Indian Bank vs Commercial Tax Officer and Others

R. Banumathi, J.—The petitioner-bank has filed this writ petition to issue certiorarified mandamus to quash Tamil Nadu Government Gazette No. 1 dated January 5, 2007 (Vellore District) and consequential order bearing No. NK A3/2310/2002 dated March 16, 2007 and quash the same in so far as it relates to the property situate at Plot No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet and to direct the first respondent to stop further proceedings for recovery of any arrears of sales tax payable by Tajura Leathers-second respondent from out of the sale proceeds which have been appropriated by the petitioner-bank.

Facts in a nutshell are as follows:

(i) Second respondent, a partnership concern, has availed various credit facilities from the petitioner-bank. As a security for the due repayment of the loan, the second respondent offered its immovable properties- [1] (i) Plot No. 97, SIDCO Industrial Estate, (ii) Muku-ntharayapuram-2548 sq. ft. S. No. 476/5B and [2] S. Nos. 114/4 and 114/5 situated at Manthangal village, Ranipet Town as its security by availing equitable mortgage apart from the hypothecation of plant and machinery. In addition to the above, three immovable properties of the guarantors were also mortgaged with the bank. As the company and its guarantors/mortgagors failed to repay the dues and committed default, the petitioner filed O.A. No. 1275/99 before D.R.T. Chennai for recovery of Rs. 43,20,860 as on December 10, 1999. The said O.A. is said to be still pending before DRT, Chennai.

(ii) As there was enormous delay in recovery of the dues, even through DRT, after the implementation of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "SARFAESI Act"), bank issued a notice dated August 1, 2005 u/s 13(2) of the said Act to the second respondent, its guarantors/mortgagors for the recovery of Rs. 89,36,269.25 together with interest from March 31, 2005 till payment in full.

(iii) Since there was a default in spite of the said notice, bank invoked the provisions of Section 13(4) of the Act and took possession of the properties on January 22, 2007 mortgaged to them and publication was effected. Possession was taken under due process of law.

(iv) Second respondent/guarantors/mortgagors did not take any steps to settle the dues of the bank, bank had issued sale notice and published the same in the newspaper on February 15, 2007. Sale took place on March 5, 2007. All the immovable properties mortgaged to the bank were sold in the public auction for a total sum of Rs. 62.91 lakhs. The bank had also issued sale certificate in favour of the auction purchaser. Similarly, the second respondent''s property comprised in S. No. 476/5B was also sold and registered in favour of a third party purchaser.

(v) Property purchased by the third respondent comprised in Plot No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet measuring to an extent of 19520 sq. ft. together with shed was sold on March 5, 2007 for Rs. 19.23 lakhs and the auction purchaser-third respondent remitted the money within the stipulated period and the sale certificate has been issued in its name.

(vi) By the impugned order bearing No. NK. A3.2310/2002 dated March 16, 2007, first respondent informed the petitioner that second respondent-company has committed default in payment of sales tax of a sum of Rs. 37,09,966 and therefore, they are invoking the provisions of Section 34(2) of the Tamil Nadu General Sales Tax Act, 1959 (for short, "the TNGST Act") and as the company had committed default, a sum of Rs. 37,09,966 from and out of the sale proceeds should be remitted to the first respondent as contemplated u/s 24(3) of the TNGST Act.

(vii) On January 5, 2007 in the Vellore District Gazette, Government had gazetted a notification about the attachment of the properties. By the impugned proceedings dated March 16, 2007, first respondent informed the petitioner that second respondent has committed default in payment of sales tax of a sum of Rs. 37,09,966 and therefore, they are invoking the provisions u/s 34 of the TNGST Act and as the company had committed default, a sum of Rs. 37,09,966 should be remitted to the first respondent as contemplated u/s 24(3) of the TNGST Act.

(viii) Case of the petitioner is that the action of the first respondent is contrary to law and the judgment laid down by the Supreme Court reported in Transcore Vs. Union of India (UOI) and Another, . The action of the first respondent attaching the property after bank had taken possession of the same on December 15, 2006 is not legally tenable and the first respondent ought to have seen that the mortgage in favour of the bank was created as early as on March 15, 1991 and secured creditor has a prior charge. It is the further case of the petitioner that only after adjustment of its dues, the excess balance, if any, can be claimed by the first respondent. According to the petitioner, bank having initiated action under SARFAESI Act will have priority and SARFAESI Act being a special enactment and a later enactment will have priority over and above the provisions of the TNGST Act. Challenging the G.O. No. 1 dated January 5, 2007, the petitioner has filed this writ petition to quash the same.

The first respondent-Commercial Tax Officer, has filed the counter stating that second respondent-firm had paid taxes only up to the year 1990-91, but failed to pay taxes due for the year 1991-92 and a sum of Rs. 37,09,966 is due. The second respondent had closed their business with effect from April 1, 1999 and the arrears of sales tax had not been paid. The second respondent''s concern had properties at No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet and for the above said arrears, notices were issued to the second respondent in forms I and IV on May 13, 2005. After issuing auction sale notices, sale notification proposing auction of the property of the defaulter was issued on March 22, 2007 and the same was also published in the Tamil Nadu Government Gazette No. 1 dated January 5, 2007. Meanwhile, it was found that the petitioner-bank had conducted auction sale of the property which was attached for arrears due to the Government to third respondent Surya Leather Depot. Therefore, first respondent issued communication dated March 16, 2007 demanding payment of arrears of tax of Rs. 37,09,966 and issuance of notice is in accordance with the provisions of the TNGST Act.

