M/S.edhayam Frozen Foods Pvt. Ltd v. The Tax Recovery Officer-2, Corporate Range-2, Income Tax Department, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.11.2016 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM W.P.No.27240 of 2016 M/s.Edhayam Frozen Foods Pvt. Ltd.,Represented by its Managing Director,3/52-B, Krishnarajapuram,Tuticorin-628 002. .. Petitioner Versus 1.The Tax Recovery Officer-2, Corporate Range-2, Income Tax Department, Room No.426, New Block, IV Floor, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Commissioner of Income Tax, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034.3.The Additional Commissioner of Income Tax-II, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 4.The Assistant Commissioner of Income Tax, Central Circle-III (2), No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 5.The Recovery Officer-I, Income Tax Office, No.2, V.P.Rathnasmy Nadar Road, Bibikulam, Madurai-625 002. 6.The Sub-Registrar, Keelur Sub-Registration Office, Keelur, Ottapidaram Taluk, Tuticorin District... Respondents Prayer: This Writ Petition is filed under Article 226 of theConstitution of India, seeking for a Writ of CertiorarifiedMandamus to call for the records of the first respondent in hisproceedings in T.R.No.98, 101 & 103/TRO-2/2016-17, quash theorder/letter, dated 28.06.2016 and direct the first respondentto lift the attachment made over the properties, viz., landmeasuring 1.96 acres and 6.09 acres comprised in S.No.61/4 and59/2 respectively situated in Mela Arasaradi Village inOttapidaram Taluk, Tuticorin District. For Petitioner : Mr.B.Kumar, Senior Counsel For Mr.R.AsokanFor Respondents : Mr.T.Pramodkumar Chopda Standing Counsel for R1 to R4 Mr.M.Swaminathan for R5 Mr.S.Diwakar Special Government Pleader for R6O R D E RHeard Mr.B.Kumar, learned Senior Counsel assisted byMr.R.Asokan, learned counsel appearing for the petitioner;Mr.T.Pramodkumar Chopda, learned Standing Counsel appearing forthe respondents 1 to 4; Mr.M.Swaminathan, learned counselappearing for the fifth respondent and Mr.S.Diwakar, learnedSpecial Government Pleader appearing for the sixth respondent. 2. In this Writ Petition, the petitioner seeks for issuanceof a Writ of Certiorarified Mandamus to quash the order passedby the first respondent, vide proceedings dated 28.06.2016 andto direct the first respondent to lift the attachment made outin the property in question. The impugned order states that theproperty in question was attached towards the demand of incometax in the case of M/s.Feena Petro Products Ltd., represented byits directors Mr.A.S.T.Winston, Mr.A.S.T.Newton, Mr.A.S.T.Miltonand Mr.A.S.T.Silverster. The property in question was theindividual property owned by Mr.A.S.T.Winston, who had purchasedthe same, vide sale deed, dated 06.07.1995. The saidA.S.T.Winston was one of the Directors of M/s.Feena Petro https://hcservices.ecourts.gov.in/hcservices/ Products Ltd., which availed financial assistance from DenaBank. It appears that the property in question, the individualproperty of A.S.T.Winston was offered as collateral to secure aloan transaction of M/s.Feena Petro Products Ltd., with theBank. The borrower defaulted in payment and the Dena Bankinitiated recovery proceedings in O.A.No.136 of 2000 on the fileof the Debt Recovery Tribunal, Chennai. The Bank secured adecree against the Company as well as Mr.A.S.T.Winston in theyear 2000. The property including the subject property wasbrought for sale by the Recovery Officer of the Debt RecoveryTribunal, Chennai. The petitioner participated in the publicauction and was declared as a successful bidder and the sale wasconfirmed in favour of the petitioner on 07.10.2011. On13.10.2011, Sale Certificate was issued, which was registered onthe file of Sub Registrar, Keelur, Tuticorin. 3. The petitioner's case is that the Tax Recovery Officer,Tuticorin, attached the property on 28.01.2013 for arrears ofincome tax payable by Mr.A.S.T.Winston and this notice ofattachment was registered by the Sub Registrar, Keelur,Tuticorin, in his books and when the petitioner applied forencumbrance on 07.04.2015, this attachment effected by the TaxRecovery Officer, Tuticorin was reflected. Therefore, thepetitioner submitted a representation stating that they havepurchased the property through a public auction conducted by theRecovery Officer, DRT, Chennai and as on date of sale, there wasno attachment over the property and to support contention, theyhave produced the copies of the encumbrance certificate for therelevant period. The petitioner prayed for lifting the order ofattachment. This request appears to have not been considered,which prompted the petitioner to approach the Commissioner ofIncome Tax, by representation dated 29.02.2016. Thereafter, thepetitioner approached the first respondent, Tax RecoveryOfficer, Chennai to lift the attachment by representation dated14.04.2016 followed by another representation to theCommissioner on 12.05.2016. The first respondent enquired intothe matter and passed the impugned order stating that theproperties are attached as far back as on 29.02.2000. 4. For the purpose of examining the correctness of the standtaken in the impugned order, it may not be necessary for thisCourt to traverse into the factual allegations set out in thecounter affidavit, as the Court is going to test the correctnessof the impugned order purely on legal grounds. 5. Admittedly, the property was brought for public auctionby the Dena Bank, which was a secured creditor. The questionwould be as to whether crown debts would have precedence overthe debts payable to a secured creditor? This issue is nolonger resintegra and has been answered by the Full Bench of this Court, to which, I was also a party in the case of TheAssistant Commissioner (CT) Vs. The Indian Overseas Bank andanother in W.P.No.2675 of 2011, dated 10.11.2016. For betterappreciation, the order passed is quoted in its entirety:- "The writ petitions have been listed before theFull Bench in pursuance to the reference order inW.P.No.6267 of 2006 and W.P.No.253 of 2011, in respectof the following issues:- ''a) As to whether the Financial Institution,which is a secured creditor, or the department of thegovernment concerned, would have the 'Priority ofCharge' over the mortgaged property in question, withregard to the tax and other dues. b) As to the status and the rights of a thirdparty purchaser of the mortgaged property inquestion.'' 