1

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8980-8981/2012

STATE OF HIMACHAL PRADESH

AND OTHERS … APPELLANTS

VS.

M/S A.J. INFRASTRUCTURES

PVT. LTD AND ANR. … RESPONDENTS

WITH

CIVIL APPEAL NO. 9212-9213/2012

STATE OF HIMACHAL

PRADESH AND ANR. … APPELLANTS

VS.

THE RECOVERY OFFICER,

DEBT RECOVERY TRIBUNAL AND ANR. … RESPONDENTS

J U D G M E N T

DIPANKAR DATTA, J.

Preface

1.A thin thread connects the two sets of civil appeals

1

, which are

at the instance of the State of Himachal Pradesh (for brevity, “the

State”, hereafter) and its officers. Since the provisions of law

emerging for consideration are almost the same in terms, though in

1

Civil Appeal Nos. 8980-8981/2012 and Civil Appeal Nos. 9212-9213/2012

2

different fact situations, these appeals were heard one after the

other and shall stand disposed of by this common judgment and

order.

Civil Appeal Nos.8980-8981/2012

2.Civil Appeal No. 8980 of 2012 is directed against the judgment

and order of the High Court dated 7

th

September, 2007 allowing a

writ petition

2

presented before it by M/s. A.J. Infrastructures (Pvt.)

Ltd., the first respondent, on 6

th

March, 2007. The operative portion

of the order reads as follows: -

“For all the aforesaid reasons, the writ petition is allowed. Order

rejecting petitioner's application for not mutating the entry in their

name is quashed and set aside. The respondents no. 1 to 5 are

directed to delete the adverse entry showing the sales tax dues of

M/s Regent Rubber and M/s Eastman Rubber in relation to the

property comprising in Khasra No. 254/2/1, Khatauni Nos. 7 Min, 14

Min, Measuring 3 Bighas 7 Bishwas, situated at Village Moginand,

Kala-Amb, Tehsil Nahan, District Sirmour, HP and further

respondent no. 3 is directed to mutate the property in the name of

petitioner company. The petitioner shall be entitled to costs, which is

quantified at Rs, 25,000/- from respondents no. 1 to 5.“

3.Aggrieved by the judgment and order dated 7

th

September,

2007, the official respondents in the writ petition applied for a

review

3

. By an order dated 29

th

October, 2009, the High Court

proceeded to dispose of the application for review by, inter alia, the

following order:-

2

CWP No. 306/2007

3

CMP No. 1160/2008

3

“The present application of review has been filed after delay of more

than one year without proper and satisfactory explanation. No

sufficient material has been placed on record for reviewing the order

dated 07-09-07, which may be brought within four corners and

provisions of Order 47 Rule 1 CPC, as observed in foregoing

decisions. Therefore, only for taking different view, the said order

dated 07-09-09 cannot be reviewed. In these circumstances, the

present application for reviewing the order dated 07-09-09 is

dismissed on the ground of delay as well as on the merits.”

The said order dated October 29, 2009 is challenged in C.A. No.

8981 of 2012.

4.The facts pleaded in the writ petition reveal that the first

respondent had purchased the subject property (described in full in

the operative part of the order dated 7

th

September, 2007, extracted

above) in an auction conducted by the State Bank of Patiala (for

brevity “State Bank”, hereafter) on 18

th

January, 2005 in exercise of

power conferred by the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002 (for

brevity, “the SARFAESI Act”, hereafter). The subject property was

initially mortgaged on 11

th

October, 1999 with the Himachal Pradesh

Financial Corporation (for brevity “HPFC”, hereafter) by M/s. Regent

Rubber Private Limited (for brevity “Regent”, hereafter). Due to

breach committed by Regent, HPFC took over the property and sold

it in an open auction to M/s Eastman Rubber (for brevity “Eastman”,

hereafter). The subject property was thereafter mortgaged by

Eastman with the State Bank. However, Eastman too having

4

committed default in liquidating its dues, the subject property was

eventually put up for sale in an open auction on 18

th

January, 2005

under rules 8 and 9 of the Security Interest (Enforcement) Rules,

2002 (for brevity “SARFAESI Rules”, hereafter).

5. The first respondent emerged as the highest bidder in the

auction by quoting a sum of Rs. 50,01,000/-. Within the stipulated

time, the first respondent paid the entire bid amount whereupon in

accordance with the provisions of rule 9(6) and (10) of the

SARFAESI Rules, sale certificate dated 21

st

July, 2005 was issued to

the following effect:-

"receipt of the sale price in full and handed over the delivery and

possession of the scheduled property. The sale of the scheduled

property was made free from all encumbrances known to the secured

creditor listed below on deposit of the money demanded by the

undersigned."

6.After issuance of the sale certificate, the State Bank by its

letter dated 24

th

February, 2006 informed various authorities

including the taxation department of the State of sale of the subject

property to the first respondent. In due course of time, the first

respondent obtained permission from the State vide order dated

17

th

August, 2006 and consequently was able to have the sale deed

executed and registered on 6

th

September, 2006.

