State Bank Of India,Stressed Assets Management Branch,Red Cross Building,Montieth Road,Egmore,Chennai – 600 008 v. The Tax Recovery Officer, Income Tax Department, Government Of India, D.p.thottam, Muthialpet, Pondicherry – 605 003

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 20-01-2022 CORAM THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM WP No.6686 of 2016AndWMP No.5922 of 2016 State Bank of India,Stressed Assets Management Branch,Red Cross Building,Montieth Road,Egmore,Chennai – 600 008...Petitioner vs. 1.The Tax Recovery Officer, Income Tax Department, Government of India, D.P.Thottam, Muthialpet, Pondicherry – 605 003. 2.The Sub Registrar of Puducherry, Government of Puducherry, Puducherry. Government of Puducherry, Puducherry. 3.Smt.Devaki Thirunavakkarasu.. Respondents Writ Petition is filed under Article 226 ofthe Constitution of India, praying for the issuance of a Writ ofCertiorari, calling for the records of the impugnedcommunication of the first respondent in TRC No.593 and 708dated 29.01.2016, reiterating the order of attachment in ITCP-16dated 10.12.2015 attaching the properties of the thirdrespondent in derogation of the rights of the petitioner and toquash the same, being arbitrary, non-considerable, derogation ofthe statutory provisions and being against the principal ofnatural justice and fair play. For Petitioner : Mr.E.Om.Prakash, Senior Counsel for Mr.P.Elaya Rajkumar for https://hcservices.ecourts.gov.in/hcservices/ M/s.Ramalingam and Associates. For Respondent-1 : Mr.A.P.Srinivas, Senior Standing Counsel for Income Tax Department. For Respondents-2 and 3 : No Appearance O R D E R The order issued by the Tax RecoveryOfficer, Income Tax Department in proceedings dated 29.01.2016,is under challenge in the present writ petition. 2. The order impugned states that thesubject property belongs to the third respondent was alreadyattached by the Income Tax Authorities and therefore, anysubsequent mortgagee with the Bank is void under the provisionsof the Income Tax Act. 3.The said actions of the Income TaxDepartment is under challenge by the State Bank of India mainlyon the ground that they hold the priority charge as the validmortgage was executed by the petitioner-State Bank of India andunder the provisions of the Debt Recovery Act and SARFAESI Act,the Bank holds the priority and therefore, the Income TaxDepartment has no authority to pass such an order affecting therights of the Bank in respect of the subject property undermortgage. 4.The dispute arose between the StateBank of India and the first respondent-Tax Recovery Officer,when the second respondent refused to register the SaleCertificate dated 12.01.2016 issued under the SARFAESI Act, onthe ground that the subject property being vacant plot bearingPlot No.39, “FLOS CARMELI”, Layout, Carmel Convent, Muthiyalpet,Village No.40, Pondicherry Revenue Village, comprised inR.S.No.4/1, measuring an extent 6055 sq. ft., covered by Doc.No.7359/2011, among other properties, is attached by the firstrespondent-Tax Recovery Officer for the alleged tax dues of thethird respondent and the said attachment is recorded in theBooks of the second respondent. 5.The petitioner had issued the SaleCertificate dated 12.01.2016 in terms of the auction sale heldon 18.12.2015 and pursuant to the E-Auction Sale Notice dated07.11.2015 issued under the provisions of the SARFAESI Act. Thepetitioner therefore seeks to quash the communication of thefirst respondent dated 29.01.2016. 5.The petitioner had issued the SaleCertificate dated 12.01.2016 in terms of the auction sale heldon 18.12.2015 and pursuant to the E-Auction Sale Notice dated07.11.2015 issued under the provisions of the SARFAESI Act. Thepetitioner therefore seeks to quash the communication of thefirst respondent dated 29.01.2016. 6.The third respondent is the SoleProprietrix of M/s.Devaki Agencies had availed the creditfacilities from the State Bank of India, SME Branch, Puducherryfor the business development. The said facilities were availedagainst specific securities created including mortgage ofvarious immovable properties owned by the third respondent. Thethird respondent also extended the mortgage of the saidproperties to secure the facilities availed by the differentbusiness concerns of her family, namely (1) Devaki Traders, (2)Devaki Steels, (3) Devaki Steels and Cements, and (4) DevakiCement Agencies. 7. The credit facilities availed by thesaid concerns are secured by the mortgage of immovableproperties of the third respondent. The equitable mortgages socreated were also confirmed by execution of separate Memorandumsrelating to deposit of title deeds and the same were alsoregistered on the file of the second respondent, confirming theequitable mortgage for the total credit facilities availed bythe family concerns of the third respondent. 8. The petitioner-State Bank of Indiafurnished tabulations providing details of various immovableproperties owned by the third respondent, which are mortgaged inthe petitioner to secure various credit facilities availed bythe third respondent and also the other family concerns. 