Holding

A secured debt created under the State Financial Corporation Act, 1951, being a statutory first charge, prevails over the Crown debt of central excise dues, which is an unsecured claim.

Summary

The Union of India and other appellants sought to recover central excise dues from SICOM Ltd., which had defaulted on a loan secured by a mortgage under the State Financial Corporation Act, 1951. The State Financial Corporation had taken possession of the mortgaged assets and claimed a first charge over them. The appellants argued that Crown debt, i.e., tax arrears, enjoys priority over all other debts. The Supreme Court held that the Crown debt principle applies only to unsecured creditors; a secured debt created by a statutory first charge under the 1951 Act prevails over the central excise claim. The Court emphasized the non‑obstante clause in Section 468 of the 1951 Act and the constitutional supremacy of statutory provisions over common‑law Crown‑debt rules. Consequently, the appeal was dismissed, upholding the High Court’s decision in favour of the State Financial Corporation.

Issues considered

Whether the central excise dues under the Central Excise Act, 1944 have priority over secured debts created under the State Financial Corporation Act, 1951.
Whether the common‑law doctrine of Crown debt gives priority to tax arrears over a statutory first‑charge mortgage.
Interpretation and effect of the non‑obstante clause in Section 468 of the State Financial Corporation Act, 1951.
Application of Articles 13 and 372 of the Constitution to the conflict between common law and statutory provisions.

Legislation cited

Central Excise Act, 1944s. 11
Companies Act, 1956s. 529A
Maharashtra Land Revenue Code, 1966s. 151
State Financial Corporation Act, 1951s. 27, s. 29, s. 30, s. 31, s. 32A, s. 32B, s. 32C, s. 32D, s. 32E, s. 32F, s. 41, s. 41A, s. 46, s. 468

Subjects

crown debtsecured debtpriority of debtsnon obstante clauseArticle 372Article 13mortgageattachmentstatutory priorityinterpretation of statutes

Judgment

[2008] 17 S.C.R. 120

A UNION OF INDIA & ORS.
~.
v.
SICOM LTD. & ANR.
(Civil Appeal No. 7128 of 2008)
DECEMBER 5, 2008
B
[S.B. SINHA AND CYRIAC -JOSEPH, JJ.]

State Financial Corporation Act, 1951 - s.468 -
Secured debts under the Act - Recovery of - Held: Would
C have precedence over the central excise dues - Central
Excise Act, 1944 - s. 11 - Interpretation of statutes - Non-
r
obstante clause in a statute - Interpretation of.

Constitution of India, 1950- Articles 13, 372 - Common
o law principle of crown debt - Applicability of- Held: Common
law which is a law within the meaning of Article 13 of
Constitution is saved in terms of Article 372'- However, when
Parliament or State Legislature makes an enactment, same
would prevail over common lal!J- State Financial Corporation
E Act, 1951.

Words and phrases: Crown debt - Meaning of.

Respondent no.2 borrowed a sum of Rs.51 lakhs
from respondent no.1-Corporation by an indenture of
F mortgage. The mortgage created under the said
document was governed by the State Financial
Corporation Act, 1951. Respondent no.2 committed
defaults in repayment of the principal amount of loan and
interest accrued thereon. Respondent no.1-Corporation
G invoked Section 29 of the 1951 Act and took over the
physical possession of the mortgaged assets.
Respondent no.2 also owed central excise dues payable >-
to the appellant and the latter in order to recover the
central excise dues from respondent no.2 sought to
H 120
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 121

attach and seize its properties. Respondent no.1 filed writ A
petition. The High Court held in favour of respondent
no.1.

In the instant appeals, it was contended for the
appellant-Union of India that the crown debt and, in B
particular, arrears of tax would have priority over all other
debts.

The question for consideration before the Court
was: Whether realization of the duty under the Central
Excise Act will have priority over the secured debts in c
terms of the State Financial Corporation Act, 1951.

