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PETITIONER: STATE OF BANK BIKANER & JAIPUR

       Vs.

RESPONDENT: NATIONAL IRON & STEEL ROLLING CORPORATION AND OTHERS

DATE OF JUDGMENT14/12/1994

BENCH: MANOHAR SUJATA V. (J) BENCH: MANOHAR SUJATA V. (J) AGRAWAL, S.C. (J) FAIZAN UDDIN (J)

CITATION:  1995 SCC  (2)  19        JT 1995 (2)    14  1994 SCALE  (5)249

ACT:

HEADNOTE:

JUDGMENT: The Judgment of the Court was delivered by SUJATA V MANOHAR, J.- Leave granted. 2.   The  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. 3.   The  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. 4.   While  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. 5.   The  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

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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 Officer.  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. 6.   The  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. 7.   It  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  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 1 (1974) 2 SCC 799 22

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does  not  cover  the transfer of only an  interest  in  the property by way of a mortgage. 8.In  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 Tarkunde. 9.We  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 charge arose. 1 (1981) 2 All ER 555 23 The  rating authority’s charge would have priority over  the bank’s interest as a mortgagee. 10.In  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

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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 mortgagee therein. 11.Looked 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. 12.No  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. 24