PUNJAB NATIONAL BANK Case

PUNJAB NATIONAL BANK vs UNION OF INDIA

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2196 OF 2012
PUNJAB NATIONAL BANK        …..APPELLANT
VERSUS
UNION OF INDIA & ORS.    …RESPONDENTS
J U D G M E N T
Vineet Saran, J.
1. The present Civil Appeal arises out of the judgment
and order dated 05.08.2008 passed by the Allahabad
High   Court,   wherein   the   writ   petition   filed   by   the
Appellant was dismissed in limine.
2. The brief facts of the case, relevant for the purpose of
the   present   appeal,   are   that   the   Commissioner,
Customs and Central Excise, Ghaziabad (Respondent
No. 2) issued a show cause notice dated 31.12.1996 to
M/s Rathi Ispat Ltd./Respondent No. 4 (for short “RIL”)
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for evasion of excise duty and violation of the Central
Excise   Act,   1944.   By   an   order   dated   25.11.1997,
Respondent No. 2 confirmed an excise duty demand of
Rs.6,97,62,102/­ against RIL and imposed a penalty of
Rs.7,98,03,000/­ under Rule 173Q(1) and confiscated
the land, building, plant and machinery of RIL under
Rule 173Q(2) of the Central Excise Rules, 1944 (for
short “1944 Rules”).   Sub­rule 2 of Rule 173Q of the
Central Excise Rules, 1944, came to be omitted by a
notification   dated   12.05.2000   issued   by   the
Government of India.   Subsequently, the order dated
25.11.1997 was set aside by the Customs, Excise &
Gold (Control) Appellate Tribunal (CEGAT), now known
as   the   Customs   Excise   and   Service   Tax   Appellate
Tribunal   (CESTAT),   on   the   ground   of   violation   of
principles   of   natural   justice,   and   the   matter   was
remanded back for de novo proceedings. 
3. In   2005,   RIL   availed   credit   facilities   under   various
schemes   from   the   consortium   of   banks,   with   the
Appellant/Punjab National Bank as the lead bank, and
mortgaged/hypothecated   all   its   movable   and
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immovable   properties   for   securing   the   loan.     RIL
created   a   charge   on   both   the   assets   (raw   material,
stock in progress, finished goods, receivables etc.) and
block (land, building, plant, machinery and other fixed
assets) of the company in favour of the Appellant bank.
4. Subsequently, the Commissioner Customs and Central
Excise,   Ghaziabad   vide   order   dt.   26.03.2007,
confirmed   the   demand   of   excise   duty   of
Rs.7,98,02,226/­ and a penalty of Rs.7,98,03,000/­ on
RIL.   The   Commissioner   also   ordered,   under   rule
173Q(2) of the 1944 Rules, for the confiscation of all
the   land,   building,   plant,   machinery   and   materials
used in connection with manufacture and storage.
5. The Central Excise Commissioner, vide another order
dated   29.03.2007,   confirmed   a   demand   of   central
excise   duty   amounting   to   Rs.2,67,00,348   and
Rs.74,24,332   from   RIL.   The   Commissioner   also
imposed   a   penalty   of   Rs.3,41,24,680/­   and   further,
under   rule   173Q(2)   of   the   1944   Rules,   ordered
confiscation   of   land,   building,   plant,   machinery,
material,   conveyance   etc.   of   RIL   that   were   used   in
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connection with manufacture, production, storage or
disposal of goods. 
6. However, in light of the fact that RIL had defaulted in
clearing the loan amount and had failed to liquidate
outstanding dues, the Appellant bank, on 02.08.2007,
issued   notice   to   RIL   under   section   13(2)   of   the
SARFAESI Act, 2002, further, notice was issued to RIL
under section 13(4) of SARFAESI Act, 2002.
7. In light of the section 13(4) notice, the Office of the
Assistant Commissioner, Customs and Central Excise
Division   informed   the   bank,   vide   a   letter   dated
27.11.2007, that the property was already confiscated
by virtue of Rule 173Q(2) of 1944 Rules and that an
appeal is pending against the orders and the matter is
sub­judice. Appellant bank replied to the above letter
on 22.12.2007, whereby it informed the department
that the properties in question had been mortgaged
with   the   bank   and  RIL   was   required   to   satisfy   the
debts. In furtherance of this, the Appellant bank took
symbolic possession of the properties on 28.12.2007.
Subsequently, the Appellant bank was informed by the
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Assistant Commissioner, Customs and Central Excise,
vide a letter dated 15.01.2008, that the properties of
RIL   should   not   be   dealt   with   without   their   written
consent.
8. In essence, it has been the contention of the Customs
& Excise Department that in view of the fact that that
all the movable and immovable properties of RIL stand
confiscated by the orders passed by the Commissioner,
Customs & Central Excise, Ghaziabad, the possession
of the property in question cannot be taken by the
Appellant bank. 
9. Aggrieved   by   the   orders   of   confiscation   (dated
26.03.2007   and   29.03.2007)   and   the   further
communications/letters   by   the   department   (dated
27.11.2007 and 15.01.2008), the Appellant bank filed
a Writ Petition before the Allahabad High Court, which
was dismissed with the observations that: 
“We find that in the present case, taxes are
not sought to be recovered from M/s Rathi
Ispat   Ltd.,   respondent   No.   4,   by   way   of
attachment or otherwise from the movable
or immovable assets of the respondent no.4,
but   the   stand   of   the   Central   Excise
Authorities   is   that   the   properties   stand
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confiscated   and   vests   in   the   Central
Government   as   a   result   of   the   order   of
confiscation”
The High Court further held that:
“From   the   meaning   of   the   word
confiscate/confiscation”, we find that if any
property has been confiscated it vests in the
state and no person can claim any right,
title, or interest over it.”
While   dismissing   the   Writ   Petition   of   the   Appellant
bank, the Allahabad High Court, eventually held that: 
“In view of the matter, the question of first
charge or second charge over the properties
would   not   arise.   The   debt   does   not   get
extinguished   but   it   cannot   be   recovered
from the confiscated property that being the
position, we do not find any merit in the
Writ Petition. So far as the challenge to the
order of confiscation is concerned, we may
mention   that   the   petitioner   has   no   locus
standi to challenge the order of confiscation
as   the   Respondent   no.   4   has   already
preferred an appeal against it. However, if
in appeal preferred by Respondent no. 4,
the order of confiscation is set aside then
the bank can proceed against the properties
in question in accordance with law”
10. Aggrieved by the abovementioned High Court Order,
this  appeal has  been  filed by  way of  Special Leave
Petition. 
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11. Mr.   Dhruv   Mehta,   learned   Senior   Counsel   for   the
Appellant Bank has raised before us the following two
issues which arise for our consideration:
Issue No.1: Whether the Ld. Commissioner Custom
and Central Excise could have invoked the powers
under Rule 173(Q)(2) of Central Excise Rules, 1944
on 26.03.2007 and 29.03.2007 for confiscation of
land, buildings etc., when on such date, the rule
173Q(2) was not on the Statue Book having been
omitted w.e.f. 17.05.2000?
Issue   No.2:  Whether   in   the   absence   of   any
provisions providing for First Charge in relation to
Central Excise dues in the Central Excise Act, 1944,
the   dues   of   the   Excise   department   would   have
priority over the dues of the Secured Creditors or
not?
