Gujarat High Court
Baroda vs The on 13 May, 2010
Author: S.J.Mukhopadhaya
Bench: S.J. Mukhopadhaya
Gujarat High Court Case Information System
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SCA/4196/2008 15/ 17 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 4196 of 2008
With
SPECIAL
CIVIL APPLICATION No. 12958 of 2009
With
SPECIAL
CIVIL APPLICATION No. 11615 of 2009
With
LETTERS
PATENT APPEAL No. 1676 of 2009
In
SPECIAL
CIVIL APPLICATION No. 35 of 2009
With
CIVIL
APPLICATION No. 9601 of 2009
In
LETTERS
PATENT APPEAL No. 1676 of 2009
For
Approval and Signature:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
AND
HONOURABLE
MR.JUSTICE ANANT S. DAVE
=================================================
1
Whether Reporters of Local Papers may be allowed to see the judgment ?
2To be referred to the Reporter or not ?
3Whether their Lordships wish to see the fair copy of the judgment ?
4Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5Whether it is to be circulated to the civil judge ?
================================================= BARODA CITY CO-OPERATIVE BANK LTD - Petitioner(s) Versus THE STATE OF GUJARAT & 4 - Respondent(s) ================================================= Appearance :
MR MIHIR THAKORE, SR. ADVOCATE with MR SP MAJMUDAR for Petitioner(s) : 1 in SCA No.4196 of 2008, MR SN SOPARKAR, SR. ADVOCATE with MR AMAR BHATT for Petitioner(s) : 1 in SCA12958 of 2009 MR FALGUN BRAHMBHATT for Appellant(s) : 1 in LPA No. 1676 of 2009, MR TARAK DAMANI for Petitioner(s) : 1 IN SCA No. 11615 of 2009 MR TUSHAR MEHTA, ADDL. ADVOCATE GENERAL with MS TRUSHA PATEL, AGP for Respondent(s) : 1, 2, 4 DS AFF.NOT FILED (N) for Respondent(s) :
1, RULE SERVED for Respondent(s) : 1 - 2, 4, NOTICE SERVED BY DS for Respondent(s) : 2, 4, MR HASIT DILIP DAVE for Respondent(s) : 3, MR MIHIR H PATHAK for Respondent(s) : 5, ================================================= CORAM :
HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA and HONOURABLE MR.JUSTICE ANANT S. DAVE Date : 13/05/2010 COMMON CAV JUDGMENT (Per : HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA) In all these cases, as a common question of law is involved, they were heard together and are disposed of by this common judgment.
2. The State of Gujarat through its Commercial Tax Department took steps to bring the property situated at Plot No. 486/B-2, GIDC, Makarpura, Vadodara, the assessee having failed to pay the tax. Baroda City Co-operative Bank Ltd., which is the secured creditor of the very same property under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( the Securitization Act for short), being aggrieved, preferred the writ petition in SCA No. 4196 of 2009.
Similar is the grievance of the petitioner in SCA No. 12958 of 2009 with regard to the property of Survey Nos. 173/1, 174/1, 174/2, 174/3 and 176 situated at Taluaka Sanand, District Ahmedabad purchased by the said petitioner from Assets Reconstruction Company (India) Ltd. (ARCIL). A prayer has been made to direct the respondent Joint Commissioner of Commercial Tax, Division I and its officials to remove the charge on the said property.
The appellant of LPA No. 1676 of 2009, who was the original petitioner of SCA No. 35 of 2009, made a grievance against the Mamlatdar, Anand (Rural), District Kheda against the steps taken under Section 151 of the Bombay Land Revenue Code ( the BLR Code for short) pursuant to the recovery certificate issued by the Labour Court, Anand on 21.7.2003.
The petitioner of SCA No. 11615 of 2009 is the auction purchaser of the immovable property i.e. plant and machinery of Mahendra Petrochemicals Ltd. As there is charge created by the Mamlatdar, Taluka Sanand, District Ahmedabad in favour of the Assistant Commissioner of Sales Tax, Ahmedabad, the petitioner's name could not be entered in the revenue record. A prayer has been made to direct the Mamlatdar to enter the petitioner's name in the revenue record and to cancel the charge of the Assistant Commissioner of Sales Tax on the said property and to recover the dues from Mahendra Petrochemicals Ltd.
