Bombay High Court Holds Attachment Without Proclamation Cannot Defeat Secured Creditor Priority Under Section 26E of the SARFAESI Act
Background and Facts
The Bombay High Court has quashed a State auction at which a revenue official bought mortgaged land for one rupee, holding that secured creditor priority under Section 26E of the SARFAESI Act is not displaced by an attachment never followed by a statutory proclamation. The judgment in Indian Overseas Bank v. State of Maharashtra and Others [Writ Petition No. 10120 of 2022 with Interim Application No. 427 of 2026] carries the neutral citation 2026:BHC-AS:37533-DB.
The borrower created an equitable mortgage over land at Survey No. 43/1/B, formerly Old Survey No. 46/1/2, by deposit of title deeds. The bank's charge was registered on January 31, 2007. The account was classified as a non-performing asset on December 31, 2010. The bank issued a demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 on September 28, 2012, followed by a possession notice under Section 13(4) on December 20, 2012. It sold the properties at auction on November 26, 2021 and issued a sale certificate on February 22, 2022.
Running in parallel, the State was pursuing recovery of Rs 2,68,99,000 owed to the District Industries Centre. It treated the property as attached and put it to auction on April 7, 2018. No private bidder came forward, and the Talathi purchased the property for one rupee on behalf of the Government of Maharashtra under Rule 14-B of the Maharashtra Realisation of Land Revenue Rules, 1967. Mutation Entry No. 1959 was recorded showing the Government as occupant. The bank challenged the sale and the entry.
Key Legal Issue
The question was whether a State revenue claim, supported by an attachment but not by the proclamation that State law requires before a sale, can rank ahead of a registered secured creditor whose priority is asserted under Section 26E of the SARFAESI Act.
The Bombay High Court's Ruling
The Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat held that the State's encumbrance could not prevail over the bank's secured charge. The auction of April 7, 2018 and the transfer for one rupee were declared null and void, the Tahsildar and the Talathi were directed to restore possession to the bank, and Mutation Entry No. 1959 was ordered deleted within four weeks. The State's right to recover from the borrower's other assets, or from residual sale proceeds, was preserved.
Section 26E Speaks of Priority After Registration
Section 26E provides that
"Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority".
Two features are easy to miss. The first is the opening condition: priority attaches after the registration of security interest. Section 26D reinforces this by denying the Chapter III enforcement rights to a secured creditor whose security interest is not registered with the Central Registry. The second is the Explanation, which subordinates the priority to the Insolvency and Bankruptcy Code, 2016 where insolvency or bankruptcy proceedings are pending in respect of the secured assets.
Section 26E was inserted by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, but came into force only on January 24, 2020 by notification S.O. 4619(E) dated December 26, 2019. Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, drafted in similar terms, commenced earlier, on September 1, 2016. Those two dates fix the point from which the statutory priority can be asserted at all.
Attachment and Proclamation Are Two Different Things
The State's difficulty was procedural rather than doctrinal. Under Section 192 of the Maharashtra Land Revenue Code, 1966 read with Rule 11 of the Maharashtra Realisation of Land Revenue Rules, 1967, a sale in recovery of land revenue must be preceded by a proclamation in a prescribed manner, including beating of drums, affixation on the property and display on the notice board. The State showed that it had attached the property. It showed nothing to establish that it had proclaimed the sale.
The Court held that "by simply attaching the property and taking no steps towards proclamation in the manner as required, for recovery of dues, would not give priority to the said dues over the dues of the secured creditor". An incomplete revenue process does not ripen into a competing charge capable of displacing a registered secured creditor.
The State Has Its Own Filing Obligation
A point that receives less attention than it deserves is that the registration duty under the SARFAESI Act does not fall on lenders alone. Section 26B(4) provides that
"Every authority or officer of the Central Government or any State Government or local authority, entrusted with the function of recovery of tax or other Government dues", and with issuing attachment orders,
"shall file with the Central Registry such attachment order with particulars of the assessee and details of tax or other Government dues", in the prescribed form and from such date as the Central Government notifies.
