Secured creditor priority overrides State tax first charge when Central law gives overriding statutory protection.

A Central Act creating priority for secured creditors by a non obstante clause can override a State VAT first-charge provision, especially where the State enactment itself makes that charge subject to Central law. The commentary notes that Section 31B of the central recovery statute gives secured creditors priority over other debts and Government dues, including taxes and cesses, whether recovery is pursued under the recovery statute or the securitisation framework. It also explains that an objection based on absence of entry in the Central Registry does not defeat that statutory priority, since the decisive source of priority is the central provision itself.

---

---

Issues: (i) Whether the first charge created in favour of the State for VAT dues under the State enactment prevails over the secured creditor's priority under the central recovery law. (ii) Whether absence of entry in the Central Registry under the securitisation law defeats the secured creditor's priority.

Issue (i): Whether the first charge created in favour of the State for VAT dues under the State enactment prevails over the secured creditor's priority under the central recovery law.

Analysis: The State enactment expressly made the first charge subject to any provision creating a first charge in a Central Act. Section 31B of the central recovery statute, introduced by amendment and brought into force in 2016, contains a broad non obstante clause and gives secured creditors priority over all other debts and Government dues, including taxes and cesses. The judgment followed the consistent view of other High Courts that this central provision overrides a State tax first-charge provision and applies irrespective of whether recovery is pursued under the recovery statute or the securitisation law.

Conclusion: The secured creditor's priority prevailed and the State's tax charge did not override it.

Issue (ii): Whether absence of entry in the Central Registry under the securitisation law defeats the secured creditor's priority.

Analysis: The contention that priority under the securitisation framework could arise only upon recording in the Central Registry was rejected. The judgment held that the decisive source of priority was the central statute creating priority in favour of secured creditors, and it also noted that the security interest had in fact been entered in the Central Registry.

Conclusion: The objection based on the Central Registry was rejected.

Final Conclusion: The petition succeeded, the State auction notice was quashed, and the sale proceeds were directed to be released to the secured creditor.

Ratio Decidendi: Where a Central Act creates priority in favour of secured creditors by a non obstante clause, that priority overrides a State tax first-charge provision that is expressly made subject to Central law, and the secured creditor's statutory priority is not defeated merely because recovery is pursued under the securitisation mechanism.

---