# ) CENTRAL BANK OF INDIA v. STATE OF KERALA AND ORS

- **Citation:** [2009] 3 S.C.R. 735
- **Court:** Supreme Court of India
- **Decided:** 2009-02-27
- **Case number:** Civil Appeal No. 95 of 2005
- **Bench:** B.N. Agrawal, G.S. Singhvi, Aftab Alam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/central-bank-of-india-v-state-of-kerala-and-ors-25658
- **Pages:** 105

## Headnote

Debt Recovery: Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 - s.34 - Securitisation and
Reconstruction of Financial Assets and Enforcement of c
Security Interest Act, 2002 - s.35 - Bombay Sales Tax Act,
1959 - s.38C- Kera/a General Sales Tax Act, 1963- s.26B
First charge- Held: Tax payable under State legislations
..
would be first charge on the property of the dealer- ORT Act D
and Securitisation Act do not create first charge in favour of
banks, financial institutions and other secured creditors -
Provisions contained in s.38C of the Bombay Sales Tax Act
and s.26B of Kera/a General Sales Tax Act are not
inconsistent with the provisions of the ORT Act and E
Securitisation Act so as to attract non- obstante clauses
contained in s.34(1) of ORT Act or s.35 of Securitisation Act
- Transfer of Property Act, 1882 - ss.69, 69A - Companies
..;
Act, 1956 - s.529A - Employees Provident Funds and
~
Miscellaneous Provisions Act, 1952- s.11(2)- Interpretation
F
'
of statutes - Non-obstante clause.
-
Invoking of Article 254 of the Constitution - Held: ORT
Act and Securitisation Act were enacted by Parliament under
Entry 45 in List I in the Seventh Schedule whereas Bombay
Sales Tax Act and Kera/a General Sales Tax Act were G
--1
enacted by concerned State legislatures under Entry 54 in
List II in the Seventh Schedule - The two sets of legislations
were enacted with reference to entries in different lists in the
Seventh Schedule -
Therefore, Article 254 can not be
735
H
,
736
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A invoked for striking down State legislations on the ground that
l
the same were in conflict with the Central legislations -
~
Constitution of India, 1950 - Arlicle 254.
DRT Act and Securitisation Act - Enactment of -
B Legislative intent - Discussed.
Interpretation of statutes:
Non-obstante clause - Held: Is incorporated in statute to
give overriding effect to a particular section or the statute as a
c whole - While interpreting Non-obstante clause, Court is
required to find out the extent to which legislature intended to
do so and the context in which the non-obstante clause is used.
Contextual interpretation - Rule of - Held: Requires that
Courl should examine every word of a statute in its context -
,..
D In doing so, Courl has to keep in view preamble of the statute,
other provisions thereof, pari material statutes.
The questions which arose for consideration in these
appeals were whether Section 38C of the Bombay Sales
E Tax Act, 1959 and Section 26B of the Kerala General Sales
Tax Act, 1963 and similar provision contained in other
State legislations by which first charge has been created
on the property of the dealer or such other person, who
is liable to pay sales tax etc., are inconsistent with the
.. •
F provisions contained in the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 for recovery
of 'debt' and the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002 for enforcement of 'security interest' and
G whether by virtue of non obstante clauses contained in
Section 34(1) of the ORT Act and Section 35 of the
Securitisation Act, two Central legislations would have
•··
primacy over State legislations.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 737
ORS.
)
Dismissing the appeals, the Court
A
HELD: 1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 do not create first charge in
favour of banks, financial institutions and other secured
B
creditors and the provisions contained in Section 38C of
·1
the Bombay Act and Section 26B of the Kerala Act are
not inconsistent with the provisions of the ORT Act and
Securitisation Act so as to attract non obstante clauses c
contained in Section 34(1) of the ORT Act or Section 35
of the Securitisation Act. [Para 48] [819-H; 820-A]
2. The ORT Act and Securitisation A

## Text

_Characters 0–39,952 of 211,384. This is a partial read: ask again with offset=39952 for what follows._

[2009] 3 S.C.R. 735
.)
CENTRAL BANK OF INDIA
A
.._
v.
STATE OF KERALA AND ORS.
(Civil Appeal No. 95 of 2005)
FEBRUARY 27, 2009
B
[B.N. AGRAWAL, G.S. SINGHVI AND AFTAB ALAM, JJ.]
Debt Recovery: Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 - s.34 - Securitisation and
Reconstruction of Financial Assets and Enforcement of c
Security Interest Act, 2002 - s.35 - Bombay Sales Tax Act,
1959 - s.38C- Kera/a General Sales Tax Act, 1963- s.26B
First charge- Held: Tax payable under State legislations
..
would be first charge on the property of the dealer- ORT Act D
and Securitisation Act do not create first charge in favour of
banks, financial institutions and other secured creditors -
Provisions contained in s.38C of the Bombay Sales Tax Act
and s.26B of Kera/a General Sales Tax Act are not
inconsistent with the provisions of the ORT Act and E
Securitisation Act so as to attract non- obstante clauses
contained in s.34(1) of ORT Act or s.35 of Securitisation Act
- Transfer of Property Act, 1882 - ss.69, 69A - Companies
..;
Act, 1956 - s.529A - Employees Provident Funds and
~
Miscellaneous Provisions Act, 1952- s.11(2)- Interpretation
F
'
of statutes - Non-obstante clause.
