Reji George v. Tahsildar, Kothamangalam; State of Kerala represented by the Secretary to Government, Department of Taxes, Thiruvananthapuram; Union Bank of India

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE ANTONY DOMINIC** **WEDNESDAY, THE 16TH NOVEMBER 2011 / 25TH KARTHIKA 1933** **WP(C).No. 8179 of 2008(W)** **---------------------------------------** **PETITIONER(S):** **------------------------** **REJI GEORGE, KURUNNAPPILLIL HOUSE, VARAPPETTY, KOTHAMANGALAM, ERNAKULAM DISTRICT.** **BY ADV. SRI.GEORGE POONTHOTTAM** **RESPONDENT(S):** **----------------------------** ## **1. THE TAHSILDAR, KOTHAMANGALAM.** **2. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, DEPARTMENT OF TAXES, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM.** **3. THE BRANCH MANAGER, UNION BANK OF INDIA, POTHANICAUD BRANCH, MUVATTUPUZHA.** **R1 & R2 BY GOVERNMENT PLEADER SMT.SANGEETHA R3 BY ADV.SRI.A.S.P.KURUP, SC, UBI** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **WP(C)NO.8179/2008** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 COPY OF THE AUCTION NOTICE.** - **P2 COPY OF THE AUCTION CERTIFICATE NO.4/05 ISSUED BY THE SUB JUDGE, MUVATTUPUZHA.** - **P3 COPY OF THE LETTER NO.B5.8252/93 DATED 12/7/2007.** - **P4 COPY OF THE LETTER DATED 26/11/07.** - **P5 COPY OF THE REPLY DATED 4/12/07.** - **P6 COPY OF THE JUDGMENT IN O.S.NO.590/86 DATED 1/12/1987.** - **P7 COPY OF THE DECREE IN O.S.NO.590/86 DATED 7/12/1987.** **RESPONDENT'S EXHIBITS: NIL** ## **/TRUE COPY/** ## **P.A.TO.JUDGE** **sts** ## **ANTONY DOMINIC, J.** ``````````````````````````````````````````````````````````` W.P.(C) No. 8179 of 2008 W ``````````````````````````````````````````````````````````` Dated this the 16[th] day of November, 2011 ## **J U D G M E N T** ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Union Bank of India filed O.S.No.590/1986 before the Sub Court, Muvattupuzha against one C.V.Poulose. The suit was for enforcing a mortgage claim of the bank in respect of 74 cents of land situated in Survey Nos.290/2B/1, 290/2B/3/10 and 293/7 of Varappetty village. The suit was decreed in favour of the bank on 07.12.1987 and Exts.P6 and P7 are the judgment and decree. 2. The judgment debtor was an assessee under the Kerala General Sales Tax Act and had committed default in paying the sales tax, during the Assessment Years from 1988 to 1992. Revenue Recovery proceedings were initiated and the property which was mortgaged to the Bank was attached on 14.10.1991. In spite of the attachment in force, the decree holder bank filed E.P.No.124/1994 and finally, the property was auctioned on 24.11.2004. In the W.P.(C) No.8179/2008 : 2 : auction, the petitioner was the successful bidder and against an upset price of `3,70,000/- petitioner purchased the property for `6,04,000/-. Accordingly, Ext.P2 sale certificate dated 28.06.2005 was issued to her. On the strength of Ext.P2 sale certificate, petitioner applied for mutation of the property and that was rejected by Ext.P3 order passed by the first respondent on the ground that the recovery proceedings initiated for realisation of the sales tax arrears was pending. It is thereupon, this writ petition has been filed with the following prayers:- _“(i) Call for the records leading upto Ext.P3 and to quash the same by the issuance of a writ of certiorari or such other writ, order or direction._ _(ii) Issue a writ of mandamus directing the second respondent to effect transfer of registry of the properties covered by Ext.P2 in the name of the petitioner._ _(iii) Declare that the petitioner is entitled to enjoy the properties involved in_ W.P.(C) No.8179/2008 : 3 : _Ext.P2 as absolute title holder, without any claim from the second respondent for amounts due to them from the judgment debtor in O.S.No.590/1986 on the file of the Subordinate Judges Court, Muvattupuzha._ _(iv) Declare that pursuant to court sale, the charge on the property transfers to the sale proceeds and therefore the Government cannot in any manner deny transfer of registry of the petitioner's property bid in court sale.”_ 3. According to the petitioner, having purchased the property free from encumbrances and in view of Ext.P2 sale certificate that has been issued, she is entitled to enjoy the property, without any charge thereon. Therefore, it is contended that the respondents could not have rejected her application under the Transfer of Registry Rules for mutation in her name. 4. However, the respondents contended that the judgment debtor was a defaulter of sales tax due under the KGST Act and that in view of the provisions contained in W.P.