Bechu Kurian Thomas, J.
1. The piquant question posed in this application is whether a secured creditor can claim priority for sale and payment over statutory charge holders, due under State enactment.
2. Registration of a sale carried out under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the SARFAESI Act' for short) was denied by the Sub Registrar, Kottarakkara after noticing entry of a statutory charge relating to value added tax in the tax receipt produced along with the sale certificate for registration. This denial of registration has called upon this Court to decide the issue as to whether the secured creditor under the SARFAESI Act has predominance over the statutory charge due to Government, created under other state enactments.
3. Though the entire factual situation arising in the case may not have much relevance for deciding the issue that arises for consideration, still, a nutshell of facts are referred to.
4. The Travancore Devaswom Board (hereinafter referred to as 'the Board' for short), was granted permission by this Court to bid in a proposed auction to be conducted by the 4th respondent by order dated 15.03.2019 in DBA No.2 of 2019. Consequent to the permission so granted, the Board bid at the auction for a consideration of Rs.8,20,06,000/- (Rupees Eight crores twenty lakhs and six thousand only) and the sale was confirmed in favour of the Board. After payment of the entire consideration, a sale certificate was drafted. Officials of the Board along with the Bank officers approached the Sub Registrar, Kottarakkara, to register the sale deed. A further amount of Rs.65,60,480/- (Rupees Sixty five lakhs sixty thousand four hundred and eighty only) was spent towards purchase of stamp papers and the sale certificate was drawn as evidenced by Annexure-A4. However, when the sale certificate was attempted to be registered, the Registering Officer noticed an endorsement in the tax receipt as follows “revenue recovery for sales tax D5/3605/16”. On the basis of the said endorsement on the tax receipt, Annexure-A7 memo was issued by the Sub Registrar stating that the sale certificate can be presented for registration only after the endorsement in the tax receipt relating to the sale tax revenue recovery is deleted. It is in the above factual scenario that this application is filed seeking a direction to the Sub Registrar to register the original of Annexure-A4 sale certificate and also to direct the Village Officer to effect mutation in respect of the property that was the subject of sale.
5. A statement has been filed by the Federal Bank pointing out that three loans were taken by the defaulter between 2012 and 2014 and as many as six items of properties were mortgaged. It is stated that after issuing statutory notices, three of the properties were brought for sale several times without any success. However, on the sixth occasion of sale, the Board became the successful bidder. Even though the liability towards the bank from the defaulter totalled to Rs.22,36,48,135.33/- as on the date of sale, the bank could realise only Rs.8,20,06,000/- (Rupees Eight crores twenty lakhs six thousand only) from the auction purchaser and the auction was conducted in an 'as is where is' condition. The bank further asserted that as per Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 renamed as the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as 'the RDB Act'' for short) the secured creditor has been given priority over all other debts and Government dues and hence, the sale conducted by the bank under the SARFAESI Act takes precedence over all other statutory dues.
6. We heard Sri.G.Santhosh Kumar, learned Standing Counsel for the Board, Sri.T.K.Anandakrishnan, learned Government Pleader and Sri.A.Antony, learned Standing Counsel for the Federal Bank.
7. The question of priority of debts has been a matter which has engaged the attention of this Court as well as several other courts under several enactments. As far as the SARFAESI Act and the RDB Act are concerned, the issue underwent a change after 2016 when the Parliament thought it fit to bring in an amendment to both enactments. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (hereinafter referred to as 'the Amendment Act, 2016' for brevity) introduced amendments to the aforementioned two statutes. By virtue of Section 18 of the Amendment Act, a new Chapter as Chapter IV-A was introduced into the SARFAESI Act while by virtue of Section 41 of the Amending Act, a new provision as Section 31B was added to the RDB Act. Prior to the Amendment Act of 2016, the position of law as regards the secured creditor vis-a-vis the statutory charges was as laid down by the Hon'ble Supreme Court in the decision in Central Bank of India v. State of Kerala and Others [(2009) 4 SCC 94]. It was held in the aforesaid decision that the Securitisation Act and the RDB Act do not create a first charge in favour of Banks and other secured creditors over the statutory charges created under different statutes.
8. Kerala Value Added Tax Act, 2003 ('KVAT Act' for short) creates a statutory charge in respect of any tax payable by a person under that Act. Section 38 of the KVAT Act reads thus:
"38.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."
Normally, the aforesaid statutory charge will have priority over all other debts for the purpose of realization.
9. However, by the Amendment Act, 2016, two new provisions which are of relevance were incorporated into the SARFAESI Act and the RDB Act as Section 26E and Section 31B respectively. For the purpose of reference, Section 26E of the SARFAESI Act is extracted below:
"26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority."
Section 31B of the RDB Act is also extracted below:
"31-B. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority."
10. Under Section 26E of the SARFAESI Act, priority in payment has been statutorily created in favour of a secured creditor over all other debts including taxes payable to the Central Government or State Government on registration of the security interest. Section 31B of the RDB Act has created a right upon the secured creditor to realize debts due and payable to them by sale of assets over which security interest has been created, with priority in sale and priority in payment over all other debts including Government dues due to the Central or State Governments. A mere reading of the aforesaid extracted provisions leave no room for any doubt, that a secured creditor under the SARFAESI Act has predominance over statutory charges due to the Government. The non obstante clause in both provisions makes the intention of Parliament explicit that even as against statutory charges created under other Central Enactments, secured creditors shall have the right for priority in payment and priority to realise the debt by bringing the secured asset for sale.
