A secured creditor has priority under Section 26E over subsequently created State tax charges.

State Bank of India had extended credit facilities to M/s Haru Worldwide Limited, secured by registered mortgages over several properties, including Survey Nos. 525 and 530 at Mouje Rupavati.

After the borrower’s account became an NPA, the Bank issued a demand notice under Section 13(2) of the SARFAESI Act and took possession of the secured assets on 24 April 2023.

In 2026, the State Tax Officer caused a charge of ₹2,39,93,020 to be entered against Survey Nos. 525 and 530 for alleged dues under the CGST/GGST Act.

The Bank sought removal of the entry, asserting its priority as a secured creditor under Section 26E of the SARFAESI Act.

After its request to the tax authority went unanswered, the Bank filed a writ petition challenging Entry No. 2487.

1. Whether the State tax charge recorded by Entry No. 2487 could prevail over the Bank’s security interest in Survey Nos. 525 and 530.

2. Whether the impugned entry should be quashed and the Bank declared to have priority over the State’s claim in respect of the mortgaged properties.

The Court applied Section 26E of the SARFAESI Act, under which secured creditors’ debts receive priority over other debts and Government dues.

The Court relied on Kalupur Commercial Co-Operative Bank Limited and Another v. State of Gujarat and Another, Special Civil Application No. 17891 of 2018.

The cited decision held that the secured creditor has priority over State dues and, interpreting Section 48 of the Gujarat VAT Act, stated that the statutory charge arises only once the tax liability has been assessed and determined as payable.

The Court adopted that precedent’s priority principle in resolving the present dispute.

The Bank’s mortgage and possession of the properties predated the tax charge recorded in 2026.

The parties’ advocates submitted that the priority issue was settled by Kalupur Commercial Co-Operative Bank, and the Court accepted that position.

Applying the precedent and Section 26E, the Court held that the Bank’s secured claim had priority over the State’s claim and that the impugned entry could not stand.

The Rule was made absolute.