Prior Secured Creditor’s Charge Prevails Over Subsequent State Dues: High Court Clarifies Pre-Section 26E SARFAESI Priority
- REEDLAW
- Dec 16, 2025
- 4 min read
REEDLAW Legal News Network reports: In an important ruling on priority of charges under the SARFAESI framework, the High Court clarified that where a secured creditor had created a mortgage prior in time, the State could not assert precedence on the basis of a subsequent revenue attachment in the absence of a statutory first charge, and that refusal to register a SARFAESI sale deed on such grounds was legally unsustainable.
The Punjab and Haryana High Court, while adjudicating a writ petition concerning refusal to register a sale certificate issued under the SARFAESI Act, examined the competing claims of a secured creditor and the State over the secured asset. The Division Bench comprising Chief Justice Sheel Nagu and Justice Sanjiv Berry observed that a mortgage created in favour of a secured creditor prior to any revenue attachment could not be displaced by a later State claim in the absence of a statutory first charge. The Court held that the registering authority was not justified in refusing registration of the SARFAESI sale deed on such a basis, while clarifying that Section 26E of the SARFAESI Act now accords statutory priority to secured creditors in future cases upon registration of the security interest.
The Petitioner, a secured creditor, had approached the High Court under Articles 226 and 227 of the Constitution, aggrieved by the inaction of the Sub-Registrar in refusing to register a sale deed arising out of an e-auction conducted under the SARFAESI Act, despite the auction purchaser having been declared successful, having deposited the entire sale consideration, and having been issued a sale certificate. It was contended that such refusal had caused serious prejudice to the Petitioner, as it impeded recovery of its long-standing outstanding dues from the borrower, against whom recovery proceedings under the SARFAESI Act had already culminated in the sale of the secured asset.
The refusal to register the sale deed was sought to be justified by the Respondent authorities on the ground that an attachment had been entered in the revenue records in favour of a State department towards alleged tax dues of the borrower, which attachment was created subsequent to the creation of the mortgage in favour of the Petitioner. The Court noted that the charge in favour of the Petitioner had been created much earlier by the deposit of title deeds, whereas the State’s attachment had come into existence only at a later point in time. The Court examined the statutory framework under the SARFAESI Act, including its overriding effect, and observed that the State had failed to point out any statutory provision conferring a first charge in its favour in respect of the claimed dues, which were found to be contractual or policy-based in nature.
The Court further held that a mere rapat or revenue entry could not determine substantive rights or defeat the prior mortgage of a secured creditor, and that the Sub-Registrar was not justified in relying upon a subsequent attachment to refuse registration of a SARFAESI sale deed. Reliance was placed on settled principles laid down by the Supreme Court that the right of a secured creditor to recover its dues takes precedence even over crown debts, in the absence of a specific statutory first charge to the contrary. In that view, the Court concluded that the Petitioner had a prior and superior charge over the secured asset.
Accordingly, the writ petition was allowed. A writ of mandamus was issued directing the Sub- Registrar to register the sale deed arising out of the SARFAESI auction and to report compliance within the stipulated period. The subsequent charge entered in the revenue records in favour of the State department was quashed, while liberty was reserved to the State to recover its dues after satisfaction of the secured creditor’s claim or by other lawful means. Costs were imposed on the State for unjustified delay, and the Court clarified the legal position regarding the priority of secured creditors, particularly in the context of Section 26E of the SARFAESI Act for future cases.
Mr. Vikas Chatrath, Senior Advocate, with Ms. Preet Agroa, Advocate, represented the Petitioner.
Mr. Neeraj Gupta, Additional Advocate General, Haryana, appeared for the Petitioner.
Mr. Diwan Sharma, Advocate, appeared for the Respondent No. 2.
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