Secured creditor priority over tax arrears confirmed, as mortgaged property could not be sold for revenue recovery absent first charge.

A secured creditor's mortgage interest under the SARFAESI framework takes priority over State tax arrears unless a statute creates an express first charge. Applying that principle, the Madras High Court held that the tax department could not claim precedence over the bank's secured debt against the mortgaged property, so the auction notice for recovery of tax dues could not stand. Earlier decisions supporting secured creditor priority were followed, and the later dismissal of related special leave petitions did not change the legal position. The writ petition therefore succeeded and the revenue's attempt to proceed against the property was set aside.

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Issues: Whether a bank, as a secured creditor, has priority over arrears of tax claimed by the State so as to invalidate the auction notice issued for recovery of tax dues from the mortgaged property.

Analysis: The property stood mortgaged to the bank and the bank's interest was a secured interest within the meaning of the SARFAESI Act. The court applied the settled principle that State dues may have priority over ordinary unsecured debts, but that doctrine does not override the rights of a secured creditor unless the statute expressly creates a first charge. Relying on the earlier decisions recognising this position, the court held that the tax department could not claim precedence over the bank's secured debt. The later dismissal of the related special leave petitions did not alter the legal position applied here.

Conclusion: The bank's secured debt prevailed over the State's tax claim, and the auction notice was liable to be set aside.

Final Conclusion: The writ petition succeeded because the secured creditor's right over the mortgaged asset was held to be superior to the revenue's attempt to proceed against the property for recovery of tax arrears.

Ratio Decidendi: In the absence of a specific statutory first charge, secured creditors have priority over State tax claims against the secured asset.

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