The Supreme Court has clarified that a decision on the constitutional validity of a provision should only be made when the specific circumstances of the case require such a decision, and not in isolation. The Court emphasized that such a decision cannot be made in a vacuum but must be based on a careful examination of the facts and issues at hand.
Brief Facts of the Case:
The State and the Commissioner submitted an application under section 151 of the CPC to recall the judgment and order. However, the Division Bench rejected it, claiming it was a Review Petition disguised as an application under Section 151 CPC. After being denied relief in the Writ Petitions and the two applications, the State and its officers sought separate Special Leave Petitions from the Supreme Court.
However, the bank had already recovered its dues and the property from its hypothecation, rendering the special leave petitions ineffective, with the bank being removed from the list of respondents. Despite the issue between the State and Punjab National Bank concluding with the dismissal of the special leave petitions, the Supreme Court granted special leave to appeal both petitions in December 2012. The appeals were brought before the Court for a hearing and a decision.
Brief Background:
The State of Himachal Pradesh and its officers filed two sets of civil appeals connected by a common thread. The appeals were heard together, involving similar legal provisions and different factual situations. A common judgment and order disposed of the appeals.
In Case 1, M/s. A.J. Infrastructures (Pvt.) Ltd. filed a writ petition in connection with their purchase of a property in 2005 under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (hereinafter referred to as the “SARFAESI” Act). The property was previously mortgaged to Himachal Pradesh Financial Corporation (for brevity, “HPFC”, hereafter) by M/s. Regent Rubber Private Limited, who defaulted on their loan. After being sold to M/s. Eastman Rubber, who also defaulted on their loan, the property was put up for auction and was won by M/s. A.J. Infrastructures (Pvt.) Ltd. for Rs. 50 lakhs. However, their application for mutation of the property was rejected due to an ex parte assessment order against Regent and Eastman under the Himachal Pradesh General Sales Tax Act of 1968 (Hereinafter referred to as HP GST Act). The High Court allowed the petition and directed the tehsildar to mutate the property in M/s. A.J. Infrastructures (Pvt.) Ltd.'s name.
In Case 2, Punjab National Bank (hereinafter referred to as “PNB”) provided a term loan to M/s Superrugs (India) Pvt. Ltd. for carpet manufacturing, which was secured by the mortgage of their factory premises. PNB filed a recovery suit against the borrower and guarantors in the Debt Recovery Tribunal, Jaipur after their loan account became irregular. A consent decree was passed in favour of PNB, and execution proceedings began. Still, the Assistant Excise and Taxation Commissioner issued a notice to auction the mortgaged property to recover arrears of sales tax. PNB filed a writ petition in the High Court to prevent the sale by auction of the mortgaged property, which was granted.
Observation of the Court:
The Apex Court referred to the A.R. Antulay vs R.S. Nayak case ((1988) 2 SCC 602), which stated that a decision made by a competent Court of law should be final, subject to any decision of a superior Court in further proceedings. However, the Court noted that it has the inherent power to review a decision if there is a patent error and to rectify the mistake without causing harm to any party. In this case, the High Court outlawed section 16-B of the HP GST Act, even though the writ petition that led to the decision had become infructuous due to subsequent developments. The Court affirmed that it was within its power to review the case and rectify the mistake.
Further, the Court held that the decision on the constitutional validity of a provision should only be made when the justice of the case demands such a decision and not in a vacuum. The Court cited the Central Bank of India vs the State of Kerala case ((2009) 4 SCC 94), which held that the provisions of the Recovery of Debt due to the Banks and Financial Institutions Act of 1993 and the SARFAESI Act could not override other legislations, such as the Bombay Sales Tax Act of 1959 and the Kerala General Sales Tax Act of 1963. The Court noted that if Parliament had 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 other Acts would have been incorporated into the Recovery of Debts due to the Banks and Financial Institutions Act of 1993 and the SARFAESI Act. Thus, with respect to the issue contained herein, the court held that Section 16-B of the HP GST Act is not ultra vires to the Constitution of India or the Banking companies Act.
Thereafter, the Court assessed section 14 of the HP GST Act, which outlined the tax assessment, and sections 16, 16-A, and 16-B, which conferred power on the Commissioner or any officer other than the one excluded to initiate a special mode of recovery. The Court briefly noticed the Himachal Pradesh Land Revenue Act of 1954, which provided for the procedure for recovery of dues as arrears of land revenue and defined a defaulter as a person liable for arrears of land revenue. The High Court's judgment and order of 2008 indicated that proceedings were not initiated upon notice to the defaulters, and the sum they owed to the department had not been finally determined in accordance with the law. The State and its department failed to take necessary steps under the HP GST Act for the realisation of its dues, and as a result, there was no determination of liability.
Further, the Court held that the Civil Appeals against PNB do not survive. The High Court's decision not to entertain the application for recall was justified because it was not maintainable in law. The law provides a specific remedy, and it is not open to a party to take recourse to section 151 when a specific remedy is available. Even if the application for recall could have been regarded as one for review of the judgment, it did not warrant to be entertained for the reasons assigned by the High Court. The Court held that the High Court was justified in rejecting the application for recall.
The decision of the Court:
The Apex Court affirmed its inherent power to review decisions if there is a patent error and to rectify mistakes. The Court held that the decision on the constitutional validity of a provision should only be made when the justice of the case demands such a decision. The Court assessed the HP GST Act and concluded that the State and its department failed to take necessary steps to realise its dues. As a result, there was no determination of liability. The High Court's decision not to entertain the application for recall was justified because it was not maintainable in law.
Case Title: State of Himachal Pradesh v The Recovery Officer, Debt Recovery Tribunal
Case No.: Civil Appeal No. 9212 of 2012
Citation: 2023 Latest Caselaw 418 SC
Coram: Hon’ble Mr. Justice S. Ravindra Bhat and Hon’ble Mr. Justice Dipankar Datta
Advocates for Appellant: Mr. Abhinav Mukerji, A.A.G., Mrs. Bihu Sharma, Adv., Ms. Pratishtha Vij, Adv., Mr. Akshay Shrivastava, Adv., Mr. Abhinav Mukerji, AOR, Mr. Varinder Kumar Sharma, AOR.
Advocates for Respondent: Mr. Arunabh Chowdhury, Sr. Adv., Mr. Aman Preet Singh Rahi, Adv., Mr. A. Venayagam Balan, AOR, Mr. Puneet Thakur, Adv., Mr. Gaurav Pal, Adv., Mr. Sanjay Kapur, AOR, Ms. Megha Karnwal, Adv., Mr. Surya Prakash, Adv., Mr. Arjun Bhatia, Adv., Mr. Lalit Rajput, Adv., Mr. Devesh Dubey, Adv. and Ms. Mahima Kapur, Adv.
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