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Punjab National Bank vs. Union of India Thr. Its Secretary

Civil Appeal · 2022 INSC 230Decided 24 Feb 2022
Civil Appeal No. 2196 of 2012
L. Nageswara Rao · Vineet Saran · Aniruddha Bose

Background

A company (Rathi Ispat Ltd.) mortgaged its land, building, and machinery to Punjab National Bank (as lead bank) to secure loans. Separately, the Central Excise Department had earlier initiated proceedings against the company for evading excise duty, and in 2007, years after the bank's charge was created, the Excise Commissioner ordered confiscation of the same properties under a Rule (173Q(2)) that had, in fact, already been omitted from the law in 2000. When the bank tried to take possession of the mortgaged properties under the SARFAESI Act after the company defaulted, the Excise Department blocked it, citing the confiscation. The Allahabad High Court dismissed the bank's challenge.

Decision Breakdown

The Supreme Court held that the 2007 confiscation orders were void from the outset because the rule authorising confiscation (Rule 173Q(2)) had already been removed from the statute book years earlier: the department could not confiscate property under a provision that no longer existed. Separately, the Court held that even if the confiscation had been valid, a secured creditor's rights under the SARFAESI Act (2002) override the Central Excise Department's claim, since the SARFAESI Act has an overriding effect over other laws and there was no "first charge" provision favouring the excise department at the relevant time. The appeal was allowed and the confiscation orders quashed.

Lesson Learnt

A government authority cannot exercise a statutory power (like confiscation) once the underlying provision has been repealed or omitted, and secured lenders' rights over mortgaged property generally take priority over unsecured government dues unless a specific law says otherwise.

Official source (sci.gov.in)View Judgment (PDF)

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