# M/s GEM AROMATICS PVT. LTD., Badaun v. State of U.P. & Ors

- **Citation:** (2021) 11 ILRA 388
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2021-10-07
- **Case number:** Writ Tax No. 690 of 2015
- **Bench:** Naheed Ara Moonis, Saumitra Dayal Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-gem-aromatics-pvt-ltd-badaun-v-state-of-u-p-ors-46560
- **Pages:** 15

## Headnote

A. Civil Law - U.P. Trade Tax Act, 1948 -
Sections 34 (1) & (2) - The property-in-dispute was
under the charge created 'in favour' of the State Bank
of India (SBI), till before the execution of the saledeed dated 16.07.2014. The sale deed was executed
in favour of the petitioner in pursuance of the One
Time Settlement reached between the 'assessee-indefault' and the SBI.

The Act created indefeasible right in the SBI by virtue
of its status as a 'banking company' as defined under
the Banking Act, occasioned by its charge over the
property-in-dispute. That indefeasible right cannot be
lost or diluted, merely because in the process of
recovering its dues, that bank chose to negotiate or
allow a third-party sale of the property-in-dispute, in
favour of the petitioner, instead of first obtaining title
in it. The words 'transfer in favour of banking
company' appearing in Section 34(2) of the Act are
wide enough to include within their plain ambit, a
transaction of this nature whereby instead of first
obtaining a transfer of the 'property-in-dispute', in its
own name, the SBI allowed that charged property to
be sold to the petitioner, for the same purpose, for its
benefit namely, to recover its dues from the
'assessee-in default'. (Para 30,31)
Writ Petition Allowed. (E-10)

List of Cases cited:-

## Text

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388 INDIAN LAW REPORTS ALLAHABAD SERIES
(2021)11ILR A388
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 07.10.2021

BEFORE

THE HON'BLE NAHEED ARA MOONIS, J.
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 690 of 2015

M/s GEM AROMATICS PVT. LTD., Badaun
 ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri
Madan
Lal
Srivastava,
Sri
Naveen
Sinha(Senior Adv.)

Counsel for the Respondents:
C.S.C., Sri Akhilesh Tripathi, Sri C.B. Tripathi, Sri
S.K. Kakkar

A. Civil Law - U.P. Trade Tax Act, 1948 -
Sections 34 (1) & (2) - The property-in-dispute was
under the charge created 'in favour' of the State Bank
of India (SBI), till before the execution of the saledeed dated 16.07.2014. The sale deed was executed
in favour of the petitioner in pursuance of the One
Time Settlement reached between the 'assessee-indefault' and the SBI.

The Act created indefeasible right in the SBI by virtue
of its status as a 'banking company' as defined under
the Banking Act, occasioned by its charge over the
property-in-dispute. That indefeasible right cannot be
lost or diluted, merely because in the process of
recovering its dues, that bank chose to negotiate or
allow a third-party sale of the property-in-dispute, in
favour of the petitioner, instead of first obtaining title
in it. The words 'transfer in favour of banking
company' appearing in Section 34(2) of the Act are
wide enough to include within their plain ambit, a
transaction of this nature whereby instead of first
obtaining a transfer of the 'property-in-dispute', in its
own name, the SBI allowed that charged property to
be sold to the petitioner, for the same purpose, for its
benefit namely, to recover its dues from the
'assessee-in default'. (Para 30,31)
Writ Petition Allowed. (E-10)

List of Cases cited:-

1. Musahar Sahu & anr. Vs Hakim Lal &anr. AIR 1915
PC 115

2. Ma Pwa May & anr. Vs S.R.M.M.A. Chettyar Firm
AIR 1929 PC 279

3. Chogmal Bhandari Vs Deputy Commissioner Tax
Officer (1976) 3 SCC 749

4. U.O.I. Vs Rajeshwari & Co. & ors. (1986) 3 SCC
426

5. Dena Bank Vs Bhikabhai Prabhuda Parekh & CO. &
ors. (2000) 5 SCC 694

6. Reflex Industries & anr. Vs St. of U.P. & ors. 2004
(4) ACC 3471 (distinguished)

7. Madhav Rao Jivaji Rao Scindia Vs U.O.I. (1971) 1
SCC 85

8. U.O.I. Vs G.M. Kokil 1984 Supp SCC 196

9. Tirath Singh Vs Bachittar Singh AIR 1955 SC 830
(followed)

10. D. Saibaba Vs Bar Council of India (2003) 6 SCC
186

11. The Bank of Bihar Vs The St. of Bihar & ors.
(1972) 3 SCC 196

12. M/s Rana Girders Ltd. Vs U.O.I. (2013) 10 SCC
746

13. Principal Commissioner of Income Tax Vs Monnet
Ispat & Energy Ltd. 2018 (18) SCC 786

(Delivered by Hon'ble Naheed Ara Moonis, J.
&
Hon'ble Saumitra Dayal Singh, J.)

