Madras High Court
M/S.Vmr Textiles Private Limited vs The Sub-Registrar on 28 November, 2023
Author: S.Srimathy
Bench: S.Srimathy
W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
RESERVED ON : 27.09.2023
PRONOUNCED ON :28.11.2023
CORAM
THE HONOURABLE MRS.JUSTICE S.SRIMATHY
W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
and
W.M.P.(MD)No.7837 of 2021, 12290 and 12291 of 2023
W.P.(MD).No.10114 of 2021:
M/s.VMR Textiles Private Limited,
Represented by its Director Ramasamy
Sivanantham,
36, Theeran Chinnamalai Street,
Veerappanchatram Post,
Erode-638 004. ... Petitioner
Vs.
1.The Sub-Registrar,
Registration Department,
Taluk Office Campus,
Thirupathur.
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2.The District Registrar,
Registration Department,
Muthurani Muduku Lane,
Karaikudi-630 101.
3.Deputy Inspector General of Registration Office,
Integrated Complex of Registration Department,
TNAU Nagar,
Rajakampeeram, Y.Othakadai,
Madurai-625 107.
4.The Superintendent of Customs,
Customs Preventive Unit,
Thondi-623 409.
5.IFCL Limited,
Continental Chambers,
142, Mahatma Gandhi Road,
Post Box No.3318,
Chennai-600 034.
6.Pillaiyar Pattiyar Textiles,
Formerly known as Square D Textiles
and Exports Limited,
Registered Office Address at
407-408 GR Complex,
Anna Salai, Nandanam,
Chennai-600 035. ... Respondents
PRAYER : Writ Petition filed under Article 226 of the Constitution of India,
praying this Court to issue a Writ of Mandamus, to direct the respondents 1
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and 2 to remove the entry of attachment made by the 4th respondent on the
property of the petitioner company admeasuring 29 acres and 51 cents and
situated at Tirupattur Village, Tiruppattur Town Panchayat, Parankipatti Village
as survey Nos. 1/3, 1/1, 158/3, 158/2, 158/6, 160/1, 160/2, 160/3, 160/5,
164/2, 157/3B, 157/5, 157/4A and 164/1 together with buildings and structures
constructed thereon executed and registered under Document No.3605/2010.
For Petitioner : Mr.Hari Radhakrishnan
For R1 to 3 : Mr.B.Saravanan
Additional Government Pleader
For R4 : Mr.N.Dilip Kumar
For R5 : Mr.K.Muraleedharan
W.P.(MD).No.14488 of 2023:
M/s.VMR Textiles Private Limited,
Represented by its Director,
Ramasamy Sivanantham,
(Presently residing at)
36, Theeran Chinnamalai Street,
Veerappanchatram Post,
Erode-638 004.
(Having office at)
3/1017, 1018, Udayanathapuram Cross,
Kandavarayanpatti, Thiruppattur-630 211,
Sivagangai District. ... Petitioner
Vs.
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
1.The Deputy Commissioner of Customs,
Customs Division,
Ramnad Madurai-Rameshwaram Road,
Bharathi Nagar, Ramanthapuram 623 503.
2.The Superintendent of Customs,
Customs Preventive Unit,
No.7/106, Lakshmipuram Beach Road,
Thondi-623 609.
3.The Joint Commissioner of Customs,
Customs Division,
Ramnad Madurai-Rameshwaram Road,
Bharathi Nagar, Ramanthapuram 623 503.
4.The Sub-Registrar,
Registration Department,
Taluk Office Campus,
Thirupathur.
5.IFCL Limited,
Continental Chambers,
142, Mahatma Gandhi Road,
Post Box No.3318,
Chennai-600 034. ... Respondents
(R5 is suo motu impleaded, vide Court order
dated 17.08.2023 in WP(MD)Nos.10114 of 2021
and 14488 of 2023)
PRAYER : Writ Petition filed under Article 226 of the Constitution of India,
praying this Court to issue a Writ of Certiorarified Mandamus, to quash the
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
impugned order C.No.GEN/LGL/Misc/166/2023 dated 18.04.2023 issued by
the 3rd respondent and further, to direct the 3rd and 4th respondents to lift the
attachment effected on 15.02.2019 in respect of property situated at Thirupattur
Village, Thirupattur Town Panchayat, Parankipatti Village in Survey Nos.1/3,
1/1, 158/3, 158/2, 158/6, 160/1, 160/2, 160/3, 160/5, 164/2, 157/3B, 157/5
157/4A and 164/1.
