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2009(2) Supreme 529
Supreme Court of india
B.N. Agrawal, G.S. Singhvi and Aftab Alam, JJ.
Central Bank of India — Appellant
versus
State of Kerala and others — Respondents
Civil Appeal No. 95 of 2005
WITH
C.A. No.2811 of 2006, C.A. No.3549 of 2006, C.A. No.3973 of 2006, C.A. No.4174 of
2006, C.A. No.4909 of 2006, C.A. No.1288/2007 and C.A. No.1318_of 2009 [arising
out of S.L.P.(C ) No. 24767 of 2005]
Decided on : 27-02-2009
(2000) 7 SCC 291; (2004) 10 SCC 201; (1955) SCR 799; 1896 A.C. 348; (1957) SCR 399; (1983) 4 SCC 45 – Relied upon.
(b)Constitution of India,1950 – Article 254 – DRT Act and Securitisation Act on the one hand and the Kerala Revenue Recovery Act, 1968 and Bombay Sales Tax Act, 1959 on the other, are two sets of legislations enacted with reference to entries in different lists in the Seventh Schedule – Therefore, Article 254 cannot be invoked per se for striking down State legislations.(Para 15)
(c)Interpretation of Statutes – Contextual interpretation – It requires that the court should examine every word of a statute in its context – In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. (Para 25)
AIR 1953 SC 274; (1987) 1 SCC 424; (2002) 4 All ER 654 – Relied upon.
(d)Interpretation of Statutes – Non obstante clause – A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole – While interpreting non obstante clause, Court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. (Para 28)
(1964) 1 SCR 371; (1971) 1 SCC 85; (1992) 1 SCC 335; AIR 1952 SC 369; AIR 1954 SC 596; 1984 (Supp.) SCC 196; (1986) 4 SCC 447; (1998) 4 SCC 231 – Relied upon.
(e)Bombay Sales Tax Act, 1959 – Section 38C r/w section 26B, Kerala Revenue Recovery Act, 1968 – These sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. (Para 33)
(1965)2 SCR 289– Relied upon.
(1995) 2 SCC 19; (2000) 5 SCC 694; (2002) 10 SCC 441: (2002) 10 KTR 366 (SC) – Relied upon.
AIR 1955 Bom. 305; (1963) 49 I.T.R. 25; (1938) 6 ITR 180 – Referred with approval.
(2002) 3 ILR Kerala 4 – Cited with approval.
(f)Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13 – The non obstante clause in Section 13 gave primacy to the right of secured creditor vis-à-vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act – However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. – It does not create first charge in favour of the secured creditor. (Para 32)
(g)Interpretation of Statues – DRT Act and Securitisation Act are intended to create a new dispensation for expeditious recovery of dues of banks, financial institutions and secured creditors and adjudication of the grievances qua the procedure adopted by the banks, financial institutions and other secured creditors – Provisions of these Acts, however, cannot be read as creating first charge in favour of banks, etc. – In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of these Acts on the one hand, and Section 38C of the Bombay Act and Section 26B of the Kerala Act on the other – 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 will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. (Para 39)
(1955) 2 SCR 374; AIR 1965 SC 1251; (1992) 1 SCC 31; (1954) 3 W.L.R. 682 – Relied upon.
(h)Interpretation of Statutes – DRT Act and Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors – The provisions contained in Section 38C of the Bombay Act and Section 26B of the Kerala Act are not inconsistent with the provisions of DRT Act and 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. (Para 47)
(2000) 7 SCC 291; (2006) 10 SCC 452; (2008) 1 SCC 125; (2009) 2 SCC 121; (1965)2 SCR 289; (1972) 3 SCC 196; (2007) 8 SCC 353; (1995) 2 SCC 19; (2000)5 SCC 694; (1997) 7 SCC 698; JT 1994 (6) SC 182 : (1994) 5 SCC 593; (2002) 3 SCC 463 – Relied upon.
(1974) 2 SCC 799– Distinguished.
2006 (1) KLT 65; 2004 (30) KLT 1089 – Cited with approval.