1. Heard Sri Navin Sinha, learned Senior
Counsel assisted by Sri Madan Lal Srivastava,
Sri Apoorv Hajela, learned Standing Counsel for
the revenue and Sri Sumit Kumar Kakkar,
learned counsel for the respondent- Bank.
11 All. M/s GEM AROMATICS PVT. LTD., Badaun Vs. State of U.P. & Ors.
389

2. Present writ petition has been filed,
effectively to restrain the respondent-State
authorities from adopting coercive measures
against the property purchased by the petitioner
company, under a registered sale-deed dated
16.07.2014. Thereby, Plot Nos.126/1, 10 and
126M situate at Village- Gathauna, Pargana
Ujhani, District - Badaun (hereinafter referred to
as 'the property-in-dispute') were purchased by
the petitioner, from another company - M/s
Kanha
Vanaspati
Ltd.-
respondent
no.7
(hereinafter referred to as 'assessee-in-default').
Relief has also been sought against the citation
dated 26.05.2015, seeking those recoveries from
the petitioner.

3. Undisputedly, the ''assessee-in-default'
was assessed to tax for the A.Ys. 1992-93 (U.P.
and Central), 1993-94 (Central), 2006-07
(Central) and 2006-07 (Entry Tax), under the
provisions of U.P. Trade Tax Act, 1948, Central
Sales Tax Act, 1956 and The U.P. Entry Tax
Act. It was further faced with other demands of
tax etc. raised against it for the A.Ys. 1994-95 to
2000-01. Those arrears of tax were stated to be
Rs.17,64,83,574/-, in the impugned recovery
citation dated 26.05.2015.

4. Though the revenue authorities deny,
yet, upon exchange of affidavits, it appears, the
''assessee-in-default' owed dues to the State
Bank of India, against loan facility availed by it.
According to the petitioner, amongst others, the
''property-in-dispute' had been mortgaged by the
''assessee-in-default', to the State Bank of India.
Thus, a first charge existed over the same which
was duly registered with the Registrar of
Companies, Kanpur. In this regard, a Certificate
dated 06.08.2014, issued by the Registrar of
Companies (Annexure 7 to the writ petition)
certifying satisfaction of charge no. 80067412
dated 08.11.2005 for Rs. 32,89,00,000 in full
has been placed on record. It is undisputed. The
petitioner has brought on record copy of letter
dated 15.07.2014 issued by the State Bank of
India, acknowledging lifting its charge on the
''property-in-dispute', upon satisfaction of its
dues under the One Time Settlement (OTS in
short). Also, the State Bank of India has filed a
copy of its letter dated 10.05.2015 written to the
petitioner acknowledging the prior existence of
its charge in favour of that bank and of that
charge agreed to be lifted from over the
''property-in-dispute', upon payment of Rs. 2.61
crores.

5. In such facts, the petitioner claims,
pursuant to the OTS entered between the
''assessee-in-default' and the State Bank of India,
Rs. 2.61 crores were paid by it directly to that
bank, towards the entire consideration for the
''property-in-dispute'. Upon that deposit made,
the charge (over it) was lifted on 15.07.2014.
Only thereafter, the ''property-in-dispute' could
be and it was sold by means of the registered
sale-deed dated 16.07.2014, a copy of which is
also on record. Later, the petitioner learnt about
the attachment of the ''property-in-dispute', first
made in the year 2015. By means of a
Supplementary Affidavit filed to the writ
petition, a copy of the Khatauni has been
attached which document is admitted to the
State. It recites, the fact of the attachment order
made on 18.06.2015 - over the ''property-indispute' i.e., after the sale-deed came to be
registered.

6. Relying on Section 34 of U.P Trade Tax
Act, 1948 (hereinafter referred to as the 'Act,
1948'), it has been first submitted by Sri Sinha,
the first charge over the ''property-in-dispute'
was created in the year 2005, in favour of the
State Bank of India. Undisputedly, it is a
''banking company' as defined under the
Banking Regulation Act, 1949 (hereinafter
referred to as the Banking Act). Therefore, by
virtue of Section 34(2) of the Act, nothing
contained in Section 34(1) of the Act, would
apply
to
the
transaction
in
question.
Consequently, the sale-deed dated 16.07.2014
390 INDIAN LAW REPORTS ALLAHABAD SERIES
was wholly valid and the petitioner cannot be
deprived of its property on account of
outstanding tax dues, of the ''assessee-in-default'.
Alternatively, it has been submitted, even if
Section 34(1) of the Act was applicable, no
fraud was committed by the petitioner. In that
regard, it is submitted, the respondent bank was
a secured creditor of the ''assessee-in-default'
and undisputedly, full, and fair consideration
had been paid; no rights had been reserved in
favour of the transferor and the parties to the
sale deed were unrelated. Even then, if at all, the
only remedy available to the revenue authority
was to institute a proper suit proceeding as in
any case such a transaction would remain
voidable and it is not void ab initio. No suit
proceeding
having
been
instituted
within
limitation, the revenue authorities cannot resist
the absolute right and title of the petitioner over
the ''property-in-dispute'.