For Petitioner : Mr.Hari Radhakrishnan
For R1 to 3 : Mr.N.Dilip Kumar
For R4 : Mr.B.Saravanan
Additional Government Pleader
For R5 : Mr.K.Muraleedharan
*****
COMMON ORDER
The writ petition in W.P.(MD)No.10114 of 2021 is filed for writ of writ
of Mandamus directing the respondents to remove the entry of attachment made
by the 4th respondent on the property of the petitioner company admeasuring 29
acres and 51 cents situated at Tirupattur Village Tiruppattur Town Panchayat,
Parankipatti Village in S.Nos. 1/3, 1/1, 158/3, 158/2, 158/6, 160/1, 160/2,
160/3, 160/5, 164/2, 157/3B, 157/5, 157/4A and 164/1 together with buildings
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and structures constructed thereon executed and registered under Document
No.3605 /2010. Pending writ petition the respondents have considered the
claim of the petitioner and rejected the same vide order dated 18.04.2023.
Challenging the same the writ petition in W.P.(MD)No.14488 of 2023 is filed
for writ of Certiorarified Mandamus, to quash the impugned order dated
18.04.2023 and to direct the respondents 3 and 4 to lift the attachment effected
on 15.02.2019 in respect to the property stated in the affidavit.
2. The brief facts of the case are that the petitioner is engaged in the
business of cotton seeds. The petitioner had purchased the immovable
properties admeasuring 29 acres and 51 cents situated in Survey Nos.1/3, 1/1,
158/3, 158/2, 158/6, 160/1, 160/2, 160/3, 160/5, 164/2, 157/3B, 157/5, 157/4A
and 164/1, in Tirupattur Village, Tiruppattur Town Panchayat, Parankipatti
Village, together with buildings and structures thereunder SARFAESI
proceedings from M/s.IFCL Limited for the sale price of Rs.2,46,00,000/- vide
sale certificate dated 16.04.2010, sale deed dated 09.07.2010 and registered
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Document No.3605 of 2010. M/s.IFCL Limited was secured by the erstwhile
owner M/s.Pillaiyar Pattiyar Textiles for various credit facilities in the nature of
Rupee Term Loans and Foreign Currency Loans. The said M/s.Pillaiyar Pattiyar
Textiles defaulted repayment of loan, hence, the M/s.IFCL Limited initiated
proceedings under SARFAESI Act. The mortgaged immovable properties were
put up for sale under public notice. The petitioner had offered highest bid price
and hence, the sale was concluded in favour of the petitioner, sale certificate
was issued acknowledging the receipt and handed over the delivery and
possession of the same. The sale deed was executed on 09.06.2010 and
registered in Document No.3605 of 2010 with Sub-Registrar, Tiruppattur. The
sale certificate clearly mentioned that the sale was made free from all
encumbrances. The petitioner has also verified the records available with Sub
Registrar Office to find out whether there were any encumbrance or attachment
in the encumbrance certificate. No such encumbrance or attachment are shown.
Consequent to the sale, the petitioner had become absolute owner of the subject
properties. The petitioner as a part of reorganization recently demerged its
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substantial undertaking along with some portion of subject immovable
properties and vesting thereof into M/s. Parampara Spinning Mills Private
Limited in terms of Scheme of Arrangement approved vide order dated
11.12.2017. In terms of the said order, the properties shall stand transferred to
and vested with M/s. Parampara Spinning Mills Private Limited. Based on the
Scheme of Arrangement, the petitioner and the demerged company have
submitted the order of the High Court along with scheme for registration before
the Sub Registrar, Thirupathur. However, the Sub Registrar refused to register
due to the attachment order made by the Commercial Tax Department with
respect to the dues of M/s.Pillaiyar Pattiyar Textiles. The respondents have
issued the said attachment order without noticing that the properties were
already transferred in favour of the petitioner through SARFAESI sale.
Aggrieved over the attachment order, the petitioner filed W.P.No.28735 of 2018
and this Court vide order, dated 01.10.2020, allowed the writ petition by
directing the Sub Registrar to remove the attachment made by the Commercial
Tax Department. The petitioner approached the Sub Registrar to remove the
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attachment made by the Commercial Tax Department. The respondents refused
to do so stating that the same property is attached under Customs Act on
15.02.2019.
3. The contention of the petitioner is that the attachment is effected in a
mechanical way unmindful of the fact that the property does not belong to
M/s.Pillaiyar Pattiyar Textiles. Hence the petitioner submitted representation
dated 24.11.2020 stating the facts that as on the date of attachment the
properties belonging to the petitioner company and not belonging to the
defaulter, but the respondents failed to consider the petitioner’s representation.
Hence the petitioner had filed W.P.(MD)No.10114 of 2021 for Mandamus.
Pending disposal, the petitioner again submitted a requisition letter, dated
30.01.2023, to the first respondent to lift the attachment. Since there was no
response, the petitioner had filed W.P.(MD)No.5967 of 2023, seeking directions
to consider the representations dated 30.01.2023. Pending consideration of the
said writ petition, the third respondent issued the impugned order dated
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18.04.2023, rejecting to lift the attachment, hence the W.P.(MD)No.5967 of
2023 has become infructuous and the same was dismissed on 25.04.2023.
Hence, the petitioner has challenged the impugned rejection order dated
18.04.2023 in W.P.(MD)No.14488 of 2023. The contention of the petitioner is
that the impugned order was passed without application of mind. Also, by not
following the procedures stipulated under the statute and the rules, hence, the
petitioner is before this Court.
4. The Assistant Commissioner of Customs, being the appropriate
authority had filed counter in W.P.(MD)No. 10114 of 2021 and also in W.P.
(MD)No.14488 of 2023, stating that M/s.Pillaiyar Pattiyar Textiles (6th
respondent in W.P.(MD)No.10114 of 2021) was originally known as M/s.
Square (D) Textiles Exports Limited, Thirupathur. M/s.Square (D) Textiles
Exports Limited was owing certain dues towards Custom Duty to the Central
Government way back in the year 2004 to the tune of Rs.31,96,483/- and which
has now accumulated to Rs.76,49,629/- due to interest component. In order to
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recover the dues, from the said M/s.Square (D) Textiles Exports Limited, the 4th
respondent requested the 1st respondent Sub Registrar to notify in the property
records about the dues to the Central Government. It is learnt that the 6th
respondent owed certain amount to the financial institution IFCI (5th
respondent) and since the 6th respondent had not repaid the same, the 5th
respondent sold the property of the 6th respondent under SARFAESI act to the
petitioner. Since the petitioner acquired the property of the 6th respondent on
09.06.2010 he is also liable to pay any dues to the Government existed on or
before 09.06.2010 from the 6th respondent. The 6th respondent is liable to pay
customs duty of Rs.31,96,483/- as on 2004 and hence, the demand notice was
pasted on the factory premises of the 6th respondent by the 4th respondent.
Efforts were also taken to send demand notice to the 6th respondent but he is not
traceable now. The petitioner is challenging the dues pertaining to 6th
respondent. The contention of the respondent is that the 4th respondent, has
issued letter vide O.C.No.668/2004, dated 01.11.2004, to the Sub Registrar,
Thirupathur, for not registering any kind of transaction on the above said
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property till the clearance is issued by the Customs Department and requested
for encumbrance certificate for a period from 01.01.1987 to 03.11.2004, the
same was received by the Sub Registrar on 04.11.2004. Since the letter
requesting to make an entry in the Registration Book was issued well before the
date of transfer of title to the said property, the petitioner is also liable to pay
the dues of the 6th respondent. Notice of attachment was served on the company
by affixing the same on the front door of the company on 09.11.2004 and
Mahazar was drawn to that effect and also the attachment was sent through
RPAD to the address maintained by the respondents. Hence, the 6th respondent
has dealt with the property even after notice of attachment. The Sales Tax
Department attached the property after the transfer of title and the same was set
aside. But the Customs authorities have attached the property prior to the sale,
hence, the case of the 4th respondent Customs authority cannot be compared
with that of the Sales Tax Department. Hence the 4th respondent prayed to
dismiss the writ petition.
