STATE OF HIMACHAL PRADESH AND OTHERS versus M/S A.J. INFRASTRUCTURES PVT. LTD AND ANR. on 28 April 2023

[2023] 4 S.C.R. 773

STATE OF HIMACHAL PRADESH AND OTHERS

v.

M/S A.J. INFRASTRUCTURES PVT. LTD AND ANR.

(Civil Appeal No. 8980-8981/2012)

APRIL 28, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Himachal Pradesh General Sales Tax Act, 1968– s.16-B–Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 – s.35–Held: s.16-B ofthe HPGST Act is not ultra vires any provision of law – It is a perfectlyvalid piece of legislation and is not ultra vires the Constitution and/or the Banking Companies Act as erroneously held in the decisionof the High Court impugned in CA No.9212 of 2012– Further, inview of the decision in Central Bank of India case, any observationin the decision impugned in CA No.8980 of 2012 touching upons.16-B of the HPGST Act vis-à-vis s.35 of the SARFAESI Act is of noeffect–Himachal Pradesh Land Revenue Act, 1954.

Himachal Pradesh General Sales Tax Act, 1968– s.16-B –“Tax to be first charge on property” – Himachal Pradesh LandRevenueAct, 1954 – Chapter VI– Held: s.16-B would be attractedonly after determination of the liability and upon any sum becomingdue and payable; and it is only thereafter that the charge, if any,would operate – In the present case, proceedings were not initiatedupon notice to the defaulters and the sum they owed to the departmenthad not been finally determined in accordance with law–Thus,question of the State resorting to the provisions contained in ChapterVI of the HPLR Act for recovering the dues, if at all, as arrears ofland revenue did not arise–Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002.

Practice and Procedure – Held: A decision on theconstitutional validity of a provision should be invited not in vacuumbut when the justice of the case demands such a decision – Decisionon an infructuous writ petition is inconsequential and can never beof any effect.

Code of Civil Procedure, 1908 – s.151 – Held: When the lawprovides a specific remedy, it is not open to a party to take recourse

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Ato s.151 – It preserves the inherent powers of the court to do justicein a case where the party has no other remedy under the CPC–Practice and Procedure.

Disposing of the appeals, the Court

HELD:1.1A law, which the State legislature had theBcompetence to enact, has been outlawed by the High Court whilehearing a writ petition which was rendered infructuous due todevelopments subsequent to its filing and prior to its disposalbut such developments had not been brought to the notice of theHigh Court. For all intents and purposes, the High Court by itsCjudgment and order dated 2nd January, 2008 decided aninfructuous writ petition and, in the process, outlawed section16-B of the HPGST Act when the same was not at all warranted.Itwas also a clear but inadvertent error on the part of this Court todismiss only the special leave petition against PNB asinfructuous; the appropriate course for this Court ought to haveDbeen to dismiss the writ petition of PNB itself as infructuoushaving regard to the clear stand taken by PNB in its aforesaidaffidavit dated 30th September, 2010 that nothing survived for adecision on the writ petition on the date it was decided in view ofrelease of the property from mortgage. In view of dismissal ofEthe special leave petition qua PNB by the order dated 8th April,2011, the judgment and order outlawing section 16-B of theHPGST Act can be examined.[Paras 29, 31 and 32][788-G-H; 789- E-G]

A.R. Antulay vs. R.S. Nayak (1988) 2 SCC 602 : [1988]F1 Suppl. SCR 1– referred to.

1.2 Since the writ petition had been rendered infructuouson the date it was decided, it was not necessary for the HighCourt to pronounce on the validity of section 16-B. A decision onthe constitutional validity of a provision should be invited not invacuum but when the justice of the case demands such a decision.GHence, it is held that the decision on an infructuous writ petitionis inconsequential and can never be of any effect. The issue as towhether section 16-B of the HPGST Act is ultra vires anyprovision of law including the supreme law of the country is nolonger res integra. What appears to be of significance in the light H

of the decision in Central Bank of India is that the findings in thejudgments and orders disposing of the writ petitions impugnedin two of the four civil appeals ~ the first dated 7th September,2007 and the other dated 2nd January, 2008 ~ with regard to thescope, ambit and applicability of section 35 of the SARFAESIAct, more particularly the latter holding section 16-B of theHPGST Act as ultra vires the Constitution and the BankingCompanies Act, loses its basis and can no longer be held to belegal and valid. Section 35 of the SARFAESI Act could not havebeen construed as conferring any right on a secured creditor toclaim priority over dues of the State in the absence of a provisionin that behalf which presently can now be claimed, subject to otherconditions being fulfilled, in view of section 26E of the SARFAESIAct. Pertinently, the High Court while seized of the writ petitionof PNB was not at all concerned with the SARFAESI Act as such.The matter had travelled to the High Court from proceedingsunder the DRT Act. There was, thus, no occasion for the HighCourt to pronounce on the validity of section 16-B of the HPGSTAct based on what was held by its coordinate Bench in M/s A.J.Infrastructures Pvt. Ltd.. The High Courtwas therefore in clearerror.Section 16-B of the HPGST Act is a perfectly valid piece oflegislation and is not ultra vires the Constitution and/or theBanking Companies Act as erroneously held in the decision ofthe High Court dated 2nd January, 2008. Also, following thedecision in Central Bank of India, any observation in the decisiondated 7th September, 2007 touching upon section 16-B of theHPGST Act vis-à-vis section 35 of the SARFAESI Act is of noeffect. [Paras35, 38-40][790-B-D; 793-C-H]

Central Bank of India vs. State of Kerala (2009) 4 SCC94 : [2009] 3 SCR 735 – relied on.

M/s A.J. Infrastructures Pvt. Ltd. vs. State of H.P. andothers CWP No. 306/2007 dated 7th September, 2007

– referred to.

