SARFAESI Act Prevails Over Tax Claims: Madras HC Directs Registration of Property Sale Certificate [Read Order]

The Madras High Court has held that the rights of secured creditors under the SARFAESI Act take precedence over tax claims by revenue authorities, and directed the Sub-Registrar at Puducherry to register a sale certificate issued by a secured creditor in favour of the petitioner. The order came in a writ petition filed by Sarulatha Mani Mudaliyar, who had purchased the mortgaged property through an auction sale conducted under the SARFAESI Act by JM Financial Asset Reconstruction Company Ltd.

Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements! Click here

The dispute arose after the petitioner presented a sale certificate dated 3 July 2024 for registration. The Sub-Registrar refused to register the document based on a prior letter dated 17 December 2015 from the Income Tax Department, which had attached the property citing dues owed by the defaulting borrower. The petitioner challenged the refusal, arguing that the mortgage in favour of the secured creditor had been created on 16 November 2011, well before the tax attachment of 2015, and that the rights of the secured creditor under the SARFAESI Act had statutory priority.

During the hearing, counsel for the petitioner relied on a series of judgments including a Division Bench ruling of the Madras High Court in 2023 which reaffirmed that secured creditors registered under Section 26B of the SARFAESI Act had priority over tax dues. The Court also cited the Full Bench decision in Assistant Commissioner (CT) v. Indian Overseas Bank (2017), where it was held that secured creditors’ rights take precedence over government revenue claims when a valid mortgage is created prior to the attachment.

The Income Tax Department argued that the department’s prior communication and attachment should operate as a bar to the registration of the sale certificate. However, the Court rejected this contention, holding that once the mortgage was created prior to the tax attachment and the secured creditor's interest was registered, the revenue department's claim could not override the SARFAESI process.

Justice N. Anand Venkatesh, delivering the judgment on 23 April 2025, held that the bank’s right to recover dues under the SARFAESI Act was unaffected by subsequent tax department attachments. The Court observed that the sale had been conducted lawfully and the purchaser's rights could not be stalled due to revenue claims lacking priority.

Accordingly, the Court quashed the impugned communication and directed the Sub-Registrar to register the sale certificate dated 3 July 2024 in favour of the petitioner, if found otherwise in order. The writ petition was allowed with no order as to costs.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates