Bombay High Court
State Bank Of India vs Arora Plastics Pvt. Ltd. And Ors. on 14 June, 1991
Equivalent citations: 1991(4)BOMCR343
JUDGMENT H. Suresh, J.
1. This is an application on the part of the Commissioner of Sales Tax, to grant leave to the applicants under the provision of Order 21, Rule 52 of the Civil Procedure Code to attach immovable and movable properties of the first defendant-company as shown in Schedule L, M, N & C to the plaint, with a view to recover arrears of sales tax from the first defendant-company.
2. There is a prayer that the applicants be added as parties to the above suit and there is a further prayer that the Court Receiver be directed to sell the properties in his possession, with the notice of the said auction sale to the applicants herein.
3. As far as the application on the part of the applicants to be joined as party to the suit, is concerned, I must say that the same is not maintainable. The sales Tax department has nothing to do with the issues involved in the suit. However, as far as the other prayer for leave to the applicants under the provisions of Order 21, Rule 52 of the Civil Procedure Code for attaching the properties, the same is maintainable. This application has been necessary inasmuch as the Court Receiver has been appointed in respect of those properties and that applicants desire to attach those very properties for the purpose of recovering the arrears of sales tax amounting to Rs. 11,74,697/-. It is, therefore, clear that the sales tax department cannot levy such an attachment without the leave of this Court.
4. However, Mr. Kothari, replying on the case of Bank of Bihar v. State of Bihar, , has submitted that since immovable property has been mortgaged to the Bank and since the moveable property has been hypothecated to the bank, the sales tax department or the Government cannot have any claim over the property of the plaintiffs. The relevant portion of the said judgment is as follows:
"In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawner on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to the other creditor of the pawner without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinarily nature on the goods and so long as his claim is not satisfied no other creditor of the pawner has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the plaintiff and the balance could have been made available to satisfy the claim of other creditor of the pawner. But by a mere act of lawful seizure the Government could not deprive the plaintiff of the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the plaintiff was entitled it was bound to reimburse the plaintiff for such amount which the plaintiff in ordinary course would have realized by sale of the goods pledged with it on the pawner making a default in payment of debts."
It is further clarified as follows:
"The plaintiff's right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawner. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawner and was entitled only to the surplus money after satisfaction of the plaintiff's dues."
5. That was a case of pledge. But it is doubtful whether the same has any application in respect of the movables which have been hypothecated by the defendants in favour of the plaintiffs. There is a basic difference between a pledge and a hypothecation. In the case of a pledge, the properties pledged with the creditor remain with the creditor. But, in the case of hypothecation, the possession remains with the debtor. In the event of default of payment the creditor gets a right to proceed against the hypothecated goods, and, therefore, it becomes necessary in such a case for the creditor to come to the Court and seek a declaration and thereafter to have the property sold. In the case of a pledge it is not necessary for a pledgee to come to the Court inasmuch as the possession of the property with him and he can have the property sold right away without the aid of the court. If this difference is understood it is highly doubtful whether the plaintiffs can say that they have a priority over the sales tax department in respect of the goods which are only hypothecated in favour of the plaintiffs. Mr. Kothari Points out that in the above Supreme Court case, though the property was pledged in favour of the plaintiff, it was in the possession of the defendants. But I do not think, the case was decided on the basis of any notion of hypothecation.
6. Again, in the case of hypothecation, since the possession as also the title is with the debtor, if the Government attaches the movables or seeks to distraint and sell the same, before any other creditor secures the same by declaration or attachment, the Government's priority should prevail over all such claims. It is not open to such a creditor to claim that his right to security should have precedence over actual attachment or seizure. In the case of movables, title or any interest goes with possession. Hypothecation is, at best, a right to security, and any security as such.
7. In this view of the matter, I thought, I could at once declare that the appellants have a priority over the plaintiffs' claim, in respect of movables which are hypothecated. But there are two hurdles. Mr. Kothari says that the item of machinery has been pledged. that question will have to be decided. Secondly, before any attachment could be levied by the applicants, Court Receiver came to be appointed and he has taken charge of all the movables. Therefore, as of today, the possession of the movables is not with the defendants. In the absence of any contest from the defendants, the possession of the Court Receiver must necessarily enure of the benefit of the plaintiffs. Therefore, if attachment is now allowed to be levied, can it be said that the same will prevail over the plaintiffs' claim? Technically speaking I will not be able to decide this question, till the suit is decreed and the plaintiffs' claim is allowed. Therefore, the question of priority can be decided only then, and not now, even if the movables are sold during the pendency of the suit.
8. But in the case of land and any mortgaged thereof, though the principle is the same, the legal position is entirely governed by the provisions of the Land Revenue Code. Section 169 and 265 of the Maharashtra Land Revenue Code provide for a paramount charge on the land and every part thereof, in respect of arrears of land revenue and the Government shall have precedence over any other claim as whether secured or not. But it is clear under sub-section (2) of section 169 and also of section 265 of the Code, the claim of the State Government other than arrears of land revenue but recoverable as land revenue demand under the provisions of this Chapter shall have priority only over all unsecured claimants against any land or holder thereof. In other words, if the plaintiffs establish that they are secured creditors, then of course, the sales tax department cannot claim priority in respect of such land or property mortgaged to the Bank. Therefore, if the plaintiff decree as prayed by them, the case would fall directly under sub-section (2) of section 169 as also under sub-section (2) of section 265 of the Maharashtra Land Revenue Code and in the that event the government cannot have any priority. Therefore, in these circumstances here also, the question of priority cannot be decided till the plaintiffs get a decree as prayed. In that event the auction purchaser will get the property free from attachment while the claim of the applicants will be relegated to the surplus of the sale proceeds after the plaintiffs claim is met.
9. Therefore, in all such cases of mortgage of land or hypothecation of movables, if Court Receiver is appointed before any attachment is levied and if the Government desires to levy any attachment the proper procedure, in the first instance, is to grant leave to the government levy such attachment, but not to decide the question of priority till after a proper decree is passed in the suit.
I, therefore, pass the following order:
I grant leave to the applicant to levy attachment as prayed. However, as and when the property is to be put up for sale, before the decree or after the decree, a proper notice be given to the applicants for the purpose of giving them due intimation of the intended sale. After the sale takes place, as far as the distribution of the sale proceeds is concerned, that will be decided subject to the observations as made above, and notice to the applicants.
Liberty to the applicants to apply in the event the plaintiffs fail to get a decree in respect of their claim of equitable mortgage in the suit, or in respect of their claim of hypothecation or pledge.
Mr. Kothari, at this stage, says that the sale of the movable has been fixed for June 27, 1991 at 3.30 p.m. and this statement be treated as notice to the applicants. The applicants will be at liberty to remain present at the time of the sale.
Court Receiver to act on the certified copy of the minutes.
There will be no order as to costs.