1.3 From the excerpt of the impugned judgment and orderof the High Court dated 2nd January, 2008 it is clear thatproceedings were not initiated upon notice to the defaulters andthe sum they owed to the department had not been finallydetermined 28 in accordance with law. In view thereof, question A

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Aof the State resorting to the provisions contained in Chapter VIof the HPLR Act for recovering the dues, if at all, as arrears ofland revenue did not arise.The State and its department eitheroverlooked or were ignorant of the requirement of law that section16-B would be attracted only after determination of the liabilityand upon any sum becoming due and payable; and that, it is onlyBthereafter that the charge, if any, would operate. No relevantdocumentary evidence having been placed before the High Court,when CWP 306 of 2007 was being heard, to indicate that necessarysteps under the HPGST Act had been initiated by the State andits officers, the third issue has to be answered by holding that theCState not having taken steps as required by law for realization ofits dues, there was no determination of liability, a fortiori, questionof taking recourse to the HPLR Act for recovery of dues as arrearsof land revenue did not arise. Without such determination ofliability, no red entry marks could have been inserted in therevenue records and the High Court was right in holding that theDState ought not to have refused mutation.The appellants (Stateand its officers) are not entitled to any relief except the declarationthat section 16-B of the HPGST Act is not ultra vires anyprovision of law. In view of section 16-B having been outlawedby the High Court on 2nd January, 2008, this declaration shall Enot enure to the benefit of the State in respect of cases that areold and have been closed but would be effective once again fromthis ay. [Paras 48, 49 and 51][795-F-G; 796-B-E; 797-C-D]

State Bank of Bikaner & Jaipur vs. National Iron &Steel Rolling Corporation and Ors. (1995) 2 SCC 19 :F[1994] 6 Suppl. SCR 566 – referred to.

From the Judgment and Order dated 07.09.2007 of the High Courtof Himachal Pradesh at Shimla in CWP No.306 of 2007 and CMPNo.1160 of 2008.H

With

Civil Appeal Nos. 9212-9213 of 2012.

Abhinav Mukerji, Bihu Sharma, Akshay C. Shrivastava, Ms.Pratishtha Vij, Varinder Kumar Sharma, Advs. for the Appellants.

A. Venayagam Balan, Sanjay Kapur, Ms. Megha Karnwal, SuryaPrakash, Arjun Bhatia, Ms. Astha Gumber, Advs. for the Respondents.

The Judgment of the Court was delivered by DIPANKAR DATTA, J.

Preface

1. A thin thread connects the two sets of civil appeals[1], whichareat the instance of the State of Himachal Pradesh (for brevity, “theState”, hereafter) and its officers.Since the provisions of law emergingfor consideration are almost the same in terms, though in different factsituations, these appealswere heard one after the other andshall standdisposed of by this common judgment and order.

2. Civil Appeal No. 8980 of 2012 is directed against the judgmentand order of the High Court dated 7[th]September, 2007 allowinga writpetition[2 ]presented before it by M/s. A.J. Infrastructures (Pvt.) Ltd., thefirst respondent, on 6[th] March, 2007. The operative portion of the orderreads as follows:-

“For all the aforesaid reasons, the writ petition is allowed.Order rejecting petitioner’s application for not mutating theentry in their name is quashed and set aside. The respondentsno. 1 to 5 are directed to delete the adverse entry showing thesales tax dues of M/s Regent Rubber and M/s Eastman Rubberin relation to the property comprising in Khasra No. 254/2/1,Khatauni Nos. 7 Min, 14 Min, Measuring 3 Bighas 7 Bishwas,situated at Village Moginand, Kala-Amb, Tehsil Nahan, DistrictSirmour, HP and further respondent no. 3 is directed to mutatethe property in the name of petitioner company. The petitionershall be entitled to costs, which is quantified at Rs, 25,000/-from respondents no. 1 to 5.”

1 Civil Appeal Nos. 8980-8981/2012 and Civil Appeal Nos. 9212-9213/2012

2 CWP No. 306/2007

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3. Aggrieved by the judgment and order dated 7[th] September, 2007,the official respondents in the writ petition applied for a review[3].By anorder dated 29[th] October, 2009, the High Court proceeded to dispose ofthe application for review by, inter alia, the following order:- A

“The present application of review has been filed after delayBof more than one year without proper and satisfactoryexplanation. No sufficient material has been placed on recordfor reviewing the order dated 07-09-07, which may be broughtwithin four corners and provisions of Order 47 Rule 1 CPC,as observed in foregoing decisions. Therefore, only for takingdifferent view, the said order dated 07-09-09 cannot beCreviewed. In these circumstances, the present application forreviewing the order dated 07-09-09 is dismissed on the groundof delay as well as on the merits.”

The said order dated October 29, 2009 is challenged in C.A. No.8981 of 2012.D

4. The facts pleaded in the writ petition reveal that the firstrespondent had purchased the subject property (described in full in theoperative part of the order dated 7[th ]September, 2007, extracted above)in an auction conducted by the State Bank of Patiala (for brevity “StateBank”, hereafter) on 18[th] January, 2005 in exercise of power conferredEby the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (for brevity, “the SARFAESIAct”, hereafter).The subject property was initially mortgaged on 11[th]October, 1999 with the Himachal Pradesh Financial Corporation (forbrevity “HPFC”, hereafter) by M/s. Regent Rubber Private LimitedF(for brevity “Regent”, hereafter). Due to breach committed by Regent,HPFC took over the property and sold it in an open auction to M/sEastman Rubber (for brevity “Eastman”, hereafter). The subject propertywas thereafter mortgaged by Eastman with the State Bank. However,Eastman too having committed default in liquidating its dues, the subjectproperty was eventually put up for sale in an open auction on 18[th] January,G2005 under rules 8 and 9 of the Security Interest (Enforcement) Rules,2002 (for brevity “SARFAESI Rules”, hereafter).

5. The first respondent emerged as the highest bidder in the auctionby quoting a sum of Rs. 50,01,000/-.Within the stipulated time, the first 3 CMP No. 1160/2008H

respondent paid the entire bid amount whereupon in accordance withthe provisions of rule 9(6) and (10) of the SARFAESI Rules, salecertificate dated 21[st] July, 2005 was issued to the following effect:- “receipt of the sale price in full and handed over the deliveryand possession of the scheduled property. The sale of thescheduled property was made free from all encumbrancesknown to the secured creditor listed below on deposit of themoney demanded by the undersigned.”

