IN THE HIGH COURT OF SINDH, KARACHI
HCA No.127 of 2009
Present: Mr. Justice Syed HasanAzharRizvi,
Mr. Justice Muhammad Junaid Ghaffar.
Federation of Pakistan & Another ……….. Appellants
V e r s u s
M/s. Naya Daur Motor (Pvt) Ltd,
and 3 others ……….. Respondents
Date of hearing: 05.11.2013.
Date of judgment: 23.01.2014
Appellants: Through Mr. Muhammad Sarfaraz Ali, Metlo, Advocate.
Respondents: Mr. Nabeel Kolachi, Advocate for the
Respondent Nos.3 & 4,
Mr. Qadir Bux Umrani, Official Assignee.
J U D G M E N T
Muhammad Junaid Ghaffar, J: The instant High Court Appeal arises out of an order dated 27.01.2009 passed by a learned Single Judge of this Court, in Execution Application No.232 of 2000 (M/s. National Bank of Pakistan Vs. Naya Daur Motor Private Ltd).
2. Briefly, facts as narrated in the memo of appeal are that the respondent No.1 (Naya Daur Motor Private Ltd), was granted a Warehousing License vide PWL No.2/68 by the appellant No. 2, (Collector of Customs, Appraisement) under Section 13 of the Customs Act, 1969, (“The Act”) for storage of dutiable goods used in the manufacturing of the vehicles. It is further stated that the respondent No.1 had illegally removed the dutiable goods stored in their warehouse without filing of proper Ex-bond Bills of Entry as required under Section 104 of the Act for which a Show Cause Notice dated 14.09.1992 was issued and it was alleged that the Respondent No.1 had evaded taxes amounting to Rs.9,44,81,540/- along with an additional duty @ 1.5% per month amounting to Rs.8,92,85,055/-, totaling to Rs.18,37,66,595/-. The said show cause notice was adjudicated in terms of Order in Original No. 25 of 2000 dated 15.02.2000. It is stated that after passing of the Order in Original dated 15.2.2000, recovery proceedings under Section 202 of the Act were initiated vide Detention Notices dated 17.09.2001 & 26.09.2001 but the said amount could not be recovered from the Respondent No.1. The Appellant No.2 thereafter filed a claim for recovery of Rs.183,766,595/- on 18.06.2005 before the learned Official Assignee. The said claim was based on an order passed by this Court on 11.04.2005 in Suit No. 482 of 1998 which was filed by the respondent No. 3. It is further stated that originally respondent Nos. 3 & 4 had filed suits bearing Suit Nos. 482 of 1998 & 951 of 1997 against the respondent No.1 which were decreed and the learned Official Assignee/respondent No.2 was appointed as Commissioner and authorized to auction the mortgaged properties of respondent No.1. After passing of decrees in the abovementioned Suits, respondent No.3 had filed Execution Application No. 232 of 2000 and various properties including Plot No.F-8, SITE, Karachi with complete assembly line, truck and spare parts etc. was sold by the respondent No.2 for satisfaction of the decretal amount. It is the case of the appellants that the amount adjudicated vide Order in Original dated 15.2.2000 was under a special statute, therefore, it was payable being a first priority. Subsequently the appellants filed an application under Section 73 read with section 151 CPC, on which an interim order was passed by this Court on 13.06.2005, whereby the disbursement to the extent of amount claimed by the appellants was withheld. Thereafter vide impugned order dated 27.01.2009 the above mentioned application filed by the appellants in Ex. No. 232 of 2000 has been dismissed.