7.The first respondent having applied for mutation of the subject

property in its name, an order of rejection thereof came to be

5

passed on 22

nd

December, 2006 in the circumstances noted now. On

18

th

January, 2005, an ex parte assessment order under the

provisions of the Himachal Pradesh General Sales Tax Act, 1968 (for

brevity “HPGST Act”, hereafter) was passed in relation to the

assessment years 1998-1999, 1999-2000, 2000-2001 and 2001-

2002 against Regent and Eastman amounting to Rs. 19,03,845/-

and Rs.13,73,115/- respectively. Having regard to the date of the

ex parte assessment order, it is quite but natural that when the first

respondent offered its bid for purchasing the subject property in the

auction ultimately conducted (on 18

th

January, 2005), any

outstanding liability of either Regent or Eastman could not and was

not reflected in any official record. However, in view of this liability

of Regent and Eastman, the application of the first respondent for

mutation in respect of the subject property in its name stood

rejected. Such order revealed that on the asking of the Excise and

Taxation Officer, Nahan, District Sirmour, entries in red ink had been

made by the Tehsildar, Nahan pertaining to demand of arrears of tax

payable by Regent and Eastman under the provisions of the HPGST

Act.

8.The order of rejection dated 22

nd

December, 2006 was assailed

in the writ petition and orders were sought seeking (i) deletion of

adverse entries regarding the sales tax liability of Regent and

6

Eastman; (ii) direction upon the tehsildar to mutate the subject

property, after quashing of the order dated 22

nd

December 2006;

and (iii) declaring the action of the excise and taxation officer as

illegal, unjust and without the authority of law.

9.Upon a contested hearing, a Division Bench of the High Court

allowed the writ petition on terms noted above in paragraph 2

supra.

10.We consider it appropriate to reproduce certain other

paragraphs from the impugned judgment dated 7

th

September,

2007, hereunder:-

“ Undoubtedly, Section 16-B of the Tax Act also contains a non-

obstante clause, which makes the amount of tax payable by a dealer

to be a first charge on the property of the dealer. There is, thus,

obviously a conflict between the provisions of the two statutes.

The powers are absolute and in view of the non obstante clause

contained in Section 35 of the Act, would have an overriding effect

over all inconsistent provisions contained in any other law. The Act

being a special statute, enacted later in point in time and that too by

the Central Government (sic, Parliament), in our view, would override

the inconsistent provisions contained in the Tax Act. This is in the

scheme of constitutional provisions also. Therefore, the Bank is well

within its right to take over the property and sell the same

notwithstanding the 1st charge of the State on the property of the

dealer.

The issue needs to be examined from another perspective. Under the

provisions of the Tax Act, the Assessing Authority is required to

assess the amount of tax due from the dealer on the basis of returns

filed. If the Assessing Authority is not satisfied that the returns

furnished are correct and complete or that no returns have been filed

at all he shall serve a notice, give an opportunity of hearing and as

the case may arise, adopt the best judgment method and assess the

amount of tax due from the dealer. This is so provided under section

14 of the Tax Act. The amount so assessed is required to be paid by

the assessee within the time stipulated in the notice to be issued by

7

the Assessing Authority, failing which the amount due is recoverable

as arrears of land revenue as provided for under section 16, which,

however, in view of non obstante clause contained in section 16A

comes into operation only after the dealer failed to pay the amount

due when a notice in writing is issued to him. Now, in the present

case no notice of demand, as stipulated under section 14(7) or

section 16A has been issued to any of the dealers. The action of

respondent no. 5 in asking respondents no. 3 and 4 and also the

action of respondents no. 4 in acting upon the request of respondent

no. 5 to make entries (in red ink) of arrears of tax due recoverable as

land revenue in the revenue record is thus bad in law. For the very

same reason, in spite of No Objection issued by the State for getting

the sale deed executed is thus in gross violations of the provisions of

the Tax Act.

Further the right of the respondent-State to have a first charge on

the property of the dealer can be only if there is proper adjudication

and determination of the amount due under the Tax Act and in the

absence thereof, it cannot be said that the tax is due and payable by

the dealer. Till such time, the same is done, there cannot be any

crystallization of charge. The charge of the State is not a floating

charge.

In the instant case the Bank had already exercised its right and taken

possession of the property much prior to the assessment order dated

18-01-05 passed by the Assessing Authority. In fact before the said

date the property itself had been advertised to be sold by public

auction. No notice of demand was ever issued under Section 14 and

16A before action under section 16 of the Tax Act was taken.

Assuming that the first charge stood created prior to the passing of

the order of assessment, in our view the provisions of section 35 of

the Act would override the inconsistent provisions of section 16B of

the Tax Act leading to the only conclusion and that there is no prior

charge on the property except for that of the Bank with whom the

property was mortgaged. Thus, in our view, looking from all angles

the action of the State cannot be upheld.

