Secured creditor priority prevails over tax garnishee action against secured assets and related funds.

A statutory priority given to secured creditors under the amended recovery and securitisation framework prevails over tax recovery claims, including garnishee action under section 226(3) of the Income-tax Act, where the notice targets secured assets or monies held for the debtor. The later amendment, reinforced by a non obstante clause, was applied to give the secured creditor precedence over Government dues such as taxes, cesses and rates, and this priority was treated as governing pending disputes as well. On that basis, the garnishee notice could not be enforced against the secured creditor bank and was set aside.

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Issues: Whether a garnishee notice issued under section 226(3) of the Income-tax Act, 1961 could be enforced against a secured creditor bank in view of the priority accorded to secured creditors under the amended recovery and securitisation laws.

Analysis: The secured creditor's contention was examined in the light of the statutory amendments introducing priority for secured debts. The governing principle applied was that the rights of a secured creditor to realise secured debts by sale of assets over which security interest is created prevail over other debts and Government dues. The Court followed the Full Bench view that the later amendment containing a non obstante clause gives secured creditors precedence over revenues, taxes, cesses and rates due to the Government, and that this priority governs pending disputes as well. On that basis, the Department's garnishee notice could not override the secured creditor's statutory priority.

Conclusion: The garnishee notice was held unenforceable against the petitioner bank and the challenge succeeded.

Final Conclusion: The writ petition was allowed and the impugned notice was set aside on the footing that the secured creditor's priority overrides the revenue recovery claim.

Ratio Decidendi: A statutory priority conferred on secured creditors by a later amendment with a non obstante clause prevails over tax recovery action, including a garnishee notice, against secured assets or monies held for the secured debtor.

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