Statutory priority of secured creditors prevails over State tax recovery claims against a registered secured asset.

A secured creditor with a registered security interest under the SARFAESI framework has statutory priority over State sales tax claims against the secured asset. Sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act confer priority in realisation of dues, and State charging provisions under the Maharashtra Value Added Tax Act must yield where the security interest was duly registered before attachment. The later amendment to Section 37 did not displace that priority. The attachment over the secured asset could not stand, while any surplus from sale was to be paid to the department.

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Issues: (i) Whether a secured creditor with a registered security interest has priority over the State's claim to recover sales tax dues by attachment of the secured asset, and whether the amendment to Section 37 of the Maharashtra Value Added Tax Act could displace that priority.

Analysis: The secured asset had been mortgaged in favour of the bank and the security interest had been registered with CERSAI before the department's attachment. The governing legal position had already been settled by the Full Bench decision holding that Sections 26E of the SARFAESI Act, 2002 and 31B of the Recovery of Debts and Bankruptcy Act, 1993 confer statutory priority on secured creditors in realization of dues from secured assets, overriding State law charges, including those under the Maharashtra Value Added Tax Act. The later State amendment to Section 37 was not accepted as sufficient to defeat the statutory priority already recognized in favour of a secured creditor who had complied with the applicable requirements.

Conclusion: The secured creditor's claim prevails over the department's dues, and the attachment and asserted charge over the secured asset could not stand.

Final Conclusion: The impugned attachment was quashed and the bank's security interest was protected, while any surplus realized on sale of the secured asset was directed to be paid to the department.

Ratio Decidendi: A secured creditor that has validly registered its security interest under the SARFAESI framework has statutory priority in realization of dues from the secured asset over State revenue claims, and State charging provisions must yield to that priority.

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