Secured creditor priority prevails over sales tax recovery where SARFAESI security interest is registered and overriding effect applies.

A secured creditor's mortgage created in 1991 was treated as having priority over the Commercial Taxes Department's later recovery claim in respect of the mortgaged property and lease rentals. Section 26E of the SARFAESI Act was applied as a special priority provision for registered security interests, with overriding effect notwithstanding other laws. Section 24 of the Tamil Nadu General Sales Tax Act was noted as creating a charge and recovery mechanism, but not a first charge. On that basis, the sales tax recovery notices and communications were found unsustainable, and revenue authorities' reliance on cases involving express first-charge statutes was distinguished.

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Issues: Whether the secured creditor bank had priority over the Commercial Taxes Department in relation to the mortgaged property and the lease rentals, and whether the impugned notices and communications under the sales tax recovery provisions could be sustained.

Analysis: The bank's security interest was created in 1991, much before the tax department's impugned demands. Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 gives priority to secured creditors after registration of security interest, notwithstanding any other law. Section 24 of the Tamil Nadu General Sales Tax Act, 1959 creates a charge and a recovery mechanism, but it does not create a first charge. The Court held that the special priority rule in Section 26E, together with the overriding effect of the secured-creditor regime, prevails over the department's claim. The authorities relied on by the Revenue were distinguished on the basis that they concerned statutes creating a specific first charge or different legal contexts.

Conclusion: The secured creditor's claim had priority over the sales tax department's demand, and the impugned notices and communications were unsustainable.

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