# COLLECTOR OF AURANGABAD & ANR v. CJ<~NIRAL BANK OF INDIA & ANR

- **Citation:** [1967] 3 S.C.R. 855
- **Court:** Supreme Court of India
- **Decided:** 1967-05-02
- **Bench:** J. C. Shah, S. M. Sikri, V. R.Amaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/collector-of-aurangabad-anr-v-cj-niral-bank-of-india-anr-4031
- **Pages:** 9

## Headnote

Hyderubrul Land Revenue Act (8 of 1317F), ss. 104, 116 and 119Whether s. 119 applies to movable property in the custody and possession of the Court-Whether ta;fes due to Gove~nt have priority over
debts to others-Doctrine of "Priority of Crown debts" applicab//ily in
Hyderabad State before the Constitution came iltto force.
In execution of a decree obtained by the first respondent against the
second respondent, a firm in Aurangabad in the erstwhile Hyderabad
State, a holllle which was furnished as security for the amount of decree
which might be passed against the second respondent, Was sold and the
sale proceeds were deposited in the executing Court. Subsequently, the
Collector of Aurangabad made an order under s. 119 of the Hyderabad
Land Revenue Act, 1317F, distraining a part of the amount on account
Of arrears of sales-tax due from the second respondent.
On the question of the validity of the Collector's order, the High
Court held that the order was not valid because :
(I} s. 119 of the
Hyderabad Land Revenue Act applied only to property which was in
tho custody and possession of the judgment-debtor and not in the custody and possession of the court; (2) the debt due to the Government
in respect of arrears of sales-tax had no priority over the dues of tlie
first respondent; and (3) the first respondent as a decree-holder had a
prior charge; and the debt due to the Government in respect of salestax .:.n account of the quality of the debt due to the first respondent,
had no priority.
In appeal to this Court,
HELD : (I) The construction put by the High Court on s. 119
was not correct. The section in general terms empowers the distraint
and sale of the defaulter's movable property and there is nothing in its
language or context which prohibits tile Colldctor from making
an
order of distraint with regard to the movable property in the custody
and posses•ion of a court. [859 C-FJ
(2) But, a reading of ss. 104 and 116 of the
Hyderabad Land
Revenue Act, shows, that in respect of taxes other than Land revenue,
only the Procedure for recovery under s. 116 applies and not the substantive law of priority under s 104 of the Act; and therefore the Government had no prionty in re~pect of arrears of sales-tax over the dues
of the ft·rst respondent. [860 H-861 BJ
(3) The Government could claim priority regarding payment of sales-·
tax according to the doctrine of "Priority of Crown debts" quite apart
from the provisions of the Hyderabad Land Revenue Act, but there
was no proof that the doctrine was given judicial recognition in
the
Hyderabad State prior to January 26 1950 and therefore the doctrine
w.as not a "law in force" in that 'territory which was 'continued by
virtue of Art. 3720) of the Constitution. (862 H-863AJ
Builders Supply Corporation v. Union of India, .(1965] 2 S.C.R. 289;
56 I.T.R. 91 (S.C.) and Superintendent & Remembrancer of Legal Affairs,
L9Sup.CI/67-ll
·
856
SUPREMB COURT REPORT~
[1967) 3 S.C.R.
W•st Be11g<1/ v.
1'/ie
C01·porc11io11 of C<dc1111a
[1967]
2 S.C.R.
170
A
referred to.
CIVIL APPELLATE J UR!SOICTION : Civil Appeal No. 1128 of
1965.
Appeal by special leave from the judgment and order dated
December 17, 1962 of the Bombay High Court in Letters Patent
Appeal No. 29 of 1960.
· S. T. Desai, R. Ganapathy Iyer and S. P. Nayyar, for the
appellants.
Hans Raj Sawhney, P. C. Bhartari and 0. C. Mathur, for the
respondents.

## Text

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COLLECTOR OF AURANGABAD & ANR.
v.
