Statutory first charge over tax dues prevails over a secured creditor's SARFAESI claim where local law grants priority.

A secured creditor's enforcement under the SARFAESI Act does not automatically outrank the State's tax recovery claim where the local VAT law creates a first charge on the debtor's property. Section 35 of the Punjab Value Added Tax Act, 2005 makes tax, penalty, interest and other dues a first charge, and that statutory priority prevails over the bank's asserted security interest. Relying on the governing Supreme Court principle that a specific statutory first charge must be given effect, the bank's claim to precedence was rejected and the attachment challenge failed.

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Issues: Whether the petitioner bank, as a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, had priority over the State's claim for tax arrears in view of the first charge created by Section 35 of the Punjab Value Added Tax Act, 2005.

Analysis: The petitioner had initiated measures under Sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, but the State had already asserted its claim for recovery of tax dues under the Punjab Value Added Tax Act, 2005. Section 35 of the VAT Act expressly provides that tax, penalty, interest and other sums payable under the Act shall constitute the first charge on the property of the person liable. In the light of the statutory first charge and the governing Supreme Court authority recognising such statutory priority in favour of the State where the local law so provides, the bank's claim of precedence over the tax dues could not be accepted.

Conclusion: The petitioner's secured interest did not override the State's statutory first charge over the property, and the challenge to the attachment failed.

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