Saturday 9 April 2022

What is distinction between attachment of property and charge over property?

 12 We take this opportunity to explain the effect of attachment and also the effect of charge. In Mulla's Civil Procedure Code, 8th Edn., the law as applicable in India is thus summarised (p. 187):

“Attachment creates no charge or lien upon the attached property. It merely prevents and avoids private alienations; it does not confer any title on the attaching creditors. There is nothing in any of the provisions of the Code which in terms makes the attaching creditor a secured creditor or creates any charge or Hen in his favour over the property attached. But an attaching creditor acquires, by virtue of the attachment, a right to have the attached property kept in custodia legis for the satisfaction of his debt, and an unlawful interference with that right constitutes an actionable wrong.”

13 The Privy Council in Moti Lal v. Karrabuldin (1897) I.L.R. 25 Cal. 179, p.c. where Lord Hobhouse stated (p. 185):

“Attachment, however, only prevents alienation, it does not confer title.”

14 Similarly, in the Calcutta Full Bench case of Frederick Peacock v.

Madan Gopal (1902) I.L.R. 29 Cal. 428, F.B. Sir Francis Maclean, in

delivering the judgment of the Full Bench, says (p. 431):

“I think, therefore, it must be taken that the attaching creditor here did not obtain by his attachment any charge or lien upon the attached

property, and if so, no question as to the Official Assignee only taking the property of the insolvent subject to any equities affecting it, can arise.”

And Mr. Justice Ghose says (p. 483):

“I am clearly of opinion that the attaching creditor did not acquire any title or charge upon the property by reason of the attachment in

question.”

15 A charge on the other hand under Section 48 of the GVAT Act

creates no interest in or over a specific immovable property, but is only a security for the payment of money. (See : Dattatreya Shanker Mote vs. Anand Chintaman Datar and others (1974) 2 SCC 799).

16 The concept of charge emanates from Section 100 of the Transfer

of Property Act. Section 100 of the Transfer of Property Act, 1882

defines “charge” as follows:

“100. Charges.- Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge of a trustee on the trust- property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge.”

17 The above-mentioned Section clearly indicates the following types of charges :

1) Charges created by act of parties; and

2) Charges arising by operation of law.

18 The words “by operation of law” are more extensive than the

words “by law” and a charge created by operation of law includes a

charge directly created by the provisions of an Act (like Section 48 of the GVAT Act) as well as other charges created indirectly as a legal consequence of certain conditions. The expression “operation of law” only means working of the law.

19 A charge, as we have already seen, is a right to receive a certain

sum of money. If a dealer registered under the GVAT Act incurs any

liability towards payment of tax, then the State has a right to receive a certain sum of money as crystallized in the form of liability. This

recovery of the money from the property can be by attaching the assets of the defaulting dealer, and thereafter, putting those to auction. This type of recovery would be governed by the provisions of Section 46 of the GVAT Act.

20 In the case on hand, it could be said that the day the assessment

order came to be passed determining the liability of the writ applicant under the provisions of the GVAT Act, a charge over the immovable assets of the writ applicant could be said to have been created in favour of the State by operation of law, as envisaged under Section 48 of the GVAT Act. Today, the recovery might have been stayed by the first appellate authority, but, tomorrow, if the first appeal as well as the second appeal that may be filed by the writ applicant is dismissed, then the next step in the process would be the recovery of the requisite amount. What could be said to have been done as on date is just to make one and all aware that by operation of law, as envisaged under Section 48 of the GVAT Act, there is a charge of the State Government over the immovable properties owned by the writ applicant, as described above. How would all come to know about the same. It is for this reason that an entry is ordinarily made in the revenue records.

21 We would like to clarify that what has been done by the Talati-cum-Mantri does not amount to attachment of the property. There is no attachment. We reiterate that there is a fine distinction between attachment of property and a charge over the property by operation of law.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 5413 of 2022

SHREE RADHEKRUSHNA GINNING AND PRESSING PVT. LTD. Vs STATE OF GUJARAT

CORAM: MR. JUSTICE J.B.PARDIWALA and  MS. JUSTICE NISHA M. THAKORE

Date : 29/03/2022

(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)

1 By this writ application under Article 226 of the Constitution of


India, the writ applicant has prayed for the following reliefs:

“(A) Your Lordships may be pleased to admit and allow the present

petition.

(B) Your Lordships may be pleased to issue a writ of mandamus or any

other appropriate writ, order and direction and further be pleased to

quash and set aside the impugned order dated 13.08.2020 passed by

the Ld. Respondent No.2.

(C) Your Lordships may be pleased to issue a writ of mandamus or any

other appropriate writ, order and direction and further be pleased to

direct the Ld. Respondent No.2 to release the charge on the property of

the petitioner, being Revenue Survye No.252/2, Plot No.01, village :

Gomta, Taluka : Gondal, District : Rajkot.

(D) Such other and further relief/s as may be deemed just and proper

in the facts and circumstances of the present case may kindly be

granted.”

