Case: Union Of India  Vs. Sicom Ltd.

Respondent No.2 borrowed a sum of Rs.51,00,000/- from the first respondent by an Indenture of Mortgage executed on 22.12.1986. Indisputably, the mortgage created under the said document is governed by the provisions of the 1951 Act. It also owed a sum of Rs.19,00,000/- by way of Central Excise duty for the period April 1983 to May 1988. Assessment of central excise duty for the said sum was confirmed.Indisputably the provisions of Sections 27, 29, 30, 31, 32A to 32F, 41 and 41A of the 1951 Act have been extended in favour of the respondent by the Government of India in exercise of its power conferred upon it under sub-section (1) of Section 46 of the said Act by issuing an appropriate notification. Respondent No.2 having committed defaults in repayment of the principal amount of loan as also the interest accrued thereon, the first respondent invoked Section 29 of the 1951 Act by issuing notice to take possession of the said securities. Actual physical possession of the mortgaged assets was taken over. Respondent No.2, however, continued to commit defaults as a result whereof the first respondent recalled the entire amount of loan wherefor a notice dated 19th March, 1996 was served.Respondent No.2 owed a sum of Rs.48,08,242/- to the appellant. It expressed its intention to attach and seize its properties. First Respondent, however, by its letter dated 11.11.1996 informed them that they had the first charge of the said properties which are mortgaged in their favour. Despite the same, the appellant expressed intention to proceed to recover the amount from the said properties. First Respondent, by its letters dated 21.7.2000 and 22.8.2000 followed by a lawyers notice, called upon the appellants to desist from taking any action against their securities and to remove their seal, if any, from the properties of the borrower. As the appellant did not respond thereto, a writ petition was filed. The principal question which, as noticed hereinbefore, arose for consideration before the High Court was as to whether dues of the first respondent-corporation will have priority over the Central Excise dues. The High Court, upon consideration of a large number of decisions opined that despite the fact that the dues of the appellant were recoverable as land revenue in terms of Rule 213(2) of the Central Excise Rules read with Section 32(g) and Section 151 of the Maharashtra Land Revenue Code, 1966, the same by itself would not mean that a first charge of the appellant-corporation would give way thereto. It wasTurning to provisions of Section 169 of the Code, sub-section (1) provides that the arrears of land revenue due on account of land shall be paramount charge on the land and every part thereof and shall have precedence over any other debt demand or claim whatsoever, whether in respect of mortgage, judgment-decree, execution or attachment, or otherwise however, against any land or the holder thereof, sub-section (2) provides that claim of the State Government to any monies other than arrears of land, revenue but recoverable as a revenue demand under Chapter II shall have priority over all unsecured claims against any land or holder thereof.31. It is thus clear that the arrears of land revenue dues on account of land shall be paramount charge on the land or every part thereof. Those will have precedence over any other dues, debts, demands, or claim. But other claims of the State Government which are recoverable as arrears of land revenue get priority over all unsecured claims against any land of holder. In the case of secured loan of the Government and other creditors, priority will depend upon precedence of such loan, it is thus clear that security of the Corporation being prior in point of time, it being in the nature of mortgage of priority, the dues claimed by Corporation will have priority over the dues of Customs."

Court's reasoning:
The High Court, with utmost respect, proceeded on a wrong premise that only in terms of sub-section (4) of Section 29, proceeds of the sale will be held in trust by the Financial Corporation and appropriated towards the discharge of the debt due to it after first applying the proceeds in payment of cost charges and expenses incurred and the balance to be paid to the person entitled and having regard to the doctrine of Crown debt, the auction purchaser must satisfy it. The Orissa High Court failed to notice the binding precedent of this Court in Dena Bank in its proper perspective. We are concerned here with the respective rights of a secured creditor and unsecured creditor over a property. If the finding of the Orissa High Court is correct, there was no necessity for the State Legislatures or the Parliament to amend laws incorporating provisions to create first charge over the properties of the debtor. The High Court failed to notice Article 372 of the Constitution as also the well settled principles of law that a statutory provision shall prevail over the Crown debt. Furthermore, the right of a State Financial Corporation is a statutory one. The Act contains a non- obstante clause in Section 46B of the Act which reads as46B--Effect of Act on other laws--The provision of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrialnon-obstante clause shall not only prevail over the contract but also other laws. [See Periyar & Pareekanni Rubber Ltd. v. State of Kerala (2008 (4) SCALE 125 )]