SECURED CREDITORS’ DUES UNDER SARFAESI ACT PREVAIL OVER STATUTORY CHARGES ABSENT PRIOR COMPLETED ATTACHMENT AND PROCLAMATION.

The Petitioner, Union Bank of India (secured creditor), and several auction purchasers filed a series of writ petitions challenging attachment orders, letters of intimation to housing societies, and the recording of encumbrances (boja) in revenue records by various departments of the State of Maharashtra

The State departments claimed priority over the subject properties based on statutory dues under the MGST Act, MVAT Act, and the MLR Code, asserting that some attachments preceded the 2020 amendment to the SARFAESI Act

The bank contended that as a secured creditor with registered interests in CERSAI, its claims held priority under Section 26E of the SARFAESI Act

1. Whether a secured creditor under the SARFAESI Act has a prior right over State Government departments (BST/MVAT/MGST Acts) to appropriate amounts realized from the sale of a secured asset.

2. Whether an attachment order issued by the State prior to the January 24, 2020 amendment of the SARFAESI Act confers priority if no further statutory steps (like proclamation) were taken.

3. Whether an auction purchaser on an "as is where is" basis is liable for prior State tax encumbrances.

The court primarily applied Section 26E of the SARFAESI Act and Section 31B of the RDDB Act, which provide that secured creditors shall be paid in priority over all other debts and government revenues/taxes

It relied heavily on the Full Bench precedent in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax [2022 SCC OnLine Bom 1767], which established that "priority" overrides "first charge" created by State legislations like Section 37 of the MVAT Act or Section 82 of the MGST Act

Furthermore, it applied the principle that for a State attachment to prevail, it must be followed by a formal proclamation under the MLR Code prior to the enforcement of Section 26E

The Court reasoned that the non-obstante clauses in the SARFAESI and RDDB Acts (Central legislations) sufficiently offset any "paramount charge" created by State laws such as the MLR Code or MVAT Act

Regarding the timing of attachments, the Court observed that mere issuance of an attachment order is insufficient; the State must demonstrate compliance with the Maharashtra Land Revenue Code, including the issuance and public proclamation of sale by beating of drums

In the present petitions, the State failed to prove such proclamations were made

For auction purchasers, the Court held that once a security interest is enforced and the asset is sold, the State cannot "chase" the asset in the hands of the purchaser, as this would render the statutory priority of secured creditors meaningless and discourage public bidding

The Court quashed and set aside the impugned attachment orders, intimation letters, and notices in all six writ petitions

The Respondent State was directed to remove all boja/encumbrances from the revenue records pertaining to the secured assets

Writ Petition No. 13658 of 2024 was de-tagged due to non-appearance