M/S. SUNDARAM FINANCE LIMITED v. NONE

7. D.RAVEENDRAN, DIRECTOR, THE SUN REFINERIES (P) LTD. “CHITRAKALA”, GREEN GARDENS, 4TH STREET, HOUSE NO.55 45/2002 N. KARSHAKA ROAD, PACHALAM, NEAR DEVI THEATRE ERNAKULAM.ADDL. R5 TO R7 IMPLEADED AS PER ORDER IN IA. 16926/06 DATED2-2-07. R1 & R4 BY SPL. GOVT. PLEADER (TAXES) SRI.K.P.PRADEEP SRI.M.PATHROSE MATTHAI (SR.) FOR R2 SRI.SAJI VARGHESE SRI.V.G.ARUN FOR ADDL.R5 TO R7 SRI.T.R.HARIKUMAR FOR ADDL.R5 TO R7 THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 30/09/2008, THE COURT ON 18-11-2008 DELIVERED THE FOLLOWING: Order on CMP. No. 5292/98 & IA. No. 4558/08Dismissed.18-11-2008Sd/- Pius C.Kuriakose, Judge.APPELDIX:- Petitioner's Exhibits.:Ext.P1 true copy of the letter dated 29-12-1997 to the 1st respondent.Ext.P2 true copy of the guarantee dated 16-8-1994Ext.p3 true copy of the mortgage dated 25-8-1994Ext.P4 true copy of the judgment in OS. No. 107/97 dated 4-3-1998 of Sub Court,Kollam.Ext.P4 true copy of the invitation for the inauguration.Ext.P5 true copy of the decree in O.S.107/97Ext.P6 true copy of the Memorandum of Articles of Association dt. 1-3-1993Respondents' Exhibits:- Ext.R1(a) true copy of the Security bond/addl. Security executed bySri.D.Raveendran dt. 20-7-93.Ext.R1(b) true copy of the security bond addl. Security executed by Sri.Kumaresan &Soman Pillai dt. 1-4-95.Ext.R1(c) true copy of the statement of D.Raveendran dt. 23-7-93Ext.R1(d) true copy of the statement of Ganesh Sundaram and Kumaresan dt.23-7-93Ext.R1(e) true copy of assessment order for the year 94-95 dt. 11-10-1996Ext.R1(f) assessment order for the year 95-96 dt. 31-1-2000.Ext.R1(g) assessment order for the year 96-97 dt. 29-3-2001.Ext.R1(h) undertaking dated 1-4-1995 made by Sri.Soman Pillai.Ext.R1(i) undertaking dated 1-4-1995 made by Sri.Kumaresan PIUS C. KURIAKOSE, J.-----------------------------------------------O.P. No. 2972 of 1998-----------------------------------------------Dated this the 18th day of November, 2008J U D G M E N TM/s.Sundaram Finance Ltd., a public limited company engaged inthe business of financing by hire purchase and otherwise is thepetitioner in this original petition under Article 226. The respondentswere originally (1) the revenue recovery Tahsildar, Kollam (2) theKerala State Industrial Development Corporation (3) the SunRefineries (P) Ltd., Kollam represented by its Director oneD.Ravindran and (4) the State of Kerala. Later one R. Kumaresan,R.Ganesh Sundar and D.Raveendran, Directors of Sun Refineries (P)Ltd. were impleaded as additional respondents 5 to 7. The case of thepetitioner is that in the course of its business the third respondentapproached them for finance and as a consequence, hire purchaseagreements were entered into in respect of the machineries detailedin the hire purchase agreement. The third respondent agreed to abideby all the terms of the hire purchase agreement and under theseagreements an amount of nearly more than Rs.37 lakhs is due to thepetitioner company from the third respondent by way of instalment.According to the petitioner, besides the hire purchase agreement anadditional letter of guarantee, guaranteeing payment of the amounts O.P.N0. 2972/98-2-due under the hire purchase agreements was also executed in favourof the third respondent. It is stated that the directors of the thirdrespondent company created a mortgage by deposit of title deedsrelating to the properties belonging to the Directors themselvespersonally and these properties are situated in Sy. Nos. 7316, 7317and 7318 of Thrikkadavoor Village within the limits of ThrikkadavoorPanchayat in Kollam District. The petitioner came to know that thethird respondent had already borrowed money from the 2nd respondentKSIDC in respect of the machineries which are subject to the hirepurchase agreement in their favour. While matters stood so, the firstrespondent revenue recovery Tahsildar came forward with a plea thatlarge amounts are due to it by way of salestax arrears from the thirdrespondent to the 4th respondent State of Kerala. The grievance of thepetitioner is that the first respondent in spite of the mortgage of theimmovable properties by deposit of title deeds in petitioner's favourclaimed priority under section 26B of the Amended Kerala GeneralSales Tax Act, 1963. Petitioner points out that the mortgage in theirfavour was executed as early as 25-8-1994 and a substantial portionof the sales tax arrears allegedly due to the Government arose muchlater than 25-8-1994 when the mortgage in favour of the petitioner O.P.N0. 