TMI Blog2023 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... hall have priority over the dues of Central Excise Department. The act of creating a charge over the property, which has been bought by the petitioners (purchasers for recovering dues of erstwhile owners) is totally without jurisdiction and hence, the present petition with the following reliefs; "(16) In the premises aforesaid, the petitioner most humbly and respectfully prays that: (A) YOUR LORDSHIPS may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or directions to the respondent authorities to quash and set aside noting of the charge in revenue record of the R.S.no.277, Village: Kamod, Taluka: Vatva, District: Ahmedabad. (B) YOUR LORDSHIPS may be pleased to issue a writ of mandamus or any other appropriate writ, order or directions to the respondent authorities to delete the charge created under the Act on land located at R.S.no.277, village: Kamod, Taluka: Vatva, District: Ahmedabad and further be pleased to and direct the Respondent No.2 herein to lift/remove all its charges, encumbrances over the land situated at R.S.no.277, village: Kamod, Taluka: Vatva, District: Ahmedabad; (BB) YOUR LORDSHIPS may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, accordingly, on 30.11.2018, the bank took over the physical possession of the land in question under the SARFAESI Act. The authorised officer issued the advertisement in various newspapers on 07.02.2018 in DNA and Gujarat Samachar. No bidder came forward and auction was unsuccessful. Thereafter, the land was put to auction, which was conducted on 12.03.2019. The petitioners were desirous of buying the land and gave their offer vide communication dated 07.10.2020. Offer from the petitioners under the private treaty was received by the authorised officer of the bank, who had issued the sale notice under Sub- Rule (6) of the Security Rules to the owners and upon receipt of such notice, owners gave consent to sell the property by private treaty under sub-Rule (5) of Rule 8 of the Security Rules. The authorised officer accepted the request for an agreed consideration of Rs.10 crores on "as is where is" basis and the petitioners were required to pay the full consideration on or before 31.01.2021 which had been already done by the petitioner. 5. The Bank confirmed the sale in favour of the petitioners and issued sale certificate dated 08.03.2021 in terms of sub-Rule (6) of Rule 9 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand was to the tune of Rs.2153/-. Thereafter, notice for recovery was also issued for the Assessment Year 2014-15 under the Central Sales Tax Act. The demand was of Rs.12,387/- vide order dated 11.02.2019 for the period of 2015-16 under the Central Sales Tax Act. The assessment and the demand culminated into sum of Rs.8,52,82,536/- vide order dated 31.03.2021. Notice of recovery was issued by the office of the respondent on the very date. 10. M/s. Manan Auto Spares was assessed for the period of 2016-17 under the Central Sales Tax and the amount of Rs.7,35,76,033/- under the Act was demanded and notice of recovery also had been issued for the period of 2017-18. The demand was of Rs.1,78,26,130/-. 11. M/s. Manan Auto Spares made an application to the respondent on 28.10.2021 claiming that it did not receive the copies of order of assessment for the Assessment Years 2015-16, 2016-17 and 2017-18. It sent communication to the State Bank of India, Ashram Road and intimated to attach the bank account of M/s. Manan Auto Spares under section 44 of the VAT Act. 12. It is further contended that the respondent issued a notice to the proprietor of M/s.Manan Auto Spares on 06.09.2021 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us terms and conditions. He was also required to provide collateral security by the mortgage of the land in question. The simple mortgage deed dated 06.04.2015 was registered with the Sub-Registrar, Ahmedabad -10 at Sr.No.1586 on 07.04.2015. Thus, the mortgage in favour of the bank was created prior in point of time than the date of framing of assessment for the year starting from Assessment Year 2013-14 to Assessment Year 2017-18. According to the petitioner, the notice under section 135D dated 6.12.2021 was not issued or served to any of the petitioners although the sale certificate was already registered in favour of the petitioner on 15.03.2021. It is also the say of the petitioner that the bank would have the first charge over the secured assets in accordance with the provisions of SARFAESI Act as well as the Recovery of Debts due to Banks and Financial Institutions Act (RDB Act) and the State cannot putforth its claim over such secured assets of the bank by relying on the provisions of section 48 of the VAT Act. Section 26A and section 35 of the SARFAESI Act make it quite clear that the rights of the secured creditor to release its secured debts due and payable by sale of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State legislation was considered by the Apex Court in the case of Central Bank of India vs. State of Kerala and others, (2009) 4 SCC 94, where the apex Court had held that if the State acts to create the first charge on the property, then the secured creditors cannot have the claim against the statutory provision. While so holding, it took into consideration section 100 of the Transfer of Property Act, 1882. The Court held that when two or more laws or provisions operate in the same field and each contains nonobstante clause stating that its provision will override those of any other provisions of the law stimulating an intricate problem of the interpretation arises while relying on such problems of interpretation, no settled principles can be applied, except to refer to the object and purpose of each of the provisions containing non obstante clause. Two provisions in the same Act, each containing a non obstante clause requires harmonious interpretation of the two seemingly conflicting provisions of the same Act. The conflict here is with the State Act and the Central Act. On considering the true purport and effect of section 26A of the SARFAESI Act, which came to be enacted later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis-`-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that subsection, secured creditor can enforce security interest without intervention of the Court or Tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimham Committee's 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without the intervention of the Court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies. 129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, Section 30 of the Gift- Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitisation Act. 130. Undisputedly, the two enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red assets without the intervention of the Court or Tribunal xxx xxx xxx 47. Thus, the dictum of law as laid by the Supreme Court in the aforesaid decision is that the State's preferential right to the 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 it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad v. Central Bank of India [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 statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any application of Section 48 of the VAT Act. We may also refer to Section 47 of the VAT Act. Section 47 of 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 Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddressed by the Sales Tax Officer - 3 Ghatak 26, Himmatnagar to the concerned Mamlatdar. As against that, the mortgage deed by erstwhile borrower was registered vide Registration No.2211 dated 20.03.2010 before the Office of SubRegistrar, Sabarkantha at Himmatnagar. In absence of any affidavit filed by the Sales Tax Officer specifying the details of any order, the only material about the assessment order, which has emerged on record is the reference of date 26.05.2016 as reflected in column of second rights in village form no. 7-12 produced at page no. 123. Notably, the mortgage deed was executed by the erstwhile borrower on 20.03.2010, proceedings under Section 14 of the SARFAESI Act had got concluded pursuant to the order darted 19.02.2015 passed by the learned District Magistrate, Sabarkantha at Himmatnagar and the registered deed of assignment came to be executed in favour of petitioner company on 07.02.2017. 15. In view of the aforesaid discussions, we have no hesitation in coming to the conclusion that first priority of charge over the secured assets shall be of the bank and not of the State Government as contended by referring to Section 48 of the VAT Act, 2003. It is her ..... X X X X Extracts X X X X X X X X Extracts X X X X
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