9. In this context, the learned SeniorCounsel appearing on behalf of the petitioner reiterated thatthe claim of the fourth respondent for priority against theassets of the third respondent for the alleged income taxarrears does not have any statutory sanction and as such theaction of the first respondent in interfering with the right ofthe petitioner to proceed against the mortgaged assets under theprovisions of the SARFAESI Act, is illegal, arbitrary andunsustainable in law. 10. It is contended that the impugnedorder passed by the first respondent is contrary to theprovisions of the enactment, more particularly, the rightsvested on the petitioner-Bank under the Special Statute torecover their dues as a secured creditor and hence the impugnedcommunication is liable to be set aside. When tax arrears underthe Income Tax Act do not constitute a priority on the assets ofthe defaulter by a statutory recognition and therefore, cannotdefeat the rights of the secured creditor in whose favour theinterest has been created over the said properties, even priorto the attachment of the properties. It is contended by thepetitioner that the attachment said to have been made in ITCP-16is only on 10.12.2015, whereas even earlier to the same, the third respondent had created mortgages over her variousimmovable properties in favour of the State Bank of India, SMEBranch, Puducherry and therefore, the petitioner-Bank isentitled to enforce the said mortgage for the recovery of hugeoutstanding dues. 11. The petitioner-Bank, in exercise oftheir right under the SARFAESI Act and, after compliance withall the statutory provisions had in fact issued an E-AuctionSale Notice dated 07.11.2015, bringing the properties of thethird respondent as well as the other family members for auctionsale, scheduled on 18.12.2015. third respondent had created mortgages over her variousimmovable properties in favour of the State Bank of India, SMEBranch, Puducherry and therefore, the petitioner-Bank isentitled to enforce the said mortgage for the recovery of hugeoutstanding dues. 11. The petitioner-Bank, in exercise oftheir right under the SARFAESI Act and, after compliance withall the statutory provisions had in fact issued an E-AuctionSale Notice dated 07.11.2015, bringing the properties of thethird respondent as well as the other family members for auctionsale, scheduled on 18.12.2015. 12. Relying on these facts andcircumstances, the learned Senior Counsel for the petitionerreiterated that this Court in the case of State Bank of India,Stressed Assets Management Branch, represented by its AssistantGeneral Manager vs. Assistant Commissioner of Income Tax AndAnother , wherein this Court held that theimpugned notice issued by the Income Tax Department cannot beenforced in that particular case. 13. In the case of Corporation Bank vs.Commissioner of Income Tax Department ,wherein this Court, in paragraph-28 of its judgment held asunder:- "28. Incidentally, at the timewhen the above decision was rendered, Section26E of the SARFAESI Act had not beennotified, prompting the Bench to state atparagraph 6 of that decision (of the SCConline report) that the issue before themcould have been resolved in a trice, had onlythe provisions of Section 26E of the Act,been notified at the time when the decisionwas being rendered. The provisions of Section26E of the Act, have since been notified on24.01.2020 and the benefit of the same isavailable for the present Writ Petitioners." 14.The learned Senior Standing Counsel appearing on behalf of the first respondent-Tax Recovery Officerobjected the contentions raised on behalf of the petitioner bystating that no doubt certain cases are decided in favour of theBank by this Court and even in those cases, the facts aredistinguishable. 15. Section 281 of the Income Tax Act isunambiguous. Any mortgage entered into between the parties,after initiation of the action by the Income Tax Department for https://hcservices.ecourts.gov.in/hcservices/ recovery of arrears, then such mortgages are void and cannot bea valid execution in the eye of law. The said statutoryprovision under the Income Tax Department, empowers theauthorities to initiate action in such circumstances. 