12. With respect to the first issue, it has been argued by
the learned Counsel for the Appellant bank that the
Commissioner could not have passed the orders dated
26.03.2007 and 29.03.2007 by invoking the powers
under Rule 173Q(2), which was not in existence in the
Statute Books as on the said date, having been omitted
by a notification dated 12.05.2000. 
13. It   has   been   contended   that   reliance   upon   the
provisions   contained   in   Section   38A   of   the   Central
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Excise Act, 1944 and Section 6 of the General Clauses
Act, 1897 to support the orders of the Commissioner is
liable to be rejected for the reason that a Constitution
Bench   of   this   Court,   in   the   matter   of  Kolhapur
Canesugar  Works   Ltd.  Vs   Union   of   India  &   Ors.
[(2000)   2   SCC   536]  has   held   that   the   provisions
contained   in   section   6   of   the   General   Clauses   Act,
1897 are not applicable to the Central Excise Rules. It
has further been contended that no reliance can be
placed on section 38A for the reason that the provision
contained in the said section 38A are attracted “unless
a different intention appears”. In the present case, the
contra­intention of the legislature that the legislature
did   not   intent   to   revive/restore   the   power   of
confiscation   of   any   land,   building,   plant   machinery
etc., after omission of the provisions contained in Rule
173Q(2) w.e.f 12.05.2000 is evident from the following:
I. The provisions contained in Rule 173Q(2) i.e.
power to confiscate any land, building, plant,
machinery   etc.   after   omission   w.e.f.
12.05.2000 has not been introduced in the
subsequent   Central   Excise   Rules,   2001,
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Central   Excise   Rules,   2002   and   Central
Excise Rules, 2017.
II. Further,   Rule   211   of   the   Central   Excise
Rules,   1944,   inter   alia,   provided   that
“anything” confiscated under the Rules shall
thereupon   vest   in   Central   Government,
whereas Rule 28 of the Central Excise Rules
of   2001,   2002   and   2017,   which   are   pari
materia to the earlier Rule 211 of the 1944
Rules,   instead   of   the   word   “anything”,
provided for vesting of confiscated “Goods” in
the Central Government.
III. Thus, after omission of Rule 173Q(2) of 1944
Rules   w.e.f.   12.05.2000   and   after
supersession of Rule 211 of 1944 Rules in the
year 2001, the newly enacted Rule 28 of the
Rules of 2001, Rule 28 of the Rules of 2002
and Rule 28 of the Rules of 2017, did not
provide for confiscation of any land, building,
plant, machinery etc. and their consequent
vesting in the Central Government, as Rule
28 only provided for vesting in the Central
Government the “Goods” confiscated by the
Central Excise Authorities under the Excise
Act, 1944. 
In support of the abovementioned submissions, Mr.
Dhruv Mehta relies upon a judgment of the Gujarat
High Court, in the matter of Kotak Mahindra Bank
Ltd.   Vs.   District   Magistrate   [2010   SCC   online
Gujarat 10656]. 
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14. With respect to the first issue, the Senior Counsel for
the Appellant concluded his submission by stating that
the   Commissioner   had   no   power,   authority   or
jurisdiction to invoke the provisions contained in Rule
173Q(2)   of   the   Central   Excise   Rules,   which   stood
omitted from the Statue book w.e.f. 12.05.2000, much
prior to the passing of the orders dated 26.03.2007
and 29.03.2007.
15. The second issue raised by the learned Senior Counsel
for the Appellant is  “Whether in the absence of any
provisions   providing   for   First   Charge   in   relation   to
Central Excise dues in the Central Excise Act, 1944, the
dues of the Excise department would have priority over
the dues of the Secured Creditors or not?” It has been
contended that prior to insertion of Section 11E in the
Central Excise Act, 1944 w.e.f. 08.04.2011, there was
no provision in the Act of 1944 inter alia, providing for
First Charge on the property of the Assessee or any
person under the Act of 1944. Therefore, in the event
like the present case, where the land, building, plant
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machinery, etc. had been mortgaged/hypothecated in
favour of the secured creditor, having regard to the
provisions   contained   in   section   2(zc)   to   (zf)   of
SARFAESI Act, 2002, read with provisions contained in
Section 13 of the SARFAESI Act, 2002, the secured
creditor will have a First Charge on the Secured Assets.
16. The learned Senior Counsel has further submitted that
section   35   of   the   SARFAESI   Act,   2002   inter   alia,
provides   that   the   provisions   of   the   said   Act,
notwithstanding   anything   inconsistent   therewith
contained in any other law for the time being in force
or any instrument having effect by virtue of any such
law, the provisions of the SARFAESI Act, 2002 shall
have overriding effect on all other laws. It was further
contended   that   even   the   provisions   contained   in
section 11E of the Central Excise Act, 1944, which has
been   inserted   w.e.f.   08.04.2011,   provides   for   First
Charge on the property of the Assessee and is a nonobstante Clause. However, the provisions contained in
Section 11E are subject to the provisions contained in
the   SARFAESI   Act,   2002.   Thus,   the   provisions   of
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SARFAESI Act, 2002, even after insertion of Section
11E in the Central Excise Act, 1944 w.e.f. 08.04.2011,
has overriding effect on the provisions of the Act of
1944.
17. In addition to the abovementioned submissions, the
learned Senior Counsel for the Appellant has argued
that it is well settled law laid down by this Court that
the Crown debts (Unsecured) have no priority over the
Secured   dues   of   the   Secured   Creditors/   Pawnee/
Bailee. In support of the above submission, reliance
has been placed upon the following judgements:
i. Bank of Bihar vs State of Bihar [(1972) 3 SCC
196]
ii. Dena Bank vs Bhikhabhai Prabhu Dass Parikh &
Anr. [(2000) 5 SCC 694]
iii. Central   Bank   of   India   Vs.  Siriguppa   Sugurs   &
Chemicals Ltd. & Ors. [(2007) 8 SCC 353]
iv. Union of India vs SICOM Ltd. & Anr. [(2009) 2
SCC 121]
v. Rana   Girders   Ltd.   Vs   Union   of   India   &   Ors.
[(2012) 10 SCC 746]
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vi. Sitani   Textiles   and   Fabrics   (Pvt.)   Ltd.   Vs.
Assistant Collector of Customs & Central Excise
[1998 SCC Online Andhra Pradesh 416]
vii. UTI   Bank   Ltd.   Vs.   Dy.   Commissioner   Central
Excise   [2006   SCC   Online   Madras   1182   (Full
Bench)] 
viii. Krishna Lifestyle Technologies Ltd. Vs. Union of
India & Ors. [2008 SCC Online Bombay 137]
18. Mr. Mehta has, thus, submitted that in view of the
above submissions and decided cases, the Appellant
bank, being a secured creditor under the provisions of
SARFAESI Act, 2002, had First Charge on the secured
Assets and is entitled to recover its secured dues, prior
to the dues of the Excise Department. It has also been
submitted that the intention of the Legislature, apart
from the provisions contained in Section 11E in the
Central Excise Act, 1944 [inserted w.e.f. 08.04.2011],
is also evident from the subsequent provisions inserted
in RDBA Act, 1993, by way of Section 31B [notified
w.e.f. 01.09.2016] and insertion of Section 26E in the
SARFAESI Act [w.e.f. 24.01.2020], that the Legislature
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has   always   intended   that   the   Banks   and   Financial
Institutions  will have  priority to  recover  its secured
dues   from   the   Secured   Assets   prior   to
payment/recovery   of   the   dues   of   Revenue/Taxes,
Government dues.
