State Bank of Bikaner & Jaipur V.
National Iron & Steel Rolling Corpn. & Ors  INSC 680 (14 December
MANOHAR SUJATA V. (J) MANOHAR SUJATA V. (J)
AGRAWAL, S.C. (J) FAIZAN UDDIN (J)
CITATION: 1995 SCC (2) 19 JT 1995 (2) 14 1994
appellant, namely, the State Bank of Bikaner and Jaipur had given cash credit
facilities to respondent No. 1, National Iron & Steel Rolling Corporation.
Respondents 2 to 5 are the partners of respondent No. 1. As a security for
repayment of the amounts advanced to respondent No.1 by the appellant-bank,
respondent No.1 created a mortgage of their factory premises situated at
Industrial Area Bharatpur by a Deed of Mortgage dated 18.10.1977. They have
also, by a Letter of Promise dated 10.6.81, pledged the plant and machinery
installed in the said premises to the bank as a security for the said advances.
There is also an agreement for the pledge of movable dated 7.1.80 executed by
the first respondent in favour of the appellant-bank.
appellant-bank filed Civil Suit NO. 5/86 in the court of the Additional
District Judge II, Bharatpur against the respondents for the recovery of a sum
of Rs. 3,79,672/- due and payable under the above Case credit facility and for
future interest @ 16.25% p.a. with quarterly rests. In this suit the
appellant-bank also asked for the realisation of the mortgage security under
order 34, Rule 4 of the Code of civil procedure.
the suit was pending, the Commercial Taxes Officer, Bharatpur got himself
impleaded in the suit on 18.5.90 16 on the ground that he had a prior claim for
the recovery of a sum of Rs.1,19,122/- as sales tax dues from respondent No. 1
and was entitled to realize it by sale of the mortgaged property.
property which is the subject-matter of the mortgage has been sold by auction
under the orders of the court for a sum of Rs.4,02,000/- to one Smt. Kamlesh
Under the orders of the court the sale
proceeds have been deposited in court. It was contended by the Commercial Taxes
Officer, Bharatpur that the sales tax dues of the first-respondent were liable
to be paid first out of the sale proceeds. The claim of the appellant-bank
could be satisfied only out of the balance amount. The trial court by its Judgment
and order dated 18.5.90 accepted this claim of the Commercial Taxes Officer.
The Revision Petition of the appellant-bank was dismissed by the High Court by
the impugned judgment and order. Hence this appeal by special leave.
claim of the Commercial Taxes Officer, Bharatpur rests on the provisions of
Section 11-AAAA of the Rajasthan Sales Tax Act, 1954. Section 11-AAAA has been
introduced in the Rajasthan Sales Tax Act, 1954 by way of the an amendment in
1989. Section 1 1 -AAAA is as follows:- 11-AAAA. Liability under this Act to be
the first charge. Notwithstanding anything to the contrary contained in any law
for the time being in force, any amount of tax, penalty, interest and any other
sum, if any, payable by a dealer or any other person under this Act, shall be
the first charge on the property of the dealer, or such person".
Under this Section the amount of a sales tax
or any other sum due and payable by a dealer or any other person under the
Rajasthan Sales Tax Act, 1954, is a first charge on the property of the dealer
or of such person. It is on account of the provisions of this Section that the
Commercial Taxes Officer claimed priority for the recovery of the sales tax
dues from the sale proceeds of the mortgaged property. The appellant, however,
contended that since the mortgage in their favour is prior in point of time,
their claim will have precedence over the claim of the Sales Tax authorities.
