Bank Of Baroda vs State Of Gujarat
2021 Latest Caselaw 16877 Guj

     C/SCA/3025/2021                                   JUDGMENT DATED: 27/10/2021



        IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
         R/SPECIAL CIVIL APPLICATION NO. 3025 of 2021
FOR APPROVAL AND SIGNATURE:

HONOURABLE MS. JUSTICE SONIA GOKANI

and
HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN

==========================================================

1     Whether Reporters of Local Papers may be allowed                      NO
      to see the judgment ?

2     To be referred to the Reporter or not ?                               NO

3     Whether their Lordships wish to see the fair copy                     NO
      of the judgment ?

4     Whether this case involves a substantial question                     NO
      of law as to the interpretation of the Constitution
      of India or any order made thereunder ?

==========================================================
                                 BANK OF BARODA
                                      Versus
                                STATE OF GUJARAT
==========================================================
Appearance:
MR VIRENDRA M GOHIL(3244) for the Petitioner(s) No. 1
DS AFF.NOT FILED (N)(11) for the Respondent(s) No. 1,2
MS M D MEHTA, AGP for Respondent No.1
SERVED BY RPAD (N)(6) for the Respondent(s) No. 3,4,5,6
==========================================================

    CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
          and
          HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN

                                 Date : 27/10/2021

                           ORAL JUDGMENT

(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)

1. This is a petition preferred by the

petitioner-Bank having its Head Office at

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

Baroda Bhavan at Vadodara. The petitioner

Bank granted credit facilities to the

respondent No.3-Mr.Jivraj Parsottam Lathiya

proprietor of M/s.Yogeshwar Cotton

Industries and Minerals. The respondent

No.3 defaulted in repayment of the credit

facilities and therefore, on 30.03.2018 the

Bank classified his account as Non

Performing Assets (NPA).

2. Brief facts leading to the present

petition are as follow:

2.1 On 05.04.2018 notice came to be

issued under Section 13(2) of the

Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act, 2002 ('the SARFAESI

Act, 2002' hereinafter). On 13.08.2018 the

petitioner Bank took actual possession of

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

the secured assets.

2.2. The respondent No.2-State Tax

Officer issued a letter on 21.09.2019,

which the petitioner came to know when it

approached the office of Sub-Registrar on

13.11.2020. Respondent No.2 needed to

recover the Value Added Tax from the

respondent No.3-the borrower to the tune of

Rs.40,26,963/-.

2.3 On 11.12.2020 the Bank informed the

respondent No.2 that the petitioner-Bank

had the first right to recover its due and

amended the SARFAESI Act.

2.4 On 18.07.2020 the petitioner served

the said notice to the respondent No.3-

borrower proposing to sale of the property

for the reserved price of Rs.1,73,77,000/-

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

on 05.08.2020 for the recovery of dues and

also published the e-auction notice in

daily newspaper as provided under the

SARFAESI Act & Rule 2002 whereby it invited

the bids for the public in general.

2.5          On      05.08.2020            the      petitioner-Bank

received            the     bid     for          property         and         the

highest               bid           was             received                     of

Rs.2,11,77,000/- from one M/s.Khusbu Metal

Industries and Minerals and upon upfront

payment of 25% of the sale amount, it was

declared as successful bidder and further

terms and conditions had been stipulated in

accordance with law.

2.6 On 13.11.2020 the bidder M/s.Khusbu

Metal Industries and Minerals approached

the Sub-Registrar office for execution of

the sale deed, when the Registrar denied

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

the registration as there was a lien of

Rs.41,00,000/- over the property by the

Sales Tax Department.

2.7 On 11.12.2020 the petitioner Bank

requested the respondent No.2 to remove its

charge recorded in the revenue record,

however, the respondent No.2 did not do

that.

2.8 On 13.12.2020 the Bank once again

requested the respondent No.2 to remove its

charge recorded in the revenue record,

however, since he has failed to so do it

and the petitioner was constrained to

approach this Court and has sought the

following prayers:

"34...

(A) This Hon'ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus. or

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

any other appropriate writ, order or direction by quashing and setting aside the impugned attachment order dated 21/09/2019 and charge recorded in the revenue record by the respondent no.2 at ANNEXURE-"E", for the reasons stated in the Memo of Petition and in the interest of justice;

(B) During the Pendency and till final disposal of this petition, YOUR LORDSHIP be further pleased stay the operation and implementation of the impugned attachment order dated 21/09/2019 and charge recorded in the revenue record by the respondent no.2 at ANNEXURE-"E".