3. The only question arises for determination is whether the respondent State has first charge over the property in question for taking steps under Section 151 of the BLR Code.
For determination of such issue, it is not necessary to look into the individual facts of each case, but it is desirable to notice decisions rendered by the Courts including the Supreme Court of India on such issue.
4. Section 47A of the Gujarat Sales Tax Act, 1969 empowers sales tax authorities for recovery of tax as arrears of land revenue and reads as follows :-
47A. Special powers of sales tax authorities for recovery of tax as arrears of land revenue.
(1) For the purpose of effecting recovery of the amount of tax, penalty or interest due from any dealer or other person by or under the provisions of this Act or under any earlier law, as arrears of land revenue -
the Commissioner of Sales Tax, the Additional Commissioners of Sales Tax and the Deputy Commissioners of Sales Tax shall have and exercise all the powers and perform all the duties of the Collector under the Bombay Land Revenue Code, 1879 (Bom. V of 1879).
the Assistant Commissioners of Sales Tax shall have and exercise all the powers (except the powers of arrest and confinement of a defaulter in a Civil jail) and perform all the duties of the Assistant or Deputy Collector under the said code.
the Sales Tax Officers shall have and exercise all the powers (except the powers of arrest and conferment of a defaulter in a Civil Jail) and perform all the duties of the Mamlatdar under the said code.
(iiia) the Sales Tax Inspectors shall have and exercise all the powers of the Sales Tax Officers specified in clause (iii) (except the powers of confirmation of Sale).
Every order passed in exercise of the powers conferred by sub-section (1) shall, for the purpose of section 64, 65, 66, 67, 69 and 72 be deemed to be an order passed under this Act.
5. Section 137 of the Bombay Land Revenue Code, 1879 stipulates precedence of State claim over all other claim, which is extracted below :-
137. Claims of State Government to have precedence over all others.
The claim 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.
6. Section 151 of the BLR Code restricts recovery of arrears for the current year as is evident from the said provision and quoted hereunder :-
151. Revenue demands of former years how recoverable. The said processes may be employed for the recovery of arrears of former years as well as of the current year, but the preferences given by sections 137 and 138 shall apply only to demands for the current year :
Provided that any process commenced in the current year shall be entitled to the said preferences, notwithstanding that it may not be fully executed within that year.
7. Sections 137 and 151 of the BLR Code fell for consideration before a Division Bench of the Bombay High Court in Secretary of State vs. Vedavyas Venkatesh Bhatta, reported in AIR 1936 Bombay 213. The Court noticed that Section 151 restricts prerogative of Crown to make demand for current years only. The Crown has priority claim under common law, but such common law priority is confined to unsecured debts. In the said case, Vedavyas Venkatesh Bhatta (Supra), the Court while interpreting Sections 137 and 151 of the BLR Code and the common law priority on Crown, observed as follows :-
The view taken by Divatia, J., has been taken by the learned Chief Justice in 26 Bom LR 1103 (1) where he held that Ss. 137 and 151 should be read together and that they confer priority only in respect of arrears for the current year and not for arrears of past years. This is the only decision of our own Court on this point which has been brought to our notice. It is not disputed that the Crown is given priority by common law. 5 BHC (OCJ) 23(2) is the leading case on the subject. There it was held, after an exhaustive survey of the authorities :-
A judgment-debt due to the Crown is in Bombay entitled to the same precedent in execution as a like judgment-debt in English, if there be no special legislative provision affecting that right in the particular case.
But this common law priority is confined to unsecured debts; cf. 45 Cal 653 (3), where it is held :
that so far as the immoveable properties were concerned including the fixtures, the Crown was not entitled to priority, that the Alliance Bank as first mortgagee ranked first, but the Delhi and London Bank as second mortgagee was not entitled to priority over the Crown.
Priority is given to the claim of the Government under Section 137 of the BLR Code both over the secured and unsecured creditors was the finding of the Bombay High Court in the aforesaid case, relevant portion of which is quoted hereunder :-
It follows that the priority given to the claim of Government by S. 137, Bombay Land Revenue Code, is very much more extensive than that given by the common law, since it creates on behalf of the Government a right to priority over all debts of every kind whether secured or unsecured, and the learned Advocate General contends that S. 151 which restricts the preference given by S. 137 to the demands for the current year, merely takes away this statutory priority and does not interfere with that given by common law.
