reached by the Court is perverse. 10. A point was sought to be made by learned counsel for the appellant that the transfer of the assets was effected in favour of Rajeswari Co. which was not one of the creditors. It has been found by the High Court that the sale was effected for the purpose of discharging the debts payable by the Company. Once it is also found that the consideration was not inadequate it is immaterial, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover 1832 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar Ors. AIR 1971 SC 1210, the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng committed. 43. To complete our discussion, in any case, if Section 34(1) of the Act was to be invoked there would have to exist a prima facie case of fraud made out against the petitioner. In that case the remedy may not lie with the revenue authorities themselves, by way of first and only choice. A regular suit proceeding may always be instituted to seek a declaration in that regard, as was opined by Supreme Court in Chogmal Bhandari (supra). Though that law was laid down in the context of Section 54 of the Transfer of Property Act, at the same time, those provisions being similar (in material parts) to Section 34 of the Act, that ratio is wholly applicable. In that decision, it was held as below: 10. In the special and peculiar facts of the present case which have been catalogued above, in our opinion, this is not a fit case In which the sales tax authorities can be allowed to hold that the deed of trust executed by the settlors was hit by section 53 of the Transfer of Property Act. It may be noted that under section 53 of the Transfer of Property Act if a transfer is made with intent to defeat or delay the creditors it is not void but only voidable. If the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt as to the rights of the parties that stand established on the strength of undisputed facts noted above, it would be hyper technical to deny relief to the petitioner. The substance and the essence of the prayer made is clear. It arises on a clear cause of action admittedly existing, in the shape of the attachment order enforced by the State respondents. Also, all material facts giving rise to the cause of action and for our decision are undisputed. 47. In such undisputed facts and in the position of law discussed above, the writ Court cannot be seen to be diffident or stingy in granting the consequential relief. A writ Court ensures obedience to the rule of law. In that process, relief may flow to the petitioner as a natural outcome of the exercise. Once, the facts are clear and the crease or doubt in law stands cleared, relief must flow unhindered, upon application of that law to the clear facts of the case. It may not be obstructed on mere technicalities such as the objection to the exact wording of the prayer clause. 48. Consequently, the respondents are restrained from proceeding against the personal assets of the petitioner or the property-in-dispute , so howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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