JUDGMENT judgment of court was delivered by R. F. Nariman J.-The present matter arises as result of member of stock exchange being declared defaulter. Income-tax Department claims that it has priority over all debts owed by defaulter member, whereas Stock Exchange, Bombay claims otherwise. facts necessary to appreciate controversy are as follows: By notice dated June 29, 1994, Stock Exchange, Bombay declared Shri Suresh Damji Shah as defaulter with immediate effect as he had failed to meet his obligations and discharge his liabilities. By notice dated October 5, 1995, issued under section 226(3) of Income-tax Act, 1961, Income-tax Department wrote to stock exchange and told them that Shri Shah's membership card being liable to be auctioned, amount realized at such auction should be paid towards income-tax dues of assessment years 1989- 90 and 1990-91 amounting to Rs. 25.43 lakhs. Stock Exchange, Bombay, by its letter dated October 11, 1995, replied to said notice and stated that under rules 5 and 6 of Stock Exchange membership right is personal privilege and is inalienable. Further, under rule 9 on death or default of member his right of nomination shall cease and vest in exchange and, accordingly, membership right of Shri Shah has vested with exchange on his being declared defaulter. This being case, since exchange is now and has always been owner of membership card, no amount of tax arrears of Shri Shah are payable by it. By prohibitory order dated May 10, 1996, Income-tax Department prohibited and restrained stock exchange from making any payment relating to Shri Shah to any person whomsoever otherwise than to Income-tax Department. amount claimed in prohibitory order was stated to be Rs. 37.48 lakhs plus interest. On July 18, 1996, solicitors of Stock Exchange, Bombay, wrote to Income-tax Department calling upon them to withdraw prohibitory order dated May 10, 1996, in view of fact that membership right of exchange is personal privilege and is inalienable. By letter dated December 2, 1996, Tax Department wrote back to Bombay Stock Exchange refusing to recall its prohibitory order. Meanwhile, Shri Shah applied to be re-admitted to stock exchange which application was rejected by stock exchange on February 13, 1997. stock exchange then filed writ petition being Writ Petition No. 220 of 1997, dated December 24, 1997, in which following reliefs were claimed: (a) that this hon'ble court may be pleased to issue writ of certiorari or writ in nature of certiorari or any other appropriate writ, order or direction under article 226 of Constitution of India calling for records in relation to recovery proceedings initiated by respondents against Mr. Suresh D. Shah and after going through same and examining legality and validity thereof to quash and set aside impugned notice dated October 5, 1995, and impugned order dated May 10, 1996, impugned notice/letter dated December 27, 1996, being exhibits "D", "F" and "H" hereto; (b) that this hon'ble court may be pleased to issue writ of mandamus or any other appropriate writ, order or direction under article 226 of Constitution of India ordering and directing respondents to withdraw forthwith recovery proceedings initiated against in respect of dues of Mr. Suresh D. Shah and ordering and directing respondents to withdraw forthwith impugned notice dated October 5, 1995, and impugned notice dated October 5, 1995, and impugned prohibitory order dated May 10, 1996, and impugned notice/letter dated December 27, 1996, being exhibits "D", "F" and "H" hereto; (c) that this hon'ble court be pleased to permit petitioner to exercise right of nomination in respect of membership right of Suresh D. Shah in favour of such person as petitioner may decide and to apply consideration received therefor and also appropriate all other securities placed with petitioner by Suresh D. Shah and which have vested in petitioner in accordance with rules, Bye-laws and regulations of petitioner; writ petition was finally heard and by judgment dated March 27, 2003, most of contentions of stock exchange were rejected and writ petition was dismissed. special leave petition was filed against said judgment being SLP (Civil) No. 8245 of 2003 in which, by order dated May 7, 2003, operation of judgment was not stayed to extent that it specifically directed petitioner to make certain payments and handover securities to Income-tax Department. However, in so far as judgment declared law, operation of such declaration of law was stayed. As this civil appeal raises important questions of law both from point of view of Bombay Stock Exchange and Income-tax Department, we are going into matter in some detail. See Stock Exchange, Mumbai v. V. S. Kandalgaonkar [2003] 261 ITR 577 (Bom). Section 226 of Income-tax Act provides for garnishee notice in following terms: "226. (3) (i) Assessing Officer or Tax Recovery Officer may, at any time or from time to time, by notice in writing require any person from whom money is due or may become due to assessee or any person who holds or may subsequently hold money for or on account of assessee, to pay to Assessing Officer or Tax Recovery Officer either forthwith upon money becoming due or being held or at or within time specified in notice (not being before money becomes due or is held) so much of money as is sufficient to pay amount due by assessee in respect of arrears or whole of money when it is equal to or less than that amount." Under sub- clause (x), if person to whom notice is sent fails to make payment in pursuance thereof he shall be deemed to assessee in default. Rule 26 of Schedule II to Income-tax Act then provides: "26. Debts and shares, etc.-(1) In case of- (a) debt not secured by negotiable instrument, (b) share in corporation, or (c) other movable property not in possession of defaulter except property deposited in, or in custody of, any court, attachment shall be made by written order prohibiting: made by written order prohibiting: (i) in case of debt-the creditor from recovering debt and debtor from making payment thereof until further order of Tax Recovery Officer; (ii) in case of share-the person in whose name share may be standing from transferring same or receiving any dividend thereon; (iii) in case of other movable property (except as aforesaid)-the person in possession of same from giving it over to defaulter. (2) copy of such order shall be affixed on some conspicuous part of office of Tax Recovery Officer, and another copy shall be sent, in case of debt, to debtor, in case of share, to proper officer of corporation, and in case of other movable property (except as aforesaid), to person in possession of same. (3) debtor prohibited under clause (i) of sub-rule (1) may pay amount of his debt to Tax Recovery Officer, and such payment shall discharge him as effectually as payment to party entitled to receive same." Sections 8 and 9 of Securities Contracts (Regulation) Act, 1956, deal with Rules, Regulations and Bye-Laws to be made in respect of stock exchanges. Sections 8 and 9 of said Act read as follows: "8. Power of Central Government to direct rules to be made or to make rules.-(1) Where, after consultation with governing bodies of stock exchanges generally or with governing body of any stock exchange in particular, Central Government is of opinion that it is necessary or expedient so to do, it may, by order in writing together with statement of reasons therefor, direct recognised stock exchanges generally or any recognised stock exchange in particular, as case may be, to make any rules or to amend any rules already made in respect of all or any of matters specified in sub-section (2) of section 3 within period of two months from date of order. (2) If any recognised stock exchange fails or neglects to comply with any order made under sub-section (1) within period specified therein, Central Government may make rules for, or amend rules made by, recognised stock exchange, either in form proposed in order or with such modifications thereof as may be agreed to between stock exchange and Central Government. (3) Where in pursuance of this section any rules have been made or amended, rules so made or amended shall be published in Gazette of India and also in Official Gazette or Gazettes of State or States in which principal office or offices of recognised stock exchange or exchanges is or are situate, and, on publication thereof in Gazette of India, rules so made or amended shall, notwithstanding anything to contrary contained in Companies Act, 1956 (1 of 1956), or in any other law for time being in force, have effect, as if they had been made or amended by recognised stock exchange or stock exchanges, as case may be. 9. Power of recognised stock exchanges to make bye-laws.