Rajasthan High Court - Jaipur
Gmc Engineers & Contractor Pvt Ltd Anr vs State (Finance Dept) Ors on 5 July, 2017
Author: M.N. Bhandari
Bench: M.N. Bhandari
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
S.B. Civil Writ Petition No.6872/2017
1. GMG Engineers & Contractor Pvt. Ltd., Shop No.7-10, 2nd Floor,
MCD Mini Market, Dakshinpuri, New Delhi-110062 through its
Director/Authorised Signatory.
2. Shri Praveen Kumar Gupta S/o Shri Ram Gopal Gupta, Aged
about 46 years, Director/Authorised Signatory GMG Engineers &
Contractor Pvt. Ltd., Shop No. 7-10, 2nd Floor, MCD Mini Market,
Dakshinpuri, New Delhi-110062.
----Petitioners
Versus
1. State of Rajasthan through Principal Secretary, Department of
Finance, Govt. of Rajasthan, Secretariat, Jaipur (Raj.)
2. Commissioner, Sales Tax Department, Govt. of Rajasthan,
Jaipur.
3. Sales Tax Officer, Sales Tax Department, Govt. of Rajasthan,
Bhiwadi, Rajasthan.
4. The Senior Regional Manager, RIICO Limited, Unit-1, Bhiwadi,
Rajasthan.
5. The Authorized Officer, ICICI Bank Limited, NBCC Place, Bhism
Pitamah, New Delhi-110003.
----Respondents
_____________________________________________________ For Petitioner(s) : Mr. Rajiv Bansal, Sr. Adv. with Mr. Sandeep Pathak, Mr. Gorang Gupta & Ms. Aakriti For Respondent(s) : Mr. RB Mathur with Mr. Nikhil Simlote _____________________________________________________ HON'BLE MR. JUSTICE M.N. BHANDARI Date of Judgment : 5th July, 2017 By this writ petition, a challenge is made to the order dated 19th April, 2014 (corrected as 19th April, 2017). It was informed that property of SR Foils and Tissue Ltd. was attached by the respondent-Sales Tax Officer, Special Circle-I, Bhiwadi (2 of 20) [CW-6872/2017] ("respondent-department") in the year 2014. It was yet auctioned by the respondent No.5-ICICI Bank, though in view of Section 47 of the Rajasthan Value Added Tax Act, 2003 (hereinafter referred to be as "the Act of 2003"), first charge on the property is of the department thus action is void and illegal.
Learned Senior Counsel Shri Rajiv Bansal assisted by Mr.Sandeep Pathak submits that property belonging to SR Foils and Tissue Ltd. was purchased by the petitioner-company in auction conducted by the respondent-Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the Act of 2002"). The auction of the property in question was made on 31 st January, 2017. It was due to default of SR Foils and Tissue Ltd. in payment of loan amount thus Section 13 of the Act of 2002 read with Rule 12 of the Security Interest (Enforcement) Rules, 2002 (for short "the Rules of 2002") were invoked.
The petitioner-company participated in the auction and being highest bidder, the respondent-Bank declared the petitioner- company to be successful bidder vide letter dated 24 th February, 2017. They were asked to deposit a sum of Rs.3,60,00,000/-. The company deposited the amount. The respondent-Bank thereupon delivered the documents relating to the property so as the possession. The impugned order dated 19 th April, 2014 (corrected as 19th April, 2017) came as a shock to the petitioner-company to declare action to be void. The petitioner-company gave reply to the notice but the impugned order has not been withdrawn. The petitioner-company was even informed that irrespective of (3 of 20) [CW-6872/2017] purchase of property in auction, the State Government may auction it for recovery of their dues. A challenge to the impugned order has been made alleging it to be arbitrary and illegal.
Learned counsel submits that an amendment was made in the Act of 2002 to bring Section 26E. The priority is given to the secured creditors and it is with non-obstante clause. The secured creditors have been given priority over all other debts and revenues dues, taxes, cesses and other rates payable to the Central or the State Government or local authority. The respondent-Bank, being secured creditor, was having priority over the taxes payable to the State Government. In view of the above, the impugned order deserves to be set aside as it has been issued in ignorance of Section 26E of the Act of 2002.
Learned counsel has further made a reference of Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 (for short "the Act of 1993") where secured creditors have been given priority over all the dues which includes even the taxes of State or Central Government. The provision aforesaid is similar to Section 26E of the Act of 2002. In the light of the provision aforesaid, the State Government could not have passed the impugned order for recovery of the taxes in reference to the State Act when Central Act was amended with non-obstante clause. After amendment in the Act of 2002 and 1993, what will prevail is the Central Legislation and not the State Act. The priority claimed by the State Government to recover the dues should not be accepted.
A reference of Section 31 of the Specific Relief Act, 1963 has also been given. The instruments having been executed in favour (4 of 20) [CW-6872/2017] of the petitioner-company cannot be cancelled unless the procedure given under Section 31 of the Act of 1963 is undertaken. The respondent-department failed to undertake the procedure given under the said provision. For the aforesaid reason also, impugned order deserves to be set aside.
It is lastly stated that impugned order has been issued in violation of Section 100 of the Transfer of Property Act, 1882 (for short "the Act of 1882"). The petitioner-company had no knowledge about the attachment of the property. The issue in reference to the said provision was decided by the Apex Court in the case of The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdulgafur Haji Hussenghai, reported in 1971 (1) SCC 757. It was held that constructive knowledge about attachment of the property cannot be presumed, though it is to be decided on the facts of each case. In the instant case, petitioner-company was not knowing about first charge and attachment of the property by the State Government and having purchased the property bonafidely for consideration, the attachment should not be allowed to stand.
A reference of the judgment of the Full Bench of the Madras High Court in the case of The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank & Ors., reported in AIR 2017 Mad67 has been given. Therein, the issue in reference to Section 26E was decided by the Full Bench of Madras High Court. A further reference of judgment of the Bombay High Court in the case of M/s. Sonoma Management Partners Pvt. Ltd. Vs. Bank of Maharashtra, (5 of 20) [CW-6872/2017] reported in 2017 (1) BC 187 has been given. The Bombay High Court has even considered the earlier judgment of the Supreme Court in the case of Central Bank of India Vs. State of Kerala & Ors., reported in (2009) 4 SCC 94. The judgment in the case of Central Bank of India (supra) has not been applied as it was given prior to the amendment in the Act of 2002 and 1993. A reference of another judgment of the Bombay High Court in the case of Axis Bank Limited Vs. State of Maharashtra, reported in 2017 (3) AIR Bom.R 305 has been given. Therein also, same issue was determined. A further reference of the judgment of the Apex Court in the case of UCO Bank & Anr. Vs. Dipak Debbarma & Ors., reported in (2017) 2 SCC 585 has been given. The prayer is to set aside the impugned order with a direction to the State Government not to cause interference in peaceful enjoyment of the property.
Learned counsel for respondents has contested the writ petition. It is stated that attachment of the property in question was made in the year 2014 itself and it was under Sections 230 and 239 of the Rajasthan land Revenue Act, 1956 (in short "the Act of 1956"). The sale of property was made after three years of the date of attachment of the property. Section 47 of the Act of 2003 creates first charge on the property thus was rightly invoked by the respondent-department in the year 2014 itself. The amendments in the Act of 2002 and 1993 were made in the year 2016. It is subsequent to the attachment of the property thus amended provision would not apply to this case. It is moreso when amendment has not been given retrospective effect.
(6 of 20) [CW-6872/2017] The petitioner-company has made reference of amended provision in ignorance to the attachment of the property in the year 2014 after applying the procedure given under Sections 230 and 239 of the Act of 1956. In view of the above, Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would not apply to the case.
It is further submitted that process, as required under the Act of 1956, was not only initiated but taken as per Sections 230 and 239 of the Act of 1956. The constructive knowledge gets satisfied and it goes against the petitioner-company. The judgment in the case of The Ahmedabad Municipal Corporation of the City of Ahmedabad (supra) would not apply to the facts of this case. In the same manner, there exists no question of application of Section 31 of the Act of 1963. A reference of judgment of the Apex Court in the case of Central Bank of India (supra) has been given. It is applicable to the case for the reason that attachment of the property is prior to amendment in the Act of 2002 and 1993. The amended provision does not otherwise nullify first charge provided under the State legislation, rather, judgment of the Apex Court in the case of Central Bank of India (supra) applies to this case. A further reference of earlier judgment in the case of State Bank of Bikaner and Jaipur Vs. National Iron and Steel Rolling Corporation, reported in (1995) 2 SCC 19 has been given. The prayer is made to dismiss the writ petition.