19. Per   contra,   Mr.   K.M.   Nataraj,   learned   Additional
Solicitor   General   appearing   for   the   respondent   has
contended   that   the   appeal   raises   the   following   two
questions of law:
(A) Issue   No.   1:   Whether   a   confiscation   order
passed by Respondent No. 2 in respect of the
land,   building,   plant   and   machinery   of   the
Respondent No. 4 (RIL) can be defeated by a
security   interest   created   by   the   said
Respondent   No.   4   (RIL)   in   favour   of   the
Appellants   and   other   banks,   almost   8   years
after the confiscation proceedings (under Rule
173Q(2) of the Central Excise Rules, 1944) had
been initiated by the respondent No. 2 against
RIL?
(B) Issue No. 2: Whether the Proceedings initiated
by the Respondent no.2, Commissioner Custom
&   Central   Excise   under   rule   173Q(2)   of   the
Central   Excise   Rules,   1944,   prior   to   the
omission of the said Rule from the Statute Book
are not saved on account of Section 38A(c) and
38A(e)   of   the   Central   Excise   Act,   1944   and
consequently, Whether the Commissioner was
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not justified in passing orders of confiscation
dated 26.03.2007 and 29.03.2007, although on
such date, the said Rule 173Q(2) was omitted
and   the   1944   rules   were   replaced   with   the
Central Excise Rules 2001 subsequently. 
20. The learned Additional Solicitor General submitted that
the first issue raised by the Appellant was never raised
by the Appellant either before the Tribunal or in the
Appeal before this Court and has been raised for the
first time in this Appeal. 
21. With   respect   to   the   second   issue   raised   by   the
Appellant, it has been argued by the Learned ASG that
this   question,   as   framed   and   answered   by   the
Appellant, is entirely alien to the dispute at hand. The
present dispute is not at all one of priority of charges
or   debts.   On   the   other   hand,   what   was   challenged
before the High Court was the order of confiscation,
and   the   relevant   question   for   consideration   of   this
Court is whether a confiscation order passed by the
Central   Excise   Authorities   in   respect   of   the   land,
building, plant and machinery of RIL can be defeated
by a security interest created by RIL in favour of the
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Appellant and other banks, almost 8 years after the
confiscation proceedings (under Rule 173Q(2) of the
Central Excise Rules, 1944) had been initiated by the
respondent No. 2 against RIL?
22. Mr.   K.M.   Nataraj,   ASG,   has   contended   that   the
proceedings   under   Rule   173Q(2)   of   the   1944   Rules
commenced by show cause notice dated 31.12.1996.
Notwithstanding the omission of Section 173Q(2) from
the 1944 Rules vide notification dated 12.05.2000, the
respondent No. 3 was entitled to continue proceedings
on account of Section 38A(c) and Section 38A(e) of the
Central Excise Act, 1944. The respondent No. 2 was
therefore entitled to pass orders dated 26.03.2007 and
29.03.2007   in   exercise   of   his   powers   under   the
repealed Rule 173Q(2) of the 1944 Rules, even though
as on the date of the said orders, the 1944 Rules had
been replaced. In support of the same he submitted
that   it   is   not   in   dispute   that   the   confiscation
proceedings   against   RIL   were   initiated   in   1996   i.e.
much before the repeal of the 1944 Rules and although
the order initially passed in those proceedings was set
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aside by the CEGAT on account of the violation of the
principles   of   natural   justice,   it   is   evident   from   the
remand order itself that the proceedings (post remand)
were a continuation of what had been initiated vide
show cause notice dated 31.12.1996. To buttress this
submission,   reliance   has   been   placed   upon   the
decision   rendered   in   the   case   of  Nagarjuna
Construction   Company   Ltd.   Vs.   Government   of
Andhra  Pradesh  (2008)  16  SCC  276,  wherein it is
held  that  when  an  order  is  stuck down  as invalid,
being in violation of principles of natural justice, all
that is done is vacation of the order assailed by virtue
of   its   inherent   defect,   but   the   proceedings   are   not
terminated.   While   doing   so,   this   court   relied   upon
Canara Bank vs Debasis Das (2003) 4 SCC 557).
23. It was thus urged, that once it is established that the
confiscation   proceedings   under   Rule   173Q   started
much prior to the omission of the said Rule from the
Statute,   the   question   for   consideration   would   be
whether   the   proceedings   against   RIL   could   be
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continued under a provision which no longer existed
on the Statute. Mr. K.M. Nataraj, ASG has submitted
in this context that section 38A of the Central Excise
Act, 1944, provides, inter alia, that even when a Rule is
repealed, amended or superseded, unless a different
intention appears, such repeal would not affect any
right   or   liability   acquired   or   accrued   or   affect   any
investigation, legal proceeding or remedy in respect of
any such right or liability.
24. In context of the application of section 6 of the General
Clauses Act, 1897, learned ASG relied upon decisions
of   this   Court   in   the   cases   of  Gammon   India   vs
Special   Chief   Secretary   [(2006)   3   SCC   354];
Ambalal   Sarabhai   Enterprises   Ltd.   Vs   Amritlal
[(2001)   8   SCC   397];   Brihan   Maharashtra   Sugar
Syndicate   Ltd.   Vs   Janarand   Ramachandra
Kulkarni   (1960   3   SCR   85)  and   contended   that
although Rule 173Q(2) was initially omitted from the
1944  Rules  and   subsequently   the   1944  Rules  were
repealed   and   were   substituted   by   the   2001   Rules,
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there was nothing expressly stated in the new Rules
which   manifested   any   intention   to   destroy   the
liabilities which came into existence on account of the
1944   Rules   or   which   manifested   any   intention   to
nullify any investigation that was pending in respect of
such accrued liability. Learned ASG thus submitted,
that Section 38A(c) and 38A(e) of the Central Excise
Act would apply with full force to save the proceedings
which had already been initiated under Rule 173Q(2)
of the 1944 Rules, as Section 38A(c) of the Act saves
the rights and liabilities which were not only acquired
but also accrued as on the date of the amendment or
repeal of a provision, and Section 38A(e) of the Act
saves investigations  that had  commenced  into  such
rights and liabilities.
25. Mr. Natraj, learned ASG has further submitted that the
second   issue  raised by the Appellant (regarding the
priority of the dues of the secured creditor over that of
crown debts or government debts) does not arise at all
in the facts of the present case, since the confiscation
order by the Respondent No. 2 is not merely an order
19
for recovery of dues but instead is in the nature of a
penal order to punish the wrongdoer i.e. RIL. This, is
evident from the fact that even under the 1944 Rules,
confiscation is provided for under Rule 173Q whereas
mere recovery of dues is provided for under section 11
of the Central Excise Act, 1944. 
26. It is contended by Mr. K.M. Nataraj, ASG, that in the
present   case,   the   confiscation   proceedings   were
initiated   almost   9   years   prior   to   the   charge   being
created in respect of the very same properties. At the
time   of   creation   of   security   interest,   it   was   for   the
Appellant bank to be aware of the existence of the
confiscation proceedings. It is further submitted that a
charge   or   security   interest   created   on   a   property
cannot   defeat   or   affect   confiscation   proceedings
initiated by a statutory body in any manner. 
