Andhra Pradesh High Court - Amravati
Central Bank Of India, vs The State Of Andhra Pradesh on 21 May, 2025
IN THE HIGH COURT OF ANDHRA PRADESH Bench
APHC010245862024
Sr.No:-1
AT AMARAVATI
[3483]
WRIT PETITION NO: 12247 of 2024
Central Bank of India ...Petitioner
Vs.
The State of Andhra Pradesh and others ...Respondents
**********
Advocate for Petitioner : Sri Mettu Srinivas Reddy
Advocate for Respondents : GP for Commercial Tax
CORAM : THE CHIEF JUSTICE DHIRAJ SINGH THAKUR
SRI JUSTICE RAVI CHEEMALAPATI
DATE : 21.05.2025
PER DHIRAJ SINGH THAKUR, CJ :
With a view to understand the background in which the present
controversy has arisen, it is necessary to briefly state the material facts.
2. The petitioner - Central Bank of India advanced certain loans to M/s Sri
Rajarajeswari Raw and Boiled Rice Mill - respondent No.3 herein, which is a
firm in which respondent Nos.4 to 6 are the partners. Loan was advanced to
the aforementioned respondents for which certain security documents as also
mortgage deeds were executed in favour of the Bank mortgaging certain
properties in the year 2014.
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3. Upon failure on the part of the partnership firm and the partners to repay
the loan amount, proceedings for recovery of the said amount were initiated
before the Debts Recovery Tribunal, Hyderabad, under the Recovery of Debts
and Bankruptcy Act, 1993 (hereinafter, referred to as ―the RDB Act‖). A decree
was passed in favour of the petitioner Bank on 22.07.2022 and a recovery
certificate, dated 06.09.2022, issued for recovery of an amount of
Rs.79,74,57,988.09/-. Failure on the part of the unofficial respondents to pay
the decretal amount led the Recovery Officer to issue an order of attachment,
dated 27.02.2023, attaching the secured properties.
The petitioner Bank obtained the requisite valuation reports in regard to
the assets mortgaged with the petitioner and the value of the property was
assessed at approximately Rs.39.89 Crores and the distress sale value was
calculated at approximately Rs.29.89 Crores.
4. The petitioner alleges that some of the properties which are otherwise
mortgaged with the petitioner Bank and are under attachment by the Recovery
Officer are sought to be sold by virtue of the order which is impugned in the
present petition, dated 02.04.2024, issued under the A.P. Value Added Tax
Act, 2005(for short, ―the A.P. VAT Act, 2005‖). It is stated that the Commercial
Tax Officer had finalized the assessments by levying a demand of
Rs.15,02,102/- for the year 2015-16 by virtue of its order, dated 31.12.2019
and an amount of Rs.13,91,168/- for the assessment year 2016-17 on
05.11.2020.
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5. In the light of the aforementioned facts, learned counsel for the
petitioner would submit that the Bank has priority over all other debts and
Government dues including revenues, taxes due to the Central Government or
State Government in terms of Section 31-B of the RDB Act. Reference was
also made to Section 34 of the RDB Act to bring home the point that the
provisions of the RDB Act would have overriding effect over any other law for
the time being in force. For facility of reference, Section 31(b) which was
incorporated in the RDB Act with effect from 01.09.2016 vide Act No.44 of
2016 is reproduced hereunder:
―31B. Priority to secured creditors.--Notwithstanding anything
contained in any other law for the time being in force, the rights of secured
creditors to realise secured debts due and payable to them by sale of
assets over which security interest is created, shall have priority and shall
be paid in priority over all other debts and Government dues including
revenues, taxes, cesses and rates due to the Central Government, State
Government or local authority.‖
It would also be pertinent to reproduce Section 34 of the RDB Act which
provides as under:
"34. Act to have overriding effect.--(1) Save as provided under
sub-section (2), the provisions of this Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time
being in force or in any instrument having effect by virtue of any law other
than this Act.‖
It is not out of place to mention that while Section 34 always existed
from the time the Act of 1993 was enacted, yet Section 31-B came to be
inserted with effect from 01.09.2016 by amendment Act No.44 of 2016.
6. Learned counsel for respondent No.2, on the other hand, would submit
that in terms of Section 26 of the A.P. Value Added Tax Act, 2005, the
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Commercial Taxes Department would have a preferential claim over the
assets of a VAT Dealer or a turnover tax Dealer or for that matter, any other
dealer, and that the Government would have the first charge over the property
of such a Dealer. For purposes of reference, Section 26 of the A.P. Value
Added Tax Act, 2005 is reproduced hereunder:
―26. Notwithstanding anything to the contrary contained in
any law for the time being in force, any amount of tax, including
deferred tax which is treated as a loan extended by the
Government to the dealer, penalty, interest and any other sum
payable by a VAT dealer or TOT dealer or any other dealer under
the Act, shall be the first charge on the property of the VAT dealer
or TOT dealer or any other dealer as the case may be.‖
7. The issue that falls for our consideration is whether, in the instant case,
is it the Bank that has the priority over the secured asset, in terms of Section
31-B r/w Section 34 of the RDB Act or the respondent No.2, who in terms of
Section 26 of the Value Added Tax Act claims a first charge over the property
of the unofficial respondent Nos.3 to 6.
8. Counsel for the petitioner has placed reliance upon Central Bank of
India vs. State of Kerala and others1, to state that the issues which arose in
the above case and the ratio of the decision so rendered would govern the
present case as well.
