Gujarat High Court
Gujarat State Financial Corp vs State Of Gujarat on 18 June, 2021
Author: A. P. Thaker
Bench: A. P. Thaker
C/FA/1028/1998 JUDGMENT DATED: 18/06/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 1028 of 1998
FOR APPROVAL AND SIGNATURE:
HONOURABLE DR. JUSTICE A. P. THAKER
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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GUJARAT STATE FINANCIAL CORP.
Versus
STATE OF GUJARAT & 2 other(s)
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Appearance:
MR RD DAVE(264) for the Appellant(s) No. 1
MR. SOAHAM JOSHI, AGP (1) for the Defendant(s) No. 1,2,3
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CORAM:HONOURABLE DR. JUSTICE A. P. THAKER
Date : 18/06/2021
ORAL JUDGMENT
1. This is an Appeal filed under Section 96 of the Code of Civil Procedure by the original plaintiff being aggrieved and feeling dissatisfied with the judgment and decree dated 27.11.1997 passed in Civil Suit No. 4635 of Page 1 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 1989 by the City Civil Court at Ahmedabad.
2. The Appellant has contended that he is the original plaintiff who has filed the aforesaid Civil Suit for recovery of Rs.17,101/- along with interest at the rate of 12% per annum being an amount recovered by the defendant-respondent from auction sale of motor vehicle Truck Bearing No. GCT-4449 which was hypothecated by the original owner Abdul Rehman Abdulmalek with the Appellant-plaintiff for the security of loan advanced by the Appellant to him.
2.1 It is contended that the learned trial Court has tried the Suit and ultimately dismissed the Suit of the Appellant-plaintiff. It is the contention of the plaintiff- appellant that the learned trial Court has erred in not appreciating that the appellant has first charge by way of hypothecation of the Truck in question as it was offered as security for the due repayment of the loan advanced by the appellant-plaintiff to the original owner of the Truck namely Abdul Rehman Adbulmalek. According to it, the sale price due to auction is required Page 2 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 to be paid to the plaintiff-appellant as it is a secured creditor. It is contended that the trial Court has erred in facts and law in not deciding the Issue No.1 in favour of the appellant. It is contended that the defendants had knowledge about the hypothecation of the Truck as the entries were made in the R.T.O. Registration Book as well as in the record of the defendants and, therefore, the defendants very well knew of the charge of the appellant upon the Truck in question and as such the Appellant is entitled to recover the sale proceeds from the defendants.
2.2 It is the contention of the plaintiff-appellant that the trial Court ought to have appreciated that the dues of the defendants do not have precedent and / or priority over the dues of the appellant as the appellant is a secured creditor. It is also contended that the appellant is governed by the provisions of State Financial Corporation Act, 1951. It is contended that Section 46B of the State Financial Corporation Act, 1951 provides over-riding effect over all other Acts, Rules and Regulations which are contrary to the State Financial Page 3 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 Corporation Act, 1951 and, therefore also, the plaintiff- appellant is entitled to recover the sale proceeds from the defendants.
2.3 it is also contended that the lower Court ought to have appreciated that dues of the appellant can also be recovered as an arrear of land revenue by virtue of provisions of Gujarat Public Money (Recovery of Dues Act, 1979 and thereby under Section 137 of the Bombay Land Revenue Code recovery of arrears of land can be made. It is contended that the defendants have also invoked the same provisions of Section 137 of the Bombay Land Revenue Code for recovery of their dues as arrears of land revenue. It is contended that under the circumstances, the defendants cannot have priority over the sale proceeds of the hypothecated truck over the dues of the appellant as the appellant has first charge on the truck in question. According to the plaintiff- appellant, provisions of Section 137 of the Bombay Land Revenue Code is not available to the respondents for recovery of their dues considering the provisions of Bombay Motor Vehicles Tax Act. Page 4 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 2.4 It is also contended that the trial Court has failed to appreciate the facts that the charge of the appellant over the truck in question is not released by auction held by the defendants so long as the appellant is not paid sale proceeds and the charge continues on the truck in question. It is also contended that the trial Court has misread the provisions of Section 12 of the Bombay Vehicle Tax Act and the provisions of the Bomaby Land Revenue Code.
