TMI Blog2023 (12) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... r its Act. In such circumstances, when both the parties are standing on the same footing and when there are no provisions of 1st charge to Customs Department then it ought to be seen which proceedings is first. A similar issue was considered by the High Court of Andhra Pradesh and Telangana in the case of ICICI Bank Limited Vs. Tax Recovery Officer [ 2019 (3) TMI 701 - TELANGANA AND ANDHRA PRADESH HIGH COURT ]. The challenge in the said judgment is an attachment order 14.03.2018, issued by the Tax Recovery Officer under Rule 48 of second schedule. After considering section 281 and rule 48, the Court has elaborately dealt with the issue and has held that there is no provision in the Income Tax Act by which a first charge is created automatically on the properties of the assesses. And also held it is now well settled that wherever the statute does not create a first charge over the property, the crown's debt does not take precedents over the claim of the secured creditor - In the present case also, there is no provisions in the Customs Act creating 1st charge on the property of the defaulter and the above judgment is applicable to the present case. Admittedly the bank had e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Currency Loans. The said M/s.Pillaiyar Pattiyar Textiles defaulted repayment of loan, hence, the M/s.IFCL Limited initiated proceedings under SARFAESI Act. The mortgaged immovable properties were put up for sale under public notice. The petitioner had offered highest bid price and hence, the sale was concluded in favour of the petitioner, sale certificate was issued acknowledging the receipt and handed over the delivery and possession of the same. The sale deed was executed on 09.06.2010 and registered in Document No.3605 of 2010 with Sub-Registrar, Tiruppattur. The sale certificate clearly mentioned that the sale was made free from all encumbrances. The petitioner has also verified the records available with Sub Registrar Office to find out whether there were any encumbrance or attachment in the encumbrance certificate. No such encumbrance or attachment are shown. Consequent to the sale, the petitioner had become absolute owner of the subject properties. The petitioner as a part of reorganization recently demerged its substantial undertaking along with some portion of subject immovable properties and vesting thereof into M/s. Parampara Spinning Mills Private Limited in terms of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the impugned order was passed without application of mind. Also, by not following the procedures stipulated under the statute and the rules, hence, the petitioner is before this Court. 4. The Assistant Commissioner of Customs, being the appropriate authority had filed counter in W.P.(MD)No. 10114 of 2021 and also in W.P. (MD)No.14488 of 2023, stating that M/s.Pillaiyar Pattiyar Textiles (6th respondent in W.P.(MD)No.10114 of 2021) was originally known as M/s. Square (D) Textiles Exports Limited, Thirupathur. M/s.Square (D) Textiles Exports Limited was owing certain dues towards Custom Duty to the Central Government way back in the year 2004 to the tune of Rs. 31,96,483/- and which has now accumulated to Rs. 76,49,629/- due to interest component. In order to recover the dues, from the said M/s.Square (D) Textiles Exports Limited, the 4th respondent requested the 1st respondent Sub Registrar to notify in the property records about the dues to the Central Government. It is learnt that the 6th respondent owed certain amount to the financial institution IFCI (5th respondent) and since the 6th respondent had not repaid the same, the 5th respondent sold the property of the 6th respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr.N.Dilip Kumar, the Learned Standing Counsel for the 4th respondent in W.P.(MD).No.10112 of 2021 and Mr.K.Muraleedharan, the Learned Counsel appearing for the 5th respondent and perused the records placed before this Court. 7. The claim of the Customs Department is that the property was sold in the year 2010 only i.e. sale certificate dated 16.04.2010 and sale deed dated 09.07.2010. However, the attachment was prior to that i.e., in the year 2004 for which the Customs Department relied on the communication of Superintendent of Customs in O.C.No.668/2004, dated 01.11.2004, to the Sub Registrar, Thirupathur. Even though the customs authorities have intimated to the registering authority as early as 2004, there is no entry about the attachment in Register maintained by the Registration Department. Simply sending a letter to the Registration Department is not sufficient to state that the property is attached. Having sent such communication, it is incumbent on the Customs authorities to make sure that the entry of attachment is evident in the encumbrance register. When there is no such entry, the same cannot be considered as effective attachment. Since the purchaser