Dismissing the appeals, the Court

HELD: 1. Generally, the rights of the Crown to recover
D
the debt would prevail over the right of a subject. Crown
. debt means the debts due to the State or the king; debts
j._ which a prerogative entitles the Crown to claim priority
before all other creditors. Such creditors, however, must
be held to mean unsecured creditors. Principle of Crown
debt as such pertains to the common law principle. A E
common law which is a law within the meaning of Article
13 of the Constitution is saved in terms of Article 372
thereof. A debt which is secured or which by reason of
the provisions of a statute becomes the first charge over
the property having regard to the plain meaning of Article F
1
372 of the Constitution of India must be held to prevail
over the Crown debt which is an unsecured one. It is trite
that when a Parliament or State Legislature makes an
enactment, the same would prevail over the common law.
Thus, the common law principle which was existing on G
the date of coming into force of the Constitution of India
must yield to a statutory provision. To achieve the same
' purpose, the Parliament as also the State Legislatures
inserted provisions in various statutes, providing that the
statutory dues shall be the first charge over the H
122 . SUPREME COURT REPORTS [2008] 17 S.C.R.

A properties of ·the tax-payer. [Paras 7 and 8] [1.27-B;.O, G-
~ . ~

. Macson Marbles Pvt. Ltd. v~ Union of India (2003) 158
ELT 424 (SC), distinguished
B Mis. ,Builders Supply Corporation v. The Union of ·India
& Ors. AIR(1965) SC 1061; Superintendent and
Remembrancer of Legal Affairs, West· Bengal v. Corporation
of Calcutta AIR (1967) SC 997; Bank of. Bihar v. State of
Bihar & Ors. AIR (1971) SC 1210; Revathinna/Balagopa/a
c Varma v. His Highness Sri Padmanabhadasa Vaima(since
deceased) & Ors. (1991) 2 SCALE 1142; Dena Bank v.
· Bhikhabhai Prabhudas Parekh & Co. & Ors. (2000) 5 SCC
694; ·Sitani Taxtiles & Fabrics (P) Ltd, v. Asstt. Commissioner
of Customs& Central Excise,.Hyderabad-1(1999)106 ELT
0 · 296.; (AP); Bank of/ndia v. Siriguppa Sugars & Cheimicals
Ltd. (2007) 8 SCC 353; State Bank of Bikaner & Jaipur v.
National Iron & Steel Rolling Corporation & Ors. (1995) 2 )-

SCC 19; KSllDC Ltd. v. Secretary, Ministry of Commerce -t

(2005)187 ELT 12 (Kar); /CIC/ Bank Ltd.(Since substituted· ·
E by Standard Chartered Bank) V. SIDCO LeathersLtd: & Ors. ·
(2006) 10 SCC 452 and Ms. Sunita Rao.on Union of India V;
Somasundram Mi/is (P) Ltd. &Anr. (1985) 2 SCC 40~ refetred
to.
· Advanced Law Lexicon by P. Ramanatha Aiyear (3rd
F Edn.) J>~ 1147, referred to. •.. ·· ....
2/The High Court. upon considetatiorl of a large• .
. number .of decisions rightly opined th~t despite 't~e fact.
th~t the c'entral Excise dues were recoverable as land
revenue in- terms of Rule 213(2) of the Central Excise
G Rules read with Section 32(g) and Section 151 of the
Maharashtra Land Revenue Code, 1966, the same by
.L
itself would not mea·n that a first charge of respondent
no.1.:c6rporation wo.uid give way thereto. A bare perusal
of the Section 11 of Central Excise Act, 19-44 would show
H that the right to recover must start with J~~ sale of
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 123

excisable goods. It is only when the dues of the Central A
' ..,..... Excise Department are not satisfied by sale of such
excisable goods, proceedings may be initiated to recover
the dues as land revenue. Furthermore, the right of a State
Financial Corporation is a statutory one. The Act contains
a non- obstante clause in Section 468 of the Act. The B
non-obstante clause shall not only prevail over the
contract but also other laws. [Paras 4, 22, 26, 27] [125-F;
. 137-C-D; 138-F; 139-A-B]
"
Periyar & Pareekanni Rubber Ltd. v. State of Kera/a
(2008) 4 SCALE 125, relied on.
c
lit" Suburban Ply & Panels Pvt. Ltd. v. Assistant
Commissioner ofCentral Excise & Customs, BBSR (2002)
144 ELT 257 (Ori), referred to.
D
Case Law Reference:

...... (2003) 158 ELT 424 (SC) distinguished Para 5
AIR (1965) SC 1061 referred to Para 9
AIR (1967) SC 997 referred to Para 9 E
AIR (1971) SC 1210 referred to Para 10
(1991) 2 SCALE 1142 referred to Para 10
(2000) 5 sec 694 referred to Para 11
F
~
~ (1999) 106 ELT 296 (AP) referred to Para 13
(2001) 8 sec 353 referred to Para 14
(1995) 2 sec 19 referred to Para 15
G
(2005)187 ELT 12 (Kar) referred to Para 16
(2006) 1o sec 452 referred to Para 17
(1985) 2 sec 40 referred to· Para 18
(2002) 144 EL T 257 (Ori) referred to Para 23 H

_,
124 SUPREME COURT REPORTS [2008) 17 S.C.R.

