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Issues: Whether the secured creditor's mortgage and sale proceeds under the SARFAESI regime had priority over the State's claim for sales tax dues and the attachment entry made over the mortgaged properties.
Analysis: The mortgage in favour of the bank was created before the attachment entry. Section 26E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, inserted with effect from 01.09.2016, gives priority to secured creditors over all other debts and Government dues after registration of security interest. The Court followed the Full Bench view on the pari materia Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and held that the amendment governs pending lis as well. On that basis, the State's claim of a prior statutory charge under Sections 42(1) and 43 of the Tamil Nadu Value Added Tax Act, 2006 could not prevail over the secured creditor's right.
Conclusion: The attachment entry was liable to be lifted, and priority was held to vest in the secured creditor over the tax dues.
Final Conclusion: The writ petition succeeded in substance, and the secured creditor was granted priority over the State's tax claim in relation to the mortgaged properties and their sale proceeds.
Ratio Decidendi: Section 26E of the SARFAESI Act, once brought into force, overrides competing Government dues and confers priority on a secured creditor over tax claims, including in pending proceedings.
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