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5. The respondents 1 to 3 in W.P.(MD)No.14488 of 2023 has submitted
that the petitioner has alternate remedy, therefore, the writ petition is not
maintainable. Hence, the respondents 1 to 3 in W.P.(MD)No.14488 of 2023
prayed to dismiss the writ petition.
6. Heard Mr.Hari Radhakrishnan, the Learned Counsel appearing for the
petitioner, Mr.B.Saravanan, the Learned Additional Government Pleader
appearing for the Registration Department respondents 1 to 3 in W.P.(MD).No.
10112 of 2021, Mr.N.Dilip Kumar, the Learned Standing Counsel for the 4th
respondent in W.P.(MD).No.10112 of 2021 and Mr.K.Muraleedharan, the
Learned Counsel appearing for the 5th respondent and perused the records
placed before this Court.
7. The claim of the Customs Department is that the property was sold in
the year 2010 only i.e. sale certificate dated 16.04.2010 and sale deed dated
09.07.2010. However, the attachment was prior to that i.e., in the year 2004 for
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which the Customs Department relied on the communication of Superintendent
of Customs in O.C.No.668/2004, dated 01.11.2004, to the Sub Registrar,
Thirupathur. Even though the customs authorities have intimated to the
registering authority as early as 2004, there is no entry about the attachment in
Register maintained by the Registration Department. Simply sending a letter to
the Registration Department is not sufficient to state that the property is
attached. Having sent such communication, it is incumbent on the Customs
authorities to make sure that the entry of attachment is evident in the
encumbrance register. When there is no such entry, the same cannot be
considered as effective attachment. Since the purchaser would verify the
encumbrance register, if there is no subsisting encumbrance or no subsisting
attachment, then the subsequent purchaser is absolutely protected under law as
“bonafide purchaser”. Therefore, the petitioner is protected as bonafide
purchaser and the contention of the respondents that attachment was prior to
sale cannot be give a right to the respondents.
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8. The next contention of the petitioner is that the SARFAESI Act was
given overriding effect than any other Act including Customs Act under Section
26E under Chapter IV-A. The said amendment under Act 44 of 2016 came into
effect from 24.01.2020. The said provision under Section 26E starts with a non
obstante clause and hence the mortgage to bank has 1st charge under
SARFAESI Act. But the Learned Counsel appearing for the respondents
submitted that the Act came into effect only on 24.01.2020 and retrospective
effect was not granted, hence the petitioner cannot invoke the said amendment.
Admittedly the said provision has no retrospective effect. But the same is
applicable to the pending lis as held by the Hon’ble Division Bench in
W.A.Nos.1512 of 2021 and batch vide order dated 01.09.2022 and the relevant
portion is extracted hereunder:
“29. Now coming to the question of whether the amendments by way of
Section 26E of the SARFAESI Act and Section 31B of the Recovery of
Debts and Bankruptcy Act, would be applicable to the Bankers in the
present case in view of the fact that Section 31B was inserted with effect
from 01.09.2016, while Section 26 E was inserted and notified to come
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into force on 24.01.2020. The above question need not detain us long for
the following reasons:
a) Firstly, the Full Bench of this Court in W.P.No.2675 of 2011
etc. batch, dated 10.11.2016 has held that it would govern the
rights of the parties even in respect of a pending lis. The
relevant portion of the same reads as under:
"3. There is, thus, no doubt that the rights of a secured creditor to
realise secured debts due and payable by sale of assets over which
security interest is created, would have priority over all debts and
Government dues including revenues, taxes, cesses and rates due to the
Central Government, State Government or Local Authority. This section
introduced in the Central Act is with "notwithstanding" clause and has
come into force from 01.09.2016. The law having now come into force,
naturally it would govern the rights of the parties in respect of even a lis
pending."