A (2008) 4 SCALE 125 relied on Para 27

CIVIL APPELLATE JURISDICTION Civil Appeal
No.7128 of 2008.

From the Judgment and final Order dated 10.4.2007 of the
B High Court of Bombay Bench at Aurangabad in W.P. No. 6092
of 2004.

B. Sunita Rao and B. Krishna Prasad for the Appellants. }

C Shekhar Naphade, Jay Savta, Reena Bagga for the
Respondents.

· The Judgment of the Court was delivered by

S.B. SINHA, J. 1. Leave granted.
D 2. Whether realization of the duty under the Central Excise
Act will have priority over the secured debts in terms of the State
Financial Corporation Act, 1951 (1951 Act) is the core question
involved herein.

E 3. Respondent No.2 borrowed a sum of Rs.51,00,000/-
from the first respondent by an Indenture of Mortgage executed ~ -

';
on 22.12.1986. Indisputably, the mortgage created under the
said document is governed by the provisions of the 1951 Act.
It also owed a sum of Rs.19,00,000/- by way of Central Excise
F duty for the period April 1983 to May 1988. Assessment of
central excise duty for the said sum was confirmed.

Indisputably the provisions of Sections 27, 29, 30, 31, 32A
to 32F, 41 and 41A of the 1951 Act have been extended in
favour of the respondent by the Government of India in exercise
G of its power conferred upon it under sub-section (1) of Section
46 of the said Act by issuing an appropriate notification.

Respondent No.2 having committed defaults in repayment
of the principal amount of loan as also the interest accrued
H thereon, the first respondent invoked Section 29 of the 1951

..
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 125
... [S.B. SINHA, J.]

Act by issuing notice to take possession of the said securities. A
Actual physical possession of the mortgaged assets was taken
over. Respondent No.2, however, continued to commit defaults
as a result whereof the first respondent recalled the entire
amount of loan wherefor a notice dated 19th March, 1996 was
served. B

Respondent No.2 owed a sum of Rs.48,08,242/- to the
, appellant. It expressed its intention to attach and seize its
'>,,
properties. First Respondent, however, by its letter dated
11.11.1996 informed them that they had the first charge of the
said properties which are mortgaged in their favour. Despite
c
the same, the appellant expressed intention to proceed to
recover the amount from the said properties. First Respondent,
by its letters dated 21.7.2000 and 22.8.2000 followed by a
lawyer's notice, called upon the appellants to desist from taking
any action against their securities and to remove their seal, if D
any, from the properties of the borrower. As the appellant did
not respond thereto, a writ petition was filed. The principal
question which, as noticed hereinbefore, arose for
consideration before the High Court was as to whether dues
of the first respondent-corporation will have priority over the E
Central Excise dues.

4. The High Court, upon consideration of a large number
of decisions opined that despite the fact that the dues of the
appellant were recoverable as land revenue in terms of Rule F
213(2) of the Central Excise Rules read with Section 32(g) and
'
~-

Section 151 of the Maharashtra Land Revenue Code, 1966,
the same by itself would not mean that a first charge of the
appellant-corporation would give way thereto. It was held :

"30. Turning to provisions of Section 169 of the Code, sub- G
section (1) provides that the arrears of land revenue due
on account of land shall be paramount charge on the land
and every part thereof and shall have precedence over any
- other debt demand or claim whatsoever, whether in
respect of mortgage,_ judgment-decree, execution or H
126 SUPREME COURT REPORTS [2008] 17 S.C.R.

A attachment, or otherwise however, against any land or the
holder thereof, sub-section (2) provides thatclaim of the
State Government to any monies other than arrears of land,
revenue but recoverable as a revenue demand under
Chapter II shall have priority over all unsecured claims
against any land or holder thereof.

31. It is thus clear that the arrears of land revenue dues on
account of land shall be paramount charge on the land or
every part thereof. Those will have precedence over any
other dues, debts, demands, or claim. But other claims of
c the State Government which are recoverable as arrears of
land revenue get priority over all unsecured claims against
any land of holder. In the case of secured loa'n· of the
Government and other creditors, priority will depend upon ·
precedence of such loan, it is thus clear that security of the
D Corporation being prior in point of time, it being in the
nature of mortgage of priority, the dues claimed by
Corporation will have priority over the dues of Customs."

