Secured creditor priority over tax dues under Section 31B defeats later tax attachment against auctioned property.

A secured creditor's right to realise secured debt from charged assets prevails over Government tax dues under Section 31B of the SARFAESI Act, which gives secured debts priority through a non obstante clause. That priority extends to pending proceedings and defeats claims by the Income Tax Department against property already sold in auction by the secured creditor. On that basis, the tax attachment could not override the secured creditor's enforcement rights or the auction purchaser's title, and the attachment was liable to be set aside.

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Issues: Whether the Income Tax Department could claim precedence over a secured creditor and the auction purchaser in proceeding against the property for recovery of tax arrears, and whether the attachment entered at the instance of the tax authorities was liable to be quashed.

Analysis: The property had been sold in auction by a secured creditor before the tax attachment was enforced against it. The governing principle was that, by virtue of Section 31B of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the rights of secured creditors to realise secured debts by sale of secured assets have priority over all other debts and Government dues, including taxes and cesses. The provision contains a non obstante clause and applies even to pending proceedings.

Conclusion: The tax authorities could not claim precedence over the secured creditor, and the attachment based on the tax recovery demand was liable to be set aside in favour of the petitioner.

Ratio Decidendi: A secured creditor's right to realise secured debt from charged assets prevails over Government tax dues by virtue of Section 31B, and that priority applies to pending matters.

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