(C) No.8179/2008 : 4 : Section 26B of the Act, the arrears of sales tax was the first charge of the property in question. It is stated that it was accordingly they had initiated Revenue Recovery proceedings and attached the property. Therefore, it is submitted that the rejection of the application made by the petitioner is legal. 5. The main contention raised by the learned counsel for the petitioner is that once a property which is subject to charge, is sold in court sale, even if the State has a claim, such claim of the State can be only against the sale proceeds and that the State cannot proceed against the property which has been sold. This contention is sought to be substantiated by placing reliance on the Apex court judgments in _**The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdul Gafur Haji Hussenbhai**_ [AIR 1971 SC 1201] and _**Union of India Vs. M/s.Somasundaram Mills (P) Limited and another**_ [AIR 1985 SC 407]. On the other hand, apart from Section 26B of the KGST Act, learned Government Pleader appearing for the respondents relied on the judgments in _**Sherry Jacob Vs. Canara Bank**_ [2004 (3) W.P.(C) No.8179/2008 : 5 : KLT 1089], _**South Indian Bank Ltd. Vs. State of Kerala**_ [2006 (1) KLT 65] and _**Central Bank of India Vs. State of Kerala and others**_ [(2009) 4 SCC 94]. 6. I have considered the submissions made. On facts, there is no dispute. The only contention raised is that once a property which is subject to a charge is sold, the course open to the State to recover its dues is to proceed against the sale proceeds realised and that the property in the hands of the purchaser cannot be proceeded against. Answer to the contention will depend upon the manner in which Section 26B of the KGST Act is understood. Section 26B of the KGST Act reads thus:- _“_ _**26B. Tax payable to be first charge on the property** :- Notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person.”_ W.P.(C) No.8179/2008 : 6 : 7. This provision starts with a _non obstante_ clause and says that irrespective of the provisions of any other law for the time being in force, any amount of tax payable by a dealer shall be a first charge on the property of the dealer. This provision came up for consideration before a Division Bench of this Court in _**Sherry Jacob Vs. Canara Bank**_ [2004 (3) KLT 1089]. This was a case where claim of precedence of State over the claims of a secured creditor was considered by this Court in an almost similar factual background. Dealing with the said issue, after referring to the Apex Court judgments, this Court held as follows:- _“_ _**22** . In view of the above two decisions of the Supreme Court in State Bank of Bikaner and State Bank of Indore (surpa) which had dealt with two exactly identical statutory provisions as contained in S.26-B of the KGST Act, we have no hesitation to hold that the statutory first charge will prevail over any charge or right created in favour of a mortgagee/secured creditor. The statutory first charge gets_ W.P.(C) No.8179/2008 : 7 : _over an precedence existing mortgage right.”_ 8. Thereafter, on the contention based on Section 100 of the Transfer of Property Act, which was urged by the learned counsel for the petitioner in this case also, the Division Bench held thus:- _“_ _**25** . The other contention raised by the learned counsel is based on S.100 of the Transfer of Property Act. It is urged by the learned counsel that the charge created under S.100 at the time of creation of the mortgage cannot be defeated by a statutory charge which came into operation at a later stage. This contention has also been answered by their Lordships in Bhikhabhai's case and the answer is against the petitioner.”_ 9. In so far as the claim of the auction purchaser is concerned, in paragraph 28, the Division Bench held thus:- _“_ _**28.** As regards the claim of the auction purchaser, it has to be held that his right can only be subject to the validity of_ W.P.(C) No.8179/2008 : 8 : _the sale held by the Recovery Officer. We have already found that the sale conducted by the Recovery Officer was not legally valid.”_ ## 10. _**South Indian Bank Ltd. Vs. State of Kerala**_ [2006 (1) KLT 65] also was a case where the scope of Section 26B came up for consideration. In that case, this Court held thus:- _“_ _**7.