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PETITIONER: COLLECTOR OF AURANGABAD & ANR.

       Vs.

RESPONDENT: CENTRAL BANK OF INDIA & ANR.

DATE OF JUDGMENT: 02/05/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. SIKRI, S.M.

CITATION:  1967 AIR 1831            1967 SCR  (3) 855

ACT: Hyderabad  Land Revenue Act (8 of 1317F), ss. 104,  116  and 119 whether s. 119 applies to movable propery in the custody and possesssion of the Court-Whether taxes due to Government have priority over debts to Others-Doctrine of "Priority  of Crown  debts"  applicability in Hyderabad State  before  the Constitution came into force.

HEADNOTE: In  execution of a decree obtained by the  first  respondent against ’the second respondent, a firm in Aurangabad in  the erstwhile  Hyderabad State, a house which was  furnished  as security  for  the amount of decree which  might  be  passed against  the  second  respondent,  was  sold  and  the  sale proceeds   were   deposited   in   the   executing    Court. Subsequently,  the  Collector of Aurangabad  made  an  order under  s.  119  of the Hyderabad Land  Revenue  Act,  1317F, distraining  a part of the amount on account of  arrears  of sales-tax due from the second respondent. On  the question of the validity of the  Collector’s  order, the  High Court held that the order was not valid because  : (1)  s. 119 of tile Hyderabad Land Revenue Act applied  only to  property which was in the custody and possession of  the judgment-debtor and not in the custody and possession of the court;  (2)  the debt, due to the Government in  respect  of arrears  of sales-tax had no priority over the dues of  tile first respondent; and (3) the first respondent as a  decree- holder  had  a  prior  charge;  and  the  debt  due  to  the Government in respect of salestax on account of the  quality of the debt due to the first respondent, had no priority. In appeal to this Court, HELD : (1) The construction put by the High Court on s.  119 was not correct.  The section in general terms empowers  the distraint  and sale of the defaulter’s movable property  and there is nothing in its language or context which  prohibits tile  Collector  from  ,making an order  of  distraint  with regard to the movable property in the custody  and possession of a court. [859 C-F] (2)But, a reading of ss. 104 and 116 of the Hyderabad Land Revenue Act, shows, that in respect of taxes other than Land revenue,  only  the  procedure for  recovery  under  s.  116

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applies and not the substantive law of priority under s. 104 of the Act; and therefore the Government had no priority  in ’respect of arrears of sales-tax over the dues of the firs’, respondent. 1860 H-861 B] (3)The  Government could claim priority regarding  payment of salestax according to the doctrine of "Priority of  Crown debts’.’,  quite apart from the provisions of the  Hyderabad Land  Revenue Act, but there was no proof that the  doctrine was given judicial recognition in the Hyderabad State  prior to  January 26, 1950, and therefore, the doctrine was not  a "law  in  force" in that territory which  was  continued  by virtue of Art. 372(1) of the Constitution. [862 H-863A] Builders  Supply  Corporation v. Union of  India,  [1965]  2 S.C.R.  289;  56  I.T.R.  91  (S.C.)  and  Superintendent  & Remembrancer of Legal Affairs, L9Sup.Cl/67-11 856 West Bengal v.  The Corporation of Calcutta [1967] 2  S.C.R. 170 referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION            Civil  Appeal  No. 1128 of  1965. Appeal  by special leave from the judgment and  order  dated December 17, 1962 of the Bombay High Court in Letters Patent Appeal No. 29 of 1960. S.T.  Desai, R. Ganapathy Iyer and S. P. Nayyar, for  the appellants. Hans  Raj Sawhney, P. C. Bhartari and 0. C. Mathur, for  the respondents. The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the  judgment  of the Bombay High Court dated  December  17, 1962 in Letters Patent Appeal No. 29 of 1960. Respondent No. 2, the firm of Chandmal Manmal was in  debted to  the  1st respondent, Central Bank of  India,  Aurangabad branch.  On March 11, 1955 the first respondent filed a suit being  Civil  Suit  No.  28/1 of  1955  against  the  second respondent  for recovering a sum of Rs. 14,541/- and odd  in the  Court  of  Subordinate Judge  at  Aurangabad.   On  the application  of  the first respondent an order  for  interim injunction  was  passed  in respect  of  certain  properties belonging  to the second respondent.  The Court had  ordered the second respondent to furnish security for the amount  of the decree which may be passed against the firm in the suit. On  April 28, 1955 Jogilal Mulchand, one of the partners  of the  second  respondent  furnished security  by  creating  a charge  on  his  immovable property, which was  a  house  at Aurangabad.   After  the security bond  was  furnished,  the attachment  was  released.  The security bond  furnished  by Jogilal Mulchand read as follows :               "I,  the Defendant No. 2 therefore stand as  a               surety  and declare that if the Hon’ble  Court               decides  the suit against the  Defendants,  he               will abide by every order passed by the  Court               and  if he fails to do so, then  I.  defendant               No.  2  stand as surety to the extent  of  Rs.               20,000/-  (Rupees  Twenty  thousand)  in  O.S.               coins and declare that I shall pay the  amount               of security into Court and for fulfilling  the               same  I  create a charge on my one  pucca  two               storied house possessed by me known as ’Chandi               Posh’  bearing  No. 167 situate at  Kasba  and               Taluka  Vijapur,  District Aurangabad  of  the

