Prior secured creditor rights defeat later tax attachment; purchaser under State Financial Corporation sale takes title free from encumbrances.

A prior mortgagee's security interest prevailed over a later Commercial Tax Department attachment, because the State Financial Corporation's rights arose earlier and the property was sold under section 29 of the State Financial Corporation Act. The purchaser acquired title free from encumbrances under section 29(2), and the borrower's pending BIFR proceedings also meant the earlier tax attachment had no legal effect under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Government tax dues could not override the secured creditor's prior mortgage or be enforced against the purchaser's property. The attachment and sealing were therefore without jurisdiction, and the notice of attachment and seizure memo were quashed.

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Issues: Whether the Commercial Tax Department could attach and seal the property purchased by the petitioner from the State Financial Corporation despite the Corporation's prior mortgage and sale under section 29 of the State Financial Corporation Act; and whether the tax department's claim could prevail over the secured creditor's rights and the protection under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The property had been mortgaged in favour of the State Financial Corporation long before the tax claim was asserted, and the borrower-company had also been before the BIFR. In those circumstances, the earlier attachment by the Commercial Tax Department had no legal consequence in view of the pending BIFR proceedings under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The sale made by the Corporation was a sale under section 29 of the State Financial Corporation Act, and by virtue of section 29(2), the purchaser acquired title free from all encumbrances. The tax department could not fasten the borrower-company's liability upon the petitioner or claim priority over the prior mortgagee. The reliance on preferential recovery of tax dues was misplaced because government debt does not override a prior secured debt or mortgagee's rights.

Conclusion: The attachment and sealing of the petitioner's property were without jurisdiction and contrary to law.

Final Conclusion: The notice of attachment and the seizure memo were quashed, and the petitioner obtained relief against the attempted tax recovery from the purchased property.

Ratio Decidendi: A prior secured creditor's mortgage rights prevail over subsequent tax recovery claims, and a purchaser under a sale by the State Financial Corporation under section 29 takes title free from encumbrances; tax attachment cannot be enforced against such property where the secured creditor's rights are anterior in time.

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