The third respondent-auction purchaser, has filed counter stating that auction under the SARFAESI Act was held on March 5, 2007 and amongst five bidders, the third respondent was declared as the successful bidder for a sum of Rs. 19.23 lakhs and third respondent has paid initial deposit of 25 per cent on the same day. According to the third respondent, possession of the property was given to them on March 16, 2007 and sale certificate dated March 16, 2007 was also issued in its favour. It is further averred that there were no encumbrances shown in the encumbrance certificate to show that the property was attached by the sales tax department. According to the third respondent, they are the bona fide purchaser of the property and not being aware of the attachment of the property.

Laying emphasis upon Section 35 of the SARFAESI Act and Transcore Vs. Union of India (UOI) and Another, , Mr. Jayesh B. Dolia, learned Counsel for the petitioner has contended that notwithstanding anything contained in any other law, provisions of Section 13(4) shall override the local law and the action initiated by the petitioner-bank under the SARFAESI Act will have priority over and above the provisions of the TNGST Act. The learned Counsel for the petitioner has further contended that crown debt cannot prevail over the secured creditor and that preferential right of crown would be subservient to the rights of a secured creditor and the right of the bank as a mortgagee will prevail upon.

Mr. Haja Nazirudeen, Special Government Pleader (Taxes), appearing for the respondent Nos. 1 and 2 has contended that as per Section 24(1) and (2) of the TNGST Act, in the event of default made by any dealer in respect of taxes assessed under the Act, the outstanding amount shall become immediately due and shall be a charge on the properties and any amount due under the Act shall have priority over all other claims against the properties of dealer. The learned Counsel for the first respondent further submitted that as per Section 24 of the TNGST Act, by operation of law a statutory charge has been created on the property and therefore, the SARFAESI Act can have no overriding effect over such statutory charge.

The learned Counsel for the third respondent has contended that after sale made under the SARFAESI Act and when sale certificate was issued, the auction purchaser takes the property free of all encumbrances, known or unknown to the creditor. Laying emphasis upon Section 35 of the Act and observations of Transcore Vs. Union of India (UOI) and Another, , learned Special Government Pleader (Taxes) further submitted that in view of non obstante clause, the sale under the SARFAESI Act will prevail. It was further argued that if sale made under the SARFAESI Act is subject to any other encumbrance, it would defeat the object and purpose of the Securitisation Act.

Reiterating the contention of bank, Mr. V. Suthakar, learned Counsel for the third respondent, further submitted that Crown''s right is always subject to the claim of secured debtor and any sale made under the Securitisation Act is free of all charges including the statutory charges.

In the light of the above contentions, the following questions arise for consideration:

(1) Whether the crown''s preferential right or a crown debt is subservient to the right of the secured creditor?

(2) Whether the sale made under the Securitisation Act is absolute and free of all encumbrances which are known and unknown to the secured creditor?

Even while O. A. No. 1275/1999 for recovery of Rs. 43,20,860 was pending before DRT, Chennai, after issuance of notice u/s 13(2) of the SARFAESI Act, bank invoked the provisions of Section 13(4) of the Act and said to have taken possession of the mortgaged properties. After advertising for sale, the property was sold on March 5, 2007. All the immovable properties mortgaged to the bank were sold in the public auction for a total sum of Rs. 62.91 lakhs. The subject-matter of dispute, i.e., Plot No. 97, SIDCO Industrial Estate, SIPCOT, Ranipet measuring an extent of 19,520 sq. ft. was sold for a sum of Rs. 19.23 lakhs to the highest bidder, the third respondent.

The question whether withdrawal of O.A. prior to taking recourse under the Securitisation Act is no more res integra. In Transcore Vs. Union of India (UOI) and Another, , the Supreme Court has held as under:

(13) ...The NPA Act is inspired by the provisions of the State Financial Corporations Act, 1951 (''the SFC Act''), in particular Sections 29 and 31 thereof. The NPA Act proceeds on the basis that the liability of the borrower to repay has crystallized; that the debt has become due and that on account of delay the account of the borrower has become sub-standard and non-performing. The object of the DRT Act as well as the NPA Act is recovery of debt by non-adjudicatory process. These two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of the secured creditor, he is given a right to choose one or more of the cumulative remedies. The object behind Section 13 of the NPA Act and Section 17 read with Section 19 of the DRT Act is the same, namely, recovery of debt. Conceptually, there is no inherent or implied inconsistency between the two remedies. Therefore, as stated above, the object behind the enactment of the NPA Act is to accelerate the process of recovery of debt and to remove deficiencies/obstacles in the way of realisation of debt under the DRT Act by the enactment of the NPA Act, 2002.

....