2.5 It is also contended that the trial Court has materially erred in holding that agreement between the appellant and original owner will not affect the right of respondents to recover taxes as its statutory liability. It is further contended that the trial Court failed to look at the provisions of the State Financial Corporation Act and the object stated therein for advances/ loans. It is further contended that the appellant is not merley a money lender like a private party, but it is a Bank which is a financial institution created under the Statute with definite object of industrial growth and development of the State. According to it, considering the provisions of Page 5 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 the State Financial Corporation Act read with Gujarat Public Money (Recovery of Dues) Act, the dues of the appellant have priority over the dues of the respondents. 2.6 It is also contended that the trial Court has failed to appreciate that merely because the objections were not submitted before the date of auction, the right of the appellant does not go away as the charge continues over the truck in question. It is also contended that the defendants have no right to auction the security of the appellant which was created by the original owner of the truck by hypothecation. It is also contended that the trial Court has committed serious error of facts in dismissing the Suit of the appellant. It is prayed by the appellant- plaintiff to set aside the impugned judgment of the City Civil Court and to pass appropriate decree in favour of the appellant-plaintiff.
3. The brief facts of the case is as under:
3.1 The plaintiff is the Financial Corporation established under the G.S.F.C. Act. It is the case of the plaintiff that the plaintiff Corporation had given the loan/ advances to Page 6 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 the tune of Rs. 51,000/- to one Abdul Rehman Adbulmajid Malek and while disbursing the aforesaid loan the owner Abdul Rehman Abdulmajid had hypothecated the vehicle (truck No. GTC 4449) with the plaintiff by way of security. The necessary entries regarding hypothecation charge of the plaintiff Corporation have been made in the Registration Book of the vehicle as well as in the R.T.O. records. It is the case of the plaintiff that said Abdul Rehman failed and/ or neglected to make th payment of the instalment and interest for which the amount of Rs.57,398/- was outstanding. It is the case of the plaintiff that when such vehicle is hypothecated and that for any other Government dues the said vehicle is sold by auction then the financial institution like the plaintiff will have first charge and according the plaintiff is having first.
Therefore, it is the case of the plaintiff that after discharging of the dues of the plaintiff remaining amount only can be claimed by other unsecured creditors. In other words, it is the case of the plaintiff that as the plaintiff Corporation is the secured creditor they have Page 7 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 first charge over the said amount. It is, therefore, the case of the plaintiff that though the plaintiff as secured creditor is having its first charge and entitled to the amount received by way of auction sale, the defendants have sold the said vehicle (truck bearing No. GTC 4449) by auction sale dated 27/10/84 and handed over the possession to the auction purchaser without informing or intimating to the plaintiff. Therefore, the plaintiff had given a legal notice through Advocate on 4-1-88 which has not been complied with. The plaintiff-Corporation has therefore again addressed a letter dated 8-7-88 which was replied by the defendant on 11-7-88 in a vague manner. Therefore, the statutory notice has been issued by the plaintiff dated 25-8-88 which has also not been complied with and therefore, the present suit. The statutory notice has been produced along with the list Ex.3 at Ex.27.
4. The defendants have resisted the Suit by fling its Written Statement at Ex.15. It is contended interalia that the suit is not maintainable. It is contended that the Page 8 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 defendant is not concerned with the loan or advances given by the plaintiff to Abdulrehman Abdulmajid Malek and hypothecation charge created in respect of the vehicle bearing No. GTC 4449. It is the case of the defendants that the defendants have in exercise of the statutory powers taken the action and for which though the objections were invited at the time of auction sale of the vehicle, no objections have been lodged. It is therefore contended that the suit is liable to be dismissed. The defendants have also produced the documents along with the list Ex.17 which included interalia the letter addressed to the Advocate of the plaintiff dated 30/9/88 at Ex.31, original order of auctionsale dated 7-11-87 and the sale certificate at Ex.33.
5. On the basis of the pleadings and rival contentions, the trial Court has framed following Issues at Exh.22:
1. Whether the plaintiff proves that the plaintiff had advanced a loan to one Abdulrehman Mahera for purchase of the truck and the same was hypothecated with the plaintiff as alleged?
2. Whether the plaintiff proves that the plaintiff is Page 9 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 entitled to recover Rs.17,101/- released from the auction sale of the said truck No. GTC 4449?
3. Whether the plaintiff proves that the plaintiff is having 1st charge and therefore the amount released from the auction sale by the defendant No.3, the plaintiff has preference or right to recover the amount as alleged?