7. Reliance has been placed on two decisions
of the Privy Council in Musahar Sahu and
another vs Hakim Lal and another reported in
AIR 1915 PC 115 and Ma Pwa May and
another vs S.R.M.M.A. Chettyar Firm reported
in AIR 1929 PC 279. That principle of law was
applied and followed by the Supreme Court in
Chogmal Bhandari vs Deputy Commissioner
Tax Officer reported in (1976) 3 SSC 749 and in
Union of India vs Rajeshwari and Co. and
others reported in (1986) 3 SCC 426. Still later,
this principle was applied by the Supreme Court in
Dena Bank vs. Bhikhabhai Prabhudas Parekh
& Co. and others reported in (2000) 5 SCC 694.
As to the remedy, if at all being suit proceedings,
reliance has been placed on Chogmal Bhandari
(Supra).

8. In short, it has been submitted, in
absence of any contrary statutory provision
creating preferential right in favour of the
Crown/State, the secured creditor stands in
preference over the Crown/State dues. A valid
charge was created over the ''property-indispute', in favour of the State Bank of India, a
''banking company' within the meaning of that
term under Section 34(2) of the Act, 1948. It
came to be lifted to allow the execution of the
sale-deed in favour of the petitioner, after
satisfaction of that charge. Nothing contained in
Section 34(1) of the Act, 1948 may apply to
override that sale- deed. Alternatively, it has
been submitted, no fraud was committed.
Therefore, resort may not be had to the
provisions of Section 34(1) of the Act. In any
case, the remedy if any, would be to institute a
suit proceeding and seek a declaration, before
resorting to coercive measures against the
petitioner.

9. Responding to the above, the learned
Standing Counsel has vehemently urged, the
first relief sought in the writ petition is wholly
inadequate, since the attachment order dated
18.06.2015 has neither been placed on record
nor it has been specifically challenged. At the
same time, the learned Standing Counsel does
not dispute the existence of the attachment order
dated 18.06.2015. It is also not the case of the
revenue that there was any other attachment
order made, prior to the first charge created over
the ''property-in-dispute', in favour of the State
Bank of India.

10. Relying on the contents of the counter
affidavit, it has been next submitted - various
demands of tax and other dues (under the
taxation enactments), were in existence against
the ''assessee-in-default', since long, from A.Y.
1992-93 onward. These dues were in the
knowledge of the petitioner. Though the
petitioner
asserts,
it
first
acquired
that
knowledge in the year 2015, at the same time, it
is the own case of the petitioner that its
registration application filed under the Act had
been rejected, in the year 2015 itself i.e., prior to
be attachment order. That rejection order was
passed, for reason of pre-existing tax dues
against the ''assessee-in-default'.
11 All. M/s GEM AROMATICS PVT. LTD., Badaun Vs. State of U.P. & Ors.
391

11. Last, reliance has been placed on the
recital
contained
in
the
sale-deed
dated
16.07.2014; the letter issued by the Bank dated
15.7.2014 (annexed to the writ petition) and
letter dated 01.10.2015. Relying on the same, the
learned Standing Counsel has vehemently urged
- on 15.07.2014 itself the State Bank of India
lifted its charge over the ''property-in-dispute'.
Thus, no charge existed on 16.07.2014 when the
sale-deed was executed by the ''assessee-indefault'. There is a complete absence of any
recital in that sale-deed of any existing charge in
favour of the State Bank of India. Also, with
equal vehemence, it has been stressed, the saledeed dated 16.7.2014 was neither executed in
favour of nor, it has been executed by the State
Bank of India. Instead, it has been executed by
the ''assessee-in-default', itself. Hence, the saledeed dated 16.07.2014 is not protected under
Section 34(2) of the Act.

12. Next, relying on a decision of a coordinate Bench of reported in this Court in the
case of Reflex Industries and another vs. State
of U.P. and others reported in 2004 (4) ACC
3471, it has been submitted, in similar
circumstances, such a transaction was found to
fraudulent
and
therefore
void
ab
initio.
Therefore, there is no requirement of law to
compel the revenue authorities to first institute a
suit proceeding and to then seek recovery from
the ''property-in-dispute', only upon a decree in
that suit.

13. Relying on Rule 285 of U.P Z. A &
L.R Rules, 1952, it has been submitted, there
exists a preferential right in favour of the
revenue authorities, over the ''property-indispute'. Last, a plea of alternative remedy has
been raised. It has been submitted, if at all,
objections should have been raised by the
petitioner before the Collector/Commissioner
under the provisions of U.P.Z.A & L.R, Rules,
1952, before approaching this Court.

