Pri­or­ity of Mort­gage De­faults

Accommodation Times - - Front Page - By Ad­vo­cate S R Agar­wal

The hous­ing fi­nance com­pa­nies and the Banks, whether in public sec­tor or pri­vate, here­inafter re­ferred to as the fi­nan­cial in­sti­tu­tions, have been pro­vid­ing fi­nan­cial as­sis­tance for the pur­pose of ac­quir­ing residential houses, com­mer­cial premises or to­wards work­ing cap­i­tal against se­cu­rity of im­move­able prop­er­ties ei­ther by way of reg­is­tered mort­gage or eq­ui­table mort­gage, as per the facts and cir­cum­stances of each case. Though the ti­tle of im- move­able prop­er­ties, of­fered by way of mort­gage, is thor­oughly got ex­am­ined by these fi­nan­cial in­sti­tu­tions and all other as­pects are gone into; but there is al­ways a lurk­ing fear in their mind that in case of de­fault, if the se­cu­rity is en­forced and the im­move­able prop­erty is auc­tioned to re­cover the mort­gage dues, the Gov­ern­ment dues, if any, will have the pri­or­ity over the mort­gage dues. This con­cept is, rightly or wrongly, based on the com­mon law prin­ci­ple of the pre­rog­a­tive of the crown to re­cover its debt be­fore all other cred­i­tors. Crown debt means the debt due to the Gov­ern­ment or the de­part- ments or the bod­ies such as In­come Tax, Cen­tral Ex­cise, Sales Tax, Mu­nic­i­pal Cor­po­ra­tions, MHADA, MIDC, CIDCO, State Fi­nan­cial Cor­po­ra­tion, which de­rive this power of pri­or­ity by way of statu­tory pro­vi­sions. This com­mon law prin­ci­ple was be­ing en­forced by the var­i­ous High Courts in our coun­try till the year 1950 and, there­after, this com­mon law prin­ci­ple saved by Ar­ti­cle 372 of the Con­sti­tu­tion of In­dia found in­cor­po­rated, with the pas­sage of time, in var­i­ous statutes pro­vid­ing that the statu­tory dues shall have the first charge over the prop­er­ties of the tax-pay­ers. How­ever, the pref­er­en­tial right of the crown of re­cov­ery of debts over other cred­i­tors has been held as con­fined to or­di­nary or un­se­cured cred­i­tors un­der even the com­mon law of Eng­land and the prin­ci­ples of eq­uity and good con­science ( as ap­pli­ca­ble to In­dia) did not ac­cord the Crown a pref­er­en­tial right for re­cov­ery of its debts over a mort­gagee or a pledge of goods or a se­cured cred­i­tor, as held in Giles V/s Grover, that the Crown has no prece­dence over the pledge of goods and it con­fined only to or­di­nary or un­se­cured cred­i­tors. Such statu­tory pro­vi­sions in our coun­try in the var­i­ous Acts, such as In­come Tax Act, Cen­tral Ex­cise Act, State Sales Tax Acts, and so on pro­vided that the dues of Gov­ern­ment or the re­spec­tive de­part­ments or the Gov­ern­ment bod­ies were re­cov­er­able as land rev­enue. The ques­tion of re­cov­er­ing such dues as land rev­enue came up for ex­am­i­na­tion be­fore the Bom­bay High Court in the case of Union of In­dia & oth­ers v/s. SICOM Ltd. & Another, which held that Sec­tion 169, Sub-Sec­tion (1) of Ma­ha­rash­tra Land Rev­enue Code, pro­vides that the ar­rears of land rev­enue due on ac­count of land shall be para­mount charge on the land and ev­ery part thereof and shall have prece­dence over any other debt, de­mand or claim what­so­ever, whether in re­spect of mort­gage, judg­ment-de­cree, ex­e­cu­tion or at­tach­ment or oth­er­wise against any land or the holder thereof; whereas sub sec­tion (2) pro­vides that the claim of the State Gov­ern­ment to any monies, other than ar­eas of land rev­enue, but re­cov­er­able as land rev­enue de­mand un­der Chap­ter-II shall have pri­or­ity over all un­se­cured claims against any land or holder thereof. Thus the dis­tinc­tion be­tween the ar­rears of land rev­enue and the statu­tory dues re­cov­er­able as land rev­enue is self-ev­i­dent. As re­gards the ques­tion of prece­dence of Gov­ern­ment dues, there has been a con­sis­tency in the ju­di­cial pro­nounce­ments inas­much as in the case of M/s. Builders Sup­ply Cor­po­ra­tion v/s the Union of In­dia and oth­ers (AIR 1965 SC 1061), the Hon’able Supreme Court held that Sec­tion 46 (2) of the In­come

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