** Right of the State to have priority in the matter of recovery of sales tax from the defaulters over the equitable mortgages created by them in favour of Banks and Financial Institutions is no more res integra. Dealing with the provisions parallel to S.26B of the Kerala General Sales Tax Act by the various Sales Tax Laws of other States, Supreme Court has already recognized the statutory first charge in respect of sales tax arrears. Reference may be made to the decisions of the Apex Court in State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation & Ors. (1995) 96 STC 612), Delhi Auto and General Finance Pvt. Ltd. v. Tax Recovery_ W.P.(C) No.8179/2008 : 9 : _Officer & Ors. (1999) 114 STC 273), Dattatreva Shanker Mote v. Anand Chintaman Datar (1974) 2 SCC 799), Dena Bank v. Bhikhabhai Prabhudas Prakash Co. (2000) 5 SCC 694) and various other decisions. We may refer to the latest decision of the Apex Court in State of M.P. v. State Bank of Indore, (2002) 10 SCC 441) wherein the court examined the charge created under S.33C of the M.P.General Sales Tax Act, 1958 and held that S.33C creates a statutory first charge that prevails over any charge that may be in existence. The Court held that the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the Bank. Judicial pronouncements settled the law once for all stating that State has got priority in the matter of recovery of debts due and the specific statutory charge created under the Sales Tax Act notwithstanding the equitable mortgages created by the defaulters in favour of the_ W.P.(C) No.8179/2008 : 10 : _Banks prior to the liability in favour of the State. A Division Bench of this Court in Sherry Jacob v. Canara Bank, (2004 (3) KLT 1089) held that revenue recovery authorities shall have the liberty to proceed against the property of the company under the Revenue Recovery Act on the strength of the first charge created over the property by virtue of S.26B of the Kerala General Sales Tax Act. The Court held that the statutory first charge would prevail over any charge or right in favour of a mortgage or secured creditors and would get precedence over an existing mortgage right._ _**8.** We are in this case concerned with the question as to whether S.26B of the K.G.S.T. Act would take away the efficacy of a decree passed by the civil court prior to the introduction of said section. We are of the view till the decree is executed through executing court title of the mortgaged property remains with the mortgagor. Decree passed by the civil court is the formal expression of an adjudication which_ W.P.(C) No.8179/2008 : 11 : _conclusively determines the rights of parties, but unless and until the decree is executed the Bank would not procure the property and the State's overriding rights would have precedence over that of the Bank. When a first charge created by the operation of law over any property, that will have over an charge precedence existing mortgage and the decree obtained by the bank against the mortgagor will not affect the State since State was not a party to the suit. Decree has only conclusively determined the rights between the mortgagor and mortgagee which would not affect the statutory rights of the State. The expression “rights of parties” used in S.2(2) means rights of parties to the suit. State which has got a statutory first charge under S.26B of the K.G.S.T. Act would prevail over the rights created in favour of the Bank by an unexecuted decree. We therefore hold that the decree obtained by the Bank will not have any precedence over the first charge created in favour of the State under_ W.P.(C) No.8179/2008 : 12 : _S.26B of the K.G.S.T. Act._ _**9.** Counsel appearing for the Bank submitted that S.26B has employed a nonobstante clause, which does not exclude a decree or order of the court and therefore decree obtained by the bank is still enforceable dehors S.26B of the K.G.S.T. Act. Since State is not a party to any decree the contention has no force. Even otherwise in our view by virtue of operation of law State will have prior charge over the properties in question.”_ The principles laid down in both these judgments were expressly approved by the Apex Court in its judgment in _**Central Bank of India Vs. State of Kerala and others**_ [(2009) 4 SCC 94]. 11. From the above discussion, it is clear that the sales tax dues which are remaining unpaid to the State, remain as first charge over the property of a defaulter dealer. The statutory charge is on the property and will remain in force until it is discharged by realisation of the tax due. The fact W.P.