Secured creditor priority over Government dues extends to auction sales of mortgaged property under the statutory non obstante rule.

Section 31B, inserted by the 2016 amendment, gives secured creditors priority in the realisation of secured debts over all other debts and Government dues, including taxes, cesses and rates, by virtue of its non obstante effect. The provision applies to pending lis after its commencement, so it governs disputes already in progress. The same priority regime extends to sale of secured assets, including auction sales of mortgaged property, meaning a third-party purchaser takes the asset within that statutory framework.

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Issues: (i) Whether a secured creditor has priority over the State's tax and other dues in respect of mortgaged property. (ii) Whether a third party purchaser's rights in auctioned mortgaged property are governed by the same priority regime.

Issue (i): Whether a secured creditor has priority over the State's tax and other dues in respect of mortgaged property.

Analysis: Section 41 of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 inserted Section 31B, which gives secured creditors priority in the realisation of secured debts through sale of assets over which security interest is created. The provision operates notwithstanding anything contained in any other law and expressly places secured debts ahead of all other debts and Government dues, including revenues, taxes, cesses and rates. The Court also held that the provision governs pending lis after its commencement.

Conclusion: The secured creditor has priority over the Government's tax and other dues.

Issue (ii): Whether a third party purchaser's rights in auctioned mortgaged property are governed by the same priority regime.

Analysis: The statutory protection extends to sale of assets over which security interest is created, and therefore covers auction sales conducted in exercise of the secured creditor's rights. Since the priority regime applies to the secured creditor's realisation of secured debts by sale of the mortgaged asset, the position of an auction purchaser falls within the same framework.

Conclusion: The rights arising from auction sale of the mortgaged property are also covered by the priority regime in favour of the secured creditor.

Final Conclusion: The reference was answered by holding that secured creditors have priority over Government dues in respect of mortgaged assets, and that the same statutory priority governs auction sales of such assets.

Ratio Decidendi: A non obstante statutory provision conferring priority on secured creditors over all other debts and Government dues applies to pending matters and governs sale of secured assets, including auction sales, once it has come into force.

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