-
Invoking of Article 254 of the Constitution - Held: ORT
Act and Securitisation Act were enacted by Parliament under
Entry 45 in List I in the Seventh Schedule whereas Bombay
Sales Tax Act and Kera/a General Sales Tax Act were G
--1
enacted by concerned State legislatures under Entry 54 in
List II in the Seventh Schedule - The two sets of legislations
were enacted with reference to entries in different lists in the
Seventh Schedule -
Therefore, Article 254 can not be
735
H
,
736
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A invoked for striking down State legislations on the ground that
l
the same were in conflict with the Central legislations -
~
Constitution of India, 1950 - Arlicle 254.
DRT Act and Securitisation Act - Enactment of -
B Legislative intent - Discussed.
Interpretation of statutes:
Non-obstante clause - Held: Is incorporated in statute to
give overriding effect to a particular section or the statute as a
c whole - While interpreting Non-obstante clause, Court is
required to find out the extent to which legislature intended to
do so and the context in which the non-obstante clause is used.
Contextual interpretation - Rule of - Held: Requires that
Courl should examine every word of a statute in its context -
,..
D In doing so, Courl has to keep in view preamble of the statute,
other provisions thereof, pari material statutes.
The questions which arose for consideration in these
appeals were whether Section 38C of the Bombay Sales
E Tax Act, 1959 and Section 26B of the Kerala General Sales
Tax Act, 1963 and similar provision contained in other
State legislations by which first charge has been created
on the property of the dealer or such other person, who
is liable to pay sales tax etc., are inconsistent with the
.. •
F provisions contained in the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 for recovery
of 'debt' and the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002 for enforcement of 'security interest' and
G whether by virtue of non obstante clauses contained in
Section 34(1) of the ORT Act and Section 35 of the
Securitisation Act, two Central legislations would have
•··
primacy over State legislations.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 737
ORS.
)
Dismissing the appeals, the Court
A
HELD: 1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 do not create first charge in
favour of banks, financial institutions and other secured
B
creditors and the provisions contained in Section 38C of
·1
the Bombay Act and Section 26B of the Kerala Act are
not inconsistent with the provisions of the ORT Act and
Securitisation Act so as to attract non obstante clauses c
contained in Section 34(1) of the ORT Act or Section 35
of the Securitisation Act. [Para 48] [819-H; 820-A]
2. The ORT Act and Securitisation Act were enacted
by Parliament under Entry 45 in List I in the Seventh
Schedule whereas Bombay Sales Tax Act and Kerala
D
General Sales Tax Act were enacted by the concerned
State legislatures under Entry 54 in List II in the Seventh
Schedule. The two sets of legislations were enacted with
reference to entries in different lists in the Seventh
Schedule. Therefore, Article 254 can not be invoked per E
se for striking down State legislations on the ground that
<
the same were in conflict with the Central legislations.
[Para 15) [764-B-E]
-~ f
3.1. The ORT Act and Securitisation Act were enacted
in the backdrop of recommendations made by the expert
F
..
committees appointed by the Central Government for
examining the causes for enormous delay in the recovery
of dues of banks and financial institutions which were
adversely affecting fiscal reforms. The Committees
G
suggested that the existing legal regime should be
-~
changed and special adjudicatory machinery be created
for ensuring speedy recovery of the dues of banks and
financial institutions. The Committees also suggested
enactment of new legislation for securitisation and
H
738
SUPREME COURT REPORTS
(2009) 3 S.C.R.
A empowering the banks etc. to take possession of the
securities and sell them without intervention of the Court
The ORT Act facilitated establishment of two-tier system
of Tribunals. The Tribunals established at the first level
were vested with the jurisdiction, powers and authority
B to summarily adjudicate the claims of banks and financial
institutions in the matter of recovery of their dues without
being bogged down by the technicalities of the Code of
Civil Procedure. The Securitisation Act drastically
changed the scenario inasmuch as it enabled banks,
c financial institutions and other secured creditors to
recover their dues without intervention of the Courts or
Tribunals. The Securitisation Act also made provision for
registration
and
regulation
of securitizationl
reconstruction companies, securitisation of financial
0 assets of banks and financial institutions and other
related provisions. [Para 32) [789-F-H; 790-A-C]
A.P. State Financial Corporation v. Official Liquidator
(2000) 7 SCC 291; Allahabad Bank v. Canara Bank and
another (2000) 4 SCC 406; State of West Bengal v. Kesoram
E Industries Ltd. and others (2004) 10 SCC 201; Govt. of A.P.
and anr. v. J.B. Educational Society and anr. (2005) 3 sec
212; Zaverbhai Amaidas v. State of Bombay (1955) SCR
799; The Attorney General of Ontario v. The Attorney General
for the Dominion 1896 A.C. 348; A.S. Krishna v. State of
F Madras (1957) SCR 399; Mis. Hoechst Pharmaceuticals Ltd.
and others v. State of Bihar and others (1983) 4 sec 45,
referred to.
3.2. There is no prov1s1on in either of these
G enactments by which first charge is created in favour of
banks, financial institutions or secured creditors qua the
property of the borrower. Under Section 13(1) of the
Securitisation Act, limited primacy has been given to the
right of a secured creditor to enforce security interest vis·
H a-vis Section 69 or Section 69A of the Transfer of Property
l
)--
j
7 ..