14. Having heard the learned counsel for
the parties and perused the record, we observe, it
is too late in the day to accept the plea of
alternative remedy. The writ petition had been
filed in the year 2015. The revenue and the State
Bank of India are represented. They have filed
pleadings. The matter is ripe for final hearing.
An interim order is also operating in favour of
the petitioner. Further, the issue raised is purely
legal and it does not arise on disputed facts.
Therefore, the objection raised and pressed at
this stage by the learned Standing Counsel, on
that count, is rejected.

15. Again, no reliance may be placed on
Rule 285N of U.P.Z.A. & L.R., Rules, 1952. It
would apply only if the sale of the ''property-indispute'
had
been
confirmed
under
that
enactment. Here, admittedly, the ''property-indispute' was first attached by the respondent
authorities, almost a year after its purchase by
the petitioner. Also, no auction ever took place.
Clearly, Rule 285 N of the U.P. Z.A. & L.R.,
Rules is inapplicable to the present facts.

16. As to the main issue of applicability of
Section 34 of the Act, 1948, it would be fruitful
to our discussion to extract that provision, in
entirety. It reads as below.

"34(1) Transfer to defraud revenue
void.-(1) Where, during the pendency of any
proceedings under this Act, any person liable to
pay any tax or other dues creates a charge on,
or transfers any [movable or immovable]
property belonging to him in favour of any other
person with the intention of defrauding any such
tax or other dues, such charge or transfer shall
be void as against any claim in respect of any
tax or other dues payable by such person as a
result of the completion of the said proceedings:

Provided that nothing in this section
shall impair the rights of a transferee in good
faith and for consideration.
392 INDIAN LAW REPORTS ALLAHABAD SERIES

(2) Nothing in sub-section (1) shall
apply to a charge or transfer in favour of a
banking company as defined in the Banking
Regulation Act, 1949, or any other financial
institution specified by the State Government by
notification in this behalf.

17. Undisputedly, the State Bank of India
is a ''banking company' defined under the
Banking Act. Therefore, it became open to it to
raise a plea based on Section 34(2) of the Act. A
plain reading of that provision brings out the
existence of a non obstante clause created by the
legislature. Thus, nothing contained in Section
34(1) of the Act, 1948 shall apply to (i) a charge
created in favour of the State Bank of India or
(ii) transfer made ''in favour' of the State Bank of
India.

18. Undisputedly, on 15.07.2014, State
Bank of India wrote to the ''assessee-in-default',
as below:

"SAMB/CL-II/693

DT: 15/07/2014

M/S Kanha Vanaspati Ltd.

126, Ayodhya Nagar,

Ujhani, Distt. Budaun (U.P.)

Dear Sirs,

STRESSED ASSETS MANAGEMENT
BRANCH

M/S KANHA VANASPATI LTD.

We advise that the Bank has released
the property of M/s. Kanha Vanaspati Ltd.
situated at Khasra No.8, 9, 10 & 126, Gram
Gathona, Ujhani, District Budaun (U.P.), which
was mortgaged to the Bank, on receipt of
payment as per terms of approved OTS entered
between the Bank and the above company.
Henceforth the Bank will not have any charge
over the said land."

19. Again, on 01.10.2015, the State Bank
of India wrote to the petitioner, as under.

"SAMB-ND/CL-II/2015-16/885 Date:
October 01, 2015

The Authorised Signatory

Gem Aromatic Pvt. Ltd.

A/410, Kailash Complex, Park Site

Vikhroli-Powai Link road, Vikroli(W)

Dear Sir,

M/s KANHA VANASPATI LIMITED

With reference to your letter dated
September 14, 2015, we reply in seriatim as
follows:

The immovable property i.e. land at
Khasra No.8, 9, 10 & 126, Gram Gathona,
Ujhani, Distt. Budaun (U.P.) charged to our
Bank, was sold to you by M/s Kanha Vanaspati
Limited for a consideration of Rs. 2.61 crores.

In this connection, we have not
confirmed at any point of time that there was
any charge encumbrance or attachment or
coercive proceedings on the said property as
alleged in your letter except our charge which is
evident form our letter no.SAMB/CL-II/594
dated 27.06.2014 addressed to yourselves. It had
been specifically confirmed to you that the
charge over the land at Khasra no.8, 9, 10 &
126,
Gram
Gathona,
Ujhani,
Distt.
Budaun(U.P.) will be released and the original
title deeds and possession of the property will be
handed over to you on receipt of Rs.2.61 crores
(Rs. Two crores sixty-one lacs only) as per
under noted schedule of payment.

