The High Court
Case Details
IN THE HIGH COURT OF JHARKHAND AT RANCHI W.P.(T) No. 953 of 2005 ---- Bihar State Financial Corporation … Petitioner The State of Jharkhand & Another ---- -versus- … Respondents CORAM : HON’BLE THE CHIEF JUSTICE HON’BLE MR. JUSTICE APARESH KUMAR SINGH ---- For the Petitioner : For the Respondents : Mr. S.B. Gadodia, Sr. Advocate Mr. A.K. Yadav, Advocate Mr. Rajesh Shankar, G.A. ---- CAV on 6th of December, 2013 Pronounced on 13th of December, 2013 R. Banumathi, C.J. Bihar State Financial Corporation has filed the writ petition to quash the impugned notification being S.O. 95 dated 01.09.2004 issued by the State of Jharkhand as void and illegal. 2. The State of Jharkhand, which came into existence with effect from 15.11.2000, issued Notification No.17 dated 15.12.2000 in exercise of powers contained in Section 85 of the Bihar Re- organisation Act, 2000, inter alia, adopting the Bihar Finance Act, 1981 Part I and the Rules framed thereunder to be applicable to the entire State of Jharkhand. By exercising its powers under Section 29 of the Adopted Bihar Finance Act, 1981, the State of Jharkhand issued the impugned notification. As per the notification, the State Financial Corporation shall ensure that no industrial unit be sold without obtaining ‘No Objection Certificate’ from the Department of Commercial Taxes, Jharkhand. 2 The impugned notification reads as under:- Department of Commercial Tax Notification 27 August, 2004 S.O.-95 dated 1st September, 2004/2384 – Government of Jharkhand in exercise of powers as conferred by Section 29 of adopted Bihar Finance Act, 1981, makes following provisions for ensuring recovery
Legal Reasoning
of the Government dues, deeming it as first charge, upon sale/auction of closed/old Industrial Units in the State. 1. State Financial Corporation shall ensure that no Industrial Unit be sold without obtaining No objection Certificate from Department of Commercial Tax, Jharkhand, Ranchi. 2. State Financial Corporation, after deducting dues amount of Sales Tax from the proceeds of sale, shall send it to the Department of Commercial Tax, Jharkhand, Ranchi. Sale Tax/Misc./7/2002 By the order of the Governor of Jharkhand Alka Tiwari Secretary-cum-Commissioner Department of Commercial Tax, Jharkhand, Ranchi. 3. The petitioner is a statutory Corporation, established in terms of Section 3 of the State Financial Corporation Act, 1951. The Corporation had extended financial loan facilities to various units, which, now fall within the State of Jharkhand. The case of the petitioner is that as per Section 29(4) of the State Financial Corporation Act, the manner of priority of appropriation of sale proceeds of the mortgaged/hypothecated assets has been clearly laid down and the same cannot be altered by the impugned notification of the State of Jharkhand depriving the petitioner-Corporation of its legitimate dues in a legitimate manner. 4. According to the petitioner, if it is to be held that the statutory first charge created by Section 29 of the Bihar Finance Act has to prevail, then there would be a direct conflict between the provisions of Section 29(4) of the State Financial Corporation Act, which lays down the priority of appropriation and Section 29 of the Bihar Finance Act 3 and by virtue of Section 46-B of the State Financial Corporation Act, the provisions of the State Financial Corporation Act shall prevail. Further case of the petitioner is that under the provisions of the Bihar Finance Act, there are specific provisions for collection and recovery of tax and State Government has authority to take such steps as thereunder as are permissible to do, and to direct the Financial Corporation to first pay the dues of sales tax from recovered sale proceeds is not only arbitrary but discriminatory. According to the petitioner, the provisions for obtaining ‘No Objection Certificate’ from Department of Commercial Tax is unreasonable and arbitrary and no guidelines are provided as to when and under what conditions, ‘No Objection Certificate’ can be withheld, nor there is any time frame for grant or refusal thereof provided. According to the petitioner, in view of Section 46-B of the State Financial Corporation Act, which contains non-obstante clause, provisions of the State Financial Corporation Act shall have the effect, notwithstanding anything inconsistent contained in any other law for the time being in force and while so, the impugned notification issued is arbitrary and liable to be quashed. 5. Refuting the contentions of the petitioner, respondent has filed counter affidavit contending that under Section 29 of the adopted Bihar Finance Act, 1981 notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and penalty, if any, payable by a dealer shall be a first charge on the property of the dealer or such persons. According to the respondents, in view of the non-obstante clause in Section 29 of the Adopted Bihar Finance Act, 1981, the State of Jharkhand has every right to issue 4 such notification in the territory of the State and Section 46-B of the State Financial Corporation Act does not restrict the State Government from issuing befitting notification under Section 29 of the adopted Bihar Finance Act, 1981. 6. The learned senior counsel appearing for the writ petitioner contended that Section 29(4) of the State Financial Corporation Act clearly indicate that money received by the Corporation shall be adjusted against (i) all costs, charges and expenses, which in the opinion of the Financial Corporation have been primarily incurred by it; (ii) thereafter the money received shall be paid for the discharge of the debts due to the Financial Corporation and only the residuary amount shall be paid to the person entitled thereto. 7. The learned senior counsel submitted that as per Section 29(4) of the State Financial Corporation Act, the sale proceeds realized by the Corporation has to be distributed in the mode and the manner mentioned in the sub section and it is for the Corporation to take a decision whether to sell the assets of a defaulting unit or not. It was submitted that the State Financial Corporation Act confers the right on the Corporation to take such an action and transfer the property as if the Corporation was the owner and Section 29(4) provides as to how the sale proceeds on such a sale is to be appropriated, giving first right of appropriation to the Corporation over all other rights and the said right of Bihar State Financial Corporation cannot be taken away and the notification issued is wholly without jurisdiction. 