Judgment :- 1. The 4th respondent owns Mohan Industries, Ottappalam, where he makes steel furniture. He also owns a rice mill. The factory and the rice mill are situate in the same premises. He created an equitable mortgage over these premises, the factory thereon with all fixtures therein, and over some other items of immovable properties in favour of the petitioner-Bank. The mortgage was on 25 51967 and for Rs. 2,00,000/-Rs. 1,50,000/-then due from him to the Bank and Rs. 50,000/-upto which he may draw from the Bank thereafter. The Bank instituted a suit, O.S. No 26 of 1972 on the file of the Sub Court, Ottappalam, on this mortgage. That Court on 29 111973 passed a preliminary decree for sale, the decree amount being Rs. 3,31,084.57 with future interest. Before the preliminary decree under orders of Court the Bank removed into its custody some of the fixtures of the factory. 2. On 19 21972 the 4th respondent entered into Ext. RI contract with the Government agreeing to hull levy-paddy entrusted to him by the Civil Supplies Department. It appears that he failed to return 2136.700 quintals of paddy entrusted to him for hulling and that he is liable to the Government for the price thereof, which according to respondents I to 3 is Rs. 3, 63, 280.99. For realisation of this amount the Government as per Ext. P4 notice of attachment of immovable properties attached under the provisions of Kerala Revenue Recovery Act, 1968 (for brevity, the Act) the 4th respondent's immovable properties including the properties under mortgage and covered by the preliminary decree This notice is dated 3010 1974. The Bank's Ext. P5 objection as regards the properties under mortgage was rejected by the 1st respondent-Tahsildar as per his Ext. P8 order of 10121974. This was followed by Ex. P9 sale notice relating to the sale of the attached properties. The 1st respondent also requested the Bank to afford facilities to attach under the provisions of the Act the fixtures removed by it to its custody. This was as per Ext P1 notice dated 30 10 1974. Overruling the Bank's objection the 1st respondent as per Ext. P6 letter dated 10121974 informed the Bank that the fixtures are liable to be attached and under threat of sealing the 'premises' required the Bank to make the said fixtures available for attachment. He also issued Ext. This was as per Ext P1 notice dated 30 10 1974. Overruling the Bank's objection the 1st respondent as per Ext. P6 letter dated 10121974 informed the Bank that the fixtures are liable to be attached and under threat of sealing the 'premises' required the Bank to make the said fixtures available for attachment. He also issued Ext. P7 instruction to that effect to the 2nd respondent, the Revenue Inspector. 3. The Act is primarily concerned with recovery of Public Revenue due on land which as per S.2 (j) means: ""public revenue due on land "means the laud revenue charged on the land and includes all other taxes, fees and cesses on land, whether charged on land or not, and all cesses or other dues payable to the Government on account of water used for purposes of irrigation." S. 3 reads: "3. Charge and security for public revenue: The Public revenue due on any and shall be the first charge on that land, the buildings upon it and in the produce thereof". Note that it is only Public Revenue due on that land that is a first charge thereon. Transfer of any other immovable property by the defaulter will not bind the Government only in two cases: (i) made after a demand notice is served on him (S. 44 (1) ); and (ii) made before such service but after public revenue due on any land from him has fallen in arrear provided that it is made with intent to defeat or delay recovery of such arrear (S. 44 (2)). And, a transfer of immovable property by the defaulter after he is in arrear of public revenue due on any land from him shall be. until otherwise established, presumed to be one made with intent to defeat or delay recovery of such arrear of public revenue, if it is in favour of a near relation or is for grossly inadequate consideration (S. 44 (3)), The amount stated to be due to the State from the 4th respondent is not public Revenue due on any land as defined in S.2 0) nor is the mortgage in question hit by any of the provisions in S.44 of the Act. 4. S.68 of the Act enables the Government to have resort to the provisions of the Act for recovery of certain other dues dues other than public revenue due on land. 4. S.68 of the Act enables the Government to have resort to the provisions of the Act for recovery of certain other dues dues other than public revenue due on land. One of such dues is, moneys agreed in writing to be recoverable as arrears of public revenue due on land or as land revenue. Clause.16 