..
-
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 739
ORS.
•.
....
Act. In terms of that sub-section, secured creditor can
A
"'
enforce security interest without intervention of the Court
...
or Tribunal and if the borrower has created any mortgage
of the secured asset, the mortgagee or any person acting
on his behalf cannot sell the mortgaged property or
appoint a receiver of the income of the mortgaged
B
property or any part thereof in a manner which may defeat
J
the right of the secured creditor to enforce security
interest. In an apparent bid to overcome the likely
difficulty faced by the secured creditor which may include
a bank or a financial institution, Parliament incorporated c
the non obstante clause in Section 13 and gave primacy
to the right of secured creditor vis a vis other mortgagees
who could exercise rights under Sections 69 or 69A of
the Transfer of Property Act. However, this primacy has
" t
not been extended to other provisions like Section 38C
of the Bombay Act and Section 268 of the Kerala Act by
D
which first charge has been created in favour of the State
over the property of the dealer or any person liable to pay
the dues of sales tax, etc. [Para 32) [790-D-H; 791-A-B]
3.3. A non obstante clause is generally incorporated
E
in a statute to give overriding effect to a particular section
or the statute as a whole. While interpreting non obstante
'(
clause, the Court is required to find out the extent to
~;
which the legislature intended to do so and the context
in which the non obstante clause is used. The Court must
F
-
ascertain the intention of the legislature by directing its
attention not merely to the clauses to be construed but
to the entire statute; it must compare the clause with the
other parts of the law and the setting in which the clause
to be interpreted oc.-:urs. [Para 28) [787-G-H; 788-A-B]
G
·+.
State of West Bengal v. Union of India (1964) 1 SCR 371;
Madhav Rao Jivaji Rao Scindia v. Union of India and another
(1971) 1 SCC 85; R.S. Raghunath v. State of Karnataka and
another (1992) 1 SCC 335; Aswini Kumar Ghose v. Arabinda
H
740
SUPREME COURT REPORTS
(2009] 3 S.C.R.
'
A Bose AIR 1952 SC 369; Dominion of India v. Shrinbai A. Irani
~
AIR 1954 SC 596; Union of India v. G.M. Kokil 1984 (Supp.)
,. -
SCC 196; Chandavarkar Sita Ratna Rao v. Ashalata S.
Guram (1986) 4 SCC 447 and A.G. Varadarajulu v. State of
Tamil Nadu (1998) 4 SCC 231, relied on.
B
3.4. The non obstante clauses contained in Section
34(1) of the ORT Act and Section 35 of the Securitisation
Act give overriding effect to the provisions of those Acts
only if there is anything inconsistent contained in any
c
other law or instrument having effect by virtue of any
other law. If there is no provision in the other enactments
which are inconsistent with the ORT Act or Securitisation
Act, the provisions contained in those Acts cannot
override other legislations. Section 38C of the Bombay
Act and Section 26B of the Kerala Act also contain non
r
:l
D obstante clauses and give statutory recognition to the
priority of State's charge over other debts, which was
recognized by Indian High Courts even before 1950. In
other words, these sections and similar provisions
contained in other State legislations not only create first
E charge on the property of the dealer or any other person
liable to pay sales tax, etc. but also give them overriding
effect over other laws. [Para 33) (792-A-C)
~
Builders Supply Corporation v. Union of India (1965) 2
..
F SCR 289; Bank of India v. John Bowman and Ors. AIR (1955)
Born. 305; Madras High Court in Kaka Mohammad Ghouse
-
Sahib & Co. v. United Commercial Syndicate and others
(1963) 49 l.T.R. 25; Manickam Chettiar v. Income-tax Officer,
Madura (1938) 6 ITR 180; State Bank of Bikaner and Jaipur
G
v. National Iron and Steel Rolling Corporation and others
(1995) 2 SCC 19; Dena Bank v. Bhikhabhai Prabhudas
Parekh & Co. and others (2000) 5 SCC 694; State of M.P.
+·
and another v. State Bank of Indore and others (2002) 1 O sec
441 and Recovery Officer, Employees Provident Fund v.
Kera/a Financial Corporation (2002) 3 ILR Kerala 4, referred
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 741
ORS.
' •
to.
A
4.1. The rule of contextual interpretation requires that
the court should examine every word of a statute in its
context. In doing so, the Court has to keep in view
preamble of the statute, other provisions thereof, pari B
material statutes, if any, and the mischief intended to be
remedied. Context often provides the key to the meaning
of the word and the sense it carries. Its setting gives
colour to it and provides a cue to the intention of the
legislature in using it. [Para 25] [785-F-G]
c
Poppatlal Shah v. State of Madras AIR 1953 SC 274;
Reserve Bank of India v. Peerless General Finance and
Investment Company Limited (1987) 1 SCC 424; R. v.
National Asylum Support Services (2002) 4 All ER 654,
referred to.
D
Statutory Interpretation, Justice G.P. Singh, referred to.
4.2. While enacting the ORT Act and Securitisation
Act, Parliament was aware of the law laid down by this
E
Court wherein priority of the State dues was recognized.
