1
W.P.No.671/08
State Bank of Travancore State of M.P. & others
16.11.2010
Shri Rajesh Maindiretta, leaned counsel for petitioner.
Shri Naman Nagrath, learned Additional Advocate General for
respondents No.1, 2 & 3.
None for respondent No.4.
Petitioner has sought for following reliefs:-
“a) Appropriate writ striking down Section 53 of the
M.P. Vanijyik Kar Adhiniyam, 1994 as ultra-vires the
Constitution of India
b) Certiorari, quashing order, dated 15.5.2007
Annexure P/5 passed by the respondent No.3.
c) Any other order or orders that this Hon’ble Court
deems fit and proper in the circumstances of the case
may also be kindly granted.”
In this petition, the petitioner is challenging the constitutional
validity of Section 53 of the M.P. Vanijyik Kar Adhiniyam, 1994
(hereinafter referred to as ‘the Adhiniyam’). For ready reference,
section 53 of the Adhiniyam is reproduced which reads thus:-
“53. Tax to be first charge.–
Notwithstanding anything to the
contrary contained in any law for the
time being in force and subject to the
provisions of Section 530 of the
Companies Act, 1956 (No.1 of 1956)
any amount of tax, and/or penalty or
interest, if any, payable by a dealer or
other person under this Act shall be
first charge on the property of the
dealer or such person.”
On various grounds, petitioner-bank has challenged the
constitutional validity of Section 53 of the Adhiniyam. In nut-shell,
claim of the petitioner is that it is having preferential right of recovery
of dues in respect of the loan advanced by the petitioner to the
borrowers vis-a-vis to the State Government.
The validity of Section 53 of the Adhiniyam has been
considered by a Division Bench of this Court in a bunch of cases. In
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W.P.No.671/08
State Bank of Travancore State of M.P. & others
16.11.2010
Writ Petition No.394/04 Kotak Mahindra Bank Limited Vs. State of
M.P. & others, by a common judgment dated 2.2.2010, the Division
Bench, relying on judgment of the Apex Court in State of M.P. &
another Vs. State Bank of Indore & others (2002) 10 SCC 441,
found that the Apex Court has already held that the provisions of
Section 33-C of the M.P. General Sales Tax Act,1958 were intra-vires
while provisions of Section 53 of the Adhiniyam are pari materia to the
said provisions. The Division Bench found that Section 53 of the
Adhiniyam is intra-vires of the Constitution of India and dismissed the
petition.
For ready reference, we refer paras 11 to 16 of the aforesaid
judgment, which read thus:-
“11. A bare reading and understanding of
Section 530 of the Companies Act would
clearly provide that subject to Section 529-A
there shall be paid in priority to all other
debts, all revenues, taxes, cesses and rates
due from the company to the Central or a
State Government or to a local authority etc.
Section 530 of the Companies Act would
come into operation only after anything is left
after specifying the workmen’s dues and
debts due to the secured creditors. When
Section 33-C of 1958 Act was in force as a
valid piece of legislation even the secured
creditors under Section 529-A or other
creditors under Section 530 were not entitled
to any preferential payments. Section 529-A
of the Companies Act provides that in the
matter of winding up of a company,
particular mode is to be adopted. However,
Section 530 of the Companies Act provides
that the remainder is to be distributed in a
particular manner. The words “and subject to
the provisions of Section 530 of the
Companies Act, 1956” are to be understood
in their true perspective to mean that the
property shall be distributed in accordance
with Section 530 of the Companies Act. If
3W.P.No.671/08
State Bank of Travancore State of M.P. & others
16.11.2010
Section 33-C of 1958 Act is held to be a valid
piece of legislation, then mode of the
distribution as provided under Section 530 of
the Companies Act cannot be held to be ultra
vires the constitution because Section 530 of
the Companies Act provides for distribution
of assets of a company and by force of
incorporation, the said provisions contained
in Section 530 of the Companies Act will have
to be read in attendum to Section 53 of 1994
Act. For the reasons aforesaid, we are
unable to hold that Section 53 of 1994
Adhiniyam is ultra vires the Constitution.
12. It was then contended that Section 51
of 1994 Adhiniyam is also ultra vires the
constitution because the authority is given to
the State Government or Recovery Officers to
hold that during the pendency of any
proceeding under 1994 Act, they can declare
any transfer or charge to be a fraudulent
transfer and thereby cause serious prejudice
to any creditor who has extended loan facility
or has purchased property or has taken the
property under mortgage, gift, exchange etc.
13. Section 51 of the 1994 Act reads as
under:-
“51. Transfer to defraud revenue void.
–Where during the pendency of any
proceeding under this Act or under the
Act repealed by this Act or under the
Madhya Pradesh Land Revenue Code,
1959 (No.20 of 1959) any dealer creates a
charge on or parts with the possession by
way of sale, mortgage, gift, exchange or
any other mode of transfer whatsoever of
any of his assets in favour of any other
person with the intention to defraud
revenue, such charge or transfer shall be
void as against any claim in respect of any
tax or any other sum payable by the dealer
as a result of the completion of such
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W.P.No.671/08
State Bank of Travancore State of M.P. & others
16.11.2010
proceeding under this Act or in pursuance
of such proceeding under the Madhya
Pradesh Land Revenue Code, 1959 (No.20
of 1959).
Provided that such charge or transfer
shall not be void if made by the transferor
and the transferee for valuable
consideration under this Act or the Act
repealed by this Act or the Madhya
Pradesh Land Revenue Code, 1959 (No.20
of 1959).”
14. If language of the Act is properly read
and appreciated, it would mean that where
during the pendency of any proceeding under
the Act or under the Repealed Act, 1958 Act
or under the Madhya Pradesh Land Revenue
Code 1959, any dealer creates a charge on or
parts with the possession, of his property
with the intention to defraud revenue, such
charge or transfer shall be void as against
any claim in respect of any tax etc. When
some property is transferred/alienated or
charge is created over it then unless
otherwise proved a transfer would be held
valid and binding on the parties. If the State
Government is of the opinion that such
alienation or creation of charge was to
defraud revenue or was with an intention to
defraud revenue then the competent officers
of the State Government/Revenue Recovery
Officers will have to make an enquiry into the
subject after issuing notice to the transferor,
transferee and/or the person who created the
charge and the persons in whose favour the
charge is created and after giving
appropriate opportunities to all the parties it
has come to the conclusion that transfer was
with or without an intention to defraud the
revenue.
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W.P.No.671/08
State Bank of Travancore State of M.P. & others
16.11.2010
15. It would be trite to say that simple word
or a simple finding without any supporting
evidence or foundational fact that creation of
charge/allegation was with an intention to
defraud revenue would not be sufficient.
When somebody alleges fraud, it has to plead
the requirement and they will have to prove
that how the fraud was committed and how
the said fraud was against the interest of the
revenue and was with an intention to defraud
the revenue. In our opinion, Section 51 of
1994 Adhiniyam infact provides protection to
the creditors in whose favour the property
has been alienated by any mode i.e mortgage,
gift, exchange etc. or in whose favour charge
over the property has been created.
16. Taking into consideration the
totality of circumstances, we are unable to
hold that Sections 53 and 51 of the
Adhiniyam are ultra vires the constitution. All
the petitions deserve to and are accordingly
dismissed. There shall be no order as to
cost.”
In view of settled position of law by the Division Bench of this
Court, we find that the controversy involved in this case is squarely
covered by the aforesaid judgment and in the light of aforesaid
judgment, this petition is also dismissed.
No order as to costs.
(Krishn Kumar Lahoti) (Smt.Sushma Shrivastava)
C. Judge Judge