-(1) Any recognised stock exchange may, subject to previous approval of Securities and Exchange Board of India, make bye-laws for regulation and control of contracts. (2) In particular, and without prejudice to generality of foregoing power, such bye-laws may provide for: (a) opening and closing of markets and regulation of hours of trade; (b) clearing house for periodical settlement of contracts and differences thereunder, delivery of and payment for securities, passing on of delivery orders and regulation and maintenance of such clearing house; (c) submission to Securities and Exchange Board of India by clearing house as soon as may be after each periodical settlement of all or any of following particulars as Securities and Exchange Board of India may, from time to time, require, namely:- (i) total number of each category of security carried over from one settlement period to another; (ii) total number of each category of security, contracts in respect of which have been squared up during course of each settlement period; (iii) total number of each category of security actually delivered at each clearing; (d) publication by clearing house of all or any of particulars submitted to Securities and Exchange Board of India under clause (c) subject to directions, if any, issued by Securities and Exchange Board of India in this behalf; (e) regulation or prohibition of blank transfers; (f) number and classes of contracts in respect of which settlements shall be made or differences paid through clearing house; (g) regulation, or prohibition of budlas or carry-over facilities; (h) fixing, altering or postponing of days for settlements; (i) determination and declaration of market rates, including opening, closing, highest and lowest rates for securities; (j) terms, conditions and incidents of contracts, including prescription of margin requirements, if any, and conditions relating thereto, and forms of contracts in writing; (k) regulation of entering into, making, performance, rescission and termination, of contracts, including contracts between members or between member and his constituent or between member and person who is not member, and consequences of default or insolvency on part of seller or buyer or intermediary, consequences of breach or omission by seller or buyer, and responsibility of members who are not parties to such contracts; (l) regulation of taravani business including placing of limitations thereon; (m) listing of securities on stock exchange, inclusion of any security for purpose of dealings and suspension or withdrawal of any such securities, and suspension or prohibition of trading in any specified securities; (n) method and procedure for settlement of claims or disputes, including settlement by arbitration; (o) levy and recovery of fees, fines and penalties; (p) regulation of course of business between parties to contracts in any capacity; (q) fixing of scale of brokerage and other chargers; (r) making, comparing, settling and closing of bargains; (s) emergencies in trade which may arise, whether as result of pool or syndicated operations or cornering or otherwise, and exercise of powers in such emergencies, including power to fix maximum and minimum prices for securities; (t) regulation of dealings by members for their own account; (u) separation of functions of jobbers and brokers; (v) limitations on volume of trade done by any individual member in exceptional circumstances; (w) obligation of members to supply such information or explanation and to produce such documents relating to business as governing body may require. (3) bye-laws made under this section may- (a) specify bye-laws contravention of which shall make contract entered into otherwise than in accordance with bye-laws void under sub- section (1) of section 14; (b) provide that contravention of any of bye-laws shall render member concerned liable to one or more of following punishments, namely:- (i) fine, (ii) expulsion from membership, (iii) suspension from membership for specified period, (iv) any other penalty of like nature not involving payment of money. (4) Any bye-laws made under this section shall be subject to such conditions in regard to previous publication as may be prescribed, and, when approved by Securities and Exchange Board of India, shall be published in Gazette of India and also in Official Gazette of State in which principal office of recognised stock exchange is situate, and shall have effect as from date of its publication in Gazette of India: Provided that if Securities and Exchange Board of India is satisfied in any case that in interest of trade or in public interest any bye-law should be made immediately, it may, by order in writing specifying reasons therefor, dispense with condition of previous publication." As number of rules of stock exchange have been referred to in course of argument, we will set down those which are relevant for purposes of question to be decided: "Membership personal privilege 5. membership shall constitute personal permission from Exchange to exercise rights and privileges attached thereto subject to Rules, Bye-laws and Regulations of exchange. Right of nomination 7. Subject to provisions of these Rules member shall have right of nomination which shall be personal and non-transferable. Right of nomination of deceased or defaulter member 9. On death or default of member his right of nomination shall cease and vest in exchange. and vest in exchange. Forfeited or lapsed right of membership 10. When right of membership is forfeited to or vests in Exchange under any rule, bye-law or regulation of Exchange for time being in force it shall belong absolutely to Exchange free of all rights, claims or interest of such member or any person claiming through such member and Governing Board shall be entitled to deal with or dispose of such right of membership as it may think fit. Allocation in order of priority 16. When as provided in these Rules Governing Board has exercised right of nomination in respect of membership vesting in Exchange consideration received therefore shall be applied to following purposes and in following order of priority namely- Dues of exchange and clearing house (i) first-the payment of such subscriptions, debts, fines, fees, charges and other monies as shall have been determined by Governing Board to be due to Exchange, to Clearing House by former member whose right of membership vests in Exchange. Liabilities relating to contracts (ii) second-the payment of such debts, liabilities, obligations and claims arising out of any contracts made by such former member subject to Rules, Bye-laws and Regulations of Exchange as shall have been admitted by Governing Board: Provided that if amount available be insufficient to pay and satisfy all such debts, liabilities, obligations and claims in full they shall be paid and satisfied pro rata; and Surplus (iii) third-the payment of surplus if any to funds of Exchange: provided that Exchange in general meeting may at its absolute discretion direct that such surplus be disposed of or applied in such other manner as it may deem fit. 37. Form of security security to be furnished by member shall be provided either by deposit of cash or it may be provided in form of deposit receipt of bank approved by Governing Board or in Securities approved by Governing Board subject to such terms and conditions as Governing Board may from time to time impose. Deposits of cash shall not carry interest and securities deposited by member valued at market price of day shall exceed sum for time being secured thereby by such percentage as Governing Board may from time to time prescribe. 