If Parliament intended to create first charge in favour of
banks, financial institutions or other secured creditors on
"
the property of the borrower, then it would have
...
incorporated a provision like Section 529A of the
'
Companies Act or Section 11 (2) of the EPF Act and
F
-
ensured that dues of banks, financial institutions and
other secured creditors should have priority over the
State's statutory first charge in the matter of recovery of
the dues of sales tax, etc. However, no such provision
was incorporated !~1 either of these enactments despite
G
-4
conferment of extraordinary power upon the secured
creditors to take possession and dispose of the secured
assets without the intervention of the Court or Tribunal.
[Para 38) [800-A-D]
H
742
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A
4.3. If the provisions of the ORT Act and
Securitisation Act are interpreted keeping in view the
background and context in which these legislations were
enacted and the purpose sought t6 be achieved by their
enactment, it becomes clear that the two legislations, are
B intended to create a new dispensation for expeditious
recovery of dues of banks, financial institutions and
secured creditors and adjudication of the grievance
made by any aggrieved person qua the procedure
adopted by the banks, financial institutions and other
c secured creditors, but the provisions contained therein
cannot be read as creating first charge in favour of
banks, etc. If Parliament intended to give priority to the
dues of banks, financial institutions and other secured
creditors over the first charge created under State
0 legislations then provisions similar to those contained in
Section 14A of the Workmen's Compensation Act, 1923,
Section 11(2) of the EPF Act, Section 74(1) of the Estate
Duty Act, 1953, Section 25(2) of the Mines and Minerals
(Development and Regulation) Act, 1957, Section 30 of
E the Gift· Tax Act, and Section 529A of the Companies Act,
1956 would have been incorporated in the ORT Act and
Securitisation Act. Undisputedly, the two enactments do
not contain
provision similar to Workmen's
Compensation Act, etc. In the absence of any specific
provision to that effect, it is not possible to read any
F conflict or inconsistency or overlapping between the
provisions of the ORT Act and Securitisation Act on the
one hand and Section 38C of the Bombay Act and
Section 268 of the Kerala Act on the other and the non
obstante clauses contained in Section 34(1) of the ORT
G Act and Section 35 of the Securitisation Act cannot be
invoked for declaring that the first charge created under
the State legislation will not operate qua or affect the
proceedings initiated by banks, financial institutions and
other secured creditors for recovery of their dues or
H enforcement of security interest, as the case may be. The
)' ... -
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 743
ORS.
"'
Court could have given effect to the non obstante clauses
A
contained in Section 34(1) of the ORT Act and Section 35
of the Securitisation Act vis a vis Section 38C of the
Bombay Act and Section 268 of the Kerala Act and similar
other State legislations only if there was a specific
provision in the two enactments creating first charge in
B
favour of the banks, financial institutions and other
J
secured creditors but as the Parliament has not made
any such provision in either of the enactments, the first
charge created by the State legislations on the property
of the dealer or any other person, liable to pay sales tax c
etc., cannot be destroyed by implication or inference,
notwithstanding the fact that banks, etc. fall in the
category of secured creditors. [Para 39] [800-G-H; 801-AG]
M.K. Ranganathan and another v. Government of D
Madras and others (1955) 2 SCR 374; State of Gujarat v.
Shyamfal Mohan/al Choksi and others AIR 1965 SC 1251
and Byram Pestonji Gariwala v. Union Bank of India and
others (1992) 1 sec 31, relied on.
P. Murugian v. Jainudeen, C.L. (1954) 3 W.L.R. 682;
E
/CIC/ Bank Ltd. v. SIDCO Leathers Ltd. and others (2006) 10
SCC 452; Transcore v. Union of India and another (2008) 1
-<
SCC 125; Union of India v. $/COM Limited and another
(2009) 2 SCC 121; Rajasthan State Financial Corporation v.
F
Official Liquidator (2005) 8 SCC 190; Bank of Bihar v. State
of Bihar(1972) 3 SCC 196; Central Bank of India v. Siriguppa
Sugars & Chemicals Ltd. (2007) 8 SCC 353; R.M.
Arunachalam v. Commissioner of Income Tax, Madras
(1997) 7 SCC 698; K.S. Paripoornan v. State of Kera/a and
G
others JT (1994) (6) SC 182; Land Acquisition Officer v. B. V.
-f
Reddy and others (2002) 3 SCC 463; Kesava Pillai vs. State
of Kera/a (2004) 1 KLT 55; South Indian Bank Limited vs.
State of Kera/a (2006) 1 KL T 65; Sherry Jacob v. Canara
Bank (2004) 30 KLT 1089 and State of M.P. v. State Bank of
Indore (2002) 10 KTR 366 (SC), referred to.
H
744
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A
Maxwell on Interpretation of Statutes, referred to.
Case Law Reference:
(2000) 1 sec 291
referred to
Para 4
B
(2000) 4 sec 406
referred to
Para 4
(2004) 10 sec 201
referred to
Para 6
(2005) 3 sec 212
referred to
Para 6
l
1896 A.C. 348
referred to
Para 9
c
(1955) SCR 799
referred to
Para 9
(1957) SCR 399
referred to
Para 9
(1983) 4 sec 45
referred to
Para 10
D
AIR 1953 SC 274
referred to
Para 25
(1987) 1 sec 424
referred to
Para 26
(2002) 4 All ER 654
referred to
Para 27
E
(1964) 1 SCR 371
relied on
Para 28
(1971) 1 sec 85
relied on
Para 29
AIR 1952 SC 369
relied on
Para 30
AIR 1954 SC 596
relied on
Para 30
F
1984 (Supp.) sec 196
relied on
Para 30
(1986) 4 sec 447
relied on
Para 30
(1992) 1 sec 335
relied on
Para 30
G
(1998) 4 sec 231
relied on
Para 31
~.