2972/98-3-was executed. The petitioner relies on section 2C of the Act (AmendedKerala General Salestax Act, 1963) and contends that the liability ofthe Directors of the Company are subject to the provisions of theCompanies Act in respect of liability to tax. The third respondent'sliability, it is pointed out, is not unlimited, but it is limited only to theassets of the company. It is contended that the property belonging tothe Directors personally cannot be proceeded against for the allegedarrears of salestax because there is no provision in the Memorandumof Articles of Association of the third respondent company indicatingunlimited liability. The Articles of Association of the Company isproduced by the petitioner along with I.A. No.10408 of 2006. TheArticles of Association does not say that the liability of the Directors isunlimited . Petitioner relies on Section 322 of the Companies Act andcontends that section 26C of the Amended Kerala General SalestaxAct will not be attracted and that the first respondent is not entitled toplace reliance on the same. The petitioner also submits that based onthe mortgage the petitioner company filed O.S.107 of 1997 on the filesof the Sub Court, Kollam and obtained a decree against the thirdrespondent for recovery of a sum of Rs.26,84,254.81 with interest at23% per annum. It is submitted that to the above judgment and O.P.N0. 2972/98-4-decree the Directors of the third respondent company were alsoparties and suffered the decree. Copies of this judgment and decreeare produced by the petitioner along with IA. No.11832 of 2005.According to the petitioner, they are entitled to realise the decree debtin O.S.107 of 1997 by sale of the properties described in schedule-B tothe decree and hence they filed the original petition seeking thefollowing relief:1. Issue a writ of prohibition seeking to restrain respondents 1and 2 from proceeding with the properties situated in Sy.Nos. 7316, 7317 & 7318 (ReSy. No. 443/14 & 15) situated inThrikkadavur Panchayat and Village, for the alleged amountsdue from the 3rd respondent to the 2nd respondent;2. for a declaration that the sale of the properties shall notproceeded with and for a further declaration that until therights of the petitioner are established and satisfiedrespondents 1 and 2 shall not proceed with the sale of theproperties mentioned above; and3. for the issue of any other appropriate writ, direction or orderas may be deemed fit and necessary in the circumstances ofthe case to meet the ends of justice. 2. The contentions raised on behalf of respondents 1 and 4 arethat the mortgage decree obtained by the petitioner will not absolve oroverride the crown priority available under section 26B an 26C of theK.G.S.T. Act. On behalf of R1 and R4 the first respondent has filed acounter affidavit on 20-11-2000. It is contended therein that the third O.P.N0. 2972/98-5-respondent is a registered dealer doing business in refined oil is in thepractice of purchasing refined oil from outside the State in bulk andeffecting sales of small quantities after packing. The third respondentis an assessee on the rolls of Assistant Commissioner (Assessment),Special Circle, Kollam. He filed returns claiming exemption as amedium small scale industrial units. As there was no manufacturingactivity involved in the business his claim for exemption was rejected.Accordingly final assessment for the year 1994-95 and provisionalassessments for the years 1995-96 and 1996-97 were completed. Asthe third respondent failed to pay the tax it was advised for revenuerecovery and it is based on the revenue recovery requisition thatnotices were issued under sections 7 and 34 to the third respondent.It is also contended that since the transaction between the petitionerand third respondent is one of hire purchase there is no debtor andcreditor relationship between them. It is pointed out that a totalamount of Rs.4.22 crores is due from the third respondent by way ofsalestax arrears. Under section 44 of the Kerala Revenue Act, theGovernment revenue has got first charge over the property of thedefaulter. The counter affidavit refers to Supreme Court judgment andcontends that the action of the respondents in attaching the property O.P.N0. 