CJ<~NIRAL BANK OF INDIA & ANR.
May 2, 1967
(J. C. SHAH, S. M. SIKRI AND V. R.AMASWAMI, JJ.]
Hyderubrul Land Revenue Act (8 of 1317F), ss. 104, 116 and 119Whether s. 119 applies to movable property in the custody and possession of the Court-Whether ta;fes due to Gove~nt have priority over
debts to others-Doctrine of "Priority of Crown debts" applicab//ily in
Hyderabad State before the Constitution came iltto force.
In execution of a decree obtained by the first respondent against the
second respondent, a firm in Aurangabad in the erstwhile Hyderabad
State, a holllle which was furnished as security for the amount of decree
which might be passed against the second respondent, Was sold and the
sale proceeds were deposited in the executing Court. Subsequently, the
Collector of Aurangabad made an order under s. 119 of the Hyderabad
Land Revenue Act, 1317F, distraining a part of the amount on account
Of arrears of sales-tax due from the second respondent.
On the question of the validity of the Collector's order, the High
Court held that the order was not valid because :
(I} s. 119 of the
Hyderabad Land Revenue Act applied only to property which was in
tho custody and possession of the judgment-debtor and not in the custody and possession of the court; (2) the debt due to the Government
in respect of arrears of sales-tax had no priority over the dues of tlie
first respondent; and (3) the first respondent as a decree-holder had a
prior charge; and the debt due to the Government in respect of salestax .:.n account of the quality of the debt due to the first respondent,
had no priority.
In appeal to this Court,
HELD : (I) The construction put by the High Court on s. 119
was not correct. The section in general terms empowers the distraint
and sale of the defaulter's movable property and there is nothing in its
language or context which prohibits tile Colldctor from making
an
order of distraint with regard to the movable property in the custody
and posses•ion of a court. [859 C-FJ
(2) But, a reading of ss. 104 and 116 of the
Hyderabad Land
Revenue Act, shows, that in respect of taxes other than Land revenue,
only the Procedure for recovery under s. 116 applies and not the substantive law of priority under s 104 of the Act; and therefore the Government had no prionty in re~pect of arrears of sales-tax over the dues
of the ft·rst respondent. [860 H-861 BJ
(3) The Government could claim priority regarding payment of sales-·
tax according to the doctrine of "Priority of Crown debts" quite apart
from the provisions of the Hyderabad Land Revenue Act, but there
was no proof that the doctrine was given judicial recognition in
the
Hyderabad State prior to January 26 1950 and therefore the doctrine
w.as not a "law in force" in that 'territory which was 'continued by
virtue of Art. 3720) of the Constitution. (862 H-863AJ
Builders Supply Corporation v. Union of India, .(1965] 2 S.C.R. 289;
56 I.T.R. 91 (S.C.) and Superintendent & Remembrancer of Legal Affairs,
L9Sup.CI/67-ll
·
856
SUPREMB COURT REPORT~
[1967) 3 S.C.R.
W•st Be11g<1/ v.
1'/ie
C01·porc11io11 of C<dc1111a
[1967]
2 S.C.R.
170
A
referred to.
CIVIL APPELLATE J UR!SOICTION : Civil Appeal No. 1128 of
1965.
Appeal by special leave from the judgment and order dated
December 17, 1962 of the Bombay High Court in Letters Patent
Appeal No. 29 of 1960.
· S. T. Desai, R. Ganapathy Iyer and S. P. Nayyar, for the
appellants.
Hans Raj Sawhney, P. C. Bhartari and 0. C. Mathur, for the
respondents.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the Bombay High Court dated December 17,
1962 in Letters Patent Appeal No. 29 of 1900.
Respondent No. 2, the firm of Chandmal Manmal was m·
debted to the 1st respondent, Central Bank of India, Aurangabad
branch.
On March 11, 1955 the first respondent filed a suit
being Civil Suit No. 28/l of 1955 against the second respondent
for recovering a sum of Rs. 14,541/· and odd in the Court of
Subordinate Judge at Aurangabad.