I have considered the rival submissions made by learned counsel for the parties and perused the record.
(7 of 20) [CW-6872/2017] The petitioner-company is an auction purchaser of the property attached by the respondent-department in the year 2014 under Sections 230 and 239 of the Act of 1956. The challenge to the impugned order has been made in reference to Section 26E of the Act of 2002, as amended vide the Act No.44 of 2016. The similar provision was inserted in the Act of 1993 vide the same Act of 2016. Section 26E of the Act of 2002 and Section 31B of the Act of 1993 are quoted hereunder for ready reference:
"26E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.
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.
(8 of 20) [CW-6872/2017] Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."
The provisions aforesaid start with non-obstante clause and give priority to the secured creditors against all other debts and Government dues including revenues, taxes, cesses and other rates payable to the Central or the State Government. The priority thus exists to the secured creditor but it is without reference to first charge provided under the State legislation.
The first issue for my consideration is as to whether amended provisions of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would apply to the present case. It is for the reason that both the provisions were inserted in the year 2016, whereas, attachment of the property in question to recover the dues was made by the respondent-department in the year 2014 itself. It is not the case of either of the parties that amended provision is retrospective and otherwise perusal of amended provision does not show it thus would apply prospectively. The property already attached towards recovery of State dues cannot be nullified by the subsequent legislation when it has not been given retrospective effect. If argument of the learned counsel for petitioner about priority rights of the secured creditors vis a vis Government dues is accepted, it would apply from the date of amendment, whereas, attachment of the property was made in (9 of 20) [CW-6872/2017] the year 2014, thus it was not free for auction. The enforcement of statutory first charge by attachment cannot be nullified by subsequent auction when no priority right was existing in favour of the secured creditors at the relevant time. Section 47 of the Act of 2003 is relevant for it, thus quoted hereunder for ready reference:
"47. Liability under this Act to be the first charge- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of such dealer or person."
Section 47 of the Act of 2003 starts with non-obstante clause and creates first charge on the property. The issue about priority claim of the secured creditor vis a vis first charge on the property under the State legislation was considered by the Supreme Court in the case of Central Bank of India (supra). If State Act creates first charge on the property then secured creditors cannot have claim against the statutory provision. Therein, consideration was also made even in reference to Section 100 of the Act of 1882. The relevant paras of the judgment in the case of Central Bank of India (supra) are quoted hereunder for ready reference:
"111. 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.
(10 of 20) [CW-6872/2017]
112. Under Section 13(1) of the Securitisation Act, limited primacy 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 Narasimham Committee's 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act.
113. 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 primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy 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.
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 (11 of 20) [CW-6872/2017] 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.
126. 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 of 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. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies.
129. 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 (12 of 20) [CW-6872/2017] 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 Securitisation Act.
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 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.
(13 of 20) [CW-6872/2017] It is submitted that judgment of the Apex Court in the case of Central Bank of India (supra) was prior to the amendment in the Act of 2002 and 1993 thus would not apply to the cases governed by the amended provisions. In the case in hand, the attachment of property by the State is prior to the amendment thus amended provision would not apply. Section 47 of the Act of 2003 was invoked prior to the amendment.
I am yet considering the effect of the amended provision.
The Apex Court has made analysis of a provision of first charge vis a vis secured creditor in the case of Central Bank of India (supra).
The first charge was given supremacy than rights under mortgagee or to a secured creditor. The distinction "between first charge and secured creditor" is necessary to analyse scope of Section 26E of the Act of 2002 and Section 31B of the Act of 1993. The amended provisions are having overriding effect and give priority to the secured creditors vis a vis State dues. It does not, however, nullify the effect of first charge created on the property under the State Act. If intention of Parliament would have been to nullify the effect of first charge, the language of Section 26E of the Act of 2002 and Section 31B of the Act of 1993 would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). It should have been with non-obstante clause and that secured creditors would have priority over the first charge created under a State legislation. The amendment made by Parliament is to give priority to the secured creditors vis a vis State dues without speaking about the first charge.