38. Security how held Deposits of cash shall be lodged in bank approved by Governing Board and bank deposit receipts and securities shall be transferred to and held either in names of trustees of exchange or in name of bank approved by Governing Board and lodged with bank approved by Governing Board. Such deposit shall be entirely at risk of member providing security but it shall be held by bank solely for and on account of exchange at absolute discretion of exchange without any right whatever on part of such member or those in his right to call in question, exercise of such discretion. Change of security 41. member may withdraw any security provided by him if he first provides in lieu thereof other security of sufficient value to satisfaction of Governing Board. Lien on security 43. security provided by member shall be subject to first and paramount lien for any sum due to exchange or to clearing house by him or by partnership of which he may be member and for due fulfilment of his engagements, obligations and liabilities or of partnership of which he may his engagements, obligations and liabilities or of partnership of which he may be member arising out of or incidental to any bargains, dealings, transactions and contracts made subject to Rules, Bye-laws and Regulations of exchange or anything done in pursuance thereof. Return of security 44. On termination of his membership or on his ceasing to carry on business on exchange or on his working as representative member or on his death all security not applied under Rules, Bye-laws and Regulations of exchange shall at cost of member be repaid and transferred either to him or as he shall direct or in absence of such direction to his legal representatives. Letter of declaration 46. member providing security under provisions of these Rules shall sign letter of declaration in form prescribed in Appendix F to these Rules or in such other form as Governing Board may from time to time prescribe. Appendix F Member's Security Declaration Form No. 1 (Rule 46) Governing Board, Stock Exchange, Bombay. Gentlemen, Having been admitted as member of stock exchange and having handed to you in terms of rules thereof to be deposited in .................. (name of bank) in name of exchange sum of Rs. 20,000 and/or having transferred to names of trustees of exchange and/or (name of bank) securities mentioned below, I hereby declare and agree that said security and any cash, stock, shares or other securities that may be added to or substituted for said security by arrangement with you are subject to first and paramount lien for any sum due to exchange or to clearing house by me/us or by partnership of which I may be partner and for any sum due to any member of exchange for due fulfillment of my engagements, obligations and liabilities or of partnership of which I may be member arising out of or incidental to any bargains, dealings, transactions and contracts made subject to Rules, Bye-laws and Regulations of exchange or anything done in pursuance thereof. I hereby further declare and agree that said security and any cash, stock, shares or other securities that may be added to or substituted for said security by arrangement with you are to be held for you and on your account by said Trustees and/or bank(s) at your absolute discretion without any right whatever on part of myself or those in my right to call in question exercise of such discretion on any ground whatever so that you may at your absolute discretion as aforesaid apply and pay same or proceeds thereof (in case you shall as you shall be fully entitled to do sell same) or cause same to be applied and paid to or for behalf of exchange or clearing house to whom I or any partnership of which I may be partner may be indebted or to or for behalf of any member of exchange to whom I or any partnership of which I may be partner may be indebted under claim or claims arising from any bargains, dealings, transactions and contracts made subject to Rules, Bye-laws and Regulations of exchange during continuance of my membership of exchange. If on completion of all bargains, dealings, transactions and contracts entered into before termination of my membership or on my ceasing to do business on exchange said security or proceeds thereof shall not have been required for payment of my or my said partnership liabilities as above provided same or any balance thereof then remaining will be returned to me and receipt signed by me that whatever cash, stock, shares or other securities or balance thereof is/are so returned to me is/are all to which I am entitled in terms hereof shall be final and conclusive and bar inquiry of any kind at instance of myself or any one in my right in respect thereof. Yours faithfully, (Signature of member depositing Security) Securities above referred to Some bye-laws of stock exchange are also relevant. These are: Defaulter's assets: 326. defaulters' committee shall call in and realise security and margin money and securities deposited by defaulter and recover all monies, securities and other assets due, payable or deliverable to defaulter by any other member in respect of any transaction or dealing made subject to Rules, Bye-laws and Regulations of exchange and such assets shall vest in defaulters' committee for benefit and on account of creditor members. Payment to defaulters' committee 327. All monies, securities and other assets due, payable or deliverable to defaulter must be paid or delivered to defaulters' committee within such time of declaration of default as Governing Board or President may direct. member violating this provision shall be declared defaulter. Distribution 330. defaulters' committee shall at risk and cost of creditor members pay all assets received in course of realisation into such bank and/or keep them with Clearing House in such names as Governing Board may from time to time direct and shall distribute same as soon as possible pro rata up to sixteen annas in rupee but without interest among creditor members whose claims are admitted in accordance with these Bye-laws and Regulations. Application of defaulters' assets and other amounts 400. Subject to provisions of bye-law 398, defaulters' committee shall realise and apply all money, rights and assets of defaulter which have vested in or which have been received by defaulters' committee (other than amount paid by Governing Board to defaulters' committee pursuant to rule 16A in respect of consideration received by Governing Board for exercising right of nomination in respect of defaulter's erstwhile right of membership) and all other assets and money of defaulter in exchange or market including money and securities receivable by him from any other member, money and securities of defaulter lying with clearing house or exchange, credit balances lying in clearing house, security deposits, any bank guarantees furnished on behalf of defaulter, fixed deposit receipts discharged or assigned to or in favour of exchange, base/additional capital deposited with exchange by defaulter, any security created or agreed to be created by defaulter or any other person in favour of exchange or defaulters' committee for obligations of defaulter to following purposes and in following order of priority, viz.: (i) First-to make any payments required to be made under byelaws 391 and 394; (ii) Second-the payment of such subscriptions, debts, fines, fees, charges and other money as shall have been determined by defaulters' committee to be due to Securities and Exchange Board of India, to exchange or to clearing house by defaulter; (iii) Third-the rectification or replacement of or compensation for any bad deliveries made by or on behalf of defaulter to any other member in settlement in which defaulter has been declared defaulter or in any prior or subsequent settlement (unless Governing Board has otherwise determined in respect of such settlement or settlements under bye-law 394) provided conditions of Bye-law 153 and all other applicable rules, bye-laws and regulations and instructions of Governing Board are complied with; (iv) Fourth-the balance, if any, shall be paid into Fund to extent of money paid out of fund (other than payments made out of members' refundable contributions) and not recovered by fund and interest payable by defaulter to fund in respect thereof; (v) Fifth-the balance, if any, shall be paid into fund to extent of money paid out of fund out of refundable contributions of members (other than refundable contribution of defaulter) and not recovered by fund and interest payable by defaulter to fund in respect thereof; (vi) Sixth-subject to Rules, Bye-Laws and Regulation of exchange, including in particular bye-law 343, balance, if any, shall be applied by defaulters' committee for payment of such unpaid outstanding, debts, liabilities, obligations and claims to or of members of exchange arising out of any contracts made by defaulter with such members subject to Rules, Bye-laws and Regulations of exchange as shall have been admitted by defaulters' committee; provided that if amount available be insufficient to