(1938) 6 ITR 180
referred to
Para 33
AIR 1955 Born. 305
referred to
Para 33
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 745
ORS.
'
(1963) 49 l.T.R. 25
referred to
Para 33
A
"
(1965) 2 SCR 289
referred to
Para 33
(1995) 2 sec 19
referred to
Para 34
(2000) 5 sec 694
referred to
Para 35
B
(2002) 10 sec 441
referred to
Para 36
(2002) 3 ILR Kerala 4
referred to
Para 37
(1955) 2 SCR 374
relied on
Para 39 c
AIR 1965 SC 1251
relied on
Para 39
(1992) 1 sec 31
relied on
Para 39
(1954) 3 W.L.R. 682
referred to
Para 39
~
(2006) 10 sec 452
referred to
Para 42
D
(2008) 1 sec 125
referred to
Para 42
(2009) 2 sec 121
referred to
Para 42
(2005) 8 sec 190
referred to
Para 44
E
(1972) 3 sec 196
referred to
Para 46
(2001) 8 sec 353
referred to
Para 46
'(
'
(1997) 1 sec 698
referred to
Para 49
F
JT 1994 (6) SC 182
referred to
Para 50
(2002) 3 sec 463
referred to
Para 50
2004 (1) KLT 55
referred to
Para 60
2006 (1) KLT 65
referred to
Para 61
G
• J
2004 (30) KL T 1089
referred to
Para 63
(2002) 10 KTR 366(SC)
referred to
Para 65
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 95
H
746
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A of 2005.
B
From the Judgment & Order dated 06.11.2002 of the
Division Bench of the High Court of Kerala in Writ Appeal No.
1284 of 2002(D).
WITH
C.A. No. 2811, 3549, 3973, 4174, 4909, 1288/2006 and
C.A. No.1318 of2009@S.L.P.(C) No. 24767 of2005.
C
D.A. Dave, Biswait Bhattarcharya, Shekhar Naphade, lndu
Malhotra, Bishwajeet Bhattarcharya, T.LV. Iyer, Dinesh Mathur,
Saurabh Jain, Rameshwar Prasad Goyal, Pramod B. Agarwala
Praveen Gautam, Nitin Kant Setia, Debashish Mukherjee, Ajay
Singh, P. Narasimhan, Vinay Navare, Naresh Kumar, Sunita
Ojha, Kavita Wadia, Saurabh Jain, R.P. Goya, K. Rajeev,
D Avinash Kumar, Debashish, Ajay, Dharmendra Kumar Sinha,
Jay Kishor Singh and Subramonium Prasad for the Appellants.
R. Mohan, ASG, Rakesh Dwivedi, S.K. Dholakia, D.A.
Dave, P. Krishnamoorthi, Ramesh Babu, C.N. Sree Kumar, G.
E Prakash, Mukti Chowdhary, Anant Prakash, Amit Singh,
Shantanu Krishna, S.K. Dholakia, Ravindra K. Adsure,
Chinmoy Khaladkar, Malvika Trivedi, T. Mahipal, Ranjith K.C.
V.B. Joshi, Kailash Pandey, V.K. Sidharthan, Nina Gupta,
Akanksha, Neha S. Verma Swigin George, Bina Gupta,
F Ramesh Singh, A.V. Rangam, Buddy A. Ranganadhan, K.
Rajeev and Harshad V. Hameed for the Respondent.
The Judgment of the Court was delivered by
G.S. SINGHVI, J. 1. Leave granted in S.L.P. (C) No.24767
G of 2005.
2. Whether Section 38C of the Bombay Sales Tax Act,
1959 [for short "the Bombay Act"] and Section 268 of the
Kerala General Sales Tax Act, 1963 [for short "the Kerala Act"]
H and similar provision contained in other State legislations by
..
<-
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 747
ORS. [G.S. SINGHVI, J.]
' ,
which first charge has been created on the property of the
A
dealer or such other person, who is liable to pay sales tax etc.,
are inconsistent with the provisions contained in the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 (for
short 'the ORT Act') for recovery of ·debt' and the Securitisation
and Reconstruction of Financial Assets and Enforcement of
B
Security Interest Act, 2002 (for short 'the Securitisation Act') for
~
enforcement of· security interest' and whether by virtue of non
obstante clauses contained in Section 34(1) of the ORT Act
and Section 35 of the Securitisation Act, two Central
legislations will have primacy over State legislations are the c
questions which arise for determination in these appeals.
3. For the sake of convenience, we have taken notice of
the facts of Civil Appeal Nos.95/2005 and 2811/2006 and the
;
reasons contained in the orders passed by Kerala and Bombay
D
High Courts, which are under challenge in these appeals.