5. Ms. Sunita Rao, learned counsel appearing on behalf
E of the appellant, would submit that the crown debt and, in
particular, arrears of tax will have a priority over all other debts
and in that view of the matter, the impugned judgment is wholly
unsustainable. Strong reliance has been placed in this behalf
upon a decision of this Court in Macson Marbles Pvt. Ltd. v.
F Union of/ndia [2003 (158) ELT 424 (SC)].

6. Mr. Shekhar Naphade, Learned senior counsel
appearing on behalf of the respondent, on the other hand,
submitted that principle that a crown debt prevails over other
debts is confined only to the unsecured ones as secured debts
G will always prevail over a crown debt Our attention in this behalf
has been drawn to the non obstante clause contained in
Section 56 of the 1951 Act. It was furthermore contended that
for the self-same reason Section 529A in the Companies Act
was inserted in terms by way of special provisions creating
H charge over the property and some of the State Governments
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 127
[S.S. SINHA, J.]

also amended their Sales Tax Laws incorporating such a A
provision. The Central Government also with that view, amended
the Employees Provident Fund and (Miscellaneous) Provisions
Act, 1952 and Employees State Insurance Act, 1948.

7. The learned counsel appears to be right. 8
Generally, the rights of the crown to recover the debt would
prevail over the right of a subject. Crown debt means the debts
,
'>.. due to the State or the king; debts which a prerogative entitles
the Crown to claim priority for before all other creditors. [See
Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) c
p. 1147]. Such creditors, however, must be held to mean
-.Ir
unsecured creditors. Principle of Crown debt as such pertains
to the common law principle. A common law which is a law
within the meaning of Article 13 of the Constitution is saved in
terms of Article 372 thereof. Those principles of common law,
·•
·o
thus, which were existing at the time of coming into force of the
Constitution of India are saved by reason of the aforementioned
~-
provision. A debt which is secured or which by reason of the
provisions of a statute becomes the first charge over the
property having regard to the plain meaning of Article 372 of E
the Constitution of India must be held to prevail over the Crown
debt which is an unsecured one. It is trite that when a Parliament
or State Legislature makes an enactment, the same would
prevail over the common law.
F
Thus, the common law principle which was existing on the
'
·'-'·
date of coming into force of the Constitution of India must yield
to a statutory provision.

8. To achieve the same purpose, the Parliament as also
the State Legislatures inserted provisions in various statutes, G
some of which have been referred to hereinbefore providing
that the statutory dues shall be the first charge over the
properties of the tax-payer. This aspect of the matter has been
considered by this Court in a series of judgments.
H
128 SUPREME COURT REPORTS [2008] 17 S.C.R.

A 9. In Mis. Builders Supply Corporation v. The Union of
India & Ors. [AIR 1965 SC 1061), this Court construing Section ~
46(2) of the Income Tax Act, 1922 which enabled the Income
Tax Officer to forward to the Collector a certificate specifying
the amount of arrears due from an assessee and requiring the
B Collector, on receipt of such certificate, to proceed to recover
from the assessee in question the amount specified as if it were
an arrear of land revenue, held :

"Section 46(2) does not deal with the doctrine of the priority
of Crown debts at all; it merely provides for the recovery
c of the arrears of tax due from an assessee as it were an
arrear of land revenue. This provision cannot be said to
convert arrears of tax into arrears of land revenue either;
all that it purports to do is to indicate that after receiving
the certificate from the Income-tax Officer, the Collector has
D to proceed to recover the arrears in question as if the said
arrears were arrears of land revenue. We have already
seen that other alternative remedies for the recovery of
arrears of land revenue are prescribed by sub-section (3)
and (5) of section 46. In making a provision for recovery
E of arrears of tax, it cannot be said that section 46 deals
with or provides for the principal of priority of tax dues at
all; and so, it is impossible to accede to the argument that
section 46 in terms displaces the application of the said
doctrine in the present proceedings."
F
{See also Superintendent and Remembrancer of Legal _,._
Affairs, West Bengal v. Corporation of Calcutta [AIR 1967 SC
'
997)}

10. Yet again in Bank of Bihar v. State of Bihar & Ors. [AIR
G 1971 SC 1210), it was laid down :

"4. Now it is common ground that the plaintiff (which is the
appellant before us) held the sugarwhich·was seized fr~m
its custody as security for payment of the debts or
H advances made to Defendant 2 in its cash credit account.
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 129
[S.B. SINHA, J.]

