Case Law Details
Section 35 of SARFAESI Act as referred earlier makes it clear that the provisions of this Act would override other laws and would have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This non obstante clause shall not only prevail over any inconsistent instrument but also over other laws. Coupled with this, it is not disputed that Income Tax Act does not provide for any paramountcy of dues by way of income-tax as has been provided under other Acts like the ED Act, 1953, GT Act, 1958, Orissa Value Added Tax, 2004, Kerala General Sales Tax Act, 1963, Bombay Sales Tax, 1959 and Customs Act, 1962.
Full Text of the High Court Judgment / Order is as follows:-
The controversy in this case revolves around the primary or secured debt vis-a-vis Crown debt/State dues.
2. Opposite party no. 2, a public limited company was incorporated as such in the year 1995 under the Companies Act, 1956. Opposite party no. 3 is its chairman and opposite party no. 4 is its managing director and opposite party Nos. 5 to 7 are its directors. Opposite party no. 2 availed several credit facilities with effect from the year 1998 from State Bank of India as well as from other borrowers. It also took credit facilities from a consortium of banks consisting of State Bank of India, UCO Bank, State Bank of Bikaner and Jaipur, Oriental Bank of Commerce, Andhra Bank, Induslnd Bank and Allahabad Bank for carrying on its business. The total credit facilities availed by opposite party no. 2 from the consortium of lending banks at the time of filing of writ application stood at Rs. 602 crores out of which State Bank of India, for short, SBI alone had contributed Rs. 181.01 crores. In order to secure the abovenoted credit facilities, opposite party no. 2 from time to time duly created equitable mortgage of its immovable properties in favour of banks, the first of which was created on 10-7-1999 when title deeds in respect of Ac. 19.48 decimals of land belonging to opposite party no. 2 was deposited with SBI to secure Rs. 3.05 crores besides interest, costs and other charges. Such equitable mortgaged was further created/extended on 20-11-2003, 25-10-2008 & 8-12-2008 by deposit/constructive deposit of title deeds with SBI and on 8-4-2009 & 13-8-2010 by deposit/constructive deposit of title deeds with SBI as the leader of the consortium to secure credit facilities availed by opposite party no. 2 from time to time from SBI as well as other banks forming the consortium. The last of such deposit of title deeds for creating equitable mortgage was made on 28-3-2011 with SBI as the leader of consortium. According to petitioner no. 2, the abovenoted equitable mortgage covered a total area of Ac. 159.965 decimals of land. Memorandum of deposit of title deeds evidencing creation of equitable mortgage has been filed as part of Annexure 1 series to the writ application. However, opposite party nos. 2 to 7 failed to operate the loan accounts in terms of their contract with the lending banks, as a result of which, the said loan accounts were classified as NPA with effect from 22-10-2012. When there was no response to repeated requests and demand made by the consortium to regularise the loan accounts or to repay all the dues, majority of the consortium lenders including SBI recalled the advances by notice dated 5-2-2013 and called upon opposite party no. 2 to repay all their dues to the consortium by 16-2-2013 under Annexure 2 series. When again there was no response from the side of opposite party Nos. 2 to 7, SBI representing the consortium served demand notice dated 25-2-2013 under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, for short, SARFAESI Act, demanding payment of the entire dues with interest plus further interests and costs till payment within 60 days of receipt thereof. This notice dated 25-2-2013 has been filed as part of Annexure 2 Series to the writ application. Sometime thereafter, i.e., on 18-3-2013 vide Annexure 3, opposite party no. 1 served a notice on the Branch Manager of SBI, Panposh Branch calling upon him to appear in person at 4.30 PM. on 18-3-2013 and produce bank account details as well as details of land, building, factory building and other assets owned by opposite party Nos. 2 to 5 & 7 which might have been pledged with the bank in order to get loans. In response to Annexure 3, SBI immediately submitted the details of loan accounts, land and building standing in the name of the company (opposite party no. 2) and its directors as mortgaged to it vide Annexure 4, dated 18-3-2013. After getting the information under Annexure 4, opposite party no. 1 attached the immovable properties of opposite party no. 2 which stood mortgaged to the banks in order to secure the