Holding

The ORT Act and the Securitisation Act do not create a first charge for banks or secured creditors, and their non‑obstante clauses do not override the state statutes' first‑charge provisions; Article 254 is inapplicable because the statutes fall under different entries in the Seventh Schedule.

Summary

The Supreme Court examined whether the statutory first‑charge provisions in the Bombay Sales Tax Act (s.38C) and the Kerala General Sales Tax Act (s.26B) conflicted with the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (ORT Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which contain non‑obstante clauses. It held that neither the ORT Act nor the Securitisation Act creates a first charge in favour of banks or other secured creditors, and therefore the state provisions are not inconsistent and are not overridden. The Court also ruled that Article 254 cannot be invoked because the central statutes were enacted under List I while the state statutes were under List II, placing them in different constitutional fields. Consequently, the first‑charge created by the state laws remains effective, and the appeals were dismissed.

Issues considered

The statutory first‑charge created by s.38C of the Bombay Sales Tax Act and s.26B of the Kerala General Sales Tax Act – does it conflict with the ORT Act and the Securitisation Act?
Do the non‑obstante clauses in s.34(1) of the ORT Act and s.35 of the Securitisation Act give those central statutes primacy over the state tax statutes?
Can Article 254 of the Constitution be invoked to strike down the state statutes on the ground of repugnancy with the central statutes?

Legislation cited

Bombay Sales Tax Act, 1959s. s.38C
Companies Act, 1956s. s.529A
Employees' Provident Funds and Miscellaneous Provisions Act, 1952s. s.11(2)
Gift Tax Act, 1958s. s.30
Kerala General Sales Tax Act, 1963s. s.268, s. s.26B
Mines and Minerals (Development and Regulation) Act, 1957s. s.25(2)
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. s.34, s. s.34(1), s. s.34(2)
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. s.13, s. s.13(1), s. s.13(4), s. s.13(9), s. s.35
Transfer of Property Act, 1882s. s.100, s. s.58, s. s.69, s. s.69A

Subjects

debt recoveryfirst chargenon obstante clauseArticle 254statutory prioritysecured creditortax priorityinterpretation of statutesconstitutional lawcentral vs state legislation

Judgment

[2009] 3 S.C.R. 735

.)
CENTRAL BANK OF INDIA A
.._ v.
STATE OF KERALA AND ORS.
(Civil Appeal No. 95 of 2005)

FEBRUARY 27, 2009
B
[B.N. AGRAWAL, G.S. SINGHVI AND AFTAB ALAM, JJ.]

Debt Recovery: Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 - s.34 - Securitisation and
Reconstruction of Financial Assets and Enforcement of c
Security Interest Act, 2002 - s.35 - Bombay Sales Tax Act,
1959 - s.38C- Kera/a General Sales Tax Act, 1963- s.26B

First charge- Held: Tax payable under State legislations
. would be first charge on the property of the dealer- ORT Act
D
and Securitisation Act do not create first charge in favour of
banks, financial institutions and other secured creditors -
Provisions contained in s.38C of the Bombay Sales Tax Act
and s.26B of Kera/a General Sales Tax Act are not
inconsistent with the provisions of the ORT Act and
E
Securitisation Act so as to attract non- obstante clauses
contained in s.34(1) of ORT Act or s.35 of Securitisation Act
- Transfer of Property Act, 1882 - ss.69, 69A - Companies
..; Act, 1956 - s.529A - Employees Provident Funds and
~
Miscellaneous Provisions Act, 1952- s.11(2)- Interpretation
-
' of statutes - Non-obstante clause. F

Invoking of Article 254 of the Constitution - Held: ORT
Act and Securitisation Act were enacted by Parliament under
Entry 45 in List I in the Seventh Schedule whereas Bombay
Sales Tax Act and Kera/a General Sales Tax Act were G
--1 enacted by concerned State legislatures under Entry 54 in
List II in the Seventh Schedule - The two sets of legislations
were enacted with reference to entries in different lists in the
Seventh Schedule - Therefore, Article 254 can not be
735 H
,

736 SUPREME COURT REPORTS [2009] 3 S.C.R.

A invoked for striking down State legislations on the ground that l
the same were in conflict with the Central legislations - ~
Constitution of India, 1950 - Arlicle 254.

DRT Act and Securitisation Act - Enactment of -
Legislative intent - Discussed.
B
Interpretation of statutes:

Non-obstante clause - Held: Is incorporated in statute to
give overriding effect to a particular section or the statute as a
c whole - While interpreting Non-obstante clause, Court is
required to find out the extent to which legislature intended to
do so and the context in which the non-obstante clause is used.

Contextual interpretation - Rule of - Held: Requires that
Courl should examine every word of a statute in its context - ,..
D In doing so, Courl has to keep in view preamble of the statute,
other provisions thereof, pari material statutes.
The questions which arose for consideration in these
appeals were whether Section 38C of the Bombay Sales
E Tax Act, 1959 and Section 26B of the Kerala General Sales
Tax Act, 1963 and similar provision contained in other
State legislations by which first charge has been created
on the property of the dealer or such other person, who
.
is liable to pay sales tax etc., are inconsistent with the •
F provisions contained in the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 for recovery
of 'debt' and the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002 for enforcement of 'security interest' and
whether by virtue of non obstante clauses contained in
G
Section 34(1) of the ORT Act and Section 35 of the
Securitisation Act, two Central legislations would have •··
primacy over State legislations.

H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 737
ORS.
) Dismissing the appeals, the Court A
HELD: 1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 do not create first charge in B
favour of banks, financial institutions and other secured
creditors and the provisions contained in Section 38C of
·1 the Bombay Act and Section 26B of the Kerala Act are
not inconsistent with the provisions of the ORT Act and
Securitisation Act so as to attract non obstante clauses
contained in Section 34(1) of the ORT Act or Section 35
c
of the Securitisation Act. [Para 48] [819-H; 820-A]

2. The ORT Act and Securitisation Act were enacted
by Parliament under Entry 45 in List I in the Seventh
Schedule whereas Bombay Sales Tax Act and Kerala D
General Sales Tax Act were enacted by the concerned
State legislatures under Entry 54 in List II in the Seventh
Schedule. The two sets of legislations were enacted with
reference to entries in different lists in the Seventh
Schedule. Therefore, Article 254 can not be invoked per E
se for striking down State legislations on the ground that
< the same were in conflict with the Central legislations.
[Para 15) [764-B-E]
-~
f

.. 3.1. The ORT Act and Securitisation Act were enacted
in the backdrop of recommendations made by the expert
committees appointed by the Central Government for
F

examining the causes for enormous delay in the recovery
of dues of banks and financial institutions which were
adversely affecting fiscal reforms. The Committees
suggested that the existing legal regime should be G
-~ changed and special adjudicatory machinery be created
for ensuring speedy recovery of the dues of banks and
financial institutions. The Committees also suggested
enactment of new legislation for securitisation and
H
738 SUPREME COURT REPORTS (2009) 3 S.C.R.

A empowering the banks etc. to take possession of the l
securities and sell them without intervention of the Court ...
The ORT Act facilitated establishment of two-tier system
of Tribunals. The Tribunals established at the first level
were vested with the jurisdiction, powers and authority
B to summarily adjudicate the claims of banks and financial
institutions in the matter of recovery of their dues without
being bogged down by the technicalities of the Code of
)- -
Civil Procedure. The Securitisation Act drastically
changed the scenario inasmuch as it enabled banks,
c financial institutions and other secured creditors to
recover their dues without intervention of the Courts or
Tribunals. The Securitisation Act also made provision for
registration and regulation of securitizationl
reconstruction companies, securitisation of financial
assets of banks and financial institutions and other
0 j
related provisions. [Para 32) [789-F-H; 790-A-C]

A.P. State Financial Corporation v. Official Liquidator
(2000) 7 SCC 291; Allahabad Bank v. Canara Bank and
another (2000) 4 SCC 406; State of West Bengal v. Kesoram
E Industries Ltd. and others (2004) 10 SCC 201; Govt. of A.P.
and anr. v. J.B. Educational Society and anr. (2005) 3 sec
212; Zaverbhai Amaidas v. State of Bombay (1955) SCR
799; The Attorney General of Ontario v. The Attorney General
for the Dominion 1896 A.C. 348; A.S. Krishna v. State of .
7

F Madras (1957) SCR 399; Mis. Hoechst Pharmaceuticals Ltd.
and others v. State of Bihar and others (1983) 4 sec 45,
referred to.
-
3.2. There is no prov1s1on in either of these
G enactments by which first charge is created in favour of
banks, financial institutions or secured creditors qua the
property of the borrower. Under Section 13(1) of the
Securitisation Act, limited primacy has been given to the
right of a secured creditor to enforce security interest vis·
H a-vis Section 69 or Section 69A of the Transfer of Property
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 739
ORS.
....•. Act. In terms of that sub-section, secured creditor can A
...
"' enforce security interest without intervention of the Court
or Tribunal and if the borrower has created any mortgage
of the secured asset, the mortgagee or any person acting
on his behalf cannot sell the mortgaged property or
appoint a receiver of the income of the mortgaged B
property or any part thereof in a manner which may defeat
J the right of the secured creditor to enforce security
interest. In an apparent bid to overcome the likely
difficulty faced by the secured creditor which may include
a bank or a financial institution, Parliament incorporated
the non obstante clause in Section 13 and gave primacy
c
to the right of secured creditor vis a vis other mortgagees
who could exercise rights under Sections 69 or 69A of
the Transfer of Property Act. However, this primacy has
" t not been extended to other provisions like Section 38C
D
of the Bombay Act and Section 268 of the Kerala Act by
which first charge has been created in favour of the State
over the property of the dealer or any person liable to pay
the dues of sales tax, etc. [Para 32) [790-D-H; 791-A-B]

3.3. A non obstante clause is generally incorporated E
in a statute to give overriding effect to a particular section
or the statute as a whole. While interpreting non obstante
'( clause, the Court is required to find out the extent to
~;
which the legislature intended to do so and the context

- in which the non obstante clause is used. The Court must
ascertain the intention of the legislature by directing its
attention not merely to the clauses to be construed but
F

to the entire statute; it must compare the clause with the
other parts of the law and the setting in which the clause
to be interpreted oc.-:urs. [Para 28) [787-G-H; 788-A-B] G
·+.
State of West Bengal v. Union of India (1964) 1 SCR 371;
Madhav Rao Jivaji Rao Scindia v. Union of India and another
(1971) 1 SCC 85; R.S. Raghunath v. State of Karnataka and
another (1992) 1 SCC 335; Aswini Kumar Ghose v. Arabinda
H
740 SUPREME COURT REPORTS (2009] 3 S.C.R.

'

-
~

A Bose AIR 1952 SC 369; Dominion of India v. Shrinbai A. Irani ,.
AIR 1954 SC 596; Union of India v. G.M. Kokil 1984 (Supp.)
SCC 196; Chandavarkar Sita Ratna Rao v. Ashalata S.
Guram (1986) 4 SCC 447 and A.G. Varadarajulu v. State of
Tamil Nadu (1998) 4 SCC 231, relied on.
B 3.4. The non obstante clauses contained in Section
34(1) of the ORT Act and Section 35 of the Securitisation
Act give overriding effect to the provisions of those Acts
only if there is anything inconsistent contained in any
other law or instrument having effect by virtue of any
c other law. If there is no provision in the other enactments
which are inconsistent with the ORT Act or Securitisation
Act, the provisions contained in those Acts cannot
override other legislations. Section 38C of the Bombay
Act and Section 26B of the Kerala Act also contain non :l
r

D obstante clauses and give statutory recognition to the
priority of State's charge over other debts, which was
recognized by Indian High Courts even before 1950. In
other words, these sections and similar provisions
contained in other State legislations not only create first
E charge on the property of the dealer or any other person
liable to pay sales tax, etc. but also give them overriding
effect over other laws. [Para 33) (792-A-C)

Builders Supply Corporation v. Union of India (1965) 2 ..
~

F
SCR 289; Bank of India v. John Bowman and Ors. AIR (1955)
Born. 305; Madras High Court in Kaka Mohammad Ghouse
Sahib & Co. v. United Commercial Syndicate and others
(1963) 49 l.T.R. 25; Manickam Chettiar v. Income-tax Officer,
-
Madura (1938) 6 ITR 180; State Bank of Bikaner and Jaipur
v. National Iron and Steel Rolling Corporation and others
G (1995) 2 SCC 19; Dena Bank v. Bhikhabhai Prabhudas
+·
Parekh & Co. and others (2000) 5 SCC 694; State of M.P.
and another v. State Bank of Indore and others (2002) 1Osec
441 and Recovery Officer, Employees Provident Fund v.
Kera/a Financial Corporation (2002) 3 ILR Kerala 4, referred
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 741
ORS.
•' to. A
4.1. The rule of contextual interpretation requires that
the court should examine every word of a statute in its
context. In doing so, the Court has to keep in view
preamble of the statute, other provisions thereof, pari B
material statutes, if any, and the mischief intended to be
remedied. Context often provides the key to the meaning
of the word and the sense it carries. Its setting gives
colour to it and provides a cue to the intention of the
legislature in using it. [Para 25] [785-F-G]
c
Poppatlal Shah v. State of Madras AIR 1953 SC 274;
Reserve Bank of India v. Peerless General Finance and
Investment Company Limited (1987) 1 SCC 424; R. v.
National Asylum Support Services (2002) 4 All ER 654,
referred to. D

Statutory Interpretation, Justice G.P. Singh, referred to.

4.2. While enacting the ORT Act and Securitisation
Act, Parliament was aware of the law laid down by this
Court wherein priority of the State dues was recognized. E
If Parliament intended to create first charge in favour of
banks, financial institutions or other secured creditors on
..." the property of the borrower, then it would have

-
'
incorporated a provision like Section 529A of the
Companies Act or Section 11 (2) of the EPF Act and
ensured that dues of banks, financial institutions and
other secured creditors should have priority over the
State's statutory first charge in the matter of recovery of
F

the dues of sales tax, etc. However, no such provision
was incorporated !~1 either of these enactments despite G
-4 conferment of extraordinary power upon the secured
creditors to take possession and dispose of the secured
assets without the intervention of the Court or Tribunal.
[Para 38) [800-A-D]
H
742 SUPREME COURT REPORTS [2009] 3 S.C.R.

A 4.3. If the provisions of the ORT Act and
Securitisation Act are interpreted keeping in view the
background and context in which these legislations were
enacted and the purpose sought t6 be achieved by their
enactment, it becomes clear that the two legislations, are
B intended to create a new dispensation for expeditious
recovery of dues of banks, financial institutions and
secured creditors and adjudication of the grievance
made by any aggrieved person qua the procedure
adopted by the banks, financial institutions and other
c secured creditors, but the provisions contained therein
cannot be read as creating first charge in favour of
banks, etc. If Parliament intended to give priority to the
dues of banks, financial institutions and other secured
creditors over the first charge created under State
legislations then provisions similar to those contained in
0
Section 14A of the Workmen's Compensation Act, 1923,
Section 11(2) of the EPF Act, Section 74(1) of the Estate
Duty Act, 1953, Section 25(2) of the Mines and Minerals
(Development and Regulation) Act, 1957, Section 30 of
E the Gift·Tax Act, and Section 529A of the Companies Act,
1956 would have been incorporated in the ORT Act and
Securitisation Act. Undisputedly, the two enactments do
not contain provision similar to Workmen's
Compensation Act, etc. In the absence of any specific
...
)'

F
provision to that effect, it is not possible to read any
conflict or inconsistency or overlapping between the
provisions of the ORT Act and Securitisation Act on the
one hand and Section 38C of the Bombay Act and
Section 268 of the Kerala Act on the other and the non
-
obstante clauses contained in Section 34(1) of the ORT
G Act and Section 35 of the Securitisation Act cannot be
invoked for declaring that the first charge created under
the State legislation will not operate qua or affect the
proceedings initiated by banks, financial institutions and
other secured creditors for recovery of their dues or
H enforcement of security interest, as the case may be. The
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 743
ORS.

"' Court could have given effect to the non obstante clauses A
contained in Section 34(1) of the ORT Act and Section 35
of the Securitisation Act vis a vis Section 38C of the
Bombay Act and Section 268 of the Kerala Act and similar
other State legislations only if there was a specific
provision in the two enactments creating first charge in B
favour of the banks, financial institutions and other
J
secured creditors but as the Parliament has not made
any such provision in either of the enactments, the first
charge created by the State legislations on the property
of the dealer or any other person, liable to pay sales tax
etc., cannot be destroyed by implication or inference,
c
notwithstanding the fact that banks, etc. fall in the
category of secured creditors. [Para 39] [800-G-H; 801-A-
G]
M.K. Ranganathan and another v. Government of D
Madras and others (1955) 2 SCR 374; State of Gujarat v.
Shyamfal Mohan/al Choksi and others AIR 1965 SC 1251
and Byram Pestonji Gariwala v. Union Bank of India and
others (1992) 1 sec 31, relied on.
E
P. Murugian v. Jainudeen, C.L. (1954) 3 W.L.R. 682;
/CIC/ Bank Ltd. v. SIDCO Leathers Ltd. and others (2006) 10
SCC 452; Transcore v. Union of India and another (2008) 1
-<
SCC 125; Union of India v. $/COM Limited and another
(2009) 2 SCC 121; Rajasthan State Financial Corporation v.
Official Liquidator (2005) 8 SCC 190; Bank of Bihar v. State F
of Bihar(1972) 3 SCC 196; Central Bank of India v. Siriguppa
Sugars & Chemicals Ltd. (2007) 8 SCC 353; R.M.
Arunachalam v. Commissioner of Income Tax, Madras
(1997) 7 SCC 698; K.S. Paripoornan v. State of Kera/a and
others JT (1994) (6) SC 182; Land Acquisition Officer v. B. V. G
-f Reddy and others (2002) 3 SCC 463; Kesava Pillai vs. State
of Kera/a (2004) 1 KLT 55; South Indian Bank Limited vs.
State of Kera/a (2006) 1 KL T 65; Sherry Jacob v. Canara
Bank (2004) 30 KLT 1089 and State of M.P. v. State Bank of
Indore (2002) 10 KTR 366 (SC), referred to. H
744 SUPREME COURT REPORTS [2009] 3 S.C.R.

A Maxwell on Interpretation of Statutes, referred to.

Case Law Reference:

(2000) 1 sec 291 referred to Para 4
(2000) 4 sec 406 referred to Para 4
B
(2004) 10 sec 201 referred to Para 6
l
(2005) 3 sec 212 referred to Para 6
1896 A.C. 348 referred to Para 9
c (1955) SCR 799 referred to Para 9
(1957) SCR 399 referred to Para 9
(1983) 4 sec 45 referred to Para 10
D AIR 1953 SC 274 referred to Para 25
(1987) 1 sec 424 referred to Para 26
(2002) 4 All ER 654 referred to Para 27

E (1964) 1 SCR 371 relied on Para 28
(1971) 1 sec 85 relied on Para 29
AIR 1952 SC 369 relied on Para 30
AIR 1954 SC 596 relied on Para 30
F
1984 (Supp.) sec 196 relied on Para 30
(1986) 4 sec 447 relied on Para 30
(1992) 1 sec 335 relied on Para 30
G (1998) 4 sec 231 relied on Para 31
~.

(1938) 6 ITR 180 referred to Para 33
AIR 1955 Born. 305 referred to Para 33
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 745
ORS.

' (1963) 49 l.T.R. 25 referred to Para 33 A
"
(1965) 2 SCR 289 referred to Para 33

(1995) 2 sec 19 referred to Para 34

(2000) 5 sec 694 referred to Para 35 B
(2002) 10 sec 441 referred to Para 36

(2002) 3 ILR Kerala 4 referred to Para 37

(1955) 2 SCR 374 relied on Para 39
c
AIR 1965 SC 1251 relied on Para 39

(1992) 1 sec 31 relied on Para 39

(1954) 3 W.L.R. 682 referred to Para 39
~ (2006) 10 sec 452 referred to Para 42 D

(2008) 1 sec 125 referred to Para 42
(2009) 2 sec 121 referred to Para 42
(2005) 8 sec 190 referred to Para 44 E
(1972) 3 sec 196 referred to Para 46

(2001) 8 sec 353 referred to Para 46
'(

' (1997) 1 sec 698 referred to Para 49
F
JT 1994 (6) SC 182 referred to Para 50

(2002) 3 sec 463 referred to Para 50
2004 (1) KLT 55 referred to Para 60
G
2006 (1) KLT 65 referred to Para 61
• J
2004 (30) KLT 1089 referred to Para 63
(2002) 10 KTR 366(SC) referred to Para 65

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 95 H
746 SUPREME COURT REPORTS [2009] 3 S.C.R.

A of 2005.

From the Judgment & Order dated 06.11.2002 of the
.
Division Bench of the High Court of Kerala in Writ Appeal No.
1284 of 2002(D).
B WITH

C.A. No. 2811, 3549, 3973, 4174, 4909, 1288/2006 and
C.A. No.1318 of2009@S.L.P.(C) No. 24767 of2005.

C D.A. Dave, Biswait Bhattarcharya, Shekhar Naphade, lndu
Malhotra, Bishwajeet Bhattarcharya, T.LV. Iyer, Dinesh Mathur,
Saurabh Jain, Rameshwar Prasad Goyal, Pramod B. Agarwala
Praveen Gautam, Nitin Kant Setia, Debashish Mukherjee, Ajay
Singh, P. Narasimhan, Vinay Navare, Naresh Kumar, Sunita
Ojha, Kavita Wadia, Saurabh Jain, R.P. Goya, K. Rajeev,
D Avinash Kumar, Debashish, Ajay, Dharmendra Kumar Sinha,
Jay Kishor Singh and Subramonium Prasad for the Appellants.

R. Mohan, ASG, Rakesh Dwivedi, S.K. Dholakia, D.A.
Dave, P. Krishnamoorthi, Ramesh Babu, C.N. Sree Kumar, G.
E Prakash, Mukti Chowdhary, Anant Prakash, Amit Singh,
Shantanu Krishna, S.K. Dholakia, Ravindra K. Adsure,
Chinmoy Khaladkar, Malvika Trivedi, T. Mahipal, Ranjith K.C.
V.B. Joshi, Kailash Pandey, V.K. Sidharthan, Nina Gupta,
Akanksha, Neha S. Verma Swigin George, Bina Gupta,
F Ramesh Singh, A.V. Rangam, Buddy A. Ranganadhan, K.
Rajeev and Harshad V. Hameed for the Respondent.

The Judgment of the Court was delivered by

G.S. SINGHVI, J. 1. Leave granted in S.L.P. (C) No.24767
G of 2005.