16. This apart, in the event ofestablishing that the mortgage was prior to the initiation ofaction by the Income Tax Department, prior to the default of theAssessee under the Income Tax Department, then the Bank mayclaim right over such mortgages. However, in order to ascertainthe clear facts and circumstances, an enquiry is to be conductedby the Tax Recovery Officer. Therefore under Rule 11 of ScheduleII of the Income Tax Act, the petitioner-Bank has to approachthe Tax Recovery Officer for adjudication of the facts, so as toform an opinion whether the petitioner-Bank is entitled toenforce their rights or not. 17. It is not as if in every case, Bankcan enforce their rights only under the SARFAESI Act, withoutreference to the provisions of the Income Tax Act. When suchconflict arises, the priority to be considered has beenelaborately considered by this Court and detailed findings areprovided in the judgment dated 19.07.2021 in WP No.15437 of2014. The right of priority and adjudication of facts, which allare required and the issues involved are elaborately discussedand the parties were given an opportunity to approach the TaxRecovery Officer by filing an appropriate application underSchedule II of Rule 11 of the Income Tax Act. 17. It is not as if in every case, Bankcan enforce their rights only under the SARFAESI Act, withoutreference to the provisions of the Income Tax Act. When suchconflict arises, the priority to be considered has beenelaborately considered by this Court and detailed findings areprovided in the judgment dated 19.07.2021 in WP No.15437 of2014. The right of priority and adjudication of facts, which allare required and the issues involved are elaborately discussedand the parties were given an opportunity to approach the TaxRecovery Officer by filing an appropriate application underSchedule II of Rule 11 of the Income Tax Act. 18. Therefore, the said principle, whichis being followed by this Court, is to be adopted in the presentcase, as the first respondent-Tax Recovery Officer made afinding in the impugned order itself that the attachment ofimmovable property made on 10.12.2015 would relate back to01.03.2013. It has come to the knowledge of the Tax RecoveryOfficer that the defaulter has mortgaged the subject propertywith the petitioner-Bank and the same was registered on04.04.2013. Thus, the first respondent-Tax Recovery Officerformed an opinion that the attachment date precedes the mortgagedate and hence the mortgage of the subject property and transferof the subject property is void under the provisions of theIncome Tax Act. 19. This Court in the case of JanataSahakari Bank Ltd vs. Tax Recovery Officer VII, Income TaxDepartment, Chennai-34 {MANU/TN/5263/2021] elaboratelyconsidered the issues as follows:-“ANALYSIS: 30.Let us now consider the scope ofSection 281 of the Income Tax Act. Chapter XXIII Section 281 of the Income Tax Actcontemplates certain transfers to be void.Sub-clause (1) enumerates that “where,during the pendency of any proceeding underthis Act or after the completion thereof,but before the service of notice under rule2 of the Second Schedule, any assesseecreates a charge on, or parts with thepossession (by way of sale, mortgage, gift,exchange or any other mode of transferwhatsoever) of, any of his assets in favourof any other person, such charge or transfershall be void as against any claim inrespect of any tax or any other sum payableby the assessee as a result of thecompletion of the said proceeding orotherwise". A close reading of the aboveprovision would reveal that where during thependency of any proceedings under this Actor after the completion thereof, but beforeservice of notice under rule 2 of the SecondSchedule, if any charge is created by anassessee in favour of any other person shallbe void as against any claim in respect ofany tax or any other some payable by theassessee. Therefore, it is unambiguous that,during pendency of the proceedings if anycharge is created, then such charge createdby way of sale, mortgage, gift, exchange orany other mode of transfer whatsoever shallbe void. 31.Schedule II Rule 11 of the IncomeTax Act which contemplates investigation byTax Recovery Officer. Sub-Clause (1) to Rule11 states that "where any claim is preferredto, or any objection is made to theattachment or sale of, any property inexecution of a certificate, on the groundthat such property is not liable to suchattachment or sale, the Tax Recovery Officershall proceed to investigate the claim orobjection". 32.Sub-clauses (5) and(6) to Rule 11 of the Income Tax Act readsas under: (5) Where the Tax Recovery Officeris satisfied that the property was, at thesaid date, in the possession of thedefaulter as his own property and not onaccount of any other person, or was in thepossession of some other person in trust forhim, or in the occupancy of a tenant or other person paying rent to him, the TaxRecovery Officer shall disallow the claim.(6) Where a claim or an objection ispreferred, the party against whom an orderis made may institute a suit in a civilcourt to establish the right which he claimsto the property in dispute; but, subject, tothe result of such suit (if any), the orderof the Tax Recovery Officer shall beconclusive. 