6. After issuance of the sale certificate, the State Bank by itsletter dated 24[th] February, 2006 informed various authorities includingthe taxation department of the State of sale of the subject property tothe first respondent. In due course of time, the first respondent obtainedpermission from the State vide order dated 17[th] August, 2006 andconsequently was able to have the sale deed executed and registered on6[th] September, 2006.

7. The first respondent having applied for mutation of the subjectproperty in its name, an order of rejection thereof came to be passed on22[nd] December, 2006 in the circumstances noted now. On 18[th] January,2005, an ex parte assessment order under the provisions of the HimachalPradesh General Sales Tax Act, 1968 (for brevity “HPGST Act”,hereafter) was passed in relation to the assessment years 1998-1999,1999-2000, 2000-2001 and 2001-2002 against Regent and Eastmanamounting to Rs. 19,03,845/- and Rs.13,73,115/- respectively. Havingregard to the date of the ex parte assessment order, it is quite but naturalthat when the first respondent offered its bid for purchasing the subjectproperty in the auction ultimately conducted (on 18[th] January, 2005), anyoutstanding liability of either Regent or Eastman could not and was notreflected in any official record. However, in view of this liability of Regentand Eastman, the application of the first respondent for mutation in respectof the subject property in its name stood rejected. Such order revealedthat on the asking of the Excise and Taxation Officer, Nahan, DistrictSirmour, entries in red ink had been made by the Tehsildar, Nahanpertaining to demand of arrears of tax payable by Regent and Eastmanunder the provisions of the HPGST Act.

8. The order of rejection dated 22[nd] December, 2006 was assailedin the writ petitionand orders were sought seeking (i) deletion of adverseentries regarding the sales tax liability of Regent and Eastman; (ii)direction upon the tehsildar to mutate the subject property, after quashing AB

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Aof the order dated 22[nd] December 2006;and (iii) declaring the action ofthe excise and taxation officeras illegal, unjust and without the authorityof law.

9. Upon a contested hearing, a Division Bench of the High Courtallowed the writ petition on terms noted above in paragraph 2 supra.

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10. We consider it appropriate to reproduce certain otherparagraphs from the impugned judgment dated 7[th] September, 2007,hereunder:- “Undoubtedly, Section 16-B of the Tax Act also contains anon-obstante clause, which makes the amount of tax payableCby a dealer to be a first charge on the property of the dealer.There is, thus, obviously a conflict between the provisions ofthe two statutes.

The powers are absolute and in view of the non obstante clausecontained in Section 35 of the Act, would have an overridingDeffect over all inconsistent provisions contained in any otherlaw. The Act being a special statute, enacted later in point intime and that too by the Central Government (sic, Parliament),in our view, would override the inconsistent provisionscontained in the Tax Act. This is in the scheme of constitutionalEprovisions also. Therefore, the Bank is well within its right totake over the property and sell the same notwithstanding the1st charge of the State on the property of the dealer.

The issue needs to be examined from another perspective.Under the provisions of the Tax Act, the Assessing Authorityis required to assess the amount of tax due from the dealer onthe basis of returns filed. If the Assessing Authority is notsatisfied that the returns furnished are correct and completeor that no returns have been filed at all he shall serve a notice,give an opportunity of hearing and as the case may arise,adopt the best judgment method and assess the amount of taxdue from the dealer. This is so provided under section 14 ofthe Tax Act. The amount so assessed is required to be paid bythe assessee within the time stipulated in the notice to be issuedby the Assessing Authority, failing which the amount due isrecoverable as arrears of land revenue as provided for undersection 16, which, however, in view of non obstante clause F

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contained in section 16A comes into operation only after thedealer failed to pay the amount due when a notice in writingis issued to him. Now, in the present case no notice of demand,as stipulated under section 14(7) or section 16A has beenissued to any of the dealers.The actionof respondent no. 5 inasking respondents no. 3 and 4 and also the action ofrespondents no. 4 in acting upon the request of respondentno. 5 to make entries (in red ink) of arrears of tax duerecoverable as land revenue in the revenue record is thus badin law.For the very same reason, in spite of No Objectionissued by the State for getting the sale deed executed is thusin gross violations of the provisions of the Tax Act.

-Further the right of the respondentState to have a first chargeon the property of the dealer can be only if there is properadjudication and determination of the amount due under theTax Act and in the absence thereof, it cannot be said that thetax is due and payable by the dealer. Till such time, the sameis done, there cannot be any crystallization of charge. Thecharge of the State is not a floating charge.

In the instant case the Bank had already exercised its rightand taken possession of the property much prior to theassessment order dated 18-01-05 passed by the AssessingAuthority. In fact before the said date the property itself hadbeen advertised to be sold by public auction. No notice ofdemand was ever issued under Section 14 and 16A beforeaction under section 16 of the Tax Act was taken. Assumingthat the first charge stood created prior to the passing of theorder of assessment, in our view the provisions of section 35of the Act would override the inconsistent provisions of section16B of the Tax Act leading to the only conclusion and thatthere is no prior charge on the property except for that of theBank with whom the property was mortgaged. Thus, in ourview, looking from all angles the action of the State cannotbe upheld.

The creation of 1st charge or status of encumbrance ofproperty was recorded for the 1st time on 11-07-06. The recordof rights, i.e. revenue record did not reflect any status ofencumbrance of the property or creation of 1st charge in spite AB

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Aof the fact that the respondents were duly informed about theauction and issuance of the sale certificate by the Bank infavour of the petitioner. It was only when the State wassatisfied about the non-encumbrance that the permission totransfer the property in the name of the petitioner wasaccorded. In fact, based on the revenue record the BankBconsidered the property to be encumbered and accepted thesame as a security. It took over the same and put it to auctionas a secured asset which stands purchased by the petitioneras such.”