2972/98-6-for sale for realisation of the salestax arrears is valid.3. To that counter affidavit, the petitioner filed a reply affidavitreiterating their contentions. It is pointed out that the thirdrespondent Sun Refineries appear to have started functioning onlyfrom 10-7-1994 and it is therefore un-understandable as to how therecould be an assessment for the year 1994-96. Ext.P4 copy of theinvitation card relating to the inauguration of the factory of the thirdrespondent is produced. Ext.P3 produced along with the originalpetition is referred to and it is submitted that Ext.P3 will reveal adeclaration of the owners of the property of their intention to create anequitable mortgage by deposit of title deeds. Petitioner is a mortgageeand a secured creditor in 1994 itself and has a precedence and priorityover the claims of respondents 1 and 4.4. The second respondent KSIDC has filed a counter affidavit. Itis contended therein that the second respondent had granted termloan of Rs.90 lakhs to the third respondent company on the security ofmortgage of immovable properties of land and buildings andhypothecation of all movable assets. As security for the said loan anagreement of hypothecation was executed by the third respondentcompany on 24-8-1993 charging and hypothecating all the movable O.P.N0. 2972/98-7-assets of the company including all movable plant and machineries etc.The hypothecation and charge created by the third respondentcompany on the said immovable and movable assets have been dulyregistered with the Registrar of Companies on 26-8-1993. Thepetitioner has no manner of right or claim in respect of the immovableproperties mortgaged to the 2nd respondent and the movable assetshypothecated and charged to the 2nd respondent. The claim of thepetitioner that hire purchase agreements are executed and certainitems of machineries are said to be covered by the hire purchaseagreement executed long after purchase of the machineries andequipments. It is pointed out that the petitioner has filed OP. No. 5822of 1997 against the second respondent. In that O.P. the secondrespondent has filed a detailed counter affidavit and seeks leave torefer to the said counter affidavit. The alleged hire purchaseagreements are all subsequent to the purchase of the machineries asper invoices in the name of the 3rd respondent company andhypothecation and charge executed and created by the thirdrespondent company in favour of the 2nd respondent. Even theregistration of charge under section 125 of the Companies Act is longafter and subsequent to registration of charge made by the 2nd O.P.N0. 2972/98-8-respondent regarding the movable and immovable properties of thethird respondent company. It is then pointed out that the thirdrespondent company has been ordered to be wound up by theCompany Court in C.P. No. 29 of 1998 and thereafter the OfficialLiquidator has taken possession of the immovable and movableproperties and assets of the company from the second respondent on1-9-2003. Thus whatever immovable and movable properties takenover by the 2nd respondent under section 29 of the State FinancialCorporations Act have been taken over by the Official Liquidatorpursuant to orders of the Company Court. The company courtdirected the second respondent to meet the security expenses andadvertisement expenses for sale of the properties mortgaged andhypothecated to the 2nd respondent . If at all the petitioner has anyclaim it has to be made to the Official Liquidator since he is thecustodian of the immovable and movable properties of the thirdrespondent company.5. On 1st August 2006 an additional counter affidavit is filed onbehalf of R1 and R4. It is stated that this additional counter affidavitis being filed after ascertaining the registration and assessment historyof the 3rd respondent from the office of salestax assessing authority for O.P.N0. 