The Special Leave Petition is stated to be pending before the Apex Court
and there is an order of “Status Quo” in SLP (Civil) No.20471 of 2021
dated 16.03.2018. In view thereof, the Full Bench Order of this Court
would continue to bind/govern.
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b) Secondly, we would think the examination of the above
question may be academic, in view of the fact that even if the
recovery proceeding is set aside for any reason, the same
may not serve any purpose. The claim of the Bankers/
Financial Institutions is admittedly still outstanding, hence it
is open for the Bankers/ Financial Institutions on proceeding
being set-aside to invoke Section 26 E of the SARFAESI Act
and Section 31 B of the Recovery of Debts and Bankruptcy
Act as it is applicable presently in any view. In similar
circumstances, the Hon'ble Supreme Court in the case of
Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. [(2000)
5 SCC 694] while examining the question whether the State
would have precedence to recover the tax dues over that of
secured creditors after clarifying the position on the above
issue, proceeded to examine the further contention that the
petitioners therein who were partners of a firm that Section
15(2-A) of the Karnataka Sales Tax Act, which provided that
where any firm is liable, the firm and each of the partners
would be jointly and severally liable was introduced only
with effect from 18.11.1983, however the taxes that were
sought to be recovered related to periods prior to 1964-65
i.e., prior to the insertion of the above provision. The Apex
Court after holding that it would be prospective, however
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proceeded to hold that even if the recovery proceedings were
to be set aside, it may not serve any purpose since it was
open for the State to resort to the amended Section 15(2-A) of
the Karnataka Sales Tax Act which would prevail over the
right of the appellant Bank. The following portion is relevant
and thus extracted:
"21.....Even if we were to set aside the sale held by the State, it will
merely revive the arrears outstanding on account of sales tax to which
further interest and penalty shall have to be added. The amended
Section 15(2-A) of the Karnataka Sales Tax Act shall apply. The State
shall have a preferential right to recover its dues over the rights of the
appellant Bank and the property of the partners shall also be liable to be
proceeded against. No useful purpose would, therefore, be served by
allowing the appeal which will only further complicate the controversy."
The position here is no different. Apart from the fact that the Full Bench
has while considering the applicability of Section 31 B of the Recovery
of Debts and Bankruptcy Act has held that it would apply even to lis
pending, which would be the position in respect of Section 26E of the
SARFAESI Act as well. Even if this Court were to set aside the recovery
proceedings for any reason, the Bankers/ Financial Institutions right to
claim priority in terms of Section 31 B of the Recovery of Debts and
Bankruptcy Act and Section 26 E of the SARFAESI Act would be
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available and the right to recover under the Income Tax Act, 1961 must
yield to the provisions under the SARFAESI Act and the Recovery of
Debts and Bankruptcy Act and thus, the above exercise may not serve
any useful purpose. Therefore, the above issue appears to be a mere
academic exercise and we do not intend to examine the question any
further.”
Therefore, apply the aforesaid judgment, in the present case also the lis is
pending and hence the bank has right to declare the amount as outstanding and
invoke the amended provision and claim priority over the outstanding amount
of the bank.
9. Further, the petitioner is protected under the mortgage executed by the
M/s.Pillaiyar Pattiyar Textiles with the financial institution, which is prior to
the attachment order of the Customs Department. In order to ascertain whether
the mortgage is prior to the attachment, this Court suo motu impleaded the
IFCL Limited as 5th respondent in W.P.(MD)No.14488 of 2023. The Learned
Counsel appearing for the IFCL, 5th respondent submitted that the
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memorandum of deposit of title deeds was entered on 31.07.1997 and therefore,
the contract executed between the M/s.Pillaiyar Pattiyar Textiles and the
financial institution is prior to the attachment.