2. Whether Section 38C of the Bombay Sales Tax Act,
1959 [for short "the Bombay Act"] and Section 268 of the
Kerala General Sales Tax Act, 1963 [for short "the Kerala Act"]
H and similar provision contained in other State legislations by

<--
.
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 747
ORS. [G.S. SINGHVI, J.]
',
which first charge has been created on the property of the A
dealer or such other person, who is liable to pay sales tax etc.,
are inconsistent with the provisions contained in the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 (for
short 'the ORT Act') for recovery of ·debt' and the Securitisation
and Reconstruction of Financial Assets and Enforcement of B
Security Interest Act, 2002 (for short 'the Securitisation Act') for
~ enforcement of· security interest' and whether by virtue of non
obstante clauses contained in Section 34(1) of the ORT Act
and Section 35 of the Securitisation Act, two Central
legislations will have primacy over State legislations are the c
questions which arise for determination in these appeals.

3. For the sake of convenience, we have taken notice of
the facts of Civil Appeal Nos.95/2005 and 2811/2006 and the
; reasons contained in the orders passed by Kerala and Bombay
High Courts, which are under challenge in these appeals. D

4. C.A. No.9512005 - Central Bank of India vs. State of
Kera/a & others- Central Bank of India, which is a nationalized
bank, gave cash/ credit facility to the tune of Rs.12 lakhs to
Kerala Refineries (P) Ltd. The borrower executed mortgage of E
movable and immovable properties for securing repayment. As
the borrower failed to repay the dues, the bank filed civil suit
bearing O.S. No.234/1996 in the Court of Sub-Judge at
•• Mavelikara. Later on the suit was transferred to Ernakulam
Bench of the Debts Recovery Tribunal (hereinafter referred to F
as "the Tribunal"). By an order dated 1.12.2000, the Tribunal
decreed the suit for an amount of Rs.55 lakhs with future
interest. As a sequel to this, Recovery Certificate dated
1.11.2001 was issued in favour of the bank and the Recovery
Officer issued notice for sale of the movable and immovable G
properties of the borrower. At that stage, Tehsildar, Mavelikara
• -J
issued notice dated 26.11.2001 to the borrower for recovery
of Rs.40,38,481/- as arrears of sales tax stating therein that its
moveable and immovable properties had been attached on
2.2.2000 and 4.9.2000 and that steps are being taken to sell
H
748 SUPREME COURT REPORTS [2009] 3 S.C.R.

•
.
A the attached property by public auction. The Tehsildar claimed
that by virtue of Section 268 of the Kerala Act, as amended
by Act No.23/1999, the State Government has got first charge
over the attached properties. The bank challenged the notice
of the Tehsildar by filing a petition under Article 226 of the
B Constitution of India, which was registered as O.P. No.7835/
2002(G). The bank relied on the decisions of this Court in A.P.
State Financial Corporation v. Official Liquidator [(2000) 7
SCC 291] and Allahabad Bank v. Canara Bank and another
[(2000) 4 SCC 406], and pleaded that being a Central
c legislation, the ORT Act would prevail over the Kerala Act by
which first charge was created in favour of the State. The
learned Single Judge of the Kerala High Court negatived the
bank's challenge by observing that proceedings under the
Kerala Act had been initiated before the issue of certificate by
~
the Tribunal and that even if the Tribunal has got exclusive
D
jurisdiction to recover the amount due to the bank, the Tehsildar
was not obliged to approach it for recovery of the State dues.
The learned Single Judge referred to Section 46 of the Kerala
Revenue Recovery Act, 1968, which provides that within 14
days from the date of attachment of any immovable property
E any person other than the defaulter can lodge objection to the
attachment of the whole or any portion of such property on the
ground that such property was not liable for the arrears of public
>
revenue, and held that as the bank had claimed first charge or 4

prior charge over the attached property, it can file appropriate
F objections under Section 46 of the Kera la Revenue Recovery
Act, 1968 and make a prayer that public revenue can be
recovered after paying its dues. The learned Single Judge
further observed that in terms of Section 47 of the Kerala
Revenue Recovery Act, 1968 the petitioner can obtain release
G of the attached property by paying arrears of the public
w-----
revenue. The appeal preferred against the order of the learned
Single Judge was dismissed by the Division Bench which held
that the bank can avail remedy by filing objections under
Sections 46 to 48 of the Kerala Revenue Recovery Act, 1968.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 749
ORS. [G.S. SINGHVI, J.]
-~
5. C.A. No.281112006 - The Thane Janata Sahakari A
Bank Ltd. vs. The Commissioner of Sales Tax & others -
Appellant - Thane Janata Sahakari Bank Ltd., which is a
scheduled cooperative society incorporated under the
Maharashtra Cooperative Society Act, 1960 granted credit
facilities to Mis. Charishma Cosmetics Pvt. Ltd. Co. (for short B
'the Company'). As on 30.6.2004, the company had availed
.I credit facility to the tune of Rs.2,32,00,000/- by creating
equitable mortgage of its factory, land and building in favour of
the bank. Due to the company's failure to repay the amount,
its account was classified as non-performing asset and the bank c
initiated proceedings under the Securitisation Act by issuing
notice under Section 13(2). The possession of movable and
immovable properties of the company is said to have been
taken by the bank on 15.2.2005 and the same were sold for a
sum of Rs.66,31,001/-. On 11.7.2005, Assistant Commissioner
" of Sales Tax informed the bank that sales tax dues amounting
to Rs.3,62,82,768/- constitute first charge against the company
D

and, therefore, it could not have taken possession of the
mortgaged assets and sold the same. After some
correspondence, the Assistant Commissioner issued notice
E
dated 16.8.2005 to the bank to show cause as to why action
may not be taken against it under Section 39 of the Bombay
Sales Tax Act, 1959 (for short "the Bombay Act") for recovery
(

' ... of Rs.49,68,614/- in addition to the auction proceeds. The bank
unsuccessfully contested the notice and then filed writ petition
for quashing the same. It was urged on behalf of the bank that F
in view of the conflict between Section 38C of the Bombay Act
and Section 35 of the Securitisation Act, the latter being a
Central legislation, the first charge created by the State Act
cannot have priority over debts of the bank because while
enacting the Securitisation Act the Parliament will be deemed G
• -J to be aware of the provisions of the State legislation. It was also
contended that under Section 169 of Maharashtra Land
Revenue Code, 1966, the State Government can claim priority
over unsecured dues, but being secured creditor, the bank has
H
750 SUPREME COURT REPORTS [2009] 3 S.C.R.

.
A first and exclusive charge over the properties of the company '
and has priority over the sales tax dues of the State. The
Division Bench of the High Court analysed the provisions of the
Securitisation Act, the State Act and observed:-

"......... if any Central Act provides for first charge, the
B
charge created under Section 38C of Bombay Sales Tax
Act is overridden. Conversely, if the Central Act does not
provide for first charge in respect of the liability under the
said Act, the first charge created under Section 38C of
Bombay Sales Tax Act shall hold the field."
c
The Division Bench then noted that Section 13 of the
Securitisation Act does not create first charge in favour of the
banks; that it merely provides the machinery for realization by
a secured creditor of the security interest without intervention
D of the Court or Tribunal; that it overrides the provisions
contained in Sections 69 or 69A of the Transfer of Property Act
which empower the mortgagee to sell or concur in selling the
mortgaged property or any part thereof in default of payment
of the mortgage money without intervention of the Court in the
E circumstances referred to in Section 69 and for payment of
Court Receiver as provided in Section 69A and held:

"The Bombay Sales Tax Act and the Securitisation Act
have been enacted by the competent legislatures for ')

different purposes and operate in different fields. The
F Bombay Sales Tax Act is enacted by the State Legislature
under Entry 54 of List II in the Seventh Schedule for levy
of tax on the sale or purchase of certain goods in the State
of Bombay (now State of Maharashtra). On the other hand,
the Securitisation Act has been enacted by the Parliament
G under Entry 54 of List I for regulating the Securitisation and
reconstruction of financial assets and for enforcement of ..--
security interest. There is neither any conflict in these two
Acts nor Section 38 C of the Bombay Sales Tax Act can
be said to be inconsistent with Section 35 of the
H Securitisation Act. The area of operation is entirely different
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 751
ORS. [G.S. SINGHVI, J.]
..... and there is no overlapping anywhere . A
Section 35 of the Securitisation Act may have had some
bearing, if there was some provision in the Securitisation
Act for first charge in favour of the banks and financial
institutions. But neither Section 13 nor any other provision B
under the Securitisation Act makes a provision for first
charge .
. •
There being no provision in the Securitisation Act
providing for first charge in favour of the banks section 35
of the Securitisation Act cannot be held to override section c
38C of the Bombay Sales Tax Act, 1959 that specifically
provides that the liability under the said Act shall be the
first charge. The overriding provision contained in Section
38C is only subject to the provision of the first charge in
~
the Central Act holding the field. The case of the Bank is D
not covered by the expression, "subject to any provision
regarding first charge in any Central Act for the time being
in force" and that being the position, Section 38C is not
overridden by section 35 of the Securitisation Act."
E
6. S/Shri Shekhar Naphde, Dushyant Dave, Bishwajeet
Bhattacharya, T.L.V. Iyer and Ms. lndu Malhotra, learned senior
counsel appearing for the appellants argued that as the ORT
(
Act and Securitisation Act have been enacted by the
Parliament under Article 246( 1) read with Entry 45 in List I in
the Seventh Schedule of the Constitution for speedy recovery F
of debts due to banks or financial institutions or for enforcement
of security interest by the secured creditors and overriding
effect has been given tu these legislations vis-a-vis other laws,
the provisions contained therein will have primacy over State
legislations which have been enacted under Article 246(2) read G
• -J with Entry 54 in List II in the Seventh Schedule and under which
first charge has been created in favour of the State in respect
of the dues of sales tax etc. Shri Dushyant Dave relied upon
the judgments in State of West Bengal v. Kesoram Industries
Ltd. and others [(2004) 10 sec 201] and Govt. of A.P. and H
752 SUPREME COURT REPORTS [2009] 3 S.C.R.

A anr. v. J.B. Educational Society and anr. [(2005) 3 sec 212],
and argued that even though the Central and State legislations
have not been enacted with reference to a particular entry in
List Ill in the Seventh Schedule, Article 254 will get attracted,
and the Kerala and Bombay High Courts committed an error
B by refusing to accept the submission that banks, financial
institutions and secured creditors have priority in the matter of
recovery of debts or enforcement of security interest vis-a-vis
the State's right to recover the dues of sales tax etc. Shri
Bishwajeet Bhattacharya submitted that in view of Article 254(1)
C of the Constitution, provisions contained in State laws which are
repugnant to or inconsistent with Central legislations, are liable
to be ignored. All the learned counsel laid considerable
emphasis on the non obstante clauses contained in Section
34(1) of the ORT Act and Section 35 of the Securitisation Act,
0
and argued that even though the language of Section 38C of •
the Bombay Act and Section 26B of the Kerala Act suggests
that State legislations have been given overriding effect vis a
vis other laws, the courts are duty bound to give full effect to
the primacy of Central legislations over State legislations. Shri
Shekhar Naphde and other learned counsel heavily relied on
E Section 13(1), (7) and (9) of the Securitisation Act and argued
that when Parliament has designedly given priority to the right
of banks etc. to recover their dues or enforce security interest,
first charge created under the State legislation must be treated
sub-servient to such right. Learned senior counsel made a
F pointed reference to the provisos incorporated in Section 13(9)
for giving priority to the dues of the workers of the company in
liquidation and argued that in the absence of similar provision
in relation to sales tax dues etc. payable to the State, priority
given to the dues of banks etc. cannot be diluted or stultified
G by giving over stretched interpretation to the provisions
contained in the State legislations relating to first charge.

7. Shri Rakesh Dwivedi and Shri S.K. Oholakia, learned
senior counsel appearing for the States of Kerala and
H Maharashtra respectively argued that even though the ORT Act
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 753
ORS. [G.S. SINGHVI, J.)
-,
and Securitisation Act contain non obstante clauses suggesting A
that the provisions contained therein would prevail over other
laws, the same must be interpreted keeping in view the
legislative policy underlying those enactments and if they are
so interpreted, Section 38C of the Bombay Act and Section
268 of the Kera la Act and similar provisions contained in other B
State legislations by which first charge has been created on
;l the property of the dealer or any other person liable to pay sales
tax etc. cannot be treated inconsistent with Central legislations.
Shri Dwivedi submitted that the ORT Act and Securitisation Act
have been enacted to speed up the recovery of the dues of c
banks, financial institutions and secured creditors but there is
no provision in the two enactments by which first charge has
been created in favour of banks, etc. and, therefore, the
provisions contained in State legislations creating first charge
~
in respect of the dues of sales tax etc. cannot be treated as 0
inconsistent with Central legislations. Shri Owivedi further
submitted that levy and collection of tax etc. is sovereign
function as well as necessity of the State and as such the State
has exclusive plenary power to legislate on that subject and in
the absence of any provision in the ORT Act or Securitisation
E
Act creating first charge In favour of the banks etc., in lieu of
their dues, these legislations cannot be given overriding effect
qua the provisions contained in the State legislations and right
of the State to recover the dues of sales tax etc. cannot be
frustrated merely because a bank or financial institution or
secured creditor has initiated action for recovery of debt etc. F
by filing application under Section 19 of the ORT Act or by
resorting to the procedure contained in Section 13 of the
Securitisation Act. In support of this argument, learned senior
counsel invoked the doctrine of sub si/entio.
G
• -4 8. We have considered the respective arguments/
submissions. Article 245 of the Constitution is the source of
legislative power of Parliament and State legislatures. It
provides that subject to the provisions of the Constitution,
Parliament may make laws for the whole or any part of the H
754 SUPREME COURT REPORTS (2009] 3 S.C.R.

A territory of India, and the legislature of a State may make laws
for the whole or any part of the State. The legislative field of
the Parliament and State legislatures has been specified in
Article 246. In terms of Clause (1) of Article 246, Parliament
has exclusive power to make laws with respect to any of the
B matters enumerated in List I in the Seventh Schedule. Under
Clause (2) the Parliament and subject to Clause (1 ), the
legislature of any State also have power to make laws with
respect to any of the matters enumerated in List Ill in the
Seventh Schedule. Subject to Clauses (1) and (2), the
c legislature of State has exclusive power to make laws for such
State or any part thereof with respect to any of the matters
enumerated in List II in the Seventh Schedule. It is thus evident
that Parliament has exclusive power to legislate with respect
to any of the matters enumerated in List I and State legislatures
enjoys similar power with respect to any of the matters
D enumerated in List II. The combined effect of the different
clauses of Article 246 is that in respect of any matter falling
within List I, Parliament has exclusive power of legislation,
whereas the State legislature has exclusive power to make
laws for such State or any part thereof with respect to any of
E the matters enumerated in List II in the Seventh Schedule and
with respect to the matters enumerated in List Ill, both the
Parliament and State legislature have power to make laws.
Article 254 which contains mechanism for resolution of conflict )

between Central and State legislations enacted with respect
F to any matter enumerated in List Ill of the Seventh Schedule
reads as under:

"254. Inconsistency between laws made by Parliament
and laws made by the Legislatures of States.- (1) If any
G provision of a law made by the Legislature of a State is
repugnant to any provision of a law made by Par.liament
which Parliament is competent to enact, or to any provision
of an existing law with respect to one of the matters
enumerated in the Concurrent List, then, subject to the
H provisions of clause (2), the law made by Parliament,
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 755
ORS. [G.S. SINGHVI, J.]
.]
whether passed before or after the law made by the A
Legislature of such State, or, as the case may be, the
existing law, shall prevail and the law made by the
Legislature of the State shall, to the extent of the
repugnancy, be void.
B
(2) Where a law made by the Legislature of a State with
respect to one of the matters enumerated in the
.~ Concurrent List contains any provision repugnant to the
provisions of an earlier law made by Parliament or an
existing law with respect to that matter, then, the law so
made by the Legislature of such State shall, if it has been c
reserved for the consideration of the President and has
received his assent, prevail in that State:

Provided that nothing in this clause shall prevent
/1 Parliament from enacting at any time any law with respect D
to the same matter including a law adding to, amending,
varying or repealing the law so made by the Legislature
of the State."

9. Article 254 was interpreted by the Constitution Bench
E
in Zaverbhai Amaidas v. State of Bombay [(1955) SCR 799)
in the context of challenge to Bombay Act No. 36/1947 on the
ground that the same is repugnant to Section 7(1) of the
.J ' Essential Supplies (Temporary Powers) Act, 1946. The
Constitution Bench referred to the judgment in The Attorney
General of Ontario v. The Attorney General for the Dominion F
'·
[1896 A.C. 348) and held "now by the proviso to Article 254(2)
the Constitution has enlarged the powers of Parliament, and
under that proviso, Parliament can do what the Central
legislature could not under Section 107(2) of the Government
of India Act and en.i::::t a law adding to, amending, varying, G
• -.J repealing a law of the State, when it relates to a matter
mentioned in the Concurrent List. The proposition then is that
under the Constitution Parliament can, acting under the proviso
to Article 254(2), repeal a State law. But when it does not
expressly do so, even then the State law will be void under H
756 SUPREME COURT REPORTS [2009] 3 S.C.R.

A that provision if it conflicts with a later "law" with respect to the '
same matter'', that may be enacted by Parliament. In A.S.
Krishna v. State of Madras [(1957) SCR 399] the Constitution
Bench considered challenge to validity of Madras Prohibition
Act 1937 on the ground that the same is repugnant to the Indian
B Evidence Act, 1872 and the Code of Criminal Procedure, 1898
which were enacted by the Parliament. The Constitution Bench
repelled the challenge and held:

'The position, then, might thus be summed up: When a law
is impugned on the ground that it is ultra vires the powers
c of the legislature which enacted it, what has to be
ascertained is the true character of the legislation. To do
that, one must have regard to the enactme1~t as a whole,
to its objects and to the scope and effect of its provisions.
If on such examination it is found that the legislation is in
D ~.
substance one on a matter assigned to the legislature, then
it must be held to be valid in its entirety, even though it
might incidentally trench on matters which are beyond its
competence. It would be quite an erroneous approach to
the question to view such a statute not as an organic
E whole, but as a mere collection of sections, then
disintegrate it into parts, examine under what heads of
legislation those parts would severally fall, and by that
process determine what portions thereof are intra vires,
and what are not. Now, the Madras Prohibition Act is, as
F already stated, both in form and in substance, a law
relating to intoxicating liquors. The presumptions in Section
4(2) are not presumptions which are to be raised in the
trial of all criminal cases, as are those enacted in the
Evidence Act. They are to be raised only in the trial of
G offences under Section 4( 1) of the Act. They are therefore
purely ancillary to the exercise of the legislative power in
respect of Entry 31 in List II. So also, the provisions ".
relating to search, seizure and arrest in Sections 28 to 32
are only with reference to offences committed or suspected
H
to have been committed under the Act. They have no
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 757
ORS. [G.S. SINGHVI, J.]
>
-( operation generally or to offences which fall outside the A
Act. Neither the presumptions in Section 4(2) nor the
provisions contained in Sections 28 to 32 have any
operation apart from offences created by the Act, and
must, in our opinion, be held to be wholly ancillary to the
legislation under Entry 31 in List II. The Madras Prohibition B
Act is thus in its entirety a law within the exclusive
competence of the Provincial Legislature, and the question
of repugnancy under Section 107(1) does not arise."

10. In Mis. Hoechst Pharmaceuticals Ltd. and others v.
State of Bihar and others ((1983) 4 SCC 45], this Court
c
considered the question whether there is any conflict between
Drugs (Price Control) Order, 1979 made under Section 3 of
the Essential Commodities Act, 1955 which is a Central
legislation and Section 5(3) of the Bihar Finance Act, 1981 by
which surcharge was levied on certain dealers engaged in D
selling drugs. While negating challenge to the State legislation,
a three-Judge Bench laid down the following principles:

(1) The various entries in the three lists are not "powers"
of legislation but "fields" of legislation. The Constitution E
effects a complete separation of the taxing power of the
Union and of the States under Article 246. There is no
overlapping anywhere in the taxing power and the
Constitution gives independent sources of taxation to the
Union and the States. F
(2) In spite of the fields of legislation having been
demarcated, the question of repugnancy between law
made by Parliament and a law made by the State
Legislature may arise only in cases when both the
legislations occupy ihe same field with respect to one of G
~-.,/
the matters enumerated in the Concurrent List and a direct
conflict is seen. If there is a repugnancy due to overlapping
found between List II on the one hand and List I and List Ill
on the other, the State law will be ultra vires and shall have
to give way to the Union law. H
758 SUPREME COURT REPORTS [2009] 3 S.C.R.

A (3) Taxation is considered to be a distinct matter for ;.
.
purposes of legislative competence. There is a distinction
made between general subjects of legislation and taxation.
The general subjects of legislation are dealt with in one
group of entries and power of taxation in a separate group.
B The power to tax cannot be deduced from a general
legislative entry as an ancillary power.

(4) The entries in the lists being merely topics or fields of
legislation, they must receive a liberal construction inspired
by a broad and generous spirit and not in a narrow
C·
pedantic sense. The words and expressions employed in "
drafting the entries must be given the widest-possible ~·

interpretation. This is because, to quote V. Ramaswami,
J., the allocation of the subjects to the lists is not by way
of scientific or logical definition but by way of a mere
D simplex numeration of broad categories. A power to •·.
legislate as to the principal matter specifically mentioned
in the entry shall also include within its expanse the
legislations touching incidental and ancillary matters.

E (5) Where the legislative competence of the legislature of ~

any State is questioned on the ground that it encroaches
upon the legislative competence of Parliament to enact a
law, the question one has to ask is whether the legislation "
relates to any of the entries in List I or Ill. If it does, no
F further question need be asked and Parliament's
legislative competence must be upheld. Where there are
three lists containing a large number of entries, there is
bound .to be some overlapping among them. In such a
situation the doctrine of pith and substance has to be
applied to determine as to which entry does a given piece
G
of legislation relate. Once it is so determined, any
incidental trenching on the field reserved to the other
... .
legislature is of no consequence. The court has to look at
the substance of the matter. The doctrine of pith and
substance is sometimes expressed in terms of
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 759
j
ORS. [G.S. SINGHVI, J.]
~) ascertaining the true character of legislation. The name A
given by the legislature to the legislation is immaterial.
Regard must be had to the enactment as a whole, to its
main objects and to the scope and effect of its provisions.
Incidental and superficial encroachments are to be
disregarded. B

(6) The doctrine of occupied field applies only when there
is a clash between the Union and the State Lists within an
area common to both. There the doctrine of pith and
substance is to be applied and if the impugned legislation
substantially falls within the power expressly conferred upon
c
the legislature which enacted it, an incidental encroaching
in the field assigned to another legislature is to be ignored.
While reading the three lists, List I has priority over Lists
Ill and II and List Ill has priority over List II. However, still,
/t the predominance of the Union List would not prevent the D
State Legislature from dealing with any matter within List
II though it may incidentally affect any item in List I.

