STATE BANK OF INDIA Vs. STATE OF KERALA

JUDGEMENT

(1.) A public sector bank, plaintiff in a suit for injunction, has filed this appeal challenging the concurrent decision rendered by the Courts below negativing its claim for a decree of injunction against the State from proceeding with the revenue recovery including sale of the properties described in the suit without mentioning and reserving the first charge of the plaintiff over such properties. The appellant, hereinafter referred to as the bank, had extended some credit facilities to the second defendant, a company, for operating its business, on the security of an equitable mortgage created over the scheduled properties by a partnership firm represented by its managing partner. In respect of the sale tax arrears allegedly due from the second defendant company the security furnished by the guarantor as aforesaid was proceeded by the State is the case of the bank for the relief of injunction as indicated. The first defendant State resisted the decree applied for by the bank contending that long prior to the equitable mortgage of the schedule properties in favour of the bank, to realise the sale tax arrears the properties had been attached under the Revenue Recovery Act and further that the suit by the bank is a fraudulent and a collusive affair with the defaulter to screen its properties from revenue sale. The second defendant in the suit filed a written statement in which that company disputing the case of the plaintiff contended that sale tax arrears are due from it and the first defendant was competent to proceed against the scheduled properties for realisation of such dues. On the materials placed, the Trial Court found the claim of the bank for injunction is not maintainable in view of the bar of jurisdiction under S.72 of the Revenue Recovery Act. On merits also it was found that since the attachment over the properties was much earlier in point of time, to equitable mortgage created, the bank is not entitled to a first charge over the properties proceeded with for revenue sale. Further more with reference to the statutory provisions covered by the General Sale Tax Act and also the Revenue Recovery Act, the Trial Court held that the Sate debt arising from the arrears of sale tax shall have priority over any other debt including the mortgage debt claimed by the bank. In the appeal preferred by the bank, the lower appellate Court, after reappreciating the materials tendered, concurred with the finding of the Trial Court that the bank is not entitled to a first charge over the properties. But, the appellate Court differing from the view taken by the Trial Court over the maintainability of the suit held it is not barred under S.72 of the Revenue Recovery Act since injunction was claimed not in respect of any matter connected with execution discharge or satisfaction of a demand issued under the Revenue Recovery Act, but, on a claim of having first charge over the properties under a mortgagee over the properties proceeded under the above Act. The appellate Court held that the bank, the mortgagee, has no locus standi to institute a suit as the defaulter against whom proceedings were initiated under the Revenue Recovery Act has no objection or challenge against such proceedings. Claim raised by the bank to have a first charge over the properties was negatived by the lower Appellate Court as the materials disclosed that the mortgage had been created after attachment was effected over such properties by the State for realisation of sale tax arrears from the defaulter. The appeal was therefore dismissed confirming the dismissal of the suit by the Trial Court. Feeling aggrieved, the bank has preferred this second appeal.

(2.) I heard the counsel on both sides. The main thrust of challenge set up against the concurrent decision by the learned counsel for the bank is that the mortgage over the scheduled properties for the credit facilities extended to the second defendant was given by a different entity, a partnership firm, and not by the second defendant, defaulter, against whom Revenue Recovery proceedings were initiated for realisation of sale tax arrears due. The cardinal question emerging in the case presented by the bank alleging that the mortgage over the properties was not by the defaulter, second defendant, but by a registered firm, as guarantor to the loan facility extended to the second defendant and as such revenue recovery proceedings initiated over the mortgaged security created in favour of the bank are void, was not appreciated nor examined by both the Courts below, but, on the contrary, as if the second defendant and the firm are one and the same entity, both the Courts have proceeded and held that the bank has no locus standi to resist the revenue recovery proceedings, submits the counsel. In the absence of any material convincingly establishing that the firm which had created the mortgage in favour of the bank, and the company, second defendant, the defaulter, are interlinked and inseparable and conducted business operations and also activities as such, the incident if right enjoyed them as two different entities under law, has to be accepted, and if that be so, the first defendant, the State is incompetent to proceed with revenue recovery against the immovable properties covered by the suit impairing the mortgage right of the bank and, at any rate, if sale is proceeded with for the arrears of sale tax due from the second defendant, the first charge of the bank has to be mentioned and protected, is the further submission of the counsel. Per contra, the Government Pleader would submit that the second defendant, defaulter and also the firm are managed by the same person as managing director of the company and managing partner of the firm, and the mortgage over the suit properties had been executed in favour of the bank long after the attachment of the properties. When the mortgage over the attached property was later, the remedy of the bank, if any, was to raise a claim before the revenue authorities as provided under the Revenue Recovery Act and not by way of a suit setting forth a first charge over the property seeking a decree of injunction against revenue sale is the further submission of the Govt. Pleader. Even the second defendant, defaulter, has no challenge against the revenue recovery proceedings is highlighted by the Govt. Pleader to contend, the bank in collusion with the defaulter had filed this frivolous suit to stall the revenue sale over the attached properties for realisation of the sale tax arrears.

