Research › Search › Judgment

Kerala High Court · body

2010 DIGILAW 821 (KER)

State of Kerala v. C. P. Jose and Sons

2010-10-22

S.S.SATHEESACHANDRAN

body2010
JUDGMENT : S.S. Satheesachandran, J. The defendant State of Kerala in OS No. 103/85 on the file of the Munsiffs Court, Manjeri is the appellant. The above suit was one for perpetual prohibitory injunction filed by the 1st respondent, a registered firm, to restrain the State from taking revenue recovery proceedings against that firm for realisation of the amount allegedly due as arrears of public revenue from another viz., M/s. Arthala Tea Estate. The Trial Court, after appreciating the materials tendered, dismissed the suit. In the appeal preferred by the plaintiff, an application was moved as IA No. 939/90 by respondents 2 to 17 in the present appeal seeking their impleadment as additional appellants contending that by virtue of assignments by the erstwhile partners of the firm, the 1st appellant, they obtained right and title over the suit property and as such, they are entitled to come on record and prosecute the appeal against the dismissal of the suit. That application was allowed by the lower Appellate Court and consequently the present additional respondents 2 to 17 were impleaded as additional appellants 2 to 17 in the appeal. After re-appreciating the materials tendered in the case, the lower Appellate Court reversed the dismissal of the suit in part, holding that out of the several claims raised by the State for realisation resorting to Revenue Recovery proceedings, it is entitled to invoke such proceedings so only in respect of certain claims over which statutory first charge was available and in respect of other claims for which no such charge could be canvassed of the proceedings under the Revenue Recovery Act were impermissible. After examining the various claims of the State, for proceeding under the Revenue Recovery Act against the plaint property, the lower Appellate Court segregated the claims having statutory charges, to which such proceedings were held entertain able and in respect of the other claims, over which there was no statutory charge, proceedings taken under the Revenue Recovery Act were treated as bad, and the realisation of such claims under the Revenue Recovery Act was interdicted granting a decree of injunction in favour of the appellants. The decree so granted by the lower Appellate Court is challenged by the State in the appeal. 2. Respondents 2 to 16 had entered appearance through counsel. Despite repeated notices, service could not be effected on respondents 1 and 17. The decree so granted by the lower Appellate Court is challenged by the State in the appeal. 2. Respondents 2 to 16 had entered appearance through counsel. Despite repeated notices, service could not be effected on respondents 1 and 17. The 17th respondent was the power of attorney holder of respondents 2 to 16. Taking note that respondents 2 to 17 had got impleaded as additional appellants in the appeal before the lower Appellate Court, and they prosecuted the appeal alleging that the title, interest and interest of the firm over the plaint property proceeded under the Revenue Recovery Act had been assigned in their favour, it was found, no further notice was required against respondents 1, the firm and 17, the power of attorney of respondents 2 to 16. 3. Some of the undisputed facts involved in the case deserve to be taken note of in appreciating the issue projected for consideration, whether the lower Appellate Court was justified in interfering with the dismissal of the suit by the Trial Court. The property covered by the suit admittedly belonged to a tea estate viz., M/s. Arthala Tea Estate. By mortgaging the properties, financial assistance was obtained by that estate from the Kerala State Financial Corporation. Repayment of the loan being defaulted, proceedings were initiated before the competent Civil Court, as provided under the provisions of the Kerala State Financial Corporations Act, which finally led to sale of the properties of the defendants' estate through Court. In the sale conducted by the Court, the 1st respondent firm knocked down the bid, as being the highest bidder. Sale was challenged by the State moving an application under Order 21, Rule 90 of the Code of Civil Procedure contending that the sale proceeded without mentioning and reserving the priority charges available to the State was vitiated by fraud and illegality. That application being dismissed, it was challenged before this Court. An application was also moved before the execution Court to implead the District Collector as a party to the execution proceedings to enable him to take steps for realising the dues to the State. That application too having been dismissed by the execution Court, that was also challenged by way of a writ petition. An application was also moved before the execution Court to implead the District Collector as a party to the execution proceedings to enable him to take steps for realising the dues to the State. That application too having been dismissed by the execution Court, that was also challenged by way of a writ petition. When the appeal and also the writ petition came up for consideration, it is seen, the counsel appearing for the auction purchaser, the 1st respondent in the appeal (the plaintiff) conceded that "in respect of the amount for which the Government can claim a legal charge on the estate, the auction purchaser would be bound by it and they have taken the estate only subject to said charge". In the light of the concession so made and recording such submission. Which insulated the right of the State to enforce and claim the charge it has against the properties of the Estate, which were sold in Court auction to the first respondent, the writ petition and appeal were dismissed by the Court. 4. However, when the State proceeded for realisation of the charges over the properties covered by the Court sale, the suit was laid by the 1st respondent contending that, at best, the State can claim proceed against the prior owner Arthala Tea Estate, only in respect of such claims which were due before the mortgage was executed in favour of the Kerala Financial Corporation. In the revenue recovery proceedings initiated by the State, claims arising subsequent to the mortgage are also included as arrears of public revenue due and the plaint property was proceeded with for realisation of such charges also was the crux of the case of the plaintiff, the firm, to impeach the proceedings as vitiated by fraud and thus, to seek declaration and injunction against the State-the defendant. 