The creation of 1st charge or status of encumbrance of property was

recorded for the 1st time on 11-07-06. The record of rights, i.e.

revenue record did not reflect any status of encumbrance of the

property or creation of 1st charge in spite of the fact that the

respondents were duly informed about the auction and issuance of

the sale certificate by the Bank in favour of the petitioner. It was only

when the State was satisfied about the non-encumbrance that the

permission to transfer the property in the name of the petitioner was

accorded. In fact, based on the revenue record the Bank considered

the property to be encumbered and accepted the same as a security.

It took over the same and put it to auction as a secured asset which

stands purchased by the petitioner as such.”

8

(emphasis ours)

Civil Appeal Nos.9212-9213/2012

11.Punjab National Bank (for brevity “PNB”, hereafter) sanctioned

term loan to M/s Superrugs (India) Pvt. Ltd. (for brevity “borrower”,

hereafter) for manufacturing carpets. The loan that was provided by

PNB to the borrower was secured by mortgage of its factory

premises situated at Baddi Industrial Area, District Solan. Shri R.T.

Tejpal and Shri Durga Dass stood as guarantors (for brevity

“guarantors”, hereafter). The loan account of the borrower became

irregular. A recovery suit was instituted by PNB against the borrower

and the guarantors for Rs. 42.29 lacs. Upon introduction of the

Recovery of Debts due to Banks and Financial Institutions Act, 1993

(for brevity “DRT Act”, hereafter) and constitution of the Debts

Recovery Tribunals, the suit was transferred to the Debts Recovery

Tribunal, Jaipur (for brevity “DRT, Jaipur”, hereafter). Consent

decree was passed on 12

th

 November, 1998 in favour of PNB and

against the borrower and the guarantors. Part payment was made

by the borrower towards satisfaction of the decree, but balance

payment was not made resulting in PNB levying execution of the

recovery certificate for an amount of Rs.2,65,97,162.50 before the

DRT, Jaipur on 14

th

May, 1999. Subsequently, the proceedings for

execution were transferred to the Debts Recovery Tribunal,

Chandigarh (for brevity “DRT, Chandigarh”, hereafter) on

9

2

nd

 January, 2000. During pendency of the proceedings, the

Assistant Excise and Taxation Commissioner, District Solan (for

brevity “Commissioner”, hereafter), issued a notice in ‘The Tribune’

in its edition dated 12

th

February, 2000 for auction of the property

that was mortgaged by the borrower. Auction was fixed for

3

rd

 March, 2001 for recovery of arrears of sales tax amounting to

Rs.32,72,365/-, which was recoverable as arrears of land revenue

under the Himachal Pradesh Land Revenue Act, 1954 (for brevity

“HPLR Act”, hereafter). PNB moved an application before the

Recovery Officer attached to the DRT, Chandigarh for stay of auction

whereupon the said recovery officer considering the law laid down

by this Court in State Bank of Bikaner & Jaipur vs. National

Iron & Steel Rolling Corporation and Ors.

4

concluded that the

claim of PNB against the mortgaged property had become secondary

in view of the auction initiated by the State for recovery of sales tax

dues. This resulted in PNB invoking the jurisdiction of the High Court

under Article 226 by filing a writ petition

5

against the State, the

Commissioner, the Recovery Officer of the Debts Recovery Tribunal,

Chandigarh, the borrower and the guarantors.

12.Prayer in the writ petition was for orders restraining sale by

auction of the mortgaged property of the borrower at Baddi, District

4

(1995) 2 SCC 19

5

CWP No. 239 of 2001

10

Solan for recovery of arrears of sales tax dues, and to strike down

section 16-B of the HPGST Act as ultra vires the provisions of the

Constitution, the DRT Act, the Transfer of Property Act, 1872, the

Contract Act, 1872 and the Banking Companies (Acquisition and

Transfer of Undertakings) Act, 1970 (for brevity “Banking

Companies Act”, hereafter).

13.The State and the Commissioner contested the writ petition by

contending that the borrower owed Rs. 32,72,365/ to the

Government of Himachal Pradesh on account of arrears of sales tax

which had been declared as arrears under the HPLR Act. It was

further contented that the State is competent to recover the amount

as it has a first charge on the property of the dealer under section

16-B of the HPGST Act read with section 73(3) of the Code of Civil

Procedure (for brevity “the CPC”, hereafter). It was further

contented that it is wrong on the part of the PNB to contend that its

debt is prior in point of time. Section 16-B of the HPGST Act had

come into force with effect from 21

st

 October, 1994 whereas the

consent decree was passed in favour of PNB on 12

th

 November,

1998. This being the position, the provisions of section 16-B of the

HPGST Act would apply and that PNB was not entitled to any relief.