There were arrears of certain cess due from Defendant 2. A
As stated before, the Cane Commissioner took
proceedings under the Public Demands Recovery Act and
attached the price of the sugar which had been deposited
by the appropriate authorities in the Government Treasury
instead of being paid to the plaintiff. The Cane B
Commissioner indisputably did not have any right of priority
over the other creditors of Defendant 2 and, in particular,
the secured creditors. Section 172 of the Contract Act
defines a pledge to mean the bailment of goods as
security for payment of debt or performance of a promise." c
{See also Revathinnal Balagopala Varma v. His
Highness Sri Padmanabhadasa Varma (since
deceased) & Ors. [1991 (2) SCALE 1142]}.

11. These aspects of the matter, however, have been D
considered at some length by a Three Judge Bench of this
Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.
& Ors. ((2000) 5 SCC 694). Dealing extensively with the
doctrine of priority to Crown Debts, it was held:
E
"7. What is the common law doctrine of priority or
precedence of Crown debts? Halsbury, dealing with
general rights of the Crown in relation to property, states
that where the Crown's right and that of a subject meet at
one and the same time, that of the Crown is in general
F
preferred, the rule being "detur digniori" (Laws of England,
4th Edn., Vol. 8, para 1076, at p. 666). Herbert Broom
states:

"Quando jus domini regis et subditi concurrunt jus regis
praeferri debet.-Where the title of the king and the title of G
a subject concur, the king's title must be preferred. In this
case detur digniori is the rule .... where the titles of the king
and of a subject concur, the king takes the whole .... where
the king's title and that of a subject concur, or are in conflict,
the king's title is to be preferred." (Legal Maxims, 10th H
130 SUPREME COURT REPORTS [2008] 17 S.C.R.
e
,.-

A Edn., pp. 35-36)
~
This common law doctrine of priority of State's debts has
been recognised by the High Courts of India as applicable
in British India before 1950 and hence the doctrine has .
been treated as "law in force" within the meaning of Article
B
372( 1) of Constitution."

12. It was, furthermore, observed :
:j
"10. However, the Crown's preferential right to recovery of
c ~ebts over other creditors is confined to ordinary or
unsecured creditors. The common law of England or the
principles of equity and good conscience (as applicable
to India) do not accord the Crown a preferential right for
recovery of its debts over a mortgagee or pledgee of
D goods or a secured creditor. It is only in cases where the
Crown's right and that of the subject meet at one .and the
same time that the Crown is in general preferred. Where
the right of the subject is complete and perfect before that ..,>-
of the King commences, the rule does not apply, for there
is no point of time at which the two rights are at conflict,
E
nor can there be a question which of the two ought to
prevail in a case where one, that of the subject, has
prevailed already. In Giles v. Grover it has been held that
the Crown has no precedence over a pledgee of goods.
In Bank of Bihar v. State of Bihar the principle has been
F
recognised by this Court holding that the rights of the
pawnee who has parted with money in favour of the -~-
pawnor on the security of the goods cannot be
extinguished even by lawful seizure of goods by making
money available to other creditors of the pawnor without ,
G the claim of the pawnee being first fully satisfied.
Rashbehary Ghose states in Law of Mortgage (Tll, 7th
Edn., p. 386)'..;,. "It seems a government debt in India is not ~":'---

entitled to precedence over a prior secured debt.!'

H 13. The principles enunciated therein have been reiterated
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. . 131
[S.B. SINHA, J.]

by the Andhra Pradesh High Court in Sitani Taxtiles & Fabrics A
(P) Ltd. v. Asstt. Commissioner of Customs & Central Excise,
Hyderabad-I [1999 (106) ELT 296 (AP)] where the applicability
of the provisions of the 1951 Act vis-a-vis the Central Excise
dues were in question holding:
B
"22. From the above it follows: That in the case of a pledge,
pawnee has special property and lien which is not of an
ordinary nature on the goods and so long as his claim is
\_ not satisfied no other creditor of the pawnor has any right
to take away goods or its price. The right of a pawnee
could not be extinguished by the subsequent attachment/
c
seizure of the goods under any other law. It gives the
Pawnee a primary right to sell the goods in satisfaction of
the liability of the pawner. An unsecured creditor could not
have any higher rights than the pawner and was entitled
only to the surplus money after satisfaction of the secured D
creditor's dues."

