Preferential priority under the Special Court Act is limited to liabilities within the notified period; secured creditors may enforce existing security first.

Preferential distribution under section 11(2)(b) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 extends only to liabilities, including interest, that fall due within the notified period; interest arising outside that period is confined to residual recovery under section 11(2)(c). A secured creditor's pre-existing security interest in attached property is not extinguished unless lawfully displaced under section 4, so the creditor may enforce the security against the secured property first. Any shortfall after such recovery may then be pursued, if at all, under section 11(2)(c).

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Issues: (i) Whether interest claimed by the appellants was payable on a preferential basis under section 11(2)(b) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, or only as a residual liability under section 11(2)(c). (ii) Whether secured creditors were entitled to stand outside the distribution under section 11 and recover their dues from the secured property.

Issue (i): Whether interest claimed by the appellants was payable on a preferential basis under section 11(2)(b) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, or only as a residual liability under section 11(2)(c).

Analysis: Liability under section 11(2)(b) was confined to amounts falling due within the notified period. Interest that accrued within that period retained priority status, but interest that became payable outside that period was not covered by the preferential category and could be considered only from surplus assets under section 11(2)(c).

Conclusion: Interest falling due within the notified period is payable under section 11(2)(b), while interest falling due outside that period can be entertained only under section 11(2)(c).

Issue (ii): Whether secured creditors were entitled to stand outside the distribution under section 11 and recover their dues from the secured property.

Analysis: A third party's pre-existing security interest in attached property is not extinguished unless the Custodian sets aside the mortgage or pledge under section 4. Distribution under section 11(2) can reach only the right, title and interest of the notified person, and not the secured creditor's independent interest. A secured creditor may therefore recover from the secured property first, and only any shortfall can be pursued under section 11(2)(c).

Conclusion: Secured creditors may recover from the secured property without first invoking section 11, and only the shortfall, if any, falls for claim under section 11(2)(c).

Final Conclusion: The appeals succeeded only in part. Priority was confined to interest accrued within the notified period, while secured creditors were permitted to enforce their security subject to the Custodian's statutory power under section 4.

Ratio Decidendi: Under the Special Court Act, preferential distribution under section 11(2)(b) extends only to liabilities arising within the notified period, and a secured creditor's pre-existing interest in attached property survives unless lawfully displaced under section 4.

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