The State's affidavit did not demonstrate any filing with the Central Registry. A department that neither records its attachment there nor completes the proclamation prescribed by its own rules is asserting a priority the statutory scheme does not support.
Precedent Relied Upon
The Bench applied the framework laid down by a larger bench of three judges of the same Court in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax Nodal 9, Mumbai, decided on August 30, 2022. That bench, comprising Chief Justice Dipankar Datta, Justice M.S. Karnik and Justice N.J. Jamadar, held that the priority under Section 26E operates prospectively from January 24, 2020 and is conditional on Central Registry registration, that Section 31B operates from September 1, 2016 and cannot be used to sidestep that registration requirement, and that a department claiming a statutory first charge must show both a formally ordered attachment and a proclamation under the applicable State law.
Practice Notes
In practice, the judgment is a reminder that priority contests are usually won on records rather than on first principles:
For lenders: Treat Central Registry registration as a condition of priority rather than a compliance chore. Where a charge was created years before the Central Registry existed, confirm the position on the record and regularise it before a competing claim crystallises.
For lenders facing a revenue attachment: Ask for the proclamation, not merely the attachment order. Request the file showing the manner of proclamation, its date, and the officer who effected it. The burden of showing compliance rests on the department asserting priority.
For revenue and recovery departments: The obligation in Section 26B(4) to file attachment orders with the Central Registry protects the department's own position. An attachment that appears nowhere on the Central Registry and was never proclaimed is difficult to defend.
For auction purchasers: A sale at which the revenue authority itself is the purchaser for a nominal sum, with no independent bid, invites scrutiny of the antecedent procedure. Diligence should extend to the proclamation record and a Central Registry search, not only the mutation entry.
For borrowers: Setting aside a State sale does not extinguish the dues. The Court preserved recourse to other assets and residual proceeds, so the liability survives.
Key Provisions Discussed
Section 13(2) of the SARFAESI Act: Demand notice to a borrower in default.
Section 13(4) of the SARFAESI Act: Measures on default, including taking possession of secured assets.
Section 26B(4) of the SARFAESI Act: Duty of Government and local authorities to file attachment orders for tax and other dues with the Central Registry.
Section 26D of the SARFAESI Act: Chapter III enforcement conditional on registration of the security interest.
Section 26E of the SARFAESI Act: Priority to secured creditors after registration, over all other debts and over revenues, taxes, cesses and rates, subject to the Insolvency and Bankruptcy Code, 2016.
Section 31B of the Recovery of Debts and Bankruptcy Act, 1993: Priority of secured creditors over Government dues.
Section 192 of the Maharashtra Land Revenue Code, 1966: Proclamation and notice of sales in recovery of land revenue.
Rules 11 and 14-B of the Maharashtra Realisation of Land Revenue Rules, 1967: Manner of proclamation, and purchase on behalf of the Government where no acceptable bid is received.
Case Details
Case: Indian Overseas Bank v. State of Maharashtra and Others
Case No: Writ Petition No. 10120 of 2022 with I.A. No. 427 of 2026
Citation: 2026:BHC-AS:37533-DB
Court: High Court of Judicature at Bombay
Date of Judgment: September 11, 2026
Bench: Justice Manish Pitale and Justice Shreeram V. Shirsat
Outcome: Writ petition allowed. The auction and the one rupee transfer were declared null and void, possession was directed to be restored to the bank and Mutation Entry No. 1959 deleted within four weeks.
Sources and References
Bombay High Court Quashes State's Re 1 Auction of Mortgaged Land: Raw Law case report
Section 26E of the SARFAESI Act, 2002: Priority to secured creditors
SARFAESI Act, 2002, Sections 13(2), 13(4), 26B(4), 26D and 26E; Recovery of Debts and Bankruptcy Act, 1993, Section 31B
Maharashtra Land Revenue Code, 1966, Section 192, and the Maharashtra Realisation of Land Revenue Rules, 1967, Rules 11 and 14-B
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.
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