33.A perusal of the entire Rule wouldreveal that it is not an appeal or Revision.It is an investigation by the Tax RecoveryOfficer, which is contemplated. Therefore,any third person if involved in suchtransfer of property, which is declared asvoid under Section 281 of the Income Tax Actmay submit an application for investigationby Tax Recovery Officer. Therefore, thestatute does not assume that every thirdperson is liable under the Income Tax Act.Schedule II Rule 11 of the Income Tax Act isa beneficial provision in respect of theperson, who was otherwise cheated by any ofthe defaulter of tax arrears, who in turncan submit an application for furtherinvestigation in order to cull out the truthor genuinity with reference to thetransactions or transfers. Therefore, theTax Recovery Officer during the pendencyfound that the charge created in favour ofthe petitioner Bank is valid, then he canpass appropriate orders withdrawing theattachment made under the provisions of theAct. If the Tax Recovery Officer is of anopinion that the attachment made under theprovisions of the Act was prior to themortgage or otherwise, then he can passappropriateordersconfirmingtheattachment. However, the said Rule is notrelatable to declaration or in the form ofan appeal by any third person. It is only anenablingprovisionforeffectiveadjudication of the actual facts and to findout the genuinity of certain transfers madeduring the pendency of the Income taxproceedings and with reference to theprovision under Section 281 of the IncomeTax Act. 34.Looking into theprovisions of the SARFAESI Act, more specifically,Section26E,whichcontemplates priority to secured creditorswhich reads that "notwithstanding anythingcontained in any other law for the timebeing in force, after the registration ofsecurity interest, the debts due to anySecured Creditor shall be paid in priorityover all other debts and all revenues,taxes, cesses and other rates payable to theCentral Government of State Government orlocal authority". 35.Let us now consider Section 31B ofthe Recovery of Debts and Bunkruptcy Act,1993 and the said section Section 31B wasinserted by Act 44 of 2016 with effect from01.09.2016. The said provision also dealswith priority to secured creditors, whichreadsthat"notwithstandinganythingcontained in any other law for the timebeing in force, the rights of securedcreditors to realise secured debts due andpayable to them by sale of assets over whichsecurity interest is created, shall havepriority and shall be paid in priority overall other debts and Government duesincluding revenues, taxes, cesses and ratesdue to the Central Government, StateGovernment or local authority". 36.It is necessary to consider theconflicting provisions of the Income TaxAct, SARFAESI Act and Recovery of Debts andBunkruptcy Act, 1993. 37.On the one hand,the Income Tax Act states that, where duringthe pendency of any proceedings under theIncome Tax Act or after completion thereof,any assessee creates a charge on or partswith the possession by way of mortgage,sale, etc. Shall be void against any claimin respect of any tax. So also, the SARFAESIAct states that Section 26E contemplatesthat the secured creditors shall be paid inpriority over all other debts and allrevenues, taxes, cesses and other ratespayable to the Central Government of StateGovernment or local authority. Therefore,equal weightage is given in respect of thesecured creditors. So also Section 31B ofRecovery of Debts and Bunkruptcy Act, 1993states that sale of assets over whichsecurity interest is created, shall have priority and shall be paid in priority overall other debts and Government duesincluding revenues, taxes, cesses and ratesdue to the Central Government, StateGovernment or local authority. 38.Thus, conflicting provisions inthese three independent statutes arecreating heart burning issues between thesecured creditors as well as the TaxDepartment. Some of the decisions are infavour of the Tax Department and some of thedecisions are in favour of the Banks. Withreference to Section 26E of the SARFAESI Actand Section 31B of the Recovery of Debts andBankruptcy Act, 1993, judgments are given infavour of the Banks in view of the fact thatthe said provisions contemplates priorityover the Government dues is to be given tothe Banks. The tenor of Section 281 of theIncome Tax Act which contemplates that anysuch transaction made during the pendency ofany proceedings under the Income Tax Actshall be void. Thus, the understanding wouldbe that if the proceedings under the IncomeTax Act are pending at the time of creatingmortgage, sale, gift, etc., then Section 281of the Income Tax Act would be pressed intooperation. The next question is at the timeof creation of mortgage, sale, gift etc.,the Income Tax Proceedings are pending ascontemplated under Section 281 of the IncomeTax Act, such transactions became void.Thus, it is unambiguous that thetransactions or transfers made during thependency of the Income tax proceedings arevoid.Thisbeingthepurposiveinterpretation to be adopted, all transfers,mortgages etc., made during the pendency ofthe Income tax proceedings shall became voidunder Section 281 of the Income Tax Act.Once Section 281 of the Income Tax Act waspressed into service and the transactions ortransfers became void, any mortgage,transfer etc., thereafter would be of novalidity. In other words, the transfer ortransactionsmadeagainstthevoidtransactions under the Income Tax Act