is, therefore, necessary to consider the effect of Section 11-AAAA of the
Rajasthan Sales Tax Act, 1954 on an existing mortgage in respect of the
property of the dealer or the person liable to pay sales tax or other sums
under the Rajasthan Sales Tax Act, 1954. Section 100 of the Transfer of
Property Act deals with Charges on an immovable property which can be created
either by an act of parties or by operation of law. It provides that where
immovable property of one person is made security for the payment of money to a
mortgage, a charge is created on the property and all the provisions in the Transfer
of property Act which apply to a simple mortgage shall, so far may be, apply to
such charge. A mortgage on the other hand, is defined under Section 58 of the
Transfer of property Act as a transfer of an interest In specific immovable
property for the purpose of securing the payment of money advanced or to be
advanced as set out therein. The distinction between a mortgage and a charge
was considered by this Court in the case of Dattatreya Shanker Mote and others
v. Anand Chintaman Datar and others (1 974 2 SCC799). The Court has observed
(at pages 17 806-807) that a charge is a wider term as it includes also a
mortgage, in that, every mortgage is a charge, but every charge is not a
mortgage. The Court has then considered the application of the second part of
Section 100 of the Transfer of Property Act which inter alia deals with a
charge not being enforceable against a bona fide transferee of the property for
value without notice of the charge. It has held that the phrase
"transferee of property" refers to the transferee of entire interest
in the property and it does not cover the transfer of only an interest in the
property by way of a mortgage.
the present case we have to consider whether the statutory first charge which
is created under Section II -AAAA of the Rajasthan Sales Tax Act over the
property of the dealer or a person liable to pay sales tax and/or other dues
under the Rajasthan Sales Tax Act, is created in re- spect of the entire
interest in the property or only the mortgagor's interest in the property when
the dealer has created a mortgage on the property. In other words, WI 'II the
statutory first charge have priority over an earlier mortgage. It was urged by
Mi. Tarkunde, learned counsel for the appellant-bank that at the time when the
statutory first charge came into existence, there was already a mortgage in
respect of the same property. Therefore, the only property which was possessed
by the dealer and/or person liable to pay tax or other dues under the Rajasthan
Sales Tax Act, was equity of redemption in respect of the property. The first
charge would operate, therefore, only on the equity of redemption. The argument
though ingenious, will have to be rejected. Where a mortgage is created in
respect of any property, undoubtedly, an interest in the property is carved out
in favour of the mortgagee. The mortgagor is entitled to redeem his property on
payment of the mortgage dues. This does not, however, means that the property
ceases to be the property of the mortgagor. The title to the property remains
with the mortgagor.
Therefore, when a statutory first charge is
created on the property of the dealer, the property subjected to the first
charge is entire property of the dealer. The interest of the mortgagee is not
excluded from the first charge. The first charge, therefore, which is created
under Section II -AAAA of the Rajasthan Sales Tax Act will operate on the
property as a whole and not only on the equity of redemption as urged by Mr.
find support for this conclusion in the observations made in Fisher and
Lightwood's Law of Mortgage, 10th Edn. at page 33 where the statutory charges
are discussed. In dealing with a statutory charge in favour of rating authori-
ties in respect of rating surcharges for unused commercial buildings under the
General Rate Act, 1967, it is stated that "a statutory charge has priority
to the interest of the mortgagee under a mortgagee existing when the charge
In the case of Westminister City Council v.
Haymarket Publishing Ltd. (1981 2 AER 555), the English Court of Appeals was
required to consider whether a statutory charge on the property under the
General Rate Act would have priority over a legal mortgage on the property
existing when the charge came into being. It was argued that the charge would
be only on the mortgagor-owner's interest in the property i.e. on the equity of
redemption. The court negatived this contention. It held that "charge on
the land" imposed for an unpaid surcharge was not confined to a charge on
the 18 owner's interest in the premises when the charge arose, but extended to
a charge on all the estates and interests in the premises existing when the
charge arose. The rating authority's charge would have priority over the bank's
interest as a mortgagee.
the present case, the section creates a first charge on the property, thus
clearly giving priority to the statutory charge over all other charges on the
property including a mortgagee. The submission, therefore, that the statutory
first charge created by Section 11-AAAA of the Rajasthan Sales Tax Act can
operate only over the equity of redemption, cannot be accepted. The charge
operates on the entire property of the dealer including the interest of the
at a little differently, the statute has created a first charge on the property
of the dealer. What is meant by a "first charge"? Does it have
precedence over an earlier mortgage? Now, as set out in Dattatreya Shanker Mote
's case (supra), a Charge is a Wider term than a mortgage. It would cover
within its ambit a mortgage also.
Therefore, when a first charge is created by
operation of law over any property, that charge will have precedence over an
other contention has been urged before us. We, therefore, agree with the
conclusion arrived at by the High Court. The appeal is, therefore, dismissed.
In the circumstances, however, there, will be no order as to costs.