2 It appears from the materials on record that the writ applicant has

incurred a liability of Rs.1,68,10,098/- towards the VAT under the

provisions of the GVAT Act, 2003. Such liability came to be incurred by

virtue of an assessment passed by the competent authority order dated

23rd March 2020.

3 The assessment order dated 23rd March 20202 is now a subject

matter of challenge before the first appellate authority. The appeal has

been admitted by the first appellate authority and the further

proceedings towards the recovery have been stayed on the condition of

pre-deposit of Rs.7 Lakh. The writ applicant is here before this Court

redressing the grievance that since the first appellate authority has

stayed the recovery, the charge which has been created over the

property owned by the writ applicant in the form of land and factory

building situated at the revenue survey No.252/2, paiki - 1, village :

Gomta, Taluka : Gondal, should now be released. In other words, the

charge which has been created in the revenue record should no longer remain in operation.

4 We have heard Mr. Apurva N. Mehta, the learned counsel

appearing for the writ applicant and Mr. Utkarsh Sharma, the learned

A.G.P. appearing for the State respondents.

5 Mr. Mehta would submit that the apprehension on the part of the

department that in the absence of any charge, the writ applicant may

dispose of the land and factory building is absolutely misconceived and not well-founded as Section 48 of the GVAT Act takes care of the situation. We are not impressed with such a submission.

6 At one point of time, Mr. Mehta, the learned counsel, during the

course of his submissions, got confused between an attachment of

property and charge created over the property. Mr. Mehta would also

submit that the action on the part of the respondent No.2 is nothing, but

amounts to attachment of the property pending the appeal before the

first appellate authority. Mr. Mehta would submit that the same is not

permissible in law as there is no provision in the GVAT Act which

permits attachment of a property after the final assessment order is

passed and the first appeal is pending before the first appellate

authority.

7 There appears to be a serious misconception on the part of the

writ applicant that its property referred to above has been attached. The

argument is that there cannot be any attachment of property since

against the assessment order, there is an appeal pending and the

appellant authority has stayed the recovery.

8 Section 44 of the GVAT Act provides for a special mode of

recovery. This provision has no application to the facts of the present

case. Section 45 is with respect to the provisional attachment. Even this

provision has no application to the facts of the present case as the

assessment order has already been passed. Section 46 confer special

powers to the Tax Authorities for recovery of tax as arrears of land

revenue. We have not reached even to this stage. Section 48 creates a

charge by operation of law. Section 48 reads thus:

“48. Tax to be first charge on property. - Notwithstanding anything to

the contrary contained in any law for the time being in force, any

amount payable by a dealer or any other person or account of tax,

interest or penalty for which he is liable to pay to the Government shall

be a first change on the property of such dealer, or as the case may be,

such person.”

9 The plain reading of the aforesaid section would indicate that it

starts with a non-obstante clause. Section 48 clarifies that if any amount

is payable by a dealer or any other person on account of tax, interest or

penalty for which he is liable to pay to the Government, the same shall

be a first charge on the property of such dealer or as the case may be,

such person. It appears that in the case on hand, the State Tax Officer-

(3), Unit – 94, Gondal addressed a letter dated 13th August 2020 to the

Talati-cum-Mantri of village : Gomta, Taluka : Gondal, which reads thus:

“No.:RVEA-3/U-94/GONDAL/2020-21/Ja.2154/55 DATE.13/8/2020

To,

The Talati Mantri

At Gomta, Ta. Gondal.

Subject:-To provide information of property/making entry of

encumbrance.

Name of the dealer firm:- Shri Radhekrishna Ginning & Pressing

Pvt.Ltd., At Gomta, Ta. Gondal

Tin No.24092703943 PAN No.-AARCS1948P

With due respect it is to state that the government has to recover

Rs.1,68,10,098/- + interest under the assessment of Sales Tax/VAT Act

of 2015/16 with the dealer shown in the subject above. Information of

the person/Company/Firm holding the interest/position in it under

your domain is as below.

Sr.

No.

Name Constitution Address Remarks

1. Shri Radhekrihna

Ginning & Pressing Pvt.

Ltd. at.-Gomta,

Ta.Gondal

Dir.-

1. Dilipbhai

Chhaganbhai Sakhiya

and others.

Pvt. Ltd. R.S.No.252/2

Paiki 1

At.-Gomta, Ta.-

Gondal

You are instructed to provide that information of the above

properties owned by the aforesaid persons/Firm/Company to this office

and in case it is found that the above the property is owned by the

dealer then make an entry of the charge with respect to the government

dues/debts along with the evidence and provide to this office at the

earliest.

Sd/-illegible

State Tax Officer-(3)

Unit-94, Gondal.”

10 In response to the aforesaid, the Talati-cum-Mantri has mutated

an entry in the village form No.2 that the owner of Radhakrishna

Ginning and Pressing Private Limited Company – Shri Dilipbhai

Chhaganbhai Shakhiya has incurred tax liability. In such circumstances,

for the purpose of recovering the said amount, the first charge over the

property owned by the company shall be that of the Government.

