TMI Blog2008 (12) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of Mortgage executed on 22-12-1986. Indisputably, the mortgage created under the said document is governed by the provisions of the 1951 Act. It also owed a sum of Rs.19,00,000/- by way of Central Excise duty for the period April 1983 to May 1988. Assessment of central excise duty for the said sum was confirmed. 4. Indisputably the provisions of Sections 27, 29, 30, 31, 32A to 32F, 41 and 41A of the 1951 Act have been extended in favour of the respondent by the Government of India in exercise of its power conferred upon it under sub-section (1) of Section 46 of the said Act by issuing an appropriate notification. 5. Respondent No. 2 having committed defaults in repayment of the principal amount of loan as also the interest accrued thereon, the first respondent invoked Section 29 of the 1951 Act by issuing notice to take possession of the said securities. Actual physical possession of the mortgaged assets was taken over. Respondent No. 2, however, continued to commit defaults as a result whereof the first respondent recalled the entire amount of loan wherefor a notice dated 19-3-1996 was served. 6. Respondent No. 2 owed a sum of Rs. 48,08,242/- to the appellant. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon precedence of such loan, it is thus clear that security of the Corporation being prior in point of time, it being in the nature of mortgage of priority, the dues claimed by Corporation will have priority over the dues of Customs." 8. Ms. Sunita Rao, learned counsel appearing on behalf of the appellant, would submit that the crown debt and, in particular, arrears of tax will have a priority over all other debts and in that view of the matter, the impugned judgment is wholly unsustainable. Strong reliance has been placed in this behalf upon a decision of this Court in Macson Marbles Pvt. Ltd. v. Union of India [2003 (158) E.L.T. 424 (S.C.)]. 9. Mr. Shekhar Naphade, learned senior counsel appearing on behalf of the respondent, on the other hand, submitted that principle that a crown debt prevails over other debts is confined only to the unsecured ones as secured debts will always prevail over a crown debt. Our attention in this behalf has been drawn to the non obstante clause contained in Section 56 of the 1951 Act. It was furthermore contended that for the self-same reason Section 529A in the Companies Act was inserted in terms by way of special provisions creating c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question the amount specified as if it were an arrear of land revenue, held: "Section 46(2) does not deal with the doctrine of the priority of Crown debts at all; it merely provides for the recovery of the arrears of tax due from an assessee as it were an arrear of land revenue. This provision cannot be said to convert arrears of tax into arrears of land revenue either; all that it purports to do is to indicate that after receiving the certificate from the Income-tax Officer, the Collector has to proceed to recover the arrears in question as if the said arrears were arrears of land revenue. We have already seen that other alternative remedies for the recovery of arrears of land revenue are prescribed by sub-section (3) and (5) of section 46. In making a provision for recovery of arrears of tax, it cannot be said that section 46 deals with or provides for the principal of priority of tax dues at all; and so, it is impossible to accede to the argument that section 46 in terms displaces the application of the said doctrine in the present proceedings." {See also Superintendent and Remembrancer of Legal Affairs, West Bengal v. Corporation of Calcutta [AIR 1967 SC 997]} 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force" within the meaning of Article 372(1) of Constitution," It was, furthermore, observed: "10. However, the Crown's preferential 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 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims of the Cane Commissioner and that of the workmen." 19. This Court also in State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation Ors. [(1995) 2 SCC 19], stated the law thus: "6. The claim of the Commercial Taxes Officer, Bharatpur rests on the provisions of Section 11-AAAA of the Rajasthan Sales Tax Act, 1954. Section 11-AAAA has been introduced in the Rajasthan Sales Tax Act, 1954 by way of an amendment in 1989. Section l1-AAAA is as follows: "11-AAAA. 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, penalty, interest and any other sum, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person." Under this section the amount of sales tax or any other sum due and payable by a dealer or any other person under the Rajasthan Sales Tax Act, 1954, is a first charge on the property of the dealer or of such person. it is on account of the provisions of this section that the Commercial Taxes Officer claimed priority for the recovery of the sales tax dues from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a property; (iv) where a "salvage lien" is created i.e. where lien is created for moneys advanced for the purposes of saving the property from destruction or forfeiture. The salvage lien is confined in English law to maritime lien." 22. Strong reliance, however, has been placed by Ms. Sunita Rao on Union of India v. Somasundram Mills (P) Ltd. Anr. [(1985) 2 SCC 40] wherein this Court while construing the provisions of sub-section (2) and (3) of Section 73 of the code of Civil Procedure, held as under: "It is a general principle of law that debts due to the State are entitled to priority over all other debts. If a decree holder brings a judgment-debtor's property to sale and the sale proceeds are lying in deposit in court, the State may, even without prior attachment exercise its right to priority by making an application to the executing court for payment out. If however, the State does not choose to apply to the court for payment of its dues from the amount lying in deposit in the court but allows the amount to be taken away by some other attaching decree holder, the State cannot thereafter make an application for payment of its dues from the sale proceeds since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of this Act or of the rules made thereunder, including the amount required to be paid to the credit of the Central Government under section 11D the officer empowered by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) to levy such duty or require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or tinder his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and sent it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein, as if it were an arrear of land revenue. Provided that where the person (hereinafter referred to as predecessor) from whom the duty or any other sums of any kind, as specified in this section, is reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (4) of Section 29, proceeds of the sale will be held in trust by the Financial Corporation and appropriated towards the discharge of the debt due to it after first applying the proceeds in payment of cost charges and expenses incurred and the balance to be paid to the person entitled and having regard to the doctrine of Crown debt, the auction purchaser must satisfy it. 30. The Orissa High Court failed to notice the binding precedent of this Court in Dena Bank in its proper perspective. We are concerned here with the respective rights of a secured creditor and unsecured creditor over a property. If the finding of the Orissa High Court is correct, there was no necessity for the State Legislatures or the Parliament to amend laws incorporating provisions to create first charge over the properties of the debtor. The High Court failed to notice Article 372 of the Constitution as also the well settled principles of law that a statutory provision shall prevail over the Crown debt. 31. Furthermore, the right of a State Financial Corporation is a statutory one. The Act contains a non obstante clause in Section 46B of the Act which reads as under "Section 46B. Effect of Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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