2972/98-9-traversing various allegations in the writ petition as well as in the replyaffidavit. Exts. R1(a) and R1(b) are true copies of securitybonds/additional security executed by D.Raveendran, R.Kumaresanand Soman Pillai, Directors of the third respondent company and it issubmitted that it was against these security bonds that salestaxregistration was given to the third respondent company. Theexecutants of R1(a) and R1(b) are wholly liable to discharge the entiretax liability of the assessee company. At the time of registrationenquiry they have agreed before the officer to ensure payment of thetax dues by the assessee and in default by themselves and theassessing officer had recorded their such statements on 23-7-1993.Exts.R1(c) and R1(d) are true copies of the statements ofD.Raveendran, Ganesh Sundaram and R.Kumaresan. R1(e), R1(f)and R1(g) respectively are the assessment orders passed by theassessing authority against the third respondent company for theassessment years 1994-95, 1995-96 and 1996-97 respectively dated11-10-96, 31-1-2000 and 29-3-2001. These assessment orders havebecome final and under section 23(3) of the KGST Act the thirdrespondent company owes the Government a sum of Rs.2,53,76,586/-by way of tax dues and interest. Recovery proceedings initiated O.P.N0. 2972/98-10-against third respondent company and properties of Raveendran,Ganesh Sundaram and Kumaresan is perfectly legal and in order. Thestatutory liability of the company and its directors is now clear fromthe terms of section 26B and 26C of the KGST Act. The liability of theguarantors is absolute and de hors the provisions of the CompaniesAct. The plea that there is a prior mortgage and a decree in favour ofthe petitioner will not in any way legally obliterate the preferentialright of the State to recover its salestax dues. Legal position issettled by a catena of judicial pronouncements.6. To the above additional counter affidavit the petitioner hasfiled an additional reply affidavit. It is contended the security bondsproduced by the first respondent do not touch the points at issueinvolved in the O.P. These security bonds are personal bonds and thereis nothing to enable the first respondent to proceed with the realisationof the alleged arrears from the third respondent by proceeding againstthe personal properties of the directors. It is reiterated that thesebonds do not relate to any mortgage or hypothecation of immovableproperty. They are all at best personal liabilities which the directors ofthe 3rd respondent might have been compelled to undertake to meetsalestax demands but do not touch the points at issue involved in the O.P.N0. 2972/98-11-original petition. These bonds do not stipulate an undertaking bywhich the immovable properties of the directors of the company aremade liable. These bonds and the so called depositions do not relateto any immovable properties and the mortgage effected by thedirectors of the company is not affected and the undertakings beforethe salestax department and other incidental matters do not at all, goto show that the personal properties of the directors of the 3rdrespondent are also liable for any alleged demands made by thesalestax department.7. Respondents 5 to 7 have filed additional counter affidavitwhich deals with Exts.R1(a) to R1(d) produced from the side of theGovernment. It is contended that in none of the above documents theadditional respondents have given any undertaking as the Governmentcontends. It is submitted that no statement than what is produced asExts.R1 (a) to R1(d) have been given before any authority. In thecircumstances the contention of the Government that Kumaresan andSoman Pillai have given separate undertakings on 1-4-1995 before theSalestax Officer agreeing for prior charge on their properties in theevent of there being tax arrears for the company can only be false. Itis also contended that these additional respondents have resigned O.P.N0. 