Facts of the case :
1.C.A. No.95/2005 - Central Bank of India gave cash/ credit facility to the tune of Rs.12 lakhs to Kerala Refineries (P) Ltd. The borrower executed mortgage of movable and immovable properties for securing repayment. As the borrower failed to repay the dues, the bank filed civil suit which was transferred to the Debts Recovery Tribunal.
2.By an order dated 1.12.2000, the Tribunal decreed the suit for an amount of Rs.55 lakhs with future interest. Recovery Certificate dated 1.11.2001 was issued in favour of the bank and the Recovery Officer issued notice for sale of the movable and immovable properties of the borrower.
3.At that stage, Tehsildar, Mavelikara issued notice dated 26.11.2001 to the borrower for recovery of Rs.40,38,481/- as arrears of sales tax stating therein that its moveable and immovable properties had been attached on 2.2.2000 and 4.9.2000 and that steps are being taken to sell the attached property by public auction.
4.The bank challenged the notice of the Tehsildar pleading that being a Central legislation, the DRT Act would prevail over the Kerala Act by which first charge was created in favour of the State. The learned Single Judge of the Kerala High Court negatived the bank’s challenge
5.C.A. No.2811/2006 - The Thane Janata Sahakari Bank Ltd. which is a scheduled cooperative society incorporated under the Maharashtra Cooperative Society Act, 1960 granted credit facilities to M/s. Charishma Cosmetics Pvt. Ltd. Co.. As on 30.6.2004, the company had availed credit facility to the tune of Rs.2,32,00,000/- by creating equitable mortgage of its factory, land and building in favour of the bank. Due to the company’s failure to repay the amount, its account was classified as non-performing asset and the bank initiated proceedings under the Securitisation Act by issuing notice under Section 13 (2). The possession of movable and immovable properties of the company was taken by the bank on 15.2.2005 and the same were sold for a sum of Rs.66,31,001/-.
6.On 11.7.2005, Assistant Commissioner of Sales Tax informed the bank that sales tax dues amounting to Rs.3,62,82,768/- constitute first charge against the company and, therefore, it could not have taken possession of the mortgaged assets and sold the same. After some correspondence, the Assistant Commissioner issued notice dated 16.8.2005 to the bank to show cause as to why action may not be taken against it under Section 39 of the Bombay Sales Tax Act, 1959 for recovery of Rs.49,68,614/- in addition to the auction proceeds. The bank unsuccessfully contested the notice and then filed writ petition for quashing the same.
7.The High Court held that the Central Acts did not provide for creating a first charge.
Finding of the Court :
DRT Act and Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors.
Result : Appeals dismissed.
Certainly. Here are the key points distilled from the provided legal document:
The statutes under the Debt Recovery Tribunals (DRT) Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) Act do not establish a first charge in favor of banks, financial institutions, or secured creditors over the property of the borrower (!) (!) (!) (!) (!) .
The non obstante clauses in these Acts are intended to give primacy to their provisions, but they do not explicitly create a first charge on the property of debtors (!) (!) (!) .
State legislations, such as the Kerala Revenue Recovery Act and the Bombay Sales Tax Act, create statutory first charges on the property of dealers or liable persons for recovery of dues like sales tax, penalties, and interest (!) (!) .
These statutory first charges are recognized as having precedence over other claims, including those of secured creditors, unless the central Acts explicitly provide for a first charge (!) (!) .
The provisions of the State legislations creating first charges are not rendered invalid or subordinate by the DRT Act or SARFAESI Act, despite their non obstante clauses, because there is no specific statutory provision in the central Acts that overrides such State charges (!) (!) .
The principles of statutory interpretation, including contextual and purposive interpretation, support the view that the absence of an explicit provision for a first charge in the central laws means they do not automatically supersede State-created charges (!) (!) (!) .
The legislative history and background indicate that these Acts were enacted to facilitate expeditious recovery of debts and do not intend to alter the existing priority rights of the State for recovery of taxes and dues (!) (!) (!) .
The doctrine of pith and substance, along with the constitutional allocation of legislative powers, confirms that laws enacted under different entries in the legislative lists operate in separate fields unless explicitly overlapping or conflicting (!) (!) .