9. The issue that was being considered by the Apex Court in the case of
Central Bank of India(supra) was whether the provisions of Section 38-C of
the Bombay Sales Tax Act, 1959 and Section 26-B of the Kerala General
1
(2009) 4 SCC 94
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Sales Tax Act, 1963 and similar other provisions contained in other state
legislations by which first charge had been created on the dealer or such
other person liable to pay sales tax was inconsistent with the provisions
contained in the RDB Act, 1993, for recovery of debt and whether by virtue of
the non obstante clause contained in Section 34(1) of DRT Act and Section
35 of the Securitisation Act, the two Central legislations would have primacy
over State legislations.
In the case arising from Kerala, a suit had been preferred by the Central
Bank of India before a civil Court for recovery of approximately Rupees
Twelve Lakhs advanced to Kerala Refineries (P) Ltd. The borrower, who had
executed a mortgage in regard to the immovable properties for securing
repayment, but had failed to discharge its liability. This suit was later on
transferred to the Debt Recovery Tribunal, which decreed the same. The
recovery certificate was issued in favour of the bank, whereafter the Recovery
Officer issued a Notice for sale of the movable and immovable properties of
the borrower.
At that stage, jurisdictional Tahsildar issued a notice to the borrower for
recovery of the arrears of Sales Tax and also informing the borrower that its
movable and immovable properties had been attached and that steps were
being taken to sell the attached property by way of public auction. The
Tahsildar claimed that by virtue of Section 26-B of the Kerala Act, 1963 as
amended by Act No.23 of 1999, the State Government had got a first charge
over the attached properties. The bank challenged the Notice of the Tahsildar
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by way of petition under Article 226, which was dismissed by the learned
single Judge which order was upheld also by a Division Bench. The Apex
Court dealing with the issue, in particular reference to Section 34 of the DRT
Act and Section 26-B of the Kerala General Sales Tax Act, 1963, held that
there was no provision in either DRT Act or SARFAESI Act created a first
charge in favour of the banks, financial institutions or secured creditors for the
properties of the borrower. The Apex Court held:
―116. The non obstante clauses contained in Section 34(1) of the DRT
Act and Section 35 of the Securitisation Act give overriding effect to the
provisions of those Acts only if there is anything inconsistent contained in
any other law or instrument having effect by virtue of any other law. In
other words, if there is no provision in the other enactments which are
inconsistent with the DRT Act or Securitisation Act, the provisions
contained in those Acts cannot override other legislations. Section
38C of the Bombay Act and Section 26B of the Kerala Act also contain
non obstante clauses and give statutory recognition to the priority of
State's charge over other debts, which was recognized by Indian High
Courts even before 1950. In other words, these sections and similar
provisions contained in other State legislations not only create first
charge on the property of the dealer or any other person liable to pay
sales tax, etc. but also give them overriding effect over other laws.‖
10. The Apex Court held that the effect of non obstante clause contained
among others under Section 34 (1) of the DRT Act vis-a-vis Section 26-B of
the Kerala Act could be given only if there was a specific provision in the
enactment, creating first charge in favour of the banks, financial institutions
and other secured creators. The Apex Court held thus:
―130. Undisputedly, the two enactments do not contain provision
similar to Workmen's Compensation Act, etc. In the absence of any
specific provision to that effect, it is not possible to read any conflict or
inconsistency or overlapping between the provisions of the DRT Act and
Securitisation Act on the one hand and Section 38C of the Bombay Act
and Section 26B of the Kerala Act on the other and the non obstante
clauses contained in Section 34(1) of the DRT Act and Section 35 of the
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Securitisation Act cannot be invoked for declaring that the first charge
created under the State legislation will not operate qua or affect the
proceedings initiated by banks, financial institutions and other secured
creditors for recovery of their dues or enforcement of security interest, as
the case may be.
131. The Court could have given effect to the non obstante clauses
contained in Section 34(1) of the DRT Act and Section 35 of the
Securitisation Act vis a vis Section 38C of the Bombay Act and Section
26B of the Kerala Act and similar other State legislations only if there was
a specific provision in the two enactments creating first charge in favour
of the banks, financial institutions and other secured creditors but as the
Parliament has not made any such provision in either of the enactments,
the first charge created by the State legislations on the property of the
dealer or any other person, liable to pay sales tax etc., cannot be
destroyed by implication or inference, notwithstanding the fact that
banks, etc. fall in the category of secured creditors.‖
11. Finally, the Apex Court in paragraph 158 held that the DRT Act and the
Securitisation Act did not create a first charge in favour of the banks. It was
held:
―158. On the basis of above discussion, we hold that the DRT Act and
Securitisation Act do not create first charge in favour of banks, financial
institutions and other secured creditors and the provisions contained
in Section 38C of the Bombay Act and Section 26B of the Kerala Act are
not inconsistent with the provisions of the DRT Act and Securitisation Act
so as to attract non obstante clauses contained in Section 34(1) of the
DRT Act or Section 35 of the Securitisation Act.‖
12. It is not out of place here to mention that at the time when the judgment
was rendered by the Apex Court in the case of Central Bank of India(supra),
Section 31-B was nowhere in existence, which was incorporated only by way
of Act No.44 of 2016 with effect from 01.09.2016.
13. Learned counsel for the respondent State does not dispute the said
legal position.
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14. Applying the ratio of the judgment supra to the facts of the present
case, it can be seen that now there is a specific provision providing for priority
in favour of the secured creditors, to realize the secured debts, due and
payable to them, over all other debts and Government dues, we have no
hesitation to hold that the right of the petitioner Bank to recover its dues by
sale of the secured asset would have priority over the arrears which were
sought to be recovered by the respondent State under the provisions of the
A.P. Value Added Tax Act, 2005.
15. Be that as it may, the present writ petition is allowed.
No order as to costs. Pending miscellaneous applications, if any, in this
petition, shall stand closed.
DHIRAJ SINGH THAKUR, CJ.
RAVI CHEEMALAPATI, J.
AKN/SSN