First Charge

The High Court at Bombay in the case of Janata Sahakari Bank Ltd reported in 148 STC page 32 has held that the statutory dues; i.e., the recovery of the Sales Tax Department has precedence to contractual dues of banks and financial institutions even in cases of secured loans. The Court held that the charge created by virtue of section 38C of the earstwhile Bombay Sales Tax Act, 1959 is not affected by either section 13 or section 35 of the Securitasation and Reconstruction of financial Assets and Enforcement of Security Interest Act, 2002, both the sections under that Act being procedural one. In other words, despite there being the prior mortgage with financial institutions, the Sales Tax Department can recover its dues from the sale of the mortgaged property ignoring the dues of the financial institutions. The matter has now gone to the Supreme Court and special leave against this judgment has been granted on 4th July, 2006 in SLP (Civil) No. 8910of 2006. Another bench of Bombay High Court, in another case under the Customs Act, namely, SICOM LTD. reported in 2006(203)34 ELT has held that the statutory dues; i.e., the recovery of the Customs Department does not have precedence over the secured creditors and the first charge created by the customs law affects only unsecured creditors.

We do not wish to make any comments on the correctness of the judgment of our High Court in Janata Sahakari Bank Ltd. It is the subject of separate article and apex court will lay down the correct law on this subject. Today, in this editorial we wish to bring to the notice of the authorities how all of us, as citizens, suffer when the bureaucracy gets shelter of such judgments.

We have come across a case of Kolhapur Division where the assessee obtained a loan from the leading co-operative bank of about Rs. 2.20 crores against his mortgaged property in MIDC, Kolhapur. He did not repay and, therefore, the bank after following proper procedures declared the sale. The assessee was enjoying exemption under the 1988 PSI scheme and the Bank had found the customer who was ready to buy the property since he wished to avail the benefits granted as per the Resolution of the Government of Maharashtra No. PSI-1707/CR-50/IND-8 dated 30th March, 2007. But to the misfortune of the bank the assessing officer (may be at the behest of the defaulting assessee) wrote a letter informing that 10 years’ assessments were pending and if the dues arose, the Department would have charge over the property. On receipt of this letter the buyer turned back.

Now, the question is what this officer was doing in those 10 years. Why did he not initiate the assessments and crystallised the liability? The assessee was enjoying exemption, what could have been the liability in such circumstances. Now it would be difficult for the bank to recover its dues in near future. The loss which the bank would suffer, whose loss is this? Is it not a loss of public money? It is easy for the bureaucrats to issue such letters and to abdicate responsibility. But, what suffers is the economy a whole.

Of course, there are some bureaucrats who understand the concept of Welfare State. Mr. D.V. Bhalachandra, the Addl. Commissioner of Sales Tax, Pune Zone, is one of them. When approached, he immediately acted and directed the assessments to be done immediately. We are sure, others will also show the same concern.