(C) This Hon'ble Court may be pleased to hold that the Petitioner have first charge over the properties mortgaged by the Respondent no.3 to 6 under section 26E of the SARFAESI Act, which would override the charge of the Respondent No.2 under Section 48 of the VAT Act.

(D) Pending admission, hearing and final disposal of this Special Civil Application, Your Lordships may be pleased to restrain the respondent no. 2 from taking any further steps in relation to the properties mortgaged by the Respondent no.3 to 6 as security

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

with the petitioner bank, and in view of the provisions under Section 26-E of the SARFAESI Act, 2002 coupled with the fact that the petitioner is possession of the property in question from 13/08/2018, and for the reasons. stated in the Memo of Petition and in the interest of justice;

(E) This Hon'ble Court may be pleased to hold that the Respondent no.2 cannot proceed against purchaser of the property who has been lawfully sold the subject property under the SARFAESI Act."

3. This Court (Coram:Justice J.B.Pardiwala

and Justice Ilesh J. Vora) had issued the

notice for final disposal on 22.02.2021.

4. Affidavit-in-reply came to be filed by

the State Tax Officer, Unit-76, Bhavnagar

on 28.09.2021 denying all averments set out

in the affidavit-in-reply. According to the

respondent No.2, in view of the provision

under Section 26 (E) amendment to the

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

SARFAESI Act, 2002. The petitioner has

wrongly prayed that as per provision 26(E)

of the Amendment to the SARFAESI Act,2002

the petitioner remains in possession of the

property in question.

4.1 It is further contended that the

property comprised of Non Agricultural Land

at village Kobadi, Taluka & District

Bhavnagar bearing revenue survey No.110

paiki comprising of plot Nos.1 and 2 both

admeasuring 5512.87 sq.mtrs in the name of

Mr.Jivrajbhai Parsottambhai Lathiya, who

was the guarantor in NPA Account. According

to the respondent No.2, the petitioner had

intimated the department on 30.12.2020 that

he had mortgaged the same on 15.11.2010.

4.2 It is further contended that in the

instant case the assessment years are of

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

the year 2012-2013, 2013-2014, 2014-2015

and 2015-2016 for which the assessments

have been concluded. Section 48 of the

Gujarat Value Added Tax Act, 2003 ('the VAT

Act' hereinafter) and Section 35 of the the

SARFAESI Act,2002 make it very clear that

the VAT Act would prevail over the

provisions and proceedings of the SARFAESI

Act, 2002 and Section 26 (A) of the

Amendment to the SARFAESI Act,2002 shall

not have an applicability in the present

scenario.

5. This Court has heard the learned

advocate, Mr.Virendra.M.Gohil appearing for

the petitioner-Bank. According to him,

respondent No.2 does not have any authority

for preferential charge over the claim of

the petitioner-Bank as secured creditor

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

under the provision of Section 35 of the

SARFAESI Act, 2002 would have an overriding

effect. The action of the respondent No.2

is under the Sales Tax Act in view of the

provision of Section 46 of the VAT Act.

5.1 He has further urged that Section

46 of the VAT Act which bestows the special

powers to the tax authorities for recovery

of tax as arrears of land revenue. The

respondent No.2 cannot march over the

petitioner's case. He has also relied on

the decision rendered in case of Central

Bank of India vs. State of Kerala, reported

in 2009 (4) SCC 94.

5.2 He has relied on the following

decisions in support of his submissions:

1. Bank of Baroda Through its

Assistant General Manager Prem Narayan

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

Sharma vs. State of Gujarat passed in

Special Civil Application No.12995 of

2018 rendered on 16.09.2019.

2.Kalupur Commercial Co-operative Bank

Ltd. vs. State of Gujarat passed in

Special Civil Application No.17891 of

2018 rendered on 23.09.2019

3. Bank of Baroda vs. State of Gujarat

passed in Special Civil Application

No.15298 of 2020 rendered on

17.12.2020.

4. Arvindkumar Shivlal Soni vs. The

Commercial Tax Officer passed in

Special Civil Application No.6561 of

2020 rendered on 27.07.2020.

6. Learned AGP, Ms.Maithili Mehta has

strongly urged that it is the sales tax

which the State needs to cover and the

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

provisions of Section 46 of the VAT Act are

the special powers of the Tax Authorities

for recovery of the tax as the arrears of

the land revenue.