1.
Rs.11.00
lacs
vide
cheque
no.723031 dated 27.06.2014 as up front
payment.

2. Rs. 250.00 lacs through RTGS by
15.07.2014(+/- 5 days).

We would also like to bring to your
notice that the MOU dated 27.06.2014 entered
between M/s Gem Aromatics Pvt. Ltd. Mumbai
(Buyer) and M/s Kanha Vanaspati Ltd. (seller)
states that the seller has agreed to sell the said
plot/ property for a total consideration of
Rs.2.61 crores and the buyer agrees to buy the
same and further states that the buyer will be
idemnified for any statutory or other liabilities
11 All. M/s GEM AROMATICS PVT. LTD., Badaun Vs. State of U.P. & Ors.
393
including any defective title found if any at a
later date by the seller. It is encumberance upon
M/s Kanha Vanaspati Ltd.(seller) to discharge
such statutory or other liabilites on the said
property
and
to
disclose
details
any
encumbrances or statutory liabilities etc.

We reiterate once again that nowhere
at any point of time, have we ever represented
that there is no charge, liability, encumbrance,
and proceedings over the property except our
charge. Therefore, the allegations made by you
are baseless and we are not responsible for any
kind of loss referred by you."

20. Reading the above letters along with
the Certificate issued by the Registrar of
Companies, Kanpur, dated 06.08.2014, it is
clear, a charge was created (on 08.11.2005), in
favour of the State Bank of India, over the
''property-in-dispute' i.e., the land bearing
Khasra Nos. 8, 9, 10 & 126, Gram Gathona,
Ujhani, Distt. Budaun(U.P.). That was done
almost nine years before the impugned sale-deed
was executed on 16.07.2014, in favour of the
petitioner. There is no evidence that the
petitioner was in the picture at that stage. Also,
the existence of that charge (in the first place), is
undisputed by the revenue authorities. Clearly,
that charge on the ''property-in-dispute' was
created ''in favour' of the State Bank of India.

21. Further, the impugned sale-deed dated
16.07.2014 was executed in pursuance of the
One Time Settlement (OTS in short), reached
between the ''assessee-in-default' and the State
Bank of India. Towards that settlement reached,
the amount of Rs. 2.61 crore was paid by the
petitioner to the State Bank of India, prior to
execution of that sale-deed, under the apparently
consequential Memorandum of Understanding
(MOU in short) dated 27.06.2014 executed
between the petitioner and the ''assessee-indefault'/respondent no. 7. Thus, Rs. 11,00,000/-
(on 26.06.2014) and Rs. 2,50,00,000/- (on or
before 15.07.2014), were paid by the petitioner
to the State Bank of India, under that MOU.
These facts emerge from the recital made in the
letters dated 15.07.2014 and 01.10.2015 written
by the State Bank of India. They are wholly
corroborated by the recital made in the
impugned sale-deed dated 16.07.2014, and upon
being duly evidenced by the representatives of
the State Bank of India and the banker of the
present petitioner. Both bankers signed that deed
as marginal witnesses. There is nothing on
record to doubt the due issuance or execution of
such documents, in the manner narrated above.
Clearly, the ''property-in-dispute' was under the
charge created in favour of the State Bank of
India, till before the execution of the sale-deed
dated 16.07.2014.

22. In face of the aforesaid charge (over
the ''property-in-dispute'), created ''in favour' of
the State Bank of India on 08.11.2005, it
survives for consideration whether despite that
charge being satisfied on 15.07.2014, it insulated
the transfer of the ''property-in-dispute' made in
favour of the petitioner, on 16.07.2014, from the
recoveries being sought by the revenue
authorities. Section 34(2) of the Act insulates a
'charge' or 'transfer' made ''in favour of' a
''banking company', as defined under the
Banking Act. Hence, spoken in the literal sense,
that transfer may not appear to be directly
protected under sub-section (2) of section 34.

23. Interestingly, the meaning of the word
"charged' (used in Articles 291 and 112(2) of the
Constitution of India), came up for consideration
in the context of the challenge raised to the
Presidential Orders de-recognising the erstwhile
Rulers of the former Indian States, in Madhav
Rao Jivaji Rao Scindia v. Union of India,
reported in (1971) 1 SCC 85.While dealing with
that question, the majority view of the nineJudge Constitution bench of the Supreme Court,
took note of the meaning attached to the word
''charged', under the general law relating to
transfer of property. It was thus observed:
394 INDIAN LAW REPORTS ALLAHABAD SERIES

