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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE D. RAJU AND THE HONOURABLE MR. JUSTICE V. KANAGARAJ
Central Bank of India - Appellant
Versus
State of Tamil Nadu and Another - Respondents
Writ Appeal No. 981 of 1989
Decided On : 29 August 1997
TAMIL NADU GENERAL SALES TAX ACT - SECTIONS 24(2) AND 26(6) - CONSTITUTIONALITY - PRIORITY OF CROWN DEBTS - SECURED CREDITORS - TRANSFER OF PROPERTY ACT, 1882 - INCONSISTENCY - DOCTRINE OF PITH AND SUBSTANCE - GARNISHEE PROCEEDINGS.
Fact of the Case:
The appellant-bank challenged the constitutional validity of sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act, 1959, as amended by Tamil Nadu Act 78 of 1986, arguing that they were inconsistent with the Transfer of Property Act, 1882, and that the State Government had not obtained the President's consent under Article 254(2) of the Constitution of India. The bank claimed to be a secured creditor with a mortgage over the properties of M/s. Mettur Textile Industries Limited, which owed sales tax to the State Government.
Finding of the Court:
The Court held that the impugned provisions were not violative of the Constitution of India. It observed that the Tamil Nadu General Sales Tax Act fell under Entry 54 of List II and Entry 43 of List III of the Seventh Schedule to the Constitution, which deal with taxes and other public demands, and that it did not encroach upon the powers of Parliament under Entry 6 of List III, which deals with transfer of property. The Court further held that the doctrine of pith and substance applied, and that the true character of the impugned legislation was one falling under Entry 54 of List II and Entry 43 of List III. It also noted that section 100 of the Transfer of Property Act contemplated the creation of a charge by operation of law, and that the impugned provisions did not create any inconsistency with the Transfer of Property Act.
Issues: 1. Whether sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act, 1959, as amended by Tamil Nadu Act 78 of 1986, were unconstitutional for being inconsistent with the Transfer of Property Act, 1882? 2. Whether the State Government was required to obtain the President's consent under Article 254(2) of the Constitution of India before enacting the impugned provisions?
Ratio Decidendi: 1. The Court held that the impugned provisions were not violative of the Constitution of India because: * They fell under Entry 54 of List II and Entry 43 of List III of the Seventh Schedule to the Constitution, which deal with taxes and other public demands, and did not encroach upon the powers of Parliament under Entry 6 of List III, which deals with transfer of property. * The doctrine of pith and substance applied, and the true character of the impugned legislation was one falling under Entry 54 of List II and Entry 43 of List III. * Section 100 of the Transfer of Property Act contemplated the creation of a charge by operation of law, and the impugned provisions did not create any inconsistency with the Transfer of Property Act. 2. The Court held that the State Government was not required to obtain the President's consent under Article 254(2) of the Constitution of India before enacting the impugned provisions because: * The impugned provisions did not create any inconsistency with the Transfer of Property Act. * The impugned provisions fell under Entry 54 of List II and Entry 43 of List III of the Seventh Schedule to the Constitution, which deal with taxes and other public demands, and did not encroach upon the powers of Parliament under Entry 6 of List III, which deals with transfer of property.
Final Decision: The Court dismissed the writ appeal filed by the appellant-bank, holding that the impugned provisions were not unconstitutional and that the State Government was not required to obtain the President's consent under Article 254(2) of the Constitution of India before enacting the impugned provisions.
D. RAJU, J.
The above writ appeal has been filed against the decision of a learned single Judge of this Court dated November 22, 1989 in W.P. No. 14976 of 1989, whereunder the learned Judge dismissed the writ petition filed by the appellant-bank, seeking for the issue of a writ of mandamus, directing the respondents to forbear from bringing the properties of M/s. Mettur Textile Industries Limited for sale under the Tamil Nadu Revenue Recovery Act, 1864, for recovery of sales tax said to be due by the company in purported exercise of powers under section24(2) of the Tamil Nadu General Sales Tax Act, 1959, pursuant to the form No. 5 and form No. 7A notices dated April 17, 1989 published in the Salem District Gazette dated May 21, 1989 or otherwise.
2. The averments of the appellant in the affidavit filed in support of the writ petition are that M/s. Mettur Textile Industries Limited, having its registered office at Silaiman, P.O., Madurai 625 201 availed of for purposes of its business activities several credit facilities/loans from the appellant-bank at its Coimbatore and Salem branches and on April 22, 1983 an equitable mortgage was created in favour of the appellant-bank in respect of the land and buildings at Mettur including plant, machinery, spares and stores of the company for the several credit facilities and loans said to have been granted to the tune of Rs. 215 lakhs; that on February 14, 1984, the equitable mortgage was confirmed in favour of the appellant-bank for an enhanced sum of Rs. 660 lakhs and ultimately the same was confirmed in a sum of Rs. 669.16 lakhs, by deposit of title deeds. It is further claimed that the said charges have been duly registered in accordance with the provisions of the Companies Act, 1956, and certificate of registration were said to have been granted by the Registrar of Companies, Tamil Nadu on January 16, 1985 and August 26, 1986. Deeds of hypothecation of the raw materials and finished and unfinished goods and book debts and agreement of pledge of goods were also said to have been executed by the company as security for the amounts, so claimed to have been advanced. Even according to the appellant-bank, the affairs of the company started deteriorating and the operations of the various accounts of the company with the bank became irregular and mills were closed from July, 1985 necessitating the appellant-bank to recall the loans and advances granted by a legal notice dated September 1, 1986. Since, despite all this the mills failed to settle their claims, the appellant-bank was said to have filed a suit, O.S. No. 60 of 1987 on the file of the Sub-Court, Sankari, for the recovery of Rs. 6, 50, 40, 605.12 with subsequent interest at 19.5 per cent. per annum in enforcement of the mortgages noticed above and other securities and the suit was said to be pending at the relevant point of time.
3. While matter stood thus, the second respondent issued a notice dated March 27, 1989, to the bank, informing them that M/s. Mettur Textile Industries Limited were in arrears of sales tax and additional sales tax to the tune of Rs. 3, 68, 790 for the assessment year 1983-84 and having come to know that the property tax in respect of the properties of the Mills were paid by the bank to the Tahsildar, Mettur and Mettur Township Authorities, the second respondent would like to know about the hold of the bank over the properties of the Mills. This was followed by a notice in form No. 5 under section27 of the Revenue Recovery Act, of attachment of the properties and also a notice of public auction in form No. 7 under section36 of the Revenue Recovery Act, dated April 17, 1989, fixing the date of sale as June 27, 1989. The notices were also duly get published in the Salem District Gazette dated May 21, 1989, in the meanwhile, by a letter dated April 20, 1989, the appellant-bank sent a reply to the second-respondent informing about the filing of the suit, certain subsequent claims in all a sum of Rs.
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