Priority Of The Secured Creditor Over Govt. Dues Under SARFAESI Act, 2002: Bombay High Court

The Bombay High Court held that priority belongs to the secured creditor in respect of the dues of the Central government, state government, or local authority under Section 26-E of the SARFAESI Act, 2002.

The bench of Justice B. P. Colabawalla and Justice M.M. Sathaye has observed that the statute goes quite far, and it is not only revenues, taxes, cesses, and other rates payable to the State Government or any local authority but also those payable to the Central Government that would have to stand in the queue after the secured creditor for payment of its dues.

The petitioner sought a direction to remove the lien, charge, encumbrance, or mutation entry of the Assistant Commissioner in respect of the Secured Asset. The petitioner sought direction from the Sub Registrar to accept and register the document of sale or sale certificate issued by The Bank of Baroda in favour of the Petitioner.

The Petitioner came to know about the Secured Asset through the Free Press Journal newspaper, in which a Sale Notice was published for the sale of the Secured Asset under the provisions of the SARFAESI Act.

The Bank of Baroda has sold the Secured Asset under the provisions of the SARFAESI Act. As per Section 26 E, a Secured Creditor who has registered the security interest or another creditor who has registered the attachment order in his favour with CERSAI shall have priority over the claims of other creditors having a subsequent security interest created over the property in question. The mortgage of the Secured Asset was created in favour of the Bank of Baroda by one Mr. Prem Prakash Sarogi on December 14, 2007 for securing an aggregate loan limit of Rs. 809 lakhs granted to M/s Goldstar Polymers Ltd. (the borrower).

Bank of Baroda registered its security interest over the Secured Asset on CERSAI on February 24, 2012, and has also filed a CERSAI report downloaded from the website portal of CERSAI.

The petitioner contended that as the government department has not registered their claim or attachment order with CERSAI, the government department cannot claim priority over the dues of the Bank of Baroda.

The court relied on the decision of the division bench in Jalgaon Janta Sahakari Bank Ltd. and Anr. v. Joint Commissioner of Sales Tax held that since government dues have not registered their claim or attachment order with CERSAI, government dues cannot claim priority over dues of the Bank of Baroda.

Case Title: Ronak Industries Versus Assistant Commissioner

Case No.: Writ Petition (L) No.1747 Of 2023

Date: 28/07/2023

Counsel For Petitioner: Savita Nangare

Counsel For Respondent: J.B. Mishra

Click Here To Read The Order