IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 21ST NOVEMBER 2008 / 30TH KARTHIKA 1930 WP(C).No. 27042 of 2005(T) -------------------------- PETITIONER(S): --------------- STATE BANK OF INDIA, KOTTAYAM BRANCH, KOTTAYAM, REPRESENTED BY ITS ASSISTANT GENERAL MANAGER. BY ADV. SRI.P.V.SURENDRANATH RESPONDENT(S): --------------- 1. STATE OF KERALA, REPRESENTED BY ITS SECRETARY TO REVENUE DEPARTMENT, SECRETARIAT, TRIVANDRUM. 2. THE DISTRICT COLLECTOR, KOTTAYAM. 3. DEPUTY TAHSILDAR, REVENUE RECOVERY, KOTTAYAM TALUK, KOTTAYAM. 4. THE RECOVERY OFFICER, DEBTS RECOVERY TRIBUNAL,ERNAKULAM. 5. SALES TAX OFFICER, FIRST CIRCLE, KOTTAYAM, OFFICE OF THE COMMERCIAL TAX OFFICER, FIRST CIRCLE, KOTTAYAM. 6. M/S.WOOD SYSTEM (INDIA) PVT. LTD., SAZMERA BUILDING, LBS ROAD, KOTTAYAM, REPRESENTED BY ITS MANAGING DIRECTOR, P.M.THOMAS, RESIDING AT PAREL HOUSE, ERAYILKADAVU, MUTTAMBALAM VILLAGE, KOTTAYAM. 7. MRS.SARAMMA THOMAS, DIRECTOR, M/S.WOOD SYSTEM (INDIA) PVT. LTD., SAZMERA BUILDING, LBS ROAD, RESIDING AT PAREL HOUSE, ERAYILKADAVU, MUTTAMBALAM VILLAGE, KOTTAYAM. 2 8. PUNNEN P.MARKOSE, DIRECTOR, M/S.WOOD SYSTEM (INDIA) PVT. LTD., SAZMERA BUILDING, LBS ROAD, RESIDING AT PAREL HOUSE, ERAYILKADAVU, MUTTAMBALAM VILLAGE, KOTTAYAM. ADDL. 9. ANIL PONNUSE, VEZHAPARAMBIL HOUSE, MUTTAMBALAM P.O. KOTTAYAM 686 004 ADDL. R9 IS IMPLEADED AS PER ORDER DATED 25.2.2008 IN I.A.NO. 2252 OF 2008 ADV. SRI.P.RADHAKRISHNAN (1) FOR R6 TO 8 ADV. SRI.MADHU RADHAKRISHNAN FOR R6 TO R8 R1 TO R3 & R5 BY G.P. SRI. TEKCHAND ADDL. R9 BY ADV. SRI.SHAJI P.CHALY THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/11/2008, ALONG WITH WPC NO. 37536 OF 2007 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: 3 APPENDIX (WPC 27042 OF 2005) PETITIONER'S EXHIBITS: EXT.P1 TRUE COPY OF THE RECOVERY CERTIFICATE NO. 518 DATED 9.8.2005 OF THE DEBTS RECOVERY TRIBUNAL, ERNAKULAM. EXT.P2 TRUE COPY OF THE DECREE IN T.A. 1209 OF 1997 (OS NO. 78/1996) DATED 24.1.2001 EXT.P3 TRUE COPY OF THE PLAINT C SCHEDULE. EXT.P4 TRUE COPY OF THE PROCLAMATION DATED 24.6.2005 ISSUED BY THE FOURTH RESPONDENT. EXT.P5 TRUE COPY OF THE JUDGMENT IN WPC 23874/2005 PASSED BY THE HON'BLE HIGH COURT OF KERALA. EXT.P6 TRUE COPY OF THE JUDGMENT IN WPC 24052/2005 PASSED BY THE HON'BLE HIGH COURT OF KERALA. EXT.P7 TRUE COPY OF THE AFORESAID AFFIDAVIT SWORN TO BY THE 8TH RESPONDENT DATED 16.8.2005 EXT.P8 TRUE COPY OF THE ORDER OF THE RECOVERY OFFICER DATED 17.8.2005 EXT.P9 TRUE COPY OF THE PETITION WITH THE AFFIDAVIT ATTACHED TO IT. EXT.P10 TRUE COPY OF THE COMMUNICATION DATED 17.8.2005 ISSUED BY THE RESPONDENT NO. 5 WITH RESPECT TO THE PROPERTY OF THE 7TH RESPONDENT. EXT.P11 TRUE COPY OF THE NOTICE DATED 19.8.2005 ISSUED BY THE 5TH RESPONDENT WITH RESPECT TO THE PROPERTY OF THE 8TH RESPONDENT. EXT.P12 TRUE COPY OF THE DEMAND NOTICE WITH ATTACHMENT ORDER UNDER SECTION 7 OF THE RR ACT ISSUED BY THE THIRD RESPONDENT. EXT.P13 TRUE COPY OF THE NOTICE IN FORM NO.10 UNDER SECTION 34 OF THE RR ACT ISSUED BY THE THIRD RESPONDENT TO THE RESPONDENTS 7 AND 8 AND SOME OTHERS. EXT.P14 TRUE COPY OF THE ORDER IN SPECIAL LEAVE TO APPEAL (CIVIL) NO. 7440 OF 2003 DATED 3.1.2005 8TH RESPONDENT'S EXHIBITS: EXT.R8(a) TRUE COPY OF THE PETITION FILED BY THE PETITIONER-BANK TRUE COPY P.S. TO JUDGE. C.N. RAMACHANDRAN NAIR, J. -------------------------------------------- W.P.C. NO. 27042/2005 & 37536/2007 -------------------------------------------- Dated this the 21st day of November, 2008 JUDGMENT Connected cases are filed, one by the creditor-Bank and the other by the purchaser of properties of defaulter sold by the Recovery Officer pursuant to the orders of