credit facilities availed from them and published the same in the daily Odia Newspaper Dharitri dated 30-3-2013 vide Annexure 5. A perusal of Annexure 5 would show that such attachment was done by the Income Tax Department since the assessee company (opposite party no. 2) failed to pay its income-tax dues to the extent of Rs. 12,13,59,877 plus interest. Such attachment order was passed prohibiting/restraining opposite party no. 2 from transferring or charging the above-mentioned properties in any way and it was made clear that no one can get any benefit under such transfer or charge. On coming to know about the attachment order under Annexure 5, SBI vide its letter dated 3-4-2013 under Annexure 6 informed opposite party no. 1 that the properties which have been attached by him on 30-3-2013 vide Annexure 5, have been mortgaged to SBI and other banks forming the consortium of which SBI is the leader in order to secure the credit facilities availed from them. Thus, consortium lenders have first charge over the said properties and such charge would continue to remain until all the dues are paid to the consortium banks. It was also made clear therein that the demand notice issued under section 13(2) of SARFAESI Act has already been served on 25-2-2013 and thus recovery process under SARFAESI Act has already been initiated. Since the banks forming the consortium have first charge over the mortgaged properties at least from 20-11-2003, the attachment of opposite party no. 1 under Annexure 5 should be subservient to the charge created in favour of the consortium of banks. According to petitioner no. 2, such information under Annexure 6 was submitted to opposite party no. 1 with a hope that the said authority would act in accordance with law, would realise the legal position and vacate the said illegal order of attachment suo motu. When opposite party no. 1 instead of withdrawing/vacating its illegal order of attachment dated 30-3-2013 under Annexure 5 tried to proceed further to realise the alleged income-tax dues of opposite party no. 2 by putting the abovenoted immovable properties mortgaged to the banks to auction, petitioner no. 1 filed the present writ application with the prayers to quash the attachment order under Annexure 5 and to direct opposite party no. 1 not to proceed against the secured assets of SBI and other consortium banks for recovery of income-tax dues of opposite party Nos. 2 to 7 in any manner whatsoever.
3. Opposite party no. 1 has only filed a counter-affidavit stating therein that the assessee company (opposite party no. 2) had a total outstanding tax liabilities for two assessment years, i.e., 2009-10 & 2010-11 to the tune of Rs. 12,1359,877, which includes the interest. As opposite party no. 2 did not pay the taxes, recovery proceeding against it was initiated in accordance with the provisions of the Income Tax Act, 1961. Since SBP was not a party to the recovery proceedings as the Department was taking action against opposite party no. 2 for its default, there was no reason for giving SBI a prior hearing before taking coercive action against the defaulting taxing payer, namely, opposite party no. 2. The counter further makes it clear that the Income Tax Department has the power to take coercive action against the defaulters under Second Schedule to the Income Tax Act, 1961 and accordingly, action as permissible in law was taken under Annexure 5 in order to effect recovery of tax. With regard to the letter of bank raising objection to attachment notice, on 3-4-2013 vide Annexure 6, the stand of opposite party no. 1 is that since the Income Tax Department was already pursuing recovery of huge demand of tax outstanding against opposite party no. 2 and since despite repeated requests, opposite party no. 2 failed to discharge its obligation, the Department was compelled to take coercive action under Annexure 5. Thus, opposite party no. 1 contended that the proceeding initiated by the Income Tax Department under Annexure 5 is in accordance with law and there is nothing inappropriate about the same as has been alleged by the bank. Further, opposite party no. 1 in its counter made it clear that Government dues have a place of priority over secured debts of the banks. Thus, there is nothing wrong in issuing the impugned order under Annexure 5. Further stand of opposite party no. 1 is that they are protected under Second Schedule to the Income Tax Act, 1961 and so also under section 293 of the Income Tax Act, 1961. Further, according to opposite party no. 1, in the facts and circumstances of the case, rule 11 of Part 1 of the Second Schedule has no application to the present case. So, petitioner no. 2 is not entitled to get a relief under the same.
