Bank of India V. O.P. No.4 and O.P. No.6

OJC/4336/2002

AI Insights

The case involves the Bank of India challenging a notice from the Income Tax Department demanding possession of a property, which was under a mortgage to secure a loan. The property was sold to an auction purchaser despite the Bank's claim. The Bank argued that it had the first charge over the property as per the mortgage agreement and the DRT's decree, which was not contested by the loanee. The court examined the priority of claims over the property and found that the Bank, as a secured creditor, had precedence over the government's claim for tax dues. The court's decision was influenced by the principles established in previous Supreme Court judgments regarding the rights of secured creditors over government dues.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 801904 (HC-ODISHA)
• Appeal Type: Others
• Pronouncement Date: 17-07-2019
• Assessment Year: misc
• Other Referred Cases: Bombay Stock Exchange Vs. V.S. Kandalgaonkar & Ors., Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., Collector v. Central Bank of India
• Laws Referred To: DRT Act, Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: DRT; Income Tax Dues; Mortgage; Property possession; Secured creditor; Writ petition
• Section: 19

Judgement Text

" 12. 17.07.2019 Heard learned counsel for the parties. 2. By way of this writ petition, petitioner-Bank of India, has challenged the notice dated 5.3.2002 under Annexure-18 issued by the Income Tax Department asking to deliver possession of the property in question in favour of the auction purchaser-O.P.NO.6 as the entire dues of the petitioner-Bank is not recovered from O.P. No.4. 3. Learned counsel for the petitioner-Bank contended that O.P. No.4 (loanee) had taken loan from the petitioner- Bank for which suit for recovery of the loan dues was filed and ultimately execution case was filed before the DRT being Execution Case No. 64 of 1998 (O.A.) wherein on 16.08.1999 the DRT, while disposing of the said case, at paragraphs11 & 13 of the order has observed as under: “11. I have perused the written statement filed on behalf of the judgment debtor No.4 which he had through sent through registered post. This written statement is neither verified nor supported with affidavit by defendant- judgment debtor no. Then, in this written statement he has stated this fact that a mortage was executed by the defendant No.1 in favour of the applicant bank. And so many allegation have been made on the merit of the case which do not come within the jurisdiction of the Tribunal because it simply proposes to O.J.C. No. 4336 of 2002 -2- dispose of the execution proceeding as execution court. And besides that, since the equitable mortgage was executed by defendant No.1 in favour of the applicant-decree holder as a security for the loan granted to him by the applicant bank, the plea of the defendant- Judgment debtors No.2 regarding priority of his income tax dues over the mortgage property is not sustainable at all. xxx xxx xxx 13. Under the circumstances referred to above, execution petition filed U/s. 19 of the DRT Act is hereby allowed ex-parte only against defendant No.1 who is liable to pay the claim made on behalf of the applicant-decree holder alongwith interest pendentelite and future @ 13% per annum. But, however, there shall not to any order as to cost for the proceeding because the defendant-judgment debtor has not contested the suit.” 4. The decree was final and even till date it has not been challenged. Accordingly, the petitioner-Bank has the first charge over the property in question in view of the contract. But in spite sof their objection vide their letter dated 16.04.2001 (Annexure-17) to the notice under Annexure-16 dated 17.03.2001, the Income Tax Department, ignoring the same, has disposed of the property. Therefore, it is contended that the Department has acted arbitrarily. -3- 5. This matter was admitted on 3.4.2002 and an interim order was passed that the delivery of the property to opposite party No.6 will be subject to the result of this writ petition. Since the O.P. No.6 has died and the matter being very old, to meet the ends of justice to the parties, we have allowed the petition to proceed ex-parte since we are going to indicate that only the amount which is received by the Income Tax Department will be transferred to the petitioner-Bank with interest and we are not going to disturb the possession handed over to O.P. No.6. 6. Learned counsel for the petitioner contended that in spite of several orders, no reply was filed, for which this Court on 17.11.2009 passed the following order: “Counter affidavit has not been filed so far. Last opportunity of four weeks is granted to file the counter. In case the counter affidavit is not filed within four weeks, the right to file the same shall stand closed without further reference to the Bench.” 7. Since no counter was filed within the time stipulated pursuant to the aforesaid order, the Dy. Registrar (Judl.) of this Court passed the order dated -4- 2.7.2019 closing the right to file the counter and accordingly the right to file counter has been closed. 8. Reliance has been placed upon by the learned counsel on the judgment of the Supreme Court in the case of Bombay Stock Exchange Vs. V.S. Kandalgaonkar & Ors., reported in (2015) 2 SCC 1, stating that pursuant to the contract between the parties e.g. Bank and the loanee, the Bank has lien over all claim and the State has no precedence over a pledgee of movable property as a pledgee has the status of a secured creditor. The relevant paragraphs 39 and 40 of the said judgment reads as under: “39. The first thing to be noticed is that the Income Tax Act does not provide for any paramountcy of dues by way of income tax. This is why the Court in Dena Bank case[Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., (2000) 5 SCC 694] held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles v. Grover [(1832) 9 Bing 128 : 131 ER 563] in which it has been held that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately -5- before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, Collector v. Central Bank of India [AIR 1967 SC 1831 : (1967) 3 SCR 855] after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore “law in force” in the territory of India before the Constitution and was continued by Article 372 of the Constitution (AIR pp. 1835-36, para 7 : SCR at pp. 861-62). 40. In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues.” 9. In view of the above, we are of the considered opinion that the action of the Income Tax Department is contrary to law. Therefore, since in the meantime much time has passed over, the amount which has been received by the Income Tax Department shall be paid to the petitioner-Bank of India with interest @9% p.a. from the date of receipt of the amount till the date of payment. The -6- said amount will be paid to the petitioner-Bank on or before 30.09.2019. If it is not paid within the time stipulated above, the petitioner-Bank will be entitled to recover the same with the same rate of interest which it is charging from the other loanee. 10. The writ petition is allowed to the extent indicated above. However, no order as to costs. Urgent certified copy of this order be granted as per rules. AD .……..........………… ( K.S. Jhaveri ) Chief Justice ……………….…….. ( K.R.Mohapatra ) Judge "