"Xi- 14. The principles laid down in Dena Bank were reiterated
recently in Bank of India v. Siriguppa Sugars & Cheimicals
Ltd. [(2007) 8 sec 353] wherein it was held: E
"There is no dispute that the sugar was pledged with the
appellant Bank for securing a loan of the first respondent
and the loan had not been repaid. The goods were forcibly
taken possession of at the instance of the revenue
recovery authority from the custody of the pawnee, the F
,_ appellant bank. In view of the fact that the goods were
validly pawned to the appellant bank, the rights of the
appellant bank as pawnee cannot be affected by the
orders of the Cane Commissioner or the demands made
by him or the demands made on behalf of the workmen. G
Both the Cane Commissioner and the workmen in the
absence of a liquidation, under Section 529 and 529-A of
··J.c
the Companies Act, 1956, stand only as unsecured creditor
and their rights cannot prevail over the rights of the pawnee
of the goods. Thus, the rights of the appellant bank over H
132 . SUPREME COURT REPORTS [2008) 17 S.C.R.

A the pawned sugar had precedence over the claims of the
Cane Commissioner and that of the workmen." ·-~

15.This Court also in State Bank of Bikaner & Jaipur v.
National Iron &Steel Rolling Corporation &Ors. [(1995) 2 SCC
19], stated the law thus:
B
"6. The claim of the Commercial Taxes Officer,
Bharatpur rests on the provisi~ns of Section 11-
AAAA of the Rajasthan Sale~ Tax Act, 1954. 7-
Section 11-AAAA has been introduced in the
c Rajasthan Sales Tax Act, 1954 by way of an
amendment in 1989. Section 11-AAAA is as
follows:

"11-AAAA. Liability under this Act to be the first
D charge.- Notwithstanding anything to the contrary
contained in any law for the time being in force, any
amount of tax, penalty, interest and any other sum,
if any, payable by a dealer or any other person
under this Act, shall be the first charge on the
property of the dealer, or such person."
E
Under this section the amount of sales tax or any other sum
due and payable· by a dealer or any other person under
the Rajasthan Sales Tax Act, 1954, is a first charge on the .'
property of the dealer or of such person. It is on account
F of the provisions of this section that the Commercial Taxes ;t

Officer claimed priority for the recovery of the sales tax
dues from the sale proceeds of the mortgaged property. ---
The appellant, however, contended that since the mortgage
in their favour is prior in point of time, their claim will have
G precedence over the claim of the sales tax authorities."

16. If a company had a subsisting interest despite a lawful
seizure, there cannot be any doubt whatsoever that a charge I -..1;-

mortgage over immoveable property will have the same
~
consequence.
H
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 133
[S.B. SINHA, J.]

{See also KS/JDC Ltd. v. Secretary, Ministry of A
Commerce [2005 (187) ELT 12 (Kar)]}.
,,. 17. In /CIC/ Bank Ltd. (Since substituted by Standard
Chartered Bank) V. S/DCO Leathers Ltd. & Ors. [(2006) 10
SCC 452), this Court held as under: B
"48. Section 9 of the Companies Act only states that
provisions thereof would override the memorandum or
"'-;_ articles of association of the company or any other
agreement executed or resolution passed by the company.
There does not exist any provision in the Companies Act c
which provides that the provisions of Section 48 of the
Transfer of Property Act would not be applicable in relation
to the affairs of a company. Unless, expressly or by
necessary implication, such a provision contrary to or
inconsistent therewith carrying a different intent can be D
found in the Companies Act, Section 48 of the Transfer of
::.p
Property Act, cannot be held to be inapplicable.

49. Section 48 of the Transfer of Property Act reads as
under:
E
"48. Priority of rights created by transfer.-Where a
person purports to create by transfer at different
~
;
times rights in or over the same immovable
property, and such rights cannot all exist or be·
exercised to their full extent together, each later F
'l
·~- created right shall, in the absence of a special
contract or reservation binding the earlier
transferees, be subject to the rights previously
created."
G
50. The said provision, as noticed hereinbefore, deals with
a specific situation. The exceptions to the provisions of
"r Section 48 are as under:
~,_
(i) where parties execute a registered deed at any
H
134 SUPREME COURT REPORTS [2008] 17 S.C.R.
e
A point in time which is subsequent to a prior but an
unregistered deed. This is also subject to the -~

doctrine of notice i.e. that parties to the registered ~

deed executed after the unregistered deed did not
have notice of the same;
B
(ii) where there are exceptions carved out by a
statute-for example, Section 98 of the Bengal
Tenancy Act;
:)
(iii) a mortgage executed on the directions of the
c court to preserve a property;

(iv) where a "salvage lien" is created i.e. where lien
is created for moneys advanced for the purposes
of saving the property from destruction or forfeiture.
D The salvage lien is confined in English law to
maritime lien."