areinvalid in the eye of law. Therefore, evenbefore invoking the provisions of theSARFAESI Act and DRT Act, Section 281 of the Income Tax Act intervenes and declares thetransactions or transfers as void, if anysuch transactions or transfers are madeduring the pendency of the Income Taxproceedings. In such circumstances, invokingthe provisions of the SARFAESI Act or DRTAct for the purpose of claiming prioritywould not arise at all. Law expects that theparties to be prudent and careful. Beforemortgage, transfer or transactions, anenquiry is required by the respectiveparties as the buyer must beware (caveatemptor) of the encumbrances or the statutoryimplications or the genuinity of the titleetc., Thus, the principles of caveat emptorwould be applicable in such circumstances,where a transactions or transfers are madeduring the pendency of the Income taxproceedings. In such cases, the Income taxproceedings are known only to the taxdefaulter and not to the third partypurchaser or the mortgagee Bank orotherwise. Thus, the void transfers ortransactions made during the pendency of theIncome tax proceedings cannot be the subjectmatter for any mortgage or further transfersor transactions etc., This being thepossible perceptions, the Courts are boundto consider, which transaction will prevailover and which Act would be applicable withreference to the facts and circumstances. 39.More elaborately the facts at thefirst instance to be considered and then theapplication of law which is to be applied atthe first instance also to be considered.For instance in the case where the incometax proceedings are pending under the IncomeTax Act and if a mortgage is entered into bythe tax defaulter with any Bank, then it isthe duty of the Bank to ensure that no otherproceedings are pending and it is the dutyof the person who is borrowing loan toinform the same to the Bankers. Under thesecircumstances, the Income Tax Department isalien to the transaction of mortgage betweenthe bank and the tax defaulter andtherefore, the Act will automatically cometo the rescue of the Income Tax Departmentdeclaring such transfers as void underSection 281 of the Income Tax Act. 40.Where the Bank entered into amortgage well before the pendency ofproceedings under the Income Tax Act, thenSection 26E of the SARFAESI Act would beapplicable and in such circumstances, theBank will hold priority over all other claimincluding the Government dues. Even in suchcircumstances, this Court has to considerthe other principles which all are to befollowed in such cases. Admittedly, theSARFAESI Act and Recovery of Debts andBunkruptcy Act, 1993 provides priority tothe secured creditors and the Income Tax Actprovides priority to the tax arrears to berecovered. Under these circumstances, thisCourt is inclined to consider the common lawDoctrine of priority of crown debts. 40.Where the Bank entered into amortgage well before the pendency ofproceedings under the Income Tax Act, thenSection 26E of the SARFAESI Act would beapplicable and in such circumstances, theBank will hold priority over all other claimincluding the Government dues. Even in suchcircumstances, this Court has to considerthe other principles which all are to befollowed in such cases. Admittedly, theSARFAESI Act and Recovery of Debts andBunkruptcy Act, 1993 provides priority tothe secured creditors and the Income Tax Actprovides priority to the tax arrears to berecovered. Under these circumstances, thisCourt is inclined to consider the common lawDoctrine of priority of crown debts. 41.The “doctrine of constitutionalpriority” will have precedence over theother priorities. If the priority clause isprovided under various enactments, thequestion arises as to which priority is tobe held precedence over the otherpriorities. The test of traceability andrecognitionundertheconstitutionalprovisions would be the proper procedure toform an opinion. 42.In the present scenario, theSARFAESI Act and the DRT Act providespriority to secured creditors, i.e. thebanks hold priority. The Income Tax Actcontemplates any such mortgage or saleduring the pendency of any proceedings underthe Income Tax Act shall be void. Thus, thisCourt has to test the supremacy on the basisof the constitutional recognition, which issupreme than the statutes enacted under theconstitution. The taxation laws areconstitutionally recognised with referenceto the sovereignty and the policies of theGovernment. Thus the supremacy of theConstitution overtakes the statutes enactedandsuchenactmentsconstitutionallyrecognised directly takes precedence overthe other statutes. 43.The principles of'doctrine of constitutional priority' is tobe defined as, in the event of the similarprovisions of priority under variousenactments, then the statute which isrecognised directly by the Constitution for the purpose of upholding the sovereignty andintegrity of the Nation is to be consideredas holding precedence over the otherstatutes providing priority. 