27. Mr.   Natraj,   learned   ASG   also   contended   that   the
decisions   relied   upon   by   the   Appellant   are
distinguishable on facts, since those cases deal with
the question of priority of a secured creditor over the
Crown’s debts and does not even touch on the issue of
20
confiscation proceedings with respect to the interest of
a secured creditor.
28. It has been submitted that a similar question did arise
in   the   case   of  Bank   of   Bihar   vs   State   of   Bihar
[(1972)   3   SCC   196],   where   a   question   was   as   to
whether   a   valid   seizure   can   defeat   the   right   of   a
secured   creditor.   In   that   case,   this   Court   did   not
interfere with the seizure but only held that after the
goods had been seized by the government, the secured
creditors may still retain his right to satisfy his debt.
This principle finds reflection in Section 13(4)(d) of the
SARFAESI Act. It has, thus, been submitted that, at
best,   the   Appellant   may   resort   to   the   mechanism
prescribed under section 13(4)(d) of the SARFAESI Act
to  recover the amounts due to it,  if and  when  the
properties   are   sold   by   the   respondent   authorities.
Therefore,   assuming   the   existence   of   any   right   of
recovery from Respondents, the Appellant may, at best,
be entitled to issue a notice as envisaged in Section
13(4)(d) of the SARFAESI Act and then take the further
steps mentioned therein.
21
29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the
validity of the confiscation order cannot be called into
question merely on account of the Appellant being a
secured   creditor.   The   question   as   to   whether   the
amounts due to the Customs Department would have
priority over the debts due to the secured creditor does
not arise in this case, since what is challenged is the
confiscation   order   and   nothing   else.   A   confiscation
order, cannot be quashed merely because a security
interest is created in respect of the very same property.
30. For   ready   reference,   the   relevant   provisions   of   the
concerned Act and Rules are extracted below:­ 
(Central Excise Act, 1944)
“Section 11.     Recovery of sums due to
Government. ­ In respect of duty and any
other   sums   of   any   kind   payable   to   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 11D, the officer
empowered by the Central Board of Excise
and Customs constituted under the Central
Boards of Revenue Act, 1963 (54 of 1963) to
levy such duty or require the payment of
such sums [may deduct or require any other
Central   Excise   officer   or   a   proper   officer
22
referred to in section 142 of the customs
act, 1962 (52 of 1962) to 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
hands or under his disposal or control or
may be in the hands or under disposal or
control of such other officer, 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   prepare   a   certificate
signed by him specifying the amount due
from the person liable  to pay the same and
send   it   to   the   Collector   of   the   district   in
which such person resides or conducts his
business and the said Collector, on receipt
of such certificate, shall proceed to recover
from the said person the amount specified
therein   as   if   it   were   an   arrear   of   land
revenue.
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   ownership
thereof,   in   consequence   of   which   he   is
succeeded in such business or trade by any
other person, 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
obtaining   written   approval   from   the
Principal Commissioner of Central Excise or
23
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.”
“Section   38A.  Effect   of   amendments,
etc., of rules, notifications or orders.  ­
Where any rule, notification or order made
or issued under this Act or any notification
or   order   issued   under   such   rule,   is
amended,   repealed,   superseded   or
rescinded, then, unless a different intention
appears,   such   amendment,   repeal,
supersession or rescinding shall not ­
a) revive anything not in force or existing at
the time at which the amendment, repeal,
supersession or rescinding takes effect; or
b) affect the previous operation of any rule,
notification or order so amended, repealed,
superseded or rescinded or anything duly
done or suffered thereunder; or
c) affect any right, privilege, obligation or
liability acquired, accrued or incurred under
any rule, notification or order so amended,
repealed, superseded or rescinded; or
d)   affect   any   penalty,   forfeiture   or
punishment   incurred   in   respect   of   any
offence committed under or in violation of
any rule, notification or order so amended,
repealed, superseded or rescinded; or
e) affect any investigation, legal proceeding
or   remedy   in   respect   of   any   such   right,
privilege,   obligation,   liability,   penalty,
forfeiture or punishment as aforesaid, and
any such investigation, legal proceeding or
remedy   may   be   instituted,   continued   or
enforced and any such penalty, forfeiture or
punishment may be imposed as if the rule,
24
notification or order, as the case may be,
had   not   been   amended,   repealed,
superseded or rescinded.”
(Central   Excise   Act,   1944)   w.e.f.
08.04.2011
“Section 11E. Liability under Act to be
first charge. ­
Notwithstanding   anything   to   the   contrary
contained in any Central Act or State Act,
any amount  of  duty, penalty, interest, or
any other sum payable by an assessee or
any other person under this Act or the rules
made thereunder shall, save as otherwise
provided in section 529A of the Companies
Act, 1956, (1 of 1956) the Recovery of Debts
Due to Banks and the Financial Institutions
Act,   1993   (51   of   1993)   and   the
Securitisation   and   Reconstruction   of
Financial   Assets   and   the   Enforcement   of
Security Interest Act, 2002, (54 of 2002) be
the   first   charge   on   the   property   of   the
assessee or the person, as the case may
be.”
Rule   173   Q   of   Central   Excise   Rules.
1944 Prior to 12.5.2000
“Rule 173 Q. Confiscation and Penalty­
(1)   If   any   manufacturer,   producer   or
licensee of a warehouse­
(a) Removes   any   excisable   goods   in
contravention   of   any   of   the   provisions   of
these rules; or
(b) Does   not   account   for   any   excisable
goods manufactured, produced or stored by
him; or
(c) Engages   in   the   manufacture,
production   or   storage   of   any   excisable
25
goods without having applied for the license
required under section 6 of the Act; or
(d) Contravenes  any of  the  provisions  of
these rules with intent to evade payment of
duty,
Then   all   such   goods   shall   be   liable   to
confiscation and the manufacturer producer
or licensee of the warehouse, as the case
may   be   shall   be   liable   to   a   penalty   not
exceeding   three   times   the   value   of   the
excisable   goods   in   respect   of   which   any
contravention  of  the  nature  referred  to in
clause   (a)   or   clause   (b)   or   clause   (c)   or
clause   (d)   has   been   committed   or   five
thousand rupees, whichever is greater. 
(2) Where­
(a) In case of a contravention of the nature
referred   to   in   clause   (a)   or   clause   (b)   or
clause (c) or clause (d) of sub rule (1), the
duty   leviable   on   the   excisable   goods
referred to in that sub rule exceeds one lakh
rupees, or
(b) Any manufacturer, producer or licensee
of   a   warehouse,   whose   excisable   goods
were   confiscated   under   sub   rule   (1)   and
upon   whom   penalty   was   imposed   under
that sub rule, contravenes against any of
the provisions of clause (a) or clause (b) or
clause (c) or clause (d) of sub rule (1) and
the duty leviable on the excisable goods in
respect of the contravention for the second
or   any   subsequent   occasion   exceeds   ten
thousand rupees.