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Civil Appeal Nos.9212-9213/2012

11. Punjab National Bank (for brevity “PNB”, hereafter)sanctioned term loan to M/s Superrugs (India) Pvt. Ltd. (for brevity“borrower”, hereafter) for manufacturing carpets. The loan that wasDprovided by PNB to the borrower was secured by mortgage of its factorypremises situated at Baddi Industrial Area, District Solan.Shri R.T. Tejpaland Shri Durga Dass stood as guarantors (for brevity “guarantors”,hereafter). The loan account of the borrower became irregular. Arecovery suit was instituted by PNB against the borrower and theguarantors for Rs. 42.29 lacs. Upon introduction of the Recovery ofEDebts due to Banks and Financial Institutions Act, 1993 (for brevity“DRT Act”, hereafter) and constitution of the Debts Recovery Tribunals,the suit was transferred to the Debts Recovery Tribunal, Jaipur (forbrevity “DRT, Jaipur”, hereafter). Consent decree was passed on12[th] November, 1998 in favour of PNB and against the borrower andFthe guarantors. Part payment was made by the borrower towardssatisfaction of the decree, but balance payment was not made resultingin PNB levying execution of the recovery certificate for an amount ofRs.2,65,97,162.50 before the DRT, Jaipur on14[th ]May, 1999. Subsequently,the proceedings for execution were transferred to the Debts RecoveryTribunal, Chandigarh (for brevity “DRT, Chandigarh”, hereafter) onG2[nd] January, 2000. During pendency of the proceedings, the AssistantExcise and Taxation Commissioner, District Solan (for brevity“Commissioner”, hereafter), issued a notice in ‘The Tribune’ in its editiondated 12[th]February, 2000 for auction of the property that was mortgagedby the borrower. Auction was fixed for 3[rd] March, 2001 for recovery ofHarrears of sales tax amounting to Rs.32,72,365/-, which was recoverable as arrears of land revenue under the Himachal Pradesh Land RevenueAct, 1954 (for brevity “HPLR Act”, hereafter). PNB moved anapplication before the Recovery Officer attached to the DRT, Chandigarhfor stay of auction whereupon the said recovery officer considering thelaw laid downby this Court in State Bank of Bikaner & Jaipur vs.National Iron & Steel Rolling Corporation and Ors.[4 ]concluded thatthe claim of PNB against the mortgaged property had become secondaryin view of the auction initiated by the State for recovery of sales taxdues. This resulted in PNB invoking the jurisdiction of the High Courtunder Article 226 by filing a writ petition[5]against the State, theCommissioner, the Recovery Officer of the Debts Recovery Tribunal,Chandigarh, the borrower and the guarantors.

12. Prayer in the writ petition was for orders restraining sale byauction of the mortgaged property of the borrower at Baddi, DistrictSolan for recovery of arrears of sales tax dues, and to strike down section16-B of the HPGST Act as ultravires the provisions of the Constitution,the DRT Act, the Transfer of Property Act, 1872, the Contract Act,1872 and the Banking Companies (Acquisition and Transfer ofUndertakings) Act, 1970 (for brevity “Banking Companies Act”,hereafter).

13. The State and the Commissioner contested the writ petitionby contending that the borrowerowed Rs. 32,72,365/ to the Governmentof Himachal Pradesh on account of arrears of sales tax which had beendeclared as arrears under the HPLR Act. It was further contented thatthe State is competent to recover the amount as it has a first charge onthe property of the dealer under section 16-B of the HPGST Act readwith section 73(3) of the Code of Civil Procedure (for brevity “the CPC”,hereafter). It was further contented that it is wrong on the part of thePNB to contend that its debtis prior in point of time. Section 16-B of theHPGST Act had come into force with effect from 21[st] October, 1994whereas the consent decree was passed in favour of PNB on12[th] November, 1998. This being the position, the provisions of section16-B of the HPGST Act would apply and that PNB was not entitled toany relief. Reference was made to the decision of this Court in StateBank of Bikaner and Jaipur (supra) where this Courtconsideredsection 11-AAAA of the Rajasthan Sales Tax Act, 1954, which 4(1995) 2 SCC 19

5 CWP No. 239 of 2001

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Ais parimateria with section 16-B of the HPGST Act, creating a firstcharge on the property of the dealer. In the light of the said decision, thecontention of PNB that it had the prior right to recovery of the debt wasclaimed to be devoid of substance and, in fact, misconceived.

14. The writ petition of PNB come to be allowed by the HighBCourt vide its judgment and order dated 2[nd] January, 2008. The judgmentand order dated 7[th] September, 2007 rendered by the High Court on thewrit petition[6 ] titled M/s A.J. Infrastructures Pvt. Ltd. vs. State ofH.P. and others, being the judgment and order impugned in Civil AppealNo. 8980of 2012,was relied upon. Although while deciding M/s A.J.Infrastructures Pvt. Ltd. (supra) the High Court had not declaredCsection 35 of the SARFAESI Act as ultra vires, the Division Bench ofthe High Court in seisin of the writ petition of PNB proceeded a stepfurther and held section 16-B of the HPGST Act to be inconsistent withsection 35 of the SARFAESIAct; and,then declared the said section asultra vires the Constitution and the Banking Companies Act. The writDpetition filed by PNB was, accordingly, allowed and it was held thatPNB was entitled to sell the mortgaged property ofthe borrower inaccordance with law.

15. The Division Bench of the High Court also recorded as follows :-E“In the present case, the mortgage was created in the year1984 and the consent decree was passed on 12.11.1998 infavour of the petitioner bank and against respondents No. 4to 6. There is nothing on record to show that any notice ofdemand was firstly issued under Sections 14 and 16 A beforeFaction under Section 16 of the Sales Tax Act was taken. Thecopies of the notice of demand issued and when it was issuedhave not been placed on record by respondents No. 1 & 2except by pleading about their right to sell the property andrecover the amount as arrears of land revenue in preferenceto the petitioner bank.Therefore, in view of the decision inGDena Bank’s case it is clear that it only gives preferentialright to the State to recover the sales tax in preference tounsecured creditors but once the property in question alreadystood mortgaged and they had proceeded prior in time, they 6CWP No. 306/2007

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STATE OF HIMACHAL PRADESH v. M/S A.J.INFRASTRUCTURES PVT. LTD [DIPANKAR DATTA, J.]

can recover the amount in pursuance of the consent decreepassed in their favour, the State has no preferential right tosell the property and, therefore, the petitioner bank is entitledto sell the mortgaged property and realize the arrears ofamount due to them and State shall be entitled to recover thebalance amount, if any, left with the bank or in the alternative,they are at liberty to proceed against respondents No. 4 to 6for recovery of the amount by proceeding against them inaccordance with law. The Division Bench in the above casehas already taken the view that the provisions of Section 35of the Act would override the inconsistent provisions of Section16B of the Tax Act and as such, there provisions of the SalesTax Act Section 16B as they are inconsistent with Section 35of the Act are declared ultravires of the Constitution.”