would verify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld govern the rights of the parties in respect of even a lis pending. The Special Leave Petition is stated to be pending before the Apex Court and there is an order of Status Quo in SLP (Civil) No.20471 of 2021 dated 16.03.2018. In view thereof, the Full Bench Order of this Court would continue to bind/govern. b) Secondly, we would think the examination of the above question may be academic, in view of the fact that even if the recovery proceeding is set aside for any reason, the same may not serve any purpose. The claim of the Bankers/ Financial Institutions is admittedly still outstanding, hence it is open for the Bankers/ Financial Institutions on proceeding being set-aside to invoke Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act as it is applicable presently in any view. In similar circumstances, the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. [(2000) 5 SCC 694] while examining the question whether the State would have precedence to recover the tax dues over that of secured creditors after clarifying the position on the above issue, proceeded to examine the further content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank has right to declare the amount as outstanding and invoke the amended provision and claim priority over the outstanding amount of the bank. 9. Further, the petitioner is protected under the mortgage executed by the M/s.Pillaiyar Pattiyar Textiles with the financial institution, which is prior to the attachment order of the Customs Department. In order to ascertain whether the mortgage is prior to the attachment, this Court suo motu impleaded the IFCL Limited as 5th respondent in W.P.(MD)No.14488 of 2023. The Learned Counsel appearing for the IFCL, 5th respondent submitted that the memorandum of deposit of title deeds was entered on 31.07.1997 and therefore, the contract executed between the M/s.Pillaiyar Pattiyar Textiles and the financial institution is prior to the attachment. 10. The Learned Counsel appearing for the respondents submitted that the mortgage was executed by deposit of title deeds and the same was not registered. Whether such unregistered mortgage of deposit of title deeds can be considered as a valid mortgage? The mortgage of deposit of title deeds may be liable for registration, but the instrument written subsequently evidencing the agreement of dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt does not take precedents over the claim of the secured creditor. The relevant portion of the judgment is extracted hereunder: 31. But the mortgage was created by the 3rd respondent in favour of the petitioner-bank on 11-07-2011, much before the order of assessment was passed under Section 143(3) on 27-12-2011. In other words, the assessee was nowhere near the point of being declared as an assessee in default on the date of creation of the mortgage. Hence, the creation of the mortgage cannot be said to have automatically become void in terms of Section 281(1) merely because of the pendency of the proceedings under Section 143 and 142. It required something more to be done, but the same was not done in this case. As a matter of fact even an investigation under Rule 11 was not carried out in this case. Therefore, the order of attachment is clearly illegal. On the date on which the order of attachment was passed, the property had already been sold by the petitioner-bank, in exercise of the power conferred upon the bank under the Securitisation Act, 2002. 32. It is important to note one more aspect. Section 281(1), by its very nature operates only up to the stage of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration of the Rules of the Stock Exchange, on the security provided by a member, would have precedence over the dues to the Income Tax Department. After quoting with approval the decision of the Supreme Court in Dena Bank V. Bhikabhai Prabhudas Pareks Co. (2000 (5) SCC 694), the Supreme Court came to the conclusion that the Income Tax Act does not provide for any paramountcy of dues by way of income tax and that the Government dues have priority only over unsecured debts. In its decision in Stock Exchange, the Supreme Court went to the extent of holding that the lien possessed by the Stock Exchange made it a secured creditor and that irrespective of whether the lien was a statutory lien or a lien arising out of an agreement, the same made the holder of the lien a secured creditor, who would have priority over Government dues. 37. Therefore, in the light of the fact that the mortgage was created by the assessee much before a demand was made under Rule 2 and even before an order of assessment was passed and in the light of the fact that before the stage of issue of a certificate of recovery, the voidity under Section 281(1) is not automatic, the petitioner-bank deserves to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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