Back
IN THE HIGH COURT OF ALLAHABAD
M. Katju and Yatindra Singh, JJ.
STATE BANK OF INDIA - Appellant
Versus
STATE OF U. P. - Respondents
C. M. W. P. 2062 Of 2002
Decided On : 12/16/2002
Priority of Secured Creditors over State Government Dues - Indian Companies Act - Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., 2000 (5) SCC 694; State of Madhya Pradesh v. State Bank of Indore, 2002 STC 1; State Bank of Bikaner and Jaipur v. National Iron and Steel, Rolling Corporation and Ors., 1995 (2) SCC 19
Fact of the Case:
The case involved a dispute over the priority of debts owed to a bank as a secured creditor over the dues owed to the State Government towards trade tax.
Finding of the Court:
The court found that the secured creditor, the State Bank of India, had the first charge over the property in question, and its right to recover its dues overrides that of the State Government.
Issues: The main issue was whether the debts owed to the petitioner bank had priority over the debt owed to the State Government towards trade tax dues.
Ratio Decidendi: The court relied on legal principles established in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., State of Madhya Pradesh v. State Bank of Indore, and State Bank of Bikaner and Jaipur v. National Iron and Steel, Rolling Corporation and Ors. to conclude that the secured creditors right to recover dues overrides the right of the State unless there is a statute to the contrary.
Final Decision: The writ petition was allowed, the impugned recovery certificate and citation and consequential proceedings were quashed, and the petitioner was entitled to auction sell the property of respondent No. 4.
( 1 ) THIS writ petition and Writ Petition No. 2062 of 2002 as well as Writ Petition no. 43 of 1989 involve a similar question and hence, they are being disposed of by a common judgment.
( 2 ) WE have heard Sri Vipin Sinha, learned counsel for the petitioner in the first two petitions and sri K. L. Grover in the third, learned standing counsel for the State of U. P. and Sri Rakesh ranjan Agarwal for respondent No. 4 in the first petition.
( 3 ) THE facts of the case are that the respondent No. 4 is a company registered under the Indian companies Act which had borrowed money from the petitioner State Bank of India as stated in paragraphs 5 to 11 of the writ petition. It is stated in paragraph 10 of the writ petition that the respondent No. 4 had also given a letter of undertaking to the petitioner not to create any charge over the properties and assets which have been mortgaged and hypothecated. True copy of the hypothecation agreement is Annexure-2 to the writ petition. True copies of the letter of undertaking and arrangement letters are Annexures-3 and 4 to the writ petition.
( 4 ) IT is alleged in paragraphs 12 and 13 of the writ petition that the respondent company committed default in repayment of the loan and hence the petitioner Bank filed a suit for recovery of Rs. 91,55,269. 19 with interest at 21% and prayed that the hypothecated assets which are in possession of the company be ordered to be sold and the sale proceeds be applied towards the payment of debt. This suit has been registered as Suit No. 769 of 1996. Copy of the details of the mortgaged property are Annexure-5 to the writ petition.
( 5 ) IT is alleged in paragraph 14 of the writ petition that the petitioner bank has first charge over the properties of the company which have been mortgaged and hypothecated. However, it appears that there were certain dues of respondent No. 4 owing to the Trade Tax Department and towards payment of these dues, the hypothecated and mortgaged properties of the company were attached by the tahsil authorities and 31. 12. 2001 was fixed for the auction but the auction was not held on that date and we are informed that it has not yet been held. It is alleged in paragraph 16 of the writ petition that the petitioner bank is a secured creditor and the respondent No. 4 company has to pay Rs. 3,92 crores to the Bank. It is further alleged in paragraph 17 of the writ petition that the petitioner bank being a secured creditor has priority over any other liabilities including the dues of the Trade Tax Department.
( 6 ) WHEN the officials of the petitioner bank came to know that the State Government is proposing to auction the properties of the respondent No. 4 company, it filed a detailed object on 29. 12. 2001, before the Assistant Commissioner, Trade Tax, Meerut. That objection has not yet been decided.
( 7 ) THE short controversy in this case is as to whether the debts owed to the petitioner have priority over the debt owed to the State Government towards the trade tax dues.
( 8 ) A counter-affidavit has been filed by the Trade Tax Department and it is alleged in paragraph 10 that the State Government has the first charge over the property of respondent No. 4. It is admitted in paragraph 11 of the counter-affidavit that the auction has not yet been done.
( 9 ) IN Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. , 2000 (5) SCC 694 (vide paragraph 10), it has been observed by the Supreme Court :
"however, the Crowns preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over mortgaged or pledged goods or a secured creditor. It is only in cases where the Crowns right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and pe
AI
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