3. Mr. Muhammad Sarfaraz Ali Metlo, learned counsel appearing on behalf of the appellants contended that the amount claimed by the appellants had a priority over other claims, as these were Government duties and taxes and therefore, respondent No.2 was under obligation to satisfy such claim of the appellants on priority as against the other claims including claims of respondent Nos.3 & 4. Learned counsel referred to the procedure for sale of goods and application of sale proceeds as contemplated under Section 201 of the Act. It was further contended by the learned counsel that even otherwise in terms of Section 202 of the Act it was obligatory upon learned Official Assignee/respondent No.2 to withhold the amount adjudicated upon by the appellants against the respondent No.1. It was further contended that since the Customs Act is a special law, therefore it supersedes the other general laws and rules governing the auction of goods and its disbursement to the respective parties. It was further contended that the learned Single Judge failed to appreciate that the Order in Original was passed prior to decree in Suit Nos. 951 of 1997 & 482 of 1998. Learned counsel relied upon cases reported in 2006 PTD 2132 (Industrial Development of Pakistan, Karachi Vs. Vinder Textile Mills Limited), 2006 CLC 415 (State Life Insurance Corporation of Pakistan Vs. Hussain Mumtaz), 1994 SCMR 2248 (Industrial Development of Pakistan, Karachi Vs Maida Limited) 1989 CLC 1774 (Industrial Development of Pakistan, Karachi Vs Maida Limited Vs Ali Gul Khan Packages Limited), AIR 1965 SC 1061 (Builders Supply Corporation Vs. The Union of India & Others) and AIR 1985 SC 407 (Union of India V/s M/s Somasundaram Mills (P) Limited).
4. Mr. Nabeel Kolachi, Advocate for respondent Nos.3 & 4 contended that the alleged adjudication of the case by the appellant No.2 vide order dated 15.2.2000 is not a decree within the meaning of Sections 2(2) CPC nor the appellants are decree holders within the contemplation of Section 2(3), CPC and even if it was one, at the most it would have amounted to a money decree whereas the respondent Nos.3 & 4 after filing separate proceedings by way of suits, had obtained mortgaged decrees and therefore, had priority on any such Order in Original passed by the appellant No.2. It was contended that the appellants had made different prayers before the learned Official Assignee/respondent No.2 and thereafter before this Court through an application under Section 73 CPC. It was contended that since it was a case of a mortgage decree, the provisions of Section 73 CPC are not applicable and Order 34 Rules 12 and 13 CPC would come into play. The learned counsel also contended that the appellant No.2 was itself not sure about the actual claim as different breakups of outstanding amounts have been filed by them and therefore even otherwise it could not be said that any claim has been adjudicated upon. Learned counsel also contended that in fact Respondent No.1 had mortgaged its immovable properties with the respondent Nos.3 & 4 and after passing of decrees, the learned Official Assignee had sold only such immovable properties which were mortgaged through proper Memorandum of Deposit of Title Deeds and had got nothing to do with the alleged goods purportedly removed by the respondent No.1 as claimed by the appellant No.2. Per learned counsel the respondent Nos.3 & 4 were secured creditors against proper mortgage, whereas on the other hand the appellant No.2 was not. It was further contended that the provisions of Section 201 & 202 of the Act were not applicable in the instant case and further these grounds were never raised by the appellant No.2 at the initial stage and hence could not be entertained at this belated stage. Per learned counsel this was a past and closed transaction as the amount available with the learned Official Assignee has already been disbursed to the respondent Nos.3 & 4 and during these proceedings the appellant No.2 and its officials were not diligent in pursing their claims. Per learned counsel that even after this disbursement, the decrees in both the suits are still to be satisfied fully and therefore, the claim of the appellants could not be entertained. Learned counsel relied upon the case reported in 1994 SCMR 2248 (Industrial Development of Pakistan, Karachi Vs Maida Limited), 2000 CLC 595 (Mst. Shanti Vs Karachi Transport Corporation), 2002 SCMR 496 (Pakistan Industrial Credit and Investment Corporation Limited Vs. Government of Pakistan), 2002 CLD 696 (United Bank Limited Vs. Shaikh Rayon Mills Limited), 2006 CLC 415 (State Life Insurance Corporation of Pakistan Vs. Hussain Mumtaz), 1999 SCMR 1633 (Kushi Muhammad Vs The Province of Punjab), 1999 MLD 1888 (N.D.F.C. Vs Anwar Zaib White Cement Limited), 2008 CLC 1570 (Mst. Khalida Vs Muhammad Khurshid Khan), 2007 SCMR 1698 (Zarai Taraqiati Bank Limited Vs. Mushtaq Ahmed Korai), 2011 SCMR 753 (Muhammad Akbar Vs. Muhammad Anwar), 2005 SCMR 1237 (Mohib Textile Mills Limited Vs. National Bank of Pakistan & Others), 1996 SCMR 1770 (Anwar Ali and Others Vs. Manzoor Hussain and Others) and 2004 SCMR 530 (Mushtaq Ahmed Vs Muhammad Saeed).