(14 of 20) [CW-6872/2017] In the instant case, there exists no repugnancy in two legislations. The intention of Parliament is not to nullify the State enactment providing first charge on the property. The legislations have been made by the Central Government and State under Entry I and II of the Schedule and not out of Concurrent List. The aforesaid aspect has also been considered by the Apex Court in the case of Central Bank of India (supra). The petitioner-company has failed to make distinction between priority right of the secured creditors vis a vis first charge. In view of the above, amended provisions cannot be applied and otherwise it was made in the year 2016, whereas, the attachment of the property was made in the year 2014.
Learned counsel for petitioner-company has urged that auction of the property was made subsequent to the amendment thus even if it has not given retrospectively, would have no effect on the present case. If argument aforesaid is accepted then would result in nullifying the attachment of the property made even prior to the amendment. The argument aforesaid cannot be accepted.
The property attached in the year 2014 under the Act of 1956 was not free for auction. The petitioner-company has not challenged the attachment under the Act of 1956 and without its challenge, it cannot be nullified due to subsequent auction. Section 31 of the Act of 1963 goes against them for it. If petitioner-company is aggrieved by the attachment due to priority given under Section 26E, it could have been challenged.
Learned counsel for petitioner-company has referred Section 100 of the Act of 1882 also. The argument in reference to the (15 of 20) [CW-6872/2017] aforesaid provision was raised before the Apex Court also in the case of Central Bank of India (supra). It has been dealt with in Para 162 to 174 of the said judgment. The reference of the judgment in the case of Dattatreya Shanker Mote Vs. Anand Chintaman Datar, reported in (1974) 2 SCC 799 has been given. The charge in the property can be created either by the act of the parties or by operation of law to make security for payment of money. It is stated that charge is not enforceable against the purchaser of property for consideration. In the instant case, the property in question was purchased by the petitioner-company much subsequent to its attachment under Sections 230 and 239 of the Act of 1956. It was in reference to first charge as per Section 47 of the Act of 2003. The petitioner-company was having constructive knowledge of the process under Sections 230 and 239 of the Act of 1956.
Para 11 of the judgment of the Apex Court in the case of "The Ahmedabad Municipal Corporation of the City of Ahmedabad"
(supra) is quoted hereunder:
"11. Now the circumstances which by a deeming fiction impute notice to a party are based, on his wilful abstention to enquire or search, which a person ought to make or, on his gross negligence.
This presumption of notice is commonly known as constructive notice. Though originating in equity, this presumption of notice is now ;a part of our statute and we have to interpret it as such. Wilful abstention suggests conscious or deliberate abstention and gross negligence is indicative of a higher degree of neglect. Negligence is ordinarily understood as an omission to take such reasonable care as under the circumstances is the duty of a person of ordinary (16 of 20) [CW-6872/2017] prudence to take. In other words it is an omission to do something which a reasonable man guided by consideration which nor- mally regulate the conduct of human affairs would do or doing something which a normally prudent and reasonable man would not do. The question of wilful abstention or gross negligence and, therefore, of constructive notice considered from this point of view is generally a question of fact or at best mixed question of fact and law depending primarily on the facts and circumstances of each case and except for cases directly falling within the three explanations, no inflexible rule can be laid down to serve as a straight- jacket covering all possible contingencies. The question one has to answer in circumstances like the present is not whether the purchaser had the means of obtaining and might with prudent caution have obtained knowledge of the charge but whether in not doing so he acted with wilful abstention or gross negligence. Being a question depending on the behaviour of a reasonably prudent man, the Courts have to consider it in the background of Indian conditions.
Courts in India should, therefore, be careful and cautious in seeking assistance from English precedents which should not be blindly or too readily followed."
