Secured creditor priority prevails over State VAT charge where Central legislation gives overriding protection to security interests.

A secured creditor's mortgage and security interest were described as having priority over the State's VAT recovery claim because Central legislation gave secured creditors a superior charge through overriding non obstante provisions, while the Maharashtra VAT Act made the State's first charge subject to any Central first charge. The text further notes that objections based on alleged non-registration of the security interest and the prospective operation of Section 26-E did not displace that priority, as Section 31-B of the Recovery of Debts and Bankruptcy Act independently protected the secured creditor's claim. The stated effect is that tax attachment could not prevail against the prior mortgage.

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Issues: (i) Whether the secured creditor's mortgage and security interest had priority over the State's claim for VAT dues and the statutory first charge under the Maharashtra Value Added Tax Act, 2002. (ii) Whether the alleged non-registration of security interest under the SARFAESI regime and the prospective operation of Section 26-E affected the secured creditor's priority.

Issue (i): Whether the secured creditor's mortgage and security interest had priority over the State's claim for VAT dues and the statutory first charge under the Maharashtra Value Added Tax Act, 2002.

Analysis: The secured debt arose from a mortgage created before the tax recovery measures. Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 and Section 26-E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 confer priority on secured creditors through overriding non obstante language. Section 37 of the Maharashtra Value Added Tax Act, 2002 makes the State's first charge expressly subject to any first charge created by a Central Act. On that statutory scheme, the secured creditor's rights to realise the secured asset prevail over the State's tax dues.

Conclusion: The secured creditor's charge was held to have prior and superior claim over the State's VAT recovery charge.

Issue (ii): Whether the alleged non-registration of security interest under the SARFAESI regime and the prospective operation of Section 26-E affected the secured creditor's priority.

Analysis: Even assuming that Section 26-E operated prospectively and that registration under Section 26-D was disputed, the priority claim remained protected by Section 31-B of the Recovery of Debts and Bankruptcy Act, 1993. The Court treated the non-registration objection as not altering the substantive priority conferred by the Central enactment on secured creditors.

Conclusion: The objections based on non-registration and prospectivity did not defeat the secured creditor's priority.

Final Conclusion: The attachment and charge raised by the sales tax authorities could not be sustained against the secured creditor's prior mortgage, and the writ petition succeeded.

Ratio Decidendi: Where a Central statute confers priority on secured creditors by an overriding non obstante clause, that priority prevails over a State tax first charge that is expressly made subject to Central legislation.

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