Secured creditor priority overrides State first charge over tax dues and protects sale of the secured asset.

Secured creditors' priority under the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act prevails over a State's claim of first charge for unpaid tax and electricity dues. Sections 26-E and 35 of the SARFAESI Act and Section 31-B of the RDDB Act confer overriding priority on secured debts, while the first charge under the Himachal Pradesh Value Added Tax Act must yield to the later Central enactments under Article 246(1). Revenue entries and departmental encumbrances could not defeat the prior secured interest and sale; the property was to be transferred and registered in favour of the purchasers free of the impugned encumbrances.

---

---

Issues: Whether the secured creditor's rights under the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act prevail over the State's claim of first charge for unpaid tax and electricity dues under the Himachal Pradesh Value Added Tax Act and revenue entries.

Analysis: The dispute concerned priority over the secured asset after enforcement action by the bank and sale in favour of the petitioners. The statutory scheme of Section 26-E and Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, together with Section 31-B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, gives secured creditors priority over all other debts, including government dues. Section 26 of the Himachal Pradesh Value Added Tax Act, 2005 creates a first charge for tax dues, but that State enactment must yield to the later Central enactments by virtue of the overriding statutory scheme and Article 246(1) of the Constitution of India. The charge entries in favour of the electricity board and the excise and taxation department could not displace the prior secured interest and sale under the SARFAESI proceedings.

Conclusion: The secured creditor's claim had priority and the State's charge did not prevail against the secured asset.

Final Conclusion: The property was directed to be transferred and registered in favour of the purchasers free from the impugned encumbrances, and the revenue entries obstructing such transfer were ordered to be removed.

Ratio Decidendi: Statutory provisions giving secured creditors priority and overriding effect prevail over a State law creating a first charge for tax dues on the same secured asset.

---