44.The Constitutional Bench of theHon'ble Supreme Court of India in the caseof Builders Supply Corporation vs. Union ofIndia [1965 AIR 1061] considered theprinciples laid down in the case of KakaMohamed Ghouse Sahib and Co. vs. UnitedCommercial Syndicate and others [(1886) ILR7 Mad. 434], wherein the Madras High Courthas held that it is a settled principle ofconstitutional law that as between creditorsof the same rank the Government is entitledto priority and the republican character ofthe Constitution of India has not abrogatedthis general doctrine of priority of Statedebts. In dealing with this question,Justice Ramamurti has referred to therelevant decisions in relation to thearrears of income tax due to the Governmentand has pointed out there is a consensus ofjudicial opinion on the question that thearrears of tax due to the State can claimpriority over private debts. This positionhas not been seriously disputed. 45.Similarly, the basic justification forthe claim of priority made by the Income TaxDepartment in the present case rests on thewell recognised principle that the State isentitled to raise money by taxation, becauseunless adequate revenue is received by theState, it would not be able to function assovereign Government at all. It is essentialthat as a sovereign the Sate should be ableto discharge its primary governmentalfunctions and in order to able to dischargesuch functions efficiently, it must be inpossession of necessary funds and thisconsideration emphasises the necessity andthe wisdom of conceding to the State, theright to claim priority in respect of itstax dues. 46.In this context, Part XII of theConstitution of India, more specifically,Article 265 which states that tax not to beimposed save by authority of law; Article266 speaks about Consolidated funds andpublic accounts of India and the States; Article 267 states Contingency fund; Article268 states Duties levied by the Union butcollected and appropriated by the States;Article 268A denotes service tax levied byUnion and collected and appropriated by theUnion and the States; Article 269 statestaxes levied and collected by the Union butassigned to the States; Article 269A denoteslevy and collection of goods and service taxin course of inter-state trade or commerceand Article 270 states that taxes levied anddistributed between the Union and theStates. The chapter deals with the taxes andits constitutional importance are to beconsidered by this Court. Undoubtedly, taxis the backbone of our Nation's economy andit holds top priority. In this context, thetax collected goes to the welfare of thepeople in general, however the mortgage orsale transaction between the bank and thetax defaulter can be at no circumstances becompared with the constitutional importanceof tax being collected from the people forthe purpose of achieving the constitutionalgoals and perspectives. Therefore, theprovisions of various Acts if there areconflicting provisions or grant of prioritytovariousinstitutions,thentheConstitution of India will be the guidingfactor to form an opinion and conferpriority. The nature of transaction, theimplications, Constitutional importance andthe other principles enunciated under theConstitution of India are the principalfactors to be considered to form an opinionthat, which claim shall be given priorityover the other claims as various statutesenacted by the Parliament gives priority tosuch institutions irrespective of the factthat the other Acts are also providingsimilar priority to other institutions. 47.In support of the saidobservation, this Court would like to drawthe attention with reference to the judgmentof the Three Judges Bench of the Hon'bleSupreme Court of India in the case ofCentral Bank of India vs. State of Keralaand others [Civil Appeal No.95 of 2005 dated27.02.2009], wherein the Apex Courtconsidered the provisions of the DRT Act and SARFAESI Act and the following observationsare made: SARFAESI Act and the following observationsare made: “33.The non obstante clauses containedin Section 34(1) of the DRT Act and Section35 of the Securitisation Act give overridingeffect to the provisions of those Acts onlyif there is anything inconsistent containedin any other law or instrument having effectby virtue of any other law. In other words,if there is no provision in the otherenactments which are inconsistent with theDRT Act or Securitisation Act, theprovisions contained in those Acts cannotoverride other legislations. Section 38C ofthe Bombay Act and Section 26B of the KeralaAct also contain non obstante clauses andgive statutory recognition to the priorityof State's charge over other debts, whichwas recognized by Indian High Courts evenbefore 1950. In other words, these sectionsand similar provisions contained in otherState legislations not only create firstcharge on the property of the dealer or anyother person liable to pay sales tax, etc.but also give them overriding effect overother laws. In Builders Supply Corporationv. Union of India [(1965) 2 SCR 289], theConstitution Bench considered the