4. It appears that during the pending of the proceeding, the financial asset pertaining to the account of opposite party no. 2 along with underlying interest/security arising out of financial assistance granted by SBI along with all other banks was acquired by petitioner no. 2 a registered securitisation and assets reconstruction company. Accordingly, petitioner no. 2 filed Misc. Case No. 1193 of 2015 with a prayer to permit it to prosecute the writ application by substituting petitioner no. 1. This misc. case was disposed of on 17-7-2015 by allowing the substitution and accordingly, name of petitioner no. 2 came to be reflected in the cause title. Therefore, it appears that for all purposes, now petitioner no. 2 is the real petitioner in accordance with section 5 of SARFAESI Act.
5. Mr. R.P. Kar, learned counsel for petitioner no. 2 submitted that the properties in question having been equitably mortgaged to the bank, to secure the credit facilities and the same having been taken over by petitioner no. 2, thus, petitioner no. 2 has first charge over the same for recovery of its dues from opposite party Nos. 2 to 7 and since recovery proceeding was initiated by issuing notice under section 13(2) of SARFAESI Act on 25-2-2013, opposite party no. 1 has no legal authority to attach the said secured assets. In this context, Mr. Kar relied on section 35 of SARFAESI Act and contended that the provisions of SARFAESI Act will override the provisions of the Income Tax Act, 1961. Secondly, he also invited attention of this Court to section 74 of the ED Act, 1953, section 30 of GT Act, 1958, section 55 of the Orissa Value Added Tax, 2004, section 13B of the Orissa Sales Tax Act, section 26B of Kerala General Sales-tax Act, 1963, section 38C of Bombay Sales Tax Act, 1959, section 142A of the Customs Act, 1962 and lastly to section 88 of the Service Tax (Chapter V of Finance Act, 1994) to contend that unlike the abovenoted Acts with provision for first charge, the Income Tax Act, 1961 does not provide for any paramountcy of dues by way of income-tax. In other words, Mr. Kar submitted that there is no substantive provision in the Income Tax Act, 1961 for superseding or overriding the claims or rights of a secured creditor. In such background, the State cannot claim its preferential right over the mortgaged properties debarring the secured creditors of their rights in any manner whatsoever. Therefore, according to him, the order of attachment issued by opposite party no. 1 was illegal and vitiated. In this context, Mr. Kar relied on the decisions of the Honble Supreme Court in the cases of Union of India & Ors. v. Sicom Ltd. & Anr. (2009) 2 SCC 121, Rana Girders Ltd. v. Union of India & Ors. (2013) SCC 746 and Bombay Stock Exchange v. V.S. Kandalgaonkar & Ors. (2015) 2 SCC 1. Thirdly, Mr. Kar submitted that Second Schedule to the Income Tax Act, 1961 only prescribes the procedure for recovery but it does not prescribe any substantive right to take away a right, which has already been accrued in favour of/vested with the secured creditors. On this account, he contended that the order of attachment under Annexure 5 was also illegal. Lastly, Mr. Kar pointed out that at least after receipt of the letter under Annexure 6, dated 3-4-2013, opposite party no. 1 ought to have conducted an enquiry in terms of rule 11 of Part I of the Second Schedule to the Income Tax Act, 1961. By not doing this, opposite party no. 1 has acted arbitrarily and unreasonably.
