Secured creditor priority prevails over tax attachment where revenue procedure and proclamation requirements were not proved.

The Bombay HC held that a Sales Tax Department attachment under the Maharashtra Value Added Tax Act, 2002 could not defeat a secured creditor's priority under Section 26E of the SARFAESI Act, 2002 unless the attachment was shown to have been effected in the manner required by the Maharashtra Land Revenue Code, 1966 and the applicable rules, including proclamation of attachment. Mere issuance of an attachment order was insufficient. As there was no material proving compliance with the prescribed revenue procedure, the department's claim did not override the secured creditor's statutory priority, and the secured creditor was entitled to priority over the attached dues.

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Issues: Whether the Sales Tax Department could claim priority over the secured creditor's dues on the basis of an attachment order passed under the Maharashtra Value Added Tax Act, 2002, when there was no material to show that the attachment was carried out in accordance with the Maharashtra Land Revenue Code, 1966 and the applicable rules, including proclamation of attachment.

Analysis: The dispute turned on the interplay between the statutory priority given to secured creditors under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the department's asserted prior attachment. The governing principle applied was that mere issuance of an attachment order is not enough; the attachment must be effected in the manner prescribed by the revenue law and must be followed by proclamation as required by law. In the absence of material showing compliance with the prescribed procedure under the Maharashtra Land Revenue Code, 1966, the department could not displace the secured creditor's statutory priority.

Conclusion: The challenge succeeded and the secured creditor was held entitled to priority over the Sales Tax Department's claim.

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