Secured creditor priority prevails over State tax first charge, invalidating attachment and auction of mortgaged property.

A secured creditor's priority under Section 31B of the Recovery of Debts and Bankruptcy Act prevailed over the State's first charge under Section 82 of the Telangana GST Act because the Central law is later, more specific, and given overriding effect. The constitutional repugnancy doctrine, read with Articles 254 and 246-A, prevented the State charge from displacing that priority. Once that priority was recognised, the tax authorities could not lawfully attach, sell, or auction the mortgaged secured asset in derogation of the bank's enforcement rights, and those recovery were held unsustainable and liable to be set aside.

---

---

Issues: (i) Whether the secured creditor's right under Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 prevails over the State's first charge under Section 82 of the Telangana State Goods and Services Tax Act, 2017. (ii) Whether the attachment, sale notice and auction of the mortgaged property by the tax authorities could stand against the secured creditor's enforcement rights.

Issue (i): Whether the secured creditor's right under Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 prevails over the State's first charge under Section 82 of the Telangana State Goods and Services Tax Act, 2017.

Analysis: Section 31B gives secured creditors priority for realisation of secured debts by sale of secured assets and expressly places such debts above all other debts and Government dues. Section 82 of the Telangana State Goods and Services Tax Act, 2017 also contains a non-obstante clause and declares tax dues to be a first charge on property. The provisions therefore operate in the same field, but the Central enactment is a later and more specific law for priority in favour of secured creditors, and Section 34 of the Recovery of Debts and Bankruptcy Act, 1993 also gives it overriding effect. The constitutional doctrine of repugnancy, read with Articles 254 and 246-A of the Constitution of India, does not permit the State provision to displace the Central law in this field.

Conclusion: The secured creditor's priority under Section 31B prevails over the State's first charge under Section 82.

Issue (ii): Whether the attachment, sale notice and auction of the mortgaged property by the tax authorities could stand against the secured creditor's enforcement rights.

Analysis: Once the secured creditor's priority is recognised, the State's attachment and sale process against the mortgaged secured asset cannot defeat the bank's enforcement rights. The tax authorities lacked competence to proceed against the secured asset in derogation of the secured creditor's statutory priority. The actions taken in attachment, sale notice and auction were therefore unsustainable.

Conclusion: The attachment, sale notice and auction were invalid and liable to be set aside.

Final Conclusion: The secured creditor is entitled to enforce its security interest in preference to the State's tax recovery claim, and the impugned recovery actions by the tax authorities cannot override that statutory priority.

Ratio Decidendi: Where a Central law confers statutory priority on secured creditors with overriding effect, a State law creating a first charge for tax dues cannot prevail against enforcement of the secured debt, and recovery action against the secured asset must yield to the secured creditor's priority.

---