Reference was made to the decision of this Court in State Bank of

Bikaner and Jaipur (supra) where this Court considered section

11

11-AAAA of the Rajasthan Sales Tax Act, 1954, which is pari materia

with section 16-B of the HPGST Act, creating a first charge on the

property of the dealer. In the light of the said decision, the

contention of PNB that it had the prior right to recovery of the debt

was claimed to be devoid of substance and, in fact, misconceived.

14.The writ petition of PNB come to be allowed by the High Court

vide its judgment and order dated 2

nd

 January, 2008. The judgment

and order dated 7

th

 September, 2007 rendered by the High Court on

the writ petition

6

titled M/s A.J. Infrastructures Pvt. Ltd. vs.

State of H.P. and others, being the judgment and order impugned

in Civil Appeal No. 8980 of 2012, was relied upon. Although while

deciding M/s A.J. Infrastructures Pvt. Ltd. (supra) the High

Court had not declared section 35 of the SARFAESI Act as ultra

vires, the Division Bench of the High Court in seisin of the writ

petition of PNB proceeded a step further and held section 16-B of

the HPGST Act to be inconsistent with section 35 of the SARFAESI

Act; and, then declared the said section as ultra vires the

Constitution and the Banking Companies Act. The writ petition filed

by PNB was, accordingly, allowed and it was held that PNB was

entitled to sell the mortgaged property of the borrower in

accordance with law.

6

CWP No. 306/2007

12

15. The Division Bench of the High Court also recorded as

follows :-

“In the present case, the mortgage was created in the year 1984 and

the consent decree was passed on 12.11.1998 in favour of the

petitioner bank and against respondents No. 4 to 6. There is nothing

on record to show that any notice of demand was firstly issued under

Sections 14 and 16 A before action under Section 16 of the Sales Tax

Act was taken. The copies of the notice of demand issued and when it

was issued have not been placed on record by respondents No. 1 & 2

except by pleading about their right to sell the property and recover

the amount as arrears of land revenue in preference to the petitioner

bank. Therefore, in view of the decision in Dena Bank's case it is clear

that it only gives preferential right to the State to recover the sales

tax in preference to unsecured creditors but once the property in

question already stood mortgaged and they had proceeded prior in

time, they can recover the amount in pursuance of the consent

decree passed in their favour, the State has no preferential right to

sell the property and, therefore, the petitioner bank is entitled to sell

the mortgaged property and realize the arrears of amount due to

them and State shall be entitled to recover the balance amount, if

any, left with the bank or in the alternative, they are at liberty to

proceed against respondents No. 4 to 6 for recovery of the amount by

proceeding against them in accordance with law. The Division Bench

in the above case has already taken the view that the provisions of

Section 35 of the Act would override the inconsistent provisions of

Section 16B of the Tax Act and as such, there provisions of the Sales

Tax Act Section 16B as they are inconsistent with Section 35 of the

Act are declared ultravires of the Constitution.”

(emphasis ours)

16.Dissatisfied with the judgment and order dated 2

nd

 January

2008, the State and the Commissioner on 22

nd

 May, 2008 filed an

application

7

under section 151 of the CPC for “rectification etc., of

the judgment/order dated 2

nd

January, 2008”. The prayer in such

petition was for recall of the judgment and order dated 2

nd

 January,

7

CMP No. 1205 of 2008

13

2008 in the interest of justice, equity and fair play so that the

applicants are saved from enormous adverse consequences of such

judgment and order.

17.The said application came to be considered by the same

Division Bench (which had decided the writ petition) and stood

dismissed, inter alia, by the following order dated 5

th

June, 2008:

“This application under Section 151 CPC has been purportedly (sic,

filed) for rectification of our judgement dated 2.1.2008. However, in

the prayer clause it has been prayed that the judgement dated 2nd

January, 2008 may be recalled. It is clear that under the garb of this

application the State is seeking review of the judgement.

We need not burden ourselves with the various grounds taken in the

application. The perusal of the application shows that it is virtually a

review petition but has been styled to be an application under Section

151 CPC. This cannot be permitted.

Various facts have now been pleaded in this application, which were

neither pleaded nor argued when the writ petition was heard and

decided. In an application under Section 151 CPC, the applicants

cannot be permitted to rake up absolutely new pleas which were

never taken or argued in the writ petition. In case the State is

aggrieved by the judgment, it has the remedy of approaching the

apex Court. There is no error apparent on the face of the record of

the judgement. The application being without any merit and being

totally misconceived, is rejected”.

18.The judgment and order dated 2

nd

 January, 2008 allowing the

writ petition has been challenged in Civil Appeal No. 9212 of 2012

whereas the order of dismissal of the application under section 151

of the CPC is the subject matter of challenge in Civil Appeal No.

9213/2012.

Proceedings before this Court

14

19.Grant of relief claimed in the writ petitions and dismissal of the

two applications of the State and its officers for review of the

judgment and order/under section 151 of the CPC led the State and

its officers to approach this Court with separate special leave

petitions.