[Emphasis supplied]
E
11. The three-Judge Bench also dealt with the scope of
Article 254 and held:

"Article 254 of the Constitution makes provision first, as
... ~
to what would happen in the case of conflict between a
Central and State law with regard to the subjects F
enumerated in the Concurrent List, and secondly, for
resolving such conflict. Article 254( 1) enunciates the
normal rule that in the event of a conflict between a Union
and a State law in the concurrent field, the former prevails
over the latter. Clause (1) lays down that if a State law G
relating to a concurrent subject is 'repugnant' to a Union
""-4
law relating to that subject, then, whether the Union law is
prior or later in time, the Union law will prevail and the State
law shall, to the extent of such repugnancy, be void. To the
general rule laid down in clause (1 ), clause (2) engrafts an H
760 SUPREME COURT REPORTS [2009] 3 S.C.R.

A exception viz. that if the President assents to a State law I"

which has been reserved for his consideration, it will
prevail notwithstanding its repugnancy to an earlier law of
the Union, both laws dealing with a concurrent subject. In
such a case, the Central Act, will give way to the State Act
B only to the extent of inconsistency between the two, and
no more. In short, the result of obtaining the assent of the
President to a State Act which is inconsistent with a
previous Union law relating to a concurrent subject would
be that the State Act will prevail in that State and override
c the provisions of the Central Act in their applicability to that
State only. The predominance of the State law may
however be taken away if Parliament legislates under the
proviso to clause (2). The proviso to Article 254(2)
empowers the Union Parliament to repeal or amend a
D
repugnant State law, either directly, or by itself enacting a t\
law repugnant to the State law with respect to the 'same
matter'. Even though the subsequent law made by
Parliament does not expressly repeal a State law, even
then, the State law will become void as soon as the
subsequent law of Parliament creating repugnancy is
E made. A State law would be repugnant to the Union law
when there is direct conflict between the two laws. Such
repugnancy may also arise where both laws operate in the
same field and the two cannot possibly stand together."
..
F 12. In State of West Bengal v. Kesoram Industries Ltd.
(supra), the majority of the Constitution Bench recognized the
possibility of overlapping of legislations enacted under different
entries in Lists I and II in the Seventh Schedule and observed:

"While reading the three lists, List I has priority over Lists
G
Ill and II and List Ill has priority over List II. However, still,
......
the predominance of the Union List would not prevent the
State Legislature from dealing with any matter within List ,.
II though it may incidentally affect any item in List I.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 761
ORS. [G.S. SINGHVI, J.)

•• In spite of the fields of legislation having been demarcated, A
the question of repugnancy between law made by
Parliament and a law made by the State Legislature may
arise only in cases when both the legislations occupy the
same field with respect to one of the matters enumerated
in List Ill and a direct conflict is seen. If there is a B
repugnancy due to overlapping found between List II on the
one hand and List I and List 111 on the other, the State law
·- />
will be ultra vires and shall have to give way to the Union
law.

.... If there is conflict, the correct approach is to find an
c
answer to three questions step by step as under:

One-ls it still possible to effect reconciliation between two
entries so as to avoid conflict and overlapping?
D
Two-In which entry the impugned legislation falls, by
finding out the pith and substance of the legislation. In this
regard the court has to look at the substance of the matter.
The doctrine of pith and substance is sometimes
expressed in terms of ascertaining the true character of E
legislation. The name given by the legislature to the
legislation is immaterial. Regard must be had to the
enactment as a whole, to its main objects and to the scope
and effect of its provisions. Incidental and superficial
encroachments are to be disregarded. Interpretation is the
F
exclusive privilege of the Constitutional Courts and the
court embarking upon the task of interpretation would
place such meaning on the words as would effectuate the
purpose of legislation avoiding absurdity,
unreasonableness, incongruity and conflict. As is with the
words used so is with the language employed in drafting G
a piece of legislation. That interpretation would be
preferred which would avoid conflict between two fields of
legislation and would rather import homogeneity. It follows
as a corollary of the abovesaid statement that while
H

-'
762 SUPREME COURT REPORTS [2009] 3 S.C.R.

A interpreting tax laws the courts would be guided by the gist •
of the legislation instead of by the apparent meaning of the
words used and the language employed. The courts shall
have regard to the object and the scheme of the tax law
under consideration and the purpose for which the cess
B is levied, collected and intended to be used. The courts
shall make endeavour to search where the impact of the
cess falls. The subject-matter of levy is not to be confused
with the method and manner of assessment or realization.

and
c
Three - Having determined the field of legislation where
in the impugned legislation falls by applying the doctrine
of pith and substance, can an incidental trenching upon
another field of legislation be ignored? Once it is so
D determined if the impugned legislation substantially falls
within the power expressly conferred upon the legislature
which enacted it, an incidental encroaching in/trenching on
the field assigned to another legislature is to be ignored."

E 13. In Govt. of A.P. and anr. v. J.B. Educational Society
and anr. (supra), the Court was called upon to decide whether
there was any conflict between the provisions of All India
Council for Technical Education Act, 1987 and the A.P.
Education Act, 1982 and· whether the State legislation was
liable to be declared void and inoperative on the ground that
F the State legislature was not competent to enact law in the field
occupied by the Central legislation. A two-Judge Bench
analysed the provisions of the two enactments arid held:

"Parliament has exclusive power to legislatewith respect
G to any of the matters enumerated in List I, notwithstanding
anything contained in clauses (2) and (3) of Article 246.
The non obstante clause under Article 246(1) indicates the
predominance or supremacy of the law made by the Union
Legislature in the event of an overlap of the law made by
H Parliament with respect to a matter enumerated in List I
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 763
ORS. [G.S. SINGHVI, J.]
•
• and a law made by the State Legislature with respect to a A
matter enumerated in List II of the Seventh Schedule .

... ... ...... ...... ... ... ....
With respect to matters enumerated in List Ill (Concurrent
List), both Parliament and the State Legislature have equal B
competence to legislate. Here again, the courts are
f charged with the duty of interpreting the enactments of
Parliament and the State Legislature in such manner as
to avoid a conflict. If the conflict becomes unavoidable,
then Article 245 indicates the manner of resolution of such c
a conflict.

Thus, the question of repugnancy between the
parliamentary legislation and the State legislation can arise
j-- in two ways. First, where the legislations, though enacted D
with respect to matters in their allotted sphere, overlap and
conflict. Second, where the two legislations are with
respect to matters in the Concurrent List and there is a
conflict. In both the situations, parliamentary legislation will
predominate, in the first, by virtue of the non obstante
E
clause in Article 246(1), in the second, by reason of Article
254(1). Clause (2) of Article 254 deals with a situation
where the State legislation having been reserved and
.. having obtained President's assent, prevails in that State;
this again is subject to the proviso that Parliament can
again bring a legislation to override even such State F
legislation."

14. The ratio of the above noted judgments is that Article
254 gets attracted only when both Central and State legislations
have been enacted on any of the matters enumerated in List Ill G
in Seventh Schedule and there is conflict between two
·~ legislations. Though in State of West Bengal v. Kesoram
Industries Ltd. (supra) some observations appear to have been
made suggesting that Article 254 gets attracted even though
legislations may have been enacted in different entries in Lists H
'
764 SUPREME COURT REPORTS [2009] 3 S.C.R.

.
•
A I and II, but the same have to be read in consonance with the
plain language of the said Article and other judgments including
the three-Judge Bench judgment in Mis. Hoechst
Pharmaceuticals Ltd. and others v. State of Bihar and others
(supra), which has been expressly approved by the Constitution
B Bench.

15. Undisputedly, the DRT Act and Securitisation Act have
been enacted by Parliament under Entry 45 in List I in the
Seventh Schedule whereas Bombay and Kerala Acts have
been enacted by the concerned State legislatures under Entry
C 54 in List II in the Seventh Schedule. To put it differently, two
sets of legislations have been enacted with reference to entries
in different lists in the Seventh Schedule. Therefore, Article 254
cannot be invoked per se for striking down State legislations
on the ground that the same are in conflict with the Central
D legislations. That apart, as will be seen hereafter, there is no
ostensible overlapping between two sets of legislations.
Therefore, even if the observations contained in Kesoram
Industries' case (supra) are treated as law declared under
Article 141 of the Constitution, the State legislations cannot be
E struck down on the ground that the same are in conflict with
Central legislations.

16. Before proceeding further we may notice the
background in which the DRT and Securitisation Acts were
F enacted, and schemes of the two legislations. After
independence, the Government of India decided to give impetus
to the industrial development of the country. Central and State
Governments encouraged banks and other financial institutions
to liberalize the grant of loans and other credit facilities to the
G industrial entrepreneurs. With the nationalization of banks, this
policy got a boost and the country witnessed rapid
industrialization. The issue of repaymenUrecovery of loans etc.
given by banks and financial institutions did not pose any
serious problem in first three decades. However, with the
passage of time, the human greed took over the righteousness
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 765
ORS. [G.S. SINGHVI, J.]
and those who were granted loans and/or other financial A
facilities did not bother to repay. Not only this, the efforts made
by banks and financial institutions for recovery of their dues
were stultified by the defaulting borrowers who indulged in
unwarranted and protracted litigation in civil courts. The slow
and tardy progress of cases instituted in civil courts resulted in B
blocking of several thousand crores of public money, which was
,_ considered critical to the successful implementation of fiscal
-' reform. The pioneers of financial sector reforms called for early
solution of this problem. Therefore, the Government of India
constituted a committee under the Chairmanship of Shri T. c
Tiwari to examine the legal and other difficulties faced by banks
and financial institutions in the recovery of their dues and
suggest remedial measures. The Tiwari Committee noted that
the existing procedure for recovery was very cumbersome and
suggested that special tribunals be set up for recovery of the D
dues of banks and financial institutions by following a summary
procedure. The Tiwari Committee also prepared a draft of the
proposed legislation which contained a provision for disposal
of cases in three months and conferment of power upon the
recov~ry officer for expeditious execution of orders made by
E
adjudicating bodies. The issue was further examined by the
Committee on the Financial System headed by Shri M.
Narasimham. In its first report, Narasimham Committee also
• suggested setting up of special tribunals with special powers
for adjudication of cases involving the dues of banks and
financial institutions. Even in regard to priority among creditors, F
Narasimham Committee made the following suggestion:

"The Adjudication Officer will have such power to distribute
the sale proceeds to the banks arid financial institutions
being secured creditors, in accordance with inter se G
~~
agreement/arrangement between them and to the other
persons entitled thereto in accordance with the priorities
in the law."
17. After considering the reports of two Committees and
H
766 SUPREME COURT REPORTS [2009] 3 S.C.R.

A taking cognizance of the fact that as on 30th September, 1990
more than 15 lakhs cases filed by public sector banks and 304
cases filed by financial institutions were pending in various
courts for recovery of debts etc. amounting to Rs.6,000 crores,
the Central Government introduced ''The Recovery of Debts
B Due to Banks and Financial Institutions Bill, 1993" in Lok Sabha
on 13.5.1993. It, however, appears that before the Bill could be
passed, Lok Sabha was adjourned. Therefore, the President
of India in exercise of the powers conferred by Article 123(1)
of the Constitution, promulgated "The Recovery of Debts Due
c to Banks and Financial Institutions Ordinance, 1993", which was
replaced by the ORT Act. The new legislation facilitated creation
of specialized forums, i.e., the Debts Recovery Tribunals and
Debts Recovery Appellate Tribunals for expeditious
adjudication of disputes relating to recovery of the debts due
D to banks and financial institutions. Simultaneously, the
jurisdiction of the civil courts was barred and all pending
matters were transferred to the Tribunals from the date of their
establishment. For some years, the new dispensation of
adjudication worked well. However, with the passage of time,
proceedings before the Debts Recovery Tribunals also started
E getting bogged down due to invoking of technicalities by the
borrowers. Faced with this situation, the Government again
asked the Narasimham Committee to suggest measures for
expediting recovery of debts etc. due to banks and financial
institutions. In its 2nd Report, Narasimham Committee observed
F that the non-performing assets of most of the public sector
banks were abnormally high and the existing mechanism for
recovery of the same was wholly insufficient. In Chapter VIII of
the report, the Committee observed that the evaluation of legal
frame work has not kept pace with the changing commercial
G practice and financial sector reforms and as a result of this the
economy has not been able to reap full benefits of the reform
process. By way of illustration, the Committee referred to the
scheme of mortgage under the Transfer of Property Act and
suggested that the existing laws should be changed not only
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 767
ORS. [G.S. SINGHVI, J.]

for facilitating speedy recovery of the dues of banks etc. but A
also for quick resolution of disputes arising out of the action
taken for recovery of such dues. Andhyarujina Committee
constituted by the Central Government for examining banking
sector reforms also considered the need for changes in the
legal system. Both Narasimham and Andhyarujina Committees B
suggested enactment of new legislation for securitisation and
empowering the banks and financial institutions to take
possession of the securities and sell them without intervention
of the court. In the backdrop of these recommendations, the
Parliament enacted the Securitisation Act. c
Scheme of the ORT Act and Rules made thereunder

18. Section 2(g) of the ORT Act (as it stood before being
. j
amended by Act No. 30/2004) defined "debt" as - "any liability
(inclusive of interest) which is alleged as due from any person D
by a bank or a financial institution or by a consortium of banks
or financial institutions during the course of any business activity
undertaken by bank or financial institution or the consortium
under any law for the time being in force, in cash or otherwise,
whether secured or unsecured, or whether payable under a E
decree or order of any civil court or otherwise and subsisting
on, and legally recoverable on, the date of the application." After
~
the amendment of 2004, "debt" means "any liability (inclusive
of interest) which is alleged as due from any person by a bank

- or a financial institution or by a consortium of banks or financial F
institutions during the course of any business activity undertaken
by the bank or the financial institution or the consortium under
any law for the time being in force, in cash or otherwise, whether
secured or unsecured, or assigned, or whether payable under
a decree or order of any civil court or any arbitration award or
G
otherwise or under a mortgage and subsisting on, and legally
,..~
recoverable on, the date of the application." The provisions
contained in Chapter 11 envisage establishment of the Debts
Recovery Tribunals and the Debts Recovery Appellate
Tribunals, qualifications of Presiding Officers and Members,
H
768 SUPREME COURT REPORTS [2009] 3 S.C.R.

A term of their office, staff of the tribunals, salaries, allowances,
etc. Section 17(1) of the ORT Act declares that a Tribunal shall
have the jurisdiction, powers and authority to entertain and
decide applications made by banks and financial institutions
for recovery of debts due to them. Under Section 17(2), the
B Appellate Tribunal has been vested with jurisdiction, powers
and authority to entertain appeal against any order made or
deemed to have been made by a Tribunal. Section 18
expressly bars the jurisdiction, powers and authority of all courts
except the Supreme Court and a High Court exercising
c jurisdiction under Articles 226 and 227 of the Constitution of
India in relation to matters specified in Section 17. Section 19,
which finds place in Chapter IV of the ORT Act contains
procedure required to be followed by the Tribunal for deciding
an application made for recovery of debt. It envisages making
of application by a bank or a financial institution for recovery \ .
0
of any debt from any person, issue of summons to the
defendant to show cause as to why relief prayed for may not
be granted to the applicant and also provides for passing of
appropriate orders. By amending Act No.30/2004, three
provisos were inserted in Section 19(1 ). In terms of first proviso,
E a bank or a financial institution can, after obtaining permission
of the ORT, withdraw the original application for the purpose
of taking action under the Securitisation Act. Second proviso
lays down that an application for withdrawal filed under first
proviso must be disposed of within 30 days. The third proviso
F requires recording of reasons in case the Tribunal refuses
permission or leave for withdrawal of application under Section
19(1). Section 19(6) provides for the defendant's claim to set-
-
off against the bank's demand for a certain sum of money.
Section 19(8) gives right to the defendant to set up a counter
G claim. Section 19(12) empowers the Tribunal to make an
interim order by way of injunction, stay or attachment before
judgment debarring the defendant from transferring, alienating
or otherwise dealing with, or disposing of, his properties and
assets. Under Section 19(13), the Tribunal is empowered to
H direct the defendant to furnish security where it is satisfied that
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 769
ORS. [G.S. SINGHVI, J.]

"' the defendant is likely to dispose of the property or cause A
damage to the property in order to defeat the decree which may
ultimately be passed in favour of bank or financial institution.
Section 19(18), empowers the Tribunal to appoint a receiver
of any property on the ground of equity. This can be done
before or after grant of certificate for recovery of debt. Under B
Section 19(19), a recovery certificate issued against a
~ company can be enforced by the Tribunal which can order the
property to be sold and the sale proceeds distributed amongst
the secured creditors in accordance with the provisions of
Section 529A of the Companies Act, 1956 and pay the c
balance/surplus, if any, to the debtor-company. Section 20(1)
lays down that any person aggrieved by an order made, or
deemed to have been made, by a Tribunal may prefer an appeal
to the Appellate Tribunal. Sub-section (2) of Section 20
declares that no appeal shall lie from an order made by the
D
Tribunal with the consent of the parties. Sub-section (3)
prescribes the period of limitation i.e. 45 days. Proviso to this
sub-section empowers the Tribunal to entertain an appeal after
the expiry of 45 days if it is satisfied that there was sufficient
cause for not filing the appeal within the prescribed period. Sub-
sections (4) to (6) contain the procedure to be followed by the
E
Appellate Tribunal for disposal of an appeal. Section 21 lays
down that the Appellate Tribunal shall not entertain an appeal
,. unless the person preferring appeal deposits 75 per cent of the
amount determined by the Tribunal under Section 19. Section
22 lays down that the Tribunal and the Appellate Tribunal shall F
not be bound by the procedure contained in the Code of Civil
Procedure, but shall be guided by the principles of natural
justice and subject to the other provisions of the Act or rules
made thereunder, the Tribunal and the Appellate Tribunal shall
be free to regulate their own procedure. Section 25 specifies G
. ~ three modes of recovery of debt, namely, (a) attachment and
sale, (b) arrest of the defendant and (c) appointment of a
receiver for the management of the properties of the defendant.
Other modes of recovery are specified in Section 28 which
states that where a certificate has been issued by the Tribunal H
770 SUPREME COURT REPORTS [2009] 3 S.C.R.

A under Section 19(7), the Recovery Officer may, without •
prejudice to the modes of recovery specified in Section 25,
recover the amount of debt by any one or more of the modes
mentioned in Section 28. By Section 29, the provisions of
Second and Third Schedules to the Income Tax Act, 1961 and
B the Income Tax (Certificate Proceedings) Rules, 1962 have
been made applicable to the recovery proceedings. Section
31 (1) states that every suit or other proceeding pending before
any court immediately before the date of establishment of a
Tribunal, shall stand transferred to the Tribunal if the subject
c matter thereof would have been within its jurisdiction had the
cause of action arisen after establishment of the Tribunal.
Section 31A lays down that where a decree or order was
passed by any court before the commencement of the Recovery
of Debts Due to Banks and Financial Institutions (Amendment)
0 Act, 2000 and the same had not been executed, then the
decree-holder can apply to the Tribunal for recovery of the
amount. Sub-section (1) of Section 34 contains a non obstante
clause and declares that save as otherwise provided in sub-
section (2), provisions of the ORT Act shall have effect
E notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or in any instrument having
effect by virtue of any law other than that Act. Amended sub-
section (2) of Section 34 lays down that the provisions of the
ORT Act or rules made thereunder shall be in addition to and
not in derogation of Industrial Finance Corporation Act, 1948,
F The State Financial Corporation Act, 1951, The Unit Trust of
India Act, 1963, Industrial Reconstruction Bank of India Act,
1984 and the Small Industries Development Bank of India Act,
1989.

G 19. In exercise of the power conferred upon it under Section
36 of the ORT Act, the Central Government has framed the
Debts Recovery Tribunal (Procedure) Rules, 1993. These rules
regulate the procedure for filing application in the prescribed
form, scrutiny thereof, fee for application, contents of
H application, documents to be filed with the application, filing of
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 771
ORS. [G.S. SINGHVI, J.]
>
• reply and documents by the respondent, date and place of A
hearing of the application, the manner of recording the order,
publication of order and communication thereof to the parties.
By an amendment made in 1997, Rule SA was added to
enable a party to apply for review of the order made by the
Tribunal on the ground of some mistake or error apparent on B
the face of the record. For regulating the procedure of the
Appellate Tribunal, the Central Government has framed the
" Debts Recovery Appellate Tribunal (Procedure) Rules, 1994.
The provisions contained in these rules are similar to those
contained in the rules regulating the procedure of the Tribunal. c
Scheme of the Securitisation Act and Rules made
thereunder

20. Section 2(b) defines "asset reconstruction" to mean
acquisition by any Securitisation company or reconstruction D
company of any right or interest of any bank or financial
institution in any financial assistance for the purpose of
realisation of such financial assistance. Section 2(f) defines the
word "borrower" to mean, any person who has been granted
financial assistance by any bank or financial institution or who E
has given any guarantee or created any mortgage or pledge
as security for the financial assistance granted by any bank or
.. financial institution. It includes a person who becomes borrower
of a securitisation company or reconstruction company
~

consequent upon acquisition by it of any right or interest of any F
,.. ' bank or financial institution in relation to such financial
assistance. Section 2(ha) declares that "debt" shall have the
meaning assigned to it in clause (g) of Section 2 of the ORT
Act. Section 2(k) defines "financial assistance" to mean any
loan or advance or any debentures or bonds subscribed or any
G
guarantees given or leiters of credit established or any other
' ~ credit facility extended by any bank or financial institution.
Section 2(1) defines "financial asset" to mean any debt or
receivables and includes a claim to any debt or receivables or
part thereof, whether secured or unsecured or any debt or
H
772 SUPREME COURT REPORTS [2009] 3 S.C.R.