"122. In support of his contention that
by using the expression "charged" in Articles
291 and 112(2) it is only intended to enact that
the expenditure is not subject to the vote of the
Parliament and that no priority in payment in
respect of expenditure is declared, and in any
event the expression "charged" creates no
obligation enforceable at the instance of the
person for whose benefit it is charged, the
Attorney-General invited our attention to
different provisions of the Constitution in each
of which there is both a charge on the
Consolidated Fund of an item of expenditure
and an express direction for payment of the
prescribed sum, and contended that Article 291
which merely recognizes the obligations of the
Union Government to abide by the pre-existing
covenants, creates no obligation for payment of
the Privy Purse to the Rulers. He urged that the
word "charge" in the Constitution in dealing
with State financial procedure has the meaning
it has in accountancy practiced it merely
specifies the source from which payment is to be
made and does not create a right in the Ruler or
any enforceable obligation against the Union.
Under the general law relating to transfer of
property, a charge does not give rise to a right
in rem : the right is however more than a mere
personal obligation, for it is a jus ad rem a right
to payment out of property specified : Govind
Chandra Pal v. Dwarka Nath Pal [ILR 35 Cal
837, 843] ; Raja Sri Shiva Prasad v. Beni
Madhab [ILR 1 Pat 387] . A charge gives a
right to payment out of a specific fund or
property, and a right to prior payment; but it
does not create a right in rem in the fund or the
property. A charge therefore gives rise to a right
to receive payment, out of a specified fund or
property in preference over others. In the
absence of a clear indication to the contrary, it
would be difficult to hold that the expression
"charged" used in the contest of financial
matters of the State, has a different meaning.
Our Constitution-makers borrowed the concept
of a Consolidated Fund from the British system.
That has also been adopted in the Constitutions
of Canada, Australia, South Africa and other
Commonwealth Countries. Certain Acts in the
United Kingdom and elsewhere prescribe a
sequence of priorities in payment of different
heads
of
expenditure
charged
on
the
Consolidated Fund; Section I Consolidated
Funds Act, 1816; Section 1 The House of
Commons (Speaker) Act, 1832; Sections 103,
104 and 105 of the British North America Act,
1867; Sections 117, 119 Constitution of the
Union of South Africa, 1909; Sections 81 and 82
of the Australian Constitution 1900".

(emphasis supplied)

24. Pertinent to our discussion, the ''charge'
created in favour of the State Bank of India
clearly gave rise to a right to the State Bank of
India to receive payment, out of the specified
property
i.e.,
the
''property-in-dispute',
in
preference over others. Section 34(1) seeks to
create a part exception to that well established
rule under the ''general law', in certain
circumstances, in favour of the Crown/state
dues. At the same time, Section 34(2) of the Act,
overrides Section 34(1) of the Act and thus
completely negates the exception and makes that
pre-existing preferential right absolute. That
effect arises in law, by virtue of the ''charge'
created in favour of a ''banking company' as
defined under the Banking Act.

25. Thus, it cannot be disputed - had the
''charge' created over the ''property-in-dispute',
continued to exist till date, the respondent
revenue authorities would continue to stand
restrained
from
proceeding
against
the
''property-in-dispute', for recovery of their dues.
Also, that direct consequence of section 34(2) of
the Act would have been caused, if the State
Bank of India had obtained the sale-deed of the
''property-in-dispute',
in
its
favour,
either
pursuant to that charge or otherwise, to recover
its dues. It is so because, Section 34(2) of the
Act completely negates Section 34(1) of the Act
11 All. M/s GEM AROMATICS PVT. LTD., Badaun Vs. State of U.P. & Ors.
395
by use of the words - "Nothing in sub-section (1)
shall apply". That overriding effect may be
avoided, only if the revenue were to contend,
either that the charge was never created, or it
was not created in favour of a ''banking
company' as defined under The Banking Act.
Clearly, that is not the case here.

26. Undoubtedly, a non obstante clause
appearing in sub-Section (2) of Section 34 of the
Act, is a legislative device employed to give an
overriding effect to that provision of law, over
section 34(1) of the Act. In Union of India v.
G.M. Kokil, 1984 Supp SCC 196, the Supreme
Court while dealing with a similar clause
appearing under the Factories Act, reasoned and
held as under:

"11. Section 70, so far as is relevant,
says "the provisions of the Factories Act shall,
notwithstanding anything contained in that Act,
apply to all persons employed in and in
connection with a factory". It is well-known that
a non obstante clause is a legislative device
which is usually employed to give overriding
effect to certain provisions over some contrary
provisions that may be found either in the same
enactment or some other enactment, that is to
say, to avoid the operation and effect of all
contrary provisions. Thus the non obstante
clause in Section 70, namely, "notwithstanding
anything contained in that Act" must mean
notwithstanding
anything
to
the
contrary
contained in that Act and as such it must refer to
the exempting provisions which would be
contrary to the general applicability of the Act.
In other words, as all the relevant provisions of
the Act are made applicable to a factory
notwithstanding
anything
to
the
contrary
contained in it, it must have the effect of
excluding the operation of the exemption
provisions. Just as because of the non obstante
clause the Act is applicable even to employees in
the factory who might not be ''workers' under
Section 2(1), the same non obstante clause will
keep away the applicability of exemption
provisions qua all those working in the factory.
The Labour Court, in our view, was, therefore,
right in taking the view that because of the non
obstante clause Section 64 read with Rule 100
itself would not apply to the respondents and
they would be entitled to claim overtime wages
under Section 59 of that Act read with Section
70 of the Bombay Shops and Establishments Act,
1948".