11. The SARFAESI Act and the RDB Act are Central enactments while the KVAT Act is a State enactment. The effect of inconsistency between a Central enactment and State enactment is resolved by recourse to Article 254(1) and Article 246 of the Constitution of India. Article 254(1) deals with the Parliamentary supremacy in matters in which Parliament is competent to enact. Competence to enact a law is as specified under Article 246. Supremacy of Parliament will be maintained irrespective of any conflict between matters in which both Centre and the State can enact on a subject matter. Repugnancy or inconsistency between the provisions of a Central enactment and State enactment can occur in two situations both of which are dealt with in Article 254(1) of the Constitution of India. The first situation covers instances where a provision of law made by the Legislature of a State is repugnant to any provision of law made by the Parliament, which the Parliament is competent to enact. In such an instance, the provision of law of the State Legislature to the extent of its inconsistency with the Parliamentary enactment will be void. The second situation covers instances where the Central enactment and State enactment on any field of entry mentioned in List-III of the 7th Schedule (Concurrant list) is repugnant to each other. In such circumstances, as per Article 254, the Central law will prevail, subject of course to the provisions in Article 254(2). If a provision of law contained in the Concurrent list is made by the State legislature and receives assent of the President, then such a State enactment will prevail. The intention of the Constitution makers is evident that there must be uniform application of laws throughout the territory of India and in the event of any inconsistency between the Central law and the State law, the former alone shall be operative.
12. When the inconsistency between the provisions of a Central Act and a State Act is of such a nature that they come into direct collision with each other, and it is impossible to comply with one without disobeying the other, a clear case of repugnancy arises. Repugnancy may also arise between the two enactments, even though obedience to each of them is possible without disobeying the other, if the competent Legislature of superior efficacy, expressly or impliedly evinces by the legislation, a clear intention to cover the whole field. Repugnancy can also arise outside the concurrent list, as is evident from the first part of Article 254(1), since under Article 246, the State's legislative power, even in respect of matters that are exclusive to the State list, is subject to the law making power of the Parliament in respect of matters in List I and III. However, by the application of the doctrine of pith and substance, if a law made by the Sate within its valid legislative power, incidentally encroaches into a matter within List I, it is possible that the law made by the State legislature, could still be valid, if, in pith and substance, it is a law within its field of legislation, but the encroachment into some matter in List I is only incidental. Such an incidental encroachment will be valid as long as the field of encroachment is not covered. If the field is already covered by a Central Legislation, the State Legislation will be void to the extent of repugnancy. The State Legislation or provision in the Legislation, as the case may be, will become void, if the field becomes covered by a later law made by Parliament. Reference can be usefully made to State of Jammu and Kashmir v. M.S.Farooqi and Others (1972) 1 SCC 872), Jaya Gokul Educaional Trust v. Commissioner & Secretary to Government Higher Education Department, Thiruvananthapuram, Kerala State and Another (2000) 5 SCC 231) and ITC Ltd. v. Agricultural Produce Market Committee and Others (2002) 9 SCC 232).
13. While determining the nature of inconsistency between the Central legislation and the State Legislation, it is relevant to bear in mind the principles and also the three tests laid down in the Constitutional Bench decision in State of W.B v. Kesoram Industries [(2004) 10 SCC 201]. Numerous other decisions of the Supreme Court have also been rendered on the aforesaid concept including the Constitutional Bench decision in State of W.B V. Committee for Protection of Democratic Rights, [(2010) 3 SCC 571] and UCO Bank & Another V. Dipak Debbarma & others [(2017) 2 SCC 585]. In the decision in UCO Bank (Supra) relying upon the earlier decisions, it has been held that the constitutional scheme visualizes a federal structure giving full autonomy to the Parliament as well as to the State legislatures in their demarcated fields of legislation. It was stated therein that the problem will become complex when the two legislations may seemingly fall within the respective domains of the legislatures concerned and yet may have intrusion into areas that fall beyond the assigned fields of legislation. In such a situation it is the plain duty of the Constitutional Court to see whether the conflict can be resolved by acknowledging the mutual existence of the two legislations and if that is not possible, by virtue of provisions of Article 246(1), the Parliamentary legislation would prevail and the State legislation will have to give way notwithstanding the fact that the State legislation is within the demarcated field. This is the principle of federal supremacy which is embodied under Article 246 of the Constitution of India.
14. The principles delineated above ought to have led us to understanding the pith and substance in which the legislations were enacted. Identifying the pith and substance of different statutes is often a difficult task. However, we are relieved of the difficulty on account of the phraseology used in the two provisions extracted earlier under the Amendment Act of 2016. Both Section 26E of the SARFAESI Act and 31B of the RDB Act commences with the words 'notwithstanding anything contained in any other law for the time being in force' and also uses the words “priority over all other debts and Government dues including revenues, taxes....”.
