STATE BANK OF BIKANER AND JAIPUR versus NATIONAL IRON AND STEEL ROLLING CORPORATION AND ORS.

Citation: [1994] SUPP. 6 S.C.R. 566 · Decided: 14-12-1994 · Supreme Court of India · Bench: S.C. AGRAWAL · Disposal: Dismissed

Judgment (excerpt)

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ST A TE BANK OF BIKANER AND JAIPUR 
v. 
NATIONAL IRON AND STEEL ROLLING CORPORATION AND ORS. 
DECEMBER 14, 1994 
[S.C. AGRAWAL, FAIZAN UDDIN AND SUJATA V. MANOHAR, JJ.] 
Rajasthan Sales Tax Act, 1954: Section 11-AAAA-Dealer-Liability 
to pay tax-Creation of first charge on the property of dealer-Effect on 
existing mortgage of dealer's property-Held charge operates on the entire 
property of dealer including interest of mortgage therein-Charge will have 
precedence over existing mortgage. 
Transfer of Property Act, 1882: Sections 58 and 100---'Charge'. 
'Mortgage '-What is_...:.Distinction between 'charge' and 'mortgage' 
discussed 
The respondent-Corporation mortgaged its factory and pledged 
the plant and machinery installed in the factory premises with the 
appellant-Bank as a security measure for repayment of the amounts 
advanced to it under the cash credit facilities given by the appellant-
Bank. In a suit filed by t~e appellant-Bank against the respondent-
Corporation for recovery of a sum of Rs. 3,79,672 the mortgaged 
property was sold by auction under the orders of the Court for a sum 
of Rs. 4,02,000. Since there were sales tax dues also to be paid by the 
respondent-Corporation, the Commercial Tax Officer claimed priority 
for the recovery of sales tax from the sale proceeds of the mortgaged 
property under Section 11-AAAA of the Rajasthan Sales Tax Act, 1954 
which provides that the amount of sales tax or any other sum due and 
payable by a dealer or any other person under the Act should be the 
first charge on the property of the dealer or of such person.· The Trial 
. Court accepted the claim of the Commercial Tax Officer. Revision 
preferred by the appellant-Bank was dismissed by the High Court. 
In appeal to this court, it was contended on behalf of the appellant-
Bank that (i) since the mortgage in their favour was prior in point of 
time, its claim will have precedence over the claim of the Sales Tax 
authorities; and (ii) There was an existing mortgage at the time of 
coming into force of the· first statutory charge, therefore, the only 
property which was possessed by the dealer was equity of redemption 
566 
S. B. OF BIKANER AND JAIPUR v. NATIONAL IRON & STEEL ROLLING CORPN. 567 
in respect of that property. Consequently, the first charge would A 
operate only on the equity of redemption. 
Dismissing the appeal, this Court 
HELD: 1. Where a mortgage is created in respect of any property 
undoubtedly, an interest in the property is carved out in favour of the B 
mortgagee. The mortgagor is entitled to redeem his property on 
payment of the mortgage dues. This does not, however, mean that the 
property ceases to be the property of the mortgagor. The title to the 
property remains with the mortgagor. Therefore, when a statutory first 
charge is created on the property of the dealer the property subjected 
to the first charge is the entire property of the dealer. The interest of C 
the mortgagee is not excluded from the first charge. The first charge, 
therefore, which is created under Section 11-AAAA of the Rajasthan 
Sales Tax Act will operate on the property as a whole 20d not only on 
the equity of redemption. [570 E to F) 
2. Section 11-AAAA creates a first charge on the property, thus D 
clearly giving priority to the statutory charge over all other charges on 
the property including a mortgage. The submission, therefore, that the 
statutory first charge created by Section 11-AAAA of the Rajasthan 
Sales Tax Act can operate only over the equity of redemption, cannot 
be accepted. The charge operates on the entire property of the dealer 
including the interest of the mortgagee therein. [571 D) 
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3. The statute has created a first charge on the property of the 
dealer. A charge is a wider term than a mortgage. It would cover 
within its ambit a mortgage also. Therefore, when a first charge is 
created by operation of law over any property, that charge will have 
precedence over an existing mortgage. [571 E) 
Dattatreya Shanker Mote and Ors. v. Anand Chintaman Datar and 
Ors., [1974) 2 SCC 799 ·and Westminister City Council v. Haymarket 
Publishing Ltd, [1981) 2 All. E.R. 555, referred to. 
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Fisher and Lightwood's Law of Mortgage 10th Edn. page 33; re-
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9161 of 
1994. 
From the Judgment and Order dated 2.9.93 of the Rajasthan High 
Court in R.P. No.630of1990. 
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SUPREME COURT REPORTS 
[1994] SUPP. 6 S.C.R 
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