2972/98-12-from the company on 2-8-1996 consequent to which they filed FormNo.32 before the Registrar or Companies on 3-8-1996 and hadinformed the Salestax Officer about their resignation on 5-8-1996.The first assessment for the year 1994-95 was conducted only on 19-9-1996 subsequent to the resignation of these respondents. Section26B and 26C were amended with effect from 1-4-1999 and as theamendment is only prospective and since the respondents hadresigned prior to the amendment and even prior to the issuance ofassessment orders the amendment will not bind these respondentsand the contention raised on this basis is legally unsustainable. 8. In the light of the above additional counter affidavit fromrespondents 5 to 7 respondents 1 and 4 have filed another additionalcounter affidavit. The filing of a further additional counter affidavit isexplained by pointing out that since the assessing authority, theSalestax Officer, First Circle, Kollam was not made a party in theoriginal petition the details of the undertaking which was given bySri.Kumaresan and Soman Pillai before the Addl. Salestax Officer,Kollam could not be placed on record. Ext.R1(h) and R1(i) dated 1-4-1995 are produced as the separate undertakings given bySri.Kumaresan and Soman Pillai before the Salestax Officer agreeing O.P.N0. 2972/98-13-prior charge on their property in the event of company making defaultin payment of taxes. It is pointed out that these undertakings areincorporated in the assessment records in page Nos. 315 and 317. Itis argued on the basis of R1(h) and (i) that the guarantors haveexpressed their willingness in unequivocal terms, to part with theirproperty in the event of default by the company of the salestax dues. 9. Extensive submissions were addressed before me bySri.V.R.Venkitakrishnan, senior counsel for the petitioners,Sri.V.V.Ashokan, then Special Govt. Pleader, Taxes and after him bySri.K.P.Pradeep Spl. Govt. Pleader (Taxes). Sri.M.Pathrose Mathai,senior counsel addressed me on behalf of the KSIDC and Sri.V.G.Arun,learned counsel for additional respondents 5 and 7 also addressed me.The submissions were on the basis of the pleadings raised by theparties and Sri.V.R.Venkitakrishnan relied on the judgment of theSupreme Court in Dena Bank v. Bhikhabai Prabhudas Parekh & Co.,(2000)5 SCC 694 and the judgment of the Division Bench of thisCourt in Sherry Jacob v. Canara Bank, 2004(3) KLT 1089.Sri.V.V.Ashokan, then Spl. Govt. Pleader, Taxes in his submissionswould refer to the judgment of the Division Bench of this Court inSouth Indian Bank Ltd. v. State of Kerala, 2006(1) KLT 65 and the O.P.N0. 2972/98-14-judgment in State of Kerala v. Rajmohan Cashew (P) Ltd. 2005(2) KLT131. Sri.K.P.Pradeep, Spl. Govt. Pelader, Taxes in his submissionsreferred to the judgment of the Division Bench of this Court in SouthIndian Bank Ltd. v. State of Kerala, 2006(1) KLT 65, the judgment ofthe Division Bench of this Court in Hamsa v. Asst. Commissioner,2008(3) KLT 180, the judgment of the Supreme Court in Dena Bank v.Bhikhabai Prabhudas Parekh & Co.(2000)5 SCC 694, the judgment ofthe Supreme Court in State Bank of Bikaner & Jaipur v. National Iron &Steel Rolling Corporation and others, (1995) 2 SCC 19, the judgmentof the Division Bench of this Court in Jaya v. State of Kerala, 2005(2)KLT 543, the judgment of this Court in Sherry Jacob v. Canara Bank,2004(3) KLT 1089 and the judgment of this Court in SBT v. RecoveryOfficer, 2007(2) KHC 626. Sri.V.G.Arun in his submissions referred tothe dissimilarities in the signatures of the Directors in the bonds Ext.R1(b) and R1(d) and in the undertakings Ex.R1(h) and R1(i).10. I have anxiously considered the submissions addressed atthe Bar in the light of the ratio emerging from the various decisionscited before me. I am of the view that the petitioner cannot be grantedany relief in view of law as settled by the Supreme Court though thecommon law doctrine of priority of crown debts would not extend to O.P.N0. 