Bombay High Court
Viraat Ispat Limited And Another vs Assistant Commissioner Of Sales ... on 17 November, 2011
Bench: Dr. D.Y. Chandrachud, A.A. Sayed
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.9070 OF 2011
Viraat Ispat Limited and another ..Petitioners.
versus
Assistant Commissioner of Sales Tax and others ..Respondents.
.....
Mr. Mayur Khandeparkar with Mr. T.N. Tripathi and Ms. Sapna
Rachure i/b T.N. Tripathi & Co. for the Petitioners.
Mr. Vinay A. Sonpal, A Panel counsel for Respondent No.1.
Mr. Samjay Udeshi with Ms. Pallavi Dedhia i/b Sanjay Udeshi & Co.
for Respondent No.2. ig ......
CORAM : DR.D.Y.CHANDRACHUD &
A. A. SAYED, JJ.
17 November 2011.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
1. The Petitioners have impugned in these proceedings under
Article 226 of the Constitution an auction notice issued by the
Assistant Commissioner of Sales Tax on 13 September 2011 for the
sale of certain immovable property belonging to the Petitioners for
the recovery of dues in the amount of Rs.1.22 Crores.
2. The Central Bank of India had sanctioned credit facilities to the
Petitioners. On a default in the payment of the dues a notice was
issued under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 for a
claim in an amount of Rs.9.67 Crores. On 27 October 2008 a measure
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was taken under Section 13(4). The debt of the bank was assigned to
the Second Respondent which is an asset reconstruction company on
30 March 2011. The Second Respondent took symbolic possession on
24 June 2011. On 13 September 2011 as noted earlier an auction
notice has been issued by the Assistant Commissioner of Sales Tax,
C-621 Palghar for the auction of the immovable property of the
Petitioners situated at the MIDC area of Tarapur for the recovery of
dues.
3. On behalf of the Petitioners it has been urged that - (i) Under
Section 13(4) read with Section 13(6) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, the property vests in the Second Respondent on a
measure being taken; (ii) the Securitisation Act is a legislation
subsequent to the Maharashtra Land Revenue Code and by virtue of
the provisions of Section 35 has overriding force and effect; (iii) The
Petitioners do not challenge the warrant of attachment levied by the
First Respondent nor do they contest the priority created in favour of
the First Respondent but the submission of the Petitioners is only that
the property can be put to sale only at the behest of the secured
creditor. The authorized officer is empowered to make a disbursement
under Rule 9(7) of the Security Interest Rules.
4. On the other hand, counsel appearing on behalf of the Revenue
relied on the judgment of the Supreme Court in Central Bank of
India v. State of Kerala1 and submitted that it is now a settled
position in law that (i) The Securitisation Act does not create a first
1 (2009) 4 SCC 94.
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charge on immovable property; (ii) Section 38-C of the Bombay Sales
Tax Act 1959 creates a first charge on the property in respect of the
sales tax dues of the State Government; (iii) Hence the provisions of
Section 35 of the Securitisation Act would not override Section 38-C
of the Bombay Sales tax Act 1959.
5. The issue which falls for determination in these proceedings is
no longer res intergra. In Central Bank of India (supra), the Supreme
Court has held that - (i) The Securitisation Act does not create a
first charge in favour of banks, financial institutions or secured
creditors qua the property of the borrower; (ii) A first charge on
property is created by state legislation such as Section 38-C of the
Bombay Sales Tax Act 1959 which cannot be destroyed by implication
or inference notwithstanding the fact that banks fall in the category
of secured creditors; (iii) The provisions contained in Section 38-C of
the Bombay Sales Tax Act are not inconsistent with the provisions of
the Securitisation Act so as to attract the non obstante clause
contained in Section 35 of the Securitisation Act and (iv) Where a
first charge is created statutorily on immovable property, the charge
operates on the entire property of the dealer, including the interest of
the mortgagee. When a first charge is created by operation of law
over any property, that charge would have precedence over an
existing mortgage. In holding thus, the Bench of Three Learned
Judges of the Supreme Court has affirmed the correctness of the
view taken inter alia in the earlier judgment in State Bank of
Bikaner and Jaipur v. National Iron and Steel Rolling Corpn.2 The
Supreme Court also affirmed the view which was taken by a Division
2 (1995) 2 SCC 19.
