The Lakshmi Vilas Bank Ltd. vs State Of Gujarat
2021 Latest Caselaw 7210 Guj

     C/SCA/16855/2020                                ORDER DATED: 29/06/2021



            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

             R/SPECIAL CIVIL APPLICATION NO. 16855 of 2020
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                        THE LAKSHMI VILAS BANK LTD.
                                   Versus
                             STATE OF GUJARAT
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Appearance:
MR SANDEEP N BHATT(190) for the Petitioner(s) No. 1
NOTICE SERVED BY DS(5) for the Respondent(s) No. 1,2,3,4
MR SAHIL TRIVEDI, AGP for the RESPONDENT- STATE
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  CORAM:HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI

                              Date : 29/06/2021

                               ORAL ORDER

1. By way of the present petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs:-

"(A) To admit this Special Civil Application.

(B) To allow this Special Civil Application by exercising power under article 226 of the Constitution of India by issuing appropriate writ of certiorari or any appropriate writ order or direction by quashing the impugned communication dated 21.04.2020 by respondent no.4 Assistant Commissioner and by directing respondent no.2 Talati to remove first charge of Government also by declaring the priority over the movable and immovable properties of borrower of petitioner bank as secured creditor and bank can proceed further to auction the properties to recover its dues in appropriate proceedings provided by law also by clarify that VAT dues cannot claim priority over bank dues as secured creditor and may pass further appropriate direction in facts of case.

(C) Pending hearing and final disposal of this petition this Hon'ble Court may grant interim relief by respondent no.2 to 4 may be restrained from taking any coercive action against the property mortgaged with the bank and operative of communication dated 21.04.2020 by respondent no.4 may be stayed till further order.

(D) ..............."

C/SCA/16855/2020 ORDER DATED: 29/06/2021

2. The case of the petitioner bank that it had sanctioned a loan facility in the form of cash credit limit to M/s. Jay Steel Industries, where the proprietor of the firm also stood as a guarantor and executed a Memorandum of Deposit of title deeds by mortgage on 28.11.2011 of non-agricultural land of industrial purpose, Paiki Plot No.6, admeasuring 1040.60 Sq. Mtrs. of Village Veraval (Shapar), District Rajkot. The said deed of mortgage is registered deed at serial No.2644 in the office of the Sub-Registrar, wherein encumbrance certificate is also issued registering the charge of the petitioner bank over the property in question. It is averred that the borrower committed a default and the account became irregular and thereby classified as NPA and then proceedings under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter to be referred as 'the Act') had been initiated by issuance of notice under Section 13(2) of the Act initially on 25.9.2017 and later on, affixing possession notice on 4.1.2018 under Section 13(4) of the Act. Symbolic possession of the property was received by the bank and the bank proceeded further for auctioning the property by publishing auction notice on 9.3.2018 in the newspaper. Simultaneously, a letter was also written to the Police Superintendent, Rajkot to take action against the borrower as no stock is available at the said premise and funds have also been diverted by the borrower.

The said letter is written on 25.10.2018 and thereafter, the petitioner bank filed an application under Section 14 of the Act to get physical possession, which order also came to be passed by the District Collector on 6.3.2019.

3. At this juncture, surprisingly, the respondent No.4 herein, i.e. Assistant Commissioner, Commercial Tax wrote a letter on 21.4.2020 to the bank that they have to recover an amount of

C/SCA/16855/2020 ORDER DATED: 29/06/2021

Rs.16,87,997/- as a VAT dues from the borrower and therefore, since the said amount is the Government dues, as first charge over the properties of the firm and the letter was received from the office of the Assistant Commissioner, Commercial Tax, Rajkot and in response thereto, the petitioner replied to the same and reiterated that Mr. Kishor Patel had created a charge over the movable and immovable properties and reiterated the said stand by series of communications dated 16.6.2020, 19.9.2020 and 3.10.2020 and indicated in specific terms that the bank has got first charge over such properties, but surprisingly, thereafter, the respondent Nos.2 to 4 have not responded in any manner. Resultantly, the entire recovery of public money is stalled and the interest of the bank is at jeopardy. It is the case of the petitioner that the stand of the authority, i.e. respondent no.4, is ill-founded in view of the fact that by now, there is a settled position of law that secured creditor is having first charge over the property even if there is a claim of the Government dues and for that purpose, the petitioner has specifically pointed out the decisions delivered by the Coordinate Bench of this Court as well as the Division Bench of this Court to the authority, but conspicuous silence is made by the respondents, which has led the petitioner to approach this Court by way of the present petition under Article 226 of the Constitution of India for seeking the reliefs, as indicated above.