16. Dissatisfied with the judgment and order dated 2[nd] January2008, the State and the Commissioner on 22[nd] May, 2008filed anapplication[7] under section 151 of the CPC for “rectification etc., of thejudgment/order dated 2[nd] January, 2008”. The prayer in such petitionwas for recall of the judgment and order dated 2[nd] January, 2008 in theinterest of justice, equity and fair play so that theapplicants are savedfrom enormous adverse consequences of such judgment and order.

17. The said application came to be considered by the sameDivision Bench (which had decided the writ petition) and stooddismissed, inter alia, by the following order dated 5[th] June, 2008:

“This application under Section 151 CPC has beenpurportedly (sic, filed) for rectification of our judgement dated2.1.2008. However, in the prayer clause it has been prayedthat the judgement dated 2nd January, 2008 may be recalled.It is clear that under the garb of this application the State isseeking review of the judgement.

We need not burden ourselves with the various grounds takenin the application. The perusal of the application shows thatit is virtually a review petition but has been styled to be anapplication under Section 151 CPC. This cannot be permitted.

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AVarious facts have now been pleaded in this application, whichwere neither pleaded nor argued when the writ petition washeard and decided. In an application under Section 151 CPC,the applicants cannot be permitted to rake up absolutely newpleas which were never taken or argued in the writ petition.In case the State is aggrieved by the judgment, it has theBremedy of approaching the apex Court. There is no errorapparent on the face of the record of the judgement. Theapplication being without any merit and being totallymisconceived, is rejected”.

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18. The judgment and order dated 2[nd] January, 2008 allowing theCwrit petition has been challenged in Civil Appeal No. 9212 of 2012 whereasthe order of dismissal of the application under section 151 of the CPC isthe subject matter of challenge in Civil Appeal No. 9213/2012.

Proceedings before this Court

D19. Grant of relief claimed in the writ petitions and dismissal ofthe two applications of the State and its officers for review of the judgmentand order/under section 151 of the CPC led the State and its officers toapproach this Court with separate special leave petitions.

20. Certain orders passed in these proceedings need to be noted.

E21. On the special leave petitionscarried by the State from thejudgment and order passed on PNB’s writ petition and the order ofdismissal of the State’s application under section 151 of the CPC, anorder was passed by this Court on 11[th] March, 2011 recording as follows:

“The respondent-Bank has filed an affidavit contending interFalia that they have recovered their dues and also released theproperty, which was under mortgage in favour of the borrowersince they have liquidated the loan amount with interest.Counsel appearing for the State seeks for a week’s time toenable him to obtain instructions.

GHe may obtain instructions accordingly.

Re-notify on 18.3.2011.”

22. The next effective order dated 8[th] April, 2011 passed by thisCourt on the aforesaid special leave petitions recorded that:

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“So far these petitions are concerned, in our consideredopinion, these petitions have been rendered infructuous partlyin view of the fact that bank, who is a contesting respondentno. 1 herein, has already recovered its dues and thereafterreleased the property from its hypothecation. Hence, the nameof respondent no. 1 is deleted from the array of respondentsand the petitions as against respondent no. 1 stand dismissed.

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These petitions also stand dismissed so far as respondent nos.3 and 5 are concerned. Therefore, these petitions survive onlyagainst respondent nos. 2 and 4.”

23. As a result of the above order, the special leave petitions stooddismissed against PNB (the first respondent), the borrower (the secondrespondent) and Shri Durga Dass (the fifth respondent) and survivedqua the Recovery Officer, DRT, Chandigarh (the second respondent)and Shri R.T. Tejpal (the fourth respondent).

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24. Practically, with the exit of PNB from the proceedings in viewof the developments subsequent to filing of the special leave petitionsresulting in dismissal of the special leave petitions qua PNB, it admits ofno doubt that the issue inter se the relevant parties, i.e., the State andPNB, as to whether the High Court was justified in outlawing section16-B of the HPGST Act,attained finality.

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25. Notwithstanding such position, this Court on 7[th] December,2012 granted special leave on both the petitions to appeal whereuponthe appeals were placed before us for hearing anddecision.

Issues

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26. The legal issues arising for decision on these appeals are:

(i) Whether, in view of dismissal of the special leave petitionqua PNB by the order dated 8[th] April, 2011, the judgmentand order outlawing section 16-B of the HPGST Act can atall be examined?

G(ii)Should the answer to the above question be in theaffirmative, whether section 16-B of the HPGST Act shouldhave been outlawed by the High Court on the ground that itis ultra vires the Constitution or the Banking CompaniesAct?

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A(iii)Whether having regard to the facts and circumstancestriggering the writ petitions, the High Court was justified inreturning the findings that the State’s claim of first chargeon the subject properties is not substantiated?

(iv) Whether dismissal of the review petition/application forBrecallinstituted by the State by the High Court suffers fromany infirmity, legal or otherwise?

(v) To what relief, if any, are the appellants entitled?