4. What order and decree?
6. On the basis of the evidence on record, the trial Court has answered the Issues as under:
1. In the affirmative.
2. In the negative.
3. In the negative.
4. As per final order.
7. Heard Mr. R.D.Dave, learned advocate for the Appellant and Mr. Soaham Joshi, learned AGP for the respondents at length through video-conferencing.
8. The following points arise for determination of present Appeal:
1. Whether the trial Court hs committed serious error in facts and law in negativing the stand of the plaintiff that it is entitled to recover Page 10 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 Rs.17101/- which was released from the auction sale of the truck in question?
2. Whether the trial Court has committed serious error of facts and law in holding that the plaintiff has first charge or preference or right to recover the amount?
3. Whether the trial Court has committed serious error of facts and law in passing the impugned order and decree, dismissing the Suit?
9. My findings on the aforesaid points, for reasons given below, are as under:
1. In the negative.
2. In the negative.
3. As per final order.
REASONS
10. Points No. 1 and 2: Since the facts and circumstances are inter-related to both these points, both are discussed together.
11. Shri R.D.Dave, learned advocate for the appellant has vehemently argued that the truck in question was hypothecated with the appellant herein as Appellant had advanced loan to the owner thereof. According to him, Page 11 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 the Corporation has prior right of recovery of his dues as truck was hypothecated with it and the Corporation is a secured creditor. He has submitted that during the period of outstanding amount and before the Corporation could recover the amount, the truck was seized by the R.T.O. charge for taxes and same was auctioned. Mr. Dave, learned advocate also submitted that the State Government ought to have prepaid the amount to the Corporation as the Corporation is a secured creditor. It is also submitted that the Corporation had sent Notice but State Government has not complied with it. While referring to the pleadings of the parties and the issues raised therein, he has submitted that considering the provisions of the State Financial Corporations Act, 1951, the Corporation being secured creditor has priority over the Government dues or tax. While referring to the Bombay Land Act and the Motor Vehicle Tax Act, he has submitted that the learned trial Court has committed serious error of facts of law in dismissing the Suit against the plaintiff- appellant. While relying upon the following decisions, he has prayed to Page 12 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 set-aside the impugned judgment and order of the trial Court and to pass decree in favour of the plaintiff- appellant. He has relied on the following decisions:
(1) Baroda City Co-operative Bank Ltd. v.
(The) State of Gujarat and Ors, reported in 2010 (2) G.L.H 525;
(2) Asset Reconstruction Company (India)
Ltd. v. Commissioner of Income Tax
Range- 4 & Ors, reported in 2012 (1) GLR
214.
12. Per contra, Mr. Soaham Joshi, learned AGP has supported the impugned judgment and decree of the trial Court. He has submitted that as per the Gujarat Public Moneys (Recovery of Dues) Act, 1979, the Corporation has no priority over the dues. He has also submitted that the Government has the priority over the arrears of taxes and, therefore, observation made by the trial Court in regard to the priority of the State Government is a proper one. He has also submitted that the vehicle was seized by the R.T.O and due procedure was adopted before the auction of the truck and in the Page 13 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 said proceedings, the plaintiff-appellant was informed and yet they did not chose to remain present. Learned AGP further submitted that before the auction, a public notice was issued, but the plaintiff-appellant did not chose to file any objection thereof. He has submitted that after publishing such notice, the vehicle was auctioned and, therefore, the stand of the plaintiff-
appellant is not sustainable. He has also submitted that the Corporation has other options to recover its dues. As per the Motor Vehicle Act, the government has power to auction the same for recovery of tax. He has also submitted that the plaintiff-appellant did not seized the vehicle and, therefore, it has waived its right. He has submitted that the Motor Vehicle Act is a Central Act and there is Gujarat Vehicle Rules which provides that the government should have first charge/ priority over the tax and it can sold the vehicle and tax can be recovered. He has referred to the Gujarat Vehicles Tax Act (Section 12A to 12C). By relying upon the following decisions, he has submitted that since there is no illegality committed by the trial Court, the present Appeal be dismissed with Page 14 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 costs. He has relied on the following decisions:
(1) Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. And Others, reported in (2000) 5 SCC 694;
(2) Central Bank of India v. State of Kerala and Others, reported in (2009) 4 SCC 94;
(3) Employees' Provident Fund Commissioner v.
