DENA BANK versus BHIKHABHAI PRABHUDAS PAREKH AND CO. AND ORS.

Citation: [2000] 3 S.C.R. 509 · Decided: 25-04-2000 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Dismissed

Cited by 6 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

.... 
DENA BANK 
A 
v. 
BHIKHABHAI PRABHUDAS PAREKH AND CO. AND ORS. 
APRIL 25, 2000 
[S. RAJENDRA BABU AND RC. LAHOTI, JJ.] 
B 
Kamataka Sales Tax Act, 1957-Sections 13 & 15-Arrears of Sales 
Tax-Recovery through mortgage of property ignoring the second debt pay-
able to appellant by partners of respondent finn-Trial Court found appellant 
entitled to a decree but dismissed suit on a technical ground-High Cow1 lzeld c 
that State has preferential claim to recover arrears of sales tax-On appeal 
Held, State shall have a preferential right to recover its dues. 
~ 
Karnataka Land Revenue Act, 1964-Section 158( 1 )-Claim of State 
Government to any moneys recoverable under Chapter XVI shall have prec-
edence over any other debt, demand or claim whatsoever including a mart-
D 
gage-Statutory recognition given to the doctrine of State's pri01ity extending 
applicability over private debts forming subject matter of m011gage, judgment-
decree, execution or attachment etc.-Section 190-Procedure for recovery of 
land revenue applicable for recovery of Sale Tax arrears-Karnataka Sales Tax 
.,. 
Act, 1957-Sections 13 & 15 . 
E 
Interpretation of Statutes-Retrospectivity-Kamataka Sales Tax Act, 
1957-Section 15(2-A) inserted w. e.f. 18.11.1983-Partners of firm made jointly 
and severally liable for tax and penalty-Legislative enactment comes into 
operation only on its enactment, retrospectivity is not to be inferred unless 
expressly or necessarily implied-Determining the obligations of tlie pa11ners 
F 
... 
to pay tax assessed against the firm by making them personally liable does not 
amount to giving retrospective effect to the amendment. 
Pa11nership Act, 1932-Section 25-Afirm is not a legal entity, it is only 
a collective or compendious name for all the partners-The principle that all 
partners are jointly and severally liable for all acts of the firm cannot be 
extended to situations in which firm is deemed to be a person and hence a legal 
entity for certain purpose. 
G 
Doctrine-Rule of "detur digniori"-Applicability of. 
Legal Maxim : 
H 
• 
509 
510 
SUPREME COURT REPORTS 
[2000] 3 S.C.R. 
A 
Quando jus domini regis et subditi concurrent jus regis praeferri debet-
~ 
Applicability of 
Appellant Bank had filed a recovery suit to the mortgage security 
against the respondent firm and its partners. During the pendency of the 
suit the State of Karnataka attached and auctioned the mortgaged prop-
B 
erty to realise arrears of sales tax. The State was impleaded as a party as 
the said properties were purchased by it, Trial Court found the appellant 
entitled to a decree but dismissed the suit on a technical ground. During the 
.. 
pendency of the appeal before the High Court a compromise was entered 
into between the parties, to whicli State of Karnataka was not a party. 
~ 
c 
Under Clauses (7) and (8) of the compromise the respondents were made 
~ 
free to sell the suit properties and credit the proceeds to the appellant. The 
' 
High Court excluded these clauses holding that the State has a preferential 
claim to recover sales tax by sale of the suit properties. Hence this appeal. 
The appellant contended before this Court that the State cannot take 
• 
precedence over its secured interest; that the property of the partners 
D 
cannot be attached to recover arrears of sales tax assessed against the firm; 
that under the Karnataka Land Revenue Act and Karnataka Sales Tax 
Act, arrears of sales tax do not become arrears of land revenue and are 
merely recoverable as arrears of land revenue. 
Dismissing the appeal, this Court 
~ 
E 
HELD : 1.1. The general rights of the Crown in relation to property 
are preferred under common law. Where the Crown's right and that of a 
subject meet at one and the same time then the right of the crown is 
I-
preferred, the rule being "detur dignion'"· The principles of priority of 
Government debts is founded on the rule of necessity and of public policy. 
F 
The basic justification for the claim for priority of state debts rests on the 
well recognised principle that the State is entitled to raise money by taxa-
~ 
tion because unless adequate revenue is received by the State, it would not 
be able to function as a sovereign government at all. It must be in possession 
of necessary funds and this consideration emphasises the necessity and the 
G 
wisdom of conceding to the State, the right to claim property in respect of 
its tax dues. The State can claim priority over private debts and

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