Priority of Secured Creditors under Section 31B prevails over State GST first charge, enabling enforcement of security.

Section 31B of the Recovery of Debts and Bankruptcy Act gives secured creditors a statutory priority to realise secured debts by sale of secured assets, and that priority displaces conflicting state statutory first charge provisions for revenue where repugnancy exists; accordingly the central enactment's overriding effect and occupying-the-field character prevail, rendering a later or conflicting state GST first charge ineffective to defeat enforcement of security and realisation by the secured creditor.

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Issues: Whether, in view of Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, a secured creditor (the Bank) has priority to realise secured debts from sale of secured assets over claims of the State under Section 82 of the Telangana State Goods and Services Act, 2017.

Analysis: Section 31B (inserted by Amendment Act 44 of 2016, effective 01.09.2016) expressly provides that the rights of secured creditors to realise secured debts by sale of assets shall have priority over all other debts and Government dues. Section 82 of the Telangana State Goods and Services Act, 2017 similarly creates a first charge in favour of the State and employs a non-obstante clause. The Court examined the principle of repugnancy under Article 254 of the Constitution, the scope of Article 246-A empowering State GST legislation, and authorities interpreting conflicts between central enactments granting priority to secured creditors and state revenue enactments. The Court noted that Section 31B is a central enactment occupying the field insofar as priority of secured creditors is concerned, and Section 34 of the Recovery of Debts and Bankruptcy Act gives the Act overriding effect. Authorities from High Courts and the Supreme Court support that where a central statute specifically grants priority to secured creditors, a subsequently enacted state provision cannot impeach that priority and the central provision prevails; the doctrine of repugnancy must be applied and harmonisation attempted but central law will prevail to the extent of repugnancy.

Conclusion: The Bank's claim to priority under Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 prevails over the claim of the State under Section 82 of the Telangana State Goods and Services Act, 2017; the Bank is entitled to enforce the recovery order and the attachment, auction and sale actions by the Commercial Tax Department are set aside. (Decision in favour of the Bank / assessee.)

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