The Bombay High Court has reaffirmed the statutory supremacy of secured creditors under the SARFAESI Act, holding that prior registration of security interest with CERSAI grants absolute priority over subsequent tax claims by the state. This ruling clarifies a critical conflict between revenue recovery mechanisms and financial security frameworks, offering definitive guidance to banks and financial institutions.
Background & Facts
The Dispute
The Central Bank of India, as a secured creditor, had extended credit facilities to a borrower and registered its security interest in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) on 13 September 2012. Subsequently, the Office of the State Tax Officer issued an attachment order on 26 March 2024, seeking to recover outstanding tax dues from the same secured asset. The Bank challenged this attachment, asserting that its prior perfected security interest under the SARFAESI Act takes precedence over the State’s tax claim.
Procedural History
- 13 September 2012: Secured interest registered with CERSAI by the petitioner-bank
- 26 March 2024: State Tax Officer issued attachment order on the secured asset
- 27 January 2026: Writ petition filed before the Bombay High Court seeking quashing of the attachment order
- 4 February 2026: Final hearing conducted; Respondent waived notice and did not contest applicability of precedent
Relief Sought
The petitioner sought a writ of mandamus or certiorari to quash the impugned attachment order dated 26 March 2024, and to declare that its secured interest, registered in 2012, has priority over the State’s tax dues.
The Legal Issue
The central question was whether a secured creditor’s interest, duly registered with CERSAI prior to the issuance of a tax attachment order, enjoys statutory priority over state tax dues under Section 26E of the SARFAESI Act, despite the existence of general revenue recovery provisions under state tax laws.
Arguments Presented
For the Petitioner
The petitioner relied on the Full Bench judgment in Jalgaon Janta Sahakari Bank Ltd. & Anr. v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai & Anr. (2022) 5 MHLJ 691, which held that Section 26E of the SARFAESI Act, read with Section 31B, creates an unambiguous statutory priority for secured creditors over all other dues, including taxes, cesses, and revenues. The Bank emphasized that its CERSAI registration was complete, timely, and publicly accessible, satisfying all conditions for perfection of security interest.
For the Respondent
The State, through the Additional Government Pleader, did not dispute the applicability of the Full Bench judgment. It conceded that no material distinction existed between the facts of the present case and the precedent, and did not advance any counter-legal argument regarding the hierarchy of claims.
The Court's Analysis
The Court undertook a textual and purposive interpretation of Section 26E of the SARFAESI Act, which states: "The secured creditor shall have priority over all other creditors, including the Central Government or State Government or any local authority, in respect of the proceeds of the sale of the secured asset." The Court noted that Parliament deliberately employed the phrase "priority over all other dues" to eliminate ambiguity, particularly in light of conflicting claims under various revenue statutes.
"In view of the splurge of 'first charge' used in multiple legislation, 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 found that the Bank’s CERSAI registration on 13 September 2012 constituted a perfected security interest under the SARFAESI framework. The State’s attachment order, issued more than a decade later on 26 March 2024, was subsequent in time and therefore subordinate. The non-obstante clause in Section 26E overrides any contrary provision under state tax laws. The Court held that the Full Bench precedent was directly applicable and binding. No factual or legal distinction was raised by the State to justify deviation.
The Verdict
The petitioner won. The Court held that a secured creditor with prior CERSAI registration enjoys absolute statutory priority over state tax dues under Section 26E of the SARFAESI Act. The impugned attachment order was quashed, and the State was directed to correct revenue records within two weeks.
What This Means For Similar Cases
Secured Creditors Must Register Promptly
- Banks and financial institutions must ensure CERSAI registration is completed immediately upon creation of security interest
- Delay in registration, even by days, may jeopardize priority status in case of competing claims
- Maintain digital proof of registration and timestamped CERSAI acknowledgments
Tax Authorities Cannot Override SARFAESI Priority
- State tax departments must verify CERSAI records before initiating attachment or recovery proceedings
- Attachment orders issued against assets with prior perfected security interests are legally voidable
- Revenue recovery mechanisms must yield to the statutory hierarchy established by SARFAESI
Judicial Precedent Is Binding Across Jurisdictions
- Full Bench judgments of the Bombay High Court are binding on all benches within the jurisdiction
- Lower courts and tribunals cannot ignore or distinguish such precedents without compelling reason
- Practitioners should cite Jalgaon Janta Sahakari Bank as controlling authority in all SARFAESI priority disputes