pay and satisfy all such debts, liabilities, obligations and claims in full they shall be paid and satisfied pro rata; (vii) Seventh-subject to Rules, Bye-Laws and Regulation of exchange, including in particular bye-law 343, balance, if any, shall be applied by defaulters' committee for payment of such unpaid debts, liabilities, obligations and claims to or of defaulter's constituents arising out of any contracts made by such defaulter subject to Rules, Bye-laws and Regulations of exchange as shall have been admitted by Governing Board; provided that if amount available be insufficient to pay and satisfy all such debts, liabilities, obligations and claims in full they shall be paid and satisfied pro rata; (viii) Eighth-the balance, if any, shall be paid into Exchange's Customers' Protection Fund to extent of any and all amounts paid out of Customers' Protection Fund towards obligations or liabilities of defaulter and interest thereon at rate of 2.5 per cent. per month (or such other rate as Governing Board may specify) from date of payment out of Customers' Protection Fund to date of repayment to fund; and (ix) Ninth-the surplus, if any, shall be paid to defaulter. Clarification: It is clarified that this bye-law 400 does not apply to amount paid by Governing Board to defaulters' committee pursuant to rule 16A in respect of consideration received by Governing Board for exercising right of nomination in respect of defaulter's erstwhile right of membership as same does not belong to defaulter and defaulter has no claim, right, title or interest therein." judgment under appeal set out two main issues which according to it arose for determination. They are: (A) Whether, on facts and circumstances of this case, Tax Recovery Officer was right in attaching sale proceeds of nomination rights of defaulter-member. If not, whether Tax Recovery Officer was entitled to attach under rule 26(1) of Schedule II to Income-tax Act, balance surplus amount lying with Bombay Stock Exchange out of sale proceeds of nomination rights of defaulter-member under rule 16(1)(iii) framed by Bombay Stock Exchange read with Resolution of General Body of Bombay Stock Exchange dated October 13, 1999? (B) Whether deposits made by defaulting member under various heads such as security deposit, margin money, securities deposited by members and others are attachable under section 226(3)(i)(x) read with rule 26(1)(a)(c) of Schedule II to Income-tax Act? Issue was answered by saying that though defaulting member had no interest in membership card and that Income-tax Department was not right in attaching sale proceeds of such card, still money which is likely to come in hands of garnishee, that is Bombay Stock Exchange, for and on behalf of assessee is attachable because requisite condition is subsistence of ascertained debt in hands of garnishee which is due to assessee, or existence of contractual relationship between assessee and stock exchange consequent upon which money is likely to come in hands of garnishee for and on behalf of assessee. Issue No. 2 was answered by saying that even on vesting of all assets of assessee in defaulter's committee, all such assets continued to belong to assessee. Section 73(3) of Civil Procedure Code mandates that Government debts have priority and that being so they will have precedence over other dues. It was further held that lien that stock exchange may possess under rule 43 does not make it secured creditor so that debts due to Income-tax Department would have precedence. judgment then goes on to say: "11. To sum up, we hereby declare: (a) That, other assets (as described hereinabove) are attachable and recoverable under provisions of section 226(3)(i)(x) read with rule 26(1)(a)(c) of Schedule II to Income-tax Act. (b) That, Government and other creditors such as Bombay Stock Exchange, clearing house and other creditor-members under Rules and Bye-laws of Stock Exchange are creditors of equal degree and under section 73(3) of Civil Procedure Code, Government dues shall have priority over other such creditors. (c) That, in matter of application of defaulters' asset under bye-law 400, defaulters' committee shall give priority to debt due to Government and balance, if any, shall be distributed in terms of bye-laws 324 along with bye-law 400 of Bombay Stock Exchange. (d) That, sum of Rs. 34,06,680 representing balance surplus lying with exchange out of sale proceeds of nomination rights of defaulter- member is attachable under above provisions of Income-tax Act read with rule 16 of Bombay Stock Exchange Rules and, consequently, said amount is directed to be paid over to Tax Recovery Officer under impugned prohibitory order. (e) We hereby direct Bombay Stock Exchange also to hand securities lying in members security deposit accounts to Tax Recovery Officer, who would be entitled to sell and appropriate sale proceeds towards claim of Income-tax Department against defaulting broker-member. If Tax Recovery Officer so direct, those securities could also be sold by Bombay Stock Exchange and realised value, on date of sale, could be handed over to Tax Recovery Officer. It is for Tax Recovery See pages 609 and 610 of 261 ITR. Officer to decide this point. We further direct credit balance with clearing house of Rs. 1,53, 538 to be paid over to Tax Recovery Officer and that Tax Recovery Officer would be entitled to appropriate said amount towards dues of Department. In short, we are directing Bombay Stock Exchange to pay sum of Rs. 35,60,218 to Tax Recovery Officer and in addition thereto, Tax Recovery Officer would be entitled to realized value of securities as on date of sales. In this case, prohibitory order is before date of insolvency of broker concerned. (f) In future, principles laid down by this judgment should be followed by Bombay Stock Exchange and Tax Recovery Officer would to entitled attach such other assets and appropriate amounts towards its claim under Income-tax Act." Mr. Arvind Datar, learned senior counsel appearing on behalf of Stock Exchange, raised essentially three submissions. first submission is that by virtue of judgment in Stock Exchange, Ahmedabad v. Asst. CIT [2001] 3 SCC 559, sale proceeds of membership card and membership card itself being only personal privilege granted to member cannot be attached by Income-tax Department at any stage. moment member is declared defaulter all rights qua membership card of member cease and even his right of nomination vests in stock exchange. High Court was, therefore, not correct in saying that though membership card is only personal privilege and ordinarily Income-tax Department cannot attach sale proceeds, yet since these amounts came into hands of Stock Exchange for and on behalf of assessee they were attachable. second argument was made on conjoint reading of rule 38 and rule 44. learned senior counsel argued that all securities in form of shares that are given by member shall be transferred and held either in name of trustees of stock exchange or in name of bank which is approved by Governing Board. By operation of rule 44, on termination of membership of broker, whatever remains by way of security after clearing all debts has to be "transferred" either to him or as he shall direct or in absence of such direction to his legal representatives. argument, therefore, is that what is contemplated is transfer of these shares by virtue of which member ceases to be owner of these shares for period that they are "transferred" and this being so, Income-tax Department cannot lay their hands on these shares or sale proceeds thereof as member ceases to have ownership rights of these shares. Shri Datar also argued that by virtue [2001] 248 ITR 209 (SC). of rule 43, stock exchange has first and paramount lien for any sum due to it, and that this made it secured creditor so that in any case income-tax dues would not to be given preference over dues to secured creditors. Shri R. P. Bhatt, learned senior counsel arguing on behalf of Revenue, refuted these contentions and stated that on conjoint reading of rules and bye-laws membership card may not be directly attachable but that High Court's reading of rule 16 is correct. Further, on conjoint reading of various rules relating to member's security, it is clear that expression "transferred" would not refer to transfer of ownership but would refer only to delivery made of shares for purpose of realisation in case member defaults. He further argued that mere fact that lien was provided in Rules