State sales tax first charge prevails over bank security interest; Central recovery laws do not displace it.

A State sales tax statute that creates a first charge on the dealer's property prevails over a bank's mortgage or security interest, because a statutory charge attaches to the property as a whole and is not limited to the equity of redemption. The Central recovery laws for banks and secured creditors do not displace that priority, since their non obstante clauses operate only where there is actual inconsistency and those enactments do not themselves create a first charge in favour of banks. The State charge is effective against prior encumbrances from the date the charging provision comes into force.

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Issues: (i) Whether the non obstante clauses in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 override State sales tax provisions creating a first charge on the dealer's property. (ii) Whether a statutory first charge under the State sales tax laws prevails over an earlier mortgage or security interest created in favour of a bank or financial institution, and whether such State charge can operate retrospectively.

Issue (i): Whether the non obstante clauses in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 override State sales tax provisions creating a first charge on the dealer's property.

Analysis: The provisions of the two Central enactments were enacted to secure speedy recovery of bank dues and enforcement of security interest, but neither statute creates a first charge in favour of banks, financial institutions, or secured creditors. The State enactments creating first charge on sales tax dues also contain overriding language and operate in a distinct legislative field. The Court held that Article 254 is not attracted merely because the Central and State laws operate under different entries in the Seventh Schedule, and that the non obstante clauses in the Central enactments can operate only where there is an actual inconsistency. Since the Central statutes do not confer first charge on banks, there is no conflict that displaces the State's statutory charge.

Conclusion: The Central recovery statutes do not override the State sales tax first charge provisions.

Issue (ii): Whether a statutory first charge under the State sales tax laws prevails over an earlier mortgage or security interest created in favour of a bank or financial institution, and whether such State charge can operate retrospectively.

Analysis: A statutory first charge operates on the property as a whole and is not confined to the equity of redemption. A mortgage creates a security interest, but the mortgagor's title remains subject to a charge created by operation of law. The Court applied the settled distinction between a mortgage and a charge, and held that a statutory first charge prevails over an existing mortgage unless the statute itself provides otherwise. The Court also held that the State charge is not invalid merely because it was inserted after the mortgage, since the statutory charge attaches to the property from the time the provision comes into force and operates on existing charges as well.

Conclusion: The State's statutory first charge prevails over the bank's mortgage or security interest, and the charge is effective against prior encumbrances from the date it comes into force.

Final Conclusion: The appeals fail because the State's statutory first charge for sales tax dues has priority over the banks' claims, and the Central recovery statutes do not displace that priority.

Ratio Decidendi: In the absence of any express provision creating a first charge in favour of banks or secured creditors, a general overriding clause in a Central recovery statute does not displace a State statute that specifically creates a first charge for sales tax dues; such statutory charge prevails over prior mortgages and security interests.

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