On reading Section 13(2), which is the heart of the controversy in the present case, one finds that if a borrower, who is under a liability to a secured creditor, makes any default in repayment of secured debt and his account in respect of such debt is classified as non-performing asset then the secured creditor may require the borrower by notice in writing to discharge his liabilities within sixty days from the date of the notice failing which the secured creditor shall be entitled to exercise all or any of the rights given in Section 13(4). On reading Section 13(2) it is clear that the said Sub-section proceeds on the basis that the borrower is already under a liability and further that, his account in the books of the bank or FI is classified as sub-standard, doubtful or a loss. The NPA Act comes into force only when both these conditions are satisfied. Section 13(2) proceeds on the basis that the debt has become due. It proceeds on the basis that the account of the borrower in the books of bank/FI, which is an asset of the bank/FI, has become non-performing. Therefore, there is no scope of any dispute regarding the liability. There is a difference between accrual of liability, determination of liability and liquidation of liability. Section 13(2) deals with liquidation of liability. Section 13 deals with enforcement of security interest, therefore, the remedies of enforcement of security interest under the NPA Act and the DRT Act are complementary to each other. There is no inherent or implied inconsistency between these two remedies under the two different Acts. Therefore, the doctrine of election has no application in this case....

The second respondent''s firm had paid taxes up to the year 1990-91, but failed to pay taxes due for the year 1991-92. Calling for accounts, by the order dated December 31, 2001, sales tax payable was assessed at Rs. 37,09,966. Assessment order and demand notice in form 54 were issued. Notice of final assessment in form "U", form B3, form N3 and form 54 were issued on the same day, December 31, 2001.

The learned Special Government Pleader (Taxes) has contended that by operation of law a statutory charge has been created and in view of the priority conferred on the liability arising under the Act, State is entitled to recover the statutory dues settled in preference to all other creditors whether secured or unsecured notwithstanding the existence of any right under mortgage anterior in point of time.

The learned Counsel for the petitioner-bank inter alia raised the following contentions:

There being a conflict u/s 24 of the TNGST Act and Section 35 of the Securitisation Act, Securitisation Act being a Central Act must prevail.

Even otherwise Securitisation Act being a later enactment having been enacted in the year 2002 must prevail over the TNGST Act, 1959.

Under Section 24 of the TNGST Act, State Government can claim priority only over the unsecured debts. But the bank being a secured creditor, bank has first and exclusive charge over the properties of the company and has priority over the sales tax dues.

The learned Counsel for the petitioner-bank placed reliance upon Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , Allahabad Bank Vs. Canara Bank and Another, , Transcore Vs. Union of India (UOI) and Another, , Asset Reconstruction Company (India) Limited Vs. The Official Liquidator, High Court as the liquidator of SIV Industries Ltd. (in liquidation), , Misons Leather Ltd. v. Canara Bank [2007] 139 Comp Cas 302 (Mad), Ramco Super Leathers Ltd. rep. by its Director v. UCO Bank, rep. by its Authorised Officer, IBB, Chennai [2007] 5 MLJ 986, Prestige Lights Ltd. v. State Bank of India [2007] 5 MLJ 1100 (SC) and Lakshmi Shankar Mills (P) Ltd. Kallai v. The Authorised Officer/Chief Manager, Indian Bank, Madurai [2008] 2 LW 381.

The learned Special Government Pleader (Taxes) would submit that Securitisation Act is an Act to regulate the securitisation and reconstruction of financial assets and enforcement of security interest. The learned Special Government Pleader further contended that two enactments deal with entirely different subjects and operate in different fields. According to him, there is no conflict in Section 24 of the TNGST Act and Section 35 of the Securitisation Act which is only a procedural enactment and the statutory charge will have priority over all other claims against the property.

In support of his contention, learned Special Government Pleader (Taxes) placed reliance upon State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation and Others, , Central Bank of India v. State of Tamil Nadu [1999] 113 STC 145 (Mad) , State of Tamil Nadu and Another Vs. M. Cauvery Ammal, , Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , The Thane Janata Sahakari Bank Ltd. Vs. The Commissioner of Sales Tax, Asstt. Commissioner of Sales Tax, The Office of the Assistant Commissioner (Assessment) and The State of Maharashtra, and Transcore Vs. Union of India (UOI) and Another, .

The learned Counsel for the petitioner-bank and third respondent contended that Section 35 of the SARFAESI Act gives overriding effect to the SARFAESI Act with all other laws, if other laws are inconsistent with the SARFAESI Act. The learned Counsel for the petitioner contended that as far as enforcement of security interest is concerned the SARFAESI Act is a special law which will override any other law and placed much reliance upon the decision Transcore Vs. Union of India (UOI) and Another, . Noting importance of Section 35 of the Act in Transcore Vs. Union of India (UOI) and Another, , the honourable Supreme Court has held as follows:

In our view, Section 17(4) shows that the secured creditor is free to take recourse to any of the measures u/s 13(4) notwithstanding anything contained in any other law for the time being in force, e.g., for the sake of argument, if in the given case the measures undertaken by the secured creditor u/s 13(4) come in conflict with, let us say the provision under the State land revenue law, then notwithstanding such conflict, the provision of Section 13(4) shall override the local law. This position also stands clarified by Section 35 of the NPA Act which states that the provisions of the NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 is also important from another angle. As stated above, the NPA Act is not inherently or impliedly inconsistent with the DRT Act in terms of remedies for enforcement of securities. Section 35 gives an overriding effect to the NPA Act with all other laws if such other laws are inconsistent with the NPA Act. As far as the present case is concerned, the remedies are complementary to each other and, therefore, the doctrine of election has no application to the present case.

