Priority of secured creditor over tax dues upheld, with sale certificate registration and surplus-only remittance protected.

A registered secured creditor's right to realise secured debt under the SARFAESI Act was treated as having priority over Sales Tax, Commercial Tax and Income Tax claims. The Court held that the registering authority could register the sale certificate even if the tax departments had raised attachment, so the attachment could not obstruct registration. It further held that only surplus auction proceeds, if any, after satisfaction of the secured debt are liable to be remitted to the departments; where the sale proceeds do not exceed the secured dues, no remittance is required and prosecution of the secured creditor's officers on that basis is not sustainable.

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Issues: (i) Whether the secured creditor had priority charge over Sales Tax, Commercial Tax and Income Tax dues. (ii) Whether the registering authority could register the sale certificate notwithstanding attachment by the tax departments. (iii) Whether the secured creditor was bound to remit any amount to the departments when the auction proceeds did not exceed the secured debt.

Issue (i): Whether the secured creditor had priority charge over Sales Tax, Commercial Tax and Income Tax dues.

Analysis: The secured creditors relied on Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Court followed the Full Bench view that the rights of secured creditors to realise secured debts have priority over other debts and Government dues. The Court noted that the security was stated to be registered under Section 26B of the SARFAESI Act, 2002.

Conclusion: The secured creditor has priority charge over the claims of the Sales Tax, Commercial Tax and Income Tax departments.

Issue (ii): Whether the registering authority could register the sale certificate notwithstanding attachment by the tax departments.

Analysis: The Court held that where auction sale is conducted by the secured creditor and the sale certificate is not placed or registered, the registering authority may still register it notwithstanding the attachment raised by the tax departments.

Conclusion: Registration of the sale certificate cannot be obstructed by the attachment of the tax departments.

Issue (iii): Whether the secured creditor was bound to remit any amount to the departments when the auction proceeds did not exceed the secured debt.

Analysis: The Court drew a distinction between cases where the auction sale yields surplus over the secured debt and cases where no surplus remains. It held that any excess amount must be remitted to the departments, but where the amount realised does not exceed the secured dues, no remittance is required and prosecution against the authorised officer or other officers of the secured creditor is not sustainable on that ground.

Conclusion: The secured creditor must remit only the surplus, if any, after satisfaction of its dues, and no remittance or prosecution lies when no surplus is realised.

Final Conclusion: The petitions were disposed of by affirming the priority of the secured creditor and by protecting registration and sale-related consequences in accordance with that priority.

Ratio Decidendi: Under Section 26E of the SARFAESI Act, 2002, a registered secured creditor's right to realise secured debt has priority over tax department claims, and only surplus auction proceeds after satisfaction of secured dues are liable to be remitted to the government authorities.

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