O.L. Of Esskay Pharmaceuticals Ltd, reported in 2011 (5) GLR 3739;
(4) Swiss Ribbons Private Limited and Another v. Union of India and others, reported in (2019) 4 SCC 17;
13. In rejoinder, Mr. Dave, learned advocate for the appellant has submitted that the submissions made on behalf of State Government by the learned AGP is not sustainable in the eyes of law and as there is no such provision made in the Motor Vehicles Act, 1988 regarding prior charge of the State Government, he has submitted that the exercise undertaken by the State Government in auctioning the vehicle in question, is not under the Motor Vehicles Act. He has also stated that the State Financial Corporations Act, 1951 is a Central Act Page 15 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 whereas Motor Vehicles Rules made by the State Government is a State Rules. According to him, the Gujarat Public Moneys (Recovery of Dues) Act, 1979 is only procedural law whereas under Section 29 the State Financial Corporations Act, 1951 has priority over the right of the government to recover the said tax. According to him, Section 45 of the State Financial Corporations Act, 1951 provides an over-riding effect. He further submtted that the Gujarat State Financial Corporation has priority as its secured creditor.
14. In the case of Baroda City Co-operative Bank Ltd. v. (The) State of Gujarat and Ors (Supra), wherein after referring various judgments, the Division Bench has held in Paras-16, 17 and 18, as under:
"16. From the judgments referred to above, it will be evident that:
2. The arrears of tax due to the State can claim priority over the unsecured debt.
3. If first charge by way of priority is not claimed under the statute, the said doctrine is not applicable.
4. Normally, the doctrine of first charge/priority of State will prevail over the private debt which is an unsecured debt.
5. In normal course, the doctrine of first charge/priority cannot prevail over secured debts, but if first charge of the State is over the secured debts, both debts being equal, the State can claim priority even over the secured debts, and
6. The secured debts under the Securitisation Act or debt under the R.D.D.B. Act has no first charge, and Page 16 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 thereby, cannot compete with first charge/priority claim of the State if made under the statute.
17. Taking into consideration the aforesaid provisions of law, judgments rendered by the Courts and the observations made by us in the preceding Paragraphs, we will have to decide in this case whether the State can recover its dues of tax under Section 47A of the Gujarat Sales Tax Act, 1969 and the dues of the workmen under Section 33C of the Industrial Disputes Act, 1947, as arrears of land revenue under Section 137 of the B.L.R. Code.
18. In the present case, as we have noticed that Section 137 has been declared void, we hold that the State Government cannot recover the dues under Section 137 of the B.L.R. Code".
15. In the case of Asset Reconstruction Company (India) Ltd. v. Commissioner of Income Tax Range- 4 & Ors (Supra), wherein aforesaid decision in case of Baroda City Co-operative Bank Ltd. v. (The) State of Gujarat and Ors, reported in 2010 (2) G.L.H 525 has been referred to in Para-10, which reads as under:
"10. Before we deal with the main contention as regards Section 281 of the Income Tax Act, which is the only contention probably needs to be dealt with, we may reiterate the position of law so far as priority of dues of the Government is concerned over the debts of the Banks, which have been secured by the borrower by creating mortgage. The question relating to priority of dues of the Government fell for consideration before the Supreme Court and other High Courts from time to time. Taking into consideration the different decisions of the Supreme Court, a Division Bench of this Court in the case of Baroda City Co- operative Bank Limited Vs. State of Gujarat, reported in 2010 (3) GLR 2132 : 2010 (2) GLH 525, held as under:
"16. From the judgments referred to above, it will be evident that
(a) The arrears of tax due to the State can claim priority over the unsecured debt.
(b)If first charge by way of priority is not claimed Page 17 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 under the statute, the said doctrine is not applicable.
(c) Normally, the doctrine of first charge/priority of State will prevail over the private debt which is an unsecured debt.
(d) In normal course, the doctrine of first charge/priority cannot prevail over secured debts, but if first charge of the State is over the secured debts, both debts being equal, the State can claim priority even over the secured debts, and
(e) The secured debts under the Securitization Act or debt under the RDDB Act has no first charge and thereby cannot compete with first charge/priority claim of the State if made under the statute."