in Ext. RI is such an agreement. S.68 (4) says that S.44 shall apply to recovery of any sum under S.68. S.68 (5) provides: "Without prejudice to the provisions of sub-section (4), where any person has, by a written agreement, agreed that specific immovable property belonging to such person shall be security for the payment by him of any tax or other amount due by him to the Government, any engagement entered into by such person with any one in respect of such property, during the period when the agreement is in force shall not be binding on the Government". Neither of these sub-sections makes a sum recoverable under S.68 a charge on any immovable property. (A word of caution is called for and that is S.68 also enables the Government to recover all sums declared by any other law to be recoverable as an arrear of public revenue due on land or as land revenue; it is possible that such ‘other law' may make the sum so declared a first charge on the defaulter's immovable property with the result the State will be entitled to priority as first charge holder over other creditors, secured or unsecured). It is not contended that S.68 (5) is attracted to the case on hand. 5. In view of what is stated above the State is not entitled under the provisions of the Act to deprive the Bank of its mortgage security. 6. It is then contended that the State has precedence to recover debts due to it from a common debtor over his other creditors, or in other words, State is a preferred creditor over other creditors of a common debtor. This submission requires to be examined from two angles: (i) what is the nature and character of the debt due to the State; (ii) what is the nature and character of the debt due to the creditor opposing the State's claim to have the assets of the common debtor applied first in discharge of the debt due to it (the State). 7. 7. There is no general principle entitling creditors of a common debtor to have debts owed to them discharged in the order in which they were contracted, or for that matter, in any order, so that all such creditors who claim the debts due to them simultaneously rank equally and the rule of ratable distribution governs the discharge of the several debts Bankruptcy Laws and S.73 of the Code of Civil Procedure, 1908, illustrate this doctrine. But when one of the creditors happens to be the king the English law recognises the rule that he is to be preferred. It is neither feasible nor necessary to trace the origin and development (mostly by statutes) of this rule in England which have been fully discussed by the House of Lords in 1832 in Giles v. Grover (131 E.R. 563) The rule is: When the right of the king and the subject concur and meet at one and the same time that of the crown is to be preferred. This is subject to the following limitation stated by Alderson, J. in the above mentioned case (at page 574 of the English Reports): "If, however, the right of the subject be complete and perfect before that of the king commences, it is manifest that the rule does not apply, for there is no point of lime at which the two rights are in 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. But if whilst the right of the subject is still in progress towards completion the right of the crown arises, it seems to me that the two rights do come into conflict together at one and the same time, and that the consequence in that case is that the right of the crown ought to prevail. Lord Mansfield expresses this proposition in shorter language when he says, "No inception of an execution can bar the crown:" Cooper v. Chitty (1 Burr. Lord Mansfield expresses this proposition in shorter language when he says, "No inception of an execution can bar the crown:" Cooper v. Chitty (1 Burr. 36)." This means that once the debtor is divested of his property in discharge or satisfaction of the debt due to the ordinary creditor before the conflict arises by the king advancing his claim, he cannot proceed against the property which is no longer the debtor's In other words the royal prerogative is available against the properties of the debtor only and only so long as they are bis. The rule he who is first in time has the strongest claim to an immovable property governs such cases as those mentioned first. 8. This doctrine was applied by British Indian Courts; and so is'law in force' coming within the ambit of Art.372 of the Constitution of India. See Builders Supply Corpn. v. Union of India (AIR. 1965 SC. 1061 Para.20). This common law principle has been given statutory recognition in enactments like Presidency Town and Provincial Insolvency Acts, and the Companies Act ensuring priority in respect of debts due to the Government Perhaps it is necessary that this common law rule continues because as observed by P. B. Mukharji, J. in Murli v. Asoomal & Co. (AIR. 1955 Calcutta 42 at 429).