When conflicts do arise, the law emphasizes that the specific provisions of State laws creating first charges generally take precedence over the more general or procedural provisions of central laws, unless the latter explicitly provide for a first charge (!) (!) .
The absence of a statutory first charge in the central laws means that the statutory first charges created by State legislations retain their priority, and the non obstante clauses in the central Acts cannot be invoked to override these charges (!) (!) .
The legal framework recognizes the sovereignty of the State in matters of recovery of dues like taxes and sales tax, and such charges have a protective and priority status even against secured creditors (!) (!) .
The legal interpretation favors respecting the legislative intent, constitutional allocations, and the specific statutory provisions that establish the priority of State charges over other claims, including those of banks and financial institutions (!) (!) (!) .
Please let me know if you need further elaboration or assistance with specific legal issues related to this document.
JUDGMENT
G.S. Singhvi, J. —
1.Leave granted in S.L.P. (C) No.24767 of 2005.
2.Whether Section 38C of the Bombay Sales Tax Act, 1959 [for short “the Bombay Act”] and Section 26B of the Kerala General Sales Tax Act, 1963 [for short “the Kerala Act”] and similar provision contained in other State legislations by which first charge has been created on the property of the dealer or such other person, who is liable to pay sales tax etc., are inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short ‘the DRT Act’) for recovery of ‘debt’ and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Securitisation Act’) for enforcement of ‘security interest’ and whether by virtue of non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act, two Central legislations will have primacy over State legislations are the questions which arise for determination in these appeals.
3.For the sake of convenience, we have taken notice of the facts of Civil Appeal Nos.95/2005 and 2811/2006 and the reasons contained in the orders passed by Kerala and Bombay High Courts, which are under challenge in these appeals.
4.C.A. No.95/2005 - Central Bank of India vs. State of Kerala & others - Central Bank of India, which is a nationalized bank, gave cash/ credit facility to the tune of Rs.12 lakhs to Kerala Refineries (P) Ltd. The borrower executed mortgage of movable and immovable properties for securing repayment. As the borrower failed to repay the dues, the bank filed civil suit bearing O.S. No.234/1996 in the Court of Sub-Judge at Mavelikara. Later on the suit was transferred to Ernakulam Bench of the Debts Recovery Tribunal (hereinafter referred to as “the Tribunal”). By an order dated 1.12.2000, the Tribunal decreed the suit for an amount of Rs.55 lakhs with future interest. As a sequel to this, Recovery Certificate dated 1.11.2001 was issued in favour of the bank and the Recovery Officer issued notice for sale of the movable and immovable properties of the borrower. At that stage, Tehsildar, Mavelikara issued notice dated 26.11.2001 to the borrower for recovery of Rs.40,38,481/- as arrears of sales tax stating therein that its moveable and immovable properties had been attached on 2.2.2000 and 4.9.2000 and that steps are being taken to sell the attached property by public auction. The Tehsildar claimed that by virtue of Section 26B of the Kerala Act, as amended by Act No.23/1999, the State Government has got first charge over the attached properties. The bank challenged the notice of the Tehsildar by filing a petition under Article 226 of the Constitution of India, which was registered as O.P. No.7835/2002(G). The bank relied on the decisions of this Court in A.P. State Financial Corporation v. Official Liquidator1 [(2000) 7 SCC 291] and Allahabad Bank v. Canara Bank and another2 [(2000) 4 SCC 406], and pleaded that being a Central legislation, the DRT Act would prevail over the Kerala Act by which first charge was created in favour of the State. The learned Single Judge of the Kerala High Court negatived the bank’s challenge by observing that proceedings under the Kerala Act had been initiated before the issue of certificate by the Tribunal and that even if the Tribunal has got exclusive jurisdiction to recover the amount due to the bank, the Tehsildar was not obliged to approach it for recovery of the State dues. The learned Single Judge referred to Section 46 of the Kerala Revenue Recovery Act, 1968, which provides that within 14 days from the date of attachment of any immovable property any person other than the defaulter can lodge objection to the attachment of the whole or any portion of such property on the ground that such property was not liable for the arrears of public revenue, and held that as the bank had claimed first charge or prior charge over the attached prope
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