4. C.A. No.9512005 - Central Bank of India vs. State of
Kera/a & others- Central Bank of India, which is a nationalized
bank, gave cash/ credit facility to the tune of Rs.12 lakhs to
Kerala Refineries (P) Ltd. The borrower executed mortgage of
E
movable and immovable properties for securing repayment. As
the borrower failed to repay the dues, the bank filed civil suit
•
bearing O.S. No.234/1996 in the Court of Sub-Judge at
•
Mavelikara. Later on the suit was transferred to Ernakulam
Bench of the Debts Recovery Tribunal (hereinafter referred to
F
as "the Tribunal"). By an order dated 1.12.2000, the Tribunal
decreed the suit for an amount of Rs.55 lakhs with future
interest. As a sequel to this, Recovery Certificate dated
1.11.2001 was issued in favour of the bank and the Recovery
Officer issued notice for sale of the movable and immovable
G
• -J
properties of the borrower. At that stage, Tehsildar, Mavelikara
issued notice dated 26.11.2001 to the borrower for recovery
of Rs.40,38,481/- as arrears of sales tax stating therein that its
moveable and immovable properties had been attached on
2.2.2000 and 4.9.2000 and that steps are being taken to sell
H
748
SUPREME COURT REPORTS
[2009] 3 S.C.R.
.
•
A the attached property by public auction. The Tehsildar claimed
that by virtue of Section 268 of the Kerala Act, as amended
by Act No.23/1999, the State Government has got first charge
over the attached properties. The bank challenged the notice
of the Tehsildar by filing a petition under Article 226 of the
B Constitution of India, which was registered as O.P. No.7835/
2002(G). The bank relied on the decisions of this Court in A.P.
State Financial Corporation v. Official Liquidator [(2000) 7
SCC 291] and Allahabad Bank v. Canara Bank and another
[(2000) 4 SCC 406], and pleaded that being a Central
c legislation, the ORT Act would prevail over the Kerala Act by
which first charge was created in favour of the State. The
learned Single Judge of the Kerala High Court negatived the
bank's challenge by observing that proceedings under the
Kerala Act had been initiated before the issue of certificate by
the Tribunal and that even if the Tribunal has got exclusive
~
D jurisdiction to recover the amount due to the bank, the Tehsildar
was not obliged to approach it for recovery of the State dues.
The learned Single Judge referred to Section 46 of the Kerala
Revenue Recovery Act, 1968, which provides that within 14
E days from the date of attachment of any immovable property
any person other than the defaulter can lodge objection to the
attachment of the whole or any portion of such property on the
ground that such property was not liable for the arrears of public
>
revenue, and held that as the bank had claimed first charge or
4
F
prior charge over the attached property, it can file appropriate
objections under Section 46 of the Kera la Revenue Recovery
Act, 1968 and make a prayer that public revenue can be
recovered after paying its dues. The learned Single Judge
further observed that in terms of Section 47 of the Kerala
Revenue Recovery Act, 1968 the petitioner can obtain release
G of the attached property by paying arrears of the public
revenue. The appeal preferred against the order of the learned
w-----
Single Judge was dismissed by the Division Bench which held
that the bank can avail remedy by filing objections under
Sections 46 to 48 of the Kerala Revenue Recovery Act, 1968.
H
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 749
ORS. [G.S. SINGHVI, J.]
-~
5. C.A. No.281112006 -
The Thane Janata Sahakari A
Bank Ltd. vs. The Commissioner of Sales Tax & others -
Appellant - Thane Janata Sahakari Bank Ltd., which is a
scheduled cooperative society incorporated under the
Maharashtra Cooperative Society Act, 1960 granted credit
facilities to Mis. Charishma Cosmetics Pvt. Ltd. Co. (for short
B
'the Company'). As on 30.6.2004, the company had availed
.I
credit facility to the tune of Rs.2,32,00,000/- by creating
equitable mortgage of its factory, land and building in favour of
the bank. Due to the company's failure to repay the amount,
its account was classified as non-performing asset and the bank c
initiated proceedings under the Securitisation Act by issuing
notice under Section 13(2). The possession of movable and
immovable properties of the company is said to have been
taken by the bank on 15.2.2005 and the same were sold for a
"
sum of Rs.66,31,001/-. On 11.7.2005, Assistant Commissioner
D
of Sales Tax informed the bank that sales tax dues amounting
to Rs.3,62,82,768/- constitute first charge against the company
and, therefore, it could not have taken possession of the
mortgaged assets and sold the same. After some
correspondence, the Assistant Commissioner issued notice
E
dated 16.8.2005 to the bank to show cause as to why action
may not be taken against it under Section 39 of the Bombay
Sales Tax Act, 1959 (for short "the Bombay Act") for recovery
(
of Rs.49,68,614/- in addition to the auction proceeds. The bank
' ...
unsuccessfully contested the notice and then filed writ petition
F
for quashing the same. It was urged on behalf of the bank that
in view of the conflict between Section 38C of the Bombay Act
and Section 35 of the Securitisation Act, the latter being a
Central legislation, the first charge created by the State Act
cannot have priority over debts of the bank because while
G
enacting the Securitisation Act the Parliament will be deemed
• -J
to be aware of the provisions of the State legislation. It was also
contended that under Section 169 of Maharashtra Land
Revenue Code, 1966, the State Government can claim priority
over unsecured dues, but being secured creditor, the bank has
H
750
SUPREME COURT REPORTS
[2009] 3 S.C.R.
.