Then, in a case falling under clause (a) of
this   sub   rule   or   in   a   case   falling   under
clause   (b)   thereof   (whether   the
contravention under that clause has been
26
committed for the second or any subsequent
occasion),   the   officer   adjudging   the   case
under section 33 of the Act may, in addition
to the award of the confiscation and penalty
under the sub rule (1), direct, for reasons to
be recorded in writing, the confiscation of
any or all of the following belonging to such
manufacturer,   producer   or   licensee   of   a
warehouse, namely:­
(i) any land, building,  plant,  machinery,
materials, conveyance, animal or any other
thing   used   in   connection   with   the
manufacture, production, storage, removal
or disposal of such goods, or
(ii) any   other   excisable   goods   on   such
land,   or   in   such   building   or   produced   or
manufactured with such plant, machinery,
materials or thing]”
(Central Excise Rules, 1944)
“Rule 211. On confiscation, property to
vest in Central Government: ­
(1)   When   anything   is   confiscated   under
these   rules,   such   things   shall   thereupon
vest in" Central Government.
(2) The officer adjudging confiscation shall
take   and   hold   possession   of   the   things
confiscated, and every Officer of Police, on
the requisition of such officer, shall assist
him   in   taking   and   holding   such
possession.”
Rule 28 of Central Excise Rules, 2001
[Issued   in   supersession   of   Central
Excise Rules, 1944]
“Rule  28. Confiscated  property  to   vest
in Central Government: ­
27
When   any   goods   are   confiscated   under
these   rules,   such   things   shall   thereupon
vest in the Central Government.
The   Central   Excise   Officer   adjudging
confiscation shall take and hold possession
of the things confiscated, and every officer
of police, on the requisition of such Central
Excise   Officer,   shall   assist   him   in   taking
and holding such possession.”
Rule 28 of Central Excise Rules, 2002
[Issued   in   supersession   of   Central
Excise Rules, 2001]
“Rule  28. Confiscated  property  to   vest
in Central Government: ­ 
When   any   goods   are   confiscated   under
these   rules,   such   things   shall   thereupon
vest in the Central Government.
The   Central   Excise   Officer   adjudging
confiscation shall take and hold possession
of the things confiscated, and every officer
of police, on the requisition of such Central
Excise   Officer,   shall   assist   him   in   taking
and holding such possession.”
Rule 28 of Central Excise Rules, 2017
[Issued   in   supersession   of   Central
Excise Rules,2002]
“RULE 28. Confiscation and penalty. —
(1) Subject to the provisions of section 11
AC   of   the   Act,   if   any   producer,
manufacturer,   registered   person   of   a
warehouse, or an importer who issues an
invoice   on   which   CENVAT   credit   can   be
taken, or a registered dealer,
(a)   removes   any   excisable   goods   in
contravention   of   any   of   the   provisions   of
these rules or the notifications issued under
these rules; or
28
(b) does not account for any excisable goods
produced or manufactured or stored by him;
or
(c) engages in the manufacture, production
or storage of any excisable goods without
having applied for the registration certificate
required under section 6 of the Act; or
(d)   contravenes   any   of   the   provisions   of
these rules or the notifications issued under
these rules with intent to evade payment of
duty,
then,   all   such   goods   shall   be   liable   to
confiscation   and   the   producer   or
manufacturer   or   registered   person   of   the
warehouse, or an importer who issues an
invoice   on   which   CENVAT   credit   can   be
taken, or a registered dealer, as the case
may   be,   shall   be   liable   to   a   penalty   not
exceeding the duty on the excisable goods
in respect of which any contravention of the
nature referred to in clause (a) or clause (b)
or   clause   (c)   or   clause   (d)   has   been
committed,   or   five   thousand   rupees,
whichever is greater.
(2)   An   order   under   sub­rule   (1)   shall   be
issued   by   the   Central   Excise   Officer,
following the principles of natural justice.”
SARFAESI Act, 2002
Section 2(zc) to 2(zf) 
“(zc)  “secured  asset” means the property
on which security interest is created; 
(zd) “secured creditor” means—
(i) any bank or financial institution or any
consortium or group of banks or financial
institutions   holding   any   right,   title   or
29
interest   upon   any   tangible   asset   or
intangible asset as specified in clause (l);
(ii)   debenture   trustee   appointed   by   any
bank or financial institution; or
(iii)   an   asset   reconstruction   company
whether acting as such or managing a trust
set up by
such asset reconstruction company for the
securitisation or reconstruction, as the case
may be; or
(iv)   debenture   trustee   registered   with   the
Board   appointed   by   any   company   for
secured debt securities; or
(v) any other trustee holding securities on
behalf of a bank or financial institution,
in whose favour security interest is created
by any borrower for due repayment of any
financial
assistance.]
(ze) “secured debt” means a debt which is
secured by any security interest;
(zf)  “security   interest”  means right, title
or  interest   of   any  kind,  other  than   those
specified   in   section   31,   upon   property
created in favour of any secured  creditor
and includes—
(i)   any   mortgage,   charge,   hypothecation,
assignment or any right, title or interest of
any kind, on tangible asset, retained by the
secured   creditor   as   an   owner   of   the
property, given on hire or financial lease or
conditional sale or under any other contract
which   secures   the   obligation   to   pay   any
unpaid portion of the purchase price of the
asset   or   an   obligation   incurred   or   credit
provided to enable the borrower to acquire
the tangible asset; or
30
(ii)   such   right,   title   or   interest   in   any
intangible asset or assignment or licence of
such   intangible   asset   which   secures   the
obligation to pay any unpaid portion of the
purchase price of the intangible asset or the
obligation incurred or any credit provided to
enable   the   borrower   to   acquire   the
intangible   asset   or   licence   of   intangible
asset.”
Section 13 
  “    13. Enforcement of security interest.—
(1) Notwithstanding anything contained in
section 69 or section 69A of the Transfer of
Property Act, 1882 (4 of 1882), any security
interest  created  in favour of  any secured
creditor   may   be   enforced,   without   the
intervention of the court or tribunal, by such
creditor in accordance with the provisions of
this Act.
(2) Where  any borrower, who  is  under a
liability   to   a   secured   creditor   under   a
security agreement, makes any default in
repayment   of   secured   debt   or   any
instalment   thereof,   and   his   account   in
respect   of   such   debt   is   classified   by   the
secured   creditor   as   non­performing   asset,
then, the secured creditor may require the
borrower by notice in writing to discharge in
full   his   liabilities   to   the   secured   creditor
within sixty days from the date of notice
failing which the secured creditor shall be
entitled to exercise all or any of the rights
under sub­section (4).
(3) The notice referred to in sub­section (2)
shall give details of the amount payable by
the   borrower   and   the   secured   assets
intended   to   be   enforced   by   the   secured
31
creditor   in   the   event   of   non­payment   of
secured debts by the borrower.
 (4) In case the borrower fails to discharge
his   liability   in   full   within   the   period
specified   in   sub­section   (2),   the   secured
creditor may take recourse to one or more of
the   following   measures   to   recover   his
secured debt, namely:—
(a) take possession of the secured
assets   of   the   borrower   including   the
right   to   transfer   by   way   of   lease,
assignment   or   sale   for   realising   the
secured asset;
[(b) take over the management of
the business of the borrower including
the right to transfer by way of lease,
assignment   or   sale   for   realising   the
secured asset:
Provided that the right to transfer
by way of lease, assignment or sale
shall   be   exercised   only   where   the
substantial part of the business of the
borrower   is   held   as   security   for   the
debt:
Provided   further   that   where   the
management of whole of the business
or part of the business is severable, the
secured   creditor   shall   take   over   the
management  of such business of  the
borrower   which   is   relatable   to   the
security for the debt;
(c)   appoint   any   person   (hereafter
referred to as the manager), to manage
the secured assets the possession of
which   has   been   taken   over   by   the
secured creditor;
(d) require at any time by notice in
writing, any person who has acquired
any   of   the   secured   assets   from   the
borrower and from whom any money is
32
due   or   may   become   due   to   the
borrower, to pay the secured creditor,
so much of the money as is sufficient to
pay the secured debt.
