State of Bank Bikaner & Jaipur Vs.
National Iron & Steel Rolling Corporation & Ors  Insc 682 (14
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
The Judgment of the Court was delivered by
SUJATA V MANOHAR, J.-
appellant, namely, the State Bank of Bikaner and Jaipur had given cash credit
facilities to Respondent 1, National Iron and Steel Rolling Corporation.
Respondents 2 to 5 are the partners of Respondent 1. As a security for
repayment of the amounts advanced to Respondent 1 by the appellant-bank,
Respondent 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 10-6-1981, 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 movables dated 7-1-1980 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 cash 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 18-5-1990 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 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 Goel.
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 18-5-1990 accepted this claim of the Commercial Taxes
21 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 an amendment in 1989.
Section 11-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 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 another,
and the transaction does not amount 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 as 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 v. Anand Chintaman Datar1. The Court has
observed (at pages 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
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 1 (1974) 2 SCC 799 22 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 11- 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 respect 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, will the
statutory first charge have priority over an earlier mortgage. It was urged by
Mr 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 that 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, mean 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
the 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 11-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 3 3 where the statutory charges
are discussed. In dealing with a statutory charge in favour of rating
authorities 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 mortgage existing when
the charge arose". In the case of Westminster City Council v. Hay market
Publishing Ltd.1 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
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
1 (1981) 2 All ER 555 23 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 mortgage. 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
case1 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 existing mortgage.
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.