 (emphasis supplied)

27. Therefore, to accept the objection
raised by Shri. Hajela - that the protective gaze
of section 34(2) of the Act did not extend to the
sale-deed dated 16.07.2014 executed by the
''assessee-in-default' (in favour of the petitioner),
may
lead
to
unintended,
anomalous,
inconvenient, and even absurd results, in law. If
accepted, a secured creditor may hold safe a
secured asset till eternity, both against the debtor
and the world at large, and no other creditor may
attach it, till all dues of that secured creditor
were satisfied. However, that secured creditor
may never be enabled to negotiate a sale of such
secured asset, to recover its dues, without first
obtaining a prior transfer, in its favour.

28. Thus, in absence of any statutory
intervention made, if the submission raised by
the learned Standing Counsel is accepted, it
would introduce an unreasonable restriction on
the free play of section 34(2) of the Act. It
would, without any legislative intent or purpose
shown to exist, dictate a material alteration of
the rights of the parties and force a change in the
mode and way, a ''banking company' under the
Banking Act may conduct itself viz a viz its
secured assets. Though the debt of the State
Bank of India may remain a secured debt against
its charge existing on the ''property-in-dispute'
and it may remain entitled to recover its dues
upon sale of the ''property-in-dispute', to the
exclusion of the Crown/state dues, however, that
sale may be obtained only in its own name.
396 INDIAN LAW REPORTS ALLAHABAD SERIES

29. There is absolutely no warrant to allow
for such an anomalous, uncertain, and therefore
undesirable and even absurd result to arise.
Plainly, there is nothing in the language of the
Act, to allow for such a restrictive condition to
be read into the words ''in favour of' prefixed to
the words ''banking company' appearing in
section 34(2) of the Act. That narrow meaning
(as discussed above) would lead to results that
are wholly absurd and may defeat the very
object of enactment of Section 34(2) of the Act.

30. The Act created indefeasible right in
the State Bank of India, by virtue of its status as
a ''banking company' as defined under the
Banking Act, occasioned by its charge over the
''property-in-dispute'. That indefeasible right
cannot be lost or diluted, merely because in the
process of recovering its dues, that bank chose to
negotiate or allow a third-party sale of the
''property-in-dispute', in favour of the petitioner,
instead of first obtaining title in it. Therefore, we
hold, the words ''in favour' appearing in section
34(2) of the Act must be read to refer, indicate,
and include all transfers made to the sole benefit
of the ''banking company' (as defined under the
Banking Act), towards discharge of its/their
outstanding dues, against charge existing over
the "property-in-dispute".

31. The charge over the ''property-indispute' being in existence, in favour of the
''banking company' as defined under the
Banking Act, the words ''in favour' need not be
read literally - to mandate only such transfer as
may have been made to that ''banking company'
itself. The words "transfer in favour of banking
company" appearing in Section 34(2) of the Act
are wide enough to include within their plain
ambit, a transaction of this nature whereby
instead of first obtaining of transfer of the
''property-in-dispute', in its own name, the State
Bank of India allowed that charged property to
be sold to the petitioner, for the same purpose,
for its benefit namely, to recover its dues from
the ''assessee-in-default'. It is inconsequential
that the pre-existing charge over the ''propertyin-dispute' was satisfied on 15.07.2014 or that
the State Bank of India did not first obtain title
in it.

32. We are supported in our approach by
the decision of the Supreme Court in Tirath
Singh v. Bachittar Singh, AIR 1955 SC 830. In
that case a question arose if the words "all
persons" appearing in section 99(1)(ii) of the
Representation of Peoples Act, 1951, would
include a person against whom charge of corrupt
practice may have been proved, for the purpose
of issue of a fresh notice preceding the order of
the Election Tribunal as to corrupt practice
committed at an election. Read literally, such
notice was contented to be mandatory. However,
that interpretation was rejected, and the
requirement to issue a fresh notice was restricted
to refer to any person other than one against
whom proceeding had already been conducted.
It was reasoned and held:

