Secured creditor priority over sales tax dues and refusal to register sale certificate found unjustified absent clear legal bar

Section 26E of the SARFAESI Act was treated as giving a secured creditor prima facie priority over State sales tax dues and the MVAT Act's first charge, because the security interest had been created earlier and the State charging provision yields to the Central statute. The Bombay HC also held that the registering authority was not justified in refusing to register a sale certificate merely because of a sales tax attachment or the absence of an NOC, as no express legal prohibition was shown. Interim protection was granted by directing presentation and adjudication of the sale certificate, while rival claims over the secured assets were left for later determination.

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Issues: (i) Whether the secured creditor's claim had priority over the State sales tax dues and the statutory first charge under the MVAT Act in view of Section 26E of the SARFAESI Act. (ii) Whether the registering authority was justified in refusing to register the sale certificate on the basis of the sales tax attachment and absence of NOC.

Issue (i): Whether the secured creditor's claim had priority over the State sales tax dues and the statutory first charge under the MVAT Act in view of Section 26E of the SARFAESI Act.

Analysis: Section 26E gives priority to secured creditors over all other debts, including revenues, taxes, cesses and other rates, after registration of security interest. Section 37 of the MVAT Act itself yields to any Central Act creating a first charge. The security interest in the present case was created much before the dispute concerning the attachment, and the statutory scheme was treated as conferring overriding priority on the secured creditor, at least prima facie.

Conclusion: The secured creditor was held to have a prima facie priority over the sales tax dues.

Issue (ii): Whether the registering authority was justified in refusing to register the sale certificate on the basis of the sales tax attachment and absence of NOC.

Analysis: Rule 44 of the Maharashtra Registration Rules, 1961 was invoked, but no express prohibition under the State law was shown to require an NOC from the Sales Tax Department. Since the question of inter se priority could be examined after hearing the Sales Tax Department, the registering authority was not justified in withholding registration in the meantime.

Conclusion: The refusal to register the sale certificate was held to be unjustified.

Final Conclusion: Interim protection was granted to the petitioner by directing presentation and adjudication of the sale certificate, while leaving the rival claims over the secured assets for determination after hearing the concerned department.

Ratio Decidendi: A secured creditor's priority under Section 26E prevails over inconsistent statutory recovery claims, and a registering authority cannot refuse registration of a sale certificate merely because of a sales tax attachment unless a specific legal prohibition is shown.

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