20.Certain orders passed in these proceedings need to be noted.

21.On the special leave petitions carried by the State from the

judgment and order passed on PNB’s writ petition and the order of

dismissal of the State’s application under section 151 of the CPC, an

order was passed by this Court on 11

th

March, 2011 recording as

follows:

“The respondent-Bank has filed an affidavit contending inter alia that

they have recovered their dues and also released the property, which

was under mortgage in favour of the borrower since they have

liquidated the loan amount with interest. Counsel appearing for the

State seeks for a week’s time to enable him to obtain instructions.

He may obtain instructions accordingly.

Re-notify on 18.3.2011.”

22.The next effective order dated 8

th

April, 2011 passed by this

Court on the aforesaid special leave petitions recorded that:

“So far these petitions are concerned, in our considered opinion,

these petitions have been rendered infructuous partly in view of the

fact that bank, who is a contesting respondent no. 1 herein, has

already recovered its dues and thereafter released the property from

its hypothecation. Hence, the name of respondent no. 1 is deleted

15

from the array of respondents and the petitions as against

respondent no. 1 stand dismissed.

These petitions also stand dismissed so far as respondent nos. 3 and

5 are concerned. Therefore, these petitions survive only against

respondent nos. 2 and 4.”

23.As a result of the above order, the special leave petitions stood

dismissed against PNB (the first respondent), the borrower (the

second respondent) and Shri Durga Dass (the fifth respondent) and

survived qua the Recovery Officer, DRT, Chandigarh (the second

respondent) and Shri R.T. Tejpal (the fourth respondent).

24.Practically, with the exit of PNB from the proceedings in view

of the developments subsequent to filing of the special leave

petitions resulting in dismissal of the special leave petitions qua

PNB, it admits of no doubt that the issue inter se the relevant

parties, i.e., the State and PNB, as to whether the High Court was

justified in outlawing section 16-B of the HPGST Act, attained

finality.

25.Notwithstanding such position, this Court on 7

th

December,

2012 granted special leave on both the petitions to appeal

whereupon the appeals were placed before us for hearing and

decision.

Issues

26.The legal issues arising for decision on these appeals are:

16

(i) Whether, in view of dismissal of the special leave petition

qua PNB by the order dated 8

th

April, 2011, the judgment

and order outlawing section 16-B of the HPGST Act can

at all be examined?

(ii) Should the answer to the above question be in the

affirmative, whether section 16-B of the HPGST Act

should have been outlawed by the High Court on the

ground that it is ultra vires the Constitution or the

Banking Companies Act?

(iii)Whether having regard to the facts and circumstances

triggering the writ petitions, the High Court was justified

in returning the findings that the State’s claim of first

charge on the subject properties is not substantiated?

(iv) Whether dismissal of the review petition/application for

recall instituted by the State by the High Court suffers

from any infirmity, legal or otherwise?

(v) To what relief, if any, are the appellants entitled?

Analysis and Reasons

27.Insofar as the first issue is concerned, we may notice the

Constitution Bench decision in A.R. Antulay vs. R.S. Nayak

8

. It

was held there that one of the well-known principles of law is that a

decision made by a competent court of law should be taken as final

8

(1988) 2 SCC 602

17

subject to any decision of a superior court in further proceedings

contemplated by the law of procedure. However, this Court being

the apex court, a litigant cannot approach any higher forum but can

only invoke its review jurisdiction to correct a patent error. The

power to review is also inherent in this Court and if judicial

satisfaction is reached that an order has been passed, which ought

not to have been passed, and it is accepted that a mistake has been

committed, it is not only appropriate but also the duty of this Court

to rectify the mistake by exercising inherent powers. Mistake of the

Court can be corrected by the Court itself without any fetters. This

is based on the principle that an act of Court ought not to injure any

party before it. To own up the mistake when judicial satisfaction is

reached does not militate against the Court’s status or authority;

perhaps it would enhance both.

28.There can be no doubt that in normal circumstances this Court

would not allow reopening of an issue that has attained finality and,

that too, in the absence of party who has benefited by reason of

such an order. However, this is not a normal case and we can

unhesitatingly record our satisfaction of a gross error having crept in

requiring correction.

29.A law, which the State legislature had the competence to

enact, has been outlawed by the High Court while hearing a writ

18

petition which was rendered infructuous due to developments

subsequent to its filing and prior to its disposal but such

developments had not been brought to the notice of the High Court.