33. A specific question whether the Central Excise Department can claim priority over the secured debt of a secured creditor under the Central Excise Act, 1944 also fell for consideration before different High Courts and the Supreme Court. A Full Bench of the Madras High Court in the case of UTI Bank Ltd. vs. The Dy. Commissioner of Central Excise, Chennai II Division, reported in 2007 (1) Law Weekly, 50 while dealing with the Central Excise Act, 1944, the Customs Act, 1962 and the SARFAESI Act, 2002, considered whether the Crown's debts, for which there is no priority or charge is created under the statute, should have precedence over the secured creditors or not. Considering the facts of the said case that the UTI Bank had taken possession of the property under Section 13(4) of the SARFAESI Act and having noticed that there are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others. In absence of any such provision to claim first charge, the Government cannot claim precedence under the Central Excise Act over the claim of the secured creditor under the SARFAESI Act, 2002.
34. Similar question fell for consideration before the Supreme Court in the case of Union of India vs. Sicom Ltd., reported in (2009) 2 SCC 121. Having noticed the provisions of the Central Excise Act, 1944, the Supreme Court has rejected the claim of the Government to have first charge over the secured debt.
Page 18 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021
35. The same very issue also fell for consideration before a Division Bench of this Court in the case of Kotak Mahindra Bank vs. District Magistrate, reported in 2011 (1) GLR 18. In the said case, the proceeding under the Central Excise Act, 1944 was initiated on 24.2.1987 and 26.2.1991 when Rule 173Q(2) and Rule 211 of the Central Excise Rules, 1944 were in vogue. At the time the first order of confiscation was passed, the authority had jurisdiction under Rule 173Q(2) to confiscate the land, building, plant, machinery, etc.. The said order was set aside and remitted for de nova decision. The final order was passed on 25.2.2006, by this time both Rule 173Q(2) and Rule 211 stood omitted. Having noticed the different provisions of the Central Excise Act, 1944, Central Excise Rules, 1944 and the Central Excise Rules, 2001 including Rule 28 of the Central Excise Rules, 2001 which related to the property to be vested in the Central Government on confiscation, and different decisions of the High Courts and Supreme Court, this Court held that Excise and Customs department of the Central Government cannot claim any priority over the secured debt of a secured creditor as created under the SARFAESI Act." While considering the other decisions, the Court has also observed in para-11 as under:
"11. If under the law there is a first charge created with the State, even a secured creditor which has secured interest on the property, cannot claim any right, the State having first charge over such property. But in the present case such issues are not required to be determined in absence of any provision creating first charge over the property under the Income Tax Act. There is no such provision laid down under the Income Tax Act, under which, the Income Tax Department can claim priority over the secured creditor".
"If under the law there is a first charge created with the State, even a secured creditor which has secured interest on the property, cannot claim any right, the State having first charge over such property".Page 19 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022
C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 The Paras-19 and 20 of the said judgment reads as under:
"19. Thus, what can be deduced from the judgment of the Supreme Court in the case of Tax Recovery Officer-II, Sadar, Nagpur Vs. Gangadhar Vishwanath Ranade (supra) is that if the Department finds that a property of the assessee is transferred by him to a third party with the intention to defraud the Revenue, it will have to file a Suit under Rule 11(6) of the Second Schedule to the Income Tax Act to have the transfer declared void under Section 281 of the Act.
20. Therefore, it is difficult for us to accept this contention of the learned counsel for the Department that the charge or transfer by respondent No.2 in favour of the financial institutions can be said to be a void charge or transfer".
16. In case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. And Others (Supra), wherein the Hon'ble Apex Court has observed in Para-8 as under:
"The principle of priority of Government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of state debts rests on the well recognised principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues. (See M/s. Builders Supply Corporation, Supra). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372 (1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the States Page 20 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements Their Lordships have summed up the law as under :-
1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.
2. The common law doctrine about priority of crown debts which was recognised by Indian High Courts prior to 1950 constitutes law in force within the meaning of Article 372 (1) and continues to be in force.
3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues.
4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration.
17. In case of Central Bank of India v. State of Kerala and Others (Supra), wherein the Hon'ble Apex Court has held in Paras-103, 104, 105, 106 and 107 as under:
"103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting non obstante clause, the Court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. This rule of interpretation has been applied in several decisions.
104. In State of West Bengal v. Union of India [(1964) 1 SCR 371], it was observed that: (AIR p. 1265, para 68) "68. .....The Court must ascertain the intention of the Page 21 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 legislature by directing its attention not merely to the Clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law and the setting in which the clause to be interpreted occurs".
