TMI Blog2022 (7) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... eds to state that notice of attachment by Customs Authorities on the mortgaged property was filed in the office of SRO, Redhills, the second respondent has categorically stated in the sale certificate itself that 'the mortgage created in favour of the bank is prior in point of time and the bank being the secured creditor, the mortgage created in favour of the bank has priority over the charge of the customs and as such, the charge created in favour of Customs Authorities is subordinate to the charge in favour of the bank' - An explanation has also been forth coming on the side of the second respondent bank during the course of hearing that any ambiguity in the language employed in the sale certificate is only a genuine mistake and the appellant cannot take advantage over the same. Hon'ble Supreme Court, in Punjab National Bank v. Union of India and others [ 2022 (2) TMI 1171 - SUPREME COURT ] wherein, it was categorically held that the dues of the secured creditor will have priority over the dues of the Central Excise Department, as even after insertion of section 11E in the Central Excise Act, 1944 with effect from 08.04.2011 and the provisions contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d respondent bank conducted an auction sale, in which, the first respondent became the successful bidder and a sale certificate dated 23.01.2012 was also issued to them. Subsequently, at the request of the first respondent, a Corrigendum to the sale certificate came to be issued on 29.06.2017 by including the right over the pathway leading to the property purchased in the auction sale. After obtaining the sale certificate, the first respondent approached the office of the Sub-Registrar, Red Hills, requesting to register the same. However, it was informed that the sale certificate cannot be registered in view of the subsistence of charge over the property by the appellant herein. On enquiry, the first respondent came to know that on 14.12.2010, the Commissioner of Customs passed an order of attachment against the properties owned by M/s. Jai Bhavani Steels Enterprises Limited and M/s. SDS Steels Private Limited, having their factories in the adjoining lands purchased by the first respondent in the auction sale; and also requested the Registration Department not to entertain any instrument that may be presented for registration in respect of the lands mentioned therein. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58,43,507/-. At this stage, the first respondent herein claimed to have purchased the land measuring 4.25 acres in Survey Nos. 199/1, 199/2 and 199/3 in an auction sale conducted by the second respondent bank and requested the appellant to lift the attachment raised over the same. By order dated 20.07.2018, the appellant rejected the request of the first respondent stating that the dues of the department are sovereign dues which have to be recovered from the defaulters. Stating so, the appellant sought to dismiss the writ petition. 5.The learned Judge, after hearing both sides and following the decision of the Full Bench of this court in UTI Bank Limited v. Deputy Commissioner Central Excise [2006 (5) CTC 801] , allowed the writ petition and directed the appellant to lift the attachment over the property in question within a period of two weeks from the date of receipt of a copy of the order. The observation of the learned Judge is quoted below for ready reference: 13.That apart, Section 26E the the SARFAESI Act reads as follows: .... 14.The Section is unambiguous and provides that a charge created over a property to a secured creditor, being a financial instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve allowed the writ petition and directed the appellant to lift the attachment over the property purchased by the first respondent. With these submissions, the learned counsel prayed to allow this writ appeal by setting aside the order of the learned Judge. 7.The learned counsel for the first respondent would contend that the first respondent was a bonafide purchaser of the property in question in the auction sale conducted by the second respondent bank and they were issued with sale certificate, after payment of the entire sale consideration. However, the Sub Registrar, Redhills refused to register the same, in view of the charge raised by the appellant in respect of the property purchased. Adding further, the learned counsel submitted that the appellant did not create any encumbrance over the property in question, but merely sent a communication dated 14.12.2010 to the Inspector General of Registration, to desist from entertaining any instrument that may be presented for registration. Even in the said communication, reference was made only to the warehouses situated at Nos.2/220B and 2/221, GNT Road, Panjetty Village, Ponneri Taluk-601 204, which are situated adjacent to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured assets are not bonded goods; the claim of the appellant under Section 142 of the Customs Act, 1962 is not against M/s. DDS Steel Rolling Mills Private Limited, in which account, the properties were sold; and the claim of Rs.2 crores of the appellant is towards penalty imposed on the guarantor on account of statutory dues in respect of the two other companies namely SDS Steels and Jai Bhavani Steels. In any event, SARFAESI Act has an overriding effect over other laws and therefore, the appellant has to file an appeal invoking Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. Therefore, the learned Judge is wholly justified in allowing the writ petition. 8.3. To buttress his contentions, the learned counsel for the second respondent Bank placed reliance on the order dated 10.11.2016 passed by the Full Bench of this Court in WP Nos. 2675 of 2005 etc., batch in the Assistant Commissioner (CT), Chennai - 6 v. Indian Overseas Bank and another, wherein it was held 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted over the property in question has priority over the claim of the appellant, which is in respect of the alleged penalty imposed on the guarantor by name, Pramod Kumar Saraf, on account of the statutory dues payable by two companies viz., SDS Steels and Jai Bhavani Steels. Therefore, the order of the learned Judge, directing the appellant to lift the attachment over the property, does not require any interference at the hands of this court. 13.On a reading of the materials placed before this court, it could be seen that at the time of executing the mortgage deed in the year 2006, there was no charge or attachment over the property in question by any one, and the second respondent bank was the first charge holder of the same. The appellant issued notices under section 142(1)(a) (b) of the Customs Act, 1962, against the two companies for recovery of the alleged dues payable by them, in connection with the goods imported during 2007-2009, on 09.12.2010. Thus, the cause of action arises for the appellant to create charge over the property in question only on 09.12.2010. 14.Further, it is to be pointed out that the appellant did not register an encumbrance or create a charge by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the list falling under the list of Survey Nos. enclosed herewith without prior consent of this office in order to safeguard the customs duty and interest recoverable from the said importers. That apart, be it noted, the first respondent claimed that the property in question is situated adjoining the land of the importers and the same was wrongly mentioned in the list of survey numbers appended to the said communication. Hence, the preferential right claimed by the appellant over the property in question, based on the said communication dated 14.12.2010, stating that the sale certificate was issued in favour of the first respondent by the second respondent Bank only on 23.01.2012, cannot be countenanced by this court. 15.Pertinently, it is to be mentioned here that though the sale certificate dated 23.01.2012 proceeds to state that notice of attachment by Customs Authorities on the mortgaged property was filed in the office of SRO, Redhills, the second respondent has categorically stated in the sale certificate itself that 'the mortgage created in favour of the bank is prior in point of time and the bank being the secured creditor, the mortgage created in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. 41. A Full Bench of the Madras High Court in the case of UTI Bank Ltd. Vs. Dy. Commissioner Central Excise [2006 SCC Online Madras 1182], while dealing with a similar issue, has held that: 25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming first charge as provided in other enactments, which we have pointed out in earlier paragraphs: 26.In the light of the above discussion, we conclude, (i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts. (ii) Only when there is a specific provision in the statute claiming first charge over the property, the Crown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellant - bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant-bank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellant bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods. (emphasis suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. (emphasis supplied) 48. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide legitimacy to a confiscation order that is not rooted in any valid and existing statutory provision. 52. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant- bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. 53. Accordingly, the Appeal is Allowed and the confiscation orders dated 26.03.2007 and 29.03.2007, passed by the Commissioner Customs and Central Excise, Ghaziabad, are quashed. 18.Applying the ratio laid down in the aforesaid decision of the Hon'ble Supreme Court to the facts of the present case, this court is of the opinion that the second respondent ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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