TMI Blog2023 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the plain reading of section 48 of the VAT Act indicates that it starts with nonobstante clause and this provision creates first charge on the property. The issue as regards the claim of the property of the secured creditors vis-a-vis the first charge of the property under the State legislation was considered by the Apex Court in the case of CENTRAL BANK OF INDIA VERSUS STATE OF KERALA AND OTHERS [ 2009 (2) TMI 451 - SUPREME COURT] , 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be pleased to issue a writ of mandamus and/pr a writ in the nature of mandamus and/pr any other appropriate writ, order or direction commanding the mamlatdar, Vatva, Ahmedabad, to post and certify a mutation entry to record the Certificate of Sale dated 15.03.2021 ( bearing registration no.4498) for the land in question. (C) During the pendency and final disposal of the present petition YOUR LORDSHIPS may be pleased to direct the respondent authorities to restrain from taking any coercive steps pursuant to charge created under the Act on property located at R.S.no.277, Village: Kamod, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued 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 under the Security Rules. The sale certificate was registered in favour of the petitioners vide sale deed, certificate registration deed dated 15.03.2021. 6. As averred in the petition, to the utter shock and surprise of the petitioners before the sale certificate could be registered in favour of the petitioners, the respondent , vide letter dated 29.10.2021, addressed to jurisdictional revenue officer, stating that since the owner of the land in question owes Rs.17,66,95,879/- towards tax and other dues under the VAT Act and despite issuing notice under sections 152 and 200 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- 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 under section 152 of the Gujarat Land Revenue Code at its residential house for recovering the arrears of dues for the period from Assessment Year 2012 to 2017. The wife of the proprietor of M/s.Manan Auto Spares received notice. However, the same was not reverted to. 13. Intimation was sent by the respondent to the office of Mamlatdar, Vatva on 29.102.2012 to create charge upon the land in question for protection of Government revenue. The Kachha Entry No.2374 in Vilalge Form No.6 of the land in question was made. Mamlatdar issued notice under section 135D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assets over which security interest is created, would have the priority over all Government debts and dues including revenue and tax dues to the State Government. 17. Section 26E of the SARFAESI Act starts with a non-obstante clause and thus it overrides section 48 of the Gujarat VAT Act. The Bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under RDB Act. Section 31B of the RDB Act being a substantive provision gives priority to the secured creditor and the same would be applicable regardless of the procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 in point of time and also the effect of section 31B of the RDB Act, the Court considered in detail necessity for introduction of these two provisions in two enactments. 21. This Court in the case Reliance Asset Reconstruction Company Limited vs. State of Gujarat passed in Special Civil Application No. 2964 of 2021 on 23.12.2021 held and observed as under: 11. So far as the issue of priority of charge over the subject properties in terms of Section 48 of the VAT Act as against the provisions of Section 26E of the SARFAESI Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Sub-section (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under subsection (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. 116. The non obstante clauses cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 its earlier decision in the case of CST vs. Radhakishan, (1979) 43 STC 4 : AIR 1979 SC 1588. 48. In the case of Stock Exchange, Bombay v. V.S.Kandalgaonkar, reported in (2014)51 taxmann.com 246 (SC), it was held by the Bombay High Court that, By virtue of lien on securities under rule 43 of Bombay Stock Exchange Rules, BSE being secured creditor of defaulting member would have priority over dues of Income tax department. While dealing with the tax recovery under Section 226 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 statutory charge which is created by the State enactment. The Bombay High Court was dealing with a matter under the Income Tax Act and under the Income Tax Act, there is no provision analogous to Section 48 of the VAT Act which creates a statutory charge. 50. There is one another important argument of Mr. Sheth which is quite appealing and we are at one with Mr. Sheth on the same. Indisputably, the Bank put forward its claim over the secured assets of the Bank for the first time on 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein '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 General Manager Prem Narayan Sharma vs. State of Gujarat Ors., Special Civil Application No.12995 of 2018, decided on 16.09.2019 . We may quote the relevant observations made in the said judgment. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 hereby declared that the petitioner being secured creditor has first charge over the suit properties by virtue of Section 26E of the SARFAESI Act, 2002, which overrides the charge of the respondent Authorities as contended in terms of Section 48 of the Gujarat Sales Tax Act. 22. Resultantly, the petition stands allowed deleting and removing noting of all the charges and encumbrance created under the Act on land located at Revenue Survey No.277, Vil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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