Secured creditor priority over government dues prevails absent an express statutory first charge, with restraint order quashed.

A secured creditor's right to enforce a security interest under the SARFAESI Act prevails over claims for government dues unless a statute creates an express first charge in favour of the revenue. Sections 11 of the Central Excise Act and 142 of the Customs Act were treated as recovery provisions only; they did not confer any preferential right or first charge on the department. The departmental restraint order preventing the bank from proceeding against the secured assets was therefore unsustainable and was quashed.

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Issues: Whether a secured creditor bank had priority to recover its dues from the secured assets over the Central Excise and Customs department's claim for government dues, and whether the departmental restraint order preventing the bank from proceeding with recovery was valid.

Analysis: The relevant framework under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 recognizes a secured creditor and security interest, and authorises enforcement of such interest by taking possession of the secured assets and applying the sale proceeds towards the secured debt. The Court applied the settled principle that the Crown's preferential right extends only to ordinary or unsecured creditors and does not defeat the rights of a secured creditor in the absence of a contrary statutory provision. It found that Section 11 of the Central Excise Act, 1944 and Section 142 of the Customs Act, 1962 only provide modes of recovery of government dues and do not create any first charge or preferential right in favour of the department. Being a special enactment, the SARFAESI Act conferred priority on the secured creditor's enforcement rights.

Conclusion: The bank, as a secured creditor, had the first charge and the departmental restraint order could not be sustained.

Final Conclusion: The writ petition succeeded and the impugned restraint order was quashed, enabling the bank to proceed against the secured assets for recovery of its dues.

Ratio Decidendi: In the absence of an express statutory first charge in favour of the revenue, a secured creditor's right to enforce a security interest prevails over claims for government dues.

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