A first and exclusive charge over the properties of the company
'
and has priority over the sales tax dues of the State. The
Division Bench of the High Court analysed the provisions of the
Securitisation Act, the State Act and observed:-
B
" ......... if any Central Act provides for first charge, the
charge created under Section 38C of Bombay Sales Tax
Act is overridden. Conversely, if the Central Act does not
provide for first charge in respect of the liability under the
said Act, the first charge created under Section 38C of
c
Bombay Sales Tax Act shall hold the field."
The Division Bench then noted that Section 13 of the
Securitisation Act does not create first charge in favour of the
banks; that it merely provides the machinery for realization by
a secured creditor of the security interest without intervention
D of the Court or Tribunal; that it overrides the provisions
contained in Sections 69 or 69A of the Transfer of Property Act
which empower the mortgagee to sell or concur in selling the
mortgaged property or any part thereof in default of payment
of the mortgage money without intervention of the Court in the
E circumstances referred to in Section 69 and for payment of
Court Receiver as provided in Section 69A and held:
"The Bombay Sales Tax Act and the Securitisation Act
have been enacted by the competent legislatures for
')
F
different purposes and operate in different fields. The
Bombay Sales Tax Act is enacted by the State Legislature
under Entry 54 of List II in the Seventh Schedule for levy
of tax on the sale or purchase of certain goods in the State
of Bombay (now State of Maharashtra). On the other hand,
G
the Securitisation Act has been enacted by the Parliament
under Entry 54 of List I for regulating the Securitisation and
reconstruction of financial assets and for enforcement of
..--
security interest. There is neither any conflict in these two
Acts nor Section 38 C of the Bombay Sales Tax Act can
be said to be inconsistent with Section 35 of the
H
Securitisation Act. The area of operation is entirely different
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 751
ORS. [G.S. SINGHVI, J.]
.. ...
and there is no overlapping anywhere .
A
Section 35 of the Securitisation Act may have had some
bearing, if there was some provision in the Securitisation
Act for first charge in favour of the banks and financial
institutions. But neither Section 13 nor any other provision
B
under the Securitisation Act makes a provision for first
. •
charge .
There being no provision in the Securitisation Act
providing for first charge in favour of the banks section 35
of the Securitisation Act cannot be held to override section c
38C of the Bombay Sales Tax Act, 1959 that specifically
provides that the liability under the said Act shall be the
first charge. The overriding provision contained in Section
38C is only subject to the provision of the first charge in
~
the Central Act holding the field. The case of the Bank is
D
not covered by the expression, "subject to any provision
regarding first charge in any Central Act for the time being
in force" and that being the position, Section 38C is not
overridden by section 35 of the Securitisation Act."
6. S/Shri Shekhar Naphde, Dushyant Dave, Bishwajeet
E
Bhattacharya, T.L.V. Iyer and Ms. lndu Malhotra, learned senior
counsel appearing for the appellants argued that as the ORT
(
Act and Securitisation Act have been enacted by the
Parliament under Article 246( 1) read with Entry 45 in List I in
F
the Seventh Schedule of the Constitution for speedy recovery
of debts due to banks or financial institutions or for enforcement
of security interest by the secured creditors and overriding
effect has been given tu these legislations vis-a-vis other laws,
the provisions contained therein will have primacy over State
G
legislations which have been enacted under Article 246(2) read
• -J
with Entry 54 in List II in the Seventh Schedule and under which
first charge has been created in favour of the State in respect
of the dues of sales tax etc. Shri Dushyant Dave relied upon
the judgments in State of West Bengal v. Kesoram Industries
Ltd. and others [(2004) 10 sec 201] and Govt. of A.P. and
H
752
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A anr. v. J.B. Educational Society and anr. [(2005) 3 sec 212],
and argued that even though the Central and State legislations
have not been enacted with reference to a particular entry in
List Ill in the Seventh Schedule, Article 254 will get attracted,
and the Kerala and Bombay High Courts committed an error
B by refusing to accept the submission that banks, financial
institutions and secured creditors have priority in the matter of
recovery of debts or enforcement of security interest vis-a-vis
the State's right to recover the dues of sales tax etc. Shri
Bishwajeet Bhattacharya submitted that in view of Article 254(1)
C of the Constitution, provisions contained in State laws which are
repugnant to or inconsistent with Central legislations, are liable
to be ignored. All the learned counsel laid considerable
emphasis on the non obstante clauses contained in Section
34(1) of the ORT Act and Section 35 of the Securitisation Act,
0 and argued that even though the language of Section 38C of
the Bombay Act and Section 26B of the Kerala Act suggests
that State legislations have been given overriding effect vis a
vis other laws, the courts are duty bound to give full effect to
the primacy of Central legislations over State legislations. Shri
Shekhar Naphde and other learned counsel heavily relied on
E Section 13(1), (7) and (9) of the Securitisation Act and argued
that when Parliament has designedly given priority to the right
of banks etc. to recover their dues or enforce security interest,
first charge created under the State legislation must be treated
sub-servient to such right. Learned senior counsel made a
F pointed reference to the provisos incorporated in Section 13(9)
for giving priority to the dues of the workers of the company in
liquidation and argued that in the absence of similar provision
in relation to sales tax dues etc. payable to the State, priority
given to the dues of banks etc. cannot be diluted or stultified
G by giving over stretched interpretation to the provisions
contained in the State legislations relating to first charge.