On the application of the
first respondent an order for interim injunction was passed in
respect of certain properties belonging to the second respondent.
The Court had ordered the second respondent to furnish secu<ity
for the amount of the decree which may be passed against the
firm in the suit. On April 28, 1955 Jogilal Mulchand, one of the
partners of the second respondent furnished security by creating
a charge on his immovable property, which was a house at
Aurangabad. After th~ security bond was furnished, the attachment was released. The security bond furnished by Jogilal Mulchand read as follows :
"I, the Defendant No. 2 therefore stand as a surety
and declare that . if the Hon'ble Court decides the suit
against the Defendants, he will abide by every order
passed by the Court and if he fails to do so, then I
defendant No. 2 stand as surety to the extent of
Rs. 20,000/- (Rupees Twenty thousand) in O.S. coins
and declare that I shall pay the amount of security into
Court and for fulfilling the same I create a charge on
my one pucca two storied house possessed by me known
as 'Chandi Posh' bearing No. 167 situate at Kasba and
Taluka Vijapur, District Aurangabad of the value of
Rs. 25,000/-............ If I fail to pay the amount
.of the security, the Court will.then be entitled to recover
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COLLECTOR v. CENTRAL BANK (Ramaswami, J.)
857
the amount of the security from the property hereby
charged ............ "
On April 30, 1955 the Subordinate Judge granted a decree
against the 2nd respondent for a sum of Rs. 14,541/· and odd.
The 1st respondent filed an application for execution of the decree
under s. 145 of the Civil Procedure Code. In the execution of
the decree the house which was charged under the security bond
was sold and one Girdhardas purchased it in auction sale which
was confirmed by the Court on Al/gust 14, 1958 and the sale
proceeds thereof were deposited by the said Girdhardas in the
executing Court.
On August 17, 1958 the Sales Tax Officer,
Aurangabad Circle wrote a letter to the District Judge,. Aurangabad pointing out that a sum of Rs. 9,672/ • and odd wa~ due to
the Government from the second respondent on account of
arrears of sales-tax for the years 1950-51 to 1955-56. On September 23, 1958 the District Judge sent a letter to the Subordinate
Judge asking him not to pay the sale proceeds of the house to the
decree holder I.e., the first respondent.
Subsequently, the Collector of Aurangabad made an order on November 20, 1958.
distraining the amount of Rs. 9,672/· out of the sale proceeds.
under s. 119 of the Hyderabad Land Revenue Act (Hyd. Act VIII
of 13 l 7F.). The order of the Collector stated as follows :
"Sanction is therefore accorded under Section 119
of Hyderabad Land Revenue Act to attach the amount
of Rs. 9,672-1-0 out of the sale proceeds realised from
the auction sale of the defaulter Shri Chandrnal's property and deposited with the Court of Sub-Judge,
Aurangabad, towards satisfaction of the Decree No.
28/1 of 1955 passed against Shri Chandmal Manmal.
The amount should be remitted to the Sales
Tax
Officer, Aurangabad."
Thereupon the 1st respondent made an application to the trial
court challenging the validity of the order of the Collector. The
Subor~inate ~udge held .that the Civil Court had no jurisdiction to
set aside, revise or modify the order of the Co!Tector and it could
be done only by the Superior Revenue Authorities. From the order
of. the ~ubordinate Judge. the I st respondent preferred an appeal
G
bemg First Appeal No. 341 of 1959 in the Bombay High Court.
The appeal was heard by Naik, J. who by his judoment dated
June 22, 1960 held that in view of the provisions c~ntained in
ss. I 04 .and 119 of the Hyderabad Land Revenue Act the Government was entitl.~d to priority for the arrears of sales,tax due
"
from the second respondent over the claim of the 1st respondent.
The. learned Judge ~ccordingly dismissed the First Appeal. From
the Judgment of Naik, J. the 1st respondent took the matter in
appeal under the Lett~rs Patent. A Division Bench consisting of
Patel and K. K. Desai, JJ. allowed the appeal by their judgment.
