PETITIONER: STATE BANK OF BIKANER & JAIPUR Vs. RESPONDENT: NATIONAL IRON & STEEL ROLLING CORPN. & ORS.. DATE OF JUDGMENT14/12/1994 BENCH: MANOHAR SUJATA V. (J) BENCH: MANOHAR SUJATA V. (J) AGRAWAL, S.C. (J) FAIZAN UDDIN (J) CITATION: 1995 SCC (2) 19 JT 1995 (2) 14 1994 SCALE (5)249 ACT: HEADNOTE: JUDGMENT:
1. Leave granted.
2. The appellant, namely, the State Bank of Bikaner and
Jaipur had given cash credit facilities to respondent No. 1,
National Iron & Steel Rolling Corporation. Respondents 2 to
5 are the partners of respondent No. 1. As a security for
repayment of the amounts advanced to respondent No.1 by the
appellant-bank, respondent No.1 created a mortgage of their
factory premises situated at Industrial Area Bharatpur by a
Deed of Mortgage dated 18.10.1977. They have also, by a
Letter of Promise dated 10.6.81, pledged the plant and
machinery installed in the said premises to the bank as a
security for the said advances. There is also an agreement
for the pledge of movable dated 7.1.80 executed by the first
respondent in favour of the appellant-bank.
3. The appellant-bank filed Civil Suit NO. 5/86 in the court
of the Additional District Judge II, Bharatpur against the
respondents for the recovery of a sum of Rs. 3,79,672/- due
and payable under the above Case credit facility and for
future interest @ 16.25% p.a. with quarterly rests. In this
suit the appellant-bank also asked for the realisation of
the mortgage security under order 34, Rule 4 of the Code of
civil procedure.
4. While the suit was pending, the Commercial Taxes
Officer, Bharatpur got himself impleaded in the suit on
18.5.90
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on the ground that he had a prior claim for the recovery of
a sum of Rs.1,19,122/- as sales tax dues from respondent No.
1 and was entitled to realize it by sale of the mortgaged
property.
5. The property which is the subject-matter of the
mortgage has been sold by auction under the orders of the
court for a sum of Rs.4,02,000/- to one Smt. Kamlesh Gole.
Under the orders of the court the sale proceeds have been
deposited in court. It was contended by the Commercial
Taxes Officer, Bharatpur that the sales tax dues of the
first-respondent were liable to be paid first out of the
sale proceeds. The claim of the appellant-bank could be
satisfied only out of the balance amount. The trial court
by its Judgment and order dated 18.5.90 accepted this claim
of the Commercial Taxes Officer. The Revision Petition of
the appellant-bank was dismissed by the High Court by the
impugned judgment and order. Hence this appeal by special
leave.
6. The claim of the Commercial Taxes Officer, Bharatpur
rests on the provisions of Section 11-AAAA of the Rajasthan
Sales Tax Act, 1954. Section 11-AAAA has been introduced in
the Rajasthan Sales Tax Act, 1954 by way of the an amendment
in 1989. Section 1 1 -AAAA is as follows:-
11-AAAA. Liability under this Act to be the
first charge. Notwithstanding anything to the
contrary contained in any law for the time
being in force, any amount of tax, penalty,
interest and any other sum, 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”.
Under this Section the amount of a sales tax or any other
sum due and payable by a dealer or any other person under
the Rajasthan Sales Tax Act, 1954, is a first charge on the
property of the dealer or of such person. It is on account
of the provisions of this Section that the Commercial Taxes
Officer claimed priority for the recovery of the sales tax
dues from the sale proceeds of the mortgaged property. The
appellant, however, contended that since the mortgage in
their favour is prior in point of time, their claim will
have precedence over the claim of the Sales Tax authorities.
