SURAT PEOPLE'S CO-OP BANK LTD (THROUGH CHIEF MANAGER) V. COMMISSIONER OF CENTRAL EXCISEAND CUSTOMS, SURAT-II

SCA/1654/2006

AI Insights

The case involves Surat People's Co-op Bank Ltd, which sought to enforce its rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, against a property auctioned to recover dues from a borrower. The property was also under the attachment of the Central Excise and Customs department, which claimed priority over the sale proceeds. The High Court had previously permitted the auction, and the central legal question was whether the government or the bank, as a secured creditor, had a superior claim to the proceeds. The court referenced several precedents to establish that the secured creditor's claim is paramount, leading to the decision in favor of the bank.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 726646 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-03-2015
• Assessment Year: misc
• Other Referred Cases: Kotak Mahindra Bank Ltd. Vs. District Magistrate & Anr., The Stock Exchange, Bombay Vs. Kandalgaonkar & Ors., Union of India vs. Sicom Ltd., Collector of Aurangabad and Anr. vs. Central Bank of India and Anr.
• Laws Referred To: Constitution of India, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Customs Act, Central Excise Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R J OZA
• Assessee Lawyers: SN SHELAT
• Keywords: Auction Sale; Crown Debt; Enforcement of Security Interest; Government dues; Priority of Secured Creditor; Securitisation
• Section: 12; 14; 142; 226; 19(1)(g); 300-A