In the case of "The Ahmedabad Municipal Corporation of the City of Ahmedabad" (supra), a person was in arrears of property tax. The Municipal Corporation created first charge over the property of the defaulter. The property was, however, sold on the direction of the court. When the Municipal Corporation proposed to exercise their charge over the property, the purchaser filed a suit for declaration. It was to pray that municipal dues are not recoverable from him. The Municipal Corporation urged that State (17 of 20) [CW-6872/2017] law permits creation of charge against the property for settlement of municipal dues. The constructive knowledge of the charge created against property was imputed. It was not accepted by the Apex Court on the facts of that case. It was, however, held that constructive knowledge has to be determined on the facts of each case as is a mixed question of fact and law. In the instant case, the respondent-department has not enforced recovery of dues after sale of the property and its purchase by the petitioner- company, but attachment to enforce first charge is prior to it. The attachment of the property under Sections 230 and 239 of the Act of 1956 was made in the year 2014 itself. The petitioner-company was under an obligation to find out as to whether property is subject to attachment. It could have been from the office of the Collector. The negligence cannot be to their benefit. The judgment in the case of "The Ahmedabad Municipal Corporation of the City of Ahmedabad" (supra) is to be applied after taking into consideration the facts of the case. In the case (supra), purchase of property was prior to the action of Municipal Corporation, whereas, in the instant case, it is just reverse.
Learned counsel for petitioner-company has even made a reference of Section 31 of the Act of 1963. The attachment of the property is prior to amendment in Section 26E and if petitioner- company claim it to be void or voidable in the light of Section 26E then it was required to sue as per Section 31 of the Act of 1963. The petitioner-company has failed to challenge it even in the case in hand. Unless attachment is declared to be void, subsequent auction cannot nullify it unless the process given under Section 31 (18 of 20) [CW-6872/2017] is taken. The argument of the petitioner-company goes against them.
Learned counsel for petitioner-company has made reference of judgments of the Bombay High Court as well as Madras High Court. The perusal of judgment of the Madras High Court in the case of "The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) does not show any discussion on the issue raised herein. It does not even speak about the first charge under the State legislation thus cannot govern the case. The reference of two judgments of Bombay High Court has also been given. Therein, judgment of Madras High Court has been relied. It is on different set of facts. It was found that purchase of the property was made before a State action to recover the dues. In the instant case, proceedings under Sections 230 and 239 of the Act of 1956 were initiated prior to the auction.
The Bombay High Court in the case of M/s. Sonoma Management Partners Pvt. Ltd. (supra) has considered the judgment of the Apex Court in the case of Central Bank of India (supra). The judgment in the case of Central Bank of India (supra) was not applied for the reason that it was given prior to the amendment in Section 26E of the Act of 2002 and it was after considering Section 38C of the BST and Section 26B of the Kerala General Clauses Act. The Bombay High Court has, with due respect, failed to apply the ratio propounded by the Apex Court in the case of Central Bank of India (supra) determining right of the secured creditor vis a vis first charge. The Apex Court in the case of Central Bank of India (supra) found that Parliament has not (19 of 20) [CW-6872/2017] made a provision to create first charge in favour of the secured creditor. The Parliament, while amending Section 26E, could have provided for first charge in favour of the secured creditor.
The different legislations providing for first charge against the dues were also considered by the Apex Court in the case of Central Bank of India (supra). It was in reference to Workmens' Compensation Act, Employees' Provident Fund Act, Excise Duty Act and Companies Act, etc. Therein also, statutory first charge is provided against the dues. The reference of those enactments were given to make distinction between priority rights of the secured creditor vis a vis statutory first charge on the property.
Learned Senior Counsel appearing for the petitioner- company submits that Section 26E of the amended Act gives priority to the secured creditor against all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured creditor. It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as provided in Workmens' Compensation Act, Employees' Provident Fund Act, etc. The State dues may be without a provision of first charge and in that situation, the secured creditors would have priority over the State dues and, accordingly, amended provision is to be given interpretation. It cannot, however, nullify a provision for first charge on the property. The first charge on the property creates (20 of 20) [CW-6872/2017] right even as per the Act of 1882. It has already been observed that if intention of the Central Government was to nullify first charge, the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank of India (supra). It is otherwise a case where attachment of the property in pursuance of first charge of the State Government is much prior to the amended Act of 2002 and 1993 thus those amendments would not apply even if subsequently auction of the property was made. It is nothing but auction of the property already attached by the Government, that too, after initiation of proceedings under the Act of 1956.
In the light of the discussion made above, I am unable to accept arguments of the learned counsel for the petitioner- company. The writ petition is, accordingly, dismissed.
(M.N. BHANDARI)J. FRBOHRA