6.1 Learned AGP, Ms.Maithili Mehta while

reiterating the contentions raised in the

affidavit-in-reply has strenuously urged

this Court that this being a tax, the sales

tax authority would surely have the primacy

over the dues of the petitioner-Bank. The

provision also start with Non-obstante

clause and being a later in point of time

she has sought to rely upon the authorities

in support of her submissions:

1. State of MP and Another vs. State of Indor and others, reported in (2002) 10 SCC 441.

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

2. Dena Bank vs. Bhikabhai Prabhudas Parekh and ors., reported in (2000) 5 SCC 694.

3. Commissioner of Employee Provident Fund vs. Official Liquidator of Esskey Ltd, reported in (2011) 10 SCC 727.

4. State of Maharashtra vs. Bharat Shantilal Shah, reported in (2008) 13 SCC 5.

5. Central Bank of India vs. State of Kerala, reported in (2009) 4 SCC 94.

7. On thus hearing the learned advocates

on both the sides the law on the subject

firstly needs to be discussed.

7.1 In case of Dena Bank vs. Bhikhabhai

Prabhudas Parekh, reported in (2000) 5 SCC

694 the Apex Court held that the principle

of priority of Government debts is founded

on the rule of necessity and of public

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

policy. The basic justification for the

claim of priority of State debts rest on

the well recoginsed principle that the

State is entitled to raise money by

taxation because unless etiquette revenue

is received by the State, it would not be

able to function as a sovereign Government.

7.2 In case of Commissioner of Employee

Provident Fund vs. Official Liquidator of

Esskey Ltd, reported in (2011) 10 SCC 727

as Section 11(2) of the Employees Provident

Funds Act starts with a Non-obstante

clause. The Apex court held that any amount

due from an employer shall be deemed to

have the first charge on the asset of the

establishment and is payable in priority to

all other debts including the dues to a

Bank which falls in the category of secured

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

creditor.

7.3 This is in relation to the amount

due from the employer to have the first

charge on the assets of the establishment

in as much as this concerns the employees

provident fund, the State cannot acquit

itself with the employee provident fund

commissioner as the beneficiaries differ.

7.4             So      far     as     the           case      of       State            of

Maharashtra               vs.        Bharat            Shantilal                 Shah,

reported in (2008) 13 SCC 5 is concerned,

it was held that Article 254 of the

Constitution of India succinctly deals with

the law relating to inconsistency between

the laws made by the Parliament and the

State Legislature. The question of

repugnancy under Article 254 of the

Constitution of India will arise when a law

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

made by the Parliament and a law made by

State Legislature occupies the same field

with respect to one of the matters

enumerated in concurrent list. In such a

situation the provisions enacted by the

Parliament and the State Legislature cannot

untidily stand and the State law will have

to make the way for the Union Law.

7.5 This in the opinion of this Court

will not apply in the instant case on the

contrary the provision of SARFAESI Act,

2002 with this decision shall have to be

given primacy over the State law.

8. In case Central Bank of India vs.

State of Kerala (supra) the issue before

the Apex Court was in relation to the

provision of Bombay Sales Tax Act, 1959 and

Kerala General Sales Tax Act, 1963 and

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

about the first charge of Section 38 C of

the Bombay Sales Tax Act, 1959 and Section

26 B of the Kerala General Sales Tax Act,

1963. The Apex Court examined the validity

and overriding effect qua Section 34(1) of

the SARFAESI Act, 2002 and held that if

there is any inconsistency between the

provisions of the DRT Act or the

Securitisation Act and other enactments,

the provision contained in those acts

cannot override the other legislation.

Section 38 C of the Bombay Sales Tax Act,

1959 and Section 26 B of the Kerala General

Sales Tax Act, 1963 although contain Non-

obstante clauses and give statutory

recognition to the priority of the State's

charge over other debts, which was

recognized by the Indian High Courts before

1950.

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

8.1 The Apex Court held that while

enacting the DRT and Securitisation Act,

the Parliament was aware of the law laid

down by the Supreme Court wherein priority

of the State dues was recognized. If

Parliament intended to create first charge

in favour of Banks, Financial Institutions

or other secured creditors on the property

of the borrowers in priority over the first

charge created under the State legislations

then it would have incorporated provision

similar to those contain in Section 14 A of

the Workmen's Compensation Act, 1923,

Section 11 (2) of the EPF Act, Section 74

(1) of the Estate Duty Act, 1953, Section

25(2) of the Mines and Minerals

(Development and Regulation) Act, 1957,

Section 30 of the Gift-Tax Act and Section

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

529 A of the Companies Act, 1956. However,

no such provision has been incorporated in

either DRT Act or the Securitisation Act.