The Court further held that it includes not only the right of priority over secured debts which is new, but also declare the right of priority over debts of all sorts.
8. In Bank of India vs. John Bowman, reported in 1955 Bombay 305, Hon ble Mr Justice Chagla, Chief Justice (as he then was), noticed that the priority given to the Crown is not on the basis of its debt being a judgment-debt or a debt arising out of statute, but the principle is as enunciated by Halsbury that if the debts are of equal degree and the Crown and the subject are equal, the Crown s right will prevail over that of the subject. In the said case, the Court held that :-
It cannot be denied that the Crown had the right of priority in payment of debts due to it. It s a right which has always existed and has been repeatedly recognized in India. If the Crown is entitled as it is, to prior payment over all unsecured creditors, the position of securing creditors does not arise. I see no reason why the Crown should not be allowed to apply to the Court for an order directing its debt to be paid out of moneys in Court belonging to the debtor, without having to file a suit. Of course it must be a debt which is not disputed or is indisputable. In this case the debt represents money due to the Crown under the Income-tax Act and the demand of the Income-tax Officer is not open to question.
Therefore, in the opinion of the learned Chief Justice it had never been disputed in India that the Crown had priority with regard to its debts over all unsecured debts. No question arose of the debts being judgment-debts or otherwise. If the other competing debts were unsecured, then the right of the Crown to priority or precedence arose.
17. But even if we come to the conclusion that the State has priority with regard to this contractual debt over the debt due to the Bank of India, the two debts being of equal degree, even so the state has no right to override a decree of a competent Court or an execution taken out in respect of a decree unless specially empowered by law.
Section 11, Bombay City Land Revenue Act, is an illustration where the Legislature has empowered the State to override decrees, judgments and executions of a Court.
9. The Supreme Court while deliberating the issue in Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co., reported in (2000) 5 SCC 694, noticed that the principle of priority of government debts is founded on the rule of necessity and of public policy and observed as follows :-
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-recognized 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 it order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builder Supply Corpn., AIR 1965 SC 1061). 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 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 received the available judicial pronouncements their Lordships have summed up the law as under :
1. There is 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 recognized 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 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.
10. 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, it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar vs. State of Bihar, (1972) 3 SCC 196, the principle has been recognized 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., p. 386) It seems a government debt in India is not entitled to precedence over a prior secured debt. .
10. Priority or precedence of Crown debts under the Central Excise Act vis-?-vis secured debts under the State Financial Corporations Act, 1951 fell for consideration before the Supreme Court in Union of India vs. Sicom Ltd., reported in (2009) 2 SCC
121. In the said case, the Supreme Court while held that a debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one, observed as follows :-
9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors . [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.), p. 1147.] Such creditors, however, must be held to mean unsecured creditors.
Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one.
10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments.
11. In Central Bank of India vs. State of Kerala, reported in (2009) 4 SCC 94, the Supreme Code decided the question whether the Crown debt was in conflict with any provision of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 ( the RDDB Act for short) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Court held that the State Act was not in conflict with the Securitization Act. In the present case, as in two of the writ petitions, the claim has been made on the basis of the Securitization Act, it is desirable to quote extensive the finding of the Supreme Court with regard to such Act vis-?-vis the claim of State under the statutory Act, relevant portion of which are quoted hereunder :-
32. & & The Securitization Act drastically changed the scenario inasmuch as it enabled banks, financial institutions and other secured creditors to recover their dues without intervention of the Courts or Tribunals. The Securitization Act also made provision for registration and regulation of securitisation/reconstruction companies, securitisation of financial assets of banks and financial institutions and other related provisions. However, what is most significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. Under Section 13(1) of the Securitization Act, limited primary has been given to the right of a secured creditor to enforce security interest vis-?-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that sub-section, secured creditor can enforce security interest without intervention of the Court or Tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimhan Committee s 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act. IN an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primary to the right of secured creditor vis-?-vis other mortgagees who could exercise rights under Section 69 and 69A of the Transfer of Property Act. However, this primary has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. Sub-section (7) of Section 13 which envisages application of the money received by the secured creditor by adopting any of the measures specified under sub-section (4) merely regulates distribution of money received by the secured creditor. It does not create first charge in favour of the secured creditor. By enacting various provisos to sub-section (9), the legislature has ensured that priority given to the claim of workers of a company in liquidation under Section 529A of the Companies Act, 1956 vis-?-vis secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956. This and other provisos do not create first charge in favour of the worker of a company in liquidation for the first time but merely recognize the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to sub-section (9) of Section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up. It is thus clear that provisos referred to above are only part of the distribution mechanism evolved by the legislature and are intended to protect and preserve the right of the workers of a company in liquidation whose assets are subjected to the provisions of the Securitization Act and are disposed of by the secured creditor in accordance with Section 13 thereof.
33. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitization 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, it there is no provision in the other enactments which are inconsistent with the DRT Act or Securitization 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. & &
38. While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognized. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues to banks, financial institutions and other secured creditors should have priority over the State s statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal. & &
39. If the provisions of the DRT Act and Securitization Act are interpreted keeping in view the background and context in which these legislations were enacted and the purpose sought to be achieved by their enactment, it becomes clear that the two legislations, are intended to create a new dispensation for expeditious recovery of dues to banks, financial institutions and secured creditors and adjudication of the grievance made by any aggrieved person qua the procedure adopted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14A of the Workmen s Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, Section 30 of the Gift Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitization Act. Undisputedly, the two enactments do not contain provision similar to Workmen s Compensation Act, etc. In 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 Securitization Act & & &
12. The judgments of the Supreme Court in Sicom Ltd. [(2009) 2 SCC 121 and Central Bank of India [(2009) 4 SCC 94 fell for consideration before a Division Bench of the Madras High Court in M. Nagarajan vs. Deputy Commercial Tax Officer and others in W.P. No. 10246 of 2007. By its (unreported) judgment dated 12.6.2009, the Court held as follows:-
15. Having regard to the judicial pronouncements rendered by Courts and noticed above, we may sum up the law as under :-
Arrears of tax due to the State can claim priority over unsecured debts.
The common law doctrine about priority of Crown debts/State debts is recognized law in force within the meaning of Article 372(1) of the Constitution of India.
The doctrine will not apply if first charge by way of priority is not claimed under the statute.
The doctrine of first charge/priority of the State over the property will prevail over the private debts, which is an unsecured debt, but such doctrine of first charge/priority over the property cannot prevail over secured debts of a person. If the statute permits to have first charge/priority over the property having regard to the plain meaning of Article 372 of the Constitution of India, then only the State can claim priority over an unsecured debt.
13. In two cases, first charge claim of the State is based on Section 47A of the Gujarat Sales Tax Act, which is quoted hereinabove. In the other case, the claim is based on Section 33C of the Industrial Disputes Act, 1947 as quoted hereunder :-
33-C. Recovery of money due from an employer.-
(1) Where any money is due to a workman from an employer under a settlement or an award or under the provisions of Chapter VA or Chapter VB, the workman himself or any other person authorized by him in writing in this behalf, or, in the case of the death of the workman, his assignee or heirs may, without prejudice to any other mode of recovery, make an application to the appropriate Government for the recovery of the money due to him, and if the appropriate Government is satisfied that any money is so due, it shall issue a certificate for that amount to the Collector who shall proceed to recover the same in the same manner as an arrear of land revenue.
Provided that every such application shall be made within one year from the date on which the money became due to the workman from the employer :
Provided further that any such application may be entertained after the expiry of the said period of one year, if the appropriate Government is satisfied that the applicant had sufficient cause for not making the application within the said period.
(2) Where any workman is entitled to receive from the employer any money or any benefit which is capable of being computed in terms of money and if any question arises as to the amount of money due or as to the amount at which such benefit should be computed, then the question may, subject to any rules that may be made under this Act, be decided by such Labour Court as may be specified in this behalf by the appropriate Government within a period not exceeding three months.
Provided that where the presiding officer of a Labour Court considers it necessary or expedient so to do, he may, for reasons to be recorded in writing, extend such period by such further period as he may think fit.
(3) For the purposes of computing the money value of a benefit, the Labour Court may, if it so thinks fit, appoint a Commissioner who shall, after taking such evidence as may be necessary, submit a report to the Labour Court and the Labour Court shall determine the amount after considering the report of the Commissioner and other circumstances of the case.