7. Shri Rakesh Dwivedi and Shri S.K. Oholakia, learned
senior counsel appearing for the States of Kerala and
H Maharashtra respectively argued that even though the ORT Act
•
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 753
ORS. [G.S. SINGHVI, J.)
-,
and Securitisation Act contain non obstante clauses suggesting
A
that the provisions contained therein would prevail over other
laws, the same must be interpreted keeping in view the
legislative policy underlying those enactments and if they are
so interpreted, Section 38C of the Bombay Act and Section
268 of the Kera la Act and similar provisions contained in other
B
State legislations by which first charge has been created on
;l
the property of the dealer or any other person liable to pay sales
tax etc. cannot be treated inconsistent with Central legislations.
Shri Dwivedi submitted that the ORT Act and Securitisation Act
have been enacted to speed up the recovery of the dues of c
banks, financial institutions and secured creditors but there is
no provision in the two enactments by which first charge has
been created in favour of banks, etc. and, therefore, the
~
provisions contained in State legislations creating first charge
in respect of the dues of sales tax etc. cannot be treated as
0
inconsistent with Central legislations. Shri Owivedi further
submitted that levy and collection of tax etc. is sovereign
function as well as necessity of the State and as such the State
has exclusive plenary power to legislate on that subject and in
the absence of any provision in the ORT Act or Securitisation
E
Act creating first charge In favour of the banks etc., in lieu of
their dues, these legislations cannot be given overriding effect
qua the provisions contained in the State legislations and right
of the State to recover the dues of sales tax etc. cannot be
frustrated merely because a bank or financial institution or
F
secured creditor has initiated action for recovery of debt etc.
by filing application under Section 19 of the ORT Act or by
resorting to the procedure contained in Section 13 of the
Securitisation Act. In support of this argument, learned senior
counsel invoked the doctrine of sub si/entio.
G
• -4
8. We have considered the respective arguments/
submissions. Article 245 of the Constitution is the source of
legislative power of Parliament and State legislatures. It
provides that subject to the provisions of the Constitution,
Parliament may make laws for the whole or any part of the
H
754
SUPREME COURT REPORTS
(2009] 3 S.C.R.
A territory of India, and the legislature of a State may make laws
for the whole or any part of the State. The legislative field of
the Parliament and State legislatures has been specified in
Article 246. In terms of Clause (1) of Article 246, Parliament
has exclusive power to make laws with respect to any of the
B matters enumerated in List I in the Seventh Schedule. Under
Clause (2) the Parliament and subject to Clause (1 ), the
legislature of any State also have power to make laws with
respect to any of the matters enumerated in List Ill in the
Seventh Schedule. Subject to Clauses (1) and (2), the
c legislature of State has exclusive power to make laws for such
State or any part thereof with respect to any of the matters
enumerated in List II in the Seventh Schedule. It is thus evident
that Parliament has exclusive power to legislate with respect
to any of the matters enumerated in List I and State legislatures
enjoys similar power with respect to any of the matters
D enumerated in List II. The combined effect of the different
clauses of Article 246 is that in respect of any matter falling
within List I, Parliament has exclusive power of legislation,
whereas the State legislature has exclusive power to make
laws for such State or any part thereof with respect to any of
E the matters enumerated in List II in the Seventh Schedule and
with respect to the matters enumerated in List Ill, both the
Parliament and State legislature have power to make laws.
Article 254 which contains mechanism for resolution of conflict
between Central and State legislations enacted with respect
F to any matter enumerated in List Ill of the Seventh Schedule
reads as under:
G
H
"254. Inconsistency between laws made by Parliament
and laws made by the Legislatures of States.- (1) If any
provision of a law made by the Legislature of a State is
repugnant to any provision of a law made by Par.liament
which Parliament is competent to enact, or to any provision
of an existing law with respect to one of the matters
enumerated in the Concurrent List, then, subject to the
provisions of clause (2), the law made by Parliament,
)
CENTRAL BANK OF INDIA v. STATE OF KERALA AND 755
ORS. [G.S. SINGHVI, J.]
.]
whether passed before or after the law made by the
A
Legislature of such State, or, as the case may be, the
existing law, shall prevail and the law made by the
Legislature of the State shall, to the extent of the
repugnancy, be void.
(2) Where a law made by the Legislature of a State with
B
respect to one of the matters enumerated in the
.
~
Concurrent List contains any provision repugnant to the
provisions of an earlier law made by Parliament or an
existing law with respect to that matter, then, the law so c
made by the Legislature of such State shall, if it has been
reserved for the consideration of the President and has
received his assent, prevail in that State:
Provided that nothing in this clause shall prevent
/1
Parliament from enacting at any time any law with respect
D
to the same matter including a law adding to, amending,
varying or repealing the law so made by the Legislature
of the State."
9. Article 254 was interpreted by the Constitution Bench
E
in Zaverbhai Amaidas v. State of Bombay [(1955) SCR 799)
in the context of challenge to Bombay Act No. 36/1947 on the
ground that the same is repugnant to Section 7(1) of the
'
Essential Supplies (Temporary Powers) Act, 1946. The
.J
Constitution Bench referred to the judgment in The Attorney
F
'·
General of Ontario v. The Attorney General for the Dominion
[1896 A.C.