Himachal Pradesh High Court
State Of H.P. & Ors vs M/S Acacia Traders ... on 4 April, 2024
Bench: Tarlok Singh Chauhan, Sushil Kukreja
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
CMP(M) No. 1614/2023 in LPA No. 71/ 2024
CMP(M) No. 1688/2023 in LPA No. 72/2024
.
Decided on: 02.04.2024
______________________________________________________________
(1) CMP(M) No. 1614/2023 in LPA No. 71/ 2024
State of H.P. & Ors. ....Applicants/Appellants
Versus
M/s Acacia Traders ....Nonapplicant/Respondent
(2) CMP(M) No. 1688/2023 in LPA No. 72/2024
State of H.P. & Ors. ....Applicants/Appellants
Versus
SBI & Anr. ....Nonapplicants/Respondents
_
Coram
The Hon'ble Mr. Justice Tarlok Singh Chauhan, Judge.
The Hon'ble Mr. Justice Sushil Kukreja, Judge.
_______________________________________________________________
Whether approved for reporting?1
For the applicants/appellants: Mr. Anup Rattan, Advocate
General with Mr. I.N. Mehta,
Senior Additional Advocate
General, Mr. Ramakant Sharma,
Ms. Sharmila Patial, Additional
Advocates General, Mr. J.S.
Guleria and Mr. Raj Negi, Deputy
Advocates General.
For the respondent(s) : Mr. Abhishek Sharma, Advocate,
for the respondent in CMP(M) No.
1614 of 2023.
1Whether reporters of Local Papers may be allowed to see the judgment?
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2
Mr. Arvind Sharma, Advocate, for
respondent No. 1 in CMP(M) No.
1688 of 2023.
Mr. Vikas Rajput, Advocate, for
.
respondent No. 2 in CMP(M) No.
1688 of 2023.
Tarlok Singh Chauhan, Judge (oral)
CMPs(M) No. 1614 & 1688/2023 For the reasons stated in the applications, which are duly supported with the affidavits of Commissioner of State Taxes and Excise, H.P., we deem it appropriate to condone the delay that has crept up in filing of the instant appeals.
The applications stand disposed of.
LPAs No. 71 & 72/2024 Since common question of law is involved in both the appeals, they are heard together and are being disposed of by this common judgment.
2. At the outset bare minimal facts may be noticed. Respondent No. 1 is the original writ petitioner, who approached the learned writ Court seeking directions to the official respondents (appellants herein) to remove the entries reflecting some sort of charge in favour of the Excise and Taxation Department. Even though the ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 3 property had already been sold by the secured creditors in proceedings carried out under the Securitization and .
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
3. The moot question in this appeal is whether the State Excise and Taxation Department will have priority over the secured creditors debt.
4. The learned writ Court after taking into consideration the judgment of the Hon'ble Supreme Court in Punjab National Bank Vs. Union of India & Ors., 2022(7) ACC 260, allowed both the writ petitions filed by the respondent(s) herein, ordering removal of the charge/lien and aggrieved thereby, the State has filed the instant appeals.
5. We really wonder as to why the State has filed the appeals, more particularly, when the legal position stands duly settled by the Hon'ble Supreme Court in its various decisions rendered from time to time, which in turn have been followed and reiterated by this Court.
::: Downloaded on - 05/04/2024 20:39:37 :::CIS 46. In CWP No. 5194 of 2023, titled Canara Bank Vs. State of Himachal Pradesh & Others, decided on .
21.08.2023, this Court has held as under: "4. LEGAL POSITION & ANALYSIS 4(i) In order to appreciate the claim of the petitioner and the plea of the respondent, which is not disputed on facts and is also admitted in law, the provisions of Section 26E and Section 35 of the SARFAESI Act are reproduced hereinbelow: "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 of 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.
35. The provisions of this Act to override other lawsThe provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
4(ii) The aforesaid legal provisions came up for discussion before the Hon'ble Supreme Court in Punjab National Bank vs. Union of India & Ors (2022) 7 SCC 260, which are reproduced hereinbelow: ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 5
42. "Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise Department, the High Court in the impugned .
judgment has held that "In view of the matter, the question of first charge or second charge over the properties would not arise." In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise.
46. This Court, in Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. [(2000) 5 SCC 694], wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under:
"10. However, the Crowns preferential right of 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 of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor."
47. Further, in Central Bank of India Vs. Siriguppa Sugars & Chemicals Ltd. & Ors.
[(2007) 8 SCC 353], while adjudicating a similar matter, this Court has held as under:
"18. Thus, going by the principles governing the matter, propounded by this Court there cannot be any doubt that the rights of the appellantbank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 6 growers and to the employees. There is no dispute that the sugar was pledged with the appellant bank for securing a loan of the first respondent and the loan had not been repaid. The goods were .
forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellantbank. In view of the fact that the goods were validly pawned to the appellant bank, the rights of the appellantbank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods."
49. An SLP (No. 12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was "Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under: "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 Aiyear (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 ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 7 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 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.
50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.
51. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India vs SICOM Ltd. (supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944.