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Bench of this Court consisting of Hon'ble Mr. Justice R.M. Lodha (as
His Lordship then was) and Mr. Justice J.P. Devadhar in Thane Janata
Sahakari Bank Limited v. Commissioner of Sales Tax3. The law
laid down by the Supreme Court is summarized in the following
observations :
"On the basis of the above discussion, we hold that the
DRT Act and the Securitisation Act do not create first charge in
favour of banks, financial institutions and other secured
creditors and the provisions contained in Section 38-C of the
Bombay Act and Section 26-B of the Kerala Act are not
inconsistent with the provisions of the DRT Act and the
Securitisation Act so as to attract non obstante clauses
contained in Section 34(1) of the DRT Act or Section 35 of the
Securitisation Act."
6. Admittedly, and on this there is no dispute before the Court, the
property has been put to sale by the First Respondent in realisation
of the sales tax dues. Section 38-C of the Bombay Sales Tax Act 1959
provides that notwithstanding anything contained in any contract to
the contrary but subject to any provision regarding first charge in any
Central Act for the time being in force, any amount of tax, penalty,
interest or any other sum, payable by a dealer or any other person
under this Act, shall be the first charge on the property of the dealer,
or, as the case may be, person. Section 38-B stipulates that for the
purpose of effecting the recovery of the amount of tax, penalty and
interest due and recoverable from any dealer or other person by or
under the provisions of the Act as arrears of land revenue, the
Commissioner of Sales Tax shall have all the powers and perform all
the duties of the Commissioner under the Maharashtra Land Revenue
Code 1966. The statutory first charge is not created under the
3 2006(6) Bom.C.R. 186.
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Maharashtra Land Revenue Code but specifically under the provisions
of Section 38-C of the Bombay Sales Tax Act 1959. The procedure
which is envisaged in the Maharashtra Land Revenue Code is,
however, statutorily permitted to be utilized by the provisions of
Section 38-B. In view of the principle of law laid down by the
Supreme Court, the debt of the Second Respondent does not result in
a first charge under the Securitisation Act. On the contrary, sales tax
dues constitute a first charge over the property, by virtue of the
provisions of Section 38-C of the Bombay Sales Tax Act, 1959.
7.
The judgment of the Supreme Court in Transcore v. Union of
India4 which was sought to be relied upon by the Petitioners does
not deal with the issue in question which, on the other hand, is
covered by the subsequent decision in Central Bank of India. The
issues which fell for determination in Transcore are summarised in
paragraph 29 of the judgment as follows :
"(i) Whether the banks or financial institutions having elected
to seek their remedy in terms of DRT Act, 1993 can still invoke
the NPA Act, 2002 for realizing the secured assets without
withdrawing or abandoning the O.A. filed before the DRT under
the DRT Act.
(ii0 Whether recourse to take possession of the secured assets
of the borrower in terms of Section 13(4) of the NPA Act
comprehends the power to take actual possession of the
immovable property.
(iii) Whether ad valorem Court-fee prescribed under Rule 7 of
the DRT (Procedure) Rules, 1993 is payable on an application
under Section 17(1) of the NPA Act in the absence of any rule
framed under the said Act."
4 AIR 2007 SC 712.
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8. In paragraph 24 of the judgment the Supreme Court observed
that Section 13(6) of the Securitisation Act shows that once the bank
has taken possession of the asset, the right title and interest in that
asset can be dealt with by the bank as if it is the owner of the asset
and the asset would vest in the bank free of all encumbrances. In
paragraph 25 it has been observed, having regard to the provisions of
Section 35, that if Section 13(4) comes in conflict with, say the
provisions of state land revenue law, then notwithstanding such
conflict, the provisions of Section 13(4) shall override the local law.
Transcore does not deal with a situation where a statutory first
charge is created by state legislation such as under Section 38-C of
the Bombay Sales Tax Act 1959. That situation has specifically been
dealt with in the subsequent judgment of three Learned Judges in
the Central Bank of India (supra). The action which has been taken
by the First Respondent of realising the dues of the Sales tax
department by putting the immovable property to sale cannot be
faulted. No case for interference is made out. The Petition is
accordingly dismissed.
(Dr. D.Y. Chandrachud, J.)
(A. A. Sayed, J.)