Analysis and Reasons

27. Insofar as the first issue is concerned,we may notice theCConstitution Bench decision in A.R. Antulay vs. R.S. Nayak[8]. It washeld there that one of the well-known principles oflaw is that a decisionmade by a competent court of law should be taken as final subject toany decision of a superior court in further proceedings contemplated bythe law of procedure. However, this Court being the apex court, alitigantDcannot approach any higher forum but can only invoke its reviewjurisdiction to correct a patent error. The power to review is also inherentin this Court and ifjudicial satisfaction is reached that an order has beenpassed, which ought not to have been passed, and it is accepted that amistake has been committed, it is not only appropriate but also the dutyof this Court to rectify the mistake by exercising inherent powers. MistakeEof the Court can be corrected by the Court itself without any fetters.This is based on the principle that an act of Court ought not to injure anyparty before it. To own up the mistake when judicial satisfaction is reacheddoes not militate against the Court’s status or authority; perhaps it wouldenhance both.F28. There can be no doubt that in normal circumstances this Courtwould not allow reopening of an issue that has attained finality and, thattoo, in the absence of party who has benefited by reason of such anorder. However, this is not a normal case and we can unhesitatinglyrecord our satisfaction of a gross error having crept in requiring correction.G29. A law, which the State legislature had the competence to enact,has been outlawed by the High Court while hearing a writ petition whichwas rendered infructuous due to developments subsequent to its filingandprior to its disposal but such developments had not been brought to thenotice of the High Court.

H8 (1988) 2 SCC 602

30. During the pendency of these proceedings where challengehad been laid to the judgment and order dated 2[nd] January, 2008 of theHigh Court, PNB filed an affidavit dated 30[th] September, 2010, referredto in the order of this Court dated 8[th] April, 2011. A reading of the affidavitreveals that during the pendency of the writ petition (filed by PNB)before the High Court, the borrower had offered a compromise proposalwhich PNB had accepted. In terms thereof, the borrower paid to PNBan amount of Rs.36 lakh towards full and final settlement of the loanliability.Upon receipt of the compromise amount, the title deed of themortgaged property was duly returned to the borrower. Pursuant thereto,PNB filed an application for withdrawing the execution case before theRecovery Officer, DRT, Chandigarh on 13[th] August, 2002 and the case,upon being disposed of as withdrawn, was consigned to the record room.It was further categorically averred in paragraph 3(g) of the said affidavitthat “the grievance of respondent no.1 raised in the writ petitionfiled before the Hon’ble High Court does not subsist any furtherand that the object of having filed the writ petition is already fulfilledand that the writ petition has been rendered infructuous”. Ultimately,in paragraph 5, PNB submitted that”it extends its unconditionalapology for not bringing the aforesaid facts to the notice of Hon’bleHigh Court at the time of reserving the orders in writ petition on27[th] November, 2007" and that “the aforesaid facts could not bebrought to the notice of Hon’ble High Court due to inadvertenceand the same was not deliberate or intentional”.

31. Therefore, for all intents and purposes, the High Court by itsjudgment and order dated 2[nd] January, 2008 decided an infructuous writpetition and, in the process, outlawed section 16-Bof the HPGST Actwhen the same was not at all warranted.

32. In our considered opinion, it was also a clear but inadvertenterror on the part of this Court to dismiss only the special leave petitionagainst PNB as infructuous; the appropriate course for this Court oughtto have been to dismiss the writ petition of PNB itself as infructuoushaving regard to the clear stand taken by PNB in its aforesaid affidavitdated 30[th] September, 2010 that nothing survived for a decision on thewrit petition on the date it was decided in view of release of the propertyfrom mortgage.

33. We, accordingly, answer the first issue in the affirmative.

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A34. Moving on to the second issue, we are clear in our mind thatthe same ought to be answered in the negative.

35. The easy answer to the issue flows from what we havediscussed above. Since the writ petition had been rendered infructuouson the date it was decided, it was not necessary for the High Court toBpronounce on the validity of section 16-B. A decision on the constitutionalvalidity of a provision should be invited not in vacuum but when thejustice of the case demands such a decision. Hence, we hold that thedecision on an infructuous writ petition is inconsequential and can neverbe of any effect. However, we do not wish to rest our decision only onthis technical point. Having considered the relevant provisions of law asCwell as the decisions of this Court, rendered prior to and post the impugnedjudgment and order dated 2[nd] January, 2008, we are of the firm opinionthat the issue as to whether section 16-B of the HPGST Act is ultravires any provision of law including the supreme law of the country is nolonger res integra.D

36. Instead of burdening our judgment by referring to all decisionson the point, we consider it appropriate to refer to only one decision ofthis Court (dated 27[th] February, 2009)in Central Bank of India vs.State of Kerala[9 ]which, of course, came into existence after thedecisions challenged in these civil appeals were rendered. This CourtEhaving considered the provisions of the DRT Act and the SARFAESIAct, as it then stood, vis-à-vis section 38-C of the Bombay Sales TaxAct, 1959 and section 26-B of the Kerala General Sales Tax Act, 1963,inter alia, held that:“116.The non obstante clauses contained in Section 34(1) ofFthe DRT Act and Section 35 of the Securitisation Act giveoverriding effect to the provisions of those Acts only if thereis anything inconsistent contained in any other law orinstrument having effect by virtue of any other law.In otherwords, if there is no provision in the other enactments whichare inconsistent with the DRT Act or the Securitisation Act,Gthe provisions contained in those Acts cannot override otherlegislations. Section 38-C of the Bombay Act and Section 26-B of the Kerala Act also contain non obstante clauses andgive statutory recognition to the priority of the State’s chargeover other debts, which was recognised by Indian High Courts H9 (2009) 4 SCC 94

even before 1950. In other words, these sections and similarprovisions contained in other State legislations not only createfirst charge on the property of the dealer or any other personliable to pay sales tax, etc. but also give them overriding effectover other laws.

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126. While enacting the DRT Act and the Securitisation Act,Parliament was aware of the law laid down by this Courtwherein priority of the State dues was recognised. If Parliamentintended to create first charge in favour of banks, financialinstitutions or other secured creditors on the property of theborrower, then it would have incorporated a provision likeSection 529-A of the Companies Act or Section 11(2) of theEPF Act and ensured that notwithstanding series of judicialpronouncements, dues of banks, financial institutions andother secured creditors should have priority over the State’sstatutory first charge in the matter of recovery of the dues ofsales tax, etc. However, the fact of the matter is that no suchprovision has been incorporated in either of these enactmentsdespite conferment of extraordinary power upon the securedcreditors to take possession and dispose of the secured assetswithout the intervention of the court or Tribunal. The reasonfor this omission appears to be that the new legal regimeenvisages transfer of secured assets to private companies.