did not make such lien statutory lien and that, therefore, Government dues would have first preference over all dues of Stock exchange. Mr. Datar also handed over during course of argument certain annual reports and letters to buttress his argument that in point of fact shares were actually transferred by member under direction of stock exchange to Bank of India who actually became owner of shares and was treated as such. fact that dividends were to be paid to member concerned was only because of internal arrangement between exchange and member, and that in fact right to dividend as well as right to vote all belonged to Bank of India who was to act as trustee for stock exchange. We will deal with each one of contentions seriatim. Re.: (1) reading of rules 5 and 9 lead to conclusion that membership card is only personal permission from stock exchange to exercise rights and privileges that may be given subject to rules, bye-laws and regulations of exchange. Further, moment member is declared defaulter, his right of nomination shall cease and vest in exchange because even personal privilege given is at that point taken away from defaulting member. matter is no longer res integra. In Isha Valimohamad v. Haji Gulam Mohamad and Haji Dada Trust [1975] 1 SCR 720 Supreme Court made distinction between "privilege" and "accrued right": "Mr. Patel for respondent contended that even if landlord had no accrued right, he at least had a'privilege' as visualised in section 51, proviso (1)(ii) of Bombay Act and that privilege should survive repeal. 'A privilegium, in short, is special act affecting special persons with anomalous advantage, or with anomalous burthen. It is derived from privatum, which, as opposed to publicum, signified anything which regards persons considered individually; publicum being anything which regards persons considered collectively, and forming society.' (See Austin's Jurisprudence, Volume II, fifth edition (1911) page 519) meaning of that word in jurisprudence has undergone considerable change after Austin wrote. According to Hohfeld: '... privilege is opposite of duty, and correlative of "no-right". For instance, where'X has right or claim that Y should stay off land (of X), he himself has "privilege" of entering on land; or, in equivalent words, X does not have duty to stay off.' (see Fundamental legal conceptions (1923) pages 38-39) Arthur L. Corbin writes: 'We say that B had right that should not intrude and that had duty to stay out. But if B had invited to enter, we know that those results would not occur. In such case we say that B had no right that should stay out and that had privilege of entering.' (See'Legal Analysis and Terminology', 29 Yale Law Journal 163) According to Kocourek: 'Privilege and inability are correlatives. Where there is privilege there must be inability. terms are correlatives. dominus of privilege may prevent servus of inability from exacting act from dominus.' (See'Jural Relations', second edition, page 24) Patton says: 'The Restatement of Law of Property defines privilege as legal 'The Restatement of Law of Property defines privilege as legal freedom on part of one person as against another to do given act or legal freedom not to do certain act.' (See Jurisprudence, third edition (1964), page 256) We think that respondent-landlord had legal freedom as against appellants to terminate tenancy or not. appellants had no right or claim that respondent should not terminate tenancy and respondent had, therefore, privilege of terminating it on ground that appellants had sub-let premises. This privilege would survive repeal. But problem would still remain whether respondent had accrued right or privilege to recover possession of premises under section 13(1) of Saurashtra Act on ground of sub-letting before repeal of that Act. fact that privilege to terminate tenancy on ground of sub-letting survived repeal does not mean that landlord had accrued right or privilege to recover possession under section 13(1) of that Act as that right or privilege could arise only if tenancy had been validly terminated before repeal of Saurashtra Act." (at pages 725, 726) It is clear, therefore, that no accrued right to property was ever vested in defaulting member. Further, rules and bye-laws also make this clear. Under rule 16(iii), whenever Governing Board exercises right of nomination in respect of membership which vests in exchange, ultimate surplus that may remain after membership card is sold by exchange comes only to exchange- it does not go to member. This is in contrast with bye-law 400 (ix) which, as has been noted above deals with application of defaulting member's other assets and securities, and in this case ultimately surplus is paid only to defaulting member, making it clear that these amounts really belonged to defaulting member. In Stock Exchange, Ahmedabad's case [2001] 3 SCC 559, this court has held that: "9. Stock Exchange Rules, Bye-laws and Regulations have been approved by Government of India under Securities Contracts (Regulation) Act, 1956. There is no challenge to these Rules. question whether right of membership confers upon member any right of property is, therefore, to be examined within framework of Rules, Bye-laws and Regulations of exchange. On plain and combined reading of Rules, it is clear that right of membership is merely personal privilege granted to member, it is nontransferable and incapable of alienation by member or his legal representatives and heirs except to limited extent as provided in Rules on fulfilment of conditions provided therein. nomination wherever provided for is also not automatic. It is hedged by Rules. On right of nomination vesting in stock exchange under See [2001] 248 ITR 209 (SC). See page 214 of 248 ITR. Rules, that right belongs to stock exchange absolutely. consideration received by stock exchange on exercise of right of nomination vesting in it, is to be applied in manner provided in rule 16... 13. In present case rule 16 was properly applied by stock exchange. membership right in question was not property of assessee and, therefore, it could not be attached under section 281B of Income-tax Act. No amount on account of Rajesh Shah was due from or held by stock exchange and, therefore, section 226(3) could not be invoked. We are unable to sustain judgment under appeal holding that in substance right of membership or membership card was right of property which could be attached under section 281B of Income-tax Act." It is clear, therefore, that conclusion of High Court that proceeds of card which has been auctioned can be paid over to Income-tax Department for dues of member by virtue of rule 16(iii) is incorrect as such member at no point owns any property capable of attachment, as has been held in Ahmedabad Stock Exchange case. On this point, therefore, Shri Datar is on firm ground and must succeed. Re: (2) Rules 36 to 46 belong to Chapter in Rules entitled "membership security". Rule 36 specifies that new member shall on admission provide security and shall maintain such security with stock exchange for determined sum at all times that he carries on business. Rule 37 deals with form of such security and states that it may be in form of deposit of cash or deposit receipt of bank or in form of security approved by Governing Board. Rule 38 deals with how these securities are held. Rule 41 enables member to withdraw any security provided by him if he provides another security in lieu thereof of sufficient value to satisfaction of Governing Board. Rule 43 states that security provided shall be first and paramount lien for any sum due to stock exchange and rule 44 deals with return of such security under certain circumstances. On conjoint reading of these Rules what emerges is as follows: (i) entire Chapter deals only with security to be provided by member as Chapter heading states; (ii) security to be furnished can be in various forms. What is important is that cash is in form of deposit and securities are also "deposited" with stock exchange under rule 37; (iii) Rule 38 which is crucial provides how securities are to be "held" which is clear from marginal note appended to it. What falls for construction is expression "securities shall be transferred to and held". Black's Law Dictionary defines "transfer" as follows: "'Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with interest in property, including retention of title as security interest and foreclosure of debtor's equity of redemption." It