A receivables secured by, mortgage of, or charge on, immovable •
property, or a mortgage, charge, hypothecation or pledge of
movable property or any right or interest in the security, whether
full or part underlying such debt or receivables or any beneficial
interest in property, whether movable or immovable, or in such
B debt, receivables, whether such interest is existing, future,
accruing, conditional or contingent or any financial assistance.
Section 2(n) defines "hypothecation" to mean a charge created
by a borrower in favour of a secured creditor as a security for
financial assistance. Section 2(o) defines "non-performing
c asset" to mean an asset or account of a borrower which has
been classified by a bank or financial institution as sub-
standard, doubtful or loss asset. Section 2(z) defines
"Securitisation" to mean acquisition of financial assets by any
securitisation company or reconstruction company from any
D
originator whether by raising of funds by such securitisation
company or reconstruction company from qualified institutional
buyers by issue of security receipts representing undivided
interest in such financial assets or otherwise. Section 2(zc)
defines "secured asset" to mean the property on which security
interest is created. Section 2(zd) defines "secured creditor" to
E mean any bank or financial institution or any consortium or group
of banks or financial institutions and includes (i) debenture
trustee appointed by any bank or financial institutions, or (ii)
securitisation company or reconstruction company, whether ~

acting as such or managing a trust set up by such securitization
F company or reconstruction company for the securitisation or
reconstruction, as the case may be, or (iii) any other trustee
holding securities on behalf of a bank or financial institution, in
whose favour security interest is created for due repayment by
any borrower of any financial assistance. Section 2(ze) defines
G a "secured debt" to mean a debt which is secured by any
security interest. Section 2(zf) defines "security interest" to mean } .
right, title and interest of any kind whatsoever upon property,
created in favour of any secured creditor and includes any
mortgage, charge, hypothecation and assignment." Chapter II
H which contains Sections 3 to 12 deals with regulation of
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 773
ORS. [G.S. SINGHVI, J.]
• securitisation and reconstruction of financial assets of banks A
and financial institutions. Chapter Ill deals with enforcement of
security interest. It comprises of seven sections including
Section 13 which is crucial for decision of these appeals. Sub-
section ( 1) of Section 13 contains a non obstante clause. It lays
down that notwithstanding anything contained in Sections 69 B
or 69A of the Transfer of Property Act, any security interest
created in favour of any secured creditor may be enforced,
,,. !
without the intervention of the Court or Tribunal, by such creditor
in accordance with the provisions of this Act. Sub-section (2)
of Section 13 enumerates first of many steps needed to be c
taken by the secured creditor for enforcement of security
interest. This sub-section provides that if a borrower, who is
under a liability to a secured creditor, makes any default in
repayment of secured debt and his account in respect of such
debt is classified as non-performing asset, then the secured D
creditor may require the borrower by notice in writing to
discharge his liabilities within sixty days from the date of the
notice with an indication that if he fails to do so, the secured
creditor shall be entitled to exercise all or any of its rights in
terms of Section 13(4). Sub-section (3) of Section 13 lays down
E
that notice issued under Section 13(2) shall contain details of
the amount payable by the borrower as also the details of the
secured assets intended to be enforced by bank or financial
institution. Sub-section (3-A) of Section 13 lays down that the
"" borrower may make a representation in response to the notice
issued under Section 13(2) and challenge the classification of F
his account as non-performing asset as also the quantum of
amount specified in the notice. If the bank or financial institution
comes to the conclusion that the representation/objection of the
borrower is not acceptable, then reasons for non acceptance

. ..(
are required to be communicated within one week. Sub-section
(4) of Section 13 specifies various modes which can be
adopted by the secured creditor for recovery of secured debt.
G

The secured creditor can take possession of the secured
assets of the borrower and transfer the same by way of lease,
assignment or sale for realizing the secured assets. This is H
774 SUPREME COURT REPORTS [2009] 3 S.C.R.

...
A subject to the condition that the right to transfer by way of lease
etc. shall be exercised only where substantial part of the
business of the borrower is held as secured debt. If the
management of whole or part of the business is severable, then
the secured creditor can take over management only of such
B business of the borrower which is relatable to security. The
secured creditor can appoint any person to manage the
secured asset, the possession of which has been taken over.
-"
The secured creditor can also, by notice in writing, call upon a
person who has acquired any of the secured assets from the
c borrower to pay the money, which may be sufficient to discharge
the liability of the borrower. Sub-section (7) of Section 13 lays
down that where any action has been taken against a borrower
under sub-section (4), all costs, charges and expenses properly
incurred by the secured creditor or any expenses incidental
D
thereto can be recovered from the borrower. The money which
is received by the secured creditor is required to be held by
him in trust and applied, in the first instance, for such costs,
charges and expenses and then in discharge of dues of the
secured creditor. Residue of the money is payable to the
person entitled thereto according to his rights and interest. Sub-
E section (8) imposes a restriction on the sale or transfer of the
secured asset if the amount due to the secured creditor
together with costs, charges and expenses incurred by him are
tendered at any time before the time fixed for such sale or
transfer. Sub-section (9) deals with the situation in which more
.
F than one secured creditor has stakes in the secured assets and
lays down that in the case of financing a financial asset by more
than one secured creditor or joint financing of a financial asset
by secured creditors, no individual secured creditor shall be
entitled to exercise any or all of the rights under sub-section (4)
G unless all of them agree for such a course. There are five
unnumbered provisos to Section 13(9) which deal with pari >•
passu charge of the workers of a company in liquidation. The
first of these provisos lays down that in the case of a company
in liquidation, the amount realized from the sale of secured
H assets shall be distributed in accordance with the provisions
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 775
ORS. [G.S. SINGHVI, J.]
• of Section 529A of the Companies Act, 1956. The second A
proviso deals with the case of a company being wound up on
or after the commencement of this Act. If the secured creditor
of such company opts to realize its security instead of
relinquishing the same and proving its debt under Section
529(1) of the Companies Act, then it can retain sale proceeds B
after depositing the workmen's dues with the liquidator in
accordance with Section 529A. The third proviso requires the
.~
liquidator to inform the secured creditor about the dues payable
to the workmen in terms of Section 529A. If the amount payable
to the workmen is not certain, then the liquidator has to intimate c
the estimated amount to the secured creditor. The fourth proviso
lays down that in case the secured creditor deposits the
estimated amount of the workmen's dues, then such creditor
shall be liable to pay the balance of the workmen's dues or
entitled to receive the excess amount, if any, deposited with the
D
liquidator. In terms of fifth proviso, the secured creditor is
required to give an undertaking to the liquidator to pay the
balance of the workmen's dues, if any. Sub-section (10) lays
down that where dues of the secured creditor are not fully
satisfied by the sale proceeds of the secured assets, the
secured creditor may file an application before the Tribunal E
under Section 17 for recovery of balance amount from the
borrower. Sub-section (11) states that without prejudice to the
... rights conferred on the secured creditor under or by this section,
it shall be entitled to proceed against the guarantors or sell the
pledged assets without resorting to the measures specified in F
clauses (a) to (d) of sub-section (4) in relation to the secured
assets. Sub-section (12) lays down that rights available to the
secured creditor under the Act may be exercised by one or
more of its officers authorised in this behalf. Sub-section (13)
lays down that after receipt of notice under sub-section (2), the G
borrower shall not transfer by way of sale, lease or otherwise
'~
(other than in the ordinary course of his business) any of his
secured assets referred to in the notice without prior written
consent of the secured creditor. Section 14 represents
semblance of court's intervention by way of assistance to a H
776 SUPREME COURT REPORTS [2009] 3 S.C.R.

A secured creditor in taking possession of the secured asset.
The secured creditor can, for the purpose of taking possession
or control of any secured asset, request in writing to the Chief
Metropolitan Magistrate or the District Magistrate within whose
jurisdiction the secured asset or other document relating theretp
B is situated or found to take possession thereof. If such request
is made, the Chief Metropolitan Magistrate or the District
Magistrate, as the case may be, is obliged to take possession ~.

of such asset and document and forward the same to the
secured creditor. Section 17 speaks of the remedies available
c totheany person including borrower who may feel aggrieved by
action taken by the secured creditor under sub-section (4)
of Section 13. Such an aggrieved person can make an
application to the Tribunal within 45 days from the date on
which action is taken under that sub-section. By way of
D
abundant caution, an explanation has been added to Section •,
17(1) and it has been clarified that the communication of
reasons to the borrower in terms of Section 13(3A) shall not
constitute a ground for filing application under Section 17(1 ).
Sub-section (2) of Section 17 casts a duty on the Tribunal to
consider whether the measures taken by the secured creditor
E for enforcement of security interest are in accordance with the
provisions of the Act and rules made thereunder. If the Tribunal,
after examining the facts and circumstances of the case and
evidence produced by the parties, comes to the conclusion that ...
the measures taken by the secured creditor are not in
F consonance with sub-section (4) of Section 13, then it can
direct the secured creditor to restore management of the
business or possession of the secured assets to the borrower.
On the other hand, if the Tribunal finds that the recourse taken
by the secured creditor under sub-section (4) of Section 13 is
G in accordance with the provisions of the Act and the rules made
thereunder, then, notwithstanding anything contained in any >•
other law for the time being in force, the secured creditor can
take recourse to one or more of the measures specified in
Section 13(4) for recovery of its secured debt. Sub-section (5)
H of Section 17 prescribes the time limit of sixty days within which
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 777
ORS. [G.S. SINGHVI, J.]
" i' an application made under Section 17 is required to be A
disposed of. Proviso to this sub-section envisages extension
of time, but the outer limit for adjudication of an application is
four months. If the Tribunal fails to decide the application within
a maximum period of four months, then either party can move
the Appellate Tribunal for issue of a direction to the Tribunal to B
dispose of the application expeditiously. Section 18 provides
-' ~
for an appeal to the Appellate Tribunal. Section 34 lays down
that no civil court shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which a Tribunal or
Appellate Tribunal is empowered to determine. It further lays c
down that no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken under
the Securitisation Act or ORT Act. Section 35 of the
Securitisation Act is substantially similar to Section 34(1) of the
ORT Act. It declares that the provisions of this Act shall have D
effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any instrument
having effect by virtue of any such law. Section 37, which is
similar to Section 34(2) of the ORT Act lays down that the
provisions of this Act or the Rules made thereunder shall be in
E
addition to, and not in derogation of, the Companies Act, 1956,
the Securities Contracts (Regulation) Act, 1956, the Securities
and Exchange Board of India Act, 1992, the Recovery of Debts
,. Due to Banks and Financial Institutions Act, 1993 or any other
law for the time being in force.
F
21. In exercise of powers vested in it under Sections 38(1)
and (2)(b) read with Sections 13(4), (10) and (12) of the
Securitisation Act, the Central Government framed the Security
Interest (Enforcement) Rules, 2002. Rule 3 prescribes the
mode of service of demand notice. Rule 4 details the procedure G
, -+ to be followed after issue of demand notice. Various sub-rules
of

this rule specify the mode of taking possession of
moveable security assets, their preservation and protection,
H
778 SUPREME COURT REPORTS [2009) 3 S.C.R.
A

A valuation and sale. Rule 8 lays down similar procedure in
respect of immovable security assets. Rule 9 regulates time of
sale, issue of sale certificate and delivery of possession to the
purchaser. Rule 10 provides for appointment of manager of the
security assets of which possession has been taken over by
B the secured creditor. Rule 11 regulates procedure for recovery
of shortfall of secured debt.
~ .._

22. An analysis of the above noted provisions makes it
clear that the primary object of the ORT Act was to facilitate
c creation of special machinery for speedy recovery of the dues
of banks and financial institutions. This is the reason why the
ORT Act not only provides for establishment of the Tribunals
and Appellate Tribunals with the jurisdiction, powers and
authority to make summary adjudication of applications made
by banks or financial institutions and specifies the modes of •
0 recovery of the amount determined by the Tribunal or Appellate
Tribunal but also bars the jurisdiction of all courts except the
Supreme Court and High Courts in relation to the matters
specified in Section 17. The Tribunals and Appellate Tribunals
have also been freed from the shackles of procedure contained
E in the Code of Civil Procedure. To put it differently, the ORT Act
has not only brought into existence special procedural
mechanism for speedy recovery of the dues of banks and
financial institutions, but also made provision for ensuring that ...
defaulting borrowers are not able to invoke the jurisdiction of
F civil courts for frustrating the proceedings initiated by the banks
and financial institutions.

23. The enactment of the Securitisation Act can be treated
as one of the most radical legislative measures taken by the
Government for ensuring that dues of secured creditors
G
including banks, financial institutions are recovered from the t ,
defaulting borrowers without any obstruction. For the first time,
the secured creditors have been empowered to take measures
for recovery of their dues without the intervention of the Courts
or Tribunals. The Securitisation Act has also brought into
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 779
ORS. [G.S. SINGHVI, J.]
,.__ ~ existence a new dispensation for registration and regulation of A
securitisation companies or reconstruction companies,
facilitating securitisation of financial assets of banks and
financial institutions, easy transferability of financial assets by
the securitisation company or reconstruction company to
acquire financial assets of banks and financial institutions by B
issue of debentures or bonds or any other security in the nature
of debenture, empowering the securitisation companies or
,• ,. reconstruction companies to raise funds by issue of security
receipts to qualified institutional buyers, facilitating
reconstruction of financial assets acquired by exercising power c
of enforcement of securities or change of management,
declaration of any securitisation company or reconstruction
company as a public financial institution for the purpose of
Section 4A of the Companies Act, defining 'security interest'
i- as any type of security including mortgage and charge on
D
immovable properties given for due payment of any financial
assistance given by any bank or financial institution,
classification of borrowers account as non-performing asset
and above all empowering banks and financial institutions to
take possession of securities given for financial assistance and
sale or lease the same or take over management. E

24. In the light of the above, we shall now consider whether
there is any conflict between the ORT Act and Securitisation
~
Act on one hand and the Bombay and Kerala Acts and similar
State legislations on the other, and whether by virtue of non F
obstante clauses contained in Section 34(1) of the ORT Act
and Section 35 of the Securitisation Act, the provisions
contained in those legislations override Section 38C of the
Bombay Act, Section 268 of the Kerala Act and similar other
State legislations. For reference sake, these provisions are G
reproduced below:
' 1'
c

ORT Act

"34. Act to have over-riding effect.-(1) Save as otherwise
H
780 SUPREME COURT REPORTS [2009] 3 S.C.R.

A provided in sub-section (2), the provisions of this Act shall
..
have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in
any instrument having effect by virtue of any law other than
this Act.
B
(2) The provisions of this Act or the rules made thereunder
shall be in addition to, and not in derogation of, the
~
Industrial Finance Corporation Act, 1948 (15 of 1948), the
State Financial Corporations Act, 1951 (63of1951), the
Unit Trust of India Act, 1963 (52 of 1963), the Industrial
c Reconstruction Bank of India Act, 1984 (62of1984), the
Sick Industrial Companies (Special Provisions) Act, 1985
and the Small Industries Development Bank of India Act,
1989."

D Securitisation Act •
"35. The provisions of this Act to override other laws. -The
provisions of this Act shall have effect, notwithstanding
anything inconsistent therewith contained in any other law '
for the time being in force or any instrument having effect
E
by virtue of any such law."

37. Application of other laws not barred.-The provisions
of this Act or the rules made thereunder shall be in addition
"'
to, and not in derogation of, the Companies Act, 1956 (1
F of 1956), the Securities Contracts (Regulation) Act, 1956
(42of1956), the Securities and Exchange Board of India
Act, 1992 (15 of 1992), the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (51 of 1993) or
any other law for the time being in force."
G
Bombay Sales Tax Act, 1959 /
~

"38C. Liability Under this Act to be First Charge-
Notwithstanding anything contained in any contract to the
contrary but subject to any provision regarding first charge
H
782 SUPREME COURT REPORTS [2009] 3 S.C.R.

,..
A Provisions Act, 1952

"11. Priority of payment of contributions over other
debts.- (1) Where any employer is adjudicated insolvent
or, being a company, an order for winding up is made, the
amount due-
8
(a) from the employer in relation to an establishment
~
to which any Scheme or the Insurance Scheme
applies in respect of any contribution payable to the
Fund or, as the case may be, the Insurance Fund,
c damages recoverable under section 148,
accumulations required to be transferred under sub-
section (2) of section 15 or any charges payable
by him under any other provision of this Act or of
any provision of the Scheme or the Insurance
D Scheme; or •'
(b) from the employer in relation to an exempted
establishment in report of any contribution to the
provident fund or any insurance fund in so far it
relates to exempted employees, under the rules of
E
the provident fund or any insurance fund, any
contribution payable by him towards the Pension
Fund under sub-section (6) of section 17, damages
.,.
recoverable under section 148 or any charges
payable by him to the appropriate Government
F under any provision of this Act or under any of the
conditions specified under section 17,

shall, where the liability therefor has accrued before the
order of adjudication or winding up is made, be deemed
G to be included among the debts which under section 49
of the Presidency-towns Insolvency Act, 1909 (3of1909), t •
or under section 61 of the Provincial Insolvency Act, 1920
(5 of 1920), or under section 530 of the Companies Act,
1956 (1 of 1956) are to be paid in priority to all other debts
H in the distribution of the property of the insolvent or the
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 783
ORS. [G.S. SINGHVI, J.]
.. assets of the company being wound up, as the case may A
---4
be.

Explanation. - In this sub-section and in section 17,
"insurance fund" means any fund established by an
employer under any scheme for providing benefits in the
B
nature of life insurance to employees, whether linked to ·
their deposits in provident fund or not, without payment by
~ t the employees of any separate contribution or premium in
that behalf.

11 (2) Without prejudice to the provisions of sub-section c
(1), if any amount is due from an employer, whether in
respect of the employee's contribution deducted from the
wages of the employee or the employer's contribution, the
amount so due shall be deemed to be the first charge on
...
I
the assets of the establishment, and shall, notwithstanding D
anything contained in any other law, for the time being in
force, be paid in priority to all other debts."

Estate Duty Act, 1953

"74(1). Estate duty a first charge on property liable E
thereto.- (1) Subject to the provisions of section 19, the
estate duty payable in respect of property, movable or
_,-" immovable, passing on the death of the deceased, shall
be a first charge on the immovable property so passing
....._ (including agricultural land) in whomsoever it may vest on F
his death after the debts and encumbrances allowable
under Part VI of this Act; and any private transfer or delivery
of such property shall be void against any claim in respect
of such estate duty."
G
Mines and Minerals (Development and Regulation) Act,
' -~
1957 .

"25(2). Any rent, royalty, tax, fee or other sum due to the
Government either under this Act or any rule made
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 785
ORS. [G.S. SINGHVI, J.)

sub-section (1) shall be paid in full, unless the assets are A
insufficient to meet them, in which case they shall abate
in equal proportions."

Section 468 of the State Financial Corporations Act, 1951 (for
short 'the SFC Act') which contains a non obstante clause B
similar to the one contained in Section 34(1) of the DRT Act
and Section 35 of the Securitisation Act and the effect of which
_;. t was considered by a Division Bench of the Kerala High Court
vis a vis Section 11 (2) of the EPF Act also read as under:-

State Financial Corporations Act, 1951 c
"468. Effect of Act on other laws.- The provisions of this
Act and of any rules or orders made thereunder shall have
effect notwithstanding anything inconsistent therewith
/' contained in any other law for the time being in force or in D
the memorandum or articles of association of an industrial
concern or in any other instrument having effect by virtue
of any law other than this Act, but save as aforesaid, the
provisions of this Act shall be in addition to, and not in
derogation of, any other law for the time being applicable E
to an industrial concern."

25. As a prelude to the consideration of question relating
..,.
1( to conflict between Central and State legislations and priority,
if any, given to the dues of banks, financial institutions and other
secured creditors under the DRT Act and Securitisation Act, it F
will be useful to notice some rules of interpretation of statutes,
one of which is the rule of contextual interpretation. This rule
requires that the court should examine every word of a statute
in its context. In doing so, the Court has to keep in view
preamble of the statute, other provisions thereof, pari materia G
.... ~
statutes, if any, and the mischief intended to be remedied .
Context often provides the key to the meaning of the word and
the sense it carries. Its setting gives colour to it and provides
a cue to the intention of the legislature in using it. In his famous
work on Statutory Interpretation, Justice G.P. Singh has quoted H
786 SUPREME COURT REPORTS [2009] 3 S.C.R.

A Professor H.A. Smith in the following words:

"'No word'; says Professor H.A. Smith 'has an absolute
meaning, for no words can be defined in vacuo, or without
reference to some context'. According to Sutherland there
is a 'basic fallacy' in saying 'that words have meaning in
B
and of themselves', and 'reference to the abstract meaning
of words', states Craies, 'iHhere be any such thing, is of
little value in interpreting statutes' .... in determining the
meaning of any word or phrase in a statute the first
question to be asked is - 'What is the natural or ordinary
c meaning of that word or phrase in its context in the statute?
It is only when that meaning leads to some result which
cannot reasonably be supposed to have been the intention
of the legislature, that it is proper to look for some other
possible meaning of the word or phrase.' The context, as
D already seen in the construction of statutes, means the
.
statute as a whole, the previous state of the law, other
statutes in pari materia, the general scope of the statute
and the mischief that it was intended to remedy."

E In Poppatlal Shah v. State of Madras [AIR 1953 SC 274], this
Court while construing the word 'sale' appearing in the Madras
General Sales Tax Act, 1939 before its amendment in 1947,
observed: "it is a settled rule of construction that to ascertain
the legislative intent, all the constituent parts of a statutes are • .
F to be taken together, and each word, phrase or sentence is to
be considered in the light of the general purpose of the Act
itself'. '"'
26. In Reserve Bank of India v. Peerless General Finance
and Investment Company Limited [(1987) 1 SCC 424], it was
G observed, "that interpretation is best which makes the textual
interpretation match the contextual." Speaking for the Court, ,,. .
Chinappa Reddy, J. noted the importance of rule of contextual
interpretation and held:-

H "Interpretation must depend on the text and the context.
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 787
ORS. [G.S. SINGHVI, J.]

They are the bases of interpretation. One may well say if A
the text is the texture, context is what gives the colour.
Neither can be ignored. Both are important. That
interpretation is best which makes the textual interpretation
match the contextual. A statute is best interpreted when we
know why it was enacted. With this knowledge, the statute 8
must be read, first as a whole and then section by section,
. t clause by clause, phrase by phrase and word by word. If
a statute is looked at, in the context of its enactment, with
the glasses of the statute-maker, provided by such context,
its scheme, the sections, clauses, phrases and words may c
take colour and appear different than when the statute is
looked at without the glasses provided by the context. With
these glasses we must look at the Act as a whole and
discover what each section, each clause, each phrase and
, .- each word is meant and designed to say as to fit into the
D
scheme of the entire Act. No part of a statute and no word
of a statute can be construed in isolation. Statutes have
to be construed so that every word has a place and
everything is in its place. It is by looking at the definition
as a whole in the setting of the entire Act and by reference
to what preceded the enactment and the reasons for it that E
the Court construed the expression 'prize chit' in Srinivasa
[(1980) 4 sec 507] and we find no reason to depart from
•" the Court's construction."

27. In R. v. National Asylum Support Services [(2002) 4 F
All ER 654], LORD STEYN observed "the starting point is that
language in all legal texts conveys meaning according to the
circumstances in which it was used. It follows that context must
always be identified and considered before the process of
construction or during it. !t is, therefore, wrong to say that the G
court may only resort to the evidence of contextual scene when
' " an ambiguity has arisen."