2972/98-15-providing preference in crown debts over secured private debts. TheSupreme Court in State Bank of Bikaner & Jaipur v. National Iron andSteel Rolling Corporation, (1995) 2 SCC 19 analysed the scope ofstatutory charge over the earlier mortgage and after referring to thejudgment of the Court in Dattatreya Shanker Mote v.AnandChintaman Datar, (1974) 2 SCC 799 reiterated that the charge is awider term as it includes also a mortgage, in that, every mortgage is acharge, but every charge is not a mortgage. It was held by the courtin the context of the application of the second part of section 100 ofthe Transfer of Property Act dealing with charges unenforceableagainst a bona fide transferee of the property for value without notice,that the phrase “transferee of property” refers to the transferee ofentire interest in the property and it does not cover the transfer of onlyan interest in the property by way of mortgage etc. Their Lordshipswent on to hold that the first charge which is created under section 11AAAA of the Rajasthan Sales Tax Act will operate on the property as awhole and not only on the equity of redemption on the property aloneif the property is already under a mortgage in favour of some othercreditor. In fact, a Division Bench of this Court in Sherry Jacobv.Canara Bank, 2004(3) KLT 1089 following the decisions of the O.P.N0. 2972/98-16-Supreme Court in State Bank of Bikaner & Jaipur v. National Iron &Steel Rolling Corporation & others, (1995) 2 SCC 19 and State ofMamdhya Pradesh & another v. State Bank of Indore & others, (2002)10 KTR 366 (SC) would refer to section 26B of the Kerala GeneralSalestax Act and observe that the said provision is in pari materia withsection 11 AAAA of the Rajasthan Salestax Act and Section 33C of theMadhya Pradesh General Salestax Act and held that the statutory firstcharge created under section 26B of the KGST Act will prevail over anycharge or right created in favour of the mortgagee/secured creditor. Ithas been ruled unambiguously that the statutory first charge shall getprecedence over an existing mortgage right and that the precedenceor priority is not confined to right of redemption alone.11. The learned senior counsel Mr.Venkitakrishnan's argumentbased on the mortgage decree obtained by the petitioner also will haveto be turned down in view of the decision of this Court in South IndianBank Ltd. v. State of Kerala, 2006(1) KLT 65. That was a case wherethe mortgage in favour of the bank was of the year 1984 and the civilcourt decree was passed in favour of the bank in 1995. The revenuerecovery proceedings and the attachment therein were years after themortgage and this court held in the following terms. O.P.N0. 2972/98-17-“Decree passed by the civil court is the formal expression of anadjudication, which exclusively determines the rights ofparties,but unless and until the decree is executed the Bankwould not procure the property and the State's overriding rightswould have precedence over that of the Bank. When a firstcharge created by the operation of law over any property thatcharge will have precedence over an existing mortgage and thedecree obtained by the bank against the mortgagor will not affectthe State since State was not a party to the suit. Decree has onlyconclusively determined the right between the mortgagor andmortgagee, which would not affect the statutory rights of theState. The expression “rights of parties” used in S.2(2) meansrights of parties to the suit. State which has got a statutory firstcharge under S.26B of the K.G.S.T. Act would prevail over therights created in favour of the Bank by an unexecuted decree.The decree obtained by the Bank will not have any precedenceover the first charge created in favour of the State under S. 26Bof the K.G.S.T.Act”In fact this court also held in the above case that the right of the Stateto have priority in the matter of recovery of sales tax from thedefaulters over the equitable mortgages created by them in favour ofBanks and financial institutions is no more res integra and that theSupreme Court has already recognised the statutory first charge inrespect of salestax arrears. In fact the above decision is referred to bya Division Bench of this Court in State of Kerala v. Rajmohan Cashew(P) Ltd. 2005(2) KLT 131also. It is to be noted in this context that theconstitutionality of section 26A of the KGST Act, 1963 was upheld bythis court by judgment in Jaya v. State of Kerala, 2005(2) KLT 543wherein it has been held inter alia that section 26A does not restrict or O.P.N0. 