(3.) Perusing the judgments rendered by both the Courts with reference to the materials produced, the first and foremost question that emerge for consideration is whether the bank is entitled to seek the discretionary relief of injunction as against the State from proceeding with the revenue sale of the suit properties attached for realisation of a State debt. There is no dispute that the mortgage in favour of the bank over the suit properties by the firm was created long after the attachment over the suit property. Properties were attached for realisation of sale tax arrears as early on 06/10/1976, and the mortgage in favour of the bank over them was on 17/12/1982. Both sides have not let in any oral evidence in the case. Ext. B1 is the file produced by the State relating to the revenue recovery proceedings wherein attachment was effected over the properties scheduled in the suit. It is not disputed that the managing partner of the firm, who, as guarantor created an equitable mortgage over the properties in favour of the bank, is the managing director of the second defendant company as well. Perusal of Ext. B1 file would show sale tax arrears are due not only from the second defendant but the firm as well. Ext. B1 file contains a communication sent by the district collector to the Government informing that M/s Narniyat Pharmaceuticals and Chemicals Private Ltd., the second respondent and the firm, M/s Narniyat Powers and Co., the guarantor to the loan transaction to the bank and from them an amount of ' 2,49,502.67 as arrears on sale tax from the year 1971-1972 onwards was due to the Government. This could have been brushed aside if the file produced by the Government does not in any way connect the bank with the transactions with respect to both the concerns, which are claimed to be different entities to impeach the proceedings taken under the Revenue Recovery Act over the mortgage property to claim first charge for the bank over such properties. It is seen from Ext. B1 file that the plaintiff bank had issued a recommendation letter to be placed before the Government by the second defendant to grant it time to discharge the sale tax arrears. The letter issued by the bank, which was enclosed with the letter addressed to Government by the second defendant, would clearly show that the second defendant company had been enjoying credit facilities with the bank from 1963 onwards, that company became sick in 1974 and a programme for rehabilitating the company was implemented in March, 1982. The bank further stated that though the nursing programme has not yielded any positive progress, the unit continues and a revival programme providing further credit facilities by bank was under consideration. Such a letter was issued by the bank, at a time when the sale of the properties attached was fixed on 10/01/1989. Thus, it is crystal clear, the bank was perfectly aware that the property over which it had obtained mortgage right was subject to State debt and was under an attachment covered by the Revenue Recovery Act. The bank was unaware of the attachment over the property at the point of time when it obtained an equitable mortgage from the firm, the case pleaded for injunction in the suit, does not in any way improve its case. The knowledge of the bank or its awareness of the attachment only later after the mortgage has no merit at all. Evidently, the present suit was filed at least three years after issuing the recommendatory letter referred to above to the second defendant, to enable the company, get further breathing time to avoid the sale tax arrears when the properties scheduled in the suit had been proclaimed for sale. That circumstance alone is sufficient to hold that the bank is not entitled to the discretionary relief of injunction canvassed in the suit. There is no merit in the appeal and the concurrent decision rendered by both the Courts below dismissing the claim raised by the bank is proper, valid and correct. Appeal is dismissed directing both sides to suffer their cost.