Madras High Court
Central Bank Of India vs The Assistant Commercial Tax Officer on 12 August, 2010
Author: S.Manikumar
Bench: S.Manikumar
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 12/08/2010 CORAM THE HON'BLE MR.JUSTICE S.MANIKUMAR W.P.(MD)No.1829 of 2007 and M.P.(MD)No.2 of 2007 Central Bank of India, Karaikudi Branch, 12, Koviloor Road, Karaikudi - 623 001, Rep by its Regional Manager, R.Ravikumar having office at Raja Muthiah Mandram, Madurai 20. .. Petitioner vs 1.The Assistant Commercial Tax Officer, Office of Assistant Commercial Tax Office, Thiruppathur, Karaikudi. 2.Sree Veera Jothi Textiles Private Ltd., Through its Managing Director, Mr.A.E.Alagappan, Thiruppathur Road, A.Thekkur - 623 201 Sivagangai District. .. Respondents PRAYER Writ Petition filed under Article 226 of the Constitution of India, praying for the issuance of Writ of Certiorari, calling for the records relating to the proceedings of the 1st respondent dated 07.02.2007 made in Na.ka.No.A3/1058/03, quash the same. !For Petitioner ... Mr.K.Rajasekaran ^For Respondents ... Mr.K.Balasubramanian Additional Government Pleader. :ORDER
Auction notice, dated 07.02.2007, issued by the Assistant Commercial Tax Officer, Thiruppathur, Karaikudi has been challenged inter alia on the ground that the Central Bank of India, Karaikudi Branch, the petitioner herein has sanctioned loan to the second respondent to construct a factory and purchase of new and second hand machineries besides meeting out their working capital requirements. According to the petitioner, loan was sanctioned on various dates and as on 17.05.2001, the outstanding amount due and payable by the second respondent was Rs.1,83,48,089.95. It is the further contention that as the second respondent has failed to adhere to the terms and conditions of the sanction and neglected to repay the amounts due under various facilities leaving a huge outstanding amount with overdue interest, the petitioner was constrained to move the Debts Recovery Tribunal II at Chennai in O.A.No.1277 of 2001 for recovery of the said amount along with pendenti lite and future interest at the rate of 16.50% per annum with quarterly rest till the date of realisation of full. According to them, as on the date of filing of the writ petition a sum of Rs.3,00,00,000/- was pending. While that be so, the office of the Assistant Commercial Tax Officer, has passed the impugned order dated 07.02.2007 stating that a sum of Rs.1,43,52,703/- along with 2% penal interest representing the arrears of tax and pendenti lite has to be paid by the second respondent and that to recover the same, by way of public auction would be conducted on 03.03.2007 for sale of the property in S.No.626/1, Thirupathur Taluk, Thekkur Village. According to the petitioner, the second respondent had already mortgaged the said property to the bank and therefore, it has the first charge over the property. It is the further contention of the bank that the Assistant Commercial Tax Officer, the first respondent herein can proceed against the property of the borrower only after satisfying the security debt of the writ petitioner bank. It is also the contention of the petitioner that the Commercial Tax Authority has not initiated any assessment proceeding prior to the mortgage and therefore, the first respondent cannot claim any charge over the property unless a valid assessment has been made for the relevant period of time. In support of the contention that bank debts will have charge, over crown debt, learned counsel for the petitioner relied upon the decisions of the Division Bench of this Court in Indian Bank, rep. by Authorised Officer, Vellore Circle Office, Vs. Commercial Tax Officer, Office of CTO, Navalpur, Ranipet and Others reported in 2009(6) MLJ 659 and in M.Nagarajan Vs. The Deputy Commercial Tax Officer and State of Tamil nadu rep.by Secretary, Commercial Taxes Department reported in 2009 25 VST 175 (Mad).
2.Learned counsel for the petitioner also brought to the notice of this Court that both the decisions of this Court stated supra, have been confirmed on appeal by the Hon'ble Supreme Court in S.L.P.Nos.1838 and 1908 of 2010 respectively dated 11.02.2010.
3.Though the writ petition is pending for nearly three years, the respondents have not chosen to file any counter affidavit. However, learned counsel for the State submitted that in the absence of proceedings against the property under SARFAESI Act, it is always open to the Assistant Commercial Tax Officer, the first respondent herein to bring the property of the second respondent for auction so as to realise the arrears of tax and penalty. He submitted that there is no manifest illegality warranting any interference.