28. A non obstante clause is generally incorporated in a
statute to give overriding effect to a particular section or the
H
788 SUPREME COURT REPORTS [2009] 3 S.C.R.

A statute as a whole. While interpreting non obstante clause, the
Court is required to find out the extent to which the legislature
intended to do so and the context in which the non obstante
clause is used. This rule of interpretation has been applied in
several decisions. In State of West Bengal v. Union of India
B [(1964) 1 SCR 371], it was observed that the Court must
ascertain the intention of the legislature by directing its attention
not merely to the clauses to be construed but to the entire
statute; it must compare the clause with the other parts of the '-
law and the setting in which the clause to be interpreted occurs.
c 29. In Madhav Rao Jivaji Rao Scindia v. Union of India
and another [(1971) 1 SCC 85] Hidayatullah, C.J. observed
that the non obstante clause is no doubt a very potent clause
intended to exclude every consideration arising from other
provisions of the same statute or other statute but "for that
D reason alone we must determine the scope" of that provision
..
strictly. When the section containing the said clause does not
refer to any particular provisions which it intends to override but.
refers to the provisions of the statute generally, it is not
permissible to hold that it excludes the whole Act and stands
E all alone by itself. A search has, therefore, to be made with a
view to determining which provision answers the description
and which does not.
,
30. In R.S. Raghunath v. State of Karnataka and another
F [(1992) 1 SCC 335], a three-Judge Bench referred to the earlier
judgments in Aswini Kumar Ghose v. Arabinda Bose [AIR
1952 SC 369], Dominion oflndia v. Shrinbai A. Irani [AIR 1954
SC 596], Union of India v. G.M. Kokil [1984 (Supp.) SCC 196],
Chandavarkar Sita Ratna Rao v. Ashalata S. Guram [(1986)
4 sec 447] and observed:
G
" ......... The non-obstante clause is appended to a
provision with a view to give the enacting part of the
provision an overriding effect in case of a conflict. But the
non-obstante clause need not necessarily and always be
H co-extensive with the operative part so as to have the
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 789
ORS. [G.S. SINGHVI, J.]
• f effect of cutting down the clear terms of an enactment and A
if the words of the enactment are clear and are capable
of a clear interpretation on a plain and grammatical
construction of the words the non-obstante clause cannot
cut down the construction and restrict the scope of its
operation. In such cases the non-obstante clause has to 8
be read as clarifying the whole position and must be
understood to have been incorporated in the enactment by
; t
the legislature by way of abundant caution and not by way
of limiting the ambit and scope of the Special Rules."

31. In A.G. Varadaraju/u v. State of Tamil Nadu ((1998)
c
4 sec 231), this Court relied on Aswini KumarGhose's case.
The Court while interpreting non obstante clause contained in
Section 21-A of Tamil Nadu Land Reforms (Fixation of Ceiling
on Land) Act, 1961 held:-
'" D
"It is well settled that while dealing with a non obstante
clause under which the legislature wants to give overriding
effect to a section, the court must try to find out the extent
to which the legislature had intended to give one provision
overriding effect over another provision. Such intention of E
the legislature in this behalf is to be gathered from the
enacting part of the section. In Aswini Kumar Ghose v.
_. Arabinda Bose Patanjali Sastri, J. observed:
" "The enacting part of a statute must, where it is
F
clear, be taken to control the non obstante clause
where both cannot be read harmoniously;"

32. The DRT Act and Securitisation Act were enacted by
Parliament in the backdrop of recommendations made by the
expert committees aopointed by the Central Government for G
.lo( ...
examining the causes for enormous delay in the recovery of
dues of banks and financial institutions which were adversely
affecting fiscal reforms. The committees headed by Shri T.
Tiwari and Shri M. Narasimham suggested that the existing
legal regime should be changed and special adjudicatory H
790 SUPREME COURT REPORTS [2009] 3 S.C.R.

I •
A machinery be created for ensuring speedy recovery of the dues
of banks and financial institutions. Narasimham and
Andhyarujina Committees also suggested enactment of new
legislation for securitisation and empowering the banks etc ..to
take possession of the securities and sell them without
B intervention of the Court. The ORT Act facilitated establishment
of two-tier system of Tribunals. The Tribunals established at the
first level have been vested with the jurisdiction, powers and
'I •
authority to summarily adjudicate the claims of banks and
financial institutions in the matter of recovery of their dues
c without being bogged down by the technicalities of the Code
of Civil Procedure. The Securitisation Act drastically changed
the scenario inasmuch as it enabled banks, financial institutions
and other secured creditors to recover their dues without
intervention of the Courts or Tribunals. The Securitisation Act
also made provision for registration and regulation of
D "
securitisation/reconstruction companies, securitisation of
financial assets of banks and financial institutions and other
related provisions. However, what is most significant to be
noted is that there is no provision in either of these enactments
by which first charge has been created in favour of banks,
E financial institutions or secured creditors qua the property of the
borrower. Under Section 13(1) of the Securitisation Act, limited
primacy has been given to the right of a secured creditor to
enforce security interest vis-a-vis Section 69 or Section 69A A

of the Transfer of Property Act. In terms of that sub-section,
F secured creditor can enforce security interest without
intervention of the Court or Tribunal and if the borrower has
created any mortgage of the secured asset, the mortgagee or
any person acting on his behalf cannot sell the mortgaged
property or appoint a receiver of the income of the mortgaged
G property or any part thereof in a manner which may defeat the
right of the secured creditor to enforce security interest. This
provision was enacted in the backdrop of Chapter VIII of
Narasimham Committee's 2nd Report in which specific
reference was made to the provisions relating to mortgages
H under the Transfer of Property Act. In an apparent bid to
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 791
ORS. [G.S. SINGHVI, J.]
... ~ overcome the likely difficulty faced by the secured creditor which A
may include a bank or a financial institution, Parliament
incorporated the non obstante clause in Section 13 and gave
primacy to the right of secured creditor vis a vis other
mortgagees who could exercise rights under Sections 69 or
69A of the Transfer of Property Act. However, this primacy has B
not been extended to other provisions like Section 38C of the
Bombay Act and Section 26B of the Kerala Act by which first
,I
charge has been created in favour of the State over the property
of the dealer or any person liable to pay the dues of sales tax,
etc. Sub-section (7) of Section 13 which envisages application c
of the money received by the secured creditor by adopting any
of the measures specified under sub-section (4) merely
regulates distribution of money received by the secured
creditor. It does not create first charge in favour of the secured
.~ creditor. By enacting various provisos ·to sub-section (9), the
' D
legislature has ensured that priority given to the claim of workers
of a company in liquidation under Section 529A of the
Companies Act, 1956 vis a vis secured creditors like banks
is duly respected. This is the reason why first of the five
unnumbered provisos to Section 13(9) lays down that in the
case of a company in liquidation, the amount realized from the E
sale of secured assets shall be distributed in accordance with
the provisions of Section 529A of the Companies Act, 1956.
... This and other provisos do not create first charge in favour of
"' the worker of a company in liquidation for the first time but
F
merely recognize the existing priority of their claim under the
Companies Act. It is interesting to note that the provisos to sub-
section (9) of Section 13 do not deal with the companies which
fall in the category of borrower but which are not in liquidation
or are not being wound up. It is thus clear that provisos referred
to above are only part of the distribution mechanism evolved G
by the legislature and are intended to protect and preserve the
" "" right of the workers of a company in liquidation whose assets
are subjected to the provisions of the Securitisation Act and
are disposed of by the secured creditor in accordance with
Section 13 thereof. H
792 SUPREME COURT REPORTS [2009) 3 S.C.R.

A 33. The non obstante clauses contained in Section 34(1)
of the DRT Act and Section 35 of the Securitisation Act give
overriding effect to the provisions of those Acts only if there is
anything inconsistent contained in any other law or instrument
having effect by virtue of any other law. In other words, if there
B is no provision in the other enactments which are inconsistent
with the ORT Act or Securitisation Act, the provisions contained
in those Acts cannot override other legislations. Section 38C
\ '
of the Bombay Act and Section 26B of the Kerala Act also
contain non obstante clauses and give statutory recognition to
c the priority of State's charge over other debts, which was
recognized by Indian High Courts even before 1950. In other
words, these sections and similar provisions contained in other
State legislations not only create first charge on the property
of the dealer or any other person liable to pay sales tax, etc.
D
but also give them overriding effect over other laws. In Builders ..
Supply Corporation v. Union of India [(1965) 2 SCR 289), the
Constitution Bench considered the question whether tax
payable to the Union of India has priority over other debts. After
making a reference to the judgments of the Bombay High Court
in Bank of India v. John Bowman and Ors., [AIR 1955 Born.
E 305], Madras High Court in Kaka Mohammad Ghouse Sahib
& Co. v. United Commercial Syndicate and others [(1963) 49
l.T.R. 25] and Manickam Chettiar v. Income-tax Officer,
Madura, [(1938) 6 ITR 180], the Court held:
" ..
F (i) "The Common Law doctrine of the priority of Crown
debts had a wide sweep but the question in the present
appeal was the narrow one whether the Union of India was
entitled to claim that the recovery of the amount of tax due
to it from a citizen must take precedence and priority over
G unsecured debts due from the said citizen to his other
private creditors. The weight of authority in India was
strongly in support of the priority of tax dues.

(ii) The Common Law doctrine on which the Union of India
based its claim in the present proceedings had been
H
CENTRAL BANK OF. INDIA v. STATE OF KERALA AND 793
ORS. [G.S. SINGHVI, J.]
.. f.
applied and upheld in that part of India which was known A
as 'British India' prior to the Constitution. The rules of
Common Law relating to substantive rights which had
been adopted by this country and enforced by judicial
decisions, amount to 'law in force' in the territory of India
at the relevant time within the meaning of Art. 372(1 ). In B
that view of the matter, the contention of the appellant that
• r after the Constitution was adopted the position of the
Union of India in regard to its claim for priority in the
present proceedings had been alerted could not be
upheld. c
(iii) The basic justification for the claim for priority of
Government debts rests on the well-recognised principle
that the State is entitled to raise money by taxation,
otherwise it will not be able to function as a sovereign
'-t D
government at all. This consideration emphasizes the
necessity and wisdom of conceding to the State the right
to claim priority in respect of its tax dues."

34. In State Bank of Bikaner and Jaipur v. National Iron
and Steel Rolling Corporation and others ((1995) 2 SCC 19], E
the Court again recognized the priority of the State's statutory
first charge under Section 11-AAAA of the Rajasthan Sales Tax
Act, 1954 vis-a-vis claim of the bank to recover its dues from
.. ... the borrower.
F
35. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.
and others ((2000) 5 sec 694], the Court reviewed case law
on the subject and observed:

"The principle of priority of government debts is founded
on the rule of necessity and of public policy. The basic G
....... justification for the claim for priority of State debts rests
on the well-recognised principle that the State is entitled
to raise money by taxation because unless adequate
revenue is received by the State, it would not be able to
function as a sovereign Government at all. It is essential H
794 SUPREME COURT REPORTS [2009] 3 S.C.R.

A that as a sovereign, the State should be able to discharge
its primary governmental functions and in order to be able
to discharge such functions efficiently, it must be in
possession of necessary funds and this consideration
emphasises the necessity and the wisdom of conceding
B to the State, the right to claim priority in respect of its tax
dues (see Builders Supply Corpn.). In the same case the
Constitution Bench has noticed a consensus of judicial
opinion that the arrears of tax due to the State can claim '.
priority over private debts and that this rule of common law
c amounts to law in force in the territory of British India at
the relevant time within the meaning of Article 372(1) of
the Constitution of India and therefore continues to be in
force thereafter. On the very principle on which the rule is
founded, the priority would be available only to such debts
as are incurred by the subjects of the Crown by reference
D
to the State's sovereign power of compulsory exaction and
would not extend to charges for commercial services or
obligation incurred by the subjects to the State pursuant
to commercial transactions. Having reviewed the available
judicial pronouncements their Lordships have summed up
E the law as under:

1. There is a consensus of judicial opinion that the arrears
of tax due to the State can claim priority over private debts.

F 2. The common law doctrine about priority of Crown debts
which was recognised by Indian High Courts prior to 1950
constitutes "law in force" within the meaning of Article
372(1) and continues to be in force.

3. The basic justification for the claim for priority of State
G debts is the rule of necessity and the wisdom of conceding
to the State the right to claim priority in respect of its tax
dues.
4. The doctrine may not apply in respect of debts due to
H the State if they are contracted by citizens in relation to
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 795
ORS. [G.S. SINGHVI, J.]
~ f
commercial activities which may be undertaken by the A
State for achieving socio-economic good. In other words,
where the welfare State enters into commercial fields which
cannot be regarded as an essential and integral part of
the basic government functions of the State and seeks to
recover debts from its debtors arising out of such B
commercial activities the applicability of the doctrine of
• 1 priority shall be open for consideration."

36. In State of M.P. and another v. State Bank of Indore
and others [(2002) 1o sec 441]. this Court considered
whether statutory first charge created under Section 33-C of the c
M.P. General Sales Tax Act, 1958 would prevail over the bank's
charge. The facts of that case show that in 1974, respondent
No.2 obtained a term loan from State Bank of Indore and
.. -t executed a promissory note and pledged certain machinery to
the bank for securing repayment of loan. Two more loans were D
taken by respondent no.2 in 1979. The bank sued respondent
No.2 for recovery of its dues. During the pendency of the
litigation, Section 33-C was inserted in the State Act. The State
claimed first charge under Section 33-C upon the machinery
of respondent No.2 in lieu of sales tax dues. The trial Court and E
the High Court declined to accept the State's claim. The High
Court observed that the bank's charge on the machinery was
,\ prior to the insertion of Section 33-C in the State Act and the
• subsequent loans taken in 1979 do not alter the position in
favour of the State. The High Court then proceeded to hold that F
the charge created in favour of the bank remain valid and
operative till repayment of the loan. This Court reversed the
judgments of the trial Court and High Court and held:

"Section 33-C creates a statutory first charge that prevails
over any charge that may be in existence. Therefore, the G
~ .i,
charge thereby created in favour of the State in respect of
the sales tax dues of the second respondent prevailed over
the charge created in favour of the Bank in respect of the
loan taken by the second respondent. There is no question
H
796 SUPREME COURT REPORTS [2009) 3 S.C.R.

A of retrospectivity here, as, on the date when it was ••
introduced, Section 33-C operated in respect of all
charges that were then in force and gave sales tax dues
precedence over them."

37. Section 529A of the Companies Act and Section 11 (2)
8 of the EPF Act both of which are Central legislations also
contain non obstante clauses give statutory recognition to the
priority of workers dues over other debts. In Allahabad Bank
v. Canara Bank and another (supra), a two-Judge Bench
recognized the priority of workers dues under Section 529A of
C the Companies Act over other debts. In Recovery Officer,
Employees Provident Fund v. Kera/a Financial Corporation
[(2002) 3 ILR Kerala 4), a Division Bench of Kerala High Court
considered the primacy of first charge created under Section
11 (2) of the EPF Act vis-a-vis Section 468 of the SFC Act. The
D facts of that case were that a company by name M/s. Darpan
Electronics (P) Ltd. had taken loan from the Kerala Financial
Corporation and mortgaged its immovable property for
securing repayment. During March 1990 and December 1990,
the company defaulted in payment of contributions to the
E Employees Provident Fund. It also committed default in
repayment of loan. The Kerala Financial Corporation sold the
moveable assets of the company for a sum of Rs.89,083/-. The
recovery officer appointed under the EPF Act made an
application for recovery of provident fund contribution. He also
F attached 37 cents of land which had already been mortgaged
by the company to the Financial Corporation and prohibited the
bank from transferring the amount of Rs.89,083/- lying in the
account of the company. The Corporation challenged this action
by filing writ petition under Article 226 of the Constitution, which
G was allowed by the learned Single Judge. The Division Bench
referred to Section 11 (2) of the EPF Act and held that the
workers dues will have priority over other debts. Speaking for
the Bench, B.N. Srikrishna, CJ (as he then was) observed as
under:
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 797
ORS. [G.S. SINGHVI, J.]
... "Sub-section (2) of section 11 of the EPF and MP Act has A
two facets. First, it declares that the amount due from the
employer towards contribution under the EPF and MP Act
shall be deemed to be the first charge on the assets of
the establishment. Second, it also declares that
notwithstanding anything contained in any other law for the B
time being in force, such debt shall be paid in priority to
-, all other debts. Both these provisions bring out the intention
of the Parliament to ensure the social benefit as contained
in the legislation. There are other provisions in the Act
rendering the amounts of provident fund immune from c
attachment of civil court's decree, which also indicate such
intention of Parliament."

The Division Bench then considered the argument based on
,~ Section 100 of the Transfer of Property Act and observed:
D
"With regard to the argument based on section 100 of the
Transfer of Property Act, the matter is no longer res integra.
In State Bank of Bikaner and Jaipur v. National Iron and
Steel Rolling Corporation and others, this question came
up specifically for consideration of the Supreme Court and E
the answer given by the Supreme Court is unmistakably
against the first respondent. That was a case where the
~
State Bank of Bikaner claimed priority over sales tax
~ arrears due to the State on the ground that it was a
secured creditor. Section 11 AAAA of the Rajasthan Sales F
Tax Act declares that any amount of tax, penalty, interest
and any other sum, if any, payable by a dealer, or any other
person under the Act, shall be the first charge on the
property of the dealer, or such person. On behalf of the
State Bank of Bikaner, section 100 of the Transfer of G
Property Act was relied upon to contend that, since there
.; ~
was a mortgage in favour of the Bank, the Bank would
have precedence over the claim of sales tax dues, which
was only by way of a charge. After analysis of section 100
of the Transfer of Property Act, and considering the
H
798 SUPREME COURT REPORTS [2009] 3 S.C.R.

A distinction drawn between a mortgage and charge as
discussed in the earlier decision in Dattatreya Shanker
Mote v. Anand Chintaman Datar, it was held that the
expression "transferee of property used in section 100
refers to transferee of entire interest in the property and it
B does not cover the transfer of only an interest in the
property by way of a mortgage. It was further held that the
charge created under section 11 MM of Rajasthan Sales
Tax Act over the property of the dealer or a person liable
to pay sales tax or other dues was created in respect of
c the entire interest in respect of the property, since the
section declares the dues of the Sales Tax Department as
a first charge, the first charge would operate over the entire
title of the property which continue with the mortgagor.
Therefore, when a statutory first charge is created on the
property of the dealer, the interest of the mortgage is not
D '
excluded from the first charge. The Supreme Court also
relied on Fisher and Lightwood's Law of Mortgage, 10th
Edn. and the Judgment of the Appeal Court in
Westminister City Council v. Haymarket Publishing Ltd.,
and finally concluded that since the statute created a first
E charge, it clearly gave priority to the statutory charge over
all other charges on the property including a mortgage. The
expression "first charge" was explained to mean that, it
would cover within its ambit a mortgage also.
Consequently, when a first charge is created by statute,
F that charge will have precedence over an existing
mortgage."
The Division Bench negatived the argument that non obstante
clause contained in Section 468 of the SFC Act will override
G Section 11 (2) of the EPF Act by assigning the following
reasons:

"The contention of the first respondent based on the
overriding effect of section 46 B of the S.F.C. Act has no
substance in our judgment. Undoubtedly, the intention of
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 799
ORS. [G.S. SINGHVI, J.]
"· ;- Parliament in enacting section 46 B in the year 1956 was A
to ensure that a State Financial Corporation could quickly
and effectively recover the amounts due by taking
possession of the property of the defaulter instead of
having resort to the cumbersome method of recovery
through a court of law. While this was the law, Parliament B
amended section 11 of the E.P.F. and M.P. Act by
__,, specifically enacting sub-section (2) thereof, declaring that
the amount due as contribution to the Employees
Provident Fund has first charge on the assets of the
establishment and that, notwithstanding anything contained c
in any other law for the time being in force, it shall be paid
in priority against all other debts. In fact, the second facet
of section 11(2) of the E.P.F. and M.P. Act goes one step
further than what is provided in section 46-B of S.F.C. Act.
"' , ~ The reason for this is obvious. While the State Financial
D
Corporation would have to be helped to recover the debts
due to it from a defaulting debtor, the Provident Fund
payable to workers is of greater moment, since it is a
matter of terminal social security benefit made available
by statute to the working class. Taking into consideration
that E.P.F. and M.P. Act is a social benefit legislation, and E
the evil consequences of Provident Fund dues being
defeated by prior claims of secured or unsecured creditors,
~
.. the Legislature took care to declare that irrespective of
when a debt is created, the dues under the E.P.F. and M.P.
,... Act would always remain first charge and shall be paid first F
out of the assets of the establishment. We are also not
impressed by the contention of the first respondent that
upon usage of non obstante clause in section 46 B of the
S.F.C. Act. Sub-section (2) of section 11 of E.P.F. Act is

. of subsequent date. No doubt, both section 46 B of the G
S.F.C. Act and section 11(2) of the E.P.F. and M.P. Act
declare their intent by usage of the non obstante clause.
' But, since section 11(2) of the E.P.F. and M.P. Act has
been enacted later, we must ascribe to the Parliament the
intention to override the earlier legislation also. It is, H
800 SUPREME COURT REPORTS [2009] 3 S.C.R.

A therefore, clear that section 11 (2) of the E.P.F. and M.P. • •
Act overrides all provisions of other enactments including
section 46 B of the S.F.C. Act."

