1. Dispute over priority of state sales tax first charge versus secured creditors' rights under SARFAESI Act and DRT Act regarding property mutation and auction. (Para 4 , 7 , 11 , 13 )
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2023 Supreme(SC) 440
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
STATE OF HIMACHAL PRADESH AND OTHERS – Appellants
Versus
M/S A.J. INFRASTRUCTURES PVT. LTD AND ANR. – Respondents
CIVIL APPEAL NO. 8980-8981/2012
STATE OF HIMACHAL PRADESH AND ANR. - APPELLANTS
Versus
THE RECOVERY OFFICER, DEBT RECOVERY TRIBUNAL AND ANR. - RESPONDENTS
CIVIL APPEAL NO. 9212-9213/2012
Decided On : 28-04-2023
`Advocates appeared:
For the Appellant(s) : Mr. Abhinav Mukerji, A.A.G. Mrs. Bihu Sharma, Adv. Ms. Pratishtha Vij, Adv. Mr. Akshay Shrivastava, Adv. Mr. Abhinav Mukerji, AOR Mr. Varinder Kumar Sharma, AOR
For the Respondent(s): Mr. Arunabh Chowdhury, Sr. Adv. Mr. Aman Preet Singh Rahi, Adv. Mr. A. Venayagam Balan, AOR Mr. Puneet Thakur, Adv. Mr. Gaurav Pal, Adv. Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Surya Prakash, Adv. Mr. Arjun Bhatia, Adv. Mr. Lalit Rajput, Adv. Mr. Devesh Dubey, Adv. Ms. Mahima Kapur, Adv.
For the Appellant(s) : Mr. Abhinav Mukerji, A.A.G. Mrs. Bihu Sharma, Adv. Ms. Pratishtha Vij, Adv. Mr. Akshay Shrivastava, Adv. Mr. Abhinav Mukerji, AOR Mr. Varinder Kumar Sharma, AOR
For the Respondent(s): Mr. Arunabh Chowdhury, Sr. Adv. Mr. Aman Preet Singh Rahi, Adv. Mr. A. Venayagam Balan, AOR Mr. Puneet Thakur, Adv. Mr. Gaurav Pal, Adv. Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Surya Prakash, Adv. Mr. Arjun Bhatia, Adv. Mr. Lalit Rajput, Adv. Mr. Devesh Dubey, Adv. Ms. Mahima Kapur, Adv.
Section 16-B of the HPGST Act provides for tax as a first charge on property, overriding other laws.
Headnote:Civil Appeal - State of Himachal Pradesh - SARFAESI Act, 2002, HPGST Act, 1968, CPC - The court discussed the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Himachal Pradesh General Sales Tax Act, 1968 (HPGST Act). The court held that section 16-B of the HPGST Act is a valid piece of legislation and not ultra vires the Constitution or the Banking Companies Act. The court also emphasized that any amount of tax and penalty payable under the HPGST Act shall be a first charge on the property. The judgment further addressed issues related to recovery proceedings under the HPLR Act and dismissed an application for recall due to lack of merit. The court declared that parties shall bear their own costs.
Fact of the Case:
The case involved civil appeals at the instance of the State of Himachal Pradesh and its officers concerning judgments related to recovery proceedings under the SARFAESI Act and HPGST Act.Finding of the Court:
The court found that section 16-B of the HPGST Act is valid and not ultra vires. It also dismissed an application for recall due to lack of merit.Issues:
The legal issues included whether section 16-B should have been outlawed by the High Court, justification for returning findings on first charge claims by the State, and infirmities in dismissing review petitions.Ratio Decidendi:
The court held that section 16-B is valid and not ultra vires. It also emphasized that any amount payable under the HPGST Act shall be a first charge on property.Final Decision:
All civil appeals were disposed with parties bearing their own costs.Legal Category Hierarchy
- taxation law
- banking law
- constitutional law
- practice and procedure
- administrative law
Table of Contents
2. Whether statutory first charge for sales tax under HPGST Act overrides secured creditors' rights and whether such provisions are ultra vires the Constitution or Banking Companies Act. (Para 12 , 13 )
3. State's first charge requires prior determination of liability; SARFAESI Act's non-obstante clause does not automatically grant priority over sovereign tax debts absent specific legislative priority. (Para 36 , 38 , 49 )
4. Statutory first charge for tax dues is valid but operates only after the liability is legally determined and adjudicated. (Para 36 , 40 , 49 )
5. Section 16-B of HPGST Act declared valid; High Court's order regarding mutation upheld due to lack of liability determination; recall application dismissed. (Para 40 , 49 , 50 , 51 )
6. Does the non-obstante clause in the SARFAESI Act grant secured creditors priority over the State's statutory first charge for sales tax?