6. Mr. Acharya, learned senior standing counsel for the Income Tax Department, strenuously argued that Government dues/Crown debt in the form of income-tax dues have a place of priority over other debts including the secured debts of petitioner no. 2. He further submitted that the decisions cited by Mr. Kar have no application to the facts and circumstances of the present case and thus, no wrong has been committed by opposite party no. 1 in issuing the order of attachment under Annexure 5. Secondly, Mr. Acharya submitted that since the order of attachment under Annexure 5 has been issued in tune with Second Schedule to the Income Tax Act, 1961 for recovery of income-tax, the same cannot be legally faulted. Thirdly, he submitted that no enquiry under rule 11 was necessary since the Government dues in the form of income-tax were to be collected from the assessee. Thus, the secured creditor does not have any claim of relief under rule 11 of Part I of Second Schedule to the Income Tax Act, 1961. Lastly, he submitted that even otherwise the action of opposite party no. 1 by issuing the attachment order under Annexure 5 is protected under first part of section 293 of the Income Tax Act, 1961 as according to him no proceeding is maintainable to set aside, modify any order made under the Income Tax Act, 1961 and in such background, he urged that the writ application is without any merit and the same should be dismissed.
None has appeared on behalf of opposite party Nos. 2 to 7.
7. Heard Mr. R.P. Kar, learned counsel for petitioner no. 2 and Mr. Acharya, learned senior standing counsel for the Income Tax Department.
8. Before taking up the rival contentions made at the Bar, let us refer to and analyse some relevant provisions of SARFAESI Act and the decisions of the Honble Supreme Court as referred earlier.
Section 2(1)(zd) defines secured creditor as below :–
secured creditor means any bank or financial institution or any consortium or group of banks or financial institutions and includes —
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or
(iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;
Section 2(1)(ze) defines secured debt as below :–
secured debt means a debt which is secured, by any security interest;
Section 2(1)(zf) defines security interest as below :–
security interest means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31.
A perusal of the above definitions shows that a secured creditor is one in whose favour security interest has been created for due repayment by any borrower of any financial assistance. Such security interest includes mortgages and when a debt is secured by security interest, it is known as secured debt.
Sub-section (13) of section 13 of SARFAESI Act makes it clear that no borrower shall after receipt of notice referred to in sub-section (2) of section 13 of SARFAESI Act, transfer, by way of sale, lease or otherwise then in the ordinary course of his business any of his secured assets referred to in the notice without prior consent of the secured creditor. So, in a sense with issuance of notice under sub-section (2) of section 13 of SARFAESI Act, the mortgaged properties get attached atleast vis-a-vis the borrowers. Section 35 of SARFAESI Act makes it clear that the provisions of this Act would override other laws. According to it, the provisions of SARFAESI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Thus, SARFAESI Act can override other inconsistent laws/instruments.
Now, to the decisions of the Honble Supreme Court. In the case of Union of India & Ors. v. Sicom Ltd. & Anr. (supra), the issue involved was whether realisation of duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951. In that case, the Honble Supreme Court held that a debt which is secured or which by reason of the provisions of a statute becomes first charge over the property must be held to prevail over the Crown debts which is an unsecured one. Further, by referring to the non obstante clause in section 46B of State Financial Corporation Act, 1951, it dismissed the appeal against the judgment of the High Court, where the High Court has held that the dues claimed by the State Financial Corporation will have priority over the dues of customs. In coming to such a conclusion, the Honble Supreme Court highlighted the following things :–
9. Generally, the rights of the Crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors. (See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edition), p. 1147). Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. 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 statute 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.
10. It is trite that when Parliament or a State legislature makes an enactment, the same would prevail over the common law, Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments.