18. Strong reliance, however, has been placed by Ms.
Sunita Rao on Union of India v. Somasundram Mills (P) Ltd.
& Anr. [(1985) 2 SCC 40] wherein this Court while construing
E the· provisions of sub-section (2) and (3) of Section 73 of the
Code of Civil Procedure, held as under :

"It is a general principle of law that debts due to the State .
'
are entitled to priority over all other debts. If a decree holder
F brings a judgment-debtor's property to sale and the sale
proceeds are lying in deposit in court, the State may, even I
4
without prior attachment exercise its right to priority by
making an application to the executing court for payment
out. If however, the State does not choose to apply to the
G court for. payment of its dues from the amount lying in
deposit in the court but allows the amount to be taken away
by some other attaching decree holder, the State cannot
--.:;.:-
thereafter make an application for payment of its dues from
the sale proceeds since there is no amount left with the
~
court to be paid to the State. However, if the State had
H
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 135
[S.B. SINHA, J.]

already effected an attachment of the property which was A
'"1'·
sold even before its sale, the· State would be entitled to
,,_ recover the sale proceeds from whoever has received the
amount from the court filing a suit. Section 73(3) read with
73(2) CPC contemplate such a relief being granted in a
suit." B

19. This Court in that case was dealing with conflict of
interest between a secured creditor and an unsecured creditor
~ and not with a question we have to deal with.

20. Reliance has also been placed by Ms. Rao on c
Macson Marbles Pvt. Ltd. (supra) wherein the dues under
Central Excise Act was held to be recoverable from an auction
purchaser, stating :

"7. We are not impressed with the argument that the State ·D
Act is a special enactment and the same would prevail over
the Central Excise Act. Each of them is a special
";:
enactment and unless in the operation of the same any
conflict arises this aspect need not be examined. In this
case, no such conflict arises between the corporation and
E
the Excise Department. Hence it is unnecessary to .
examine this aspect of the matter.
-. 8. The Department having initiated the proceedings under
Section 11A of this Act adjudicated liability of respondent
No.4 and held that respondent No.4 is also liable to pay F
...
I
penalty in a sum of Rs.3 lakhs while the Excise dues liable
would be in the order of a lakh or so. It is difficult to
conceive that the appellant had any opportunity to
participate in the adjudication proceedings and contend
against the levy of the penalty. Therefore, in the facts and G.
circumstances of this case, we think it appropriate to direct
""'r
that the said amount, if already paid, shall be refunded
within a period of three months. In other respects, the order
A made by the High Court shall remain undisputed. The
appeal is disposed of accordingly." H
136 SUPREME COURT REPORTS [2008] 17 S.C.R.

A 21. The decision, therefore, was rendered in the facts of
that case. The issue with which we are directly concerned did
not arise for consideration therein. The Court also did not notice
the binding precedent of Dena Bank as also other decisions
'
referred to hereinbefore.
B
Section 11 of the Central Excise Act, 1944 reads as
under:

"Section 11.-Recovery of sums due to Government-In
respect of duty and any other sums of any kind payable to
c the Central Government under any of the provisions of this
Act or of the rules made thereunder, including the amount
required to be paid to the credit of the Central Government
under section 11 D the officer empowered by the Central ·
Board of Excise and Customs constituted under the
D Central Boards of Revenue Act, 1963 (54 of 1963) to levy
such duty or require the payment of such sums may deduct
the amount so payable from any money owing to the
person from whom such sums may be recoverable or due
which may be in his ~ands or under his disposal or control,
E or may recover the amount by attachment and sale of
excisable goods belonging to such person; and if the
amount payable is not so recovered, he may prep"are"if'
certificate signed by him specifying the amount due from
the person liable to pay the same and sent it to the
F Collector of the district in which such person resides or
conducts his business and the said Collector, on rece.ipt
of such certificate, shall proceed to recover from the said
person the amount specified therein, as if it were an arrear
of land revenue.
G Provided that where the person (hereinafter referred
to as· predecessor) from whom the duty or any other sums
of any kind, as specified in this section, is recoverable or
due, transfers or otherwise disposes of his business or
trade in whole or in part, or effects any change in the -
H ownership thereof, in consequence of which he is
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 137
[S.B. SINHA, J.]

