Priority of secured mortgage over tax charge upheld; conflicting State first-charge provision yielded to the overriding central banking law.

A statutory first charge for sales tax dues did not prevail over a bank's prior perfected mortgage, because the State's preferential claim is generally confined to unsecured creditors and the record did not show completed recovery steps before the bank's security attached. The bank was therefore entitled to proceed against the mortgaged property. Section 16B of the Himachal Pradesh General Sales Tax Act, 1968, was also held ultra vires to the extent it conflicted with the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, since the central enactment's overriding scheme and non obstante clause protected the bank's rights in secured assets. The bank's secured interest was upheld and sale of the property in accordance with law was permitted.

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Issues: (i) whether the State could assert a first charge under section 16B of the Himachal Pradesh General Sales Tax Act, 1968 over mortgaged property already secured in favour of the bank; (ii) whether section 16B, insofar as it conflicted with the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, was liable to be treated as ultra vires.

Issue (i): whether the State could assert a first charge under section 16B of the Himachal Pradesh General Sales Tax Act, 1968 over mortgaged property already secured in favour of the bank.

Analysis: The claim of priority for sales tax dues was examined in the light of the doctrine of crown debt and the rule that the State's preferential right is generally confined to ordinary or unsecured creditors. The bank's mortgage had been created much earlier in point of time, and the record did not show that the statutory recovery steps had been completed before the bank's secured rights had accrued. The earlier decision relied upon by the parties was understood to mean that the State does not obtain priority over a secured mortgagee merely because tax arrears are recoverable as land revenue.

Conclusion: The State could not claim priority over the bank's prior secured mortgage, and the bank was entitled to proceed against the property.

Issue (ii): whether section 16B of the Himachal Pradesh General Sales Tax Act, 1968, insofar as it conflicted with the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, was liable to be treated as ultra vires.

Analysis: Section 16B, by creating a first charge on the dealer's property, conflicted with the overriding scheme of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which protected the bank's powers in relation to secured assets. The later central enactment, operating through its non obstante clause, prevailed over the inconsistent State provision. The provision was therefore incapable of defeating the bank's prior and complete right in the mortgaged property.

Conclusion: Section 16B of the Himachal Pradesh General Sales Tax Act, 1968, to the extent it was inconsistent with the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, was ultra vires and could not override the bank's rights.

Final Conclusion: The writ petition succeeded, the bank's secured interest was protected, and the bank was permitted to sell the mortgaged property in accordance with law, with the State left to recover any balance in the manner permitted by law.

Ratio Decidendi: A statutory first charge for tax dues does not prevail over a prior perfected security interest held by a secured creditor, and a conflicting State provision must yield to an overriding central enactment containing a non obstante clause.

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