13. These aspects of the matter, however, have been considered at some length by a three-Judge Bench of this Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. Dealing extensively with the doctrine of priority to Crown debts, it was held :–
7. What is the common law doctrine of priority or precedence of Crown debts? Halsbury, dealing with general rights of the Crown in relation to property, states that where the Crowns right and that of a subject meet at one and the same time, that of the Crown is in general preferred, the rule being detur digniori (Laws of England, 4th Edition, Vol. 8, para 1076 at p. 666). Herbert Broom states :–
Quando jus domini regis et subditi concurrunt jus regis praeferri debet.–Where the title of the King and the title of a subject concur, the Kings title must be preferred. In this case detur digniori is the rule. … where the titles of the King and of a subject concur, the King takes the whole. … where the Kings title and that of a subject concur, or are in conflict, the Kings title is to be preferred. (Legal Maxims, 10th Edition., pp. 35-36)
This common law doctrine of priority of States debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence, the doctrine has been treated as law in force within the meaning of article 372(1) of the Constitution.
It was, furthermore, observed :–
10. 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) does not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of 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 perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover., it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (Tagore Law Lectures, 7th Edition, p. 386)–It seems a Government debt in India is not entitled to precedence over a prior secured debt.
The principles enunciated therein have been reiterated by the Andhra Pradesh High Court in Sitani Textiles & Fabrics (P) Ltd. v. CCE where the applicability of the provisions of the 1951 Act vis-a-vis the Central excise dues were in question holding :–
22. From the above it follows : that in the case of a pledge, pawnee has special property and lien which is not of an ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away goods or its price. The right of a pawnee could not be extinguished by the subsequent attachment/seizure of the goods under any other law. It gives the pawnee a primary right to sell the goods in satisfaction of the liability of the pawnor. An unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the secured creditors dues.
23. Furthermore, the right of a State Financial Corporation is statutory one. The Act contains a non obstante clause in section 46B of the Act which reads as under :–
46B. Effect of Act on other laws.–The provisions of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.
The non obstante clause shall not only prevail over the contract but also other laws. (See Periyar & Pareekanni Rubbers Ltd. v. State of Kerala).
Thus, the above decision makes it clear that a debt which is secured becomes the first charge over the property and has to prevail over the Crown debt/Government dues as such dues are unsecured.
In the case of Rana Girders Ltd.s v. Union of India & Ors. (supra) the Honble Supreme Court reiterated that being a secured creditor, the State Financial Corporation debts will have priority over debts of Central Excise in absence of specific provisions creating charge over the properties under the Central Excise Act, 1944 at the relevant point of time. In other words, it held that the State Financial Corporation would have priority over mortgaged properties being a secured creditor and the Central Excise Department can have no charge over the said property. Here, the Honble Supreme Court reiterated the principles laid down in Union of India v. Sicom Ltd. (supra) at paras 18 and 19 of the judgment. Accordingly, the Honble Supreme Court quashed the Excise Department calling upon the appellant to pay the dues.
In Bombay Stock Exchange v. V.S. Kandalganonkar & Ors. (supra), one of the points in controversy was whether the Income Tax Department can claim priority over the debts vis-a-vis Bombay Stock Exchange, which was a secured creditor. The Honble Supreme Court came to hold that the Income Tax Act does not provide for any paramountcy of dues by way of income-tax. In such background, it held that stock exchange being a secured creditor, will have precedence over the claim of dues made by way of income-tax by the Income Tax Department. Thus, in other words, it held that the Bombay Stock Exchange being a secured creditor, would have priority over Government dues. In this context, the relevant Paragraphs of the judgment are quoted hereunder :–
26. It is settled law that Government debts have precedence only over unsecured creditors. This was held in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. as follows :–
10. 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 a mortgagee or pledgee of 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 perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Graver it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edition, p. 386)–It seems a government debt in India is not entitled to precedence over a prior secured debt.
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, held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles v. Grover (supra) 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 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 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 :
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.
A survey of all the above decisions make it clear that Crown debt/State dues cannot override the claim of secured creditor unless there is a statutory backing to same.