questionwhether tax payable to the Union of Indiahas priority over other debts. After makinga reference to the judgments of the BombayHigh Court in Bank of India v. John Bowmanand Ors., [AIR 1955 Bom. 305], Madras HighCourt in Kaka Mohammad Ghouse Sahib & Co. v.United Commercial Syndicate and others[(1963) 49 I.T.R. 25] and Manickam Chettiarv. Income-tax Officer, Madura, [(1938) 6 ITR180], the Court held : (i) "The Common Lawdoctrine of the priority of Crown debts hada wide sweep but the question in the presentappeal was the narrow one whether the Unionof India was entitled to claim that therecovery of the amount of tax due to it froma citizen must take precedence and priorityover unsecured debts due from the saidcitizen to his other private creditors. Theweight of authority in India was strongly insupport of the priority of tax dues. (ii)The Common Law doctrine on which the Unionof India based its claim in the present proceedings had been applied and upheld inthat part of India which was known as`British India' prior to the Constitution.The rules of Common Law relating tosubstantive rights which had been adopted bythis country and enforced by judicialdecisions, amount to `law in force' in theterritory of India at the relevant timewithin the meaning of Art. 372(1). In thatview of the matter, the contention of theappellant that after the Constitution wasadopted the position of the Union of Indiain regard to its claim for priority in thepresent proceedings had been alerted couldnot be upheld. (iii) The basic justificationfor the claim for priority of Governmentdebts rests on the well-recognised principlethat the State is entitled to raise money bytaxation, otherwise it will not be able tofunction as a sovereign government at all.This consideration emphasizes the necessityand wisdom of conceding to the State theright to claim priority in respect of itstax dues." 34. In State Bank of Bikaner andJaipur v. National Iron and Steel RollingCorporation and others [(1995) 2 SCC 19],the Court again recognized the priority ofthe State's statutory first charge underSection 11-AAAA of the Rajasthan Sales TaxAct, 1954 vis-`-vis claim of the bank torecover its dues from the borrower. 35. InDena Bank v. Bhikhabhai Prabhudas Parekh &Co. and others [(2000) 5 SCC 694], the Courtreviewed case law on the subject andobserved: "The principle of priority ofgovernment debts is founded on the rule ofnecessity and of public policy. The basicjustification for the claim for priority ofState debts rests on the well-recognisedprinciple that the State is entitled toraise money by taxation because unlessadequate revenue is received by the State,it would not be able to function as asovereign Government at all. It is essentialthat as a sovereign, the State should beable to discharge its primary governmentalfunctions and in order to be able todischarge such functions efficiently, itmust be in possession of necessary funds andthis consideration emphasises the necessity and the wisdom of conceding to the State,the right to claim priority in respect ofits tax dues (see Builders Supply Corpn.).In the same case the Constitution Bench hasnoticed a consensus of judicial opinion thatthe arrears of tax due to the State canclaim priority over private debts and thatthis rule of common law amounts to law inforce in the territory of British India atthe relevant time within the meaning ofArticle 372(1) of the Constitution of Indiaand therefore continues to be in forcethereafter. On the very principle on whichthe rule is founded, the priority would beavailable only to such debts as are incurredby the subjects of the Crown by reference tothe State's sovereign power of compulsoryexaction and would not extend to charges forcommercial services or obligation incurredby the subjects to the State pursuant tocommercial transactions. Having reviewed theavailable judicial pronouncements theirLordships have summed up the law as under:1. There is a consensus of judicialopinion that the arrears of tax due to theState can claim priority over private debts.2. The common law doctrine aboutpriority of Crown debts which was recognisedby Indian High Courts prior to 1950constitutes "law in force" within themeaning of Article 372(1) and continues tobe in force. 3. The basic justification for theclaim for priority of State debts is therule of necessity and the wisdom ofconceding to the State the right to claimpriority in respect of its tax dues. 4. The doctrine may not apply inrespect of debts due to the State if theyare contracted by citizens in relation tocommercialactivitieswhichmaybeundertaken by the State for achieving socio-economic good. In other words, where thewelfare State enters into commercial fieldswhich cannot be regarded as an essential andintegral part of the basic governmentfunctions of the State and seeks to recoverdebts from its debtors arising out of suchcommercial activities the applicability ofthe doctrine of priority shall be open for consideration." 