105. "16.... In Madhav Rao Jivaji Rao Scindia v. Union of India and another [(1971) 1 SCC 85] Hidayatullah, C.J. observed that the non obstante clause is no doubt a very potent clause intended to exclude every consideration arising from other provisions of the same statute or other statute but "for that reason alone we must determine the scope" of that provision strictly. When the section containing the said clause does not refer to any particular provisions which it intends to override but refers to the provisions of the statute generally, it is not permissible to hold that it excludes the whole Act and stands all alone by itself. A search has, therefore, to be made with a view to determining which provision answers the description and which does not".
106. In R.S. Raghunath v. State of Karnataka , a three- Judge Bench referred to the earlier judgments in Aswini Kumar Ghose v. Arabinda Bose, Dominion of India v. Shrinbai A. Irani, Union of India v. G.M. Kokil , Chandavarkar Sita Ratna Rao v. Ashalata S. Guram and and observed:
"11..........The non-obstante clause is appended to a provision with a view to give the enacting part of the provision an overriding effect in case of a conflict. But the non-obstante clause need not necessarily and always be co-extensive with the operative part so as to have the effect of cutting down the clear terms of an enactment and if the words of the enactment are clear and are capable of a clear interpretation on a plain and grammatical construction of the words the non- obstante clause cannot cut down the construction and restrict the scope of its operation. In such cases the non-obstante clause has to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the Special Rules."
107 In A.G. Varadarajulu v. State of Tamil Nadu [(1998) 4 SCC 231], this Court relied on Aswini Kumar Ghose's case. The Court while interpreting non obstante clause contained in Section 21-A of Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961 held :-
Page 22 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022
C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 "16. It is well settled that while dealing with a non obstante clause under which the legislature wants to give overriding effect to a section, the court must try to find out the extent to which the legislature had intended to give one provision overriding effect over another provision. Such intention of the legislature in this behalf is to be gathered from the enacting part of the section. In Aswini Kumar Ghose v. Arabinda Bose Patanjali Sastri, J. observed:
"27. .....The enacting part of a statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously;"
In this Judgment, decision in case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. And Others (supra) has been referred to in Para-119, which reads as under:
"119. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and others [(2000) 5 SCC 694], the Court reviewed case law on the subject and observed:
"8. The principle of priority of government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognised principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builders Supply Corpn.). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the Page 23 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements their Lordships have summed up the law as under:
1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.
2. The common law doctrine about priority of Crown debts which was recognised by Indian High Courts prior to 1950 constitutes "law in force" within the meaning of Article 372(1) and continues to be in force.
3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues.
4. The doctrine may not apply in respect of debts due to he State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration."
18. In case of Employees' Provident Fund Commissioner v. O.L. Of Esskay Pharmaceuticals Ltd (Supra), the Hon'ble Apex Court has held in Paras, 36, 38 and 40, as under:
"36. The argument of Shri Gaurav Agrawal that the non obstante clause contained in the subsequent legislation, i.e. Section 529A(1) of the Companies Act should prevail over similar clause contained in an earlier legislation, i.e. Section Page 24 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 11(2) of the EPF Act sounds attractive, but if the two provisions are read in the light of the objects sought to be achieved by the legislature by enacting the same, it is not possible to agree with the learned counsel. As noted earlier, the object of the amendment made in the EPF Act by Act No.40 of 1973 was to treat the dues payable by the employer as first charge on the assets of the establishment and to ensure that the same are recovered in priority to other debts. As against this, the amendments made in the Companies Act in 1985 are intended to create a charge pari passu in favour of the workmen on every security available to the secured creditors of the company for recovery of their debts. There is nothing in the language of Section 529A which may give an indication that legislature wanted to create first charge in respect of the workmen's dues, as defined in Sections 529(3)(b) and 529A and debts due to the secured creditors.
38. Another rule of interpretation of Statutes is that if two special enactments contain provisions which give overriding effect to the provisions contained therein, then the Court is required to consider the purpose and the policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions.
40. In Kumaon Motor Owners' Union Ltd. v. State of Uttar Pradesh (1966) 2 SCR 121, there was conflict between the provisions contained in Rule 131(2) (g) and (i) of the Defence of India Rules, 1962 and Chapter IV-A of the Motor Vehicles Act, 1939. Section 68-B gave overriding effect to the provisions of Chapter IV-A of the Motor Vehicles Act whereas Section 43 of the Defence of India Act, 1962, gave overriding effect to the provisions contained in the Defence of India Rules. This Court held that the Defence of India Act was later than the Motor Vehicles Act and, therefore, if there was anything repugnant, the provisions of the later Act should prevail. This Court also looked into object behind the two statutes, namely, Defence of India Act and Motor Vehicles Act and on that basis also it was held that the provisions contained in the Defence of India Rules would have an overriding effect over the provisions of the Motor Vehicles Act.
