Secured creditor priority over government dues upheld, and departmental encumbrance could not block registration of the sale certificate.

Section 31B of the SARFAESI Act gives secured creditors priority in the realisation of secured debts over other debts and government dues, including taxes, cesses and rates, notwithstanding any other law. Applied to the mortgaged property, that statutory priority was held to prevail over the Commercial Tax Department's encumbrance, and the departmental charge could not defeat the secured creditor's right to sell the asset. The refusal to register the sale certificate on the basis of that encumbrance was therefore unsustainable.

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Issues: Whether a secured creditor has priority over government dues, including sales tax arrears, in respect of the mortgaged property, and whether the refusal to register the sale certificate on the ground of an encumbrance created by the Commercial Tax Department was sustainable.

Analysis: The legal position had already been settled by the Full Bench, which applied section 31B of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. That provision gives secured creditors priority in realisation of secured debts by sale of assets over which security interest is created, notwithstanding any other law and over all other debts and government dues, including revenues, taxes, cesses and rates. The court treated this statutory priority as applicable even to pending lis and held that the departmental encumbrance could not defeat the secured creditor's rights.

Conclusion: The secured creditor's claim had priority over the Commercial Tax Department's dues, and the refusal to register the sale certificate was unsustainable.

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