Registered security interest takes priority over later State tax attachment once Section 26E protection applies.

A registered security interest created under the SARFAESI Act has priority over a later State tax attachment where the charge is registered before recovery action begins. Section 26E gives secured debts priority over other debts, including State tax claims, once registration is complete. A State statutory first charge under the Karnataka Value Added Tax Act cannot displace an earlier registered secured creditor's interest. Where the State has not enforced any superior claim before that priority attaches, the later attachment must yield and revenue entries must reflect the secured creditor's precedence.

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Issues: Whether the secured creditor's registered security interest had priority over the State's attachment and tax recovery claim, and whether the attachment order was liable to be set aside.

Analysis: The security interest under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act was created and registered before the State initiated recovery and passed the attachment order. Section 26E gives secured debts priority over all other debts, including taxes payable to the State, after registration of the security interest. The State's reliance on its statutory first charge under the Karnataka Value Added Tax Act could not prevail once the secured creditor's charge had arisen earlier and had been duly registered. Since the State had not enforced a superior claim before the secured creditor's priority attached, the later attachment had to yield.

Conclusion: The secured creditor's charge prevailed over the State's tax attachment, and the attachment order was liable to be set aside in favour of the petitioner.

Final Conclusion: The petition was allowed by recognising the priority of the secured creditor's registered security interest over the State's subsequent tax attachment, leaving the revenue authorities to act only in accordance with the law for consequential revenue entries.

Ratio Decidendi: A registered security interest under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has priority over a later State tax attachment, and the State's statutory first charge must yield to that priority.

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