- "Notwithstanding the prerogative ideas of State in the modern age, the State still remains and has to remain by the very nature of its functions a tax collector. The jurisprudence and the law of public finance has, therefore, recognised the necessity of the priority for revenue claims. That is my reason why the republican character of the Constitution of India does not and cannot do away with the necessity of this constitutional doctrine of priority for State debts. It is a law of necessity and good sense". 9. However in the present day context of multifarious trade activities of the modern State it is necessary to confine the operation of the rule to revenue claims of the State as tax collector. It is a law of necessity and good sense". 9. However in the present day context of multifarious trade activities of the modern State it is necessary to confine the operation of the rule to revenue claims of the State as tax collector. In Food Controller v. Cork (1923 A. C. 647 at 659) Lord Atkinson said: "I concur with the Master of the Rolls in thinking that the expression "Crown debts" and "debts due to the Crown are unfortunate expressions, in as much as they suggest, at least to the uninitiated, that the Sovereign claims the right to be paid debts due to him, to the exclusion of the rights of his subjects, either for bis own use or for the public use as determined by him. Ages ago these words would probably be considered to apply to taxes or such like, but now, and especially during the war, when the different Departments of Government became more like great trading and industrial corporations than anything else, it is obvious that it leads to misunderstanding when trade debts due to these Corporations are sought, by the exercise of the royal prerogative, to be recovered in priority to those due to subject creditors And it is not to be wondered at, if it be true, that a tendency may be detected in the legislation passed from the year 1883 downwards dealing with bankruptcy, and the voluntary winding up of companies, to place, to some extent at all events, the crown substantially in the same position as private creditors." In the same case Lord Shaw of Dunfermline said: "My Lords, I venture to interpose much doubt as to the application or extension of the expression used by Macdonald C. B., "that where the King's and the subject's title concur the King's shall be preferred,"and the modernization of it given by Lord Macnaghten, to cases of ordinary commercial or industrial contracts entered into by a Government department in the course of the business or enterprise which it carries on If a special statute confers upon such departments priorities, preferences, excuses for misfeasance or exemptions from liability, then of course the statute controls the situation. But if the propositions above cited should ever be used to justify or widen the royal prerogative by the inclusion of ordinary contracts into the range of privilege, then it is, I think, very important to realize that this dictum of Lord Macnaghten's occurred in a casein which the nature of (he debts, as Crown debts, and that in a very strict sense, was clear beyond all question". Lort-Williams, J. said the same in In the matter of the N. Bengal Co., Ltd (1936-37) 41 C. W. N. 458 (460): "The priority exercised regarding Crown debts by reasons of the Royal prerogative originally applied in practice only to debts arising out of questions of revenue and taxation, because those were the only debts which in former times were likely to arise in favour of the Crown as against the subject In latter days the Crown has become engaged to an increasing degree, both in England and in India, in trading and other activities in addition to those arising out of revenue and taxation, and consequently the modern tendency has been to restrict such prerogative rights, by means of legislation to those matters such as revenue and taxation, to which such prerogative rights originally applied. The debt which it the subject-matter of the present petition is such a trade debt, and is entitled to no such priority as is claimed. Therefore the petition is dismissed with costs". According to P. B. Mukharji. J. in Murli v. Asoomal & Co (AIR. 1955 Calcutta 423 at 429): "It is only the revenue claims of the State which have the priority, and not the claims which arise in favour of the State while it carries on its activities in competition with citizens. There in that sphere the State and the citizen compete on equal terms and the State is no higher creditor than an ordinary citizen. But where the claims of the State are the demands of public revenue then such demands