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             value of Rs. 25,000/............. If I fail to               pay the amount of the security, the Court will               then be entitled to recover               857               the  amount of the security from the  property               hereby charged.............. On  April  30, 1955 the Subordinate Judge granted  a  decree against  the  2nd respondent for a sum of Rs.  14,541/-  and odd.  The 1st respondent filed an application for  execution of the decree Linder s. 145 of the Civil Procedure Code.  In the  execution  of the decree the house  which  was  charged under  the  security  bond  was  sold  and  one   Girdhardas purchased  it  in auction sale which was  confirmed  by  the Court on August 14, 1958 and the sale proceeds thereof  were deposited by the said Girdhardas in the executing Court.  On August  17,  1958 the Sales Tax Officer,  Aurangabad  Circle wrote  a letter to the District Judge,  Aurangabad  pointing out  that  a  sum  of Rs. 9,672/- and odd  was  due  to  the Government from the second respondent on account of  arrears of sales-tax for the years 1950-51 to 1955-56.  On September 23, 1958 the District Judge sent a letter to the Subordinate Judge  asking him not to pay the sale proceeds of the  house to   the   decree  bolder  i.e.,   the   first   respondent. Subsequently,  the Collector of Aurangabad made an order  on November 20, 1958, distraining the amount of Rs. 9,672/- out of  the  sale proceeds under s. 119 of  the  Hyderabad  Land Revenue  Act  (Hyd.  Act VIII of 1317F.). The order  of  the Collector stated as follows :               "Sanction is therefore accorded under  Section               119  of Hyderabad Land Revenue Act  to  attach               the  amount of Rs. 9,672-1-0 out of  the  sale               proceeds realised from the auction sale of the               defaulter   Shri   Chandmal’s   property   and               deposited   with  the  Court   of   Sub-Judge,               Aurangabad, towards satisfaction of the Decree               No. 28/1 of 1955 passed against Shri  Chandmal               Manmal.  The amount should be remitted to  the               Sales Tax Officer, Aurangabad." Thereupon  the  1st respondent made an  application  to  the trial  court  challenging the validity of the order  of  the Collector.  The Subordinate Judge held that the Civil  Court had no jurisdiction to set aside, revise or modify the order of  the Collector and it could be done only by the  Superior Revenue  Authorities.   From the order  of  the  Subordinate Judge  the  1st respondent preferred an appeal  being  First Appeal No. 341 of 1959 in the Bombay High Court.. The appeal was  heard by Naik, J. who by his judgment dated’  June  22, 1960  held that in view of the provisions contained  in  ss. 104  and  It 9 of the Hyderabad Land Revenue  Act  the  Gov- ernment  was entitled to priority for the arrears of  sales- tax due from the second respondent over the claim of the 1st respondent..  The  learned Judge accordingly  dismissed  the First  Appeal.   From  the  judgment of  Naik,  J.  the  1st respondent  took  the  matter in appeal  under  the  Letters Patent.   A  Division Bench consisting of Patel  and  K.  K. Desai, JJ. allowed the appeal by their judgment 858 dated December 17, 1962 holding that S. 119 of the Hyderabad Land  Revenue Act applied only to property which was in  the custody and possession of the judgment-debtor and not in the custody  or possession of a Court.  It was observed  by  the Division  Bench  that the provisions of the  Hyderabad  Land Revenue  Act contained in ss. 104, 116, 117 and 144 made  it abundantly  clear that the priority applied only in  respect of  land revenue and not in respect of other taxes.  It  was