5. The learned Official Assignee submitted that after passing of the impugned order on 27.01.2009, the amount withheld vide order dated 13.06.2005 in Suit No.482 of 1998 has been distributed amongst the decree holders and at present nothing further is available with the Official Assignee for payment of any claim. The learned Official Assignee referred to its Ref. No.1 of 2013 dated 02.05.2013 filed in the instant High Court Appeal and submitted that even after payment of the sale proceeds the decrees are still to be satisfied due to insufficient sale proceeds. The learned Official Assignee submitted that only plots and machinery thereof which were mortgaged by the respondent Nos.3 & 4 have been sold by the office of the Official Assignee.
6. We have heard all the learned counsel and the Official Assignee and have perused the record and the case law relied upon the parties. By consent of all this High Court Appeal is being decided at Katcha Peshi.
7. It appears that the respondent No.1 passed a resolution of its Board of Directors on or about 12.02.1987 to obtain finance/loan from respondent Nos.3 & 4. In consideration of the grant of the finance facility, the respondent No.1 as an acknowledgement of the liability and security for repayment, signed three Demand Promissory Notes dated 12.02.1987, letter of Hypothecation dated 16.06.1987, Deed of Floating charge dated 16.06.1987 and Certificate of Registration of charge dated 17.06.1987. Thereafter the respondent No.1 deposited title documents of its property bearing plot No. F/8 SITE, Karachi and plot No.F/9, SITE Karachi through Memorandum of Deposit of Title Deeds dated 16.06.1987 and also executed Irrecoverable General Power of Attorney dated 17.06.1987 in favor of the respondent Nos.3 & 4. In addition to these documents, the respondent No.1 also signed an Undertaking to create mortgage dated 16.06.1987. Thereafter, the respondent No.1 defaulted in making payments of the secured finance facility and the respondent Nos.3 & 4 filed Suit No.482 of 1987 under the then Banking Companies (Recovery of Loans, Advances, Credits & Finances) Act, 1997 (“Act of 1997”). The Respondent No.4 had initially filed Suit No.2326 of 1994 before the Banking Tribunal under the Banking Tribunal Ordinance, 1984, which upon coming into force of the Act of 1997, was transferred to this Court and re-numbered as Suit No.951 of 1997, and after judgment and decree Execution No.232 of 2000 was filed before this Court. The Official Assignee was appointed as Commissioner in the matter vide order dated 26.05.2000 and 18.12.2000 to auction the mortgaged properties. Thereafter, subsequent to auction of the properties, the appellants had filed an application under Section 73 CPC, before this Court and a priority was claimed regarding the outstanding liability against the respondent No.1 on the basis of an Order in Original dated 15.2.2000 amongst the decree holders for disbursement of money from the Official Assignee. The said application was dismissed vide impugned order dated 27.01.2009 against which the present High Court Appeal has been filed.
8. The appellants have filed the application under Section 73 CPC. It would be advantageous to reproduce the provisions of Section 73 CPC which are as under:-
73. “Proceeds of execution-sale to be ratably distributed among decree-holders.--(1) Where assets are held by a Court and more persons than one have, before the receipt of such assets, made application to the Court for the execution of decrees for the payment of money passed against the same judgment –debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realization, shall be ratably distributed among all such persons:
Provided as follows:-
(a) where any property is sold subject to a mortgage or charge, the mortgage or encumbrancer shall not be entitled to share in any surplus arising from such sale;
(b) where any property liable to be sold in execution of a decree is subject to a mortgage or charge, the Court may, with the consent of the mortgage or incumbrancer, order that the property be sold free from the mortgage or charge, giving to the mortgagee or incumbrancer the same interest in the proceeds of the sale as he had in the property sold;
(c) where any immovable property is sold in execution of a decree ordering its sale for the discharge of an encumbrance thereon, the proceeds of sale shall be applied—
first, in defraying the expenses of the sale;
secondly, in discharging the amount due under the decree;
thirdly, in discharging the interest and principle monies due on subsequent encumbrances (if any); and
fourthly, ratably among the holders of decrees for the payment of money against the judgment-debtor, who have, prior to the sale of the property, applied to the court which passed the decree ordering such sale for execution of such decrees, and have not obtained satisfaction thereof.