858
SUPREME COURT REPORTS
(1967] 3 S.C.R.
dated December 17, 1962 holding that s .. 119 of the Hyderabad
Land Revenue Act applied only to property which was in the
custody and possession of the judgment-debtor and not in the
custody or possession of a Court. It was. observed by the Division Bench that the provisions of the Hyderabad Land Revenue
Act contained in ss. 104, 116, 117 and 144 made it abundantly
clear that the priority applied only in respect of land revenue and
not in respect of other taxes. It was further held that the 1st
respondent as a decree-holder had a prior charge as the quality
of his debt was not the same as that of the debt due to the Government and therefore in respect of the sales-fax, the State had no
priority.
The first question to be considered in this appeal is whether
the order of distraint dated November 20, 1958 made by the
Collector of Aurangabad is legally valid. The order of the Collector was made under s. 13(2) of the Hyderabad General Sales
Tax Act read with ss. 1 i ·' -•ld 119 of the Hyderabad Land Revenue Act. Section 13 of the Hyderabad General Sales Tax Act
(Hyd. Act No. XIV of 1950) provides as follows :
"13. (1) The tax assessed under ibis Act shall be
paid in such manner, in such instalments, if any, and
within such time, not being less· than fifteen days from
the date of service of the notice of assessment, as may be
specified in such notice.
(2) In default of such payment, a penalty not ex-
~eding the tax remaining unpaid may be imposed and
the total amount due, including the penalty, if any, may
be recovered as if it were an arrear of land revenue."
Section 116 of the Hyderabad Land Revenue Act (Hyderabad Act
VIII of 1317 F) states:
"An arrear of land revenue may be recovered by the
following measures and as far as possible, the measures
shall be employed in the order.mentioned below:-
(a) by issuing a notice to the defaulter under section 118;
(b) by distraint and sale of the defaulter's movable
property under section 119;
( c) by distraint and sale of the defaulter's immovable property under section 120;
( d) by arrest and detention of the defaulter under
section 122;
( e) by forfeiture of the right of occupancy. in respect of which the arrear is due under section 124;
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C:OI.LECTOR v. CENTRAL BANK (Ramaswami, l.)
859
(f) by temporary attachment of a non-khalsa village
or part of such village in respect of which the
arrear is due under section 125."
Section 119 of the same Act is to the following effect :
"The Tahsildar may distrain and sell the defaulter's
movable property. Such distraint shall be made by
officers or clerks appointed by him for this work."
The High Court has taken lhe view that s. 119 can only apply to
property which is in the custody and possession of the judgmentdebtor and not in the custody and possession of a Court. In our
opinion, the construction put by the High Court on the language
of s. 119 of the Hyderabad Land Revenue Act is not correct and
is not warranted by the languaiie of the section or the context
in which it is placed. The section empowers the Tahsildar to
"distrain and sell the defaulter's movable property" and such
distraint shall be made by officers or clerks appointed by him for
this work.
The language of the section is general and there is
no reason why any restriction should be put on the power of
distraint conferred upon the Tahsildar with regard to the defaulter's movable property.
In the present case, the Collector of
Aurangabad sent ,the order of distraint to the Subordinate Judge
requesting him to remit to the Sales Tax Officer the amount of
Rs. 9,672/· out of the amount of sale proceeds dep(Jsited in his
Court. We are of the opinion that the procedure followed by the
Collector is justified by the provision of s. 119 and there is
nothing in the language or context of the section which prohibit>
the Collector from making an order of distraint with regard to
the movable property in !he custody and possession of a Court.
We accordingly reject the argument of respondent No. 1 on this
aspect of the case.
