Statutory first charge under sales tax law continues despite SARFAESI priority and binds bank-sale purchasers.

Kerala sales tax enactments create a statutory first charge on the dealer's property, and the priority given to secured creditors under SARFAESI and recovery legislation operates only as a payment priority, not as a superior charge displacing that State charge. The text also notes that a bank sale under SARFAESI, including sale on an "as is where is" basis, does not by itself extinguish known statutory encumbrances. A purchaser is expected to make due enquiry, and the State's charge continues to attach to the property until cleared in accordance with law.

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Issues: (i) Whether the statutory first charge created under the Kerala sales tax enactments prevails over the priority granted to secured creditors under the SARFAESI and recovery legislation. (ii) Whether a purchaser in a bank sale takes the property free from the State's charge merely because the property is sold under the SARFAESI framework.

Issue (i): Whether the statutory first charge created under the Kerala sales tax enactments prevails over the priority granted to secured creditors under the SARFAESI and recovery legislation.

Analysis: The provisions conferring priority on secured creditors were read as granting only a priority in payment, not the creation of a superior charge overriding State legislation. The Court noted that the Kerala sales tax enactments expressly create a first charge on the dealer's property, and that such charge arises by operation of law once tax dues become payable and proceedings are initiated. The Court also held that the amended recovery provisions and the SARFAESI rules regulate the manner of sale and payment priority, but do not extinguish the State's statutory charge.

Conclusion: The issue was answered in favour of the Revenue. The State's statutory first charge was held to remain intact despite the secured creditor's statutory priority in payment.

Issue (ii): Whether a purchaser in a bank sale takes the property free from the State's charge merely because the property is sold under the SARFAESI framework.

Analysis: The sale notice and sale certificate mechanism under the SARFAESI Rules were read with the law of notice under the Transfer of Property Act. The Court held that the expressions used in auction notices, including sale on an 'as is where is' basis, do not by themselves wipe out known statutory encumbrances. The purchaser is expected to make due enquiry, and the statutory charge continues to attach to the property until the encumbrance is cleared in accordance with law. The Court therefore rejected the contention that a bank sale automatically yields an encumbrance-free title as against the State's charge.

Conclusion: The issue was answered in favour of the Revenue. The State's charge was held to continue with the property and bind the purchaser until cleared.

Final Conclusion: The writ appeals were allowed, the secured creditors' challenge failed, and the State's first charge over the properties was affirmed as continuing notwithstanding sale by the secured creditor.

Ratio Decidendi: Section 26E of the SARFAESI Act and Section 31B of the RDB Act confer priority in payment to secured creditors, but do not create a charge superior to a statutory first charge created by State law, which continues to run with the property until discharged.

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