Statutory tax first charge prevails over SARFAESI bank sale, and lack of notice does not protect purchasers.

A statutory first charge under the Kerala General Sales Tax Act was held to override rights of purchasers in a bank sale under SARFAESI, because the tax charge arose by operation of law and took priority over inconsistent property law principles. The Court also held that a transfer made during pending tax proceedings remained vulnerable under the statute, and purchasers could not escape the charge by relying on bona fide purchase, lack of notice, or the alleged involuntary nature of the sale. The bank sale was therefore subject to the State's tax recovery claim.

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Issues: (i) Whether the statutory first charge created under the Kerala General Sales Tax Act prevailed over the rights of purchasers who bought the property in a bank sale under the SARFAESI Act. (ii) Whether a transfer made during pendency of tax proceedings could be protected on the ground that it was an involuntary sale or that the purchasers were without notice of the tax charge.

Issue (i): Whether the statutory first charge created under the Kerala General Sales Tax Act prevailed over the rights of purchasers who bought the property in a bank sale under the SARFAESI Act.

Analysis: The assessment liability arose under the Kerala General Sales Tax Act, 1963, and Section 26B declared tax, penalty and interest to be the first charge on the dealer's property. The provision contained a non obstante clause and was held to override inconsistent laws, including the general rule in Section 100 of the Transfer of Property Act. The Court relied on the settled principle that a statutory first charge has precedence over an existing mortgage and that the State's statutory priority is not confined to unsecured debts. As the bank sale took place after the statutory charge had come into existence, the sale was subject to that charge.

Conclusion: The statutory first charge prevailed over the bank sale and the purchasers could not defeat the State's claim; this issue was decided against the appellants.

Issue (ii): Whether a transfer made during pendency of tax proceedings could be protected on the ground that it was an involuntary sale or that the purchasers were without notice of the tax charge.

Analysis: Section 26A was held to apply once proceedings under the Act were pending, and completion of assessment or issue of a separate demand was not necessary for its attraction. The Court held that a transferee could not resist the statutory consequence by pleading bona fide purchase for value or lack of notice, and the character of the sale as involuntary did not take it outside the provision. The pendency of assessment proceedings and the existence of tax liability were sufficient to render the transfer void as against the State's claim.

Conclusion: The challenge based on involuntary transfer and absence of notice failed; this issue was decided against the appellants.

Final Conclusion: The appeals failed because the State's statutory priority under the tax law defeated the purchasers' claim and the bank sale could not prevail over the tax recovery proceedings.

Ratio Decidendi: Where a taxing statute creates a first charge with a non obstante clause, that charge overrides prior mortgages and sales, and a purchaser for value cannot defeat the State's claim merely by asserting lack of notice or the involuntary nature of the transfer.

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