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further held that the 1st respondent as a decree-holder  had a  prior charge as the quality of his debt was not the  same as  that of the debt due to the Government and therefore  in respect of the sales-fax, the State bad no priority. The  first  question  to be considered  in  this  appeal  is whether the order of distraint dated November 20, 1958  made by the Collector of Aurangabad is legally valid.  The  order of  the Collector was made under S. 13(2) of  the  Hyderabad General  Sales  Tax  Act read with ss. 116 and  119  of  the Hyderabad  Land  Revenue Act.  Section 13 of  the  Hyderabad General  Sales Tax Act (Hyd.  Act No. XIV of 1950)  provides as follows :               "13. (1) The tax assessed under this Act shall               be  paid in such manner, in such  instalments,               if  any, and within such time, not being  less               than fifteen days from the date of service  of               the noticed of assessment, as may be specified               in such notice.               (2)In  default of such payment, a penalty  not               exceeding  the  tax remaining  unpaid  may  be               imposed  and the total amount  due,  including               the penalty, if any, may be recovered as if it               were an arrear of land revenue." Section 116 of the Hyderabad Land Revenue Act (Hyderabad Act VIII of 1317 F) states :               "An arrear of land revenue may be recovered by               the following measures and as far as possible,               the  measures shall be employed in  the  order               mentioned below :-               (a)   by  issuing  a notice to  the  defaulter               under section 11.8;               (b)   by distraint and sale of the defaulter’s               movable property under section 119;               (c)   by distraint and sale of the defaulter’s               immovable property under section 120;               (d)   by arrest and detention of the defaulter               under section 122;               (e)   by forfeiture of the right of  occupancy               in  respect of which the arrear is  due  under               section 124;               859               (f)   by temporary attachment of a  non-khalsa               village or part of such village in respect  of               which the arrear is due under section 125." Section 119 of the same Act is to the following effect               "The  Tahsildar  may  distrain  and  sell  the               defaulter’s movable property.  Such  distraint               shall be made by officers or clerks  appointed               by him for this work." The High Court has taken the view that s. 119 can only apply to  property which is in the custody and possession  of  the judgmentdebtor  and not in the custody and possession  of  a Court.   In  our opinion, the construction put by  the  High Court  on  the  language of s. 119  of  the  Hyderabad  Land Revenue  Act  is  not correct and is not  warranted  by  the language  of  the  section or the context  in  which  it  is placed.  The section empowers the Tahsildar to "distrain and sell  the defaulter’s movable property" and  such  distraint shall  be  made by officers or clerks appointed by  him  for this work.  The language of the section is general and there is no reason why any restriction should be put on the  power of distraint conferred upon the Tahsildar with regard to the defaulter’s  movable  property.  In the  present  case,  the Collector  of Aurangabad sent the order of distraint to  the Subordinate  Judge requesting him to remit to the Sales  Tax