(2) Where all or any of the assets liable to be ratably distributed under this section are paid to a person not entitled to receive the same, any person so entitled may sue such person to compel him to refund the assets.
(3) Nothing in this section affects any right of [Government].
9. Similarly the provisions of Order 34, Rules 12 & 13 are also important for adjudication of the instant matter and are also reproduced hereunder:-
12. “Sale of property subject to prior mortgage:- Where any property the sale of which is directed under this Order is subject to a prior
mortgage, the Court may, with the consent of the prior mortgagee, direct that the property be sold free from the same, giving to such prior mortgagee the same interest in the proceeds of the sale as he had in the property sold”.
13. Application of proceeds :(1) Such proceeds shall be brought into Court and applied as follows:-
first, in payment of all expenses incident to the sale or properly incurred in any attempted sale,
secondly, in payment of whatever is due to the prior mortgage, on account of the prior mortgage, and of costs properly incurred in connection therewith;
thirdly, in payment of all interest due on account of the mortgage in consequence whereof the sale was directed and of the cost of the suit in which the decree directing the sale was made;
fourthly, in payment of the principal money due on account of that mortgage; and
lastly, the residue (if any) shall be paid to the persons proving himself to be interested in the property sold, or if there are more such persons than one, then to such persons according to their respective interest s therein or upon their joint receipt.
(2) Nothing in this rule or in rule 12 shall be deemed to effect the powers conferred by Section 57 of the Transfer of Property Act, 1882”.
10. It is an admitted position that the loan / finance was provided to the Respondent No. 1 against sufficient security and accordingly respondent Nos.3 & 4 were secured creditors by way of mortgage of properties for which due formalities were completed prior to sanction/grant of the finance facility including Memorandum of Deposit of Title Deeds. The first question which we need to dilate upon and decide is that as to whether the provisions of section 73 CPC are more appropriately applicable or Order 34 Rules 12 & 13 CPC would have any applicability in the matter. In so far as the provision of section 73 is concerned it simply speaks about money decree without any reference to mortgage, whereas Order 34 deals specifically with Mortgages of Immoveable Property and Rules 12 & 13 deals with sale and application/distribution of such sale proceeds. Here it must also be noted that the proceedings in respect of Suit No. 482 of 1997 were initiated under the “Act of 1997”, and the Suit No. 951 of 1997 after transfer to this Court also proceeded under the Act of 1997. It has been provided under sub section (7) of section 9 of the Act of 1997, that where the claim filed by a banking company before the Banking Court is for the enforcement of a mortgage of immoveable property, the decree shall mean final decree for foreclosure or sale as provided for in Order XXXIV of Civil Procedure Code. Therefore it can be clearly understood, that in so far as the procedure in respect of Banking Courts under the Act of 1997 is concerned, it shall be governed by the specific provision of Order 34 CPC. Therefore in view of this and on comparison of the provisions of Section 73 and Order 34 Rules 12 & 13 CPC, we are of the view that since the finance facility was granted by the respondent Nos.3 & 4 as secured creditors through mortgage of the respondents properties, the provisions of Order 34 Rules 12 & 13 are applicable in the instant matter and not Section 73 CPC as pressed upon by the learned counsel for the appellant. It is provided under Order 34 Rule 12 that where any property, the sale of which is directed under this Order is subject to a (prior mortgage), the Court may, with the consent of the prior mortgagee, direct that the property be sold free from the same, giving to such prior mortgagee the same interest in the proceeds of the sale as he had in the property sold. Similarly under Rule 13, the procedure for application of the proceeds from such sale has been provided whereby firstly it has to be prioritized in payment of all expenses incident to the sale or properly incurred in any attempted sale, secondly, in payment of whatever is due to the prior mortgagee, on account of the prior mortgage, and of costs properly incurred in connection therewith; thirdly, in payment of all interest due on account of the mortgage in consequence whereof the sale was directed and of the cost of the suit in which the decree directing the sale was made; fourthly, in payment of the principal money due on account of that mortgage; and lastly, the residue (if any) shall be paid to the person(s) proving himself to be interested in the property sold, or