4. This petition came up for consideration before this Court initially on 7.1.2021, wherein, the Coordinate Bench of this Court was pleased to issue notice for final disposal, making it returnable on 28.1.2021 and later on, it has come up for consideration before this Court on 28.6.2021. Learned AGP Mr. Sahil Trivedi appearing on behalf of the authority had requested for some time to verify as to whether this controversy about the

C/SCA/16855/2020 ORDER DATED: 29/06/2021

first charge is set-right by the decisions of this Court or not and with a view to take appropriate instruction and to look into the judgments, time was sought, which was granted and it is in this background, today, the matter has come up for further hearing.

5. Learned advocate Mr. Sandip Bhatt appearing on behalf of the petitioner bank has submitted that the petitioner has sanctioned a financial assistance to the firm whose properties are mortgaged with the bank. Specific mortgage deed is executed on 28.11.2011 with respect to the property mentioned therein and the said mortgage deed is registered before the office of the Sub-Registrar, at serial No.2644. So much so that encumbrance certificate has also been issued by the said office and therefore, undisputedly, the charge has been created specifically in favour of the petitioner bank. During passage of time, all steps strictly in accordance with the provisions of the Act have been taken and it is only at a stage where the auction sought to be initiated for realizing the dues of the bank on 21.4.2020, the Assistant Commissioner, Commercial Tax, Rajkot has issued the impugned communication dated 21.4.2020 as if there is a first charge of the Government dues over the property in question. It has been indicated that no steps have been taken to realize the amount which is stated in the communication. However, be that as it may, the issue related to this is now set-right by the decisions of this Court, one by learned Single Judge as well as another by the Division Bench of this Court, copies whereof have been attached to the petition compilation on page 55 and 82 respectively. Mr. Bhatt has submitted that these decisions have been specifically brought to the notice of the respondent authorities, but a conspicuous silence is made by the respondent authorities, which ultimately constrained the petitioner to approach this Court. In any case, there cannot be

C/SCA/16855/2020 ORDER DATED: 29/06/2021

first charge of the respondent authority over the properties which are mortgaged first in point of time with the petitioner bank. That being the position, the issue, according to Mr. Bhatt, is squarely covered by the proposition of law laid down by the aforesaid decisions, hence requested to grant the reliefs as prayed for in the petition. In addition thereto, Mr. Bhatt has further relied upon few decisions which are narrated in the averments contained in the petition and thereby requested to grant the reliefs, as prayed for in the petition.

6. In response to the aforesaid submissions, learned Assistant Government Pleader Mr. Sahil Trivedi appearing on behalf of the authority has though initially tried to resist the submissions but then has candidly submitted that this issue related to first charge of the secured creditor is analyzed by this Court and the decisions which are reflecting on page 55 and 82 respectively are covering the stand taken by the petitioner and as such, without much resistance, has left the matter to the discretion of this Court.

7. Having heard learned advocates appearing for the parties and having gone through the aforesaid submissions, it appears to this Court that following circumstances are not possible to be unnoticed:-

(1) That the position prevailing on record is that the properties in question have been mortgaged with the petitioner bank undisputedly by registered mortgage deed and encumbrance certificate has also been issued to the petitioner bank incorporating the charge of the bank over the property. It is also not in dispute that the petitioner has taken all steps strictly under the provisions of the Act to realize the dues of the

C/SCA/16855/2020 ORDER DATED: 29/06/2021

mortgaged property and it is only at that stage, the respondent No.4 has come out with a plea that they have got first charge over the property to realize their dues.

(2) It is also reflecting from series of communications inter-se took place, wherein the petitioner has clearly pointed out to the authorities that they have got first charge over the property. This issue has been clearly analyzed by the Court's decisions, which decisions have also been brought to the notice of the authorities and thereafter, convenient silence is made by the respondent authorities, which ultimately dragged the petitioner to this Court by way of present petition.

(3) Now, the issue related to the first charge has been exclusively dealt with by the Coordinate Bench of this Court, first in case of Bank of Baroda Vs. State of Gujarat [in a decision dated 16.9.2019 in Special Civil Application No.12995 of 2018] and thereafter, in case of Kalupur Commercial Bank Ltd., the Division Bench of this Court in Special Civil Application No.17891 of 2018, has propounded the provision vide detailed judgment dated 23.9.2019 and therefore, keeping in view the said proposition of law laid down by this Court, which is binding to the parties to the proceedings, no different view is possible to be taken and as such, a case is made out by the petitioner to quash and set aside the impugned communication issued by the respondent No.4.