A non obstante clause confers a power to the law, to the effect that if any law comes in the way of enforcing the provisions of the law, such other provisions of law cannot be given effect to. Ordinary rule of construction is that where there are two non obstante clauses, the latter shall prevail. But it is equally well-settled that ultimate conclusion would depend upon the limited context of the statute.

In Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd. [2006] 12 SCC 642, the Supreme Court considered the question whether provisions of the Arbitration and Conciliation Act, 1996 would prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Observing that the endeavour of the court would, however, always be to adopt a rule of harmonious construction, the Supreme Court has held as follows :

In Shri Sarwan Singh and Another Vs. Shri Kasturi Lal, , this court opined:

When two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration.

In ICICI Bank Ltd. Vs. Sidco Leathers Ltd. and Others, , the Supreme Court has held as follows :

The non obstante nature of a provision although may be of wide amplitude, the interpretative process thereof must be kept confined to the legislative policy. Only because the dues of the workmen and the debts due to the secured creditors are treated pari passu with each other, the same by itself, in our considered view, would not lead to the conclusion that the concept of inter se priorities amongst the secured creditors had thereby been intended to be given a total go-by.

A non obstante clause must be given effect to, to the extent Parliament intended and not beyond the same.

A In Maruti Udyog Ltd. Vs. Ram Lal and Others, while dealing with the non obstante clause in two statutes the Supreme Court has held that when both statutes containing non obstante clause are special statutes, an endeavour should be made to give effect to both of them. In case of conflict, the later shall prevail. There cannot be any doubt about the aforesaid legal position. In my considered view, there is no conflict in Section 35 of the Securitisation Act and Section 24 of the TNGST Act. There is no inconsistency and both provisions can be given effect to without any difficulty.

The learned Special Government Pleader (Taxes) has contended that Section 35 of the Act and the observation of the Transcore Vs. Union of India (UOI) and Another, are not applicable. His submission is that Section 24(1) and (2) of the TNGST Act gives precedence to the sales tax dues and such dues have priority over other charges.

The question falling for consideration is whether the SAFAESI Act will prevail upon the statutory charge created for the sales tax payable is the point for consideration. The point to be resolved is whether Section 35 of the Securitisation Act is inconsistent with Section 24(2) of the TNGST Act and consequentially whether Section 35 of the Securitisation Act would override Section 24 of the TNGST Act?

As held by the Supreme Court in Morgan Securities & Credit (P) Ltd.''s case [2006] 12 SCC 642, the endeavour of the court would, however, always be to adopt a rule of harmonious construction. Considering the object of Securitisation Act vis-a-vis Bombay Sales Tax Act and observing that two enactments operate in different fields and Section 38C of the Bombay Sales Tax Act is not overridden by Section 35 of the Securitisation Act, in Thane Janata Sahakari Bank Ltd. v. Commissioner of Sales Tax [2006] 148 STC 32, Division Bench of the Bombay High Court has held as under:

The Securitisation Act came into effect from December 17, 2002. Inter alia, the object for enactment of the said Act is to empower the banks and financial institutions in India to take possession of securities and sell them without pursuing the cumbersome legal remedy provided in the CPC or for that matter the special remedy provided under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The necessity of enactment of the Securitisation Act arose as the Legislature found that the legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. The Narasimhan Committee I and II and the Andhyaryjina Committee constituted by the Central Government for the purpose of examining banking sector reforms considered the need for changes in the legal system in respect of the said areas. These Committees suggested amongst others, enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. The recommendations of these Committees led to the enactment of the Securitisation Act.

Section 13 of the Securitisation Act provides for enforcement of the security interest by the secured creditor without the intervention of the court or the Debts Recovery Tribunal. It overrides Section 69 and 69A of the Transfer of Property Act, 1882, and empowers the secured creditor to enforce the security interest in accord with the procedure prescribed therein.

Section 35 of the Securitisation Act upon which much stress has been placed by Counsel for the bank provides that the provision of the Securitisation Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

Sections 13 and 35 of the Securitisation Act have non obstante clauses. By virtue of Section 13(1), the provisions contained in Section 69 and 69A of the Transfer of Property Act are overridden and any security interest created in favour of any secured creditor is capable of being enforced without the intervention of the court or Tribunal in accordance with the provisions of the Securitisation Act while Section 35 overrides other laws or instruments in the case of inconsistency....

....

The Bombay Sales Tax Act and the Securitisation Act have been enacted by competent Legislatures for different purposes and operate in different fields. The Bombay Sales Tax Act is enacted by the State Legislature under entry 45 of List II in the Seventh Schedule for levy of tax on the sale or purchase of certain goods in the State of Bombay (now the State of Maharashtra). On the other hand, the Securitisation Act has been enacted by Parliament under entry 45 of List I for regulating the securitisation and reconstruction of financial assets and for enforcement of security interest. There is neither any conflict in these two Acts nor Section 38C of the Bombay Sales Tax Act can be said to be inconsistent with Section 35 of the Securitisation Act. The area of operation is entirely different and there is no overlapping anywhere.

