IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN WEDNESDAY, THE 17TH AUGUST 2011 / 26TH SRAVANA 1933 WP(C).No. 9702 of 2009(G) --------------------------------- PETITIONER(S): ------------------- UNION BANK OF INDIA, VANDANMETTU BRANCH, VECHOORAT BUILDINGS, VANDANMETTU P.O., IDUKKI DISTRICT, REPRESENTED BY ITS SENIOR MANAGER. BY ADVS. SRI.A.V.THOMAS SRI.JOJO GEORGE SRI.NIDHI SAM JOHNS RESPONDENT(S): -------------------- 1. STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. 2. THE TAHSILDAR (RR), NEDUMKANDAM, IDUKKI DISTRICT. 3. THE VILLAGE OFFICER, VANDANMETTU, IDUKKI DISTRICT. 4. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES, KATTAPPANA, IDUKKI DISTRICT. 5. M/S.CARDAMOM MARKETING CORPORATION, REPRESENTED BY ITS TREASURER-CUM-PARTNER MATHEW ZACHARIAH, POTTAKULAM, MILL HAVEN, KOOTTIKKAL (PO), PIN-686 514. R1 TO R4 BY GOVT.PLEADER SRI.V.K.SHAMSUDHEEN R5 BY ADV. SRI.GEORGE THOMAS (MEVADA) THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 17/08/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: svs W.P.(C). NO. 9702/2009 APPENDIX PETITIONER'S EXHIBITS: P1: COPY OF THE MEMORANDUM OF DEPOSIT OF TITLE DEEDS DATED 24/03/1994 IN RESPECT OF 2.52 ACRES IN SURVEY NO.12/1 IN VANDANMETTU VILLAGE. P2: COPY OF THE MEMORANDUM OF DEPOSIT OF TITLE DEDS DATED 24/03/1994 IN RESPECT OF 25 CENTS IN SURVEY NO.46/1 IN ANAKKARA VILLAGE. P3: COPY OF THE DEMAND PROMISSORY NOTE DATED 24/08/2005 EXECUTED BY 5TH RESPONDENT IN FAVOUR OF THE PETITIONER. P4: COPY OF THE EXTENSION OF MORTGAGE DATED 27/09/2005 IN RESPECT OF 2.52 ACRES IN SURVEY NO.12/1 IN VANDANMETTU VILLAGE. P5: COPY OF THE EXTENSION OF MORTGAGE DATED 27/09/2005 IN RESPECT OF 25 CENTS IN SURVEY NO. 46/1 IN ANAKKARA VILLAGE. P6: COPY OF THE ORDER DATED 20/11/2008 PASSED BY THE HIGH COURT OF KERALA IN WPC. NO.29337/2006. P7: COPY OF NOTICE DATED 18/10/2008 ISSUED BY THIRD RESPONDENT TO THE PETITIONER. P8: COPY OF NOTICE DATED 23/03/2009 ISSUED BY THE THIRD RESPONDENT TO THE PETITIONER. RESPONDENT'S EXHIBITS: NIL /TRUE COPY/ P.A. TO JUDGE. svs S. SIRI JAGAN, J. - - - - - - - - - - - - - - - - - - - - - - - W.P.(C)No.9702 of 2009 - - - - - - - - - - - - - - - - - - - - - - - Dated this the 17th day of August, 2011 J U D G M E N T This writ petition is filed by a Bank with whom properties belonging to the 5th respondent has been mortgaged as security for loan amounts taken by the 5th respondent from the petitioner bank. The petitioner initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The respondents 1 to 4 who are the State of Kerala and its officers have raised a claim that these properties are under attachment for realisation of sales tax arrears and under Section 26 B of the Kerala General Sales Tax Act and Section 38 of the Kerala Value Added Tax Act, they have first charge over the properties for sales tax arrears and therefore the bank cannot proceed against the properties under the SARFAESI Act. The petitioner has filed this writ W.P.(C)No.9702 of 2009 -2- petition seeking the following reliefs: “(i) issue a writ of mandamus or other appropriate writ, order or direction to respondents 2 and 3 to release the mortgaged properties/secured assets covered by Exhibit P1 and P2 from revenue recovery proceedings mentioned in Exhibit P7 and P8; (ii) quash Exhibit P7 and P8 by the issue of a writ of certiorari or other appropriate writ, order or direction” 2. The question as to whether the State has first charge over properties of persons who are defaulters in payment of sales tax arrears over the rights of the bank under the SARFAESI Act has been finally decided by the Hon'ble Supreme Court in Central Bank of India v. State of Kerala & Ors. [(2009) 4 SCC 94], wherein it was categorically held that there is no provision in the DRT Act or the Securitisation Act by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. It has been held that, the provisions of the Sales Tax Act giving first charge over the properties of defaulters in payment of sales tax arrears will prevail even over the rights of banks and financial institutions under the DRT Act and the W.P.(C)No.9702 of 2009 -3- Securitisation Act. In the above circumstances, the petitioner's claim for priority of charge over the claim of the respondents 1 to 4 for sales tax arrears cannot be countenanced. However the petitioner has got a case that although there is no stay in this writ petition, the respondents 1 to 4 are not proceeding against the property expeditiously so that if any balance is left after satisfying the charge of the State by sale of the property, the bank can proceed against the balance available. The learned Government Pleader would submit that further proceedings were not taken pursuant to the revenue recovery proceedings against the property in question because of the pendency of this writ petition. In the above circumstances, this writ petition is disposed of upholding the preferential charge of respondents 1 to 4 over the property in question for sales tax arrears from the 5th respondent and directing the respondents 1 to 4 to see that the proceedings under the Revenue Recovery Act against the properties mortgaged to W.P.(C)No.9702 of 2009 -4- the bank are continued and concluded, as expeditiously as possible, at any rate, within three months from the date of receipt of a copy of this judgment. The entire proceedings shall be with intimation to the petitioner at every stage and the sale of the properties shall be after notice to the petitioner bank. The competent among respondents 1 to 4 shall, after the sale, intimate the petitioner as to the amount received on sale, the amount adjusted from the same towards dues of the State for sales tax and the balance available, if any, after satisfying the claim of the State, so that if any balance is available, the petitioner can proceed against the same for recovery of the amounts due from the 5th respondent to the petitioner bank. Sd/- S. SIRI JAGAN JUDGE //True copy// P.A. TO JUDGE shg/