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2005 DIGILAW 172 (KER)

State Of Kerala v. Canara Bank

2005-02-25

K.S.RADHAKRISHNAN, M.N.KRISHNAN

body2005
Judgment :- Radhakrishnan, J. Writ Appeal No.1382 of 1999 arises out of the judgment in O.P.No.6072 of 1998 which was disposed of along with O.P.No.3823 of 1992 holding that Salestax Department can proceed with the sale of the movables under attachment on condition that from out of the sale proceeds the amount due to the Bank would be paid to them and balance amount could be adjusted towards the tax due to the department by the fourth respondent. It is also stated in the judgment that the issue involved therein is covered by the judgment in O.P.No.2046 of 1985. State of Kerala and Assistant Commissioner of Salestax (Assessment) are aggrieved by the said judgment and have approached this court with this writ appeal. 2. Fourth respondent in the writ petition had availed of loan facilities from Canara bank for purchasing machinery and for running of the industry. In order to avail of the loan he had deposited title deeds relating to 3.24 acres situated in Aroor Village in survey numbers 407/15, 407/13-2, 407/11-2, 407/12, 407/16, 407/17 and 430/1/24. Deposit was made on 15.4.1984. Title deeds were deposited with intend to create an equitable mortgage of the said property together with all structures and machinery standing on it. Third respondent in the writ petition, Tahsildar, initiated revenue recovery proceedings against the writ petitioner for recovery of an amount of Rs.1,76,94,849/- towards the arrears of salestax for the years 1975-76, 1976-77, 1977-80, 1986-87, 1988-89 and 1990-91. when the recovery proceedings were in progress Tahsildar received a communication from the Bank not to resort to revenue recovery proceedings since suit O.S.No.39 of 1989 is pending before the Sub Court, Cherthala and the Tahsildar replied stating that the writ petitioner is liable to pay salestax from 1975-96 onwards. Canara bank in the meantime approached this court by filing O.P.No.6072 of 1988 seeking writ of certiorari to quash Ext.P2 communication received from the Salestax Department and also for an order restraining the salestax authorities from attaching and selling the properties of the writ petitioner which were mortgaged to the Bank. 3. O.P.No.12644 of 1994 is the writ petition filed by State Bank of India seeking a direction to the salestax department and other revenue authorities not to proceed against 1/8th share of the fourth respondent in 81.757 cents in survey No.2407/13 of Mattancherry village and also for other consequential reliefs. 3. O.P.No.12644 of 1994 is the writ petition filed by State Bank of India seeking a direction to the salestax department and other revenue authorities not to proceed against 1/8th share of the fourth respondent in 81.757 cents in survey No.2407/13 of Mattancherry village and also for other consequential reliefs. It is pointed out that the fourth respondent had availed of certain credit facilities for which he had deposited the title deeds of the property and the buildings thereon. Since amount was not repaid Bank filed O.S.No.106 of 1988 before the Sub Court, Cochin for realization of Rs.20,90,468.86 together with interest which was decreed on 30.6.1988. Aggrieved by the rate of interest awarded, Bank filed A.S.No.348 of 1989. Contention was raised that the revenue authorities have no legal right to proceed against the petitioner. Further it is stated that since the suit was decreed on 30.6.1988 and that Section 26 B was introduced only in April 1999 the said provision has no retrospective effect. 4. Counter affidavit has been filed on behalf of respondents 2 and 3 stating the details of the amounts due to the Department by way of salestax arrears. The only question to be considered is whether State has got a prior charge in view of the introduction of Section 26 B of the Act. The question is no more res integra. Similar issue came up for consideration and another Division bench in Sherry Jacob v. Canara Bank (2004 (3) KLT 1089 and the Bench placed reliance on the decision of the apex court in Dena Bank v. Bhikhabhai Prabhudas Pareksh & Co. (2000 (5) SCC 694), State of M.P. v. State Bank of Indore (2002 (10) SCC 441) and State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation and others (1995) 96 STC 612). The apex court in State of M.P. v. State Bank of Indore (2002 (10) KTR 366) took the view that the revenue recovery authorities shall be at liberty to proceed against the property de hors the mortgage created over the property by virtue of Section 26 B of the Kerala General Salestax Act. 5. Contention was also raised before a Division Bench of this court in W.P.(C).No.26523 of 2003 with regard to the question whether Section 26 B has retrospective effect or not. The Bench dealt with the question and held as follows: 23. 5. Contention was also raised before a Division Bench of this court in W.P.(C).No.26523 of 2003 with regard to the question whether Section 26 B has retrospective effect or not. The Bench dealt with the question and held as follows: 23. Sri Suresh Kumar, learned counsel for the Bank has raised yet another contention. According to the learned counsel, Section 26 B was introduced only with effect from April 1, 1999. There is no indication that the above provision would have retrospective operation. Its operation can only be prospective. The contention is that since the mortgage in favour of the Bank was pre-existing as on the date of introduction of Section 26-B in the KGST Act, the pre-existing right of the Bank would not be affected. 24. It is pertinent to note that an identical contention was raised in Bhikhabhai’s case and in State Bank of Bikaner’s case (supra), The said contention was repelled by the Supreme Court in both the cases. The principle laid down by their Lordships in the two decisions would squarely apply in this case also. It may be noted that as on the date of introduction of Section 26-B of the KGST Act, the right of the Bank based on the mortgage had not crystallized into a decree. The Tribunal had passed the decree only in the year 2000. But Section 26-B was introduced in April 1999. The sale of the mortgaged property was held in the year 2003. It is true that the mortgage was created in favour of the Bank in the year 1979. But significantly, the liability of tax had arisen in the year 1974-75 long prior to the creation of the mortgage in favour of the Bank. Thus, in our view, the contention raised by the learned counsel cannot be sustained for the above reasons also. 25. The other contention raised by the learned counsel is based on Section 100 of the Transfer of Property Act. It is urged by the learned counsel that the charge created under Section 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. 26. It is urged by the learned counsel that the charge created under Section 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. 26. In view of the above legal position, it has to be held that the right, if any, of the Recovery Officer to conduct sale of the mortgaged property in question was only subject to the statutory first charge available in favour of the State to recover the sales tax arrears from the Company. The admitted position is that the revenue authorities had effected attachment of the property even prior to the sale conducted by the Recovery Officer. Though a sale notice was published by the revenue officers, the sale did not take place. This sale notice was also long prior to the sale conducted by the Recovery Officer. Thus in any view of the matter, the sale conducted by the Recovery Officer without notice to the Revenue is liable to be set aside. Though in certain cases Bank has obtained decree before the coming into force of Section 26 B of the Act properties were not brought to sale. Section 26 B was introduced only in April 1999. Decision 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 mortgaged. In such circumstances, we are inclined to follow the decision in Sherry Jacob’s case, supra (2004 (3) KLT 1089). We accordingly dispose of the writ appeal upholding the right of the State in proceedings against the mortgaged properties. Consequently O.P.No.12644 of 1994 stands dismissed. Judgment of the learned single judge in O.P.No.6072 of 1998 is set aside.