succeeded in such business or trade by any other person, A
"'"t-·
all excisable goods, materials, preparations, plants,
machineries, vessels, utensils, implements and articles in
the custody or possession of the person so succeeding
may also be attached and sold by such officer empowered
by the Central Board of Excise and Customs, after 8
obtaining written approval from the Commissioner of
Central Excise, for the purposes of recovering such duty
-,. or other sums recoverable or due from such predecessor
at the time of such transfer or otherwise disposal or
change." c
22. A bare perusal of the aforementioned provision clearly
goes to show that the right to recover must start with the sale
of exCisable goods. It is only when the dues of the Central
Excise Department are not satisfied by sale of such excisable
goods, proceedings may be initiated to recover the dues as D
land revenue.
i:·
23. We may notice that a Division Bench of Orissa High
Court in Suburban Ply & Panels Pvt. Ltd. v. Assistant
Commissioner of Central Excise & Customs, BBSR [2002 E
(144) ELT 257 (Ori)], despite noticing Dena Bank (supra) as
also other decisions, relying on Section 11 of the Central Excise
Act and Rule 230(2) of the Central Excise Rules held as under:

"The rule is prima facie wide in its operation. There is no
challenge to the validity of the rule in this proceeding .
F
•
;,.
Going by Sub-Rule (2) of Rule 230, it appears to us that a
change in ownership of the undertaking would not in any
manner effect the obligation of the person liable to pay
excise duty and authority concerned has the right to
proceed against the successor in business or transferee G
even though the duty is assessed subsequently but the
-~
liability had arisen before such transfer. In other words, the
4.J(
right is given to the department to proceed against the
Undertaking or its products or machinery even though it
may be in the hands of the transferee. On a plain reading H
138 SUPREME COURT REPORTS [2008] 17 S.C.R.

.,.....
...,._
A of the rule, it appears to us that if the defaulter had sold
-1-
the Undertaking, the transferee would be liable for the
excise duty that remained outstanding as on the date of
transfer in its favour." ~

B 24. The High Court, with utmost respect, proceeded on a
wrong premise that only in terms of sub-section (4) of Section
29, proceeds of the sale will be held in trust by the Financial
!-
Corporation and appropriated towards the discharge of the
~
,, ;_
,_
debt due to it after first applying the proceeds in payment of
cost charges and expenses incurred and the balance to be paid
c to the person entitled and having regard to the doctrine of
Crown debt, the auction purchaser must satisfy it. ~

25. The Orissa High Court failed to notice the binding
precedent of this Court in Dena Bank in its proper perspective. ;
D We are concerned here with the respective rights of a secured
creditor and unsecured creditor over a property. If the finding
of the Orissa High Court is correct, there was no necessity for ·~
the State Legislatures or the Parliament to amend laws
incorporating provisions to create first charge over the
E properties of the debtor. The High Court failed to notice Article
372 of toe-Constitution as also the well settled principles of law
that a statutory provision shall prevail over the Crown debt.

26. Furthermore, the right of a State Financial Corporation
is a statutory one. The Act contains a non- obstante clause in
F Section 468 of the Act which reads as under : l.
+
"Section 468-Effect of Act on other laws-The provision of
this Act and of any rule or orders made thereunder shall
have effect notwithstanding anything inconsistent therewith
G contained in any other law for the time being in force or in
the memorandum or articles of association of an industrial
concern or in any other instrument having effect by virtue ~·

of any law other than this Act, but save as aforesaid, the
provisions of this Act shall be in addition to, and not in :;4
I

H derogation of, any other law for the time being applicable
UNION OF INDIA & ORS. v. SICOM LTD. & ANR. 139
[S.B. SINHA, J.]

to an industrial concern." A
27. The non-obstante clause shall not only prevail over the
contract but also other laws. ~See Periyar & Pareekanni
Rubber Ltd. v. State ofKerala (2008 (4) SCALE 125)]

28. For the reasons aforementioned, there is no merit in B
the appeals. The appeals are dismissed accordingly with costs.
Counsel's fee quantified to Rs.50,000/-

D.G. Appeals dismissed .

....

-