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Officer the amount of Rs. 9,672/- out of the amount of  sale proceeds deposited in his Court.  We are of the opinion that the procedure followed by the Collector is justified by  the provision of s. 119 and there is nothing in the language  or context  of the section which prohibits tile Collector  from making  an  order of distraint with regard to  tile  movable property  in  the  custody and possession of  a  Court.   We accordingly reject the argument of respondent No. 1 on  this aspect of the case. We  proceed  to consider the next question arising  in  this appeal,  viz.,  whether the debt due to  the  Government  in respect  of arrears of sales-tax has priority over the  dues of  respondent No. 1. It appears that the sales-tax was  due for  the years 1950 - 51 to 1955-56, i.e., for a  period  of six  years.   It was submitted on behalf of  the  appellants that  since s. 13(2) of the Hyderabad General Sales Tax  Act makes  a  provision  for recovery of the  sales-tax  due  as "arrears of land revenue" and since priority as to the  land revenue  is provided under the Hyderabad Land  Revenue  Act, the arrears of sales-tax also must be granted priority  over other  demands  whether in respect of debts or  mortgage  or based on a decree or attachment of a Court.  The argument of the  appellants is based upon ss. 104, 116, 119 and  144  of the  Hyderabad  Land Revenue Act.  Section 104  provides  as follows : 860 .lm15 "The  demand  on any land, for its land revenue  shall  have priority  over other demands whether in respect of debts  or mortgage  or based on a decree of or attachment by a  Court, and if the title to any land on which such Government demand is due is transferred, such land or its transferer shall not be  discharged  from such demand.  If the  demand  for  land revenue  which  cannot  be recovered from the  title  to  or existing  produce  of that land is due from  a  person,  the liability  for  the payment of the land revenue  shall  have precedence  over  debt  or decree of a  Court  also  on  his property  other  than the land on which the demand  is  due; provided  that  such  property before it  is  forfeited  for recovery  of  the said demand, is not sold or  mortgaged  or given as a gift or otherwise -transferred or hypothecated or attached." Section 144 is to the following effect : "All  the Government sums under the following heads  may  be recovered under the provisions of this Chapter (1)  Land revenue. (2)  Quit-rent. (3)  Nazrana. (4)  Peshkesh. (5)  Taxes. (6)  Local cess. (7)  Fine and penalties. (8)  Income from lands. (9)  Rusum. (10) Fees. (11) Charges. (12) Penal interest. (13) Lease money. (14) Moneys recoverable from sureties. (15) Taccavi loans. (16) All  sums in respects of which provision has been  made in  this Act or in any other Act that they be  recovered  as arrears of land revenue." Section  144  enumerates the nature of taxes in  respect  of which  the  provision under the Land Revenue  Act  could  be adopted  for recovery.  But the language of s. 104 makes  it

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clear  that the priority specified in that  section  applies only in respect of land 861 evenue  and  not in respect of other taxes.  In  respect  of other Axes, we consider that only the procedure for recovery under  s.  16  applies  and  not  the  substantive,  law  of -priority  under  s. 104 of he Land Revenue,  Act.   In  our opinion, Counsel for the appelants has not been able to make good his argument on this aspect of the case. We  pass  on to consider the next question arising  in  this case,  lamely, whether the appellants are entitled to  claim priority  towards  payment  of sales-tax  according  to  the Common Law doctrine of ’Priority of Crown debts’ quite apart from the provisions of the Hyderabad Land Revenue Act.   The Common  Law doctrine was evolved in the English Law as  part of the Crown prerogative. which is described by Halsbury  as follows :-               "The royal prerogative may be defined as being               that  pre-eminence which the Sovereign  enjoys               over and above all other persons by virtue  of               the  common  law,  but  out  of  its  ordinary               course,  in  right of her regal  dignity,  and               comprehends   all   the   special   dignities,               liberties,  privileges, powers  and  royalties               allowed  by  the common law to  the  Crown  of               England." The  question  about the applicability of  the  priority  of Crown debts was considered by the Bombay High Court in  1868 in Secretary of State in Council for India v. Bombay Landing &  Shipping  Co.  Limited(1), in which it was  held  that  a judgment debt due to the Crown was in Bombay entitled to the same  precedence  in execution as a like  judgment  debt  in England,  if  there  is  no  special  legislative  provision affecting that right in the particular case.  The same  view has been taken by the Bombay High Court in a later case-Bank of India v. John Bowman (2 )-in which Chagla, C.J.,  pointed out  that  the priority given to the Crown was  not  on  the basis  of its debt being a judgment-debt or a  debt  arising out of statute, but the principle was that if the debts were of  equal degree and the Crown and the subject  were  equal, the  Crown’s right would prevail over that of  the  subject. The same view has been adopted by a Full Bench of the Madras High Court in Manickam   Chettiar  v.  Income-tax   Officer, Madura(3), in which it was held that the income-tax debt had priority over private debts and the court had inherent power to make an order for payment of moneys due to the Crown.   A similar  view has been expressed by the High Court  in  Kaka Mohamed Ghouse Sahib & Co. v. United Commercial Syndicate (4 ) . All these authorities have been quoted with approval  by this Court in (*) Halsbury’s Laws of England, 3rd Edn., Vol. 7, page 221. (1)  (1868-69) 5 Bom.  H.C.R. 23 (3)  (1938) 6 I.T.R. 180. (2)  A.I.R. 1955 Bom. 305. (4)  49 I.T.R. 824. 862 Builders  Supply Corporation v. Union of India(1), in  which it  was  held that the Government of India was  entitled  to claim  priority for arrears of income-tax due to it  from  a citizen over debts from him to unsecured creditors and  that the  English  common law doctrine of the priority  of  Crown debts  has been given judicial recognition in the  territory known  as  British  India" prior to 1950 in  regard  to  the recovery  of tax dues in priority to other private debts  of the  tax-payer.   It  was pointed  out  therefore  that  the