We proceed to consider the next question arising in this
appeal, viz., whether the debt due to the Government in respect
of arrears of sales-tax has priority over the dues of respondent
No. I. It appears that the sales-tax was due for the years 195051 to 1955-56, i.e., for a period of six years. It was submitted on
behalf .of the appellants that since s. 13(2) of the Hyderabad
General Sales Tax Act makes a provision for recovery of the
sales-tax due as "arrears of land revenue" and since priority as
to the land revenue is provided under the Hyderabad Land
Revenue Act, the arrears of sales-tax also must be granted priority
over other demands whether in respect of debts or mortgage or
based on a decree or attachment of a Court. The argument of
the appellants is based upon ss. 104, 116, 119 and 144 of the
Hyderabad Land Revenue· Act. Section 104 provides as follows
860
SUPREME COURT REPORTS
[1967] 3 s.c.R.
"The demand on any land, for its land revenue shall
Ii.
have priority over other demands whether in respect of
debts or mortgage or based on a decree of or attachment by a Court, and if the title to any land on which
such Government demand is due is transferred, such
land or its transferer shall not be discharged from such
demand. If the demand for land revenue which cannot
B
be recovered from the title to or existing produce of
that land is due from a person, the liability for the payment of the land revenue shall have precedence over
debt or decree of a Court also on his property other than
_the land on which the demand is due; provided that
such property before it is forfeited for recovery of the
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said demand, is not sold or mortgaged or given as a gift
or otherwise transferred or hypothecated or attached."
Section 144 is to the following effect :
"All the Government sums under the following heads may
be recovered under the provisions of this Chapter :
(1) Land revenue.
(2) Quit-rent.
(3) Nazrana.
( 4) Peshkesh.
(5) Taxes.
( 6) Local cess.
( 7 ) Fine and penalties.
( 8) Income from lands.
(9) Rusum.
( 10) Fees.
( 11) Charges.
(12) Penal interest.
(13) Lease money.
(14) Moneys recoverable from sureties.
( 15) Taccavi loans.
(16) All sums in respects of which provision has been
made in this Act or in any ~ther Act that they
be recovered as arrears of land revenue."
Section 144 enumerates the nature of taxes in respect of which
the provision under the Land Revenue Act could be adopted for
recovery. But the language of s. 104 makes it clear that the
priority specified in that section applies only in respect of land
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COLLECTOR \'. CENTRAL BANK (Ramas1rami, J.)
8 61
revenue and not in respect of other taxes.
In respect of other
taxes, we consider that only the procedure for recovery under s.
116 applies and not the substantive' Jaw of priority under s. 104 of
the Land Revenue Act. In our opinion, Counsel for the appellants has not been able to make good his argument on this aspect
of the case.
We pass on to consider the next question arising in this case,
namely, whether the appellants are entitled to claim priority towards payment of sales-tax according to the Common Law
<loctrine of 'Priority of Crown debts' quite apart from the provisions of the Hyderabad Land Revenue Act. The Common Law
doctrine was evolved in the English Law as part of the Crown
prerogative which is described by Halsbury• as follows :-
"The royal prerogative may be defined as being that
pre-eminence which the Sovereign enjoys over and
above all other persons by virtue of the common law,
but out of its orc;nary course, in right of her regal
dignity, and comprehends all
the
special dignities,
liberties, privileges, powers and royalties allowed by the
common law to the Crown of England."
The question about the applicability of the priority of Crown debts
was considered by the Bombay High Court in 1868 in Secretary
of State in Council for India v. Bombay Landing & Shipping Co.
Limited('), in which it was held that a judgment debt
due to the Crown was in Bombay entitled to the same precedence in execution as a like judgment debt in England, if there
is no special legislative provision affecting that right in the particular case. The same vi.ew has been taken by the Bombay High
Court in a later case-Bank of India v. l<>hn Bowman(2)-in
which Chagla, C.J., pointed out that the prior~ty given to the
Crown was not on the basis of its debt being a judgment-debt or
a debt arising out of statute, but the principle was that if the debts
were of eq,ual. degree and the Crown .and the subject were equal,
the Cr<;>wn s nght would prevail over that of the subject. The
same View has been adopted by a Full Bench of the Madras High
~ourt. in !Janickam Chettiar v. Income-tax Officer, Madura('),
m. which It was held that the income-tax debt had priority over
pnvate debts and the court had inherent power to make an order
for payment of moneys due to the Crown. A similar view has
been expressed by the High Court in Kaka Mohamed Ghouse
Sahib ~ Co. v. United Commercial Syndicate('). All these
:uthontJes have been quoted with approval by this Court in
(•) Halsbury's Laws of England, 3rd Edn., Vol. 7, page 221.
