Secured creditor priority over State tax dues protects auction purchaser title and invalidates the revenue charge

Secured creditors' statutory priority over Government dues prevails where Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and Section 26E of the Securitisation and Reconstruction of Financial Assets and Security Interest Act, 2002 apply, so a later State VAT charge cannot override that priority. On that basis, the revenue entry reflecting the State tax charge was unsustainable, and the auction purchaser's title was protected because the property had been sold through public auction for full consideration. The authorities were directed to register the sale deed in favour of the auction purchaser.

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Issues: Whether the secured creditor's claim has priority over State tax dues and whether the revenue entry created for the State tax charge can be quashed, with consequential protection of the auction purchaser's title and direction for registration of the sale deed.

Analysis: The property was sold in public auction by the Recovery Officer and a sale certificate was issued in favour of the purchaser. The secured creditor's priority is expressly recognised under Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, both of which confer priority over all other debts and Government dues. The State tax charge under the VAT law cannot override the statutory priority attached to secured creditors, particularly when the charge arose after the relevant statutory protection had come into force. The purchaser, having bought the property in auction for full consideration, is protected, and the State authorities may pursue their dues against the appropriate person in accordance with law.

Conclusion: The secured creditor's dues rank above the State tax dues, the revenue entry creating the State charge is unsustainable, and the auction purchaser's title is protected.

Final Conclusion: The writ petition succeeded, the impugned revenue entry was annulled, and the authority was directed to register the sale deed in favour of the auction purchaser.

Ratio Decidendi: A later statutory mandate giving secured creditors priority over Government dues prevails over a State tax charge, and a bona fide auction purchaser from enforcement proceedings is entitled to protection of title when the secured creditor's charge has statutory precedence.

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