if there are more such persons than one, then to such persons according to their respective interests therein or upon their joint receipt. Whereas a somewhat similar procedure has also been provided under sub section (1) (c), of Section 73 CPC for application of the proceeds and its ratable distribution, however in terms of sub-section (3) ibid it has been provided that nothing in this section effects any right of the Government whereby the dues of the Government in respect of the property being sold by the Court has been given the priority or exception to the priority for disbursement of the amount amongst the decree holders. We have already opined that the instant matter is appropriately covered under the provisions of Order 34 Rules 12 & 13 CPC, wherein no such provisions like sub-section (3) of Section 73 is available and therefore when the sale is being carried out by the Court in respect of a mortgaged property under Order 34 CPC, there is no concept of any priority of the Government dues to be paid out of the sale proceeds. The learned counsel for the appellant has relied upon various judgments of this Court as well as of the Indian jurisdiction but with respect, all of them have dealt with the interpretation and of Government priority in terms sub section (3) of Section 73 CPC, which in our view is not applicable on the facts of this case and therefore these judgments are of no help to the appellants.
11. The learned counsel for the appellant has also relied upon the provision of Section 201 of the Customs Act, 1969 which deals with the procedure for sale of goods and application of sale proceeds. The same is reproduced as under:-
201. “Procedure for sale of goods and application of sale proceeds:-(1) Where any goods, other than confiscated goods, are to be sold under any provision of this Act, they shall be sold after due notice to the owner [or his agent or custodian of the goods] by public auction or by t ender or by private offer or, with the consent of the owner [or his agent or custodian of the goods] in writing, in any other manner.
1(A) --------------
(2) The sale proceeds shall be applied to the following purposes in their respective order, namely:-
(a) first to pay the expenses of sale;
(b) then to pay the freight or other charges, if any, payable in respect of the goods, if notice of such charges has been given to the person holding the goods in custody;
(c) then to pay the customs duty, other taxes and dues payable to the [Federal Government] in respect of such goods;
(d) then to pay the charges due to the person holding such goods in custody;
(3) The balance If any, shall be paid to the owner of the goods, provided he applies for it within six months of the sale of the goods or shows sufficient cause for not doing so.
It could be seen from the above provision, that it is in respect of the goods which are being sold under the provisions of the Act by the Customs authorities itself, whereas the properties of the Judgment Debtor were sold by the Official Assignee on the directions of this Court under CPC, and therefore this contention of the learned counsel for the appellant is totally misconceived and is hereby repelled.
12. The learned counsel for the appellant has also relied upon the provision of Section 202 of the Act, and contended that under this section, a complete mechanism has been provided for the recovery of the Government dues and in view of this provision, the Official Assignee was required to make payment of the outstanding amount to the appellants from the sale proceeds. The relevant provisions of Section 202 of the Act are reproduced hereunder:-
202. Recovery of Government dues:-(1) When, under this Act or under any other law for the time being in force, which provides for any tax, duty or other levy being collected in the same manner as customs-duties are collected, a penalty is adjudged against, or notice or demand is served upon, any person calling for the payment of any amount unpaid which may be payable by way of penalty or by way of tax or other levy or under any bond [guarantee] or other instrument executed under this Act or such other law or the rules made there under, the appropriate officer--
(a) may deduct or require any other officer or Customs, Central Excise and Sale Tax to deduct such amount from any money owing to such person which may be under the control of the Customs, Central Excise or Sale Tax authorities; or
(b) if it cannot be so recovered, may recover, or may require any other officer of Customs, Central Excise or Sales Tax to recover, such amount by detaining and selling any goods belonging to such person which are under the control of the Customs, Central Excise or Sales Tax authorities;
[Provided that notwithstanding anything contained in any other law for the time being in force, if a defaulter sells or transfers ownership of his assets, the defaulted amount of duty and taxes shall be the first charge on the business so transferred.]