9. In such background, we have to address ourselves to various rival contentions raised at the Bar. As indicated earlier, it is not disputed that there exists equitable mortgage/mortgages with regard to immovable properties of opposite party no. 2 covering the plots included in Annexure 5 earlier in favour of the banks and now in favour of petitioner no. 2 in view of the provisions of section 5 of SARFAESI Act. Taking into account the definitions of secured creditor, secured debt & security interest as discussed earlier, it can safely be said that petitioner no. 2 is a secured creditor with security interest by way of mortgage on immovable properties of debtor like opposite party no. 2. In other words, the debt in the present case is a secured debt. On account of default committed by the borrowers, it is not disputed that on 25-2-2013, a notice under sub-section (2) of section 13 of SARFAESI Act was issued against the borrowers. Such notice clearly covers all the plots indicated under Annexure 5 issued by opposite party no. 1 of which opposite party no. 2 is the owner. Section 35 of SARFAESI Act as referred earlier makes it clear that the provisions of this Act would override other laws and would have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This non obstante clause shall not only prevail over any inconsistent instrument but also over other laws. Coupled with this, it is not disputed that Income Tax Act does not provide for any paramountcy of dues by way of income-tax as has been provided under other Acts like the ED Act, 1953, GT Act, 1958, Orissa Value Added Tax, 2004, Kerala General Sales Tax Act, 1963, Bombay Sales Tax, 1959 and Customs Act, 1962.
10. In such background, keeping in mind the ratio of decisions of the Honble Supreme Court as referred earlier, we have no doubt in our mind that the Government dues/Crown dues with regard to recovery of income-tax, cannot have priority over the demands of secured creditors like banks and presently, petitioner no. 2. Thus, opposite party no. 1 has gone wrong in issuing notice under Annexure 5 attaching the immovable properties of borrower, which are already mortgaged with the banks earlier and with petitioner no. 2 now, particularly, after the recovery proceeding has been initiated after issuance of notice under section 13(2) under SARFAESI Act. Since earlier the bankers and now petitioner no. 2 are secured creditors under SARFAESI Act, the opposite parry no. 1 ought to have withdrawn the notice issued under Annexure 5, after receipt of letter of the bank under Annexure 6, dated 3-4-2013, since dues under the Income Tax Act, 1961 do not provide for any paramountcy of dues over that of a secured creditor. After receiving the letter dated 3-4-2013 under Annexure 6, opposite party no. 1 should have conducted an enquiry keeping in mind the ratio decided by the Honble Supreme Court in very many cases in favour of the secured creditors. We are sure had he adopted the said course, he would have recalled the notice under Annexure 5 thereby releasing the mortgaged properties from attachment. Since we have held that Crown debt/State dues by way of income-tax dues cannot override the claim of secured creditor like the petitioner no. 2, it is crystal clear that opposite party no. 1 could not have proceeded under provisions of the Income Tax Act, 1961 vis-a-vis the secured assets covered by Annexure 2 Series. In such background, the attempt of Mr. Acharya, learned senior standing counsel for the Income Tax Department to defend the action of opposite party no. 1 on the basis of Second Schedule to the Income Tax Act does not merit our acceptance. Once, opposite party no. 1 has no legal authority to claim preferential right over the mortgaged properties, automatically it means that he has no legal authority to attach such secured assets. Second Schedule to the Income Tax Act, 1961, as rightly contended by Mr. Kar only prescribes the procedure for recovery and does not prescribe for any substantive right nor takes away a right, which has already accrued in favour of the secured creditors. With regard to the submission of Mr. Acharya that the action of opposite party no. 1 is protected under section 293 of the Income Tax Act, we hold that the same has no application to the present case, inasmuch as, the said section deals with bar with regard to filing of suits in civil Courts for setting aside or modifying any proceeding taken or any order made under this Act. The said section does not and cannot control the powers of a Constitutional Court like High Court exercising its jurisdiction under Articles 226 and 227 of the Constitution of India.
11. For all these reasons, the writ application is allowed by quashing the notice under Annexure 5 and making it clear that petitioner no. 2 is at liberty to proceed with the matter in accordance with the provisions of SARFAESI Act, if there is no other impediment. No costs.
NF
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