Section 35 of the Securitisation Act may have had some bearing, if there was some provision in the Securitisation Act for a first charge in favour of the banks and financial institutions. But neither Section 13 nor any other provision under the Securitisation Act makes a provision for first charge.

There being no provision in the Securitisation Act providing for first charge in favour of the banks, Section 35 of the Securitisation Act cannot be held to override Section 38C of the Bombay Sales Tax Act, 1959, that specifically provides that the liability under the said Act shall be the first charge. The overriding provision contained in Section 38C is only subject to the provision of first charge in the Central Act holding the field. The case of the bank is not covered by the expression, ''subject to any provision regarding first charge in any Central Act for the time being in force'' and that being the position, Section 38C is not overridden by Section 35 of the Securitisation Act.

As per the provisions of Section 24(1) of the TNGST Act, in the event of default made by any dealer in respect of the tax assessed under the Act within the time specified in the notice of assessment, the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the dealer. Further, u/s 24(2) of the TNGST Act any tax assessed and any amount due under the Act from a dealer shall have priority over all other claims against the property of the said dealer.

Section 24(1) and (2) of the TNGST Act read as follows:

Section 24. Payment and recovery of tax.- (1) Save as otherwise provided for in Sub-section (2) of Section 13, the tax assessed or has become payable under this Act from a dealer or person and any other amount due from him under this Act shall be paid in such manner and in such instalments, if any and within such time as may be specified in the notice of assessment, not being less than twenty-one days from the date of service of the notice. The tax under Sub-section (2) of Section 13 shall be paid without any notice of demand. In default of such payments the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or interest under this Act.

(2) Any tax assessed on or has become payable by, or any other amount due under this Act from a dealer or person and any fee due from him under this Act, shall, subject to the claim of the Government in respect of land revenue and the claim of the land development bank in regard to the property mortgaged to it u/s 28(2) of the Tamil Nadu Co-operative Land Development Banks Act, 1934 (Tamil Nadu Act X of 1934), have priority over all other claims against the property of the said dealer or person and the same may without prejudice to any other mode of collection be recovered....

Reading of Section 24(1) and (2) of the TNGST Act makes it clear that charge for liability under the TNGST Act shall have priority. The statutory charge created u/s 24 of the TNGST Act overrides anything contained in any contract which is contrary to Section 24. While Section 24(1) gives the tax dues only the status of a simple mortgage over the properties of the defaulter, Sub-section (2) gives these dues a priority over all other claims against that property except claims for land revenue and of land development bank.

In State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation [1995] 96 STC 612, the Supreme Court dealt with the question of first charge over the property of a dealer for payment of arrears of sales tax u/s 11AAAA of the Rajasthan Sales Tax Act, 1954 vis-a-vis Section 58 and Section 100 of the Transfer of Property Act. Section 11AAAA of the Rajasthan Sales Tax Act like Section 38C of the Bombay Sales Tax Act provides for the liability under the said Act to be first charge. Section 11AAAA reads, "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". The language of Section 11AAAA is a bit different from Section 38C of the Bombay Sales Tax Act.

However, the creation of first charge in favour of the bank being not under any Central Act, the decision of the Supreme Court in the case of State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation and Others, becomes relevant. In paragraphs 7 and 8 of the report, the Supreme Court observed thus:

It is, therefore, necessary to consider the effect of Section 11AAAA of the Rajasthan Sales Tax Act, 1954, on an existing mortgage in respect of the property of the dealer or the person liable to pay sales tax or other sums under the Rajasthan Sales Tax Act, 1954. Section 100 of the Transfer of Property Act deals with charges on an immovable property which can be created either by an act of parties or by operation of law. It provides that where immovable property of one person is made security for the payment of money to another, and the transaction does not amount to a mortgage, a charge is created on the property and all the provisions in the Transfer of Property Act which apply to a simple mortgage shall, so far as may be, apply to such charge. A mortgage on the other hand, is defined u/s 58 of the Transfer of Property Act as a transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced as set out therein. The distinction between a mortgage and a charge was considered by this court in the case of Dattatreya Shanker Mote and Others Vs. Anand Chintaman Datar and Others, . The court has observed (at pages 806-807) that a charge is a wider term as it includes also a mortgage, in that, every mortgage is a charge, but every charge is not a mortgage. The court has then considered the application of the second part of Section 100 of the Transfer of Property Act which, inter alia, deals with a charge not being enforceable against a bona fide transferee of the property for value without notice of the charge. It has held that the phrase ''transferee of property'' refers to the transferee of entire interest in the property and it does not cover the transfer of only an interest in the property by way of a mortgage.

