Secured creditor priority over income tax attachment upheld where prior mortgage predated the departmental charge

A prior mortgage and secured creditor's sale certificate were held to have priority over a later Income Tax Department attachment. Section 281 of the Income-tax Act, 1961 was treated as a protective provision that does not create a preferential charge for the revenue, while Section 26E of the SARFAESI Act was noted as giving secured creditors priority notwithstanding other laws, subject to its statutory exception. Because the secured interest pre-dated the attachment, the departmental attachment could not defeat the bank's security interest, and refusal to register the sale certificate was unsustainable.

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Issues: Whether the secured creditor's mortgage and sale certificate had priority over the subsequent attachment by the Income Tax Department, and whether the refusal to register the sale certificate was sustainable.

Analysis: The mortgage in favour of the bank was created earlier than the Income Tax Department's attachment. The settled principle applied was that the rights of a secured creditor prevail over crown debt. Section 281 of the Income-tax Act, 1961 was treated as a protective provision and not as creating a preferential charge in favour of the revenue. Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was also noticed as conferring priority on secured creditors, notwithstanding other laws, subject to the stated statutory exception. Since the secured charge pre-dated the attachment, the later departmental attachment could not defeat the bank's prior security interest.

Conclusion: The attachment by the Income Tax Department did not prevail over the earlier mortgage, and the refusal to register the sale certificate was unsustainable.

Final Conclusion: The writ petition succeeded and the impugned refusal was set aside, with a direction to register the sale certificate in accordance with law.

Ratio Decidendi: A prior valid security interest created in favour of a secured creditor prevails over a subsequent income tax attachment, and the revenue's attachment cannot defeat the secured creditor's priority absent a superior statutory mandate.

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