(5)   Any   payment   made   by   any   person
referred to in clause (d) of sub­section (4) to
the secured creditor shall give such person
a   valid   discharge   as   if   he   has   made
payment to the borrower.
(6)   Any   transfer   of   secured   asset   after
taking  possession  thereof  or  take  over of
management under sub­section (4), by the
secured   creditor   or   by   the   manager   on
behalf of the secured creditor shall vest in
the transferee all rights in, or in relation to,
the   secured   asset   transferred   as   if   the
transfer had been made by the owner of
such secured asset.
(7)   Where   any   action   has   been   taken
against a borrower under the provisions of
sub­section   (4),   all   costs,   charges   and
expenses   which,   in   the   opinion   of   the
secured   creditor,   have   been   properly
incurred by him or any expenses incidental
thereto,   shall   be   recoverable   from   the
borrower and the money which is received
by the secured creditor shall, in the absence
of any contract to the contrary, be held by
him   in   trust,   to   be   applied,   firstly,   in
payment   of   such   costs,   charges   and
expenses and secondly, in discharge of the
dues of the secured creditor and the residue
of the money so received shall be paid to
the   person   entitled   thereto   in   accordance
with his rights and interests.
8 ……………………..
9 ……………………..
10 ……………………
11 ……………………
12 ……………………
33
13 ……………………
SARFAESI Act, 2002
Section 35
  “35.   The   provisions   of   this   Act   to
override   other   laws.—The   provisions   of
this Act shall have effect, notwithstanding
anything   inconsistent   therewith   contained
in any other law for the time being in force
or any instrument having effect by virtue of
any such law.”             (emphasis
supplied)
31. We have heard learned counsel for both the parties at
length and have carefully perused the record.
32. The   Commissioner   Customs   and   Central   Excise,
Ghaziabad   vide   order   dt.   26.03.2007,   ordered   the
confiscation of all the land, building, plant, machinery
etc. of RIL. This confiscation order was passed under
rule   173Q(2)   of   the   Central   Excise   Rules,   1944.
However, in the impugned order, the High Court has
not considered that on the date of the confiscation
orders i.e. 26.03.2007 and 29.03.2007, Rule 173Q(2)
stood omitted from the statute books vide government
notification dated 12.05.2000. 
34
33. We do not find merit in the submission of the learned
Counsel for the Respondent that notwithstanding the
omission of Section 173Q(2) from the 1944 Rules vide
notification dated 12.05.2000, the Respondent No. 3
was entitled to continue the proceedings on account of
Section 38A(c) and Section 38A(e) of the Central Excise
Act, 1944, read along with Section 6 of the General
Clauses Act, 1897.
34. Constitution   bench   of   this   Court   in  Kolhapur
Canesugar  Works   Ltd.  Vs   Union   of   India  &   Ors.
[(2000) 2 SCC 536] has held that:
“11.   In   the   factual   backdrop   of   the   case
discussed earlier the question that arises
for determination is whether after omission
of   the   old   Rule   10   and   10­A   and   its
substitution   by   the   new   Rule   10   by   the
Notification   No   267/77   dated   6.8.77   the
proceedings   initiated   by   the   notice   dated
27.4.77 could be continued in law. If the
question is answered in the affirmative then
the order dated 15/27th October, 1977 of
the   Asstt.   Collector   of   Central   Excise
confirming the demand for re­credit of the
amount   of   Rs.   61,41,930   cannot   be
interfered with. On the other hand, if the
question is answered in the negative then
the said order is to be taken as non­est.
.
.
35
.
34.   (...)   It   is   not   correct   to   say   that   in
considering the question of maintainability
of   pending   proceedings   initiated   under   a
particular provision of the rule after the said
provision was omitted the Court is not to
look for a provision in the newly added rule
for continuing the pending proceedings. It is
also   not   correct   to   say   that   the   test   is
whether there is any provision in the rules
to the effect that pending proceedings will
lapse on omission of the rule under which
the notice was issued. It is our considered
view that in such a case the Court is to look
to the provisions in the rule which has been
introduced   after   omission   of   the   previous
rule   to   determine   whether   a   pending
proceeding will continue or lapse. If there is
a   provision   therein   that   pending
proceedings shall continue and be disposed
of under the old rule as if the rule has not
been   deleted   or   omitted   then   such   a
proceeding   will   continue.   If   the   case   is
covered by Section 6 of the General Clauses
Act or there is a pari­materia provision in
the statute under which the rule has been
framed   in   that   case   also   the   pending
proceeding will not be affected by omission
of   the   rule.   In   the   absence   of   any   such
provision in the statute or in the rule the
pending   proceedings   would   lapse   on   the
rule under which the notice was issued or
proceeding   was   initiated   being
deleted/omitted.  It is relevant to note here
that   in   the   present   case   the   question   of
divesting the Revenue of a vested right does
not arise since no order directing refund of
the amount had been passed on the date
when Rule 10 was omitted.
36
35. We, therefore, hold that the decisions of
the   Full  Bench  of  the  Gujarat  High  court
and the Division Bench of the Karnataka
High Court noted above were not correctly
decided. The said decisions are overruled.
36. In the case in hand, Rule 10 or Rule 10­
A   is   neither   a   "Central   Act"   nor   a
"Regulation" as defined in the Act. It may be
a   Rule   under   Section   3(51)   of   the   Act.
Section 6 is applicable where any Central
Act   or   Regulation   made   after
commencement of the General Clauses Act
repeals any enactment. It is not applicable
in the case of omission of a "Rule".
37.   The   position   is   well   known   that   at
common law, the normal effect of repealing
a   statute   or   deleting   a   provision   is   to
obliterate   it   from   the   statute   book   as
completely as if it had never been passed,
and the statute must be considered as a
law   that   never   existed.   To   this   rule,   an
exception   is   engrafted   by   the   provisions
Section 6(1). If a provision of a statute is
unconditionally   omitted   without   a   saving
clause in favour of pending proceedings, all
actions must stop where the omission finds
them,   and   if   final   relief   has   not   been
granted before the omission goes into effect,
it cannot be granted afterwards. Savings of
the   nature   contained   in   Section   6   or   in
special Acts may modify the position. Thus,
the operation of repeal or deletion as to the
future and the past largely depends on the
savings   applicable.   In   a   case   where   a
particular provision in a statute is omitted
and in its place another provision dealing
with   the   same   contingency   is   introduced
without   a   saving   clause   in   favour   of
37
pending   proceedings   then   it   can   be
reasonably inferred that the intention of the
legislature is that the pending proceeding
shall not continue but a fresh proceeding for
the same purpose may be initiated under
the new provision.”   
