Debts advanced by banks or financial institutions to secured creditors have precedence over all revenues due to Central or State Govt.

The question regarding the priority of secured creditors arose in writ petitions before Division Bench of Andhra Pradesh High Court, whether debts advanced by the banks/financial institutions have precedence over all the revenues due to the Central or State Governments. And the Supreme Court answered this issue positively.

Security interest, existing as on the date of commencement of the said provisions of law is required to be taken as a criterion for extending the benefit of the said provisions of law to the secured creditors. It cannot be construed that the said provisions of the law apply only to the security created after the advent of the said provisions of law and such an interpretation frustrates the very intention of parliament to protect and safeguard the interest of the secured creditors. Both provisions are analogous though under two different legislations.

Section 26E of the SARFAESI Act begins with 'non obstante' clause and stipulates that after registration of the security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central or State Governments or local authority. Section 31B of the Bankruptcy Act is also to the same effect. When the language of the provisions of law is very lucid and clear, no other interpretation is possible

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