"6. The object of giving notice to a
person under the proviso is obviously to give
him an opportunity to be heard before a finding
is given under Section 99(1)(a)(i) that he has
committed a corrupt or illegal practice. This
clearly appears from clause (b) of the proviso,
which enacts that the person to whom notice is
to be given should have an opportunity of crossexamining witnesses who had been examined
before and given evidence against him, of
calling his own evidence and of being heard.
This is in accordance with the rule of natural
justice which requires that no one should be
condemned without being given an opportunity
to be heard. The reason of the rule, therefore,
requires that notice should be given to persons
who had had no previous opportunity in respect
of the matters mentioned in sub-clause (b) to the
proviso. Such, for example, would be witnesses
and possibly agents of the parties, as observed
in Nyalchand Virachand v. Election Tribunal [8
11 All. M/s GEM AROMATICS PVT. LTD., Badaun Vs. State of U.P. & Ors.
397
Election Law Reports 417, 421] though it is
not necessary to decide that point, but it
cannot refer to parties to the petition who
have had every opportunity of taking part in
the trial and presenting their case. Where an
election petition is founded on a charge of
corrupt practice on the part of the candidate,
that becomes the subject-matter of enquiry in
the petition itself. If at the trial the Tribunal
came to the conclusion that the charge had
been proved, then it has to hold under Section
100(2)(b) that the election is void, and pass an
order to that effect under Section 98(d).
Section 99(1) enacts that the finding of
corrupt practice under Section 99(1)(a)(i) or
naming a person under Section 99(1)(a)(ii)
should be at the time of making an order
under Section 98. If the contention of the
appellant is to be accepted, then the result will
be that even though there was a full trial of
the charges set out in the petition, if the
Tribunal is disposed to hold them proved it
has first to give notice of the finding which it
proposes to give, to the parties, and hold a
fresh trial of the very matters that had been
already tried. That is an extraordinary result,
for which it is difficult to discover any reason
or justification. It was argued by the learned
Attorney-General that the giving to a party to
a proceeding a second opportunity to be heard
was not unknown to law, and he cited the
instance of an accused in a warrant case
being given a further opportunity to recall and
cross-examine prosecution witnesses after
charge is framed, and of a civil servant being
given an opportunity under Article 311 to
show cause against the action proposed to be
taken against him. In a warrant case, the
accused is not bound to cross-examine the
prosecution
witnesses
before
charge
is
framed, and in the case of civil servants, the
decision that they are entitled to a second
opportunity was based on the peculiar
language of Sections 240(2) and (3) of the
Government of India Act, 1935, and Article
311 of the Constitution. They are exceptional
cases, and do not furnish any safe or useful
guidance in the interpretation of Section 99".
 (emphasis supplied)

33. Again, in D. Saibaba v. Bar Council
of India, (2003) 6 SCC 186 a question arose,
if the words "sixty days from the date of that
order" appearing in Section 48-AA of the
Advocates Act, 1961 require computation of
that time, from the date on which such order
was passed or from the date when that order
was served on the person aggrieved. Departing
from the obvious grammatical meaning of the
words, the Supreme Court reasoned and held:

"16. Placing such a construction, as
we propose to, on the provision of Section 48-AA
is permitted by well-settled principles of
interpretation. Justice G.P. Singh states in
Principles of Statutory Interpretation (8th Edn.,
2001):

"It may look somewhat paradoxical
that plain meaning rule is not plain and requires
some explanation. The rule, that plain words
require no construction, starts with the premise
that the words are plain, which is itself a
conclusion reached after construing the words.
It is not possible to decide whether certain
words are plain or ambiguous unless they are
studied in their context and construed." (p. 45)

The rule of literal interpretation is
also not to be read literally. Such flexibility to
the rule has to be attributed as is attributable to
the English language itself.

17. The learned author states again:

"In
selecting
out
of
different
interpretations ''the court will adopt that which
is just, reasonable and sensible rather than that
which is none of those things', as it may be
presumed ''that the legislature should have used
the word in that interpretation which least
offends our sense of justice'." (p. 113, ibid)

"The courts strongly lean against a
construction which reduces the statute to a
398 INDIAN LAW REPORTS ALLAHABAD SERIES
futility. A statute or any enacting provision
therein must be so construed as to make it
effective and operative ''on the principle
expressed in the maxim: ut res magis valeat
quam pereat'." (p. 36, ibid)

"If the language used is capable of
bearing more than one construction, in selecting
the true meaning regard must be had to the
consequences resulting from adopting the
alternative constructions. A construction that
results in hardship, serious inconvenience,
injustice, absurdity or anomaly or which leads
to inconsistency or uncertainty and friction in
the system which the statute purports to regulate
has to be rejected and preference should be
given to that construction which avoids such
results." (pp. 112-13, ibid)

18. Reading word for word and
assigning a literal meaning to Section 48-AA
would lead to absurdity, futility and to such
consequences as Parliament could have never
intended. The provision has an ambiguity and is
capable of being read in more ways than one.
We must, therefore, assign the provision a
meaning -- and so read it -- as would give life to
an otherwise lifeless letter and enable the power
of review conferred thereby being meaningfully
availed and effectively exercised".

34. As discussed above, in the facts of the
present case, there is absolutely no doubt that the
transfer of the ''property-in-dispute' took place
for the sole benefit of a ''banking company' as
defined under the Banking Act. Therefore, that
transaction was covered within the meaning of
the words - "in favour of the banking company".
In such undisputed facts, the non-obstante clause
pre-fixed to sub-Section (2) of Section 34 of the
Act, wholly insulates the sale-deed dated
16.07.2014. In fact, it takes that sale-deed out of
the reach and gaze of sub-Section (1) of Section
34 of the Act.

35.