5. The defendant State, among other contentions, challenged the jurisdiction of the Civil Court, as barred under Section 72 of the Revenue Recovery Act to entertain the suit. It was further contended that the proceedings initiated under the Revenue Recovery Act against the plaint schedule properties are only continuation of the proceedings already initiated against the previous owner, and the status of the plaintiff-firm is only that of a representative claiming under the previous owner Arthala Estate, a defaulter under the Revenue Recovery Act. It was further contended that the proceedings initiated under the Revenue Recovery Act against the plaint schedule properties are only continuation of the proceedings already initiated against the previous owner, and the status of the plaintiff-firm is only that of a representative claiming under the previous owner Arthala Estate, a defaulter under the Revenue Recovery Act. The auction purchaser-plaintiff cannot claim any better right than what was available to the defaulter, the previous owner Arthala Estate, was the case of the defendant State. Whatever encumbrance over the property, which was outstanding at the time of the Court sale, covered by the Revenue Recovery proceedings, particularly, charges available to the State, it was contended could be enforced against the plaintiff, a transferee of the defaulter and also against the plaint schedule property. 6. The Trial Court, as already indicated, on the materials found that long prior to the Court sale in favour of the plaintiff firm the properties had been attached towards the priority charges due to the State under arrears of sales tax, plantation tax, land revenue, Employees Provident Fund dues, penal damages under Provident Fund, Gratuity etc. Taking note that allegations raised in the plaint are grossly insufficient to impeach the proceedings initiated under the Revenue Recovery Act as vitiated by fraud, the Trial Court also concluded that the suit was not maintainable and it was barred under Section 72 of the above Act. In that view of the matter, the Trial Court dismissed the suit. However, in the appeal, the lower Appellate Court proceeded to examine the question which among the claims covered by the revenue recovery proceedings the State have priority charge as provided by statutes, and the claims to which such charge was not available. After considering the various claims over which revenue recovery proceedings were initiated against the plaint property, it was held that in respect of arrears due towards payment and penal damages under Provident Fund, Gratuity, Emergency Risk Insurance and Employees' Death Linked Tax amount, all of which come to a sum of Rs. 6 lakhs and odd the proceedings were bad, and accordingly, the plaintiff firm was granted a decree of perpetual prohibitory injunction restraining the State from realising such sum under the RR Act. 6 lakhs and odd the proceedings were bad, and accordingly, the plaintiff firm was granted a decree of perpetual prohibitory injunction restraining the State from realising such sum under the RR Act. In respect of the recovery proceedings over claims on arrears of sales tax, plantation tax and Land Revenue, holding that they are statutory charges over which the State can claim priority over any other secured creditor, a mortgagor, perpetual prohibitory injunction to restrain the recovery of those charges was declined. 7. Whether the lower Appellate Court was justified in segregating the claims as indicated above, limiting the entitlement of State to proceed under the RR Act only in respect of the claims over which it has statutory charge, and on that basis pass a decree of perpetual prohibitory injunction restraining the State from proceeding against the plaint properties under the RR Act in respect of claims not covered by statutory charges is the question posed for consideration in the appeal. 8. Suit was one for perpetual prohibitory injunction alone, and that being so, where it was found that at least in respect of some of the claims, if not all proceedings taken by the State under the RR Act were proper, legal and correct the enquiry conducted by the lower Appellate Court as to which of the claims such proceedings are legal and valid was quite unwarranted. Further more, the primary question that should have received the attention of the lower Appellate Court before it proceeded with such an exercise was whether the finding entered by the Trial Court, the suit was barred by the statutory interdiction covered by Section 72 of the RR Act, suffered from any infirmity, and thus warranted interference. Indisputably, the plaintiff firm in the case, an auction purchaser in a Court sale, can claim only the rights, if any, available to the judgment debtor, previous owner, admittedly, a defaulter under the RR Act. Indisputably, the plaintiff firm in the case, an auction purchaser in a Court sale, can claim only the rights, if any, available to the judgment debtor, previous owner, admittedly, a defaulter under the RR Act. Whatever challenges raised by the plaintiff firm to impeach the recovery proceedings already commenced against the defaulter and then continued against the properties purchased in Court sale by the plaintiff firm relate to the execution, discharge and satisfaction over a demand raised under the RR Act and that being so, the defaulter or any person claiming under him cannot challenge the same before a Civil Court by way of a suit unless such proceedings for recovery are shown to be vitiated by fraud. The plaintiff firm, 1st respondent, had no case that Revenue Recovery proceedings commenced against the defaulter are bad, but only that the State is incompetent to realise such arrears which have arisen after the mortgage created over the plaint property in favour of Kerala Financial corporation, which, on default of repayment of loan, led to Court sale and purchase of such properties by the plaintiff. Even assuming that the plaintiff, a transferee of the defaulter in a Court sale has such a challenge it would not enable him to file a suit for injunction to restrain the recovery proceedings under the RR Act. That Act contains adequate provisions enabling a party, whether it be defaulter or otherwise, to raise such challenge before the competent authority specified and without recourse to such remedies the plaintiff firm, admittedly, claiming under the defaulter, is incompetent to institute the suit was never taken notice of by the lower Appellate Court while it proceeded to segregate the claims as to how far the State is legally entitled to proceed under the RR Act for realisation of the various dues from the plaint properties. The whole exercise done by the lower Appellate Court, that too in a suit for injunction, which is prima facie shown to be barred by the provisions of the RR Act, is found to be irregular and wholly unsustainable under law. 9. The dismissal of the suit by the Trial Court, which was unjustifiably interfered with by the lower Appellate Court is liable to be restored. The decree of injunction granted by the Court below is set aside, directing that the suit shall stand dismissed. 10. 9. The dismissal of the suit by the Trial Court, which was unjustifiably interfered with by the lower Appellate Court is liable to be restored. The decree of injunction granted by the Court below is set aside, directing that the suit shall stand dismissed. 10. Appeal is allowed, directing both sides, to suffer their costs. Appeal allowed.