7.It is, therefore, necessary to consider the effect of
Section 11-AAAA of the Rajasthan Sales Tax Act, 1954 on an
existing mortgage in respect of the property of the dealer
or the person liable to pay sales tax or other sums under
the Rajasthan Sales Tax Act, 1954. Section 100 of the
Transfer of Property Act deals with Charges on an immovable
property which can be created either by an act of parties or
by operation of law. It provides that where immovable
property of one person is made security for the payment of
money to a mortgage, a charge is created on the property and
all the provisions in the Transfer of property Act which
apply to a simple mortgage shall, so far may be, apply to
such charge. A mortgage on the other hand, is defined under
Section 58 of the Transfer of property Act as a transfer of
an interest In specific immovable property for the purpose
of securing the payment of money advanced or to be advanced
as set out therein. The distinction between a mortgage and
a charge was considered by this Court in the case of
Dattatreya Shanker Mote and others v. Anand Chintaman Datar
and others (1 974 2 SCC799). The Court has observed (at
pages
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806-807) that a charge is a wider term as it includes also a
mortgage, in that, every mortgage is a charge, but every
charge is not a mortgage. The Court has then considered the
application of the second part of Section 100 of the
Transfer of Property Act which inter alia deals with a
charge not being enforceable against a bona fide transferee
of the property for value without notice of the charge. It
has held that the phrase “transferee of property” refers to
the transferee of entire interest in the property and it
does not cover the transfer of only an interest in the
property by way of a mortgage.
8. In the present case we have to consider whether the
statutory first charge which is created under Section II
-AAAA of the Rajasthan Sales Tax Act over the property of
the dealer or a person liable to pay sales tax and/or other
dues under the Rajasthan Sales Tax Act, is created in re-
spect of the entire interest in the property or only the
mortgagor’s interest in the property when the dealer has
created a mortgage on the property. In other words, WI ‘II
the statutory first charge have priority over an earlier
mortgage. It was urged by Mi. Tarkunde, learned counsel
for the appellant-bank that at the time when the statutory
first charge came into existence, there was already a
mortgage in respect of the same property. Therefore, the
only property which was possessed by the dealer and/or
person liable to pay tax or other dues under the Rajasthan
Sales Tax Act, was equity of redemption in respect of the
property. The first charge would operate, therefore, only
on the equity of redemption. The argument though ingenious,
will have to be rejected. Where a mortgage is created in
respect of any property, undoubtedly, an interest in the
property is carved out in favour of the mortgagee. The
mortgagor is entitled to redeem his property on payment of
the mortgage dues. This does not, however, means that the
property ceases to be the property of the mortgagor. The
title to the property remains with the mortgagor.
Therefore, when a statutory first charge is created on the
property of the dealer, the property subjected to the first
charge is entire property of the dealer. The interest of
the mortgagee is not excluded from the first charge. The
first charge, therefore, which is created under Section II
-AAAA of the Rajasthan Sales Tax Act will operate on the
property as a whole and not only on the equity of redemption
as urged by Mr. Tarkunde.
9. We find support for this conclusion in the observations
made in Fisher and Lightwood’s Law of Mortgage, 10th Edn. at
page 33 where the statutory charges are discussed. In
dealing with a statutory charge in favour of rating authori-
ties in respect of rating surcharges for unused commercial
buildings under the General Rate Act, 1967, it is stated
that “a statutory charge has priority to the interest of the
mortgagee under a mortgagee existing when the charge arose”.
In the case of Westminister City Council v. Haymarket
Publishing Ltd. (1981 2 AER 555), the English Court of
Appeals was required to consider whether a statutory charge
on the property under the General Rate Act would have
priority over a legal mortgage on the property existing when
the charge came into being. It was argued that the charge
would be only on the mortgagor-owner’s interest in the
property i.e. on the equity of redemption. The court
negatived this contention. It held that “charge on the
land” imposed for an unpaid surcharge was not confined to a
charge on the
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owner’s interest in the premises when the charge arose, but
extended to a charge on all the estates and interests in the
premises existing when the charge arose. The rating
authority’s charge would have priority over the bank’s
interest as a mortgagee.
10. In the present case, the section creates a first charge
on the property, thus clearly giving priority to the
statutory charge over all other charges on the property
including a mortgagee. The submission, therefore, that the
statutory first charge created by Section 11-AAAA of the
Rajasthan Sales Tax Act can operate only over the equity of
redemption, cannot be accepted. The charge operates on the
entire property of the dealer including the interest of the
mortgagee therein.
11. Looked at a little differently, the statute has created
a first charge on the property of the dealer. What is meant
by a “first charge”? Does it have precedence over an
earlier mortgage? Now, as set out in Dattatreya Shanker
Mote ‘s case (supra), a Charge is a Wider term than a
mortgage. It would cover within its ambit a mortgage also.
Therefore, when a first charge is created by operation of
law over any property, that charge will have precedence over
an existing mortgage.
12. No other contention has been urged before us. We,
therefore, agree with the conclusion arrived at by the High
Court. The appeal is, therefore, dismissed. In the
circumstances, however, there, will be no order as to costs.
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