2.We are of the view that if there was at all anydoubt, the same stands resolved by view of theEnforcement of Security Interest and Recovery of DebtsLaws and Miscellaneous Provisions (Amendment) Act,2016, Section 41 of the same seeking to introduceSection 31B in the Principal Act, which reads asunder:- ''31B. Notwithstanding anything contained in anyother law for the time being in force, the rights ofsecured creditors to realise secured debts due andpayable to them by sale of assets over which securityinterest is created, shall have priority and shall bepaid in priority over all other debts and Governmentdues including revenues, taxes, cesses and rates dueto the Central Government, State Government or localauthority. Explanation. - For the purposes of this section,it is hereby clarified that on or after thecommencement of the Insolvency and Bankruptcy Code,2016, in cases where insolvency or bankruptcyproceedings are pending in respect of secured assetsof the borrower, priority to secured creditors inpayment of debt shall be subject to the provisions ofthat Code.'' ''31B. Notwithstanding anything contained in anyother law for the time being in force, the rights ofsecured creditors to realise secured debts due andpayable to them by sale of assets over which securityinterest is created, shall have priority and shall bepaid in priority over all other debts and Governmentdues including revenues, taxes, cesses and rates dueto the Central Government, State Government or localauthority. Explanation. - For the purposes of this section,it is hereby clarified that on or after thecommencement of the Insolvency and Bankruptcy Code,2016, in cases where insolvency or bankruptcyproceedings are pending in respect of secured assetsof the borrower, priority to secured creditors inpayment of debt shall be subject to the provisions ofthat Code.'' 3.There is, thus, no doubt that the rights of asecured creditor to realise secured debts due andpayable by sale of assets over which security interestis created, would have priority over all debts andGovernment dues including revenues, taxes, cesses andrates due to the Central Government, State Governmentor Local Authority. This section introduced in theCentral Act is with ''notwithstanding'' clause and hascome into force from 01.09.2016. 4.The law having now come into force, naturally it would govern the rights of the parties in respect ofeven a lis pending.5.The aforesaid would, thus, answer question (a)in favour of the financial institution, which is asecured creditor having the benefit of the mortgagedproperty. 6.In so far as question (b) is concerned, the sameis stated to relate only to auction sales, which maybe carried out in pursuance to the rights exercised bythe secured creditor having a mortgage of theproperty. This aspect is also covered by theintroduction of Section 31B, as it includes ''secureddebts due and payable to them by sale of assets overwhich security interest is created''.7.We, thus, answer the aforesaid referenceaccordingly. 8.The matters be placed before the roster DivisionBench for dealing with the individual cases." Thus, by applying the decision of the Full Bench referred above,the law having come into force, governs the parties even inrespect of litigations which are pending. Therefore, the IncomeTax Department cannot claim any precedence over the securedcreditor in proceeding against the subject property for therecovery of the income tax arrears in the light of the law laiddown by the Full Bench, which was rendered taking note of therecent enactment viz., the Enforcement of Security Interest andRecovery of Debts Laws and Miscellaneous Provisions (Amendment)Act, 2016. 6. In the light of the above, the Writ Petition is allowedand the impugned order is quashed. The sixth respondent, viz.,the Sub Registrar, Keelur, Tuticorin District is directed todelete the encumbrance which has been entered based upon therequest made by the Tax Recovery Officer and the said directionbe complied with, within a period of three weeks from the dateof receipt of a copy of this order. Needless to state that thisorder will not stand in the way of the Income Tax Departmentfrom proceeding against the defaulter. There is no order as tocosts. //True Copy// Sub Assistant Registrar To 1.The Tax Recovery Officer-2, Corporate Range-2, Income Tax Department, Room No.426, New Block, IV Floor, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Commissioner of Income Tax, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 3.The Additional Commissioner of Income Tax-II, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 4.The Assistant Commissioner of Income Tax, Central Circle-III (2), No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 5.The Recovery Officer-I, Income Tax Office, No.2, V.P.Rathnasmy Nadar Road, Bibikulam, Madurai-625 002. //True Copy// Sub Assistant Registrar To 1.The Tax Recovery Officer-2, Corporate Range-2, Income Tax Department, Room No.426, New Block, IV Floor, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Commissioner of Income Tax, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 3.The Additional Commissioner of Income Tax-II, Corporate Range-2, 15th Floor, Wana Party Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 4.The Assistant Commissioner of Income Tax, Central Circle-III (2), No.121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 5.The Recovery Officer-I, Income Tax Office, No.2, V.P.Rathnasmy Nadar Road, Bibikulam, Madurai-625 002. 6.The Sub-Registrar, Keelur Sub-Registration Office, Keelur, Ottapidaram Taluk, Tuticorin District. +1cc to Mr.T. Pramod Kumar Chopda, Advocate, S.R.No.69868 +2cc to Mr.Ashokan, Advocate, S.R.No.69445 nmi(CO)md(08/12/2016) W.P.No.27240 of 2016