Secured creditor priority over crown debts upheld against excise recovery claims on prior mortgage security.

A prior registered mortgage and equitable mortgage created in favour of a secured creditor prevails over the Central Excise Department's claim for duty recovery. The Court applied the settled principle that the Crown's preferential right is limited to ordinary or unsecured creditors and does not defeat a prior perfected security interest. Reliance on Section 29 of the State Financial Corporations Act, 1951 did not alter the secured creditor's priority, and the recovery provisions under Section 11 of the Central Excise Act, 1944 and Section 142 of the Customs Act, 1962 did not displace that prior charge. Attachment and proposed auction could not override the secured creditor's rights.

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Issues: Whether a secured creditor having a prior registered mortgage and equitable mortgage over the assets of the borrower has priority over the claim of Central Excise Department for recovery of duty dues treated as crown debts.

Analysis: The petitioner's loan was secured by mortgage and equitable mortgage created prior to the departmental claim. The Court applied the settled principle that the Crown's preferential right to recover debts is confined to ordinary or unsecured creditors and does not extend over a prior secured debt. The invocation of Section 29 of the State Financial Corporations Act, 1951 by the petitioner to take over the mortgaged assets did not alter the priority attached to the secured charge. The reliance placed by the respondents on the recovery provisions under Section 11 of the Central Excise Act, 1944 and Section 142 of the Customs Act, 1962 did not displace the petitioner's prior security interest.

Conclusion: The secured creditor had the preferential right to recover its dues from the mortgaged assets, and the Central Excise Department's claim ranked only after secured creditors and ahead of unsecured creditors.

Final Conclusion: The attachment and proposed auction could not defeat the petitioner's prior secured interest, and the writ petition succeeded.

Ratio Decidendi: Crown debts do not have priority over a prior perfected secured debt created by mortgage or equitable mortgage.

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