38. While enacting the ORT Act and Securitisation Act,
Parliament was aware of the law laid down by this Court
8
wherein priority of the State dues was recognized. If Parliament
intended to create first charge in favour of banks, financial
institutions or other secured creditors on the property of the
borrower, then it would have incorporated a provision like
Section 529A of the Companies Act or Section 11 (2) of the
C EPF Act and ensured that notwithstanding series of judicial
pronouncements, dues of banks, financial institutions and other
secured creditors should have priority over the State's statutory
first charge in the matter of recovery of the dues of sales tax,
etc. However, the fact of the matter is that no such provision
0 has been incorporated in either of these enactments despite
conferment of extraordinary power upon the secured creditors
to take possession and dispose of the secured assets without
the intervention of the Court or Tribunal. The reason for this
omission appears to be that the new legal regime envisages
E transfer of secured assets to private companies. The definition
of "secured creditor" includes securitisation/reconstruction
company and any other trustee holding securities on behalf of
bank/financial institution. The definition of "securitisation
company" and "reconstruction company" in Section 2(v) and (za)
F shows that these companies may be private companies
registered under Companies Act, 1956 and having a certificate
of registration from the Reserve Bank under Section 3 of
-
Securitisation Act. Evidently, Parliament did not intend to give
priority to the dues of private creditors over sovereign debt of
G the State.
39. If the provisions of the ORT Act and Securitisation Act
are interpreted keeping in view the background and context in
which these legislations were enacted and the purpose sought
to be achieved by their enactment, it becomes clear that the
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 801
ORS. [G.S. SINGHVI, J.)
-\. .. two legislations, are intended to create a new dispensation for A
expeditious recovery of dues of banks, financial institutions and
secured creditors and adjudication of the grievance made by
any aggrieved person qua the procedure adopted by the banks,
financial institutions and other secured creditors, but the
provisions contained therein cannot be read as creating first B
charge in favour of banks, etc. If Parliament intended to give
~ f
priority to the dues of banks, financial institutions and other
secured creditors over the first charge created under State
legislations then provisions similar to those contained in
Section 14A of the Workmen's Compensation Act, 1923, c
Section 11 (2) of the EPF Act, Section 74(1) of the Estate Duty
Act, 1953, Section 25(2) of the Mines and Minerals
(Development and Regulation) Act, 1957, Section 30 of the Gift-
Tax Act, and Section 529A of the Companies Act, 1956 would
.~ have been incorporated in the DRT Act and Securitisation Act. D
Undisputedly, the two enactments do not contain provision
similar to Workmen's Compensation Act, etc. In the absence
of any specific provision to that effect, it is not possible to read
any conflict or inconsistency or overlapping between the
provisions of the ORT Act and Securitisation Act on the one
E
hand and Section 38C of the Bombay Act and Section 268 of
the Kerala Act on the other and the non obstante clauses
contained in Section 34(1) of the DRT Act and Section 35 of
-. ~ the Securitisation Act cannot be invoked for declaring that the
first charge created under the State legislation will not operate
.... qua or affect the proceedings initiated by banks, financial F
institutions and other secured creditors for recovery of their
dues or enforcement of security interest, as the case may be.
The Court could have given effect to the non obstante clauses
contained in Section 34(1) of the DRT Act and Section 35 of
the Securitisation Act vis a vis Section 38C of the Bombay Act G
·~
and Section 268 of the Kerala Act and similar other State
legislations only if there was a specific provision in the two
enactments creating first charge in favour of the banks, financial
institutions and other secured creditors but as the Parliament
has not made any such provision in either of the enactments, H
802 SUPREME COURT REPORTS [2009] 3 S.C.R.

A the first charge created by the State legislations on the property
of the dealer or any other person, liable to pay sales tax etc.,
cannot be destroyed by implication or inference,
notwithstanding the fact that banks, etc. fall in the category of
secured creditors. In this connection, reference may be made
B to the judgments in M.K. Ranganathan and another v.
Government of Madras and others [(1955) 2 SCR 374], State
of Gujarat v. Shyam/a/ Mohan/al Choksi and others [AIR 1965
SC 1251] and Byram Pestonji Gariwala v. Union Bank of India
and others [(1992) 1 SCC 31]. In M.K. Ranganathan's case,
c a three-Judge Bench of this Court interpreted the expression
"any sale held without leave of the Court of any of the properties"
which were added in Section 232(1) of the Indian Companies
Act, 1913 by amending Act No. XXll of 1936 and held that the
said expression refers only to sales held through the
intervention of the Court and not to sales effected by the
0
secured creditor outside the winding up and without the
intervention of the Court. While answering in negative the
question whether amendment was intended to bring within the
sweep of the general words "sales effected by the secured
E creditor outside the winding up", in negative, the Court referred
to Maxwell on Interpretation of Statutes, the judgment of Privy
Council in P. Murugian v. Jainudeen, C.L. [(1954) 3 W.L.R.
682] and observed:

"It is a legitimate rule of construction to construe words in
F an Act of Parliament with reference to words found in
immediate connection with them. It is also well-recognized
rule of construction that the legislature does not intend to
make a substantial alteration in the law beyond what it
explicitly declares either in express words or by clear
G implication and that the general words of the Act are not
to be so construed as to alter the previous policy of the
law, unless no sense or meaning can be applied to those
words consistently with the intention of preserving the
existing policy untouched."
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 803
ORS. [G.S. SINGHVI, J.]
. ~
40. In Shyam/a/ Mohan/al Choksi's case (supra), the A
Constitution Bench considered whether Section 94 of the Code
of Criminal Procedure, 1898 apply to accused person under
trial and held that it does not. The Court referred to Article 20(3)
of the Constitution which declares that the accused cannot be
compelled to incriminate himself and observed: B
"The Indian Legislature was aware of the above
_. 1
fundamental canons of criminal jurisprudence because in
various sections of the Criminal Procedure Code it gives
effect to it. For example, in Section 175 it is provided that
every person summoned by a police officer in a
c
proceeding under Section 174 shall be bound to attend
and to answer truly all questions other than questions the
answers to which would have a tendency to expose him
,. _,,, to a criminal charge or to a penalty or forfeiture. Section
343 provides that except as provided in Sections 337 and D
338, no influence by means of any promise or threat or
otherwise shall be used to an accused person to induce
him to disclose or withhold any matter within his knowledge.
Again, when the accused is examined under Section 342,
the accused does not render himself liable to punishment E
if he refuses to answer any questions put to him. Further,
now although the accused is a competent witness, he
-i cannot be called as a witness except on his own request
,. /

in writing. It is further provided in Section 342-A that his
failure to give evidence shall not be made the subject of F
any comment by any parties or the court or give rise to any
presumption against himself or any person charged
together with him at the same trial.

It seems to us that in view of this background the
G
Legislature, if it were minded to make Section 94
.,,,. f.. ~
applicable to an accused person, would have said so in
specific words. It is true that the words of Section 94 are
wide enough to include an accused person but it is well-
recognised that in some cases a limitation may be put on
H
804 SUPREME COURT REPORTS [2009] 3 S.C.R.

A the construction of the wide terms of a statute (vide Craies ~
-
on Statute Law, p. 177). Again it is a rule as to the
limitation of the meaning of general words used in a statute
that they are to be, if possible, construed as not to alter
the common law (vide Craies on Statute Law, p. 187)."
B
41. In Byram Pestonji Gariwala's case (supra), the Court
considered the question whether the amendment made in the
Code of Civil Procedure in 1976 had the effect of curtailing the ' .
authority of counsel to compromise the matter, referred to some
English decisions and observed:
c
"It is a rule of legal policy that law should be altered
deliberately rather than casually. Legislature does not
make radical changes in law 'by a sidewind, but only by
measured and considered provisions'. (Francis Bennion's
D Statutory Interpretation, Butterworths, 1984, para 133). As "
stated by Lord Devlin in National Assistance Board v.
Wilkinson: (QB p. 661)

"It is a well established principle of construction that
a statute is not to be taken as effecting a
E
fundamental alteration in the general law unless it
uses words that point unmistakably to that
conclusion."
J.

Statutes relating to remedies and procedure must receive
F a liberal construction 'especially so as to secure a more
effective, a speedier, a simpler, and a less expensive
administration of law'. See Crawford's Statutory
Construction, para 254. The object of the amendment was
to provide an appropriate remedy to expedite proceedings
G in court. That object must be borne in mind by adopting a
purposive construction of the amended provisions. The '" ~
legislative intention being the speedy disposal of cases
with a view to relieving the litigants and the courts alike of
the burden of mounting arrears, the word 'parties' must be
H so construed as to yield a beneficent result, so as to
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 805
ORS. [G.S. SINGHVI, J.]

' ,. eliminate the mischief the legislature had in mind. A

There is no reason to assume that the legislature
intended to curtail the implied authority of counsel, engaged
in the thick of proceedings in court, to compromise or
agree on matters relating to the parties, even if such B
matters exceed the subject matter of the suit. The
relationship of counsel and his party or the recognised
.., 1 agent and his principal is a matter of contract; and with the
freedom of contract generally, the legislature does not
interfere except when warranted by public policy, and the
legislative intent is expressly made manifest. There is no
c
such declaration of policy or indication of intElnt in the
present case. The legislature has not evinced any intention
to change the well recognised and universally acclaimed
common law tradition of an ever alert, independent and
-#
·"' active bar with freedom to manoeuvre with force and drive D
for quick action in a battle of wits typical of the adversarial
system of oral hearing which is in sharp contrast to the
inquisitorial traditions of the 'civil law' of France and other
European and Latin American countries where written
submissions have the pride of place and oral arguments E
are considered relatively insignificant. (See Rene David,
English Law and French Law - Tagore Law Lectures,
.I,
1980). 'The civil law' is indeed equally efficacious and
"" even older, but it is the product of a different tradition,
culture and language; and there is no indication, whatever, F
1
, that Parliament was addressing itself to the task of
assimilating or incorporating the rules and practices of that
system into our own system of judicial administration.

So long as the system of judicial administration in G
India continues unaiiered, and so long as Parliament has
~ '~ not evinced an intention to change its basic character,
there is no reason to assume that Parliament has, though
not expressly, but impliedly reduced counsel's role or
capacity to represent his client as effectively as in the past.
H
806 SUPREME COURT REPORTS (2009] 3 S.C.R.

A On a matter of such vital importance, it is most unlikely that ~
,
Parliament would have resorted to implied legislative
alteration of counsel's capacity or status or effectiveness.
In this respect, the words of Lord Atkin in Sourendra
comparing the Indian advocate with the advocate in
B England, Scotland and Ireland, are significant: (AIR p. 161)

"There are no local conditions which make it less
desirable for the client to have the full benefit of an • ..
advocate's experience and judgment. One reason,
indeed, for refusing to imply such a power would be
c a lack of confidence in the integrity or judgment of
the Indian advocate. No such considerations have
been or indeed could be advanced, and their
Lordships mention them but to dismiss them."

D 42. We may now advert to the judgments of this Court in )I-

Allahab'3d Bank's case (supra), A.P. State Financial
Corporation v. Official Liquidator (supra), IC/Cl Bank Ltd. v.
SIDCO Leathers Ltd. and others [(2006) 10 SCC 452],
Transcore v. Union of India and another [(2008) 1 SCC 125]
E on which reliance has been placed by learned counsel for the
appellants and also a recent judgment in Union of India v.
S/COM Limited and another[(2009) 2 SCC 121). In Allahabad
Bank's case, a two-Judge Bench was called upon to consider
the question whether an application can be filed under the " '

F Companies Act, 1956 during the pendency of proceedings
under the ORT Act. The facts of that case show that Allahabad
Baril< filed an O.A. before the Delhi Bench of the ORT under
.
-

Section 19. The same was decreed on 13.1.1998. The debtor
company filed appeal before DRAT, Allahabad. Canara Bank
also filed application under Section 19 before ORT, Delhi.
G
During the pendency of its application, Canara Bank filed
Interlocutory Application before the Recovery Officer for •
..
impleadment in the proceedings arising out of O.A. filed by
Allahabad Bank. That application was dismissed on 28.9.1998.
In the auction conducted by the Recovery Officer, the property
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 807
ORS. [G.S. SINGHVI, J.]
.., . of the debtor company was auctioned and the sale was A
confirmed. Thereupon, Canara Bank filed applications under
Section 22 of the ORT Act. During the pendency of the
applications, Canara Bank filed company application in
Company Petition No. 141 of 1995 filed by Ranbaxy Ltd.
against M.S. Shoes Company under Sections 442 and 537 of B
the Companies Act for stay of the proceedings of recovery case
...., r No. 9/1998 instituted by the Allahabad Bank. By an order dated
9.3.1999, the learned Company Judge stayed further sale of
the assets of the Company. Allahabad Bank challenged the
order of the learned Company Judge by filing petition for c
special leave to appeal. It was argued on behalf of the appellant,
i.e., Allahabad Bank that the ORT Act is a special statute
intended for expeditious adjudication and recovery of debts due
to banks and financial institutions and in view of Section 34(1)
.,
. of that Act read with sub-section (2) thereof, the company courts
D
do not have jurisdiction to entertain the application filed by the
respondent-bank. It was argued on behalf of the appellant that
in view of the amendment made in Section 19(19) of the ORT
Act, only Section 529A of the Companies Act is attracted and
that too for a limited purpose, i.e., recovery of dues of the
workmen. On behalf of the respondent-bank it was argued that E
during the pendency of the winding up petition, the company
court can pass appropriate order by entertaining an application

- "' filed under Section 446 read with Section 537 of the
Companies Act. After noticing the rival contentions, this Court
framed six points for determination, first four of which were: F

"( 1) Whether in respect of proceedings under the ROB Act
at the stage of adjudication for the money due to the banks
or financial institutions and at the stage of execution for
recovery of monies under the ROB Act, the Tribunal and G
the Recovery Officers are conferred exclusive jurisdiction
.. ~
in their respective spheres?

(2) Whether for initiation of various proceedings by the
banks and financial institutions under the ROB Act, leave
H
808 SUPREME COURT REPORTS [2009] 3 S.C.R.

A of the Company Court is necessary under Section 537 " ~
before a winding-up order is passed against the company
or before provisional liquidator is appointed under
Section 446(1) and whether the Company Court can pass
orders of stay of proceedings before the Tribunal, in
B exercise of powers under Section 442?

(3) Whether after a winding-up order is passed under
Section 446(1) of the Companies Act or a provisional
liquidator is appointed, whether the Company Court can
stay proceedings under the RDB Act, transfer them to itself
c and also decide questions of liability, execution and priority
under Section 446(2) and (3) read with Sections 529, 529-
A and 530 etc. of the Companies Act or whether these
questions are all within the exclusive jurisdiction of the
Tribunal? •
D
(4) Whether in case it is decided that the distribution of
monies is to be done only by the Tribunal, the provisions
of Section 73 CPC and sub-sections (1) and (2) of Section
529, Section 530 of the Companies Court also apply -
E apart from Section 529-A - to the proceedings before the
Tribunal under the RDB Act?"

The Court referred to various provisions of the DRT Act (in the

F
judgment that Act was referred to as "RDB Act") and
Companies Act and held:
~

-
"21. In our opinion, the jurisdiction of the Tribunal in regard
to adjudication is exclusive. The ROB Act requires the
Tribunal alone to decide applications for recovery of debts
due to banks or financial institutions. Once the Tribunal
G passes an order that the debt is due, the Tribunal has to
issue a certificate under Section 19(22) [formerly under
Section 19(7)] to the Recovery Officer for recovery of the
•
debt specified in the certificate. The question arises as to
the meaning of the word "recovery" in Section 17 of the
H Act. It appears to us that basically the Tribunal is to
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 809
ORS. (G.S. SINGHVI, J.]
~·
/>c
adjudicate the liability of the defendant and then it has to A
issue a certificate under Section 19(22). Under Section 18,
I· the jurisdiction of any other court or authority which would
otherwise have had jurisdiction but for the provisions of the
Act, is ousted and the power to adjudicate upon the liability
is exclusively vested in the Tribunal. (This exclusion does B
not however apply to the jurisdiction of the Supreme Court
.... • or of a High Court exercising power under Articles 226 or
227 of the Constitution.) This is the effect of Sections 17
and 18 of the Act.

22. We hold that the provisions of Sections 17 and 18 of
c
the ROB Act are exclusive so far as the question of
adjudication of the liability of the defendant to the appellant
Bank is concerned."
,. •
The Court then referred the recommendations of the Tiwari 0
Committee and Narasimham Committee regarding priorities
of the secured creditors and held:

"Section 19(19) is clearly inconsistent with Section 446 and
other provisions of the Companies Act. Only Section 529- E
A is attracted to the proceedings before the Tribunal. Thus,
on questions of adjudication, execution and working out
priorities, the special provisions made in the ROB Act have
. to be applied.

For the aforesaid reasons, we hold that at the stage of F
adjudication under Section 17 and execution of the
certificate under Section 25 etc. the provisions of the ROB
Act, 1993 confer exclusive jurisdiction on the Tribunal and
the Recovery Officer in respect of debts payable to banks
and financial institutions and there can be no interference G
• '1 by the Company Court under Section 442 read with
Section 537 or under Section 446 of the Companies Act,
1956. In respect of the monies realised under the ROB Act,
the question of priorities among the banks and financial
institutions and other creditors can be decided only by the H
810 SUPREME COURT REPORTS (2009] 3 S.C.R.

~ .
A Tribunal under the ROB Act and in accordance with Section
19(19) read with Section 529-A of the Companies Act and
in no other manner. The provisions of the ROB Act, 1993
are to the above extent inconsistent with the provisions of
the Companies Act, 1956 and the latter Act has to yield
B to the provisions of the former. This position holds good
during the pendency of the winding-up petition against the
debtor Company and also after a winding-up order is
passed. No leave of the Company Court is necessary for
initiating or continµing the proceedings under the ROB Act,
c 1993. Points 2 and 3 are decided accordingly in favour of
the appellant and against the respondents."

On the issue of the workers' claim under Section 529A of the
Companies Act, the Court observed/held:

0 "61. The respondent's contention that Section 19(19) gives
•
priority to all "secured creditors" to share in the sale
proceeds before the Tribunal/ Recovery Officer cannot, in
our opinion, be accepted. The said words are qualified by
the words "in accordance with the provision of Section 529-
E A". Hence, it is necessary to identify the above limited class
of secured creditors who have priority over all others in
accordance with Section 529-A.
,,,
62. Secured creditors fall under two categories. Those who
desire to go before the Company Court and those who like
F to stand outside the winding- up.

63. The first category of secured creditors mentioned
above are those who go before the Company Court for
dividend by relinquishing their security in accordance with
the insolvency rules mentioned in Section 529. The
G
insolvency rules are those contained in Sections 45 to 50 ... . ~

of the Provincial Insolvency Act. Section 47(2) of that Act
states that a secured creditor who wishes to come before
the official liquidator has to prove his debt and he can
H prove his debt only if he relinquishes his security for the
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 811
ORS. [G.S. SINGHVI, J.)
... Ir benefit of the general body of creditors. In that event, he A
will rank with the unsecured creditors and has to take his
dividend as provided in Section 529(2). Till today, Canara
Bank has not made it clear whether it wants to come under
this category.
B
64. The second class of secured creditors referred to
above are those who come under Section 529-A(1)(b)
-' read with proviso (c) to Section 529(1). These are those
who opt to stand outside the winding-up to realise their
security. Inasmuch as Section 19(19) permits distribution
to secured creditors only in accordance with Section 529-
c
A, the said category is the one consisting of creditors who
stand outside the winding up. These secured creditors in

,, . certain circumstances can come before the Company
Court (here, the Tribunal) and claim priority over all other
creditors for release of amounts out of the other monies
lying in the Company Court (here, the Tribunal). This limited
D

priority is declared in Section 529-A( 1) but it is restricted
only to the extent specified in clause (b) of Section 529-
A(1). The said provision refers to clause (c) of the proviso
to Section 529( 1) and it is necessary to understand the E
scope of the said provision."

43. Similar view was expressed in A.P. State Financial
..... Corporation v. Official Liquidator (supra). A learned Single
Judge of the High Court allowed the applications filed by the F
appellant under Section 446( 1) of the Companies Act read with
Section 29 and 46 of the SFC Act subject to the condition that
the appellant would undertake to discharge its liability due to
workers under Section 529A of the Companies Act. While
dismissing the appeal of the Corporation, this Court held that
G
non obstante clause contained in Section 529A of the
." Companies Act being a subsequent enactment prevails over
Section 29 of the SFC Act.
44. The judgment in Allahabad Bank's case was
distinguished by a two-Judge Bench judgment in /CIC/ Bank H
812 SUPREME COURT REPORTS l2009) 3 S.C.R.

A Ltd. v. SIDCO Leathers Ltd. and others (supra). In that case .. -,.
the appellant and Punjab National Bank had advanced loans
to respondent no.1 for setting up a plant for manufacture of
leather boards and for providing working capital funds
respectively. Respondent No. 1 created first charge in favour
B of the appellant along with other financial institutions, i.e., IFCI
and IDBI by way of equitable mortgage by deposit of title deeds
of its immovable property. A second charge was created in
favour of Punjab National Bank by way of constructive delivery ' ~

of title deeds, clearly indicating that the charge in favour of the
c latter was subject to and subservient to charges in favour of IFCI,
IDBI and ICICI. On an application filed by respondent No.1, the
Allahabad High Court passed winding up order and appointed
official liquidator. The appellant filed suit for recovery of the
amount credited to respondent No.1. The said suit was
transferred to the Debts Recovery Tribunal, Bombay. During the .. ..
D
pendency of proceedings before the Tribunal, official ~iquidator
was granted permission to continue in the proceedings in the
suit. Punjab National Bank filed a civil suit for recovery of money
payable to it by respondent No.1. While the proceedings were
pending before the Tribunal and the Court of Civil Judge,
E Fatehpur, the assets of the company were sold. The suit filed
by Punjab National Bank was decreed but the proceedings
before the Tribunal remained pending. After decree of the suit,
the appellant along with IFCI and IDBI filed an application before i.
the Company Judge for consideration of their claim on pro rata
F basis and also for exclusion of the claim of Punjab National
Bank. The learned Company Judge allowed the first prayer of
the appellant but declined the second one by relying upon the
judgment in Allahabad Bank's case (supra). The intra-court
appeal was dismissed by the Division Bench by relying upon
G the provisions of Section 529A. On further appeal, this Court
referred to the judgment in Allahabad Bank's case (supra) as
also Rajasthan State Financial Corporation v. Official ..
Liquidator [(2005) 8 sec 190] and held:

"Allahabad Bank therefore, is not an authority for the
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 813
ORS. [G.S. SINGHVI, J.)
.., ;-
proposition that in terms of Section 529-A of the A
Companies Act the distinction between two classes of
secured creditors does no longer survive. The High Court,
thus, in our considered opinion, was not correct in that
behalf.
8
In fact in Allahabad Bank it was categorically held that the
adjudication officer would have such powers to distribute
··- ' the sale proceeds to the banks and financial institutions,
being secured creditors, in accordance with inter se
agreemenUarrangement between them and to the other
persons entitled thereto in accordance with the priority in
c
law.

Section 529-A of the Companies Act no doubt contains a
non obstante clause but in construing the provisions
... " thereof, it is necessary to determine the purport and object D
for which the same was enacted.

In terms of Section 529 of the Companies Act, as it stood
prior to its amendment, the dues of the workmen were not
treated pari passu with the secured creditors as a result E
whereof innumerable instances came to the notice of the
Court that the workers may not get anything after
discharging the debts of the secured creditors. It is only
"" with a view to bring the workmen's dues pari passu with
the secured creditors, that $ection 529-A was enacted.
F
The non obstante nature of a provision although may be
of wide amplitude, the interpretative process thereof must
be kept confined to the legislative policy. Only because the
dues of the workmen and the debts due to the secured
creditors are treated pari passu with each other, the same G
...... by itself, in our considered view, would not lead to the
conclusion that the concept of inter se priorities amongst
the secured creditors had thereby been intended to be
given a total go-by.
H
814 SUPREME COURT REPORTS [2009] 3 S.C.R.