No. The non-obstante clauses in the DRT and SARFAESI Acts only override inconsistent laws. They do not create a first charge in favor of banks over sovereign debt unless specifically provided by Parliament, as the legislation intended expeditious recovery but not priority over state dues. (Para 36 , 38 )
7. When does the statutory first charge on a dealer's property for tax dues under the HPGST Act become operational?
The first charge under Section 16-B is attracted only after the tax liability has been properly adjudicated and determined in accordance with the law, and the sum has become due and payable. (Para 49 )
8. Can a party use Section 151 of the CPC to recall a judgment when a specific statutory remedy for review is available?
No. Section 151 preserves inherent powers only where no other remedy exists. When a specific remedy like review is provided under the CPC, a party cannot bypass its restrictions by filing a recall application under Section 151. (Para 50 )
JUDGMENT :
DIPANKAR DATTA, J.
Preface
1. A thin thread connects the two sets of civil appeals1[Civil Appeal Nos. 8980-8981/2012 and Civil Appeal Nos. 9212-9213/2012], which are at the instance of the State of Himachal Pradesh (for brevity, “the State”, hereafter) and its officers. Since the provisions of law emerging for consideration are almost the same in terms, though in different fact situations, these appeals were heard one after the other and shall stand disposed of by this common judgment and order.
Civil Appeal Nos.8980-8981/2012
2. Civil Appeal No. 8980 of 2012 is directed against the judgment and order of the High Court dated 7th September, 2007 allowing a writ petition2[CWP No. 306/2007] presented before it by M/s. A.J. Infrastructures (Pvt.) Ltd., the first respondent, on 6th March, 2007. The operative portion of the order reads as follows: -
“For all the aforesaid reasons, the writ petition is allowed. Order rejecting petitioner's application for not mutating the entry in their name is quashed and set aside. The respondents no. 1 to 5 are directed to delete the adverse entry showing the sales tax dues of M/s Regent Rubber and M/s Eastman Rubber in relation to the property comprising in Khasra No. 254/2/1, Khatauni Nos. 7 Min, 14 Min, Measuring 3 Bighas 7 Bishwas, situated at Village Moginand, Kala-Amb, Tehsil Nahan, District Sirmour, HP and further respondent no. 3 is directed to mutate the property in the name of petitioner company. The petitioner shall be entitled to costs, which is quantified at Rs, 25,000/-from respondents no. 1 to 5.“
3. Aggrieved by the judgment and order dated 7th September, 2007, the official respondents in the writ petition applied for a review3[CMP No. 1160/2008]. By an order dated 29th October, 2009, the High Court proceeded to dispose of the application for review by, inter alia, the following order :-
“The present application of review has been filed after delay of more than one year without proper and satisfactory explanation. No sufficient material has been placed on record for reviewing the order dated 07-09-07, which may be brought within four corners and provisions of Order 47 Rule 1 CPC, as observed in foregoing decisions. Therefore, only for taking different view, the said order dated 07-09-09 cannot be reviewed. In these circumstances, the present application for reviewing the order dated 07-09-09 is dismissed on the ground of delay as well as on the merits.”
The said order dated October 29, 2009 is challenged in C.A. No. 8981 of 2012.
4. The facts pleaded in the writ petition reveal that the first respondent had purchased the subject property (described in full in the operative part of the order dated 7th September, 2007, extracted above) in an auction conducted by the State Bank of Patiala (for brevity “State Bank”, hereafter) on 18th January, 2005 in exercise of power conferred by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, “the SARFAESI Act”, hereafter). The subject property was initially mortgaged on 11th October, 1999 with the Himachal Pradesh Financial Corporation (for brevity “HPFC”, hereafter) by M/s. Regent Rubber Private Limited (for brevity “Regent”, hereafter). Due to breach committed by Regent, HPFC took over the property and sold it in an open auction to M/s Eastman Rubber (for brevity “Eastman”, hereafter). The subject property was thereafter mortgaged by Eastman with the State Bank. However, Eastman too having committed default in liquidating its dues, the subject property was eventually put up for sale in an open auction on 18th January, 2005 under rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 (for brevity “SARFAESI Rules”, hereafter).
5. The first respondent emerged as the highest bidder in the auction by quoting a sum of Rs. 50,01,000/-. Within the stipulated time, the first respondent paid the entire bid amount whereupon in accordance with the provisions of rule 9(6) an