48.One of the principles, which isimpressive in the judgment cited supra isthat the basic justification for the claimfor priority of Government dues rests on thewell recognized principles that the State isentitled to raise money by taxationotherwise it will not be able to function assovereignGovernmentatall.Thisconsideration emphasises the necessity andwisdom of conceding to the State, the rightto claim priority in respect of its taxdues. The importance of the above reading isto be considered regarding the present factsand circumstances. 49.Let us consider the dispute raisedin the present case. The Income TaxDepartment in their counter affidavit hadstated that the assessee defaulter is inarrears to the tune of Rs.34,52,12,985/-.The demands were raised by the Income TaxDepartment prior to 31.03.1999, the date ofmortgage to the petitioner bank. The IncomeTax Department in other words claims thatthe proceedings under the Income Tax Act waspending even before the date of mortgage.The petitioner relying on the encumbrancecertificate issued by the RegistrationDepartment of the State contends that theattachment is made after the mortgage by thepetitioner bank. However, Section 281 of theIncome Tax Act unambiguously states thatduring the pendency of any proceedings underthe Income Tax Act. Thus, pendency of anyproceedings is sufficient to treat any othertransfer/mortgage as void. 50. Thus, the mortgages, transactionsor transfers are made during the pendency ofthe Income Tax proceedings, then all suchtransfers, mortgages, transactions are voidunder Section 281 of the Income Tax Act andany such mortgage or attachment made by theBank during the pendency of the Income taxproceedings, cannot be a ground to claimpriority based on the provisions of theSARFAESI Act or DRT Act. 50. Thus, the mortgages, transactionsor transfers are made during the pendency ofthe Income Tax proceedings, then all suchtransfers, mortgages, transactions are voidunder Section 281 of the Income Tax Act andany such mortgage or attachment made by theBank during the pendency of the Income taxproceedings, cannot be a ground to claimpriority based on the provisions of theSARFAESI Act or DRT Act. 51. The disputed factors cannot beadjudicated by the High Court under Article226 of the Constitution of India and it isfor the petitioner to establish the details regarding the mortgage and the pendency ofIncome tax proceedings under the Income TaxAct. It is for the petitioners to producethe documents in original and adjudicate thesame in the manner prescribed under ScheduleII Rule 11 of the Income Tax Act. Thus, itwould be improper to form an opinionregarding the disputed facts between theparties to the lis in the present case,which requires adjudication of facts basedon the documents and evidences. High Courtcannot conclude the disputed facts merelybased on the affidavits and counteraffidavits filed by the parties in a writproceedings. However, this Court cannotconclude that the petitioner Bank holdspriority over the Income tax arrears due tothe Income Tax Department. The principleselaborately considered and discussed in theaforementioned paragraph would highlight theconstitutional importance, which all are tobe considered to grant priority to theinstitutions. Thus, this Court is inclinedto pass the following orders: (1) The reliefas such sought for in the present writpetition stands rejected. (2) The petitioneris at liberty to approach the Tax RecoveryOfficer by filing an appropriate applicationunder Schedule II, Rule 11 of the Income TaxAct. In the event of filing any suchapplication, the Tax Recovery Officer isdirected to investigate the same withreference to the original documents and passappropriate orders as expeditiously aspossible. 52. With these directions, the writpetition stands disposed of. No costs.Consequently,connectedmiscellaneouspetition is closed.” 20.In view of the principles elaboratelyconsidered in the judgment cited supra, the petitioner-Bank inthe present case, is at liberty to approach the firstrespondent-Tax Recovery Officer by filing an appropriateapplication under Schedule II, Rule 11 of the Income Tax Act. Inthe event of filing any such application, the Tax RecoveryOfficer is directed to investigate the same with reference tothe original documents and evidences and pass appropriate ordersas expeditiously as possible. 21. With the abovesaid liberty, the writ petition standsdisposed of. However, there shall be no order as to costs.Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar(CS-V) //True Copy// Sub Assistant Registrar SvnTo 1.The Tax Recovery Officer, Income Tax Department, Government of India, D.P.Thottam, Muthialpet, Pondicherry – 605 003.2.The Sub Registrar of Puducherry, Government of Puducherry,Puducherry. 3.State Bank of India, Stressed Assets Management Branch, Red Cross Building, Montieth Road, Egmore,Chennai – 600 008. +2cc to Mr.Ramalingam & Associates, Advocate, S.R.No.3664+1cc to Mr.A.P.Srinivas, Advocate, S.R.No.3481 PMK(CO)CB(01/02/2022) WP 6686 of 2016