15. The non-obstante clause used in a statutory provision is a tool by which the Legislature gives complete predominance to that provision over all other provisions of law. The use of the non obstante clause clearly indicates the intention of the Parliament to give an overriding effect for those provisions over all other statutes. It has been held in Chandavarkar Sita Ratna Rao v. Ashalata S.Guram [(1986) 4 SCC 447] as follows:
"69. “a clause beginning with the expression ”notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract” is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the nonobstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non- obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non-obstante clause would not be an impediment for an operation of the enactment. …......”
“70. It is well settled that the expression 'notwithstanding' is in contradistinction to the phrase 'subject to', the latter conveying the idea of a provision yielding place to another provision or other provisions to which it is made subject.”
16. In a recent judgment reported in Pioneer Urban Land and Infrastructure Ltd. and Another v. Union of India and Others [(2019) 8 SCC 416] dealing with the inconsistency that arose between the provisions of the Insolvency and Bankruptcy Code, 2016 and the provisions of the Real Estate (Regulation and Development) Act, 2016 it was held that ordinarily the non-obstante clause creates primacy over an earlier Act containing a non-obstante clause, since Parliament must be deemed to be aware of the earlier legislation.
17. Viewed in the above principles of law, it can safely be concluded that the provisions of SARFAESI Act and RDB Act (as amended) containing provisions commencing with non-obstante clauses and giving specific priority to secured creditors even over the taxes due from the Governments, will prevail over the KVAT Act.
18. In spite of the above said proposition of law, an issue still remains to be addressed. The issue relates to the effect of not notifying the provisions of the SARFAESI Act as amended. We notice that Chapter IV-A of the Amendment Act, 2016 comprising of Section 26E of the SARFAESI Act has not yet been notified. However, absence of notifying the said provision does not belittle its effect as far as priority as provided under the said provision is concerned. By the very making of law, i.e., the Amending Act of 2016, incorporating Section 26E into the SARFAESI Act, a repugnancy has arisen as against the State laws creating first charge for statutory charges. Repugnancy arises the moment a law is made and not merely at its commencement. The above said principle of law need no amplification as we are fortified by the decisions in PT. Rishikesh and Another v. Salma Begum [(1995) 4 SCC 718) as approved by the Constitution Bench in State of Kerala and Others v. Mar Appraem Kuri Co. Ltd. and Another [(2012) 7 SCC 106].
19. In this connection, Sri.A.Antony, the learned Standing Counsel for the bank, referred to a Full Bench decision of the Madras High Court in Assistant Commissioner (Ct) Anna Salai-III Assessment Circle, Chennai v. Indian Overseas Bank, Chennai and Another (AIR 2017 Mad.67) wherein it was held that as Section 31B of the RDB Act has come into force from 01.09.2016, the right of the secured creditor to realise the secured debts by sale of assets over which security interest is created would take priority over all dues including Government dues.
20. The learned counsel also referred to the decision in State Bank of India and Others v. State of Kerala represented by the Principal Secretary, Finance Department and Others (2019 (5) KHC SN 11) wherein a learned Single Judge of this Court after referring to various decisions and noting the change of law that was brought in by the Amending Act of 2016 held that as secured creditor under Section 26E of the SARFAESI Act and of Section 31B of the RDB Act obtains a priority over the right claimed by the revenue both in proceedings against properties in question or in recovering the secured d
Please Login To View The Full Judgment!
ebt. We express our approval of the said decision and also the decision of the Full Bench of the Madras High Court referred to above. 21. The learned Standing Counsel for the Bank also referred to Madhan v. Sub Registrar (2014 (1) KLT 406) and unreported decision of the Division Bench of this Court in Ali Ashraf M.M. v. Sub Registrar (W.A. No.612 of 2015). The said two decisions have no application to the facts of the instant case since they relate to attachments effected subsequent to the creation of equitable mortgage. 22. Hence, we hold that the sale carried out either under the SARFAESI Act or under the RDB Act takes precedence over the statutory charges due to the Government created under KVAT Act or under other State Enactments after the Amendment Act of 2016. A secured creditor in whose favour a security interest has been created thus has priority in sale and payment over all other statutory charge holders. 23. In the result, this application is allowed and we direct the 2nd respondent Sub registrar, Kottarakkara to register the original of Annexure-A4 sale certificate as and when the same is presented for registration. Consequent to such registration as directed above is carried out, the 3rd respondent shall effect transfer of registry in respect of the property that is the subject of Annexure-A4 sale certificate, on production of necessary documents required for carrying out the transfer of registration. 24. It is submitted by the Counsel for all parties that the validity of Stamp paper purchased by the applicant for executing Ann. A4 sale certificate had expired by 31-03-2020. Since this application was filed on 22-01-2020 and the same had been pending consideration of this Court from that date onwards, and also on account of the situation prevailing due to the pandemic Covid-19, we deem it appropriate to extend the validity of the estamp bearing serial No. ES00000770768731147E (copy of which is produced as Ann. A4) till 12.06.2020 to enable the parties to get the sale certificate registered The DBA is allowed as above.