11 The aforesaid charge may be a bit uncomfortable to the writ

applicant as it appears that the bank from whom the writ applicant has

obtained overdraft facility is creating some problems. It is for the writ

applicant to sort it out with the bank. Today, there is no good reason for

this Court to interfere in the matter.

12 We take this opportunity to explain the effect of attachment and also the effect of charge. In Mulla's Civil Procedure Code, 8th Edn., the law as applicable in India is thus summarised (p. 187):

“Attachment creates no charge or lien upon the attached property. It

merely prevents and avoids private alienations; it does not confer any

title on the attaching creditors. There is nothing in any of the provisions of the Code which in terms makes the attaching creditor a secured creditor or creates any charge or Hen in his favour over the property attached. But an attaching creditor acquires, by virtue of the

attachment, a right to have the attached property kept in custodia legis for the satisfaction of his debt, and an unlawful interference with that right constitutes an actionable wrong.”

13 The Privy Council in Moti Lal v. Karrabuldin (1897) I.L.R. 25 Cal. 179, p.c. where Lord Hobhouse stated (p. 185):

“Attachment, however, only prevents alienation, it does not confer

title.”

14 Similarly, in the Calcutta Full Bench case of Frederick Peacock v.

Madan Gopal (1902) I.L.R. 29 Cal. 428, F.B. Sir Francis Maclean, in

delivering the judgment of the Full Bench, says (p. 431):

“I think, therefore, it must be taken that the attaching creditor here did

not obtain by his attachment any charge or lien upon the attached

property, and if so, no question as to the Official Assignee only taking

the property of the insolvent subject to any equities affecting it, can

arise.”

And Mr. Justice Ghose says (p. 483):

“I am clearly of opinion that the attaching creditor did not acquire any

title or charge upon the property by reason of the attachment in

question.”

15 A charge on the other hand under Section 48 of the GVAT Act

creates no interest in or over a specific immovable property, but is only a security for the payment of money. (See : Dattatreya Shanker Mote vs. Anand Chintaman Datar and others (1974) 2 SCC 799).

16 The concept of charge emanates from Section 100 of the Transfer

of Property Act. Section 100 of the Transfer of Property Act, 1882

defines “charge” as follows:

“100. Charges.- Where immoveable property of one person is by act of

parties or operation of law made security for the payment of money to

another, and the transaction does not amount to a mortgage, the latter

person is said to have a charge on the property; and all the provisions

hereinbefore contained which apply to a simple mortgage shall, so far

as may be, apply to such charge. Nothing in this section applies to the

charge of a trustee on the trust- property for expenses properly incurred

in the execution of his trust, and, save as otherwise expressly provided

by any law for the time being in force, no charge shall be enforced

against any property in the hands of a person to whom such property

has been transferred for consideration and without notice of the

charge.”

17 The above-mentioned Section clearly indicates the following types

of charges :

1) Charges created by act of parties; and

2) Charges arising by operation of law.

18 The words “by operation of law” are more extensive than the

words “by law” and a charge created by operation of law includes a

charge directly created by the provisions of an Act (like Section 48 of the

GVAT Act) as well as other charges created indirectly as a legal

consequence of certain conditions. The expression “operation of law”

only means working of the law.

19 A charge, as we have already seen, is a right to receive a certain

sum of money. If a dealer registered under the GVAT Act incurs any

liability towards payment of tax, then the State has a right to receive a

certain sum of money as crystallized in the form of liability. This

recovery of the money from the property can be by attaching the assets

of the defaulting dealer, and thereafter, putting those to auction. This

type of recovery would be governed by the provisions of Section 46 of

the GVAT Act.

20 In the case on hand, it could be said that the day the assessment

order came to be passed determining the liability of the writ applicant

under the provisions of the GVAT Act, a charge over the immovable

assets of the writ applicant could be said to have been created in favour

of the State by operation of law, as envisaged under Section 48 of the

GVAT Act. Today, the recovery might have been stayed by the first

appellate authority, but, tomorrow, if the first appeal as well as the

second appeal that may be filed by the writ applicant is dismissed, then

the next step in the process would be the recovery of the requisite

amount. What could be said to have been done as on date is just to make

one and all aware that by operation of law, as envisaged under Section

48 of the GVAT Act, there is a charge of the State Government over the

immovable properties owned by the writ applicant, as described above.

How would all come to know about the same. It is for this reason that an

entry is ordinarily made in the revenue records.

21 We would like to clarify that what has been done by the Talaticum-Mantri does not amount to attachment of the property. There is no attachment. We reiterate that there is a fine distinction between attachment of property and a charge over the property by operation of law.

22 In the result, this writ application fails and is hereby rejected.

(J. B. PARDIWALA, J)

(NISHA M. THAKORE,J)


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