(2) If the amount cannot be recovered from such person in the manner provided in sub-section (1), the appropriate officer may serve upon the defaulter a notice in the prescribed form requiring him to pay the amount specified in the in the notice within such time as may be so specified.
(3) If the amount referred to in the notice under sub-section (2) is not paid within the time specified t herein or within the further time, if any, allowed by the appropriate officer, the appropriate officer may proceed to recover from the defaulter the said amount by one or more of the following modes, namely:-
(a) attachment and sale of any movable or immovable property of the defaulter, and
(b) may recover, or may require any other officer of Customs, Central Excise or Sales Tax to recover, if it cannot be so recovered, such amount by detaining and selling any goods belonging to such person which are under the control of the Customs, Central Excise or Sales Tax Authorities; or
(c) may recover such amount by attachment and sale of any movable and immovable property of the guarantor, person, company, bank or financial institution, where a guarantor or any other person, company, bank or financial institution fails to make payment under such guarantee, bond or instrument.
3-A -------------
3-B -------------
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13. From the perusal of the above provision, it transpires that when an amount is adjudged against a person and is unpaid for any reason whatsoever, an appropriate officer, may deduct or require any other officer of Customs, Central Excise or Sales Tax to deduct such amount from any money owing to such person which may be under the control of the Customs, Central Excise or Sales Tax Authorities. It further provides that if the amount could not be so recovered, then it may be recovered by detention and selling of any goods belonging to such person which are under the control of the Customs, Central Excise or Sales Tax Authorities. The proviso to sub-section (1) inserted vide Finance Act, 2007, stipulates that notwithstanding anything contained in any other law for the time being in force, if a defaulter sells or transfers ownership of his assets, the defaulted amount of duties and tax shall be the first charge on the business so transferred. Subsection (2) of Section 202 provides for issuance of a notice by the appropriate officer in a prescribed form requiring the defaulter to pay the amount specified in the notice within such time as may be specified therein. The other relevant provision is sub-section 3(a) of Section 202 of the Act, which provides that if the amount referred to in the notice under sub-section (2) is not paid within the specified time then the appropriate officer may proceed to recover the said amount by attachment and sale of any movable or immovable property of the defaulter.
14. The proviso to Sub-section (1) of Section 202 of the Act was inserted in the year 2007. In this proviso a Non-obstante clause has been incorporated, hence this provision will have an overriding effect on any other general provision of law as this is under a special law i.e. the Customs Act. Though this provision may have had some relevance as it relates to sale or transfer of ownership of a defaulter’s assets/properties in an appropriate case but in our view, this is not attracted in the facts of the instant matter, as this provision has been incorporated in the year 2007, whereas the mortgage of the property, filing of the suit and the execution and sale of the properties are much prior to the year 2007 and therefore this proviso could not have any applicability in the instant proceedings. We have also asked the learned counsel for the appellants that as to whether, any action was initiated by the appellants after issuance of detention notice in terms of Sub-section (2) of Section 202 of the Act, including but not limited to the attachment and sale of the movable or immovable property of the respondent No.1 in terms of sub-section 3(a) of Section 202 of the Act. The learned counsel for the appellants was not able to satisfactorily reply to this question and also could not refer to any documents to substantiate that any other action was taken by the appellants except the issuance of a detention notice under Section 202 of the Act.
