IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR WEDNESDAY, THE 2ND JANUARY 2008 / 12TH POUSHA 1929 WP(C).No. 21532 of 2004(L) -------------------------- PETITIONER: ------------ THE IDUKKI DISTRICT CO-OPERATIVE BANK LIMITED, IDUKKI COLONY P.O., REPRESENTED BY ITS GENERAL MANAGER. BY ADV. SRI.P.C.SASIDHARAN,SC,IDUKKI DIST.CO.OP RESPONDENTS: ------------- 1. STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT OF KERALA, TRIVANDRUM. 2. THE DISTRICT COLLECTOR, IDUKKI. 3. THE TAHSILDASR, PEERMADE. 4. P.J. GEORGE, PARADIYIL, CHERUVALLIKULAM, MURINJAPUZHA P.O., ELAPPARA. BY SHRI.K.P.PRADEEP, GOVERNMENT PLEADER THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 02/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) No. 21532/2004 APPENDIX PETITIONER'S EXHIBITS P1 : COPY OF THE ORDER NO.CC/643/93-94/NO.415 DATED 06/03/1998. P2 : COPY OF THE RECITAL DATED 29/08/1998. P3 : COPY OF THE REPRESENTATION DATED 17/04/2004. P4 : COPY OF THE LETTER FROM THE TAHSILDAR NO.D5-10774/03 DATED 20/04/2004. // TRUE COPY // PA TO JUDGE. jg C.R. C.N.RAMACHANDRAN NAIR, J. ----------------------------------- W.P.(C) No. 21532 of 2004 ------------------------- Dated, this the 2nd day of January, 2008 J U D G M E N T Petitioner is challenging Ext.P4 proceedings by which the Tahsildar has rejected petitioner’s claim of first charge over the mortgaged property of the 4th respondent, who availed loan. The Tahsildar held that State has priority for recovery of arrears of sales tax dues. According to the petitioner, mortgage was created by deposit of title deed by the borrower in the year 1998 and the sales tax liability sought to be recovered pertains to the year 2000-01. Even though learned counsel for the petitioner relied on Section 35 of the Co-operative Societies Act and contended that Co-operative Society has priority for recovery of arrears of loan over State dues, learned Government Pleader, relied on two Division Bench decisions of this Court, in Sherry Jacob Vs. Canara Bank reported in 2004 (3) KLT 1089 and in State of Kerala Vs. Rajmohan Cashew Pvt. Ltd. reported in 2005(2) KLT 131, and contended that State has priority over the debt due to the Bank based on prior mortgage. The two decisions of this Court relied on by learned Government Pleader is based on earlier decisions of the Supreme Court, WP(C) No. 21532/2004 -2- particularly, in Dena Bank Vs. Bhikhabhai Prabhudas Parekh & Co. and Others, reported in 2000 (5) SCC 694, and therefore the issue raised is settled against the petitioner. The only question to be considered is whether Section 35 of the Co-operative Societies Act makes any difference. Section 35 of the Co-operative Societies Act is extracted hereunder :- Section 35 : First charge of society on certain assets:- (1) Notwithstanding anything contained in any law for the time being in force, but subject to any prior claim of the Government in respect of land revenue or any money recoverable as land revenue, any debt or outstanding demand owing to a society by any member or past member or deceased member shall be a first charge - (a) Upon the crops or other agricultural produce of such member for the raising of which the loan was taken from the society by such member and (b) upon any cattle, fodder for cattle, agricultural or industrial implements or machinery or raw materials for manufacture, supplied or purchased in whole or in part out of any loan given, by the society, or on any article manufactured from raw materials so supplied or purchased. (2) No person shall transfer any property which is subject to a charge under subsection (1) except with the previous permission in writing of the society which holds the charge. (3) Notwithstanding anything contained in any law for the time being in force, any transfer of property made in WP(C) No. 21532/2004 -3- contravention of the provisions of subsection (2) shall be void. (4) The charge created under sub section (1) shall be available as against any claim of the Government arising from any loan granted by them after the grant of the loan by the society. Even though Section 35 is a beneficial provision to protect the Society, it is clearly stated therein that prior claim of co-operative society recognized by this provision is subject to any prior claim of Government towards land revenue or any other amount recoverable as land revenue. Learned counsel for the petitioner contended that claims of the Government covered by the section are prior claims of the Government which obviously means liability incurred by the defaulter prior to the mortgage created in favour of the society, I am unable to accept this contention because Section 35 of the Co- operative Societies Act has to be considered with reference to the relevant provisions of the statute, under which Government claim arises. In this case, the claim of Government is towards sales tax arrears due from the defaulter and the relevant provision of the KGST Act, which creates charge over defaulter’s property, is under Section 26B, which is as follows :- Section 26B - Tax payable to be first charge on the property:- WP(C) No. 21532/2004 -4- 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 1st charge on the property of the dealer, or such person. It is clear from Section 26B that sales tax liability of a dealer creates first charge on the property of the dealer. This Court has in the two decisions referred above held that charges under Section 26B of the KGST Act creates first charge over the property of the defaulter; even if mortgage is created prior to incurring of sales tax liability. In the circumstances, Section 35 of the Co-operative Societies Act does not go against various decisions of this Court and the Supreme Court on State’s priority over mortgage debt. It is clearly stated in Section 23(2)(a) of the KGST Act that any tax assessed or any of the amount due under the KGST Act can be recovered as if it is an arrear of land revenue. Since the claim of the Government recoverable as land revenue, is specifically excluded from the prior claim provided under Section 35 of the Co- operative Societies Act, petitioner’s claim cannot succeed. In the circumstances, the impugned order is upheld. However, in this case, since the property is over 1.37 acres, the sale proceeds may WP(C) No. 21532/2004 -5- be sufficient to take care of the sale tax arrears and the debt due to the Bank. The Tahsildar is, therefore, directed to sell the property at market price and after adjusting the arrears of sales tax, remit the balance to the petitioner Bank without any delay. Since petitioner is a Co-operative Bank, I direct the Tahsildar to reckon the interest for belated recovery of sales tax only @ 12% per annum and pay the balance amount to the Bank. This writ petition is disposed of as above. (C.N.RAMACHANDRAN NAIR, JUDGE.) jg