Statutory priority of secured creditor overrides State tax recovery when mortgaged property is already subject to registered security interest.

After registration of security interest, a secured creditor's debt has statutory priority over other debts and over revenues, taxes, cesses and similar dues under Section 26-E of the SARFAESI Act, 2002. Where the mortgaged property was already encumbered in favour of the bank, a proposed auction under Section 147(C) of the Madhya Pradesh Land Revenue Code, 1959 could not displace that priority. The State's recovery action was therefore inconsistent with the statutory priority regime, and the impugned auction notice was unsustainable.

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Issues: Whether the secured creditor's claim had priority over the State's recovery proceedings and tax dues in respect of the mortgaged property.

Analysis: Section 26-E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides that after registration of security interest, the debts due to a secured creditor shall be paid in priority over all other debts and over revenues, taxes, cesses and other rates payable to the Central Government, State Government or local authority. The property in question was already subjected to a security interest in favour of the bank, and the proposed auction under Section 147(C) of the Madhya Pradesh Land Revenue Code, 1959 could not override the statutory priority conferred on the secured creditor. The court therefore treated the State's proposed recovery action as contrary to the priority regime under Section 26-E.

Conclusion: The secured creditor had priority over the State's tax recovery claim, and the impugned auction notice was unsustainable.

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