In the present case, we have to consider whether the statutory first charge which is created u/s 11AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax and/or other dues under the Rajasthan Sales Tax Act, is created in respect of the entire interest in the property or only the mortgagor''s interest in the property when the dealer has created a mortgage on the property. In other words, will the statutory first charge have priority over an earlier mortgage. It was urged by Mr. Tarkunde, learned Counsel for the appellant-bank, that at the time when the statutory first charge came into existence, there was already a mortgage in respect of the same property. Therefore, the only property which was possessed by the dealer and/or person liable to pay tax or other dues under the Rajasthan Sales Tax Act, was equity of redemption in respect of that property. The first charge would operate, therefore, only on the equity of redemption. The arguments though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgage dues. This does not, however, mean that the property ceases to be the property of the mortgagor. The title to the property remains with the mortgagor. Therefore, when a statutory first charge is created on the property of the dealer, the property subjected to the first charge is the entire property of the dealer. The interest of the mortgagee is not excluded from the first charge. The first charge, therefore, which is created u/s 11AAAA of the Rajasthan Sales Tax Act will operate on the property as a whole and not only on the equity of redemption as urged by Mr. Tarkunde.

The Supreme Court with reference to first charge over the property of the dealer u/s 11AAAA of the Rajasthan Sales Tax Act, vis-a-vis earlier mortgage of the same property held that the statutory first charge has precedence over an existing mortgage. The Bombay Sales Tax Act provides for first charge in respect of the sales tax liability over the property of the dealer or the concerned person and that statutory first charge (in the absence of any other statutory first charge created in favour of the bank) has precedence over the bank''s charge based on contractual mortgage.

Observing that Section 24(2) and 26(6) of the TNGST Act sufficiently safeguard and also enable the State to enforce the recovery of taxes and other dues under the TNGST Act as the first statutory charge holder in supersession of even the claims of an existing mortgagee, in Central Bank of India v. State of Tamil Nadu [1999] 113 STC145 (Mad), a Division Bench of this court held as follows:

...Sections 24(2) and 26(6) as amended by Tamil Nadu Act 78 of 1986, sufficiently safeguard and also enable the State to enforce the recovery of the taxes and other dues under the Tamil Nadu General Sales Tax Act, 1959, as the first statutory charge holder in supersession of even the claims of an existing mortgagee, who claims to be a secured creditor too and the contentions to the contrary are devoid of merit and are hereby rejected....

....

...The decision reported in State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation and Others, , as also an earlier decision relied upon therein and reported in Dattatreya Shanker Mote and Others Vs. Anand Chintaman Datar and Others, in unmistakable terms declare also the position that there are vast differences between ''charge'' and ''mortgage'', and that when a first charge is created by operation of law over any property, that charge will have precedence over even an existing mortgage. As a matter of fact, Section 100 of the Transfer of Property Act, 1882, postulates and categorically envisages the creation of a charge by the ''operation of law'' and therefore, a law creating a charge by operation of such law cannot constitute any inconsistency of the said law creating the charge with the general law relating to transfer of property, necessitating the obtaining of any consent of the President under Article 254(2) of the Constitution of India....

In State of Tamil Nadu and Another Vs. M. Cauvery Ammal, , it was held that although the term "first charge" is not mentioned u/s 24 of the TNGST Act, 1959, it was clear that a statutory charge had been created and even prior to sale, the final order of assessment had been made by the competent authority and under the circumstances, the respondent was not entitled to the relief. Eventhough, the word "first charge" is not found in Section 24(2), language of Section 24(2) that sales tax dues will have priority over all other claims against those properties assumes significance.

Contending that crown has preferential right only as against the unsecured debts on behalf of the petitioner-bank and third respondent-auction purchaser much emphasis was laid upon in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, . In para 10 of the Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , the honourable Supreme Court observed as under:

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 [1832] 131 ER 563 : 9 Bing 128 it has been held that the Crown has no precedence over a pledgee of goods. In The Bank of Bihar Vs. The State of Bihar and Others, 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 the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., page 386) - ''It seems a Government debt in India is not entitled to precedence over a prior secured debt''.

Though in para 10 of the Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , the Supreme Court held as above, noticing that Karnataka sales tax will have precedence over any other debt, the demand or claim, the Supreme Court ultimately held that "State shall have preferential right to recover over the right of the appellant-bank."

In Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , the Supreme Court referred to Section 158 of the Karnataka Land Revenue Act which was extracted in para 12 of the judgment which reads as under:

Claim of State Government to have precedence over all others.-

(1) Claims of the State Government to any moneys recoverable under the provisions of this Chapter shall have precedence over any other debt, demand or claim whatsoever whether in respect of mortgage, judgment, decree, execution or attachment, or otherwise howsoever, against any land or the holder thereof.

(2) In all cases, the land revenue for the current revenue year, of land for agricultural purposes, if not otherwise discharged, shall be recoverable, in preference to all other claims, from the crop of such land.

Noticing Section 158 of the Karnataka Land Revenue Act, the Supreme Court has held that Section 158 not only gives statutory recognition to the doctrine of the State''s priority for recovery of debts, but it also extends its applicability over private debts forming the subject-matter of mortgage, judgment, decree, execution of attachment and the like. The Supreme Court has further held that effect of Section 158 is to accord a primacy to all the moneys recoverable under the Karnataka Land Revenue Act which will include sales tax arrears. In Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , the Supreme Court has ultimately held that State shall have preferential right to recover its dues over the right of the appellant-bank.