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English  Common Law doctrine having been  incorporated  into Indian law, was a ’law in force’ in the territory of  India, and, by virtue of Art. 372(1) of the Constitution of  India, it  continued to be in force in India until it  was  validly altered,  repealed or amended.  It was, however, argued  for the  respondents that the authority of the decision of  this Court  in Builders Supply Corporation v. Union  of  India(1) has been affected to some extent by the later decision of  a larger  Bench  of  this,  Court  in  The  Superintendent   & Remembrancer   of   Legal  Affairs,  West  Bengal   v.   The Corporation  of Calcutta,(2) in which it was held  that  the rule  of English Common law that the State was not bound  by the provisions of a statute unless it was expressly named or brought  in by necessary implication, was not accepted as  a rule  of construction throughout India and therefore it  has not  become law of the land.  It was further held that  even on  the  assumption  that  At was  accepted  as  a  rule  of construction  throughout  India,  it  was  only  a  rule  of construction and not a rule of substantive law and therefore cannot be said to be "a law in force" within the meaning  of Art.  372.  Lastly, this Court expressed the view  that  the rule  of  construction  was  incongruous  in  a   democratic republic and it was inconsistent with the rule of law  based on the doctrine of equality and therefore the said canon  of construction  should not be applied for construing  statutes in India.  In our opinion, there is nothing in this judgment which affects the authority of the previous decision of this Court  in Builders Supply Corporation v. Union of  India(l). On  the  other hand, the majority judgment  of  the  learned Chief  Justice has referred to the decision in ff.   Snowden Marshall  v. People of the State of New York(1)  which  lays down a similar doctrine, namely, that the State of New  York has  the  common  law prerogative  right  of  priority  over unsecured  creditors,  and  distinguished the  case  on  the ground  that  it  had  nothing  to  do  with  the  rule   of construction  but was based upon the common law  prerogative of the Crown. We  are,  however, unable to apply the  English  Common  Law doctrine  of priority of Crown debts in this  case,  because there  is  no  proof that the doctrine  was  given  judicial recognition in the (1)  56 1. T. R. 91                            (2) [19671  2 S.C.R. 170.] (3)  (1920) 65 Law.Ed. 315. 863 territory of Hyderabad State prior to January 26, 1950  when the Constitution was brought into force.  We granted time to Counsel  for the appellants to ascertain whether there  were any  reported decisions recognising such a doctrine  in  the Hyderabad State, but Sufficient material has not been placed before  us in this case to show that the doctrine was  given judicial  recognition  in  the Hyderabad  State  before  its incorporation into the Indian Republic. For  these reasons we hold that the judgment of  the  Bombay High Court dated December 17, 1962 in Letters Patent  Appeal No.  29  of 1960 must be affirmed and this  appeal  must  be dismissed with costs. V.P.S.                                      Appeal dismissed. 864