A A non obstante clause must be given effect to, to the extent
Parliament intended and not beyond the same.

Section 529-A of the Companies Act does not ex facie
contain a provision (on the aspect of priority) amongst the
B secured creditors and, hence, it would not be proper to
read thereinto things, which Parliament did not
comprehend."

45. In Transcore v. Union of India (supra}, a two-Judge
Bench made detailed analyses of the provisions of the ORT Act
C and formulated the following points for consideration:-

(1) Whether the banks or financial institutions having
elected to seek their remedy in terms of the ORT Act, 1993
can still invoke the NPA Act, 2002 yor realising the secured
0 assets without withdrawing or abandoning the OA filed
before ORT under the ORT Act.

(it) Whether recourse to take possession of the secured
assets of the borrower in terms of Section 13(4) of the
NPA Act comprehends the power to take actual
E possession of the immovable property.

(iit) Whether ad va/orem court fee prescribed under Rule
7 of the ORT (Procedure) Rules, 1993 is payable on an
application under Section 17(1) of the NPA Act in the
F absence of any rule framed under the said Act.

In dealing with the afore-mentioned questions, the Court noticed
the arguments of learned counsel for the parties and proceeded
to observe:-

G "Keeping in mind the above circumstances, the NPA Act
is enacted for quick enforcement of the security. The said
Act deals with enforcement of the rights vested in the bank/
Fl. The NPA Act proceeds on the basis that security
interest vests in the bank/Fl. Sections.5 and 9 of the NPA
H Act are also important for preservation of the value of the
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 815
ORS. [G.S. SINGHVI, J.]
.., ; assets of the banks/Fis. Quick recovery of debt is A
important. It is the object of the DRT Act as well as the NPA
Act. But under the NPA Act, authority is given to the banks/
Fis, which is not there in the DRT Act, to assign the
secured interest to securitisation company/asset
reconstruction company. In cases where the borrower has B
bought an asset with the finance of the bank/Fl, the latter
is treated as a lender and on assignment the securitisation
I
'""' company/asset reconstruction company steps into the
shoes of the lender bank/Fl and it can recover the lent
amounts from the borrower. c
Therefore, when Section 13(4) talks about taking
possession of the secured assets or management of the
business of the borrower, it is because a right is created
by the borrower in favour of the bank/Fl when he takes a
;. t loan secured by pledge, hypothecation, mortgage or D
charge. For example, when a company takes a loan and
pledges its financial asset, it is the duty of that company
to see that the margin between what the company borrows
and the extent to which the loan is covered by the value of
the financial asset hypothecated is retained. If the borrower E
company does not repay, becomes a defaulter and does
not keep up the value of the financial asset which depletes
_._ then the borrower fails in its obligation which results in a
mismatch between the asset and the liability in the books

- of the bank/Fl. Therefore, Sections 5 and 9 talk of F
acquisition of the secured interest so that the balance sheet
of the bank/Fl remains clean. Same applies to immovable
property charged or mortgaged to the bank/Fl. These are
some of the factors which the authorised officer of the
bank/Fl has to keep in mind when he gives notice under G
Section 13(2) of the NPA Act. Hence, equity exists in the
bank/Fl and not in the borrower. Therefore, apart from
obligation to repay, the borrower undertakes to keep the
margin and the value of the securities hypothecated so that
there is no mismatch between the asset-liability in the H
816 SUPREME COURT REPORTS [2009] 3 S.C.R.

A books of the bank/Fl. This obligation is different and '
distinct from the obligation to repay. It is the former
obligation of the borrower which attracts the provisions of
the NPA Act which seeks to enforce it by measures
mentioned in Section 13(4) of the NPA Act, which
B measures are not contemplated by the DRT Act and,
therefore, it is wrong to say that the two Acts provide
parallel remedies as held by the judgment of the High Court
in Ka/yani Sales Co. As stated, the remedy under the DRT
Act falls short as compared to the NPA Act which refers
-
c to acquisition and assignment of the receivables to the
asset reconstruction company and which authorises banks/
Fis to take possession or to take over management which
is not there in the DRT Act. It is for this reason that the NPA
Act is treated as an additional remedy (Section 37), which
D
is not inconsistent with the DRT Act." :t .
The Court then adverted to the concept of possession
envisaged under Section 13(4) and held:

"The word possession is a relative concept. It is not an
E absolute concept. The dichotomy between symbolic an
physical possession does not find place in the NPA Act.
Basically, the NPA Act deals with the mortgage type of
securities under which the secured creditor, namely, the
,..
bank/Fl obtains interest in the property concerned. It is for
F this reason that the NPA Act ousts the intervention of the
courts/tribunals. Section 13(4-A) refers to the word
"possession" simpliciter. There is no dichotomy in Section
13(4-A) as pleaded on behalf of the borrowers.
-
The scheme of Section 13(4) read with Section 17(3) of
G the NPA Act shows that if the borrower is dispossessed,
not in accordance with the provisions of the NPA Act, then
DRT is entitled to put the clock back by restoring the status
quo ante. Therefore, it cannot be said that if possession
is taken before confirmation of sale, the rights of the
H borrower to get the dispute adjudicated upon are defeated
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 817
ORS. [G.S. SINGHVI, J.]

it by the authorised officer taking possession. The NPA Act A
provides for recovery of possession by non-adjudicatory
process; therefore, to say that the rights of the borrower
would be defeated without adjudication would be
erroneous.
B
Rule 8 of the Security Interest (Enforcement) Rules, 2002
("2002 Rules") deals with the stage anterior to the issuance
..... t of sale certificate and delivery of possession under Rule
9. Till the time of issuance of sale certificate, the authorised
officer is like a Court Receiver under Order 40 Rule 1
CPC. The Court Receiver can take symbolic possession
c
and in appropriate-cases where the Court Receiver finds
that a third-party interest is likely to be created overnight,
he can take actual possession even prior to the decree.
The authorised officer under Rule 8 has greater powers
'
"" !< than even a Court Receiver as security interest in the 0
property is already created in favour of the banks/Fis. That
interest needs to be protected. Therefore, Rule 8 provides
that till issuance of the sale certificate under Rule 9, the
authorised officer shall take such steps as he deems fit to
preserve the secured asset. It is well settled that third-party E
interests are created overnight and in very many cases
those third parties take up the defence of being a bona
fide purchaser for value without notice. It is these types of
~ disputes which are sought to be avoided by Rule 8 read
with Rule 9 of the 2002 Rules. In the circumstances, the F
~ drawing of dichotomy between symbolic and actual
possession does not find place in the scheme of the NPA
Act read with the 2002 Rules."

The Court then considered three provisos inserted in Section G
19(1) of the ORT Act by amending Act No.30 of 2004 and held
that withdrawal of the OA pending before Tribunal under the
~
ORT Act is not a condition precedent for taking recourse to the
Securitisation Act.

46. In Union of India v. SICOM Limited and another H
818 SUPREME COURT REPORTS [2009] 3 S.C.R.

A (supra), this Court was called upon to decide whether realization ~

of the duty under the Central Excise Act will have priority over
the secured debts in terms of the SFC Act. The facts of that
case were that respondent no.2 borrowed a sum of Rs.51 lakhs
from the first respondent by an indenture of mortgage executed
B on 22.12.1986. Respondent No.2 also owed Rs.19 lakhs by
way of central excise duty for the period April 1983 to May
1988. By a notification issued under Section 46(1) of the SFC
\ ,..
Act, the Government extended the provisions of Sections 27,
29, 30, 31, 32-A to 32-F, 41and41-A of the SFC Act in favour
c of the first respondent. Since respondent no.2 defaulted in
repayment of loan given by the first respondent, the latter
invoked Section 29 of the SFC Act and took physical
possession of the mortgaged assets. When the department
expressed its intention to attach and seize the properties of
respondent no.2, the first respondent informed that it had first
D ~
~

charge over the mortgaged properties. In August 2000, the first
respondent issued a legal notice to the appellant and then filed
a writ petition under Article 226 of the Constitution of India in
the Aurangabad Bench of the Bombay High Court. The High
Court considered the provisions of Rule 213(2) of the Central
E Excise Rules read with Section 32(g) and Section 151 of the
Maharashtra Land Revenue Code, 1966 and held that as
security of the corporation was prior in point of time, the dues
claimed by it will have priority over the dues of customs. A two- ..
Judge Bench of this Court referred to the non obstante clause
F contained in Section 46B of the SFC Act and provisions of _,,.
priority contained in Section 529A of the Companies Act as
also the provisions of EPF Act and the Employees State
Insurance Act, the judgments in Builders Supply Corporation
v. Union of India (supra), Bank of Bihar v. State of Bihar
G [(1972) 3 SCC 196], Dena Bank v. Bhikhabhai Prabhudas
Parekh & Co. (supra), Central Bank of India v. Siriguppa
Sugars & Chemicals Ltd. [(2007) 8 SCC 353], State Bank of
..,. .
Bikaner & Jaipur v. National Iron & Steel Rolling Corporation
and others (supra), /CIC/ Bank Ltd. v. SIDCO Leathers Ltd.
H and others (supra) and approved the view taken by the High
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 819
ORS. [G.S. SINGHVI, J.]
I
Court. A

47. In none of the afore-mentioned judgments this Court
held that by virtue of the provisions contained in the ORT Act
or Securitization Act, first charge has been created in favour
of banks, financial institutions etc. Not only this, the Court was
B
neither called upon nor it decided competing priorities of

- i
statutory first charge created under Central legislation(s) on the
one hand and State legislation(s) on the other nor it ruled that
statutory first charge created under a State legislation is
subservient to the dues of banks, financial institutions etc. even
though statutory first charge has not been created in their
c
favour. The ratio of the judgment in Allahabad Bank's case
(supra) is that jurisdiction of adjudicatory mechanism
established under the ORT Act is exclusive and no other court
~ f: or authority created under any other law can interfere with the
proceedings initiated by banks and financial institutions for D
recovery of their dues. The other proposition laid down in that
case which appear to have been diluted by a co-ordinate bench
in /C/C/ Bank's case is that while distributing the money
recovered by a bank or a financial institution, priority given to
the workers' dues in terms of Section 529A must be respected. E
Section 11 of the Central Excise Act, which was considered
by the two-Judge Bench in S/COM's case, does not contain a
~ provision similar to those in Central legislations like Section
14A of the Workmen's Compensation Act, 1923, Section 11
of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, F
Section 25(2) of the Mines and Minerals (Development and
Regulation) Act, 1957, Section 30 of the Gift Tax Act, 1958 and
Section 529A of the Companies Act, 1956, under which
statutory first charge has been created in respect of the dues
of workmen or gift tax '~tc. G
~ 48. On the basis of above discussion, we hold that the ORT
.. Act and Securiti::;ation Act do not create first charge in favour
of banks, financial institutions and other secured creditors and
the provisions contained in Section 38C of the Bombay Act and
H
820 SUPREME COURT REPORTS [2009) 3 S.C.R.

~
A Section 26B of the Kerala Act are not inconsistent with the
provisions of the ORT Act and Securitisation Act so as to attract
non obstante clauses contained in Section 34(1) of the ORT
Act or Section 35 of the Securitisation Act.

49. Another argument of some of the learned counsel for
B
the appellants is that the prior charge created in favour of the
bank would prevail over the subsequent mortgage created in
favour of the State. Dr. Bishwajit Bhattacharyya, learned senior
counsel appearing for the Indian Overseas Bank heavily relied
I
-
on the judgment of three-Judge Bench in Dattatreya Shanker
c Mote and others v. Anand Chintaman Datar and others (supra)
and argued that the view expressed in the subsequent
judgments in State Bank of Bikaner & Jaipur v. National Iron
& Steel Rolling Corporation and others (supra) and R.M.
Arunachalam v. Commissioner of Income Tax, Madras .. ~
D ((1997) 7 sec 698] requires reconsideration because the
same are based on misrepresentation of the judgment in
Dattatreya's case. He pointed out that Section 26B of the
Kerala Act was inserted with effect from 1.4.1999 and argued
that the same cannot prevail over the prior charge created in
E favour of the bank in 1973 because the latter could not have
had any notice of a charge created in future. Other learned
senior counsel referred to the provisions of Sections 58, 69 and
100 of the Transfer of Property Act and argued that the charge ,_
is not a mortgage although principles applicable to simple
F mortgage also apply to a charge and, therefore, the State
cannot claim priority on the basis of non obstante clauses
contained in Section 38C of the Bombay Act or Section 26B
of the Kerala Act and similar other State legislations. They
further argued that the provisions of the State Acts cannot apply
G with retrospective effect so as to affect the right of banks and
financial institutions and other secured creditors to recover their
dues from the borrowers.
.,,, '

.,.
50. Shri Rakesh Dwivedi, learned senior counsel
appearing for the State of Kerala argued that statutory first
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 821
ORS. [G.S. SINGHVI, J.]

charge created in favour of the State will have precedence over A
a mortgage created in favour of bank etc. and the judgments
in State Bank of Bikaner Sc Jaipur v. National Iron & Steel
Rolling Corporation and others (supra) and R.M.
Arunachalam v. Commissioner of Income Tax, Madras
(supra) do not require reconsideration. He pointed out that in B
Dattatreya's case the Court was not dealing with statutory first
charge whereas in the other cases the Court had specifically
dealt with such charge created in favour of the State. Shri
Dwivedi pointed out that Section 69 does not apply to a case
involving a secured creditor or Government. On the issue of c
retrospectivity, the learned senior counsel submitted that from
the date of insertion of Section 268 in the Kerala Act, the dues
of sales tax became first charge over the property of the
borrower and the same would super-impose on the mortgage
created in favour of the bank. In support of this argument, he 0
relied on the judgments of K.S. Paripoornan v. State of Kera/a
and others [JT 1994 (6) SC 182 =(1994) 5 sec 593] and Land
Acquisition Officer v. B. V. Reddy and others [(2002) 3 SCC
463].

51. We shall first refer to the judgment in Dattatreya 's case. E
In that case, the three-Judge Bench considered the question
of priority between a charge created by a decree and a
subsequent simple mortgage. The appellants in that case filed
suit for recovery of Rs.1,34,000/- with interest from respondent
Nos.1 to 7. On March 31, 1941, a compromise decree was F
passed under which a charge was created for the decretal
amount on three pieces of property belonging to respondent
Nos. 1 to 7. The decree was registered on April 7, 1941, but
due to inadvertence the charge on Kakakuva Mansion at Poona
was not shown in the index of registration. On June 27, 1949, G
respondent Nos. 1 to 7 mortgaged Kakakuva Mansion to
plaintiff-respondent No. 14 for a sum of Rs.1,00,000/-. They
also created a further charge on September 13, 1949 in favour
of plaintiff-respondent no. 14 for Rs.50,000/-. On July 7, 1951,
H
822 SUPREME COURT REPORTS [2009] 3 S.C.R.

A a charge was created by a decree in favour of respondent
No.15 for a sum of Rs.59,521/11/-. In the meantime, the
appellants recovered some amount by execution of the decree.
They sold the property at Shukrawar Peth at Poona and the
chawl at Kalyan. Thereafter, they filed a darkhast in the Court
B of the 3rd Joint Civil Judge, Senior Division, Poona for sale of
Kakakuva Mansion. Notices were issued under Order 21 Rule
66 CPC to respondent no. 14 and others. Later on, the
executing court held that presence of plaintiff-respondent no.14
. ....
was not necessary. The latter challenged that order in First
c Appeal No.668of1957 filed before the High Court of Bombay.
He also filed a civil suit in the Court of Joint Civil Judge, Senior
Division, Poona for recovery of Rs.2, 18,564/- allegedly due to
him under the two mortgages. During the pend ency of that suit,
the property was put up for sale on the darkhast of the
D appellants, who themselves purchased the property with the
leave of the Court. As a sequel to this, respondent no.14
impleaded the appellants as parties in suit no. 57 of 1958. The
appellants contested the suit on the ground that they had a prior
charge and the mortgage of respondent no. 14 was subject to
E that charge. The trial Judge decreed the suit in favour of
respondent no. 14. In appeal, the High Court modified the
decree of the trial Judge holding that as the mortgage in favour
of the respondent was protected under proviso to Section 100,
it is free from the charge created in favour of the appellants.
The High Court also gave priority to respondent no.15 for its
F dues, though it had not filed any appeal. The majority judgment
of the Court was delivered by Jaganmohan Reddy, J. who, after
noticing various provisions of the Transfer of Property Act,
observed:

G "A charge not being a transfer or a transfer of interest in
property nonetheless creates a form of security in respect
of immovable property. So far as mortgage is concerned,
it being a transfer of interest in property the mortgagee has
always a security in the property itself. Whether the
H mortgage is with possession or a simple mortgage, the
.,. CENTRAL BANK OF INDIA v. STATE OF KERALA AND 823
ORS. [G.S. SINGHVI, J.]
.... I
interest in the property enures to the mortgagee so that any A
subsequent mortgage or sale always preserves the rights
of the mortgagee whether the subsequent dealings in the
property are with or without notice. The obvious reason for
this is that in a mortgage there is always an equity of
redemption vested in the owner so that the subsequent B
mortgagees or transferees will have, if they are not careful
.... .. and cautious in examining the title before entering into a
transaction, only the interest which the owner has at the
time of the transaction.

Insofar as competing mortgagees are concerned, Section
c
48 of the Act gives priority to the first in point of time in
whose favour transfer of an interest in respect of the same
immovable property is created, if the interest which he has
..,.., " taken and the interest acquired subsequently by other
D
persons cannot all exist or be exercised to their full extent
together. This section speaks of a person who purports to
create by transfer at different times rights in or over the
same immovable property, and since charge is not a
transfer of an interest in or over the immovable property
he gets no security as against mortgagees of the same E
property unless he can show that the subsequent
mortgagee or mortgagees had notice of the existence of
his prior charge."

52. In State Bank of Bikaner & Jaipur v. National Iron & F
·steel Rolling .Corporation and others (supra), another Bench
of three Judges considered the effect of Section 11-AAAA of
the Rajasthan Sales Tax Act, 1954 by which first charge was
created on the property of the dealer in lieu of the amount of
tax, penalty etc. on an existing mortgage on the property of the
G
' .,, dealer. It is borne out from the judgment that the appellant-bank
had given cash credit facility to respondent no.1. For securing
repayment, respondent no.1 mortgaged the factory premises
in favour of the bank. In 1986, the appellant filed suit for
recovery of Rs.3,79,672/- with interest. In that suit, Commercial
H
824 SUPREME COURT REPORTS [2009] 3 S.C.R. ....
\
...
A Taxes Officer got himself impleaded as party by asserting that
State had a prior claim for recovery of Rs.1, 19, 122/- as dues
of sales tax. The mortgaged property was sold by auction under
the orders of the Court. The Commercial Taxes Officer pleaded
that the dues of sales tax should be paid first out of the sale
B proceeds and the claim of the bank could be satisfied only out
of the balance amount. The trial Court upheld the claim of the
Commercial Taxes Officer. The revision filed by the bank was ' .......
dismissed by the High Court. Before this Court it was argued
that the bank's claim will have precedence over the claim of
c the sales tax authorities because mortgage in their favour was
prior in point of time. After noticing Section 11-AAAA of the
Rajasthan Sales Tax Act which is pari materia to Section 38C
of the Bombay Act and Section 268 of the Kerala Act as also
Section 100 of the Transfer of Property Act and the judgment
in Dattatreya's case, the Court observed: " "ii--
D
"Section 100 of the Transfer of Property Act deals with
charges on an immoveable property which can be created
either by an act of parties or by operation of law. It provides
that where immoveable property of one person is made
E 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
F on the other hand, is defined under Section 58 of the
Transfer of Property Act as a transfer of an interest in
specific immoveable 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
G charge was considered by this Court in the case of
Dattatreya Shanker Mote v. Anand Chintaman Datar ~
~ .

[(1974) 2 SCC 799]. 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
H charge is not a mortgage. The Court has then considered
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 825
ORS. [G.S. SINGHVI, J.]

""' I the application of the second part of Section 100 of the A
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 B
it does not cover the transfer of only an interest in the
+ property by way of a mortgage."
"' The Court then considered the argument made on behalf of the
bank that its dues will have priority because at the time when
the statutory first charge came into existence, there was already
c
a mortgage in respect of the same property and held:-

"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 D
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 E
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- F
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.

In the present case, the section creates a first charge on
the property, thus clearly giving priority to the statutory G
,,. "' charge over all other charges on the property including
a mortgage. The submission, therefore, that the statutory
first charge created under Section 11-AAAA of the
Rajasthan Sales Tax Act can operate only over the equity
of redemption, cannot be accepted. The charge operates H
826 SUPREME COURT REPORTS [2009] 3 S.C.R.

\ ...
A on the entire property of the dealer including the interest
of the mortgagee therein.

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 earlier
B
mortgage? Now, as set out in Dattatreya Shankar Mote
case 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
c existing mortgage."

(Emphasis added)

D Tax,
53. In R.M. Arunachalam v. Commissioner of Income
Madras (supra), the Court reiterated the distinction
...
between a charge and a mortgage in the context of the
provisions contained in Sections 53( 1) and 74(1) of the Estate
Duty Act, 1953, referred to the judgments in Dattatreya's case,
State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling
Corporation and others (supra) and observed:
E
"A charge differs from a mortgage in the sense that in a
mortgage there is transfer of interest in the property
mortgaged while in a charge no interest is created in the
property charged so as to reduce the full ownership to a
F limited ownership. The creation of a charge under Section
74(1) of the Estate Duty Act cannot, therefore, be
construed as creation of an interest in property that is the
subject-matter of the charge. The creation of the charge
under Section 74(1) only means that in the matter of
G recovery of estate duty from the property which is the
subject-matter of the charge the amount recoverable by ... •
way of estate duty would have priority over the liabilities
of the accountable person. In that sense the claim in
respect of estate duty would have precedence over the
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 827
ORS. [G.S. SINGHVI, J.]
... I claim of the mortgagee because a mortgage is also a A
charge. The High Court has, therefore, rightly held that as
a result of the charge created under Section 74(1) of the
Estate Duty Act, it could not be said that title of the
assessee to the immovable properties received by him
from Smt Umayal Achi was incomplete and imperfect in B
any way. In the context of the facts, the High Court has
found that the assessee had admittedly become the full
y
• owner of the assets even before the payment of estate duty
and on payment of the same he had not acquired a new
right, tangible or intangible, in the assets. It cannot, c
therefore, be said that the amount proportionate to estate
duty paid by the assessee on the properties that were
transferred should be treated as "cost of acquisition of the
assets" under Sections 48 and 49 read with Section 55(2)
;. of the IT Act. Since the title of the assessee to the
/
D
immovable properties acquired was not incomplete and
imperfect in any way, it cannot also be said that as a result
of the payment of the estate duty by the assessee there
was an improvement in the title of the assessee and the
said payment could be regarded as "cost of improvement"
under Section 48 read with Section 55(1 )(b) of the Act." E

54. In our opinion, the judgments in State Bank of Bikaner
& Jaipur v. National Iron & Steel Rolling Corporation and
~
others (supra) and R.M. Arunachalam v. Commissioner of
Income Tax, Madras (supra) are based on a correct reading F
of the ratio of the Dattatreya's case and the propositions laid
down therein do not call for reconsideration. At the cost of
repetition, we consider it appropriate to observe that in
Dattatreya's case the Court was not dealing with the statutory
first charge created in favour of the State. ·G

.. "' 55. The argument of learned counsel for the appellants that
the State legislations creating first charge cannot be given
retrospective effect deserves to be negatived in view of the
judgment in State of M.P. and another v. State Bank of Indore
H
828 SUPREME COURT REPORTS [2009] 3 S.C.R.

