The Bombay High Court has affirmed that a secured creditor’s claim under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, takes precedence over state tax dues arising after the 2020 amendment, reinforcing the statutory priority granted to registered security interests.
Background & Facts
The Dispute
The petitioner, Canara Bank, is a secured creditor that had extended a loan to a borrower secured by a flat located in a cooperative housing society. The bank registered its security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) on 25.01.2007. Subsequently, the respondent No.2, the Sales Tax Department of Maharashtra, issued an order on 29.12.2022 assessing tax dues against the society. On 12.12.2025, the department issued a communication to the society’s office bearer directing it not to issue a No Objection Certificate (NOC) for the sale or transfer of the flat, citing the 2022 tax order.
Key Facts
- The petitioner-bank’s security interest was registered with CERSAI on 25.01.2007 (Exhibit ‘A’)
- The impugned tax order was passed by respondent No.2 on 29.12.2022
- The notice under Section 13(2) of the SARFAESI Act was issued by the bank on 02.03.2023
- The amendment introducing Section 26E of the SARFAESI Act came into force on 20.01.2020
- The tax dues claimed by respondent No.2 arose after the amendment and after the bank’s CERSAI registration
- The society (respondent No.8) was directed by respondent No.2 to withhold the NOC, thereby obstructing the bank’s enforcement action
Procedural History
- 25.01.2007: CERSAI registration of security interest by Canara Bank
- 29.12.2022: Sales Tax Department issues order assessing tax dues against the society
- 02.03.2023: Canara Bank issues notice under Section 13(2) of SARFAESI Act
- 12.12.2025: Respondent No.2 issues communication to society directing refusal of NOC
- 18.02.2026: Bombay High Court issues notice for final disposal
- 16.03.2026: Judgment delivered by Division Bench
Relief Sought
The petitioner sought:
- Quashing of the impugned communication dated 12.12.2025
- Direction to respondent No.8 (society) to issue NOC for enforcement of security interest under SARFAESI Act
The Parties' Positions
Petitioner (Canara Bank): Argued that its CERSAI-registered security interest, created in 2007 and reinforced by the 2020 amendment, enjoys statutory priority under Section 26E over subsequent tax claims.
Respondent No.2 (Sales Tax Department): Contended that its 2022 tax order predates the bank’s Section 13(2) notice and therefore should prevail, relying on Punjab & Sind Bank v. State of Punjab (2023).
The Legal Issue
Does a secured creditor’s registered interest under the SARFAESI Act, established prior to the 2020 amendment and prior to the levy of tax dues, have priority over state tax claims arising after the amendment?
Arguments Presented
For the Petitioner
The petitioner relied on the full Bench judgment of this Court in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax (2022 SCC OnLine Bom 1767), which held that Section 26E of the SARFAESI Act, read with Section 31B, grants secured creditors priority over all other dues, including taxes, cesses, and revenues payable to the State. It emphasized that CERSAI registration on 25.01.2007 predated the tax order of 29.12.2022 and that the 2020 amendment was intended to be retrospective in effect for enforcement purposes. The bank argued that the Supreme Court’s judgment in Punjab & Sind Bank was factually distinguishable as it involved pre-amendment tax claims.
For the Respondent
Respondent No.2 contended that since the Section 13(2) notice was issued on 02.03.2023 - after the tax order of 29.12.2022 - the bank’s claim could not override the prior tax liability. It relied on Punjab & Sind Bank v. State of Punjab (Civil Appeal No. 6751 of 2023), where the Supreme Court upheld the State’s claim because the tax assessment predated the SARFAESI Act’s 2020 amendment.
The Court's Analysis
The Court undertook a detailed analysis of the statutory framework under the SARFAESI Act, particularly the effect of Section 26E, which was inserted with effect from 20.01.2020. The provision explicitly states that the secured creditor’s interest shall have priority over all other dues, including taxes, cesses, and other rates payable to the State.
"Priority means precedence or going before... Parliament advisedly used the word 'priority over all other dues' in the SARFAESI Act to obviate any confusion as to inter se distribution of proceeds received from sale of properties of the borrower/dealer."
The Court noted that the CERSAI registration of the bank’s security interest occurred on 25.01.2007, nearly 13 years before the tax order of 29.12.2022. The amendment to Section 26E was not merely prospective; the full Bench in Jalgaon Janta Sahakari Bank had clarified that the priority conferred applies to all security interests registered prior to the amendment, provided enforcement occurs after its effective date.
The Court distinguished Punjab & Sind Bank on its facts: in that case, the tax assessment was made in 2014, well before the 2020 amendment, and therefore fell outside the scope of Section 26E. Here, the tax claim arose in 2022 - after the amendment - and could not override a pre-existing, duly registered security interest.
The Court further held that the timing of the Section 13(2) notice was irrelevant to the priority question. What matters is the date of registration of the security interest and the date of the competing claim. Since the bank’s interest was registered in 2007 and the tax claim arose in 2022, the statutory priority under Section 26E was unequivocally in favor of the bank.
The Verdict
The writ petition was allowed. The impugned communication dated 12.12.2025 issued by respondent No.2 was quashed. The society (respondent No.8) was directed to issue the NOC within two weeks from the date of judgment. The auction purchaser was granted an extension of two weeks to deposit the balance 75% of the bid amount. All pending applications were disposed of.
What This Means For Similar Cases
Registered Security Interest Trumps Post-Amendment Tax Claims
- Practitioners must verify CERSAI registration dates when advising secured creditors on enforcement actions
- Any tax, municipal, or government dues levied after 20.01.2020 cannot override a pre-existing, registered security interest under SARFAESI Act
- The date of the tax assessment, not the date of the Section 13(2) notice, is determinative of priority
Judicial Clarity on Punjab & Sind Bank Precedent
- Punjab & Sind Bank applies only to tax claims arising before 20.01.2020
- Post-amendment tax claims, even if issued before the bank initiates enforcement, are subordinate to registered security interests
- This judgment closes a loophole where tax authorities attempted to delay enforcement by issuing notices after the amendment
Procedural Imperative: CERSAI Registration Is Non-Negotiable
- Secured creditors must ensure timely CERSAI registration for all loans secured by immovable property
- Failure to register may result in loss of priority, even if the loan was granted before 2020
- Banks should conduct periodic audits of CERSAI registrations to ensure compliance and enforceability