15. We have also noticed that though, the amount has been determined against the respondent No.1 by way of an Order in Original dated 15.02.2000 but even such determination has been done by the appellant after almost 8 years of the issuance of the Show Cause Notice dated 14.09.1992. In between this period, the appellant did not made any efforts to approach this Court and not even after passing of the Order in Original in the year 2000. It was only in 2005 that they approached this Court with an application under Section 73 CPC. Even otherwise, it is a settled law that the determination of any such amount by a Government Department like the one in hand, which is not directly against or in respect of the property being sold by the Court, the same could only be given a priority if such determination was made prior to the mortgage or creation of the charge in respect of such property of the defaulter and not otherwise. In the instant matter, admittedly, the mortgage/charge was created in the year 1987 in favor of the respondent Nos.3 & 4, whereas, even if we were to take the date of the passing of the Order in Original i.e. 15.2.2000, as a crucial date, the same is also much after the date of the mortgage of the property. We have been able to lay our hands on an unreported judgment of this Court in HCA No 85 of 1997 authored by Ajmal Mian, J. (as his Lordship then was) in which more or less identical facts were involved. In that case the Income Tax department had made an application before a learned Single Judge of this Court in Execution No 90 of 1988 (Suit No 183/1983) whereby it was averred that the department had a claim against the Judgment Debtor for an amount of Rs. 10,00,000.00, therefore such claim had a priority and was to be paid from the sale proceeds. The learned Single Judge vide its order dated 31.5.1987 ordered retention of the above mentioned amount out of the sale proceeds of the mortgaged property. An appeal was preferred against the said order vide HCA No 85 of 1997 (Industrial Development Bank of Pakistan Vs. Commissioner of Income Tax & Others) and a Division Bench of this Court vide its judgment dated 11.05.1988 observed as follows;
“It seems that the Income Tax department claimed preferential right even over the secured creditor i.e. the appellant in respect of the Income Tax liability which was outstanding against the defendants in Suit. The legal position which has emerged is that if an Income-tax liability is created prior to a mortgage, the Income-tax Department, will have preferential right to the extent of the said Income-tax liability but in case income-tax liability is created subsequent to the mortgage, the secured creditor will have a preferential right in respect of his claim”.(Emphasis supplied)
Subsequently, another Division Bench of this Court has followed this judgment which was authored by Late Sabihuddin Ahmed, J. (as his Lordship then was) in the case of Habib Bank Ltd Vs. M/s. RUDOLF DONHILL reported as 1999 PTD 2940, and held as under:-
“In support of this appeal Syed Iqbal Ahmed, Learned Counsel for the appellant in the first instance argued that the claim of the respondent No.4could only have priority over unsecured debts of the respondents Nos.1 and 2 but not against the claims of a secured creditor like the appellant in whose favor an equitable mortgage had been created through deposit of title deeds of the respondent No.1 on 23.05.1979 and a decree had been passed on the basis of such mortgage. In support of his contention learned counsel placed reliance upon Federation of Pakistan v. Pioneer Bank Limited PLD 1958 Dacce 535. Income-tax Officer v. K.A. Govindaswamy 1978 113 ITR Mad. 593, Sundaram Finance Limited v. The Regional Transport Authority (1979) 117 ITR Kerala 334, Industrial Development Bank Limited v. M/s. Maida Limited and 3 others 1989 CLC 143 and an unreported judgment of this Court in the case of Industrial Development Bank of Pakistan v. Commissioner of Income-tax (HCA No.85 of 1987). We have gone through all these judgments and have found that the consistent principle of law laid down therein is only to the effect that Government liabilities arising subsequent to a charge on the properties cannot have preference over the claims of secured creditors. Indeed except for the case of Sundaram Finance Limited decided by the Kerala High Court claims of the Government had arisen after the charge on the property having been created. Nevertheless we are unable to follow the Kerala precedent in view of the clear enunciation of law in the unreported D.B. judgment of this Court in HCA No.85 of 1987, authored by Ajmal Mian, J, (as his Lordship then was).[emphasis supplied].
16. Similarly, even otherwise, if we were to hold that the case of the appellants is covered more appropriately under Section 73 CPC, even then the claim of the appellants could not have any priority in view of the judgment of the Honorable Supreme Court in the case of Pakistan Industrial Credit and Investment Corporation Limited, Peshawar Cantt and others VS. Government of Pakistan through Collector Customs, Customs House, Peshawar and another, reported in 2002 SCMR 496, wherein the following observation is relevant.