19. In case of Swiss Ribbons Private Limited and Another v. Union of India and others (Supra), wherein it is observed in Para-42, as under: Page 25 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022
C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 "42. A perusal of the definition of - financial creditor and -
financial debt makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an - operational debt would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority".
20. As reliance has been placed on the Gujarat Public Moneys (Recovery of Dues) Act, 1979 by the learned advocate for the appellant, it is worthwhile to refer to the Statement of Object & Reasons of the enactment of the said Act by the State Government.
The Statement of Object and reason is as under:
"Commercial banks as well as State Financial institutions which play an important role in financing the weaker sections of the community for carrying on productive efforts are faced with the difficult problem of realising the money advanced to various persons in various areas. Recourse to ordinary course, takes considerable time. The State Government is embarking on a big way to increase employment by encouraging productive efforts in various fields in industry and agriculture. Naturally therefore, institutional financing requires to be mobilised speedily for the economic development of the State".
20.1 Thus, the aforesaid Act is meant for recovery of the amount which has been advanced to increase employment by encouraging productive efforts in Page 26 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 various fields in industry and agriculture. 20.2 Thus, the Act does not deal with the advance made by the financial institution against the hypothecation of the vehicle. At this juncture it is also relevant to refer to Section 5 of the Act which runs as under:
"Section 5:Act not to debar recovery of dues by banks under any other law.- Subject to the provisions of sub-section (3) of section 3 nothing in this Act shall debar the recovery of due in respect of financial assistance given by a bank to an agriculturists or the security of a charge or mortgage created by the agriculturist on any land or interest there in favour of the bank, where such dues are recoverable by the bank under the provisions of any other law for the time being in force."
20.3 Thus, this section also clarifies the fact that the Act pertains to advance or loan made by the financial Corporation to agriculture. Therefore, reliance placed on the provisions of this Act does not help the appellant herein.
21. Regarding the liability of payment of tax on the truck in question is concerned, it is pertinent to note that as per the Bombay Act No. LXV of 1958, now known to be The Gujarat Motor Vehicles Tax Act, 1958, which has been modified from time to time, provides in Section Page 27 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 12A, 12B and 12C as under:
"12. Any tax, penalty or interest due, and not paid as provided by or under this Act shall, subject to the other provisions of this Act, be recoverable in the same manner as an arrear of land revenue.
12A. No motor vehicle used or kept for use in the State shall be used on any road in the State where the tax payable in respect of such vehicle remains unpaid for more than thirty days after it has become due under the provisions of this Act, until the tax, penalty and interest, if any, due is paid.
12B. Without prejudice to the provisions of sections 12,12A and 16 where any tax due under this Act in respect of any vehicle has not been paid, an officer not below the rank of 1 [an Assistant Inspector of Motor Vehicles] or an Inspector of Police, as the State Government may empower in this behalf, seize and detain such vehicle and for this purpose, take or cause to be taken all steps as he may consider necessary for the proper maintenance and safe custody of the vehicle until the tax, penalty and interest, if any, due in respect of such vehicle and charges for the custody and maintenance of vehicle, is paid:
Provided that if the tax due under this Act is not paid within a period of three months from the date on which such vehicle has been seized or detained such vehicle shall be liable to be sold by auction by the taxation authority in the manner as may be prescribed : Provided further that if the amount of tax due is not fully recovered even after the auction of such vehicle, then, it shall be competent for the taxation authority to seize or detain such other vehicle or vehicles owned or possessed or controlled by such person and sell such vehicle or vehicles by auction in the manner as may be prescribed.
12C. Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by the owner or a person in prossession or control of a motor vehicle on account of tax, interest or penalty for which he is liable to pay to the Government, shall be a first charge on the property of such person or owner or proprietor.
21.1 There is a specific provision made in Section 12C, which was inserted by the State of Gujarat vide Page 28 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 amendment carried out in 2015, whereby the non-
obstante clause to over-ride the effect has been extended to the recovery of tax and it is provided that there would be the first charge on the property in favour of the State Government.
