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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the State Tax Department had priority charge over the secured assets sold by the secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and whether the bank was entitled to a declaration of prior and first charge.
Analysis: The secured creditor had registered its security interest with CERSAI before the State Tax Department's attachment steps. Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 gives priority to a secured creditor, after registration of security interest, over all other debts and also over revenues, taxes, cesses and other dues payable to the Central or State Government. The Full Bench decision relied upon held that once the secured creditor has registered its security interest, State tax dues cannot rank ahead of the secured creditor merely because an attachment order exists, unless the statutory consequences contemplated by law displace that priority. On the facts, the bank's registration preceded the State's attachment, so the bank's claim had precedence.
Conclusion: The State Tax Department did not have priority over the secured assets, and the secured creditor's claim prevailed. The petition was allowed and the bank was entitled to the relief of prior and first charge.
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