Supreme Court Of India
Delhi Auto & General Finance (P) Ltd. vs. Tax Recovery Officer & Ors.
Sections SCH. II, RULE 4, KER GEN ST 23
B.P. Jeevan Reddy & S. Saghir Ahmad, JJ.
Civil Appeal Nos. 2109 of 1978 & 1083 of 1980
13th March, 1996
J.D. Jain with K.C. Dua, for the Appellant : Dr. R.R. Mishra with S.N. Terdol & M.T. George, for the Respondent
BY THE COURT :
Civil Appeal No. 2109 of 1978 Heard counsel for the parties. Even if it is assumed for the sake of argument that a charge was created by the award made by the arbitrator, it cannot be said to be effective in law. The charge becomes effective only when the award is made a rule of the Court and that was done in this case on 24th Nov., 1970, whereas the attachment by the TRO under the provisions of Sch. II to the IT Act was earlier, i.e., on 4th Nov., 1970. In this view of the matter, the High Court was right in taking the view it did. Appeal is accordingly dismissed. No costs. Civil Appeal No. 1083 of 1980 The appellant had instituted a suit against the third party for recovery of money. In that suit, the matter was referred to arbitration. The arbitrator passed an award in the year 1966 in which he is stated to have, inter alia, created a charge on the properties of the said third party borrower in favour of the appellant. The appellant applied for making the award a rule of the Court. The borrower contested the same but ultimately there was a compromise between them. The Court made the award a rule of the Court in terms of the compromise by its order dt. 24th Nov., 1970. Clause (6) of the compromise decree reads thus : “Charge on the properties as ordered by the Court on 26th March, 1966, will continue till the entire decretal amount is paid in full.”
For understanding cl. (6), it is necessary to see what are the terms of the order dt. 26th March, 1966. It reads as follows : “Ad interim injunction is issued restraining the respondents for selling, disposing of or from creating any charge, lien or interest on the following property Kizhakke Kotharam Building, Kulathunkal office building, situated at Trivandrum and a vacant plot situated at Trivandrum and a vacant plot situated at Cochin as described in the arbitration agreement till further orders of this Court. Notice of this application also given to the respondents and copy of the order be sent to the Sub-Registrar, Trivandum and Cochin.”
The reading of the said two clauses together would show that though cl. (6) of the compromise decree uses the word “charge”, the decree did not really create a charge upon the properties as understood under the Transfer of Property Act. What was done was merely to continue the order dt. 26th March, 1966âorder of injunction restraining alienation, etc.âtill the entire decretal amount is paid. The Court making the award a rule of the Court continued the said order till the full payment of the decretal amount. No charge was created under the said order. Now, what happened in this case is that the said borrower had failed to pay the sales-tax arrears due to the State of Kerala. On 12th Jan., 1971, a demand notice was served upon the said defaulter as contemplated by s. 23 of the Kerala Sales-tax Act. The amount was not paid within twenty-one days of the service of the said notice on which account a charge gets automatically created upon the properties of the defaulter as provided by s. 23(1). Sec. 23(1) of the Kerala General Sales-tax Act reads as under : “23. Payment and recovery of tax.â(1) The tax assessed or any other amount demanded under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in the notice of demand, not being less than twenty-one days from the date of service of the notice. If default is made in paying according to the notice of demand, the whole of the amount outstanding on the date of the default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or other amount under this Act: Provided that the time-limit of twenty-one days for a notice under this sub-section shall not apply to casual traders.”
In view of the above facts, it is idle to contend that the appellant has a priority for payment of the amount due to him over the sales-tax amount due to the State from the borrower under the Kerala Sales-tax Act.
The appeal is accordingly dismissed. No costs.
[Citation: 236 ITR 325]