8.2             In       absence             of       any            specific

provision              to      that        effect,           overlapping

between the provisions of the DRT Act and

Securitisation Act on one hand and Section

38 C of the Bombay Sales Tax Act and

Section 26 B of the Kerala General Sales

Tax Act and the Non-obstante clauses

contained in Section 34(1) of the DRT Act

and Section 35 of the Securitisation Act

cannot be invoked for declaring that the

first charge created under the State

legislation would not operate qua the

proceedings initiated by Banks, Financial

Institutions and other secured creditors

for recovery of their dues or enforcement

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

of security interest.

9. With this pronouncement, the

Central Government amended SARFAESI Act,

2002 by introducing Chapter IV A by

Amending Act, 44 of 2016 dated 01.01.2016

and the Central Government introduced the

concept of registration by secured

creditors and other creditors. Section 26 E

was inserted which speaks of the priority

to the secured creditors, which provides

that "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."

9.1 This very issue was before this

Court in case of Bank of Baroda vs. State

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

of Gujarat, reported in 2019 Lawsuit

(Guj.) 572 as to which authority would

have a precedence over the secured assets

and the Court examined the said aspect and

without any hesitation, it held that the

first priority over the secured assets

would be of the Bank and not of the State

Government by virtue of Section 48 of the

VAT Act, 2003.

10. In case of Kalupur Commercial

Cooperative Bank vs. State of Gujarat,

reported in 2019 Lawsuit (Guj.) 583 the

issue was with regard to the first priority

of the Bank over the dues vis-à-vis the

sales tax dues which the State Government

intended to recover from the assets of the

defaulter. This Court examined this and to

hold it in favour of the Bank that it would

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

have the first charge over the properties

mortgaged by virtue of Section 26 E.

"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 StateGovernment 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 from M/s. M. M. Traders by

virtue of Section 26 E of the SARFAESI Act."

11. Adverting to the facts here, the

petitioner Bank had already registered all

the mortgaged documents in the Central

Registry as per Section 20 of the SARFAESI

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

Act, 2002 and by virtue of provision of

Section 26 E it is rightly held that the

Bank being a secured creditor after

registration of the security interest would

enjoy priority over all other debts and all

revenues, taxes, cesses and other rates.

The petitioner appears to have registered

all the mortgaged documents with the

Central Registry as per the procedure

prescribed under the Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest (Central

Registry) Rules, 2011.

12. It appears that the petitioner-Bank

also had given the public advertisement for

nearly five times. After the Amendment in

the Act in the year 2016 and the

registration of the security interest as

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

the petitioner has the first and the

foremost charge over the property in

question, the question arises as to whether

the respondent No.2 could claim the primacy

over the dues of the Bank.

13. The petitioner-Bank not only had

registered the charge over the property in

question, but it had also issued a public

notice and deployed the security for

protecting the property.

14. What has been claimed by the

respondents is the position prior to the

amendment of the SARFAESI Act,2002 in the

year 2016 w.e.f. 01.01.2016, whereby this

concept of registration has been introduced

of the secured creditors and the other

creditors as the debts due are to be paid

to the secured creditor in priority over

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

all other debts and all revenues, taxes,

cesses and other rates payable to the

Central Government or State Government or

local authority, we could notice that the

Bank has registered with the Central

Registry of Securitisation Asset

Reconstruction and Security Interest of

India (CERSAI) where the property details

have been given, this registration has

taken place on 15.03.2012 with the

modification on 15.03.2021.

15. In the result, present petition

succeeds and is hereby allowed by quashing

and setting aside the impugned attachments

dated 21.09.2019 and the charge recorded by

the respondent No.2 holding that the

petitioner-Bank has first charge over the

properties mortgaged by the respondent No.3

C/SCA/3025/2021 JUDGMENT DATED: 27/10/2021

to 6 under Section 26 A of the SARFAESI

Act, 2002 overriding the charge of the

respondent No.2 under Section 48 of the

VAT, Act.

16. Over and above the regular mode of

service, direct service is permitted

through speed post as well as e-mode.

Sd/-

(SONIA GOKANI, J)

Sd/-

(RAJENDRA M. SAREEN,J) M.M.MIRZA