Much emphasis was laid upon the observation of the Supreme Court in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, . A case is a precedent and binding for what it explicity decides and no more. In U.P. State Electricity Board v. Pooran Chandra Pandey AIR 2007 SCW 6904 , the Supreme Court has held that decision is a precedent on its own facts. In para 10, the Supreme Court has only referred the text book [Law of Mortgage, (TLL, 7th Edn., P.386)]. Taking note of Section 158(c) of the Karnataka Land Revenue Act, the Supreme Court has held that State shall have preferential right over the rights of appellant-bank. In view of the conclusions of the Supreme Court in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , the observations in para 10 cannot be said to be a binding precedent.

Observing that the decision is a precedent on its own facts, in Uttaranchal Road Transport Corporation v. Mansaram Nainwal [2007] 1 LW 99, the Supreme Court has held as under:

The High Court unfortunately did not discuss the factual aspects and by merely placing reliance on an earlier decision of the court held that reinstatement was mandated. Reliance on the decisions without looking into the factual background of the case before it is clearly impermissible. A decision is a precedent on its own facts. Each case presents its own features. It is not everything said by a judge while giving judgment that constitutes a precedent. The only thing in a judge''s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. See The State of Orissa Vs. Sudhansu Sekhar Misra and Others, and Union of India (UOI) and Others Vs. Dhanwanti Devi and Others, .

In support of his contention that secured credit will prevail over crown debts, learned Counsel for the petitioner''s-bank placed reliance upon ICICI Bank Ltd., (formerly Bank of Madura Ltd.) Vs. The Official Liquidator, Liquidator of Vibrant Investments and Properties Ltd. (in liquidation), . In the said case, question involved was whether the claim of the petitioner will prevail over the claim of Income Tax department and Karnataka sales tax department. Referring to Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, , First Bench of this court held that the issue is no longer res integra in view of the decision of the Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, where in para 10, it was observed that the claim of a secured creditor will prevail over crown debts. Judgment in ICICI Bank Ltd., (formerly Bank of Madura Ltd.) Vs. The Official Liquidator, Liquidator of Vibrant Investments and Properties Ltd. (in liquidation), is a very short judgment and facts of which are not known. Noticing Section 158(c) of the Karnataka Land Revenue Act, in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co. and Others, the Supreme Court ultimately held that State shall have preferential right to recover its dues over the rights of appellant-bank. In such view of the matter, the decision in ICICI Bank Ltd., (formerly Bank of Madura Ltd.) Vs. The Official Liquidator, Liquidator of Vibrant Investments and Properties Ltd. (in liquidation), cannot be said to be a binding precedent.

Though the provision in pari materia with Section 158(c) of the Karnataka Land Revenue Act is not found in the Tamil Nadu Revenue Recovery Act, 1864, the language in Section 24(2) of the TNGST Act that arrears of sales tax dues will have priority over all other claims would clearly assert priority of statutory charge over other claims including the secured creditor. To my mind the words "priority over all other claims against those property" has far-reaching effect and the charge created for the sales tax dues will have priority over the debt payable to a bank.

In my considered view, there is no conflict between the provisions of the Tamil Nadu General Sales Tax Act and Securitisation Act. Both TNGST Act as well as Securitisation Act have been enacted by the competent Legislature for different purposes in different fields.

Apart from the statutory priority charge, in fact, first respondent has actually attached the property before ever the bank could initiate action under the Securitisation Act. As pointed out earlier, the tax payable for the assessment year 1991-92 has become charge which has priority. As per Section 24(2) of the TNGST Act arrears could be recovered:

(a) as land revenue; or

(b) on application to any Magistrate by such Magistrate as if it were a fine imposed by him.

After assessment order was passed on December 31, 2001, form B3 and notice of final assessment and demand were issued to the second respondent on December 31, 2001. Form N3 notice of final annual assessment and demand; form 54 notice of demand of penalty were also issued on December 31, 2001. Form I distraint order and form IV demand notice under the Revenue Recovery Act were issued to all partners of second respondent firm on May 13, 2005.

Section 27 of the Revenue Recovery Act deals with mode of attachment of property to be sold under the Revenue Recovery Act. Notice of attachment was also served on July 15, 2005. Then form V - Notice of attachment dated August 25, 2005 as contemplated u/s 27 of the Revenue Recovery Act was also served on August 1, 2006. Form 7 and form 7A notice of sale of land, i.e., No. 97 SIDCO Industrial Estate, SIPCOT, Ranipet were also served on August 1, 2006. Attachment and public auction were duly published in Vellore District Gazette on January 5, 2007 which amounts to constructive notice to all and the charge was created long ago in the manner as contemplated u/s 24(1) of the TNGST Act.

As noted earlier, property was attached and notice of sale of the land dated August 25, 2005 was served on August 1, 2006. Only at that stage, petitioner-bank had issued notice u/s 13(2) of the SARFAESI Act on August 1, 2005. Notice u/s 13(2) is akin to show-cause notice. Issuance of notice u/s 13(2) is based on the footing that the debtor is under liability and that crown in respect of such liability has become "sub-standard, doubtful or loss". On receipt of notice u/s 13(2) the borrower may make payment or might send his representation or objection and the secured creditor shall consider such representation or objection and the secured creditor shall communicate within one week on receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. Issuance of notice u/s 13(2) is akin to show-cause notice.