8. The learned senior counsel for the petitioner Corporation further submitted that Section 46-B of the State Financial Corporation Act 5 clearly indicates that the provisions of the Act as well as any rules/orders made under the State Financial Corporation Act shall have the effect, notwithstanding anything contained in any other law for the time being in force and in this view of the matter also the provisions of the State Financial Corporation Act shall prevail and the same cannot be altered by an executive notification of the State Government as contained in impugned Annexure 1. On behalf of the petitioner, reliance is placed on the decision of the Supreme Court reported in (2009) 2 SCC 121 [Union of India versus SICOM Ltd.] to contend that the preferential claim of the Financial Corporation in relation to its secured debts is not liable to be interfered with. 9. Placing reliance upon the decision of the Supreme Court reported in (2009) 4 SCC 94 [Central Bank of India versus State of Kerala], the learned counsel for the respondents submitted that the State of Jharkhand has every right to issue the impugned notification in its jurisdiction as the Bihar State Financial Corporation is not created by the Central Act, rather, it is created by the State Government under the Central Act. The learned counsel submitted that Section 29 is a non-obstante provision and Section 29 mandates that the amount of taxes over the property would be first charge and Bihar State Financial
Legal Reasoning
Corporation is no exception to this. Learned counsel submitted that all these aspects have been dealt with by the Hon’ble Supreme Court in the judgment rendered in (1995) 2 SCC 19 [State Bank of Bikaner and Jaipur versus National Iron and Steel Rolling Corporation] and (2009) 4 SCC 94 [Central Bank of India versus State of Kerala] and submitted that the first priority of the State Government 6 in respect of any amount of tax and penalty is no longer res-integra. 10. In exercise of powers conferred under Section 29 of the Adopted Bihar Finance Act, 1981, the State of Jharkhand issued Notification S.O. 95 dated 01.09.2004. As per the impugned notification the State Financial Corporation shall ensure that no industrial unit be sold without obtaining ‘No Objection Certificate’ from the Department of Commercial Taxes, Jharkhand, Ranchi. The Notification further directed the State Financial Corporation that after deducting the sales tax amount due from the proceeds of the sale, the sales tax be sent to the Department of Commercial Taxes, Jharkhand. The question falling for consideration is whether the impugned notification issued by the State of Jharkhand in exercise of its powers conferred by Section 29 of the Adopted Bihar Finance Act, 1981 is without jurisdiction and ultra vires the provisions of the State Financial Corporation Act. 11. We shall now consider whether there is a conflict between the State Financial Corporation Act on one hand and Section 29 of the Bihar Finance Act and whether by virtue of non-obstante clause in Section 46B of the State Financial Corporation Act, the provisions contained in the State Financial Corporation Act would override the provisions contained in Section 29 of the Bihar Finance Act, 1981. For reference, we shall refer to Section 29(4) and Section 46B of the State Financial Corporation Act. Section 29(4) of the State Financial Corporation Act reads as under: - 29. Rights of Financial Corporation in case of default.- (4) Where any action has been taken against an industrial concern under the provisions of sub-section (1), all costs, charges and 7 expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.” Section 46B of the State Financial Corporation Act, which is a non obstante provision, reads as under: - 46B. 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 industrial concern.” 12. Section 29 of the Bihar Finance Act contains non obstante clause and stipulates that the sales tax payable shall be the first charge. Section 29 of the Bihar Finance Act, 1981 reads as under: - 29. Tax to be first charge on property.- Notwithstanding anything to the contrary contained in any law for the time being in force any amount of tax and penalty, if any, payable by a dealer or any other person under this part shall be a first charge on the property of the dealer or such person.” 13. By exercising its power under Section 29 of the adopted Bihar Finance Act, 1981, the State of Jharkhand issued the impugned notification directing that the State Financial Corporation shall ensure that no industrial unit be sold without obtaining ‘No Objection Certificate’ from the Department of Commercial Taxes, Ranchi and further directing that the State Financial Corporation, after deducting the amount of sales tax from the proceeds of sale, shall send the deducted amount to the Department of Commercial Taxes, Jharkhand. 8 14. The non-obstante clause is appended to a provision with a view to give the enacting part of the provision an overriding effect in case of a conflict. Considering the same question, whether there is any conflict between Section 34(1) of the Debts Recovery Tribunal Act and Section 35 of the Securitisation Act on the one hand and the provisions contained in Section 38(c) of the Bombay Sales Tax Act and Section 26-B of the Kerala Sales Tax Act and similar State Legislations, elaborating upon the interpretation of a ‘non-obstante clause’ in the decision reported in (2009) 4 SCC 94 [Central Bank of India versus State of Kerala] at paragraphs 103 and 116, the Hon’ble Supreme Court has held as under: - 103. A non obstante clause is generally incorporated in a statute to give overriding effect to a particular section or the statute as a whole. While interpreting non obstante clause, the court is required to find out the extent to which the legislature intended to do so and the context in which the non obstante clause is used. This rule of interpretation has been applied in several decisions. … … … … … … 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or the Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38-C of the Bombay Act and Section 26-B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of the State’s charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. 15. The above ratio laid down in Central Bank Case (supra) is 9 applicable to the case in hand. There is no provision in Bihar Financial Act, which is inconsistent with the State Financial Corporation Act, the provisions contained in those Act cannot override other legislations. Section 29 of the adopted Bihar Finance Act, 1981 contains non obstante clause and gives statutory recognition to the first priority of the State’s charge in respect of any amount of tax and penalty. State’s first charge in respect of any amount of tax and penalty is recognized by the Hon’ble Supreme Court over other debts as held in State Bank of Bikaner & Jaipur versus National Iron and Steel Rolling