4.Heard the learned counsel for the parties and perused the materials available on record.
5.The issue as to whether the bank debt will property over crown debt, is no longer res integra, in view of the decisions of this Court stated supra in Indian Bank, rep. by Authorised Officer, Vellore Circle Office, Vs. Commercial Tax Officer, Office of CTO, Navalpur, Ranipet and Others reported in 2009(6) MLJ 659, rendered after considering the decisions of the Full Bench of this Court in UTI Bank Ltd., Vs. Deputy Commissioner of Central Excise, Chennai-2 and another reported in 2007(1) LW 50 and another decision reported in Union of India and others Vs. SICOM Ltd., and other reported in JT (2009) 1 SC 87 in M.Nagarajan Vs. The Deputy Commercial Tax Officer and State of Tamil nadu rep.by Secretary, Commercial Taxes Department reported in 2009 25 VST 175 (Mad) and at paragraph Nos.16, 17, 18 and 19 of this Court held as follows:
"16.It is not in dispute that the Bank is a secured creditor within the meaning of Section 2(zd) of the SARFAESI Act, 2002. It has 'secured interest' over the secured asset. Section 2(zc) defines secured asset as property on which security interest is created. Security interest is defined under Section 2(zf), as right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. Security agreement is already existing between the bank and borrower, as defined under Section 2(zb) which means an agreement, instrument or any other document or arrangement under which security interest is created in favour of the secured creditor including the creation of mortgage by deposit of title deeds with the secured creditor.
17.If the status of the State is looked into, it will be evident that it can claim priority of debt over others in regard to the arrears of tax due to the State. As per the Supreme Court decision in Union of India and Others Vs. SICOM Ltd., and Another (supra), for recovery of State debts, the State can claim priority for before all other creditors, but such creditor must be held to mean "unsecured creditor". No such priority can be claimed over a secured creditor.
18.The findings of the Division Bench in the case of M.Nagarajan V. Deputy Commercial Tax Officer, Tindivanam and another (supra), reads as follows:
"15(i)....
(ii)....
(iii).....
(iv)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 security 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."
19.This apart, the assets being secured assets with the Bank, having its secured interest over the property, the Bank being a secured creditor and its debt being a secured debt, we hold that the principle of first charge/priority of State over the property will not be applicable in the present case".
6.In this context, useful reference can be made to the decision of the Full Bench of this Court in UTI Bank Ltd., Vs. Deputy Commissioner of Central Excise, Chennai-2 and another reported in 2007(1) LW 50 wherein it has been held as follows:
"26.In the light of the above discussion, we conclude, "(i)Generally, the dues to Government, i.e., tax, duties, etc., (Crown's debts) get priority over ordinary debts.
(ii)Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.
(iii)Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank.
(iv)In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts."
In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein."
7.In yet another decision in M.Nagarajan Vs. The Deputy Commercial Tax Officer and State of Tamil nadu rep.by Secretary, Commercial Taxes Department reported in 2009 25 VST 175 (Mad), this Court has held as follows:
"15.Having regard to the judicial pronouncements rendered by Courts and noticed above, we may sum up the law as under:
(i)Arrears of tax due to the State can claim priority over the unsecured debts.
(ii)The common law doctrine about priory of Crown debts/State debts is recognised law in force within the meaning of Article 372(1) of the Constitution of India.
(iii)The doctrine will not apply if first charge by way of priority is not claimed under the statute.
(iv)The doctrine of first charge/priority of the State over the property will prevail over the private debts, which is 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".
8.It is seen from the order dated 11.02.2010 made in S.L.P.Nos.1838 and 1908 of 2010 both the Division Bench judgments cited supra were taken on appeal and that the Hon'ble Supreme Court has dismissed the S.L.Ps.
9.In view of the legal pronouncements of the Division Bench of this Court and confirmed by the Hon'ble Supreme Court, the contention that the bank is a secured creditor within the meaning under Section 2(d) of the SARFAESI Act, 2002, the assets are secured assets with the bank and that the bank being a secured creditor, has the first charge/priority over the property. In such circumstances, the auction notice is liable to be set aside. According, it is set aside. The writ petition is allowed. No costs. Consequently, connected miscellaneous petitions are closed.
sms To The Assistant Commercial Tax Officer, Office of Assistant Commercial Tax Office, Thiruppathur, Karaikudi.