Secured creditor priority overrides State tax recovery when a later non obstante provision gives precedence over secured debt enforcement.

Section 31B gives secured creditors priority to realise secured debt by sale of the secured asset, with a non obstante clause overriding inconsistent laws and extending over Government dues, taxes, cesses and rates. On that basis, the secured creditor's right prevailed over State sales tax dues and other government claims. Although section 33 of the Madhya Pradesh VAT Act, 2002 treats tax as a first charge and contemplates limited forbearance where a bank or financial institution enforces its security, the later central amendment was held to override that recovery mechanism. The State was therefore not permitted to auction the mortgaged property, and the impugned proclamation was quashed.

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Issues: (i) Whether the secured creditor's right to realise secured debt by sale of the secured asset has priority over State sales tax dues and other government dues. (ii) Whether the State could proceed to auction the mortgaged property in view of section 33 of the Madhya Pradesh VAT Act, 2002.

Issue (i): Whether the secured creditor's right to realise secured debt by sale of the secured asset has priority over State sales tax dues and other government dues.

Analysis: Section 31B grants priority to secured creditors for realisation of secured debts by sale of assets over which security interest is created. The provision contains a non obstante clause and expressly gives precedence over all other debts, including Government dues, revenues, taxes, cesses and rates. The amendment was treated as having overriding effect over inconsistent provisions in other enactments.

Conclusion: Yes. The secured creditor's right was held to have priority over the State's tax dues and other government dues.

Issue (ii): Whether the State could proceed to auction the mortgaged property in view of section 33 of the Madhya Pradesh VAT Act, 2002.

Analysis: Although section 33 declares tax as a first charge and permits limited forbearance where a bank or financial institution sells property for recovery of its loan, the Court held that the later central amendment giving priority to secured creditors prevails. On that basis, the State was not permitted to auction the property for recovery of its dues.

Conclusion: No. The State could not auction the property, and the impugned proclamation was liable to be quashed.

Final Conclusion: The writ petitions succeeded, and the secured creditor's claim was held to prevail over the State's recovery action against the mortgaged property.

Ratio Decidendi: A later provision conferring statutory priority on secured creditors with an overriding non obstante clause prevails over inconsistent fiscal recovery provisions, and the State cannot enforce tax recovery by sale of a secured asset in derogation of that priority.

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