Case Law Details
State of H.P. & Ors. Vs State Bank of India & Another. (Himachal Pradesh High Court)
Introduction: The Himachal Pradesh High Court recently delivered a significant judgment in the case of State of H.P. & Ors. vs. State Bank of India & Another. The core issue revolved around the priority of the State (Excise Department) in comparison to secured creditor debts. This article provides an in-depth analysis of the judgment, shedding light on legal precedents and implications.
Detailed Analysis:
1. Background of the Case: The judgment revolves around Letters Patent Appeals, consolidated due to a common issue. The crucial question addressed was whether the State (Excise Department) holds priority over the debts of secured creditors.
2. Supreme Court Precedent: The respondents’ counsel cited Civil Appeal No. 2196 of 2012, where the Hon’ble Supreme Court settled a similar issue in Punjab National Bank vs. Union of India. The Supreme Court’s decision on 24th February, 2022, became a pivotal reference in the Himachal Pradesh High Court’s analysis.
3. Supreme Court’s Opinion: The relevant excerpt from the Supreme Court’s order emphasized the misinterpretation by the High Court regarding the first charge or second charge over properties. It clarified that, according to the SARFAESI Act, 2002, secured creditors hold the first charge on mortgaged assets.
4. Legal Interpretation: The analysis delves into the legal intricacies, highlighting the significance of Section 11E in the Central Excise Act, 1944, and its insertion in 2011. It explains how the SARFAESI Act, 2002, with its overriding effect, establishes secured creditors’ priority.
5. Factual Aspects: The learned Additional Advocate General failed to challenge the factual aspects presented by the respondents, reinforcing the settled nature of the issue as per the Supreme Court’s decision.
Conclusion: The Himachal Pradesh High Court, considering the settled position as per the Supreme Court precedent, dismissed all Letters Patent Appeals. The judgment underscores the priority of secured creditors over the State Excise Department, providing legal clarity on the matter. This decision has broader implications for similar cases, reinforcing the supremacy of the SARFAESI Act, 2002, in determining priorities in cases involving secured debts and government dues.
FULL TEXT OF THE JUDGMENT/ORDER OF HIMACHAL PRADESH HIGH COURT
Vide this order, above mentioned Letters Patent Appeals would be disposed of, as issue involved in all the appeals is the same.
2. Admittedly, the issue involved in the present appeals is as to whether the State (Excise Department) will have priority over the secured creditor’s debt.
3. Learned counsel for the respondents have submitted that the issue involved in the present appeals is no longer res integra and has been settled by the Hon’ble Supreme Court in Civil Appeal No. 2196 of 2012, titled Punjab National Bank vs. Union of India and others, decided on 24th February, 2022.
4. The relevant portion of the order dated 24th February, 2022 reads as under:-
“37. Secondly, coming to the issue of priority of secured creditor’s debt over that of the Excise Department, the High court in the impugned judgment has held that “In view of the matter, the question of first charge of second charge over the properties would not arise.” In this context\, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. Xxxxxx
43. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the Appellant, on the second issue, hold merit. Evidently, prior to insertion of Section 11E in the Central Excise Act, 1944, w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Therefore, in the event like in the present case, where the land building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provision contained in Section 2(zc) to (zf) of SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI ACT, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.xxxxx
47. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173 Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Stature books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellant-bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. xxxx”
5. Learned Additional Advocate General has failed to controvert the factual aspect of the submissions made by learned counsel for the respondents.
6. Since the question involved in the present appeal is no longer res integra and has been settled by the Hon’ble Supreme Court in Punjab National Bank’s case supra, all the Letters Patent Appeals are dismissed.
7. Pending miscellaneous application(s), if any, shall also stand disposed of.