is clear, therefore, that expression "transfer" can depending upon its context mean transfer of ownership or transfer of possession. It is clear that what is transferred is only possession as member only "deposits" these securities. Further, as has been held in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 2 SCR 534 at 541, share transfer can be accomplished by physically transferring or delivering share certificate together with blank transfer form signed by transferor. transfer of shares in favour of stock exchange is only for purposes of easy liquidity in event of default. (iv) expression "transferred" must take colour from expression "lodged" in rule 38 when it comes to deposits of cash. Understood in this sense, transfer only means delivery for purposes of holding such shares as securities; (v) This is also clear from language of rule 38 when it says "such deposit shall be entirely at risk of member providing security.. . " Obviously, first and foremost cash lodged and shares transferred are only deposits. Secondly, they are entirely at risk of member who provides security making it clear that such member continues to be owner of said shares by way of security for otherwise they cannot possibly be at member's risk; (vi) Under rule 41 member may withdraw any security provided by him if he satisfies conditions of rules. This again shows that what is sought to be withdrawn is security which member owns; (vii) By rule 43 lien on securities is provided to stock exchange. Such lien is only compatible with member being owner of security, for otherwise no question arises of owner (the stock exchange, if Shri Datar is right) having lien on its own movable property; (viii) Therefore, when rule 44 speaks of repayment and transfer it has to be understood in above sense as security is being given back to member under circumstances mentioned in rule; [1975] 45 Comp Cas 43 (SC). (ix) Bye-laws 326 and 330 also refer to securities that are "deposited" by defaulter and recovery of securities and "other assets" due. Obviously, therefore, securities which are handed over to exchange continue to be assets of member which can be liquidated on default. (x) Shri Datar's argument would also create dichotomy between "cash lodged" and bank deposit receipts and securities "transferred". form particular security takes cannot possibly lead to conclusion that cash lodged, particular security takes cannot possibly lead to conclusion that cash lodged, being only deposit, continues to belong to member, whereas bank deposit receipts and securities, being "transferred" would belong to stock exchange. In Bombay Stock Exchange v. Jaya I. Shah [2004] 1 SCC 160, this court was confronted with claim made by non-member against member which had fructified into arbitration award under 1940 Arbitration Act which was then made rule of court and decree followed. Bombay High Court made garnishee notice of non-member creditor absolute and Supreme Court was faced with correct construction of bye-laws relating to defaulter members. Supreme Court held: "39. How card money is to be dealt with has been provided under rules. dichotomy, however, has been created under rules and bye-laws as regards amount received by sale of membership card and amount recovered from defaulter's other assets. On plain reading of rules and bye-laws it appears that authority to deal with card money and liability of members by defaulters' committee is different, but having regard to scheme of distribution of liabilities of exchange, clearing house, members and non-members, all assets shall be placed at hands of defaulters' committee. But as would appear from discussions made hereinafter application thereof would be separate and distinct. 40. In terms of bye-laws, defaulters' committee is to be constituted which is standing committee consisting of six members of exchange. Such Committee is constituted in terms of rule 170(a)(ii) of Stock Exchange Rules, Bye-laws and Regulations, 1957. It is not juristic person. It is merely association of persons... 46. Vesting of such assets of defaulter in defaulters' committee is not absolute. defaulters' committee is merely trustee. It holds said amount vested in it for benefit and on account of See [2003] 117 Comp Cas 595, 612. creditor members. Once liabilities of creditors from defaulters are paid to members, in terms of rule 44, assets devolve upon defaulters' committee in terms of byelaw 326 for limited purpose and as contra-distinguished from rules, in terms whereof card may vest in exchange, do not vest in it absolutely. 47. defaulters' committee takes in its custody amount realised from other assets not as owner thereof and vestment thereof would, thus, be coterminous with satisfaction of claims of member. It, as soon as purpose of bye-law 326 is satisfied, comes to end. 48. assets of defaulting member can broadly be divided into two categories, namely, card membership and other assets... 57. There cannot, however, be any doubt that so long as claims of awardees, both of members as also non-members, are dealt with by defaulters' committee, exchange or defaulters' committee would not be debtor in relation to awardee. But once defaulters' committee determines such claims and surplus is available in hands of defaulters' committee, as surplus amount would become payable to defaulting members, same would become asset of defaulting member. In other words, other assets continue to remain assets of defaulting members subject to vesting thereof for purposes mentioned in bye-law 326 and as soon as purpose is satisfied, ownership which was under animated suspension or eclipsed would again revive to defaulting member. awardees, however, so long as assets remain under control of defaulters' committee would be entitled to get their claim on pro rata basis and not in its entirety. 58. If it is held that despite fact that claims, having regard to priority clause contained in rule 16, remain in hands of defaulters' committee and order of attachment would be enforceable, same would result in incongruity. Unfortunately, no clear picture emerges from rules and bye-laws as there does not appear to be any provision how card money as also other assets belonging to defaulting member can be handled by defaulters' committee. But rules and bye-laws have to be read harmoniously. They have to be read together so as to make them effective and workable. So read, defaulters' committee constituted in terms of byelaws would apply to other assets, dues and payments of members on pro rata basis whereafter dues of non-members can be disbursed. While doing so, however, such claims can be determined only having regard to cut-off date which must be prescribed by Governing Board in terms of clause (vii) of bye-law 343. So far as card money is concerned, same must be disbursed having regard to priority clause contained in rule 16, in which event, upon discharge of dues of exchange and clearing house, same has to be distributed to dues of members and non-members. It bears repetition to state that there does not exist any distinction between member and non-member in terms of rule 16 and in event amount of card money available at hands of Exchange is not sufficient to satisfy all claims, same has to be distributed on pro rata basis. However, any amount remaining surplus even thereafter would be subject to decision of Governing Board. Governing Board may in given situation, having regard to hardship which may be faced by members and nonmembers in realising their dues, direct that such amount would be available for disbursement towards said dues. It, however, we may hasten to add, is free to apply surplus for different purpose which, evidently cannot be de hors purpose and object for which exchange has been constituted." Ultimately, matter was remanded to find out what was cut-off date for purposes of limitation. Though this judgment has no direct application to facts before us it does hold that after assets of defaulting member are pooled together and amounts are realised, payments that would be made from such pool would be from assets of defaulting member. To that extent, therefore, aforesaid judgment reinforces what we have stated above. Mr. Datar's second contention must, therefore, fail. Re: (3) It is settled law that Government debts have precedence only over unsecured creditors. This was held in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. [2000] 5 SCC 694 as follows: "10. However, Crown's preferential right to recovery of