127. The definition of ‘secured creditor’ includessecuritisation/reconstruction company and any other trusteeholding securities on behalf of bank/financial institution. Thedefinition of ‘securitisation company’ and ‘reconstructioncompany’ in Sections 2(1)(za) and (v) shows that thesecompanies may be private companies registered under theCompanies Act, 1956 and having a certificate of registrationfrom Reserve Bank under Section 3 of the Securitisation Act.Evidently, Parliament did not intend to give priority to thedues of private creditors over sovereign debt of the State.

128. If the provisions of the DRT Act and the SecuritisationAct are interpreted keeping in view the background andcontext in which these legislations were enacted and the A

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purpose sought to be achieved by their enactment, it becomesclear that the two legislations, are intended to create a newdispensation for expeditious recovery of dues of banks,financial institutions and secured creditors and adjudicationof the grievance made by any aggrieved person qua theprocedure adopted by the banks, financial institutions andother secured creditors, but the provisions contained thereincannot be read as creating first charge in favour of banks,etc.

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129. If Parliament intended to give priority to the dues ofbanks, financial institutions and other secured creditors overCthe first charge created under State legislations then provisionssimilar to those contained in Section 14-A of the Workmen’sCompensation Act, 1923, Section 11(2) of the EPF Act, Section74(1) of the Estate Duty Act, 1953, Section 25(2) of the Minesand Minerals (Regulation and Development) Act, 1957,DSection 30 of the Gift Tax Act, and Section 529-A of theCompanies Act, 1956 would have been incorporated in theDRT Act and the Securitisation Act.

130. Undisputedly, the two enactments do not containprovision similar to the Workmen’s Compensation Act, etc. InEthe absence of any specific provision to that effect, it is notpossible to read any conflict or inconsistency or overlappingbetween the provisions of the DRT Act and the SecuritisationAct on the one hand and Section 38-C of the Bombay Act andSection 26-B of the Kerala Act on the other and the nonobstante clauses contained in Section 34(1) of the DRT ActFand Section 35 of the Securitisation Act cannot be invokedfor declaring that the first charge created under the Statelegislation will not operate qua or affect the proceedingsinitiated by banks, financial institutions and other securedcreditors for recovery of their dues or enforcement of securityGinterest, as the case may be.”

37. It is much after this decision in Central Bank of India (supra)that Parliament proceeded to amend the DRT Act and the SARFAESIAct by the Enforcement of Security Interest and Recovery of Debts H

Laws and Miscellaneous Provisions (Amendment) Act, 2016. ChapterIV-A was introduced in the SARFAESI Act, with effect from 24[th]January, 2020, containing, inter alia, section 26E which accorded priorityin payment to a secured creditor over all other dues in enforcement ofthe security, subject to conditions specified elsewhere in the saidchapter.Prior thereto, with effect from 1[st] September, 2016, section 31Bwas introduced in the DRT Act extending similar benefit of priority to asecured creditor.We need not dilate here on the amended provisions forobvious reasons.

38. What appears to be of significance in the light of the decisionin Central Bank of India (supra) is that the findings in the judgmentsand orders disposing of the writ petitions impugned in two of the fourcivil appeals ~ the first dated 7[th ]September, 2007 and the other dated2[nd] January, 2008 ~with regard to the scope, ambit and applicability ofsection 35 of the SARFAESI Act, more particularly the latter holdingsection 16-B of the HPGST Act as ultra vires the Constitution and theBanking Companies Act, loses its basis and can no longer be held to belegal and valid. Section 35 of the SARFAESI Act could not have beenconstrued as conferring any right on a secured creditor to claim priorityover dues of the State in the absence of a provision in that behalf whichpresently can now be claimed, subject to other conditions being fulfilled,in view of section 26E of the SARFAESI Act.

39. Pertinently, the High Court while seized of the writ petition ofPNB was not at all concerned with the SARFAESI Act as such. Thematter had travelled to the High Court from proceedings under the DRTAct. There was, thus, no occasion for the High Court to pronounce onthe validity of section 16-B of the HPGST Act based on what was heldby its coordinate Bench in M/s A.J.Infrastructures Pvt. Ltd. (supra).The High Court, in our considered view, was therefore in clear error.

40. In the light of the above, while answering the second issue wehold that section 16-B of the HPGST Act is a perfectly valid piece oflegislation and is not ultra viresthe Constitution and/or the BankingCompanies Act as erroneously held in the decision of the High Courtdated 2[nd] January, 2008. Also, following the decision in Central Bankof India (supra), we hold that any observation in the decision dated 7[th]September, 2007 touching upon section 16-B of the HPGST Act vis-à-vis section 35 of the SARFAESI Act is of no effect.

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A41. It is now time to consider the third issue.

42. As noted above, C.A. Nos.9212-9213 of 2012 have beendismissed qua the writ petitioner, i.e., PNB. Having regard to such position,it would not be proper to delve deep into the question as to whether theState has the first charge over the property in question or not. This isBparticularly because PNB was not represented before us on the datejudgment was reserved inview of the prior dismissal of the civil appealsand no application had been filed by the State to recall such order. Wefurtherdo not consider it appropriate to reopen the proceedings againstPNB, bearing in mind the circumstance that more than a decade haslapsed since the order of this Court dated 8[th] April, 2011 was made.CHowever, if the lis in the writ petition of PNB had subsisted, we wouldhave ruled in its favour upon acceptance of the other reasons in thedecision dated 7[th ]September, 2007 which, in the extracted portion, hasbeen highlighted by us above. We, therefore,would allow the matter torest.D

43. Before parting with C.A. Nos.9212-9213 of 2012, we mayobserve that in view of the findings returned by the High Court on thequestion of absence of determination of liability, with which we haveconcurred, it was absolutely unnecessary for the High Court to outlawsection 16-B of the HPGST Act.

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44. Insofar as C.A.Nos.8980-8981of 2012 isconcerned, the thirdissue is very much alive and needs to be addressed.