'
A (supra). In that case, it was held that the charge created in favour ~
...
of the State under Section 33C of the Madhya Pradesh General
Sales Tax Act, 1958 in respect of the sales tax dues prevail
over the charge created in favour of the bank in respect of the
loan taken by 2nd respondent and the amendment made in the
B State operates in respect of charges that are in force on the
date of introduction of Section 33C.

56. We shall now deal with the individual cases. '
57. C.A. No. 9512005 Central Bank of India v. State of
c Kera/a and others - The facts of the case have been set out
in the earlier part of the judgment. A recapitulation thereof
shows that suit filed by the appellant bank in 1996 for recovery
of its dues was, later on, transferred to the Tribunal and decreed
on 1.12.2000. Before that the Tehsildar, Mavelikara had
D attached the properties of the borrower on 2.2.2000 and again •
'
on 4.9.2000 for recovery of the arrears of sales tax. The bank
challenged the notice issued by Tehsildar for recovery of the
arrears of sales tax but could not persuade the learned Single
Judge who held that in view of Section 26B of the Kerala Act,
E dues of the State will have priority. The order of the learned
Single Judge was approved by the Division Bench. In our
opinion, the view taken by Kerala High Court is in consonance
with what we have held in the earlier part of the judgment
).
regarding primacy of the State's first charge over the dues of
F banks, financial institutions and secured creditors. Therefore,
the impugned orders do not call for any interference.

58. C.A. No.281112006 - The Thane Janata Sahakari
Bank Ltd. vs. The Commissioner of Sales Tax & Others - In
this case the bank had taken possession of the mortgaged
G assets on 15.2.2005 and sold the same. On 11. 7.2005, the
officers of the Commercial Tax Department informed the bank p
4

about outstanding dues of sales tax amounting to Rs.
3,62,82,768/-. The Assistant Commissioner issued notice under
Section 39 of the Bombay Act for recovery of Rs.48,48,614/-.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 829
ORS. [G.S. SINGHVI, J.)
I The High Court negatived the bank's claim of priority and held A
that Section 35 of the Securitisation Act does not have
overriding effect over Section 33C of the Bombay Act. The view
taken by the High Court is unexceptional and calls for no
interference.
B
59. C.A. No.354912006 - Indian Overseas Bank vs.
Kera/a State and Others - Respondent no.3 in this appeal,
t
namely, Cheruvathur Brothers, Chalissery, Palakkad District
availed various credit facilities from the appellant-bank and
created mortgage in latter's favour for securing repayment. On
11.2.1994, Deputy Tehsildar (RR), Ottapalam (Kerala)
c
requested the bank to furnish details of the properties
mortgaged by respondent no.3 by stating that action was to be
initiated under the Kerala General Sales Tax Act and the Kerala
Revenue Recovery Act for recovery of the arrears of sales tax.
I
" The bank claimed that it was a secured creditor and had a prior D
charge over the mortgaged properties. Thereafter, recovery
proceedings were initiated by Deputy Tehsildar. The bank filed
suit for injunction bearing OS No.133/1994 with the prayer that
State of Kerala and Deputy Tehsildar (RR), Ottapalam be
restrained from attaching and selling the mortgaged property E
as described in the schedule attached with the plaint. The bank
filed another suit against respondent no.3 and 4 for recovery
of its dues. On the establishment of Chennai Bench of Tribunal,
the second suit was transferred and numbered as T.A.
No.1284/1997. By an order dated 31.12.1998, the Tribunal F
allowed the application of the bank and issued recovery
certificate for a sum of Rs.23,80,430.95. Thereafter, Recovery
Officer, DRT, Chennai issued notice dated 6.10.1999 to
respondent nos.3 to 5 to pay the dues of bank in terms of the
decree passed by the Tribunal. G
• .. 60. The suit for injunction filed by the bank was dismissed
by Sub Judge, Ottapalam vide judgment dated 21.12.1999. The
trial Court held that the plaintiff has not produced any evidence
to show that it had got a mortgage from defendant no.3 and
H
830 SUPREME COURT REPORTS [2009) 3 S.C.R.
'
A on that premise the bank's plea for injunction was negated. .._
Appeal Suit No.177/2000 filed by the bank was dismissed by '
the learned Single Judge of the High Court vide judgment dated
January 19, 2005. Further appeal preferred by the bank was
dismissed by the Division Bench of the High Court on
B 12.7.2005 by relying upon the judgment of the Full Bench of the
High Court in Kesava Pillai vs. State of Kera/a [2004 (1) KL T
55] by observing that the appeal is not maintainable. In our
opinion, the bank cannot claim priority over the dues of sales
tax because statutory first charge had been created in favour
c of the State by Section 26B which was inserted in the Kerala
Act with effect from 1.4.1999 and the courts below did not
commit any error by refusing to decree the suit for injunction
filed by the bank.

61. C.A. No.3973 of 2006 - Bank of Baroda vs. State
D of Kera/a and others - The appellant-bank extended the loan
facilities to respondent no.2 - Mis. Eastern Cashew Company.
, --
Respondent No.3, Mrs. Meena Vasanth gave guarantee and
mortgaged immovable property to secure the dues of the bank.
On account of the borrower's failure to repay the loan amount,
E the bank filed O.S. No. 133/86 in the Court of Sub Judge,
Kollam. The same was decreed on 23.3.1993. The judgment
of the trial Court was challenged by the borrower in A.S. No.
229/1994. Notwithstanding this, the bank filed Execution
Petition No. 159/1994 for execution of the decree. During the ~

F execution proceedings, Tehsildar, Kollam issued notice to
respondent no.3 under Section 49(2) of the Kerala Revenue
Recovery Act for payment of arrears of sales tax amounting to
Rs.1, 19,86,461/-. He also indicated that 41.80 acres of land
in revenue survey no. 680/2 will be sold for realization of sales
G tax dues. The borrowers challenged the notice by filing writ
petitions in the High Court, which were dismissed on
13.10.2005 and it was held that the State authorities were free
•
..
to take action under the Kerala Act. Thereafter, the bank filed
Writ Petition No.7464/2006, questioning the notice issued by
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 831
ORS. [G.S. SINGHVI, J.]

..., the Tehsildar under Kerala Revenue Recovery Act. The learned A
f
Single Judge dismissed the writ petition by observing that sale
was being conducted under the Revenue Recovery Act
pursuant to the judgment of the Court. Writ Appeal No.538/2006
was dismissed by the Division Bench by placing reliance upon
the judgment in South Indian Bank Limited vs. State of Kerala B
[2006 (1) KL T 65] in which the following view was expressed:

,,. 1 "Right of the State to have priority in the matter of recovery
of sales tax from the defaulters over the equitable
mortgages created by them in favour of Banks and
Financial Institutions is no more res integra. Dealing with
c
the provisions parallel to Section 26B of the Kera la General
Sales Tax Act by the various Sales Tax Laws of other
States, Supreme Court has already recognized the
statutory first charge in respect of sales tax arrears.

- "- Reference may be made to the decisions of the Apex Court
in Stat~ Bank of Bikaner & Jaipur v. National Iron & Steel
Rolling Corporation and Ors. (1995) 96 STC 612), Delhi
D

Auto and General Finance Pvt. Ltd. v. Tax Recovery
Officer and Ors. (1999) 114 STC 273), Dattatreya
Shanker Mote v. Anand Chintaman Datar, Dena Bank E
v. Bhikhabhai Prabhudas Prakash Co. and various other
decisions. We may refer to the latest decision of the Apex
Court in State of M.P. v. State Bank of Indore, wherein
the court examined the charge created under Section 33C
of the M.P. General Sales Tax Act, 1958 and held that F
Section ~3C creates a statutory first charge that prevails
over any charge that may be in existence. The Court held
that the charge thereby created in favour of the State in
respect of the sales tax dues of the second respondent
prevailed over the charge created in favour of the Bank. G
Judicial pronouncements settled the law once for all stating
that State has got priority in the matter of recovery of debts
due and the specific statutory charge created under the
Sales Tax Act notwithstanding the equitable mortgages
H
832 SUPREME COURT REPORTS [2009] 3 S.C.R.

A created by the defaulters in favour of the Banks prior to ~
'"
the liability in favour of the State. A Division Bench of this
Court in Sherry Jacob v. Canara Bank, held that revenue
recovery authorities shall have the liberty to proceed
against the property of the company under the Revenue
B Recovery Act on the strength of the first charge created
over the property by virtue of Section 26B of the Kerala
General Sales Tax Act. The Court held that the statutory
first charge would prevail over any charge or right in favour ...
of a mortgage or secured creditors and would get
c precedence over an existing mortgage right.

We are in this case concerned with the question as to
whether Section 26B of the K.G.S.T. Act would take away
the efficacy of a decree passed by the civil court prior to

D
the introduction of said section. We are of the view till the
decree is executed through executing court title of the
mortgaged property remains with the mortgagor. Decree
•
-
passed by the civil court is the formal expression of an
adjudication which conclusively determines the rights of
parties, but unless and until the decree is executed the
E Bank would not procure the property and the State's
overriding rights would have precedence over that of the
Bank. When a first charge created by the operation of law
over any property, that charge will have precedence over
an existing mortgage and the decree obtained by the bank
F against the mortgagor will not affect the State since State
was not a party to the suit. Decree has only conclusively
determined the rights between the mortgagor and
mortgagee which would not affect the statutory rights of the
-
State. The expression "rights of parties" used in Section
G 2(2) means rights of parties to the suit. State which has
got a statutory first charge under Section 26B of the
K.G.S.T. Act would prevail over the rights created in favour
of the Bank by an unexecuted decree. We therefore hold
that the decree obtained by the Bank will not have any
H precedence over the first charge created in favour of the
CENTRAL BANK OF !NOIA v. STATE OF KERALA AND 833
ORS. [G.S. SINGHVI, J.)

State under Section 26B of the K.G.S.T. Act." A

In our opinion, the High Court has rightly held that the first
charge created by Section 26B of the Kerala Act will have
primacy over the bank's dues.

62. C.A. No.417412006 -Ahmad Koya, Kol/am v. The B
District Collector, Ko/am & others- In 1974, respondent no.7,
Thomas Stephen and Company, Kellam took loan from Canara
Bank. The company mortgaged two of its properties by deposit
of title deeds as a continuing collateral security. On 24.8.1992,
the bank filed suit for recovery of its dues. On creation of bench c
of the Tribunal at Cochin, the suit was transferred to the Tribun2I,
which passed decree dated 17 .2.2000 for a sum of
Rs.41,25,451.64 with interest at the rate of 15% per annum
from 24.8.1992. On 24.8.2000, the bank obtained recovery
• certificate against the company. In the meanwhile, Tehsildar D
(Revenue Recovery) issued notice dated 18. 7.2000 under
Section 46 of the Kerala Revenue Recovery Act and attached
ttie property of the company in lieu of the dues of sales tax. He
then issued notice dated 13.2.2001 under Section 49 of the
Kerala Revenue Recovery Act for sale of the property. The bank E
filed Writ Petition (OP No.8845 of 2001) for quashing the sale
notice. By an interim order, the High Court stayed all
proceedings pursuant to the sale notice issued by the Tehsildar.
Thereafter, the bank initiated proceedings for execution of
decree dated 17.2.2000. As a sequel to this, the mortgaged F
properties were put to sale. In the auction held on 31.1.2003,
the petitioner gave bid of Rs.60,60,010/- for the first property
admeasuring 40 cents with building thereon. The second
property was not put to auction apparently because the bid
given by the appellant satisfied the bank's claim. On 14.2.2003,
G
the petitioner deposited the bid amount. He was in possession
of the auctioned property excluding the area of 8.50 cents which
was in the possession of the 8th respondent, Sherry Jacob as
licensee. At that stage, the State Government filed Writ Petition
No.26523 of 2003 for quashing the sale proceedings and also
H
834 SUPREME COURT REPORTS [2009] 3 S.C.R.

A for issue of a direction to the auction purchaser to hand over ...
'
the possession of the property to the revenue officer for
conducting fresh auction for realization of the arrears of sales
tax. The appellant also filed Writ Petition No.27302 of 2003 for
restraining the revenue officer from taking action against the
B auctioned property. During the pendency of the writ petition, the
company was wound up. By an order dated 10.11.2004, the
Division Bench of the High Court disposed of Writ Petition
Nos.26523 of 2003 and 27302 of 2003 along with Writ Appeal •
Nos.1165 of 2003 and 1230 of 2003 filed by the company and
c licensee against dismissal of the writ petitions filed by them
challenging the sale conducted by the recovery officer of the
Tribunal. The Division Bench referred to Section 26B of the
Kerala Act, judgments of this Court in State Bank of Bikaner
and Jaipur v. National Iron and Steel Rolling Corporation and
D
others (supra) and State of M.P. v. State Bank of Indore
(supra) and held that the sale conducted by the recovery officer
of the Tribunal is illegal because no notice was given to the
revenue officers despite the fact that the property which was
•
-
subjected to auction had already been attached. The Division
Bench further held that the State was entitled to enforce the first
E charge on the property of the company by conducting fresh
auction. The Review Petition filed by the appellant was
dismissed by another Division Bench by recording the following
observations:-

F "We have already found that the various provisions of the
Recovery of Debts due to Banks and Financial Institutions
Act, 1993 would not affect the statutory charge of the State
-
Government. Therefore the contention raised on the basis
of the Second Schedule to the Income Tax Act, 1961 need
G not be examined. Since we have already found that State
Government stands outside the purview of the ORT Act
and that the State need not stand in the queue for claiming ...
priority, the contention of the counsel for the review
Petitioners that the sale effected by State is vitiated cannot
H be sustained.
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 835
ORS. [G.S. SINGHVI, J.]

We therefore find no reason to accept the contention · A
raised by senior counsel. We also find no substance in the
arguments raised by the counsel for the Canara Bank.
Contentions raised by the counsel are only to disturb the
substantial right of the State which has already been
recognized by the Division Bench holding that they have B
got first charge and the State can adopt its own procedure
for enforcing the statutory charge. Procedural provision
pointed out by the counsel have no relevance while the
State is enforcing the statutory charge. Regarding the
contention raised by senior counsel Sri N.N. Sugunapalan c
we are of the view, if any amount is due towards
employees provident fund those matters could be taken up
before the State Government. The power under Section
11 (2) would not annul the statutory charge of the State.
Under such circumstance review petitions would stand 0
dismissed."

Ms. lndu Malhotra, learned counsel for the appellant argued that
decree passed by the Tribunal on 17.2.2000 was prior to the
notice for attachment issued by Tehsildar under Section 36 of
the Kerala Revenue Recovery Act and as the sale notice issued E
by him was stayed by the High Court on 15.3.2001, the bank
did not commit any illegality by auctioning the first property of
the company. She further argued that State can recover its dues
by auctioning the second property of the company and the High
Court was not justified in nullifying the auction conducted by the F
recovery officer of the Tribunal. Learned counsel appearing for .
the bank argued that since the State was not a party before
the Tribunal, it was not necessary to give notice to the Tehsildar.

In our view, the High Court did not commit any illegality by G
nullifying the auction conducted by the recovery officer of the
Tribunal, who, as per admitted factual matrix of the case, did
not give notice ~o the revenue officer despite the fact that the
property had been attached under Section 36 of the Kerala
Revenue Recovery Act and the bank had challenged the notice H
836 SUPREME COURT REPORTS (2009] 3 S.C.R.

A issued under Section 49(2) of that Act in Writ Petition No.8845
of 2001 and succeeded in persuading the High Court to stay
that notice.
~
-
63. C.A. No.4909 of 2006 - Central Bank of India v. The
Deputy Tehsildar and others - The petitioner-bank extended
B
financial facilities to the private respondents, who mortgaged
immovable properties for securing repayment. In 1994, the
bank filed suits for recovery of its dues. On establishment of
t
-
the bench of the Tribunal at Ernakulam, all the suits were
c transferred to the Tribunal which passed decree dated
31.3.2000 in T.A. No.1032/1997, 25.7.2001 in T.A. No.1009/
1997 and 9.8.2001 in T.A. No.1015/1997 The bank also issued
recovery certificate dated 1.12.2003. However, before the bank
could execute the decrees, Tehsildar (Revenue Recovery),
Kallam, initiated proceedings under the Kerala Revenue
D Recovery Act for sale of the mortgaged properties which was
attached for recovery of the arrears of sales tax. The petitioner
"
-
challenged the sale notices issued by Tehsildar in Writ Petition
No.13425 of 2004. The learned Single Judge by relying on the
judgment of this Court in Dena Bank v. Bhikabhai Prabhudas
E Parekh & Co. (supra) and of the Division Bench of the High
Court in Sherry Jacob v. Canara Bank [2004 (30) KLT 1089]
dismissed the writ petition. The Division Bench dismissed the
writ appeal.

F In our opinion, the High Court rightly held that the Tehsildar was
entitled to give effect to the primacy of statutory first charge "'"'
1.,reated on the property of the dealer under Section 268 of the
Kerala Act.

64. C.A. No.1288 of 2007 - UCO Bank v. State of Kera/a
G & others-Respondent No.4, M/s. International Trade Links took
loan from the appellant-bank but failed to repay the same. The ,_ ,,
appellant issued notice under Section 13(2) of the
Securitisation Act and approached Tehsildar (Revenue
Recovery) Kanayannur for rendering assistance to take
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 837
ORS. [G.S. SINGHVI, J.]
possession of the mortgaged property. The latter declined the A
appellant's request on the ground that action has already been
initiated under the Kerala Revenue Recovery Act for recovery
of sales tax under the Kerala Act. Thereupon, the appellant filed
Writ Petition No.4198 of 2005 for issue of a direction to the
District Collector, Ernakulam and Tehsildar, Kanayannur to take B
vacant possession of the mortgaged property. It also prayed
that Section 26A and 26B of the Kerala Act be declared
unconstitutional and void being inconsistent with the provisions
of the Securitisation Act. By an order dated 7.2.2005, the
learned Single Judge directed the Tehsildar to sell mortgaged c
property and to permit the bank to coordinate in the sale. That
order was modified on 22.9.2005 and the bank was allowed
to sell the property subject to certain conditions. The bank
applied for modification of order dated 22.9.2005 and prayed
'!o':
that it may be permitted to retain the money realized from sale D
of the mortgaged property. The learned Single Judge did not
entertain the appellant's prayer but directed that if the sale price
is lower than the one mentioned by the government pleader then
the sale shall be confirmed only after getting further order from
the court. Liberty was also given to the borrower/guarantor to
E
pay the arrears. Writ appeal filed by the appellant-bank against
the interim order was disposed of by the Division Bench with
the following observations:-

"Since the revenue authorities have already attached the
property this court will not be justified in directing F
respondents 2 and 3 to hand over possession of the
property to the Bank. All the same it is entirely for the State
and its officers to decide whether possession should be
handed over to the Bank for taking further proceedings
under the Secur::isation Act. We leave it to the State to G
take a decision in this matter in accordance with law.
Needless to say, since State has got prior charge it is
open to the State to proceed in accordance with law. Let
a decision be taken by the district Collector within one
month from the date of receipt of a copy of this judgment. H
838 SUPREME COURT REPORTS [2009) 3 S.C.R.

A The appeal and the writ petition are disposed of as above.
I.A. No.14420 of 2005 would stand dismissed."

Since we have already expressed the view that in terms of
Section 26B of the Kerala Act, the State has got prior charge
over the property of the dealer and the facts of the case show
B
that the revenue authorities had already attached the property, °;}"''~

there is no valid ground to interfere with the order passed by
the Division Bench.
-
65. C.A. No. of 2009 [arising out of S.L.P. (C) No.24767
c of 2005]- The South Indian Bank Ltd., Trichur-1 v. State of
Kera/a & others - In the year 1984, the appellant-bank granted
loan to respondent nos.3 to 5, who mortgaged their immovable t
properties as security for repayment. After 8 years, the bank
filed O.S. No.720of1992 for recovery of amount of loan with
D interest. The suit was decreed on 30.1.1995 for a sum of
Rs.3,51,36,973/-. After lapse of three years, the bank filed O.A.
No.1081 of 1998 for recovery of the amount in terms of decree
dated 30.1.1995. On 26.7.2000, the Tribunal issued recovery
certificate in favour of bank. In the meanwhile, Tehsildar,
E Ottapalam issued notice under Section 49(2) of the Kerala
Revenue Recovery Act on 2.6.1999 for sale of the mortgaged
properties for recovery of sales tax dues amounting to
Rs.85,45,276/-. The appellant challenged the proposed sale in •
Writ Petition (O.P. No.17701 of 1999) and prayed that the State
F and its functionaries may be restrained from selling the
property. The learned Single Judge, after noticing the judgment
of this Court in State of M.P. v. State Bank of Indore [(2002)
10 KTR 366 (SC)] held that even if there is first charge in favour
of the bank, the same will not adversely affect the statutory first
charge of the State. Accordingly, he refused to interfere with
G
the proposed sale of the mortgaged properties but gave liberty
to the bank to proceed to execute the decree passed in its
.. ,,~

favour in accordance with law. Writ appeal filed by the bank was
dismissed by the Division Bench making observations which
have been extracted hereinabove.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 839
ORS. [G.S. SINGHVI, J.]

66. We are in complete agreement with the Division Bench A
that statutory first charge created in favour of the State under
Section 268 of the Kerala Act has primacy over the right of the
bank to recover its dues.

67. In the result, the appeals are dismissed. However, it
8
is made clear that this judgment shall not preclude the banks
from realising their dues by taking recourse to other
• proceedings, as may be permissible under law. The appellant
in Civil Appeal No.4174 of 2006 shall be free to avail
appropriate remedy for refund of the amount deposited by him C
in furtherance of the auction conducted by the recovery officer.

D.G. Appeal dismissed.