debts, over other creditors is confined to ordinary or unsecured creditors. common law of England or principles of equity and good conscience (as applicable to India) do not accord Crown preferential right of recovery of its debts over mortgagee or pledgee of goods or secured creditor. It is only in cases where Crown's [2001] 247 ITR 165 (SC); [2001] 107 Comp Cas 157 (SC) and [2000] 120 STC 610 (SC). right and that of subject meet at one and same time that Crown is in general preferred. Where right of subject is complete and perfect before that of King commences, rule does not apply, for there is no point of time at which two rights are at conflict, nor can there be question which of two ought to prevail in case where one, that of subject, has prevailed already. In Giles v. Grover [1832] 131 ER 563 it has been held that Crown has no precedence over pledgee of goods. In Bank of Bihar v. State of Bihar [1971] 41 Comp Cas 591 (SC); AIR 1971 SC 1210, principle has been recognised by this court holding that rights of pawnee who has parted with money in favour of pawnor on security of goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of pawnor without claim of pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (T. L. L., seventh edition, page 386)-'It seems Government debt in India is not entitled to precedence over prior secured debt'." What has been argued before us is that moment stock exchange has lien over member's securities, it would have precedence over income- tax dues. We find there is force in this submission. Provincial Insolvency Act defines "secured creditor" under section 2(e) as follows: (e) "secured creditor" means person holding mortgage, charge or lien on property of debtor or any part thereof as security for debt due to him from debtor;" Similarly, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in section 2(zf) defines "security interest" as follows: "2. (zf)'security interest' means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31." In Triveni Shankar Saxena v. State of U. P. [1992] 1 (Suppl.) SCC 524 at paragraph 17 in instructive passage Supreme Court held as follows: "17. We shall now examine what word'lien' means. word 'lien' originally means'binding' from Latin ligamen. Its lexical meaning is'right to retain'. word'lien' is now variously described and used under different context such as'contractual lien','equitable lien','specific lien','general lien','partners lien', etc., in Halsbury's Laws of England, Fourth Edition, Volume 28, at page 221, paragraph 502 it is stated: 'In its primary or legal sense'lien' means right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until present and accrued claims are satisfied.' " Similarly, in K.Saradambal v. Jagannathan and Brothers [1972] 42 Comp Cas 359 (Mad), Madras High Court held (pages 362 to 365): "It would be sufficient only to refer to following observation in Halsbury's Laws of England, third edition, volume 24, at page 143: 'A legal lien differs from mortgage and pledge in being unassignable personal right which subsists only so long as possession of goods subsists. mortgage is assignable right in property charged and does not depend on possession. pawn or pledge gives special assignable interest in property to pawnee. lien is, however, included in definition of mortgage in Law of Property Act, 1925. Where equitable mortgage is created by deposit of title deeds, mortgagee has legal lien on deeds deposited.'... This leads us to question as to what right is available to applicant- company, as holder of lien. That again takes us to question as to what is meant by'lien'. word'lien' is defined in Law Lexicon by Ramanatha Iyer as: 'A lien may be defined to be charge on property for payment of debt or duty, and for which it may be sold in discharge of lien ... lien, in limited and technical sense, signifies right by which person in possession of personal property holds and retains it against owner in satisfaction of demand due to party retaining it; but in its more extensive meaning and common acceptation it is understood and used to denote legal claim or charge on property, either real or personal, as security for payment of some debt or obligation; it is not strictly right in or right to thing itself but more properly constitutes charge or security thereon.' word'lien' is defined in Stroud's Judicial Dictionary, third edition, at page 1644, as: 'A lien-(without effecting transference of property in thing)-is right to retain possession of thing until claim be satisfied; and it is either particular or general.' Having regard to foregoing definitions question arises whether holder of lien, as applicant company in instant case, can be considered to be secured creditor under company law. Section 529 of Act is important and it reads: '529. Application of insolvency rules in winding up of insolvent companies.-(1) In winding up of insolvent company, same rules shall prevail and be observed with regard to- (a) Debts provable; (b) valuation of annuities and future and contingent liabilities; and (c) respective rights of secured and unsecured creditors; as are in force from time being under law of insolvency with respect to estates of persons adjudged insolvent. (2) All persons who in any such case would be entitled to prove for and receive dividends out of assets of company, may come in under winding up, and make such claims against company as they respectively are entitled to make by virtue of this section: Provided that if secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay expenses incurred by liquidator (including provisional liquidator, if any), for preservation of security before its realisation by secured creditor'. Though expression'insolvent company' is not defined, obviously it refers to company which has been ordered to be wound up on petition founded upon section 433(c), that is, company being unable to pay its debts. According to section 529, in winding up of such company, same rules shall prevail and be observed with regard to debts provable as are in force for time being under law of insolvency with respect to estates of persons adjudged insolvent. question is whether only insolvency rules are applicable or all relevant provisions of insolvency law are applicable to case of winding up of insolvent company. intention underlying section 529 is that all provisions of insolvency law are applicable to case of winding up of insolvent company with regard to matters enumerated in section 529. That was also view taken by full bench of Allahabad High Court in Hans Raj v. Official liquidators, Dehradun, Mussorie Electric Tramway Co. Ltd. AIR 1929 All 353 [FB]. similar view was taken by Oudh Chief Court in B. Anand Behari Lal v. Dinshaw and Co. [1942] 12 Comp Cas 137 (Oudh). Thus, according to section 529, provisions of insolvency law are applicable to debts provable in winding up of insolvent company. That takes us to question as to what are provisions of insolvency law that are applicable to debt covered by lien. Provincial Insolvency Act, 1920, and Presidency Towns Insolvency Act, 1909, define'secured creditor'. In former Act, section 2(e) defines that expression as: '2. (e) "secured creditor" means person holding mortgage, charge or lien on property of debtor or any part thereof as security for debt to him from debtor.' In latter Act, section 2(g) defines that expression as: '"Secured creditor" includes landlord who under any enactment for time being in force has charge on land for rent of that land.' latter definition is inclusive definition. According to former definition even person holding lien on property of debtor is secured creditor. In dealing with question as to who secured creditor is in company law, it is observed in Palmer's Company Law, 21st edition, at page 765: 'Secured creditor is one, who has some mortgage, charge or lien on company's property... solicitor who holds lien on documents of liquidating company for his costs against company is secured creditor, and must mention his lien in his proof.' On consideration of section 529 read with relevant provisions of insolvency law, I come to conclusion that holder of statutory lien or holder of lien created by contract and registered as required by section 125 is secured creditor in matter of winding up of insolvent company with regard to, among other things, debts provable in winding up proceedings. applicant-company being holder of statutory lien is thus in position of secured creditor...." In present case, first and paramount lien given to stock exchange is by rule 43 of Rules made under section 8 of Securities Contracts (Regulation) Act. Sections 7A, 8 and 30 of Securities Contracts (Regulation) Act, 1956, deal with power of recognised stock exchanges making rules restricting voting rights; rules relating to stock exchanges generally including membership thereof; and rules to carry out purposes of Securities Contracts (Regulation) Act respectively. Whereas rules made under section 7A and section 8 are made by recognised stock exchanges with approval of Central Government and published in Official Gazette, rules made under section 30 are made by Central Government itself for purposes of carrying into effect objects of Securities Contracts (Regulation) Act. Sub-section (3) of section 30 is material. "30.