(emphasis supplied)
35. The Gujarat High Court in  Kotak  Mahindra   Bank
Ltd.   Vs.   District   Magistrate   [2010   SCC   online
Gujarat 10656] has held that from a perusal of Rule
28,   it   is   clear   that   the   Legislature   intended   to
confiscate   only   “goods”   which   is   distinct   from
immovable   property   like   land,   building,   plant,
machinery etc. We quote, with approval, the reason for
which,   the   High   Court   held   that  “The   competent
authority of Excise and Customs Department, including
the   Commissioner   of   Central   Excise   and   Customs,
Vadodara­II had no jurisdiction to confiscate the land
under Rule 173Q (2), the said rule having been omitted
and substituted by Rule 28, by the time the Order dated
25.02.2006   was   passed.   The   order   being   without
jurisdiction is nullity in the eye of law and thereby the
38
authorities cannot derive advantage of the order dated
25.02.2006.”
36. In the case at hand, the proceedings initiated under
the erstwhile Rule 173Q(2) would come to an end on
the repeal of   the said Rule 173Q(2) of the Central
Excise Rules, 1944. Respondent Counsel’s submission
that the proceedings would be saved on account of
Section 38A(c) and 38A(e) of the Central Excise Act,
1944 and Section 6 of the General Clauses Act, 1897,
is misplaced and lacks statutory backing. Firstly, as
has been held by a Constitution Bench of this Court in
Kolhapur Canesugar Works Ltd. Vs Union of India
& Ors. [(2000) 2 SCC 536], Section 6 of the General
Clauses Act, 1897 is applicable where any Central Act
or   Regulation   made   after   commencement   of   the
General Clauses Act repeals any enactment. It is not
applicable in the case of omission of a "Rule". Hence,
the question of applicability of Section 6 is decided in
the negative. Secondly, on the issue of applicability of
Section 38A(c) and 38A(e) of the Central Excise Act,
39
1944, it is held that the Respondent would not be able
to   enjoy   its   protection   because   Section   38A(c)   and
38A(e)   are   attracted   only   when   “unless   a   different
intention appears”. In the present case, the legislature
has clarified its intent to not restore/revive the power
of confiscation of any land, building, plant machinery
etc., after omission of the provisions contained in Rule
173Q(2)   w.e.f   12.05.2000.   This   intention   of   the
legislature can be drawn out from the fact that power
to confiscate any land, building, plant, machinery etc.
after   omission   w.e.f.   12.05.2000   has   not   been
introduced in the subsequent Central Excise Rules,
2001, Central Excise Rules, 2002 and Central Excise
Rules, 2017. Additionally, this intent is also fortified by
the fact that Rule 211 of the Central Excise Rules,
1944, inter alia, provided that “anything” confiscated
under   the   Rules   shall   thereupon   vest   in   Central
Government, whereas Rule 28 of the Central Excise
Rules of 2001, 2002 and 2017, which are pari materia
to the earlier Rule 211 of the 1944 Rules, instead of
the word “anything”, provided for vesting of confiscated
40
“Goods”   in   the   Central   Government.   Lastly,   after
omission   of   Rule   173Q(2)   of   1944   Rules   w.e.f.
12.05.2000 and after supersession of Rule 211 of 1944
Rules in the year 2001, the newly enacted Rule 28 of
the Rules of 2001, Rule 28 of the Rules of 2002 and
Rule   28   of   the   Rules   of   2017,   did   not   provide   for
confiscation of any land, building, plant, machinery
etc.   and   their   consequent   vesting   in   the   Central
Government, as Rule 28 only provided for vesting in
the Central Government of the “Goods” confiscated by
the Central Excise Authorities under the Excise Act,
1944.   This   derivation   of   the   legislature’s   intent,   in
conjunction with the ratio laid in the case of  Kotak
Mahindra  Bank (supra) makes it apparent that the
confiscation   proceedings   were   not   saved   by   these
mentioned provisions and that the final confiscation
order dated 26.03.2007 and 29.03.2007 were passed
without jurisdiction by the Commissioner of Central
Excise and Customs.
41
37. Secondly, coming to the issue of priority of secured
creditor’s debt over that of the Excise Department, the
High Court in the impugned judgment has held that
“In view of the matter, the question of first charge or
second charge over the properties would not arise.” In
this context, we are of the opinion that the High Court
has misinterpreted the issue to state that the question
of first charge or second charge over the properties,
would not arise. 
38. A Full Bench of the Madras High Court in the case of
UTI Bank Ltd. Vs. Dy. Commissioner Central Excise
[2006 SCC Online Madras 1182], while dealing with
a similar issue, has held that:
“25.   In   the   case   on   hand,   the   petitioner
Bank which took possession of the property
under   Section   13   of   the   SARFAESI   Act,
being a special enactment, undoubtedly is a
secured creditor. We have already referred
to the provisions of the Central Excise Act
and   the   Customs   Act.   They   envisage
procedures   to   be   followed   and   how   the
amounts due to the Departments are to be
recovered.   There   is   no   specific   provision
either   in   the   Central   Excise   Act   or   the
Customs   Act,   claiming   "first   charge"   as
provided   in   other   enactments,   which   we
have pointed out in earlier paragraphs.
42
26. In the light of the above discussion, we
conclude, 
“(i) Generally, the dues to Government, i.e.,
tax, duties, etc. (Crown's debts) get priority
over ordinary debts.
(ii) Only when there is a specific provision in
the statute claiming "first charge" over the
property,   the   Crown's   debt   is   entitled   to
have priority over the claim of others.
(iii)   Since   there   is   no   specific   provision
claiming "first charge" in the Central Excise
Act and the Customs Act, the claim of the
Central   Excise   Department   cannot   have
precedence   over   the   claim   of   secured
creditor, viz., the petitioner Bank.
(iv) In the absence of such specific provision
in   the   Central   Excise   Act   as   well   as   in
Customs   Act,   we   hold   that   the   claim   of
secured creditor will prevail over Crown's
debts."
In   view   of   our   above   conclusion,  the
petitioner   UTI   Bank,   being   a   secured
creditor is entitled to have preference over
the   claim   of   the   Deputy   Commissioner   of
Central Excise, first respondent herein.” 
(emphasis supplied)
This Court, while dismissing the Civil Appeal No.3627
of 2007 filed against the judgment of the Full Bench,
vide order dated 12.09.2009 held as under: 
“Having gone through the provisions of the
Securitization   Act,   2002,   in   light   of   the
43
judgment of the Division Bench of this court
in the case of Union of India vs Sicom Ltd. &
Anr., reported in 2009 (1) SCALE 10,  we
find that under the provisions of the said
2002 Act, the appellants did not have any
statutory   first   charge   over   the   property
secured   by   the   respondent   bank.  In   the
circumstances,   the   Civil   Appeal   is
dismissed with no order as to costs” 
(emphasis supplied)
Hence the reasoning given by the High Court stands
strong and has been affirmed by this Court. 