::: Downloaded on - 05/04/2024 20:39:37 :::CIS 854. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise .
Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944".
r (Underlining Ours).
4(iii) While dealing with the scope of MSMED Act, 2006 visàvis SARFAESI Act, 2002 and the validity of the order of attaching of mortgaged secured assets, in view of recoverable dues, the Hon'ble Apex Court has categorically held in (2023) 3 SCC 210, titled as Kotak Mahindra Bank Ltd. vs. Girnar Corrugators Private Limited and Others, that nonobstante clause in Section 26E of SARFAESI Act shall prevail over the MSMED Act, in absence of any specific express provision giving priority for payment under the MSMED Act over the dues of the secured creditors or over any taxes or cesses payable to central/state government or local authority. In this background, the Hon'ble Apex Court has held as under: "26. The short question which is posed for the consideration of this Court is whether the MSMED Act would prevail over the SARFAESI Act? The question is whether recovery proceedings / recoveries under the MSMED Act would prevail over the recoveries made / recovery proceedings under provisions of the SARFAESI Act?
::: Downloaded on - 05/04/2024 20:39:37 :::CIS 927. It is the case on behalf of respondent No.1 that in view of Section 24 of the MSMED Act which provides that the provisions of Sections 15 to 23 of .
the MSMED Act would have overriding effect and shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force and in view of the fact that the MSMED Act being a later enactment, then the SARFAESI Act, the MSMED Act would prevail over the SARFAESI Act.
28. While appreciating the above submissions, it is required to be appreciated that Sections 15 to 23 of the MSMED Act only provide for special mechanism for adjudication of the dispute along with enforcing certain other contractual and business terms on the parties such as time limit for payments and interest in case of delayed payments. In the entire MSMED Act, there is no specific express provision giving 'priority' for payments under the MSMED Act over the dues of the secured creditors or over any taxes or cesses payable to Central Government or State Government or Local Authority as the case may be.
29. In sharp contrast to this, Section 26E of the SARFAESI Act which has been inserted vide Amendment in 2016, it provides that notwithstanding anything inconsistent therewith 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 revenue taxes and cesses and other rates payable to the Central Government or State Government or Local Authority. However, the priority to secured creditors in payment of debt as per Section 26E of the SARFAESI Act shall be subject to the provisions of the IBC. Therefore, such dues visavis dues under the MSMED Act, as per the decree or order passed by the Facilitation Council debts due to the secured creditor shall have a priority in view of Section 26E of the SARFAESI Act ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 10 which is later enactment in point of time than the MSMED Act.
30. At this stage, it is required to be noted Section .
26E of the SARFAESI Act which is inserted in 2016 is also having a nonobstante clause. Even as per the submission on behalf of respondent No.1, two enactments have competing nonobstante provision and nothing repugnant, then the nonobstante clause of the subsequent statute would prevail over the earlier enactments. As per the settle position of law, if the legislature confers the later enactment with a nonobstante clause, it means the legislature wanted the subsequent / later enactment to prevail. Thus, a 'priority' conferred / provided under Section 26E of the SARFAESI Act would prevail over the recovery mechanism of the MSMED Act. The aforesaid is to be considered along with the fact that under provisions of the MSMED Act, more particularly Sections 15 to 23, no 'priority' is provided with respect to the dues under the MSMED Act, like Section 26E of the SARFAESI Act.
32. At this stage, the object and purpose of the enactment of SARFAESI Act is required to be considered. SARFAESI Act has been enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central debts of security interest created on property rights, and for matters connected therewith or incidental thereto. Therefore, SARFAESI Act has been enacted providing specific mechanism / provision for the financial assets and security interest. It is a special legislation for enforcement of security interest which is created in favour of the secured creditor - financial institution. Therefore, in absence of any specific provision for priority of the dues under MSMED Act, if the submission on behalf of respondent No.1 for the dues under MSMED Act would prevail over the SARFAESI Act, then in that case, not only the ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 11 object and purpose of special enactment / SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26E of the SARFAESI Act would be frustrated. If the submission on behalf of .
respondent No.1 is accepted, then in that case, Section 26E of the SARFAESI Act would become nugatory and would become otiose and/or redundant. Any other contrary view would be defeating the provision of Section 26E of the SARFAESI Act and also the object and purpose of the SARFAESI Act.
33. Even otherwise the Naib Tehsildar was not at all justified in not taking possession of the secured assets / properties as per order dated 24.09.2014 passed by the District Magistrate under Section 14 of the SARFAESI Act. The order passed by the Naib Tehsildar refusing to take possession of the secured assets / properties despite the order passed under Section 14 of the SARFAESI Act on the ground that recovery certificates issued by respondent No.1 for recovery of the orders passed by the Facilitation Council are pending, is wholly without jurisdiction. While exercising power under Section 14 of the SARFAESI Act, even the District Magistrate has no jurisdiction and/or District Magistrate and/or even the Chief Metropolitan Magistrate has no jurisdiction to adjudicate the dispute between secured creditor and debtor.