are above this competition and must have precedence over all other claims" The decision of the Supreme Court in Builders Supply Corpn, v. Union of India (AIR. 1965 SC. 1061) which concerned recovery of Income Tax due does not militate against this view. But where the claims of the State are the demands of public revenue then such demands are above this competition and must have precedence over all other claims" The decision of the Supreme Court in Builders Supply Corpn, v. Union of India (AIR. 1965 SC. 1061) which concerned recovery of Income Tax due does not militate against this view. In that case the Supreme Court said (at 1065) as follows: "This doctrine as originally evolved by common law in England, had a very wide sweep and it purported to take within its scope many privileges and powers Considered in the light of its wide sweep some of these privileges may sound archaic and feudal, but it is not necessary for our purpose to examine the said doctrine in all its width; in the present appeal we are concerned with the narrow question as to whether respondent No.1 is entitled to claim that the recovery of the amount of tax due to it from a citizen must take precedence and priority over unsecured debts due from the said citizen to his other private creditors". and answered the above question by pointing out that there it a consensus of judicial opinion on the question that the arrears of tax due to the State can claim priority over private debts, (see Para.14). 10. Another limitation of the doctrine is that it would be attracted only (in the words of Chagla, C. J. in Bank of India v. John Bowman (AIR. 1955 Bombay 305) ) 'if the debts are of equal degree and the rights of the crown and the subject are equal'. This limitation was stated by Lord James in In re Henley & Co. (1878) Ch. D. 469) as follows: "Whenever the right of the Crown and the right of a subject with respect to the payment of a debt of equal degree come into competition, the Crown's right prevails". Applying this limitation this Court in State of Madras v. Chaldian Syrian Bank Ltd. ((1960) II KLR. 314) and the Andhra Pradesh High Court in ILR.1957 Andhra Pradesh 505 (referred to in State of Madras v. Chaldian Syrian Bank Ltd. (1960) II KLR. Applying this limitation this Court in State of Madras v. Chaldian Syrian Bank Ltd. ((1960) II KLR. 314) and the Andhra Pradesh High Court in ILR.1957 Andhra Pradesh 505 (referred to in State of Madras v. Chaldian Syrian Bank Ltd. (1960) II KLR. 314)) took the view that since the mortgagor has no title to the funds collected by a receiver appointed in a mortgage suit, and since such funds are earmarked for discharge of the mortgage debt, the State has no preferential claim to have those funds applied in discharge of a debt owed by the mortgagor to it, and that the said fund should be first applied to liquidate the mortgage accounts The same view was taken in Murli v. Asoomal & Co (1955 Calcutta 423) which was a case of a simple money suit where pending trial a receiver had been appointed to run the business of the defendant-firm including all the goods, stock in trade, furniture and fittings, and after decree the receiver was directed by an order of the execution court to sell the said goods, stock and furniture and to pay the decree holder out of the sale proceeds in satisfaction of the decree. The Court said: "By the Court's order for sale and direction for payment in this case the ‘dividing line', to use the expression used in one of the cases I have just discussed, has been crossed and thereby a divestiture of the property of the debtor has occurred, so that the State's claim against the debtor after the divestiture cannot prevail over the matured rights of the private judgment-creditor Any other conclusion appears to me to be fraught with infinite uncertainty and disaster in private dealings between citizens For instance, if there was a uniform priority of all State claims universally applicable, whenever or however such claims arise, then all that private debtor need do is not to pay his taxes or the State claims to deprive his private creditor of his dues. This will render insecure many essential and necessary transactions in the State and Society". 11. In Bank of Bihar v. State of Bihar (AIR. 1971 SC. 1210) the Revenue seized and sold certain quantity of sugar pledged or pawned to a Bank and deposited the sale proceeds in the Treasury. This will render insecure many essential and necessary transactions in the State and Society". 11. In Bank of Bihar v. State of Bihar (AIR. 1971 SC. 1210) the Revenue seized and sold certain quantity of sugar pledged or pawned to a Bank and deposited the sale proceeds in the Treasury. This deposit, the Revenue attached under the Public Demands Recovery Act for arrears of sugar cess due from the pawnor. The Court said: "The pawnee has special property and a lien which is not of 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 the goods or its price. 