(4) The decision of the Labour Court shall be forwarded by it to the appropriate Government and any amount found due by the Labour Court may be recovered in the manner provided for in sub-section (1).
(5) Where workmen employed under the same employer are entitled to receive from him any money or any benefit capable of being computed in terms of money, then, subject to such rules as may be made in this behalf, a single application for the recovery of the amount due may be made on behalf of or in respect of any number of such workmen.
Explanation.-
In this section "Labour Court" includes any court constituted under any law relating to investigation and settlement of industrial disputes in force in any State."
Under the aforesaid provisions, the recovery can be effected as arrears of land revenue.
It has already been noticed that arrears of land revenue can be recovered under Section 137 of the BLR Code which is restricted to the current year under Section 151 of the said Code.
14. The question of validity of section 137 of the BLR Code fell for consideration before a Division Bench of this Court in M/s Surendrabhai & Company vs. State of Gujarat, reported in 1985 GLH (UJ) 53. Though the judgment was rendered on 26.4.1971, taking into consideration the importance of the judgment, it was reported after 14 years in 1985. In the said case, this Court declared Section 137 of the BLR Code as void, relevant portion of which is quoted hereunder :-
The provision of Section 137 of the Code does affect the right of citizen to hold the property and the question is whether the said provisions which are contained in the pre-existing law stand the test of reasonability. The question did not detain the Court any longer in view of the decision of the Supreme Court in the case of State of Madhya Pradesh vs. Parchulal and Others, Civil Appeal NO. 485 of 1968 decided on April 22, 1969 (AIR 1969, N.S.C. 86 = 1969 S.C.D. 841) where a similar question came for consideration. To state the facts of that case shortly, the property was usufructury mortgaged by one Onkarlal to his creditor. Onkarlal was running a business in foodgrains which were supplied to him by the former Holker State on credit. As he failed to pay up the dues the State started recovery proceedings again him. The mortgage property belonging to Onkarlal was attached by the Collector in pursuance of Rule 3 which provided that the State demand had precedence over any other claim including a mortgage or judgment-debt whether a Court has issued an attachment or not. The creditors, i.e. mortgagees filed suit against the State of Madhya Pradesh and Onkarlal, for a declaration that the mortgaged property was not subject to auction and for an injunction restraining the State from selling the property in dispute. The High Court of Madhya Pradesh came to the conclusion that the provisions of Rule 3 created unreasonable restriction on the right of the citizen to hold property and, therefore, void. The Supreme Court held this view of the High Court could not be questioned and, their Lordships observed :-
"The right of mortgagee of a house partakes of the nature of immovable properties and law enacted before the Constitution which created unreasonable restriction would be void under Article 13 of the Constitution."
On the same reasoning the provisions of Section 137 of the Code cannot be sustained. The State cannot be given a right of preference in respect of its unsecured debt over the debt of the Petitioner No. 2 which is a secured one. The provision of law which gives the State a right of preference when the debts are unequal cannot also be sustained under Article 14 of the Constitution which guarantees equality and equal protection of law."
15. The question of priority of State debt vis-?-vis Securitization Act fell for consideration before a Full Bench of the Madras High Court in UTI Bank Ltd. Vs. The Dy. Commissioner of Central Excise, Chennai II Division, reported in 2007 (1) Law Weekly 50. In the said case, while dealing with the Central Excise Act, 1944, Customs Act, 1962 and the Securitization Act, the Full Bench 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 bank had taken possession of the property under Section 13 of the Securitization 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 wen 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 and in absence of any such provision to claim first charge, the Government cannot claim precedence over the claim of the secured creditor under the Securitization Act.
16. From the judgments referred to above, it will be evident that -
The arrears of tax due to the State can claim priority over the unsecured debt.
If first charge by way of priority is not claimed under the statute, the said doctrine is not applicable.
Normally, the doctrine of first charge/priority of State will prevail over the private debt which is an unsecured debt.
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 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.
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 33-C of the Industrial Disputes Act, 1947, as arrears of land revenue under Section 137 of the BLR 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 BLR Code.
19. For the reasons aforesaid, while we answer the issue in favour of the appellants - petitioners, allow the prayers made in their appeal and the writ petitions, but there shall be no order as to costs. The Civil Application also stands disposed of.
[S.J. MUKHOPADHAYA, CJ.] [ANANT S. DAVE, J.] sundar/-
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