Issuance of notice u/s 13(2) is akin to show-cause notice. In case borrower fails to discharge his liability in full within the period specified, u/s 13(4) the secured creditor may take recourse to any one of the measures indicated u/s 13(4) to recover his secured debt. In the present case Section 13(4) possession notice was issued by the bank on December 15, 2006. By the time possession notice u/s 13(4) was issued property was already attached and the order of attachment and notice of sale was served on August 1, 2006 itself. Despite attachment and notice of sale of land for the outstanding sales tax dues having been served upon, in an illegal manner, bank has proceeded u/s 13 of the Securitisation Act and sold the property of second respondent-firm for recovery of its outstanding dues. The subsequent sale proceedings of the bank is illegal and unauthorised.

In an identical case, observing that the action of the bank is wholly illegal and unauthorised, in Thane Janata Sahakari Bank Ltd. v. Commissioner of Sales Tax [2006] 148 STC 32, Division Bench of the Bombay High Court has held as under (in paras 31 and 33 at page 48):

We, accordingly hold that Section 35 of the Securitisation Act has no effect whatsoever in the operation of Section 38C of the Bombay Sales Tax Act. Section 35 of the Securitisation Act does not override Section 38C of the Bombay Sales Tax Act and, therefore, based on Section 35 of the Securitisation Act, the bank does not get precedence or for that matter priority over the statutory first charge u/s 38C of the Bombay Sales Tax Act. Rather the statutory first charge u/s 38C of the Bombay Sales Tax Act has precedence over the bank''s charge based on contract.

....

It is not in dispute that before the process was initiated by the bank u/s 13 of the Act by issuance of notice dated December 20, 2004, the sales tax authorities had already attached the properties of the company for recovery of sales tax dues. Despite the recovery process for outstanding sales tax dues having been initiated by the sales tax authorities who had a first charge u/s 38C of the Bombay Sales Tax Act, the bank in grossly illegal manner proceeded u/s 13 of the Securitisation Act and sold the property of the company for recovery of its outstanding dues. The action of the bank is wholly illegal and unauthorised.

In State of Kerala Vs. Rajmohan Cashew (P) Ltd., , it was held that State has priority over banks holding a charge over properties of dealers, in the manner of recovery of debts due and the specific statutory charge created under the Kerala General Sales Tax Act, 1963, notwithstanding the equitable mortgages created by the defaulters in favour of banks prior to the liability in favour of the State.

In State Bank of Travancore v. Recovery Officer, Employees State Insurance Corporation [2007] 7 VST 469 (Ker), question arose whether recovery of debts due to banks and financial institutions would have precedence over the statutory charge for recovery of sales tax. Observing that there is no conflict between the provisions of the Kerala General Sales Tax Act, 1963 and Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Kerala High Court has held that the Recovery of Debts due to Banks and Financial Institutions Act, 1993 has been enacted for speedy recovery of amounts due to banks and financial institutions. The intention of enacting the Act was not to give any precedence to dues of banks and financial institutions, but to provide for expeditious adjudication and recovery of debts due to banks and financial institutions without following the cumbersome procedure of the civil courts. The purpose of the Act is not to create a statutory charge for banks or financial institutions.

The first respondent had sent communication to the Sub-registrar on March 2, 2007 to create encumbrance. Unmindful of encumbrance created and the publication of auction sale in the Gazette even as early as on January 5, 2007, the bank has proceeded u/s 13 of the SARFAESI Act and the action of the bank is clearly unauthorised.

Section 26(1) of the TNGST Act provides for an additional mode of recovery apart from the other modes of collection of statutory arrears by calling upon a person from whom money is due or may become due to the dealer or to any person who is liable to pay any amount due under the Act or to call upon any person who holds or may subsequently hold money for, or on account of the dealer, which has become liable to pay any amount, to pay to the assessing authority so much of the money as is sufficient to pay the amount due by the dealer. Accordingly, first respondent had sent the impugned letter to the bank informing the bank about the attachment of property and publication in the Gazette for recovery of sales tax arrears of Rs. 37,09,966. Since Government charge has priority over all other claims against the property, bank is burdened with the obligation of making payment to the Government and the bank cannot challenge the impugned proceedings of the first respondent.

The learned Counsel for the third respondent-auction purchaser contended that encumbrance certificate was obtained on February 5, 2007 and March 16, 2007 and there was no encumbrance to show the attachment of the property by sales tax department and the bank as secured creditor has sold the property to the third respondent and the third respondent being a bona fide purchaser, not being aware of the attachment of the property cannot be penalised. Third respondent also seeks an appropriate direction to register the document executed in its favour by the bank. The first respondent has communicated with Sub-registrar, Walaja by letter dated March 2, 2007 that Government has first charge and to create a charge. The third respondent is not right in contending that third respondent had no knowledge of attachment. When the attachment and the proposed auction was published in Vellore District Gazette on January 5, 2007, it amounts to constructive notice and the third respondent is not right in contending that he had no knowledge of attachment and the proposed auction sale.

Since, first respondent has statutory charge which is having priority over all other claims against the property, petitioner-bank cannot successfully challenge the impugned proceedings of the first respondent. Despite, recovery process for the outstanding sales tax dues, the action of the bank in proceeding under the SARFAESI Act is unauthorised and the petitioner-bank is not entitled to the reliefs sought for in the writ petition.

In the result, the writ petition is dismissed.