ORDER
K. Ramanna, J.
1. This petition is filed by M/S. Arjun Motors Pvt. Ltd. to set aside the order elated 20.3.2003 passed in c.Mis. No. 240/2002 on the file of the Spl. MFC (Sales Tax) rejecting his objection in the said case,
2. The respondent No. 2 herein was an assessee and he was due in a sum of Rupees Twenty lakhs towards security deposit. Since respondent No. 2 has not paid the arrears of security deposit the respondent No. 1 filed an application under Section 13(b) of the kst Act for recovery of Rs. 20 Lakhs from respondent No. 2 when the matter was pending before the Special JMFC (Sales Tax), Bangalore, the petitioner herein appeared as an objector and resisted the recovery proceedings against respondent No. 2. The contention taken by the petitioner in this revision petition is that the respondent No. 2 raised a loan from ICICI bank. On being unable to repay the said loan, to the bank, the bank issued a demand notice dated 23.11.2002 under Section 13(2) of the Securitisation and Reconstruction, of Financial Assets and Enforcement of Security Interest Act, 02 therein referred to as the Securitisation Act”] and a public notice has been issued about taking over possession of the property of respondent as per Annexure-c. The contention taken by the petitioner-Objector is that on the very same day, the petitioner addressed a letter to the ICICI bank showing its willingness to purchase the property belonging to the assesses namely the respondent herein which had. bean taken possession of by the bank and the ICICI bank purchased the said property of the second respondent. There is no stipulation of clause that for the amount due under the KST Act by the respondent No. 2, the purchaser is liable to pay the said arrears of the assessee-company. Accordingly, the bank has given consent for him and entered into an agreement. The assesses has leased out the premises along with the plant and machinery to this petitioner. Since April 2002 it continues to be in possession as a lasses and the lease agreement had been entered, into on 23.12.2001. The assesses as on data neither owns the property, plant and machinery nor is in possession, of the property. Hence, this petition.
3. Heard the arguments of the learned Counsel for the petitioner. Learned Counsel submits that the petitioner had entered into a lease agreement with the ICICI bank and continued to be in possession of the plant and machineries of the respondent No. 2 company, Section 13 of the Securitisation Act provides measures for the recovery of the secured debt from the borrowers. The second respondent-company has become a sick industry. Therefore, under Section 15 of the Sales Tax Act, tax if any payable by the assesses cannot be claimed from it by the concerned authorities. Therefore, the provisions of Section 10(4)(b)(c) and (d) are very much applicable. Under Section 13(3)(b}, the sales tax court cannot recover the amount from the transferee of the assets, since respondent No. 2 approached the competent authority for- winding up of the company, therefore, the revision petitioner who has taken the land, plant and. machinery far lease from the ICICI bank: is not liable to pay any amount due under KST Act by the respondent No. 2. Hence prays for allowing the petition.
4. On the other hand, learned Counsel for the respondent No. 1 submitted that this petitioner is none other than the a on of the Managing Director of respondent No. 2. The application filed by the petitioner before the JMFC Sales Tax Court is not at all maintainable and the trial court is right in dismissing the objection filed by this petitioner with an observation that the petitioner is none other than the close relative of the managing director of respondent No. 2, The assessee was due in a sum of Rs. 20 Lakhs towards arrears of security deposit. Therefore, the trial court is right in dismissing the petition and sufficient reasons were assigned by the trial Court that the petitioner was also one of the partners of the respondent No. 2-company. The loan, if any, granted by the ICICI bank in favour of the respondent No. 2 would be recovered tooth from the respondent No. 2 and the petitioner who was one of the partners. 80 also, the petitioner being a partner of the respondent No. 2 is liable to be pay the same and the trial court was right in issuing fine levy warrant under Section 421 Cr.P.C. It is further argued, that the very petitioner has challenged the order dated 4.1.2003 passed in c.Mis. No. 240/02, which has been allowed and remanded with a direction, to consider objection of the petitioner and after hearing the Counsel for both parties, to dispose of the matter in accordance ‘with law within a period of 30 days from 17.1.2003. Therefore, it. is submitted that the trial court after considering the entire material and also the objection filed by the petitioner dismissed the objection holding that for recovering arrears of security deposit, sales tax authorities can sell the property of the assessee and appropriate the, same to the arrears of tax due by it. Therefore, there is no incorrect or illegal findings recorded by the Courts-below in rejecting the objection filed toy the petitioner.
5. Having heard, the arguments of learned Counsel for both parties, the point that arises fox consideration, and determination is, “whether the order under challenge passed by the Courts-be low is incorrect and illegal? If so, whether it calls for interference?”
6. No doubt the respondent No. 2 herein viz. M/s-Masstre Motors Ltd. was an assesses. Records indicate that the director of the present petitioner-company is Mr. M.N. Wadhava Murthy who is related to 2nd respondent firm. The petitioner has not denied about the arrears of security deposit due by the respondent No. 2 to the extent of Rs. 20 Lakhs. The contention is that the liability of the security deposit that existed prior to such a transfer i.e. 18.12.2002 stands also transferred to ICICI bank is incorrect. The ICICI bank which has advanced huge amount to the respondent No. 2 for production of various products is expected to recover the amount duo by it. The petitioner being one of the directors of the respondent No. 2, is said to have started M/s. Arjun Motors. Even if the company is under loss, any amount due under KST Act shall have a preferential claim over the proceeds of the assets of the assessee-company, but in the instant case, the petitioner itself admits that, it is said to have taken over properties, plant and machinery of the respondent on lease. It never purchased the property of the second respondent. No lease agreement entered into between the petitioner and the ICICI bank has been produced either before the trial court or before this Court. If he is incharge of plant and machinery, then under Section 15 of the KST Act, 1957 both transferor and transferee are jointly and severally liable to pay any tax-payable or any other amount remaining unpaid at the time of transfer. Section 15 of the KST Act, 1957 reads as follows-
SECTION 15:- TAX PAYABLE ON TRANSFER OF BUSINESS ETC:
(1) When the ownership of the business of a dealer liable to pay the tax ox penalty, or any other amount under the provisions of this Act, is transferred, the transferor and the transferee shall jointly and severally be liable to pay any tax’ or penalty or any other amount payable In. respect of such, business and remaining unpaid at the time of transfer, and for the purpose of recovery from the transferee such transferee shall be deemed to be the dealer liable to pay the tax or penalty or other amount under this Act.
7. Considering the relationship of the director of the petitioner-company as well as the managing director of the respondent No. 2-company and also that he had given a consent letter to the ICICI bank to purchase the assets i.e. land and machinery, than he is equally liable. That apart, ha being one of the directors of the said firm-respondent N0.2, he is liable along with the transferor. Therefore, in view of the admitted fact that he is incharge of land, plant and machinery of the respondent No. 2 and ha becomes one of the assessee, therefore, respondent No. 1-State is entitled to recover from the petitioner the security deposit due by the respondent No. 2. Therefore, the initiation of proceedings by respondent No. 1. for recovery of Rs. 20 Lakhs from respondent No. 2 is maintainable as there is no incorrect or illegal findings to upset the order under challenge.
8. Accordingly, the revision petition is dismissed. The authorities can recover the amount due under the KST Act either from the transferor or from the transferee and. the recovery of the sales tax dues shall have priority over the right of the ICICI bank to proceed against the property of the borrowers which has been mortgaged in favour of the bank. The dues of the government, if any, has a prerogative over any other dues and charges.