21.2 Learned advocate for the appellant has also placed reliance on the provisions of the State Financial Corporations Act, 1951 regarding the firt charge for the vehicle whcih was hypothecated for the loan sanctioned to the persons concern. In order to appreciate the scope of the Act it is worthwhile to refer to the Statement of Objects and Reasons of enacting the State Financial Corporations Act, 1951. The relevant portion of the Statement of Objects and Reasons are as under:
"In order to provide medium and long term credit to industrial undertakings; which fall outside the normal activities of Commercial Banks, a Central Industrial Finance Corporation was set up under the Industrial Finance Corporation Act, 1948 (XV of 1948). The State Government wish that similar Corporations should alsobe set up in the States to supplement the work of the Industrial Finance Corporation. The intention is that the State Corporations will confine their activities to financing medium and small scale industrial and will, as far as possible, consider only such cases as are outside the scope of the Industrial Finance Corporation. Thus, the State Financial Corporations Act, 1951 is enacted for financing the medium and small scale industrial activities. Thus, the scope of the State Financial Corporations Act is regarding financing industrial activity of Page 29 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 small scale finance activity and it does not cover the loan/ advocaet made to any individual. Therefore, the reliance placed in the provisions of the State Financial Corporations Act by the appellant is not sustainable in the eyes of law.
22. Considering the aforesaid legal aspect, if we consider the factual aspect of the case, it clearly transpires that during the proceedings of the initiation of recovery by the State Government for the outstanding tax amount, the appellant herein has not taken part in the proceedings and the vehicle was auctioned in accordance with law. It is admitted fact that the taxes on the vehicles was not paid by owner of the vehicle in question which was hypothecated by owner with the plaintiff - appellant for the purpose of taking loan/ advance. It is also undisputed fact that the dues were outstanding for which the plaintiff-appellant has not taken any action. It is also undisputed fact that the owner of the Truck has not paid taxes which is Statutory liability.
23. It is well settled that for recovery of taxes Government will have priority over the other. Page 30 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 Considering the admitted facts coupled with principles enunciated in the aforesaid decisions and the provisions of the Statues whcih includes the State Financial Corporation Act, 1951, and the Motor Vehicles Act, Gujarat public Moneys (Recovery of Dues) Act, 1979, it is crystal clear that the provisions of the State Financial Corporation Act, 1951 including the non-obstante clause therein is not applicable. It is also crystal clear that no legal proceedings has been initiated by the State Financial Corporation to recover dues from the owner of the Truck. Not only that, but during action taken by the government Authority for recovery of the taxes, the Corporation has not taken any part thereof. It is also well settled that the recovery of the government taxes is a priority right of the Government over any debt of any other person, including an Institution. Now in this case, admittedly there was statutory liability of the owenr of the Truck to pay taxes to the government and in default thereof, the government machinery has authority to recover the same by taking necessary legal actions, which may include issuance of public notice and auction Page 31 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 of the vehicle. Now in this present case, the government authority has exercised this legal proceedings and has recovered taxes by auction of the vehicle in question wherein the present appellant i.e. the original plaintiff has not taken part. Therefore, the action of the government authority cannot be termed as illegal one.
24. On perusal of the factual as well as legal aspects referred to herein, couple with the reasoning rendered by the learned trial Court, it clearly transpires that the learned trial Court has correctly decided the case and has not committed in error of facts and law in dismissing the Suit filed by the present appellant. There is no illegality committed by the learned City Civil Court No.16, Ahmedabad dismissing the Suit.
25. In view of the aforesaid discussion, I have decided Point Nos. 1 and 2 accordingly in negative.
26. In view of the aforesaid discussion, it is crystal clear that the trial Court has not committed any error of facts and law, dismissing the Suit in favour of the plaintiff- appellant. Therefore, considering the facts and Page 32 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022 C/FA/1028/1998 JUDGMENT DATED: 18/06/2021 circumstances, I pass the following final order:
ORDER The present Appeal stands dismissed. The impugned judgment and order passed by learned City Civil Court, Court No.16, Ahmedabad in Civil Suit No. 4635 of 1989 dated 27.11.1997 is hereby confirmed.
No order as to costs.
Decree to be drawn accordingly in this Appeal.
Alongwith the copy of this Judgment and decree, R&P to be sent back to the concerned Court.
(DR. A. P. THAKER, J) SAJ GEORGE Page 33 of 33 Downloaded on : Sat Jan 15 06:42:29 IST 2022