(C) No.8179/2008 : 13 : that property has been sold either in court sale or otherwise, will not in any manner affect the nature of the charge. It was in pursuance to the statutory charge that operated as against the property in question, the State initiated revenue recovery proceedings and attached the property on 14.10.1991. It was while the attachment was in force, the Execution Petition was filed in 2004 and the property was auctioned on 24.11.2004 and the petitioner purchased the property. This therefore means that the court sale was subject to the statutory charge and so long as the charge remained undischarged, the property is liable to be proceeded against. If that be so, petitioner purchased the properties subject to the statutory charge and he cannot now contend that the claim of the State is confined to the sale proceeds realised in the court sale. 12. In so far as the judgments relied on by the learned counsel for the petitioner are concerned, the first judgment relied on is _**Union of India Vs. M/s.Somasundaram Mills (P) Limited and another**_ [AIR 1985 SC 407]. In this judgment, the Apex court has made an observation that if the State had W.P.(C) No.8179/2008 : 14 : already effected attachment over the property which was sold before its sale, the State would be entitled to recover its dues from out of the sale proceeds by filing a suit. A judgment is an authority for what is actually decided and not for what logically follows from the decision. Therefore, the background in which such an observation was made by the Apex court should first be understood by examining the facts of the case dealt with by the court. Facts of the case show that Revenue Recovery proceedings were initiated at the instance of the Income Tax Department against a company for realising the tax due, and in such proceedings, Collector had attached some shares owned by the defaulter company. However, before the shares were seized by the Tahsildar, a money decree was obtained by a third party and the shares in question were attached and were sold in execution of the decree. Subsequently, a suit was filed for recovery of the income tax dues, from out of the sale proceeds, which by then was received by the decree holder, and the contention was that the State had priority over other creditors and that the W.P.(C) No.8179/2008 : 15 : attachment by the District Collector being earlier in point of time than the attachment by the executing court, the Union of India was entitled to recover the tax dues from out of the sale proceeds from the third party decree holder. It was in this factual context, the aforesaid observation was made by the Apex court. Therefore, the subject matter which was dealt with by the Apex court was the right of the Union of India to proceed against the sale proceeds and the question considered was not whether the Union of India could proceed against the shares owned by the defaulter or its other assets. Further, that was also not a case where the court was dealing with the scope of the statutory first charge on the property which was attached and sold. Therefore, the observation made by the Apex court in the aforesaid judgment being in the above context, that cannot be of any assistance to the petitioner to contend that even in spite of the statutory first charge, which runs with the land, till dues are recovered, the remedy of the respondents is to proceed against the sale proceeds only. W.P.(C) No.8179/2008 : 16 : 13. In so far as the judgment in the case of _**The Ahmedabad Municipal Corporation of the City of Ahmedabad Vs. Haji Abdul Gafur Haji Hussenbhai**_ [AIR 1971 SC 1201] is concerned, that was a case where recovery proceedings were initiated by the Municipal Corporation of Ahmedabad on the strength of Section 141 of the Bombay Provincial Municipal Corporation Act which held that the property is liable for recovery of municipal taxes. In this case, interpreting Section 100 of the Transfer of Property Act, the Apex court held that the purchaser of the property cannot be proceeded against. However, facts of the case show that, unlike in this case, the property which was purchased in the court sale was not under attachment. Secondly, Section 141 of Bombay Act did not say that the liability will be a first charge on the property. Further, this judgment was rendered mainly interpreting Section 100 of the Transfer of Property Act. Since Section 26B of the KGST Act starts with a _non obstante_ clause, the provision of the Transfer of Property Act cannot have any impact on the scope of Section 26B. W.P.(C) No.8179/2008 : 17 : Therefore, the principles laid down in this judgment also cannot be made use of by the petitioner. 14. In the result, I do not find any merit in the writ petition. Writ petition fails and accordingly, it is dismissed. Sd/- **(ANTONY DOMINIC, JUDGE)** aks/17/11 _// True Copy // P.A. To Judge_