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2010 (3) GCD 2522 (Guj) (DB)
Hon’ble Mr. Chief Justice S.J. Mukhopadhaya &
Hon’ble Mr. Justice K.M. Thaker
Kotak Mahindra Bank Ltd.
Versus
District Magistrate & Anr.
Letters Patent Appeal No. 309 of 20101—Decided on 17/09/2010
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Sections 13(2), 13(4) and 14 — Central Excise Act, 1944 — Section 38-A — Central Excise Rules, 1944 — Rules 173-Q(2) and 211 — Central Excise Rules, 2001 — Rule 28 — Secured assets — Taking possession of — Order of District Magistrate in favour of applicant — Excise and Customs Departments claiming priority of charge — Finding as to — Sustainability — Court opened that there is nothing on record to sustain the claim of Excise and Customs Departments that it has priority of charge over secured debt of applicants — No such law has been brought on record to support such claim of Excise and Customs Department — In view of this Court held that order of District Magistrate to provide protection to secured creditors is legal and just — Consequently Court set aside the order of Single Judge.
Held :
A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one. [Para 27]
In the present case, there is nothing on record to suggest that under the Central Excise Act or the Rules framed thereunder priority of charge over the secured debt has been created. No such law has been brought on record to suggest that the Central Government has any first charge or priority over the secured or unsecured debt. [Para 30]
Court is of the view that the District Magistrate, Bharuch rightly directed the Mamlatdar, Amod to provide protection to the secured creditor-Kotak Mahindra Bank while disposed of the application under Section 14 of the Securitization Act. [Para 31]
The learned Single Judge failed to notice the aforesaid provisions and erred in rejecting the claim, particularly while direction has already been issued by the District Magistrate for handing over the possession of the secured assets in favour of the secured creditor.
[Para 32]
Law Laid Down :
A debt which is secured becomes the first charge over the property having regard to plain meaning of Article 372 of Constitution.
S.J. Mukhopadhaya, CJ.—One Amod Petrochem Pvt. Ltd. on or around 24.6.1985 was granted financial facility by State Bank of India (‘SBI’ for short) on hypothecation of all present and future goods, book debts and movable and immovable properties. Another Amod Transformers Pvt. Ltd. was also granted financial facility by SBI in the year 1987 on hypothecation of present and future goods, book debts and other movable and immovable properties. On the request of those two Companies, SBI sanctioned and enhanced the facilities. Later on, Amod Transformers Pvt. Ltd. changed its name to Amod Industries Ltd. Subsequently, Amod Petrochem Pvt. Ltd. was amalgamated with Amod Industries Ltd. with all assets, liabilities and statutory charges.
2. In the year 2002, SBI filed Original Application for recovery of its dues before the Debts Recovery Tribunal, Ahmedabad. When the matter was pending, the debts of the borrower due to SBI was assigned to the petitioner-Kotak Mahindra Bank Ltd. (‘the bank’ for short) on 23.3.2006 along with all underlying securities. The petitioner initially issued notice on the borrower on 25.1.2007 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2005 (sic) (hereinafter referred to as ‘the Securitization Act’). The borrower having failed to pay the dues, the petitioner took measures under Section 13(4) of the Securitization Act on 12.4.2007 for taking possession. An application under Section 14 of the Securitization Act was filed by the petitioner before the 1st respondent-District Magistrate, Bharuch, who by order dated 23.9.2008 allowed the application and directed the Mamlatdar, Amod to arrange for police protection and videography and to take possession of the secured assets.
3. The 2nd respondent is an Officer of the Excise & Customs Department of the Central Government. He issued a letter dated 10.12.2008 to the petitioner informing the confiscation of plant, machinery and other movable and immovable properties of the borrower. The petitioner replied that the 2nd respondent could not do so and if aggrieved against the action taken under Section 13(4) of the Securitization Act, the 2nd Respondent may move before the Debts Recovery Tribunal under Section 17 of the Securitization Act.
4. The Mamlatdar having not acted upon the order passed by the 1st respondent-District Magistrate, Bharuch, the petitioner requested the 1st Respondent on 2.3.2009 to direct the Mamlatdar to take possession of the secured assets and to hand over the same to the petitioner-bank immediately, but no action having taken, the writ petition was filed by the bank for a direction on the respondents to hand over the possession.
5. The Learned Single Judge by the impugned order dated 3.2.2010 refused to grant relief on the ground that the Excise & Customs Department of the Central Government having its charge over the property, it is beyond the scope and power to take possession under Section 13(4).
6. The Learned Counsel appearing on behalf of the appellant-petitioner would contend that the 2nd Respondent-Excise & Customs Department of the Central Government and the Central Government do not have priority of charge over the secured creditor. There is no specific provision in the Central Excise Act or the Rules framed thereunder whereby the Central Government can claim ‘first charge’ over secured charge created in favour of the secured creditors as per the contract.
7. The Learned Counsel for the petitioner would further submit that the dues of the Government (Crown Debts) get priority only over ordinary debts and only when there is a specific provision in the statute claiming first charge over the property, the Central Government can claim priority over the claim of a secured creditor.
8. The Learned Counsel appearing on behalf of the Excise & Customs Department of the Central Government, per contra, submits that the property in question having confiscated stands ve
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