30.During the pendency of these proceedings where challenge

had been laid to the judgment and order dated 2

nd

January, 2008 of

the High Court, PNB filed an affidavit dated 30

th

September, 2010,

referred to in the order of this Court dated 8

th

April, 2011. A reading

of the affidavit reveals that during the pendency of the writ petition

(filed by PNB) before the High Court, the borrower had offered a

compromise proposal which PNB had accepted. In terms thereof, the

borrower paid to PNB an amount of Rs.36 lakh towards full and final

settlement of the loan liability. Upon receipt of the compromise

amount, the title deed of the mortgaged property was duly returned

to the borrower. Pursuant thereto, PNB filed an application for

withdrawing the execution case before the Recovery Officer, DRT,

Chandigarh on 13

th

August, 2002 and the case, upon being disposed

of as withdrawn, was consigned to the record room. It was further

categorically averred in paragraph 3(g) of the said affidavit that “the

grievance of respondent no.1 raised in the writ petition filed before

the Hon’ble High Court does not subsist any further and that the

object of having filed the writ petition is already fulfilled and that

the writ petition has been rendered infructuous” . Ultimately, in

19

paragraph 5, PNB submitted that “it extends its unconditional

apology for not bringing the aforesaid facts to the notice of Hon’ble

High Court at the time of reserving the orders in writ petition on 27

th

November, 2007” and that “the aforesaid facts could not be brought

to the notice of Hon’ble High Court due to inadvertence and the

same was not deliberate or intentional”.

31.Therefore, for all intents and purposes, the High Court by its

judgment and order dated 2

nd

January, 2008 decided an infructuous

writ petition and, in the process, outlawed section 16-B of the

HPGST Act when the same was not at all warranted.

32.In our considered opinion, it was also a clear but inadvertent

error on the part of this Court to dismiss only the special leave

petition against PNB as infructuous; the appropriate course for this

Court ought to have been to dismiss the writ petition of PNB itself as

infructuous having regard to the clear stand taken by PNB in its

aforesaid affidavit dated 30

th

September, 2010 that nothing survived

for a decision on the writ petition on the date it was decided in view

of release of the property from mortgage.

33.We, accordingly, answer the first issue in the affirmative.

34.Moving on to the second issue, we are clear in our mind that

the same ought to be answered in the negative.

20

35.The easy answer to the issue flows from what we have

discussed above. Since the writ petition had been rendered

infructuous on the date it was decided, it was not necessary for the

High Court to pronounce on the validity of section 16-B. A decision

on the constitutional validity of a provision should be invited not in

vacuum but when the justice of the case demands such a decision.

Hence, we hold that the decision on an infructuous writ petition is

inconsequential and can never be of any effect. However, we do not

wish to rest our decision only on this technical point. Having

considered the relevant provisions of law as well as the decisions of

this Court, rendered prior to and post the impugned judgment and

order dated 2

nd

 January, 2008, we are of the firm opinion that the

issue as to whether section 16-B of the HPGST Act is ultra vires any

provision of law including the supreme law of the country is no

longer res integra.

36.Instead of burdening our judgment by referring to all decisions

on the point, we consider it appropriate to refer to only one decision

of this Court (dated 27

th

February, 2009) in Central Bank of India

vs. State of Kerala

9

which, of course, came into existence after the

decisions challenged in these civil appeals were rendered. This Court

having considered the provisions of the DRT Act and the SARFAESI

Act, as it then stood, vis-à-vis section 38-C of the Bombay Sales Tax

9

(2009) 4 SCC 94

21

Act, 1959 and section 26-B of the Kerala General Sales Tax Act,

1963, inter alia, held that:

“116. 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 is no provision in

the other enactments which are inconsistent with the DRT Act or the

Securitisation Act, the provisions contained in those Acts cannot

override other legislations. Section 38-C of the Bombay Act and

Section 26-B of the Kerala Act also contain non obstante clauses and

give statutory recognition to the priority of the State’s charge over

other debts, which was recognised 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. but also give them overriding effect over other laws.

***

126. While enacting the DRT Act and the Securitisation Act,

Parliament was aware of the law laid down by this Court wherein

priority of the State dues was recognised. 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 529-A of the Companies

Act or Section 11(2) of the 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 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 transfer

of secured assets to private companies.

127. 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 Sections

2(1)(za) and (v) shows that these companies may be private

companies registered under the Companies Act, 1956 and having a

certificate of registration from Reserve Bank under Section 3 of the

Securitisation Act. Evidently, Parliament did not intend to give

22

priority to the dues of private creditors over sovereign debt of the

State.

128. If the provisions of the DRT Act and the 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 two

legislations, are 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 secured creditors, but the provisions contained

therein cannot be read as creating first charge in favour of banks,

etc.

129. 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 Section 14-A 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 (Regulation

and Development) Act, 1957, Section 30 of the Gift Tax Act, and

Section 529-A of the Companies Act, 1956 would have been

incorporated in the DRT Act and the Securitisation Act.

130. Undisputedly, the two enactments do not contain provision

similar to the 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 DRT Act and the Securitisation Act on the one hand and Section

38-C of the Bombay Act and Section 26-B 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 institutions and other secured creditors for recovery of their

dues or enforcement of security interest, as the case may be.”