Debt Recovery Tribunal for recovery of arrears due to the State Bank of India, Kottayam Branch. When Recovery Officer tried to sell the property, the borrower appears to have brought to the notice of the Recovery Officer that substantial amount of sales tax is due to the State Government. Bank therefore approached this Court for direction to the fourth respondent to sell and remit the sale proceeds with the Bank. However, this Court taking note of the prior charge of the State Government directed the Recovery Officer to retain Rs. 13 lakhs being the approximate sales tax liability due from the borrower. Accordingly the Recovery Officer sold the property to the petitioner in WPC No. 37536 of 2007 and after retaining Rs. 13 lakhs in terms of interim order of this Court dated 9.9.2005, paid the balance to the Bank. Later on 6.2.2008 this Court 2 released the amount to the recovery authorities. So far as WPC No.27042 of 2005 is concerned, since State Government has priority over the mortgage debt, sale proceeds are rightly ordered to be adjusted towards tax liability. Even though counsel for the Bank submitted that bank's liability started in 1979 and sales tax liability from 1990-91, I do not think it makes any difference because recovery and sale took place in 2006 by which time sales tax liability had accrued on the defaulter. This Court has taken the view that even the prior charge over the property under mortgage will not stand in the way of State Government getting first charge over the borrower's property. However, since the same issue is pending before the Supreme Court, it will be open to the Bank to make claim depending upon the outcome of the decision of the Supreme, as and when it is rendered. In view of the judgment, the interim order of this Court directing retention of Rs. 13 lakhs and later releasing of that amount towards tax liability to the State Government is perfectly in order. W.P.C.No. 27042 of 2005 is therefore disposed of making the interim order absolute and part of judgment. 2. So far as WPC 37536 of 2007 is concerned, additional 3 demand of tax which is stated to represent interest is paid only as an interim arrangement for the petitioner to get mutation done. Petitioner being the purchaser of the property got the property free of charges because at the time of sale this Court ordered retension of Rs. 13 lakhs from out of sale proceeds towards sales tax liability. When this is done by the Recovery Officer in terms of the interim order, there is no more charge over the property towards tax liability. Therefore petitioner in WPC No. 37536 of 2007 is entitled to get release of the deposit receipts from the Village Officer and Village Officer is directed to do so on production of a copy of this judgment by the petitioner. 3. Government Pleader submitted that State is entitled to recover arrears of interest for the balance period. I do not think State after getting interim orders from this Court on 9.9.2005 can demand interest on Rs. 13 lakhs either from the Bank or from the purchaser of the property. Since defaulters have not taken any steps for adjustment of deposited amount towards tax arrears, interest if any payable is to be recovered from the defaulters. However, there will be no charge for tax arrears on the property of the defaulters sold by the Recovery Officer to 4 the petitioner in WPC 37536 of 2007. Recovery authorities are directed to proceed against borrowers and against their personal assets, if the same are recoverable under law. W.P.C.No. 37536 of 2007 is disposed of as above. (C.N. RAMACHANDRAN NAIR) Judge kk 5