8. The approach of the trial Court was unexceptionable. The plaintiff's right as a pawnee could not be extinguished by the seizure of the goods in its possession inasmuch as the pledge of the goods was not meant to replace the liability under the cash credit agreement. It was intended to give the plaintiff a primary right to sell the goods in satisfaction of the liability of the pawnor. The Cane Commissioner who was an unsecured creditor could not have any higher rights than the pawnor and was entitled only to the surplus money after satisfaction of the plaintiff's dues. " Following this decision my learned brother Narendran. J in O. P. No. 240 of 1975 held that as against the rights of the petitioner Bank therein in respect of certain machineries and accessories thereto pledged to the Bank, the State's claim for arrears of sales tax due from the pledger cannot prevail. 12. Therefore, where the ordinary creditor has a lien on the funds in the hands or a receiver, or he has a special property in the movables pledged thereof or where the Court has passed an order in his favour to apply the funds in the hands of a receiver in satisfaction of a debt due to him, such fund or movables are not available to the State to satisfy the debt owed to it so as to defeat the ordinary creditor at whose instance the receiver was appointed or to whom goods have been pledged. With much more force it could be said that a mortgagee of immovable properties cannot be defeated by the State seeking to attach and sell the mortgaged properties to the determent of the mortgagee. 13. With much more force it could be said that a mortgagee of immovable properties cannot be defeated by the State seeking to attach and sell the mortgaged properties to the determent of the mortgagee. 13. In Dost Muhammed Khan v. Mani Ram and Rahmat Ullah (ILR. 29 Allahabad 537 FB) the question arose as to whether 7/16 share in a house in respect of which a decree for sale has been passed, is liable to be proceeded against for court fees leviable in an informa pauperis suit for which the mortgagor of the house was made liable by the decree therein (in forma pauperis suit). The Full Bench held that unless otherwise provided by statute, as for example by creating a first charge, the State can sell only such rights as the person indebted to it possesses in the property. This case illustrates the first limitation on the doctrine to which I adverted to earlier in this judgment, namely, after the common debtor is divested of his property, the State cannot proceed against that property for realization of the debt due to it, unless, of course, the State has a first charge thereon under any statute. The property proceeded against by the State must be its debtor's property. In law the mortgagor and the mortgagee have distinct and separate interests in the specific immovable property or properties which constitute the security for the mortgage debt. The State cannot therefore seek to recover the debt owed by one of them by proceeding against the interests of the other in the property or properties under mortgage unless the debt due to the State is a first charge thereon. 14. The debt due to the State as alleged by respondents 1 to 3 is a trade debt and not a revenue debt. The debt due to the Bank is a secured debt and. therefore stands on a higher degree. The mortgage interests, the Bank has in the properties sought to be proceeded against, do not belong to its debtor the mortgagor who has been divested of that much interests in those properties by the mortgage. Viewed from any angle the State's claim for the debt stated to be due from the mortgagor cannot be enforced against the mortgaged properties so as to deprive the mortgagee Bank of its security and to its detriment. 15. I quash Exts. P6 and P7. Exts. Viewed from any angle the State's claim for the debt stated to be due from the mortgagor cannot be enforced against the mortgaged properties so as to deprive the mortgagee Bank of its security and to its detriment. 15. I quash Exts. P6 and P7. Exts. P8 and P9 appear to take in other properties also 1 restrain respondents 1 to 3 from taking any proceedings as against the properties directed to be sold by the decree in O. S. No. 26 of 1972 on the file of the Sub Court, Ottappalam, in derogation of the petitioner-Bank's mortgage rights therein for realization or any amount due from the 4th respondent under Ext. R1 agreement. No other directions are called tor. The O. P. is allowed to the above extent. There will be no order as to costs.