(emphasis ours)

37.It is much after this decision in Central Bank of India

(supra) that Parliament proceeded to amend the DRT Act and the

SARFAESI Act by the Enforcement of Security Interest and Recovery

23

of Debts Laws and Miscellaneous Provisions (Amendment) Act,

2016. Chapter IV-A was introduced in the SARFAESI Act, with effect

from 24

th

January, 2020, containing, inter alia, section 26E which

accorded priority in payment to a secured creditor over all other

dues in enforcement of the security, subject to conditions specified

elsewhere in the said chapter. Prior thereto, with effect from 1

st

September, 2016, section 31B was introduced in the DRT Act

extending similar benefit of priority to a secured creditor. We need

not dilate here on the amended provisions for obvious reasons.

38.What appears to be of significance in the light of the decision

in Central Bank of India (supra) is that the findings in the

judgments and orders disposing of the writ petitions impugned in

two of the four civil appeals ~ the first dated 7

th

September, 2007

and the other dated 2

nd

 January, 2008 ~ with regard to the scope,

ambit and applicability of section 35 of the SARFAESI Act, more

particularly the latter holding section 16-B of the HPGST Act as ultra

vires the Constitution and the Banking Companies Act, loses its

basis and can no longer be held to be legal and valid. Section 35 of

the SARFAESI Act could not have been construed as conferring any

right on a secured creditor to claim priority over dues of the State in

the absence of a provision in that behalf which presently can now be

24

claimed, subject to other conditions being fulfilled, in view of section

26E of the SARFAESI Act.

39.Pertinently, the High Court while seized of the writ petition of

PNB was not at all concerned with the SARFAESI Act as such. The

matter had travelled to the High Court from proceedings under the

DRT Act. There was, thus, no occasion for the High Court to

pronounce on the validity of section 16-B of the HPGST Act based on

what was held by its coordinate Bench in M/s A.J. Infrastructures

Pvt. Ltd. (supra). The High Court, in our considered view, was

therefore in clear error.

40.In the light of the above, while answering the second issue we

hold that section 16-B of the HPGST Act is a perfectly valid piece of

legislation and is not ultra vires the Constitution and/or the Banking

Companies Act as erroneously held in the decision of the High Court

dated 2

nd

 January, 2008. Also, following the decision in Central

Bank of India (supra), we hold that any observation in the decision

dated 7

th

September, 2007 touching upon section 16-B of the HPGST

Act vis-à-vis section 35 of the SARFAESI Act is of no effect.

41.It is now time to consider the third issue.

42.As noted above, C.A. Nos.9212-9213 of 2012 have been

dismissed qua the writ petitioner, i.e., PNB. Having regard to such

position, it would not be proper to delve deep into the question as to

25

whether the State has the first charge over the property in question

or not. This is particularly because PNB was not represented before

us on the date judgment was reserved in view of the prior dismissal

of the civil appeals and no application had been filed by the State to

recall such order. We further do not consider it appropriate to

reopen the proceedings against PNB, bearing in mind the

circumstance that more than a decade has lapsed since the order of

this Court dated 8

th

April, 2011 was made. However, if the lis in the

writ petition of PNB had subsisted, we would have ruled in its favour

upon acceptance of the other reasons in the decision dated 7

th

September, 2007 which, in the extracted portion, has been

highlighted by us above. We, therefore, would allow the matter to

rest.

43.Before parting with C.A. Nos.9212-9213 of 2012, we may

observe that in view of the findings returned by the High Court on

the question of absence of determination of liability, with which we

have concurred, it was absolutely unnecessary for the High Court to

outlaw section 16-B of the HPGST Act.

44.Insofar as C.A. Nos.8980-8981 of 2012 is concerned, the third

issue is very much alive and needs to be addressed.

45.The discussion must begin with a reading of the relevant

provisions of the HPGST Act. Section 14 of the HPGST Act postulates

26

assessment of tax. The cumulative effect of the several sub-sections

of section 14 is that after returns are furnished by a dealer in

respect of any period, the duty of the assessing authority is to

assess the appropriate quantum of tax required to be paid by the

dealer, in terms of the procedure laid down therein; and to initiate

steps, also in terms of the laid down procedure, to recover any

amount of unpaid tax, penalty or interest payable under the

enactment. Section 16 envisages that any amount of tax, penalty or

interest payable under the HPGST Act remaining unpaid after the

due date shall be recoverable as arrears of land revenue. Section

16-A, starting with a non-obstante clause, confers power on the

Commissioner or any officer other than the one excluded to initiate

a special mode of recovery. Then follows section 16-B, which is to

the following effect:-

“16-B. Tax to be first charge on property. - Notwithstanding

anything to the contrary contained in any law for the time being in

force, any amount of tax and penalty including interest, if any,

payable by a dealer or any other person under this Act shall be a

fust charge on the property of the dealer or such other person.”

46.Having regard to the terms of section 16 of the HPGST Act

noted above, the HPLR Act, to the extent the same provides for the

procedure for recovery of dues as arrears of land revenue, needs to

be briefly noticed.