(1) (1868-69) 5 Born. H.C.R. 23
(2) A.I.R. 1955 Born. 305.
(3) (1938) 61.T.R. 180.
(4) 491.T.R. 824.
8G2
SUPREME COURT REPORTS
[1967) 3 S.C.R.
Builders Supply Corporation v. Union of India('), in which it
was held that the Government of India was entitled to claim
priority for arrears of income-tax due to it from a citizen over
debts from him to uns.ecured creditors and that the English common law doctrine of the priority of Crown debts has been given
judicial recognition in the territory known as "Btitish India" prior
to 1950 in regard to the recovery of tax dues in priority to other
private debts of the tax-payer.
It was pointed out therefore that
the English Common Law doctrine having been incorporated into
Indian law, was a 'law in force' in the territory of India, and, by
virtue of Art. 372 (1) of the Constitution of India, it continued
to be in force in India until it was validly altered, repealed or
amended. It was, however, argued tor the respondents that the
authority of the decision of this Court in Builders Supply
Corporation v. Union of India(') has been affected to some extent
by the later decision of a larger Bench of this Court in The Super·
intendent & Remembrancer of Legal Affairs, West Bengal v. The
Corporation of Calcutta,('), in which it was held that the rule of
English Common law that the State was not bound by the provisions of a statute unfess it was expressly named or brought in by
necessary implication, was ·not accepted as a rule of construction
throughout India and therefore . it has
not become law of
the land. It was further held that even on the assumption that
it was accepted as a rule of construction throughout India, it was
only a rule of construction and not a rule of substantive law and
therefore cannot be said to be "a law in force" within the meaning
of Art. 372. Lastly, this Court expressed the view that the rule of
construction
was
incongruous
in
a
democratic
republic
and it was inconsistent with the rule of law based on tl1e
doctrine of equality and therefore the said canon of ·construction should not be applied for construing statutes in India.
Tn our opinion, there is nothing in this judgment which affects the
authority of the previous decision of this Court in Builders Supply Corporation v. Union of India(').
On the other hand, the
majority judgment of the learned Chief Justice has referred to the
decision in H. Snowden Marshall v. People of the State of New
York(') which lays down a similar doctrine, namely, that the
State of New York has the common law prerogative right of
priority over unsecured creditors, and distinguished the case on
the ground that it had nothing to do with the
ru~e of
construction but was based upon the common law prerogative of
the Crown.
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We are, however, unable to apply the English Common La~v
doctrine of priority of Crown debts in this case, because there is
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no proof that the doctrine was given judicial recognition in the
(I) 561. T. R. 91
(2) [1967] 2 S.C.R. J7,).
(3) (1920) 65 Law.Ed. 315.
I
COLLECTOR v. CENTRAL BANK (Ramaswami, J.)
863
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territory of Hyderabad State prior to January 26, 1950 when the
Constitution was brought into force. We granted time to Counsel
for the appellants to ascertain whether there were any reported
decisions recognising such a doctrine in the Hyderabad State, but
sufficient material has not been placed before us fo. this case to
show that the doctrine was given judicial recognition in the HyderB
abad State before its incorporation into the Indian Republic.
For these reasons we hold that the judgment of the Bombay
High Court dated December 17, 1962 m Letters Patent Appeal
No. 29 of 1960 must be affirmed and this appeal must be dismissed with costs.
C
V.P.S.
Appeal dismissed.