10. The Learned Counsel appearing for the respondents submitted that
the mortgage was executed by deposit of title deeds and the same was not
registered. Whether such unregistered mortgage of deposit of title deeds can be
considered as a valid mortgage? The mortgage of deposit of title deeds may be
liable for registration, but the instrument written subsequently evidencing the
agreement of deposit of title deeds was not liable for registration. In other
words, registration was not compulsory where the instrument evidencing the
agreement relating to deposit of title deeds until 30.11.2012 under the
Registration Act. It is an admitted fact that the banks were following the
procedure of mortgage by deposit of title deeds and the same was not required
to register. The present deposit of title deeds dated 31.07.1997 falls under the
category of “not compulsory”. Thereafter, under the Tamil Nadu Amendment
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Act 2012 with effect from 01.12.2012 the registration of instrument evidencing
the agreement relating to the deposit of title deed was made compulsory under
section 17(i) of the Registration Act. When subsequently the registration of
mortgage of deposit of title deeds was made compulsory as stated supra,
therefore, the contention of the respondent that the earlier mortgage is not
registered cannot be accepted and the bank is in advantageous situation.
Moreover, non-registration of the deposit of title deeds alone, would not
determine the rights of the parties. In the present case, if the plea of the
respondents ought to be considered that deposit of title deeds is not registered,
then at the same breath, it ought to be considered that the attachment is also not
registered. Then the bank and the Customs Department are standing on the
same footing.
11. Moreover, there is no provisions in the Customs Act granting 1st
charge to its dues under its Act. In such circumstances, when both the parties
are standing on the same footing and when there are no provisions of 1 st charge
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to Customs Department then it ought to be seen which proceedings is first. A
similar issue was considered by the High Court of Andhra Pradesh and
Telangana in the case of ICICI Bank Limited Vs. Tax Recovery Officer vide
order dated 04.12.2018 reported in [2019] 105 Taxman.com 257. The
challenge in the said judgment is an attachment order 14.03.2018, issued by the
Tax Recovery Officer under Rule 48 of second schedule. After considering
section 281 and rule 48, the Court has elaborately dealt with the issue and has
held that there is no provision in the Income Tax Act by which a first charge is
created automatically on the properties of the assesses. And also held it is now
well settled that wherever the statute does not create a first charge over the
property, the crown's debt does not take precedents over the claim of the
secured creditor. The relevant portion of the judgment is extracted hereunder:
“31. But the mortgage was created by the 3rd respondent in favour of
the petitioner-bank on 11-07-2011, much before the order of assessment
was passed under Section143(3) on 27-12-2011. In other words, the
assessee was nowhere near the point of being declared as an assessee in
default on the date of creation of the mortgage. Hence, the creation of
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the mortgage cannot be said to have automatically become void in terms
of Section 281(1) merely because of the pendency of the proceedings
under Section 143 and 142. It required something more to be done, but
the same was not done in this case. As a matter of fact even an
investigation under Rule 11 was not carried out in this case. Therefore,
the order of attachment is clearly illegal. On the date on which the order
of attachment was passed, the property had already been sold by the
petitioner-bank, in exercise of the power conferred upon the bank under
the Securitisation Act, 2002.
32. It is important to note one more aspect. Section 281(1), by its very
nature operates only up to the stage of service of notice under Rule 2 of
the Second Schedule. Therefore, Section 281(1) obviously deals with a
situation, which can be compared to fraudulent preferences dealt with by
the Insolvency Laws. Therefore, what is applied to an assessee (or an
insolvent under the Insolvency Laws) cannot be applied to a secured
creditor like the bank.
33. There appears to be no provision in the Income Tax Act, by which a
first charge is created automatically on the properties of the assessee.
There is no provision in the Income Tax Act similar to Section 16C of the
Andhra Pradesh General Sales Tax Act, 1957.
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34. It is by now well settled that wherever the statute does not create a
first charge over the property, the crown's debt does not take precedence
over the claim of the secured creditor. A useful reference can be made in
this regard to the decision of the Full Bench of the Madras High Court
in U.T.I. Bank Ltd., V. Deputy Commissioner of Central Excise (2007) 75
SCL 20 (Mad.) (FB).