(4) Relevant observations contained in the said decisions deserve to be quoted hereunder, since the same are exactly on the similar controversy involved in the present proceedings:-

       C/SCA/16855/2020                              ORDER DATED: 29/06/2021



(a)     Para 51 and 52 of the decision dated 16.9.2019 in Special

Civil Application No.12995 of 2018 reads as under:-

51. In view of the aforesaid discussion, I have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003.

52. In the result, this writ-application succeeds and is hereby allowed. It is hereby declared that the writ-applicant Bank is entitled to put the secured assets to auction and recover the dues payable by the respondent no.4 to the Bank. It is further declared that the State will have no precedence in this regard on the strength of Section 48 of the VAT Act, more particularly, in view of the provisions of Section 26E of the SARFAESI Act, 2002.

Para (12) of the order dated 23.8.2018 passed by the Coordinate Bench of this Court, which is incorporated in the decision dated 16.9.2019 (supra), reads as follows :

"12. All the issues with regard to entitlement of the parties as secured creditors are kept open and this interim relief will not in any manner affect the statutory entitlement of the parties."

(b) Para 51 to 56 of the judgment of the Division Bench of this Court dated 23.9.2019 in Special Civil Application No.17891 of 2018 read as under:-

51. Section 48 of the VAT Act would come into play only when the liability is finally assessed and the amount becomes due and payable. It is only thereafter if there is any charge, the same would operate. The authority under the VAT Act passed the assessment order later in point of time.

52. The language of Section 48 of the VAT Act is plain and simple and the phrase 'any amount payable by a dealer or any other person on account of tax, interest or penalty' therein assumes significance. The amount could be said to be payable by a dealer on account of tax, interest or penalty once the same is assessed in the assessment proceedings and the amount is determined accordingly by the authority concerned. Without any assessment proceedings, the amount cannot be determined, and if the amount is yet to be

C/SCA/16855/2020 ORDER DATED: 29/06/2021

determined, then prior to such determination there cannot be any application of Section 48 of the VAT Act. We may also refer to Section 47 of the VAT Act. Section 47 of the VAT Act is with respect to transfer of property by the dealer to defraud the Revenue. According to Section 47, if a dealer creates a charge over his property by way of sale, mortgage, exchange or any other mode of transfer after the tax has become due, then such transfer would be a void transfer. The reason why we are referring to Section 47 is that the phrase therein 'after any tax has become due from him' assumes significance. The same is suggestive of the fact that before the assessment proceedings, or, to put it in other words, before a particular amount is determined and becomes due to be payable if there is any transfer of property of the dealer, such transfer would not be a void transfer. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer. Once this part is over, then Section 48 of the VAT Act would come into play.

53. One of us, J.B. Pardiwala, J., sitting as a Single Judge, had the occasion to consider this issue in the case of Bank of Baroda, Through its Assistant General Manager Prem Narayan Sharma vs. State of Gujarat & Ors., Special Civil Application No.12995 of 2018, decided on 16.09.2019. We may quote the relevant observations made in the said judgment.

"It is preposterous to suggest in the case on hand that as the assessment year was 2012-13, Section 48 could be said to apply from 2012-13 itself. Even in the absence of Section 26E of the SARFAESI Act or Section 31B of the RDB Act, Section 48 of the VAT Act would come into play only after the determination of the tax, interest or penalty liable to be paid to the Government. Only thereafter it could be said that the Government shall have the first charge on the property of the dealer."

54. In view of the aforesaid discussion, We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003.

55. In the result, this writ application succeeds and is hereby allowed. The impugned attachment notice dated 22.01.2018 (Annexure-A) and the impugned communication dated 19.04.2018 (Annexure-B) issued by the respondent No.2 is hereby quashed and set aside. It is hereby declared that the Bank has the first charge over the properties mortgaged

C/SCA/16855/2020 ORDER DATED: 29/06/2021

from M/s. M. M. Traders by virtue of Section 26E of the SARFAESI Act.

56. It is further clarified that the excess, if any, shall be adjusted towards the dues of the State under the VAT Act. It is further declared that the respondents cannot proceed against the purchasers of the properties sold under the SARFAESI Act.

8. In view of the aforesaid observations and in view of the undisputed position, which is prevailing on record, this Court is of the opinion that a case is made out by the petitioner to call for an interference. Accordingly, the impugned communication dated 21.4.2020 issued by the respondent No.4 is hereby quashed and set aside and consequently, it is held that since the petitioner bank is having a clear charge over the property by virtue of the aforesaid circumstance, it has got first priority over the secured assets and not the State Government by virtue of the provisions of the VAT Act, 2003. In the result, the petition stands ALLOWED. However, it is clarified that excess amount, if any realized by the Bank, same shall be adjusted towards the dues of the State authority under the VAT Act.

(ASHUTOSH J. SHASTRI, J) OMKAR