2972/98-18-purport to impose any restriction on any freedom of trade by thecitizen of the country, but only to safeguard public interest. This courtin State Bank of Travancore v. the Revenue Recovery Officer andothers, 2007(2) KHC 626 would consider whether the RDB Act canhave any overriding effect over the Kerala General Sales Tax Act. Thiscourt held that the purpose of the RDB Act which is applicable to thebanking institutions is only for speedy recovery of the amounts due tothem and not for creation of any statutory charge for banks orfinancial institutions. In the absence of any conferment of statutorycharge neither the banks nor financial institutions can have any priorityover the statutory first charge which is applicable to the Governmentunder the KGST Act.12. One of the arguments addressed by the learned seniorcounsel which was shared by Mr.V.G.Arun, counsel for the additionalrespondents was that section 26B which was introduced by the FinanceAct 1999 cannot have any retrospective operation and therefore theamounts due to the petitioner company under the decree passed by acompetent civil court should be allowed to be recovered. It is difficultto accept the above argument since I find that the Supreme Court inState of Madhya Pradesh v. State Bank of Indore, 126 STC 1 dealing O.P.N0. 2972/98-19-with section 33C of the Madhya Pradesh General Sales Tax Act, 1958,a provision which is almost identical to section 26B of the KeralaGeneral Sales Tax Act would held as follows:“In respect of the 2nd respondent's sales tax dues, the Stateclaimed a first charge under Section 33-C upon the machinery inpriority to the charge held by the Bank. The trial court and theHigh Court did not accept the State's submission in this behalf.In the view of the High Court, the bank's charge on themachinery was created on 5th September, 1974, that is, prior tothe enforcement of Section 33-C, and the subsequent loanstaken on January 23, 1979 and January 25, 1979 did not alterthe position in favour of the State. In its view, “the chargecreated once remained valid and operative till repayment of theloan as borrowed.” The High Court also took the view that theappeal before it was flawed because it challenged the judgmentof the trial court and not its decree.Section 33-C creates a statutory first charge that prevailsover any charge that may be in existence. Therefore, the chargethereby created in favour of the State in respect of the sales taxdues of the 2nd respondent prevailed over the charge created infavour of the bank in respect of the loan taken by the 2ndrespondent. There is no question of retrospectivity here, as, onthe date when it was introduced, Section 33-C operated inrespect of all charges that were then in force and gave sales taxdues precedence over them. This position in law is discussed indetail in the judgment of this Court in Dena Bank v. BhikhabhaiPrabhudas Parekh & Co. (2000) 5 SCC 694.”It is then held by the Supreme Court that as on the date when thestatutory provision was introduced the provision operates in respectof all charges that were then in force and gave salestax duesprecedence. This judgment in my opinion is applicable to the facts of O.P.N0. 2972/98-20-this case and in view of the applicability of Section 26B of the KGSTAct no priority can be claimed by the petitioner over the propertiesproceeded by the Government for recovering the salestax dues even ifthere is prior mortgage and an unexecuted decree.13. The argument of Mr.V.G. Arun and the learned seniorcounsel Mr.V.R.Venkitakrishnan on the basis of section 322 of theCompanies Act also has to fail. This is a case where the Directors intheir personal capacity have guaranteed assured due payment of thetax dues payable by the company. The explanation offered by theState for not producing the undertakings submitted by the Directorsearlier is convincing. 14. The argument of Mr.V.G.Arun highlighting the dissimilarityin the signatures on Exts.R1(h) and R1(i) and the circumstance ofthose documents not being filed in the 1st instance does not impressme. R1(h) and R1(i) do fasten personal liability upon the directors. The result of the above discussion is that the O.P. fails and willstand dismissed. (PIUS C.KURIAKOSE, JUDGE)ksv/- O.P.N0. 2972/98-21-PIUS C.KURIAKOSE, J.O.P. No. 2972 OF 1998 JUDGMENT 18th November, 2008