Judgement Text

"C/SCA/1654/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 1654 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA : Sd/­ ======================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment? NO 2 To be referred to the Reporter or not? NO 3 Whether their Lordships wish to see the fair copy of the judgment? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder? NO ======================================================= SURAT PEOPLE'S CO­OP BANK LTD (THROUGH CHIEF MANAGER)....Petitioner(s) Versus COMMISSIONER OF CENTRAL EXCISEAND CUSTOMS, SURAT­II & 1....Respondent(s) ======================================================= Appearance: MR SN SHELAT, Sr. Adv. for MR SHIVANG M SHAH for the Petitioner(s) No. 1 MR RJ OZA, Sr. Adv. for MR HRIDAY BUCH for the Respondent(s) No. 1 MR RUSHABH R SHAH for the Respondent(s) No. 2.2 RULE SERVED for the Respondent(s) No. 2 ­ 2.1 , 2.3 ======================================================= CORAM: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA Date : 09/03/2015 ORAL JUDGMENT 1. The present petition is filed by the petitioner­ bank under Articles 14, 19(1)(g), 300­A and 226 of Page 1 of 9 C/SCA/1654/2006 JUDGMENT the Constitution of India as well as under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as to as “the Securitisation Act”) for the prayers as prayed for in the petition inter alia that appropriate writ, order or direction may be issued restraining the respondent no.1­department from acting upon the notice dated 30.01.2006 at Annexure­F and for declaration that the petitioner­bank is entitled to proceed to sale the property as per public notice dated 24.01.2006 at Annexure­E on the grounds stated in the memo of petition. 2. Heard learned senior counsel, Shri S.N. Shelat appearing for learned advocate, Shri Shivang Shah for the petitioner­bank and learned senior counsel, Shri R.J. Oza appearing with learned advocate, Shri Hriday Buch for the respondent no.1. 3. The facts of the case briefly summarized are that the petitioner is a cooperative bank and the respondent no.2 was the borrower and, therefore, the petitioner­bank sought to enforce the right under the Securitisation Act for the recovery of Page 2 of 9 C/SCA/1654/2006 JUDGMENT the amount contending that the petitioner­bank is apriori to make over the property to the exclusion of the respondent no.1­department. In fact, in view of the notice as per Annexure­E, they have proceeded to auction sale the property, which has led to the present petition. The respondent no.1 has referred to the provision of Section 142 of the Customs Act read with provision of Section 12 of the Central Excise Act and tried to contend that since it was in the attachment for the use of the Government, the bank could not have realized, which has led to the present petition as to who would have claimed over the money realized from the sale of the property in the auction held by the petitioner­bank. 4. It is required to be mentioned that it is not in dispute that the sale of the property in an auction was made pursuant to the order passed by the High Court (Coram : Jayant Patel, J.) dated 13.03.2006 as recorded in detail with the consent and knowledge of all concerned. It is in this background, it is required to be considered whether the bank was justified and can make a claim over the money realized and the respondent Page 3 of 9 C/SCA/1654/2006 JUDGMENT no.1­bank can make a claim over the amount, which has been realized for the outstanding dues of the department. 5. Learned senior counsel, Shri Shelat referred to the background of the facts and submitted that the issue is whether the respondent no.1­department can make any claim and whether the petitioner­bank which is a secured creditor, will have priority over this proceeds of the property in question sold in an auction by the petitioner­bank. In support of the submission, he has referred to and relied upon the judgment of the High Court in case of Kotak Mahindra Bank Ltd. Vs. District Magistrate & Anr., reported in 2010 (3) GLH 472 and pointedly referred to the observations made in para no.30. Learned senior counsel, Shri Shelat submitted that in that case before the High Court, it was the same issue with regard to the claim made by the Central Excise Department, which was considered. He emphasized the observation, “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 Page 4 of 9 C/SCA/1654/2006 JUDGMENT brought on record to suggest that the Central Government has any first charge or priority over the secured or unsecured debt. Similar contention was raised on behalf of the Central Government referring to certain provisions of the Central Excise Act, 1944 in the case of Union of India vs. Sicom Ltd., reported in (2009) 2 SCC 121, the Supreme Court rejected such claim. …................” 6. Learned senior counsel, Shri Shelat submitted that the High Court has considered same issue even in a judgment judgment in case of The Stock Exchange, Bombay Vs. Kandalgaonkar & Ors., reported in JT 2014 (10) SC 603 and pointedly referred to the observations made in para no.24, which reads as under:­ “24. 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’s case (supra) held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles vs. Grover (1832) (131) English Reports 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 Page 5 of 9 C/SCA/1654/2006 JUDGMENT Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr. 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 (at page 861, 862).” 7. Learned senior counsel, Shri Shelat therefore submitted that as the property in question has been permitted to be sold in an auction by the order of the learned Single Judge of the High Court, the amount would go to the petitioner­bank as a secured creditor, therefore, the present petition may be allowed. 8. Per contra, learned senior counsel, Shri Oza referred to the background of the facts contending Page 6 of 9 C/SCA/1654/2006 JUDGMENT that the property in question was in attachment of the respondent no.1 and, therefore as per provision of the Central Excise Act, particularly, Section 142 of the Excise Act read with Section 12 of the Customs Act, they had power to take necessary steps and the bank could not have sold the property. He therefore submitted that the sale proceeds should go to the department as property was permitted to be sold pursuant to the order of the High Court dated 13.03.2006 but it has not been clearly stated as to the proceeds and the claim over such realiziation of the sale of the property. 9. In view of the submission, short issue which is required to be considered is whether the amount realized out of the sale of the property by the petitioner no.1 could be claimed by the respondent no.1­Government as a priority on the ground that crown­debt has a priority over the others as sought to be canvased. 10. It is not in dispute that the sale was made pursuant to the order of the High Court with the consent and knowledge of all concerned. However though it may not have been clarified at the Page 7 of 9 C/SCA/1654/2006 JUDGMENT relevant time, law has now been settled with regard to the priority of the claim of secured creditor over any such dues of the Government, which has been no longer res integra in light of both above mentioned judgments relied upon by learned senior counsel, Shri Shelat. Therefore once it has been clear that sale was permitted pursuant to the order of the High Court, submission made by learned senior counsel, Shri Oza that it was in the attachment of the department, will not have much relevance in light of this subsequent judgment. Further, property in question is sold in an auction by the petitioner­ bank as per the direction of the High Court and, therefore, contention about the attachment of the department cannot be accepted as otherwise, it could have been resisted at the relevant time. Therefore, when the property in question is sold in an auction by the petitioner­bank, the realization of the amount naturally has to go to the secured creditors as per the pronouncement of the Hon'ble Apex court and the Law settled by the Hon'ble Apex court as stated above. Therefore, the present petition deserves to be allowed. Page 8 of 9 C/SCA/1654/2006 JUDGMENT 11. In the circumstances, the present petition stands allowed in terms of Para Nos.10(A), 10(B) & 10(BB) with a rider that if there is any surplus amount remains after the recovery of the debt of the bank as a secured creditor, remaining amount may be claimed by the respondent no.1­department, which may be permitted to be claimed on usual terms by the department. The Registry is directed to permit the withdrawal of the amount which has been deposited pursuant to the order of the High Court dated 13.03.2006 in favour of the petitioner­bank by Account Payee Cheque along with interest accrued thereon on usual terms after proper verification. Rule is made absolute to the aforesaid extent. No order as to costs. Sd/­ (RAJESH H.SHUKLA, J.) Gautam Page 9 of 9 "