Indian Overseas Bank's Rights to Recover Under SARFAESI Act Affirmed; Government Auction Declared Null and Void
In a significant ruling, the Bombay High Court has upheld the priority of secured creditors over government dues under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), in a case involving Indian Overseas Bank and the State of Maharashtra. The court declared an auction sale of land conducted by the government as null and void, reinforcing the precedence of secured creditors' claims.
The bench, comprising Justices Manish Pitale and Shreeram V. Shirsat, delivered the judgment on September 11, 2026, in response to a writ petition filed by Indian Overseas Bank. The bank, a secured creditor, had challenged the auction sale of land conducted by the Tahsildar, Khalapur, on April 7, 2018. The land, bearing Survey No. 43/1/B, was sold for a nominal price of Re. 1/- to recover government dues from the borrower, who had defaulted on a financial facility provided by the bank.
Indian Overseas Bank had previously initiated enforcement measures under the SARFAESI Act, issuing a notice of possession in December 2012. However, the government proceeded with the auction without complying with the procedural requirements under the Maharashtra Land Revenue Code and Rules, such as proper attachment and proclamation of the property.
The court highlighted the importance of registering claims with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) and the necessity of following the due process under the Maharashtra Land Revenue Code for government dues to take precedence over secured creditors. The judgment referenced the Full Bench ruling in Jalgaon Janta Sahakari Bank Limited v. Joint Commissioner of Sales Tax, reiterating that the dues of secured creditors have priority unless the government's claims are registered and procedural requirements are met.
The court ordered the deletion of the mutation entry in favor of the government and directed the restoration of the bank's rights and possession over the property. It clarified that the government could pursue other lawful means to recover its dues from the borrower's remaining assets.
This judgment underscores the legal standing of secured creditors under the SARFAESI Act, providing clarity on the enforcement of security interests and the hierarchy of claims in cases of default.
Bottom Line:
Secured creditor's right to recover dues under the SARFAESI Act takes precedence over government dues unless the attachment and proclamation of the property have been carried out in accordance with the Maharashtra Land Revenue Code and Rules, and the claim has been registered with CERSAI.
Statutory provision(s): Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sections 13(2), 13(4), 26E), Maharashtra Land Revenue Code, 1966, Maharashtra Realisation of Land Revenue Rules, 1967, Article 226 of the Constitution of India.
Indian Overseas Bank v. State of Maharashtra, (Bombay)(DB) : Law Finder Doc id # 2976678