35. In Central Bank of India V. State of Kerala, a Three Member Bench
of the Supreme Court had an occasion to consider two questions (i)
whether Section 36 C of the Bombay Sales Tax Act, 1959 and Section 26
B of the Kerala General Sales Tax Act, 1963, by which a first charge
was created on the property of the dealer, are inconsistent with the
provisions of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (RDDB Act) and the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (Securitisation Act); and (ii) whether by virtue of the non-
obstante clauses contained in RDDB Act and Securitisation Act, the two
Central Legislations will have primacy over State Legislations.
Eventually, the Court held (i) that the RDDB Act, 1993 and
Securitisation Act, 2002 do not create a first charge in favour of the
secured creditor, (ii) that the relevant provisions of the Sales Tax
Laws AIR 2007 Madras 118 2009 21 VST 505 (SC) are not inconsistent
with the provisions of the Central Legislations, so as to attract the non
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
obstante clause and (iii) that the charge created under the relevant Sales
Tax Laws would prevail over the charge created in favour of the Bank.
36. But in a more recent decision in the Stock Exchange V. V.S.
Kandalgoankar (2014) 187 Comp. Cas. 143 (SC), a question arose as to
whether a lien created by the operation of the Rules of the Stock
Exchange, on the security provided by a member, would have
precedence over the dues to the Income Tax Department. After quoting
with approval the decision of the Supreme Court in Dena Bank V.
Bhikabhai Prabhudas Pareks Co. (2000 (5) SCC 694), the Supreme
Court came to the conclusion that the Income Tax Act does not provide
for any paramountcy of dues by way of income tax and that the
Government dues have priority only over unsecured debts. In its
decision in Stock Exchange, the Supreme Court went to the extent of
holding that the lien possessed by the Stock Exchange made it a secured
creditor and that irrespective of whether the lien was a statutory lien or
a lien arising out of an agreement, the same made the holder of the lien
a secured creditor, who would have priority over Government dues.
37. Therefore, in the light of the fact that the mortgage was created by
the assessee much before a demand was made under Rule 2 and even
before an order of assessment was passed and in the light of the fact that
before the stage of issue of a certificate of recovery, the voidity under
Section281(1) is not automatic, the petitioner-bank deserves to succeed.
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
38. Accordingly, the writ petition is allowed and the impugned order of
attachment is set aside. The Sub-Registrar may proceed to register the
sale certificate issued by the Bank upon compliance with the necessary
formalities. There shall be no order as to costs.”
In the present case also, there is no provisions in the Customs Act creating 1st
charge on the property of the defaulter and the above judgment is applicable to
the present case.
12. Admittedly the bank had executed mortgage of deposit of title deeds
on 31.07.1997, which is prior to the attachment of the Customs Department
which was passed on 01.11.2004. Therefore, financial institution is having 1st
charge as secured creditor than the crown debt. Hence, the impugned
attachment cannot sustain the scrutiny of law. Hence, the impugned attachment
is liable to be quashed.
13. Accordingly the impugned order is quashed and the Sub Registrar is
directed to lift the attachment and enter the scheme of arrangement between the
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
petitioner and M/s.Parampara Spinning Mills as approved by the Court. The
said exercise shall be completed within a period of eight weeks from the date of
receipt of a copy of this order.
14. With the above said observations, the writ petitions are allowed. No
costs. Consequently, connected miscellaneous petitions are closed.
28.11.2023
NCC : Yes/No
Index : Yes / No
Internet : Yes/ No
Tmg
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
To
1.The Sub-Registrar,
Registration Department,
Taluk Office Campus,
Thirupathur.
2.The District Registrar,
Registration Department,
Muthurani Muduku Lane,
Karaikudi-630 101.
3.Deputy Inspector General of Registration Office,
Integrated Complex of Registration Department,
TNAU Nagar,
Rajakampeeram, Y.Othakadai,
Madurai-625 107.
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
S.SRIMATHY, J.
Tmg
and 14488 of 2023
28.11.2023
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W.P.(MD).Nos.10114 of 2021 and 14488 of 2023
https://www.mhc.tn.gov.in/judis