45. The discussion must begin with a reading of the relevantprovisions of the HPGST Act. Section 14 of the HPGST Act postulatesassessment of tax. The cumulative effect of the several sub-sections ofFsection 14 is that after returns are furnished by a dealer in respect ofany period, the duty of the assessing authority is to assess the appropriatequantum of tax required to be paid by the dealer, in terms of the procedurelaid down therein; and to initiate steps, also in terms of the laid downprocedure, to recover any amount of unpaid tax, penalty or interestGpayable under the enactment.Section 16 envisages that any amount oftax, penalty or interest payable under the HPGST Act remaining unpaidafter the due date shall be recoverable as arrears of land revenue. Section16-A, starting with a non-obstante clause, confers power on theCommissioner or any officer other than the one excluded to initiate aspecial mode of recovery. Then follows section 16-B, which is to theHfollowing effect:- “16-B. Tax to be first charge on property.- Notwithstandinganything to the contrary contained in any law for the timebeing in force, any amount of tax and penalty includinginterest, if any, payable by a dealer or any other person underthis Act shall be a fust charge on the property of the dealer orsuch other person.”

46. Having regard to the terms of section 16 of the HPGST Actnotedabove, the HPLR Act, to the extent the same provides for theprocedure for recovery of dues as arrears of land revenue, needs to bebriefly noticed.

47. Section 4(4) of the HPLR Act defines a defaulter as a personliable forarrears of land revenue and includessuch person who areresponsible as surety for the payment of the arrears. Section 23 providesfor the mode of making proclamation issued by a Revenue Officerrelating to any land and provides for the methods of proclamation. ChapterVI of the HPLR Act, is titled “Collection of Land Revenue”. Section 74sets out the process for recovery of the arrears while section 78 providesfor attachment of theestate or holding. Section 75 ordains that a writ ofdemand may be issued by the Revenue Officer on or after the date onwhich thearrears of land revenue accrue.Section 75-A envisages that atany time after arrears of land revenue accrue, a Revenue Officer mayissue a warrant directing an officer named therein to arrest the defaulterand bring him before the Revenue Officer and section 81 confers powerof sale of estate or holding. Although, there is no express provisionindicating the stage at which a defaulter can deny this liability, section 84opensup a remedy to a person denying hisliability before a Civil Court.

48. From the excerpt of the impugned judgment and order of theHigh Court dated 2[nd] January, 2008underlined above, it is clear thatproceedings were not initiated upon notice to the defaulters and the sumthey owed to the department had not been finally determined inaccordance with law. In view thereof, question of the State resorting tothe provisions contained in Chapter VI of the HPLR Act for recoveringthe dues, if at all, as arrears of land revenue did not arise. The ExciseDepartment, in its reply to CWP 306 of 2007, submitted that the non-obstante provision contained in section 16-B would prevail over anyinconsistent provisions in other laws; it was further submitted that in theevent of any conflict between any other statute and the HPGST, thelatter would prevail. The department further urged that sales taxes dues A

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Awould be higher in priority over any mortgage since the State wouldhave a first charge. It was also submitted that the Tehsildar wasrequested, on multiple occasions, to make the required red entries inrelation to the revenue records of the subject property, and not mutate/register the same at the behest of the first respondent.

B49. While adopting such a stand, the State and its departmenteither overlooked or were ignorant of the requirement of law that section16-B would be attracted only after determination of the liability and uponany sum becoming due and payable; and that, it is only thereafter thatthe charge, if any, would operate. We are of the opinion that no relevantdocumentary evidence having been placed before the High Court, whenCCWP 306 of 2007 was being heard, to indicate that necessary stepsunder the HPGST Act had been initiated by the State and its officers,the third issue has to be answered by holding that the State not havingtaken steps as required by law for realization of its dues, there was nodetermination of liability, a fortiori, question of taking recourse to theDHPLR Act for recovery of dues as arrears of land revenue did not arise.Without such determination of liability, no red entry marks could havebeen inserted in the revenue records and the High Court was right inholding that the State ought not to have refused mutation.

50. The fourth issue need not detain us for too long.As it is, theEcivil appeals against PNB do not survive.Qua the other appeals, we areonce again of the opinion that the High Court was justified in notentertaining the application for recall. It was not maintainable in law,since the writ petition was decided on merits in the presence of theState. A recall application under section 151 of the CPC,therefore, wasnot the proper remedy in the circumstances. When the law provides aFspecific remedy, it is not open to a party to take recourse to section151.It preserves the inherent powers of the court to do justice in a casewhere the party has no other remedy under the CPC.Besides, even ifthe application for recall could have been regarded as one for review ofthe judgment and order dated 7[th] September, 2007, the same did notGwarrant to be entertained for the reasons assigned by the High Court.Noerror apparent on the face of the record was pointed out, which is thefirstground for seeking a review. Documents were annexed to theapplication, which were in existence when the reply to CWP 306 of2007 was filed by the State and no case had been set up that despitedischarge of due diligence, such documentary evidence, which were inH

existence, could not be annexed to the said reply. Much indulgence isshown to the State Governmentswhen they carryjudgments/orders intime-barred appeals/revisions, having regard to the impersonal machinerybeing involved. However, undueindulgence cannot be shown to the StateGovernments either when they do not file a proper reply or when, despitethere being a provision for review, such remedy is not pursued and adifferent one pursued presumably to overcome the restrictions theprovision for review imposes. We, therefore, answer this issue by holdingthat High Court was justified in rejecting the application for recall.

51. The fifth issue stands disposed of by holding that the appellants(State and its officers) are not entitled to any relief except the declarationthat section 16-B of the HPGST Act is not ultra vires any provision oflaw.In view of section 16-B having been outlawed by the High Court on2[nd] January, 2008, this declaration shall not enure to the benefit of theState in respect of cases that are old and have been closed but would beeffective once again from this day.

52. Consequently, all the civil appeals stand disposed of on theaforesaid terms.Parties shall bear their own costs.

Divya Pandey(Assisted by : Roopanshi Virang, LCRA)

Appeals disposed of.

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