“As for the question of ratable distribution of the assets of the judgment-debtor is concerned, it would also be hit by section 18(6) of the Act. Moreover for ratable distribution, it is necessary that the assets must be held by the Court, there should be more than one person who have money decrees in their favor against the same judgment-debtor and application should be made before the receipt of assets by the executing Court. The applications were not looked into from these angles to ascertain as to whether the same qualified the aforesaid requirements of section 73 CPC, respondents Nos.1 & 2 in both the appeals are not decree-holders as no decree has been passed by any Court in their favor. According to the learned counsel for respondent No.1 in Civil Appeal No.898 of 1999, a direction/order has been issued by the Authority under the Payment of Wages Act, 1936 for the recovery of wages but said direction/order cannot be said to be a decree within the meaning of section 2(2), CPC and as such, his application could not be treated to be an application under section 73, CPC. He could only resort to execute the order of the Authority in the manner prescribed in the Payment of Wages Act itself”.
17. In so far as the case law relied upon by the learned counsel for the appellants is concerned, [except the case of IDBP V/s Maida Limited (Supra) which was relied upon by both the learned counsel] the same are not applicable in the facts of the instant appeal as the same relates to ratable distribution amongst decree holders from the sale proceeds received through auction of the properties of a judgment debtor by the Court. The question that whether the Order in Original is in fact a “decree’ within the meaning of section 2(2) CPC or not, is not a question before us to adjudicate in the instant appeal, therefore the same is left to be decided at an appropriate stage, nonetheless we have already observed that the claim of the appellants which has arisen on the basis of Order in Original, at the earliest, materialized on 15.2.2000 and is admittedly, subsequent to creation of mortgage/charge in favor of Respondent Nos.3 & 4 and, therefore, in view of the principle laid down in the unreported case of IDBP(Supra) and followed subsequently in the case of Habib Bank Ltd (Supra), the Government liabilities arising out subsequent to a charge on the properties cannot have preference over the claims of the secured creditors. Further and even otherwise, the appellants have failed to proceed strictly in accordance with the relevant provisions of Section 202 of the Act, as no further proceedings were initiated by them as laid down under Sub-section 3(a) of Section 202 of the Act, as such the observation of the Honorable Supreme Court in the case of Pakistan Industrial Credit and Investment Corporation (Supra) would also be an impediment in the grant of such contention/prayer. The case of IDBP Vs Maida Limited (Supra) in fact is in favor of the respondent No. 3 & 4, as firstly it is in respect of Order 34 Rules 12 & 13 as vehemently relied upon by the learned counsel for respondents No 3 & 4, and not under section 73 CPC under which the priority is being claimed by the appellants. Secondly, in the said judgment leave was granted to consider the contention that since dues of the claimant’s like, Excise and Taxation Officer, KESC, KDA and KW&SB were not encumbrances on the property sold; they could not have preference over the claim of a decree holder. The issue for consideration before the Honorable Supreme Court was whether these claimants can have any priority over the claim of IDBP. The provisions of Order 34 Rule 13 CPC were considered and it was observed that the claimants can succeed in claiming priority over a mortgagee-decree-holder provided such right has been conferred on them in supersession of the right of such mortgagee which he enjoys under that law. The claim of Excise & Taxation Officer in respect of property tax was considered in view of the provisions of Urban Immoveable Property Tax Act 1958 and it was held that since it was a tax or charge on the property and was payable by the owner under section 2 (e) of the Act which includes a mortgagee with possession, and further the law provides for first charge on the property / building in supersession of anything contained in any other law or contract, therefore the claim of the property tax was liable to be satisfied as a first charge or priority. We are afraid the above principle of law does not in any manner apply to the case of the appellants and therefore the said judgment does not support their case.
18. In view of hereinabove, we do not find any merits in the instant High Court Appeal, which is hereby dismissed along with listed application(s), however, with no order as to cost.
Dated: 23.01.2014 JUDGE
JUDGE