Secured creditor priority prevails where tax authorities lack valid statutory attachment under revenue recovery law.

Priority under Section 26E of the SARFAESI Act and Section 31B of the RDDB Act prevails unless the sales tax authorities have first effected a valid attachment and proclamation under the Maharashtra Land Revenue Code and the 1967 Rules. A mere communication to the Talathi restraining transfer did not amount to statutory attachment, so the Department could not claim precedence over the secured creditor's enforcement of security interest. Once the creditor's priority was recognised, there was no legal impediment to release of the sale proceeds deposited in Court, and the petitioner was entitled to withdraw them.

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Issues: (i) Whether the Sales Tax Department's communication and recovery steps created a valid legal impediment against the secured creditor's enforcement of security interest and gave the Department priority over the secured assets. (ii) Whether the petitioner was entitled to withdraw the sale proceeds deposited in Court.

Issue (i): Whether the Sales Tax Department's communication and recovery steps created a valid legal impediment against the secured creditor's enforcement of security interest and gave the Department priority over the secured assets.

Analysis: Priority between the secured creditor and the sales tax authorities depended on whether the Department had effected attachment in the manner required by the Maharashtra Land Revenue Code, 1966 and the Maharashtra Realisation of Land Revenue Rules, 1967 before the statutory priority under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 became operative. Mere issuance of a communication to the Talathi not to permit transfer did not amount to a valid attachment or proclamation under the recovery . In the absence of material showing compliance with the prescribed statutory procedure, the Department could not claim precedence over the secured creditor.

Conclusion: The Sales Tax Department did not obtain priority, and the secured creditor was entitled to enforce its security interest.

Issue (ii): Whether the petitioner was entitled to withdraw the sale proceeds deposited in Court.

Analysis: The sale had been undertaken pursuant to earlier permission of the Court and the proceeds were lying deposited. Once the secured creditor was held to have priority over the sales tax claim, there remained no legal impediment to release of the deposited amount to the petitioner in accordance with rules.

Conclusion: The petitioner was entitled to withdraw the deposited sale proceeds.

Final Conclusion: The writ petition succeeded and the petitioner obtained primacy over the sales tax claim in respect of the secured assets, with consequential release of the deposited sale proceeds.

Ratio Decidendi: Priority under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is displaced only by a valid attachment and proclamation made in accordance with the applicable land revenue recovery law; a mere recovery communication without such statutory compliance does not override the secured creditor's priority.

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