27

47.Section 4(4) of the HPLR Act defines a defaulter as a person

liable for arrears of land revenue and includes such person who are

responsible as surety for the payment of the arrears. Section 23

provides for the mode of making proclamation issued by a Revenue

Officer relating to any land and provides for the methods of

proclamation. Chapter VI of the HPLR Act, is titled “Collection of

Land Revenue”. Section 74 sets out the process for recovery of the

arrears while section 78 provides for attachment of the estate or

holding. Section 75 ordains that a writ of demand may be issued by

the Revenue Officer on or after the date on which the arrears of land

revenue accrue. Section 75-A envisages that at any time after

arrears of land revenue accrue, a Revenue Officer may issue a

warrant directing an officer named therein to arrest the defaulter

and bring him before the Revenue Officer and section 81 confers

power of sale of estate or holding. Although, there is no express

provision indicating the stage at which a defaulter can deny this

liability, section 84 opens up a remedy to a person denying his

liability before a Civil Court.

48.From the excerpt of the impugned judgment and order of the

High Court dated 2

nd

 January, 2008 underlined above, it is clear that

proceedings were not initiated upon notice to the defaulters and the

sum they owed to the department had not been finally determined

28

in accordance with law. In view thereof, question of the State

resorting to the provisions contained in Chapter VI of the HPLR Act

for recovering the dues, if at all, as arrears of land revenue did not

arise. The Excise Department, in its reply to CWP 306 of 2007,

submitted that the non-obstante provision contained in section 16-B

would prevail over any inconsistent provisions in other laws; it was

further submitted that in the event of any conflict between any

other statute and the HPGST, the latter would prevail. The

department further urged that sales taxes dues would be higher in

priority over any mortgage since the State would have a first

charge. It was also submitted that the Tehsildar was requested, on

multiple occasions, to make the required red entries in relation to

the revenue records of the subject property, and not

mutate/register the same at the behest of the first respondent.

49.While adopting such a stand, the State and its department

either overlooked or were ignorant of the requirement of law that

section 16-B would be attracted only after determination of the

liability and upon any sum becoming due and payable; and that, it is

only thereafter that the charge, if any, would operate. We are of the

opinion that no relevant documentary evidence having been placed

before the High Court, when CWP 306 of 2007 was being heard, to

indicate that necessary steps under the HPGST Act had been

29

initiated by the State and its officers, the third issue has to be

answered by holding that the State not having taken steps as

required by law for realization of its dues, there was no

determination of liability, a fortiori, question of taking recourse to

the HPLR Act for recovery of dues as arrears of land revenue did not

arise. Without such determination of liability, no red entry marks

could have been inserted in the revenue records and the High Court

was right in holding that the State ought not to have refused

mutation.

50.The fourth issue need not detain us for too long. As it is, the

civil appeals against PNB do not survive. Qua the other appeals, we

are once again of the opinion that the High Court was justified in not

entertaining the application for recall. It was not maintainable in

law, since the writ petition was decided on merits in the presence of

the State. A recall application under section 151 of the CPC,

therefore, was not the proper remedy in the circumstances. When

the law provides a specific remedy, it is not open to a party to take

recourse to section 151. It preserves the inherent powers of the

court to do justice in a case where the party has no other remedy

under the CPC. Besides, even if the application for recall could have

been regarded as one for review of the judgment and order dated

7

th

September, 2007, the same did not warrant to be entertained for

30

the reasons assigned by the High Court. No error apparent on the

face of the record was pointed out, which is the first ground for

seeking a review. Documents were annexed to the application,

which were in existence when the reply to CWP 306 of 2007 was

filed by the State and no case had been set up that despite

discharge of due diligence, such documentary evidence, which were

in existence, could not be annexed to the said reply. Much

indulgence is shown to the State Governments when they carry

judgments/orders in time-barred appeals/revisions, having regard

to the impersonal machinery being involved. However, undue

indulgence cannot be shown to the State Governments either when

they do not file a proper reply or when, despite there being a

provision for review, such remedy is not pursued and a different one

pursued presumably to overcome the restrictions the provision for

review imposes. We, therefore, answer this issue by holding that

High Court was justified in rejecting the application for recall.

51.The fifth issue stands disposed of by holding that the

appellants (State and its officers) are not entitled to any relief

except the declaration that section 16-B of the HPGST Act is not

ultra vires any provision of law. In view of section 16-B having been

outlawed by the High Court on 2

nd

January, 2008, this declaration

shall not enure to the benefit of the State in respect of cases that

31

are old and have been closed but would be effective once again

from this day.

52.Consequently, all the civil appeals stand disposed of on the

aforesaid terms. Parties shall bear their own costs.

…………………………………J

(S. RAVINDRA BHAT)

.…………………………………J

(DIPANKAR DATTA)

NEW DELHI;

28

th

April, 2023.