39. This Court, in  Dena   Bank   vs   Bhikhabhai   Prabhu
Dass Parikh & Anr. [(2000) 5 SCC 694], wherein the
question raised was whether the recovery of sales tax
dues (amounting to Crown debt) shall have precedence
over   the   right   of   the   bank   to   proceed   against   the
property of the borrowers mortgaged in favour of the
bank, observed as under:
“10. However, the Crowns preferential right
of recovery of debts 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 of recovery of its debts
over a mortgagee or pledgee of goods or a
Secured Creditor.”              (emphasis
supplied)
44
40. Further,   in  Central   Bank   of   India   Vs.   Siriguppa
Sugars   &   Chemicals   Ltd.   &   Ors.   [(2007)   8   SCC
353],  while adjudicating a similar matter, this Court
has held as under:
“18. Thus, going by the principles governing
the matter, propounded by this Court there
cannot be any doubt  that the rights of the
appellant­bank over the pawned sugar had
precedence   over   the   claims   of   the   Cane
Commissioner   and   that   of   the   workmen.
The High Court was, therefore, in error in
passing an interim order to pay parts of the
proceeds to the Cane Commissioner and to
the Labour Commissioner for disbursal to
the   cane   growers   and   to   the   employees.
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
appellant­bank. In view of the fact that the
goods were validly pawned to the appellant
bank, the rights of the appellant­bank 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.  Both   the   Cane
Commissioner   and   the   workmen   in   the
absence   of   a   liquidation,   stand   only   as
unsecured creditors and their rights cannot
prevail over the rights of the pawnee of the
goods.”     (emphasis supplied)
45
41. The   Bombay   High   Court   in  Krishna   Lifestyle
Technologies Ltd. Vs. Union of India & Ors. [2008
SCC   Online   Bombay   137],  wherein   the   issue   for
consideration was “whether tax dues recoverable under
the provisions of The Central Excise Act, 1944 have
priority of claim over the claim of secured creditors
under   the   provisions   of   the   Securitisation   and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002” held that:
“Considering   the   language   of   Section   35
and the decided case law, in our opinion it
would be of no effect, as the provisions of
SARFAESI Act override the provisions of the
Central   Sales   Tax   Act   and   as   such   the
priority given to a secured creditor would
override Crown dues or the State dues.
In so far as the SARFAESI Act is concerned
a Full Bench of the Madras High Court in
UTI Bank Ltd. v. Deputy Commissioner of C.
Excise, Chennai­II has examined the issue
in depth.  The Court was pleased to hold
that tax dues under the Customs Act and
Central Excise Act, do not have priority of
claim over the dues of a secured creditor as
there is no specific provision either in the
Central Excise Act or the Customs Act giving
those dues first charge, and that the claims
of the secured creditors will prevail over the
46
claims   of   the   State.   Considering   the   law
declared by the Apex Court in the matter of
priority of state debts as already discussed
and   the   provision   of   Section   35   of
SARFAESI   Act   we   are   in   respectful
agreement   with   the   view   taken   by   the
Madras High Court.”
(emphasis supplied)
42. An SLP (No. 12462/2008) against the above judgement
of the Bombay High Court stands dismissed by this
Court on 17.07.2009 by relying upon the judgement in
the matter of Union of India vs SICOM Ltd. & Anr.
Reported in [(2009) 2 SCC 121], wherein the question
involved was “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” and this Court held as under:
“9.   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.) p. 1147].  Such creditors,
however, must be held to mean unsecured
creditors. Principle of Crown debt as such
pertains   to   the   common   law   principle.   A
common   law   which   is   a   law   within   the
47
meaning of Article 13 of the Constitution is
saved in terms of Article 372 thereof. Those
principles of common law, 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   the
Constitution of India must be held to prevail
over the Crown debt which is an unsecured
one.             (emphasis
supplied)
43. In view of the above, we are of the firm opinion that the
arguments of the learned counsel for the Appellant, on
the   second   issue,   hold   merit.   Evidently,   prior   to
insertion   of   Section   11E   in  the   Central   Excise   Act,
1944 w.e.f. 08.04.2011, there was no provision in the
Act of 1944 inter alia, providing for First Charge on the
property of the Assessee or any person under the Act of
1944. Therefore, in the event like in the present case,
where the land, building, plant machinery, etc. have
been mortgaged/hypothecated to a secured creditor,
having regard to the provisions contained in section
2(zc)   to   (zf)   of   SARFAESI   Act,   2002,   read   with
provisions contained in Section 13 of the SARFAESI
48
Act,   2002,   the   Secured   Creditor   will   have   a   First
Charge on the Secured Assets. Moreover, section 35 of
the SARFAESI Act, 2002 inter alia, provides that the
provisions of the SARFAESI Act, shall have overriding
effect on all other laws. It is further pertinent to note
that even the provisions contained in Section 11E of
the   Central   Excise   Act,   1944   are   subject   to   the
provisions contained in the SARFAESI Act, 2002. 
44. Thus, as has been authoritatively established by the
aforementioned cases in general, and Union of India
vs   SICOM   Ltd.  (supra) in particular, the provisions
contained   in   the   SARFAESI   Act,   2002,   even   after
insertion   of   Section   11E   in  the   Central   Excise   Act,
1944 w.e.f. 08.04.2011, will have an overriding effect
on the provisions of the Act of 1944. 
45. Moreover,   the   submission   that   the   validity   of   the
confiscation   order   cannot   be   called   into   question
merely on account of the Appellant being a secured
creditor  is  misplaced  and  irrelevant  to   the  issue at
hand. The contention that a confiscation order cannot
49
be   quashed   merely   because   a   security   interest   is
created in respect of the very same property is not
worthy of acceptance. However, what is required to be
appreciated   is   that,   in   the   present   case,   the
confiscation order is not being quashed merely because
a security interest is created in respect of the very
same   property.   On   the   contrary,   the   confiscation
orders,   in   the   present   case,   deserve   to   be   quashed
because the confiscation orders themselves lack any
statutory backing, as they were rooted in a provision
that stood omitted on the day of the passing of the
orders.   Hence,   it   is   this   inherent   defect   in   the
confiscation orders that paves way for its quashing and
not merely the fact that a security interest is created in
respect of the very same property that the confiscation
orders dealt with.
46. Further, the contention that in the present case, the
confiscation   proceedings   were   initiated   almost   8­9
years prior to the charge being created in respect of the
very   same   properties   in   favour   of   the   bank   is   also
inconsequential.   The   fact   that   the   charge   has   been
50
created after some time period has lapsed post the
initiation   of   the   confiscation   proceedings,   will   not
provide legitimacy to a confiscation order that is not
rooted in any valid and existing statutory provision.
47. To   conclude,   the   Commissioner   of   Customs   and
Central   Excise   could   not   have   invoked   the   powers
under Rule 173Q(2) of the Central Excise Rules, 1944
on 26.03.2007 and 29.03.2007 for confiscation of land,
buildings   etc.,   when   on   such   date,   the   said   Rule
173Q(2) was not in the Statute books, having been
omitted by a notification dated 12.05.2000. Secondly,
the dues of the secured creditor, i.e. the Appellantbank, will have priority over the dues of the Central
Excise Department, as even after insertion of Section
11E in the Central Excise Act, 1944 w.e.f. 08.04.2011,
and the provisions contained in the SARFAESI Act,
2002 will have an overriding effect on the provisions of
the Central Excise Act of 1944.
48. Accordingly, the Appeal is Allowed and the confiscation
orders dated 26.03.2007 and 29.03.2007, passed by
51
the   Commissioner   Customs   and   Central   Excise,
Ghaziabad, are quashed.
………………………………..J.
                                               [L. NAGESWARA RAO]
………………………………..J.
                                              [VINEET SARAN]
New Delhi
Dated: February 24, 2022
52

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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