35. Therefore, the order passed by the Naib Tehsildar refusing to take the possession pursuant to the order passed by the District Magistrate under Section 14 of the SARFAESI Act was wholly without jurisdiction and therefore also the same was liable to be set aside."
(Underlining ours) 4(iv) A similar issue, came up for adjudication before the Coordinate Bench of this Court in LPA No. 156 of 2021, decided on 12.04.2023, titled as State of H.P. & Ors vs. State Bank of India & ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 12 Anr alongwith connected matters. This LPA alongwith other connected matters were decided by relying upon the judgment of Hon'ble Apex Court in .
case of Punjab National Bank (supra) whereby, the appeals filed by the State of Himachal Pradesh were dismissed.
4(v) Based on the judgment in case of Punjab National Bank (supra) and Judgment in case of Kotak Mahindra Bank Limited (supra), this Court in CWP No. 4751 of 2023, titled as Central Bank of India vs. State of H.P. & Ors, decided on 16.08.2023 has held as under: "The action of Respondent No.3, in refusing to register the Sale Certificate dated 15.01.2021, Annexure P3, and to carry out the Mutation thereof, in favour of RespondentNo.6 AuctionPurchaser, amounts to not only frustrating the statutory provisions of Section 26E of SARFAESI Act, enacted in the year 2016 but also amounts to curtailing or defeating the rights accruing to the Auction PurchaserRespondent No.6 herein, under the SARFASEI Act and the dictum of law laid down by the Hon'ble Apex Court, in case of Punjab National Bank and Kotak Mahindra Bank (supra) and the judgment of the Coordinate Bench of this Court in LPA No. 156 of 2021 (supra), and, therefore, the impugned order(s) passed by the State Authorities in disallowing registration of Sale Certificate and the consequential rights accruing therefrom, being dehors the provisions of SARFAESI Act and the mandate of law, referred to above, are illegal and unsustainable."
4(vi) The PetitionerBanksecured creditor cannot be deprived of its rights to proceed against the secured assetsimmovable lease hold property as detailed in Para 2(i) of this petition, in view of the temporary ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 13 injunction granted by learned Civil Judge, Court No.2, Nalagarh on 24.01.2019, Annexure P4, in a Civil Suit when, temporary injunction was granted qua some moveable articles which were kept by M/s .
Hema Industries from a time prior to the transfer of lease rights in favour of M/s Oceano Graphics i.e. loanee herein on 14.06.2017, Annexure P1. Mere use of premises by M/s Hema Industries for keeping his moveable articles cannot be the basis for curtailing or frustrating the rights of secured creditor petitionerbank under the SARFAESI Act. The rights of secured creditorPetitionerBank to recover its dues from aforesaid loanee, under SARFAESI Act, could not have been interfered with by the learned Civil Court in view of the bar in Section 34 of the Act and that too when, proceedings under Section 13(2) of SARFAESI Act had already begun on 23.11.2017, Annexure P2. More storage of moveable articles by Sh. Love Kanwar or M/s Hema Industries (earlier lease holder), cannot be the basis for depriving the secured creditorbank to recover the secured interest on the leasehold immovable property by putting it to Eauction under SARFAESI Act."
7. Thus, what stands settled by now is that the issue of priority of government dues or Crown debts over the dues of other creditors is confined to ordinary or unsecured creditors. However, the common law practices of equity and good conscience, as applicable in India and the common law of England, do not accord the government or Crown dues a preferential right for recovery of dues or debts over a mortgagee, pledgee of goods or a secured creditor. The common law doctrine giving preferential ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 14 rights to the Crown debts confined to ordinary or unsecured creditors constitutes 'law in force' within the .
meaning of Article 372(1) of the Constitution of India, and accordingly, this law continues to be in force.
8. However, a caveat needs to be entered that the 'law in force' within the meaning of Article 372(1) of the Constitution of India, must give way to a statutory charge which may be created by an enactment, whereby a first charge is given to government dues or Crown debts, notwithstanding the charge of the secured creditors.
9. The proposition laid down in Punjab National Bank's case (supra) has thereafter been followed by three Judges Bench of the Hon'ble Supreme Court in Sundaresh Bhatt, Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and Customs, 2023(1) SCC 472 and both these judgments in turn have been followed in Industrial Development Bank of India Vs. Superintendent of Central Excise and Customs & Others, (2023) 10 SCC 107.
10. Since the legal position set out hereinabove is no longer res integra, no exception thereto can be taken by ::: Downloaded on - 05/04/2024 20:39:37 :::CIS 15 the appellants to the impugned judgment that too by claiming that they have first charge on the property in .
terms of Section 26 of the Himachal Pradesh Value Added Tax Act, 2005 or under the provisions of Central Sales Tax Act, 1956, more particularly, when they failed to create a charge over the same prior to that of the secured creditor.
11. In view of the aforesaid discussion, both the appeals are dismissed.
Pending application(s), if any, stands disposed of.
( Tarlok Singh Chauhan )
Judge
( Sushil Kukreja )
2nd
April, 2024 Judge
(raman)
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