Secured creditor priority over government dues prevails absent a statutory first charge, especially under DRT and SARFAESI regimes.

Secured bank debts and recovery proceedings under the DRT and SARFAESI framework prevail over general claims of government priority unless a statute creates an express first charge. The common law priority of State dues yields to special recovery regimes for banks and secured creditors, and the Central Excise and Customs provisions then in force did not by themselves confer a first charge on departmental dues. Later first-charge provisions in those statutes were subject to expressly saved rights under the DRT Act and SARFAESI Act, so departmental action could not defeat pending secured recovery proceedings. The Department's claim to precedence was therefore limited to the extent it did not override the banks' statutory enforcement rights.

---

---

Issues: (i) Whether the Customs and Central Excise Department could claim priority over secured bank debts and recovery certificates issued under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (ii) Whether, on the statutory scheme then in force and after insertion of later first-charge provisions, the Department could proceed against the mortgaged or secured properties and defeat the banks' recovery process.

Issue (i): Whether the Customs and Central Excise Department could claim priority over secured bank debts and recovery certificates issued under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis: The common law doctrine of priority of government debts was recognised, but it is subject to statutory provisions. 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 confer a special recovery regime for banks and secured creditors and operate with overriding force. The Central Excise Act and the Customs Act, as they then stood, did not create a statutory first charge in favour of the Department, and the absence of such a charge meant that the Department could not displace the banks' secured claims by invoking general priority of State dues.

Conclusion: The Department had no priority over the banks' secured debt or recovery under the DRT and SARFAESI framework.

Issue (ii): Whether, on the statutory scheme then in force and after insertion of later first-charge provisions, the Department could proceed against the mortgaged or secured properties and defeat the banks' recovery process.

Analysis: Section 11 of the Central Excise Act permitted recovery by deduction, attachment and sale of excisable goods, and certificate recovery as arrears of land revenue, while Section 142(1)(c)(ii) of the Customs Act enabled distress and sale of movable or immovable property. However, those provisions did not create a first charge over the property. The later insertion of Section 11E of the Central Excise Act and Section 142A of the Customs Act created a first charge, but expressly saved amounts recoverable under Section 529-A of the Companies Act, 1956, the DRT Act and the SARFAESI Act. As the banks' proceedings under the SARFAESI Act were still in progress in some matters, and in the older matter there was no such first-charge provision in force when the Department proceeded, the Department's auction and priority claim could not prevail against the banks' rights.

Conclusion: The Department could not defeat the banks' secured recovery proceedings, and the impugned departmental action failed to the extent it conflicted with those rights.

Final Conclusion: The connected matters were disposed of by upholding the banks' priority in the relevant proceedings and rejecting the Department's rival claim to precedence, while sustaining the Department's action only where it did not override the banks' statutory recovery rights.

Ratio Decidendi: In the absence of a statutory first charge in favour of the revenue, secured creditors proceeding under special recovery statutes prevail over the general common law priority of government dues; later first-charge provisions cannot override expressly saved DRT and SARFAESI rights.

---