(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session for total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before expiry of sessions immediately following session or successive sessions aforesaid, both Houses agree in making any modification in rule or both Houses agree that rule should not be made, rule shall thereafter have effect only in such modified form or be of no effect, as case may be; so, however, that any such modification or annulment shall be without prejudice to validity of anything previously done under that rule." It will be seen that whether rule is made under section 7A, section 8 or section 30, all rules made under Act are to be laid before Parliament, making it clear thereby that rules made under each of these provisions are statutory in nature. fact that stock exchange makes these rules under sections 7A and 8 as opposed to Central Government making them under section 30 does not take matter very much further. Section 3(51) of General Clauses Act defines "Rules" as meaning "a rule made in exercise of power conferred by enactment and shall include regulation made as rule under any enactment". It is clear from this definition of'rule' also that stock exchanges who make rules in exercise of powers conferred by Securities Contracts (Regulation) Act are equally "Rules" and, therefore, subordinate legislation. This makes it amply clear that lien spoken of by rule 43 is lien, conferred by Rules under statute. Mr. Bhatt argued that only lien that flows from statute itself can be considered as statutory lien and referred us to two judgments, one by Bombay High Court and one by Supreme Court. Bombay High Court held in case of Forwarding P. Ltd. v. Trustees, Port of Vizagapatnam [1987] 61 Comp Cas 513 (Bom) that power of arrest and sale of vessel belonging to company in winding up by port authorities emanates directly from section 64 of Major Port Trusts Act, 1963, and, hence, question of obtaining leave of company court under section 446 of Companies Act, 1956, will not arise when authority exercises independent statutory rights. This judgment was quoted with approval in Board of Trustees, Port of Mumbai v. Indian Oil Corporation [1998] 4 SCC 302, where Supreme Court set out section 64 of Major Port Trusts Act and held as under: [1998] 93 Comp Cas 228, 232 (SC). "8. Port authorities have paramount right to arrest vessel and detain same until amounts due to it in respect of extending port facilities and services to vessel are paid. Under subsection (2), in case any part of said rates, charges, penalties or cost of distress or arrest or of keeping of same remain unpaid for space of five days next after any such distress or arrest has been made, Board may cause vessel so distrained or arrested to be sold. proceeds of such sale shall satisfy such rates or penalties and costs including costs of sale remaining unpaid. surplus, if any, is to be rendered to master of such vessel on demand. 9. statutory right under section 64 embodies this overriding right of harbour authority over vessel for recovery of its dues. This right stands above rights of secured and unsecured creditors of company in winding up-in present case, shipping company which owns vessel. harbour authorities allow ships-national or foreign-to anchor and avail of services provided by them. For payment they look to vessel. owner may be foreign or even unknown to harbour authority. latter's right to recover its dues is not affected by any pending proceedings against owner in any court-whether in winding up or otherwise. harbour authority can arrest vessel while it is anchored in harbour and recover its dues in respect of that vessel by sale of vessel if dues are not paid. This lien of harbour authority over vessel is paramount. lien cannot be extinguished or vessel sold by any other authority under directions of court or otherwise, unless harbour authority consents to such sale. Thus, in case of Ashoke Arya v. M.V. Kapitan Mitsos, AIR 1988 Bom 329, Bombay High Court relied upon decision in Emilie Millon [1905] 2 KB 817 (CA) and held that lien given by statute to dock or harbour authority cannot be extinguished by court unless it be done with authority's express or implied consent... 13. Therefore, lien of harbour authority over vessel is paramount lien and realisation of its dues by harbour authority by sale of vessel is above priorities of secured creditors. In other words, statutory lien of harbour authority has paramountcy even over claims of secured creditors in winding up. In exercise of its right under section 64 appellant is, therefore, entitled to sell vessel without intervention of court. In exercise of that paramount right which overrides claims of all other creditors including secured creditors, appellant has right to arrest vessel and sell it. Without consent of appellant, this right cannot be transferred to sale proceeds of vessel." It is no doubt true that Supreme Court held that statutory lien of harbour authority over vessel is paramount lien which overrides claim of all other creditors including secured creditors. question, however, in present case, is somewhat different. question is whether lien exercised under rule 43 by stock exchange can be said to be superior right to income-tax dues which may become payable by virtue of stock exchange being secured creditor. It was argued that Black's Law Dictionary fifth edition defines "statutory lien" as follows: "Statutory lien: lien arising solely by force of statute upon specified circumstances or conditions, but does not include any lien provided by or dependent upon agreement to give security, whether or not such lien is also provided by or is also dependent upon statute and whether or not agreement or lien is made fully effective by statute." Based on this it was further argued that such lien would not include any lien provided by or dependent on agreement to give security, whether or not such lien is also provided by or dependent upon statute, and whether or not such lien is made fully effective by statute. first thing to be noticed is that Income-tax Act does not provide for any paramountcy of dues by way of income-tax. This is why court in Dena Bank's case (supra) held that Government dues only have priority over unsecured debts and in so holding court referred to judgment in Giles v. Grover [1832] 131 ER 563 in which it has been held that Crown has no precedence over pledgee of goods. In present case, common law of England qua Crown debts became applicable by virtue of article 372 of Constitution which states that all laws in force in territory of India immediately before commencement of Constitution shall continue in force until altered or repealed by competent Legislature or other competent authority. In fact, in Collector of Aurangabad v. Central Bank of India [1967] 3 SCR 855 after referring to various authorities held that claim of Government to priority for arrears of income-tax dues stems from English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was, [1968] 21 STC 10 (SC). therefore, "law in force" in territory of India before Constitution and was continued by article 372 of Constitution (at page 861, 862). In present case, as has been noted above, lien possessed by stock exchange makes it secured creditor. That being case, it is clear that whether lien under rule 43 is statutory lien or is lien arising out of agreement does not make much of difference as stock exchange, being secured creditor, would have priority over Government dues. three issues are answered as above. stock exchange's appeal is allowed and impugned judgment passed by Division Bench of Bombay High Court is set aside. *** Stock Exchange, Bombay v. V. S. Kandalgaonkar