The Bombay High Court has held that a secured creditor having a security interest registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) prior to the creation or enforcement of tax demands is entitled to priority over Government dues, including dues arising under GST and MVAT laws.
In Bharat Co Operative Bank Mumbai Ltd. v. Deputy Commissioner of State Tax, Mulund, decided on 27 January 2026, a Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat considered Writ Petition (L) No. 172 of 2026 and Writ Petition (L) No. 446 of 2026. The petitions challenged demand notices, a prohibitory order and communications issued by State tax authorities against immovable properties over which the petitioner-bank claimed prior registered security interests.
Background of the Dispute
In Writ Petition (L) No. 172 of 2026, the security interests over the concerned properties had been registered with CERSAI on 3 October 2016 and 6 November 2018. The State authorities subsequently issued tax demand notices and also addressed a communication to the housing society directing it not to issue a no-objection certificate in respect of the property.
In Writ Petition (L) No. 446 of 2026, the bank’s security interest had been registered with CERSAI on 18 December 2015, while the State authorities sought to enforce a prohibitory order and tax demand against the property.
The bank relied upon the Full Bench judgment of the Bombay High Court in Jalgaon Janta Sahakari Bank Ltd. & Anr. v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai & Anr., (2022) SCC OnLine Bom 1767, contending that a secured creditor with a registered security interest has priority over Government tax claims.
State’s Objection on GST Dues
The State authorities attempted to distinguish the Full Bench ruling insofar as the GST-related petition was concerned. It was argued that the Full Bench judgment had arisen in the context of dues under the Maharashtra Value Added Tax law, whereas the demand in Writ Petition (L) No. 172 of 2026 concerned GST.
The Bombay High Court rejected this distinction.
The Court referred particularly to the Full Bench’s interpretation of Section 26E of the SARFAESI Act, 2002, under which a secured creditor having CERSAI registration is accorded priority in payment over other dues, subject to the statutory exception concerning proceedings under the Insolvency and Bankruptcy Code, 2016.
The Court observed that the Full Bench had expressly held that the priority of secured creditors extends over revenues, taxes, cesses and other rates payable to the Central Government, State Government or local authority.
Priority Extends to GST Dues
The Division Bench held that the principle declared by the Full Bench was sufficiently broad to cover GST dues as well. The distinction sought to be drawn between State tax legislation and GST legislation was described as artificial and was rejected.
Accordingly, the Court held that the Full Bench ruling in Jalgaon Janta Sahakari Bank Ltd. applied fully to Writ Petition (L) No. 172 of 2026.
As regards Writ Petition (L) No. 446 of 2026, which involved MVAT dues, the State itself accepted that the Full Bench decision governed the matter.
Prior CERSAI Registration Gives Bank Priority
The Court noted that the relevant security interests had been registered with CERSAI in 2015, 2016 and 2018, whereas the impugned tax enforcement measures were subsequent.
It therefore concluded that the dues of Bharat Co Operative Bank had priority over the claims asserted by the State tax authorities in respect of the secured properties.
Both writ petitions were consequently allowed, and the reliefs sought against the impugned demand notices, orders and communications were granted.
Bombay High Court Suggests SOP for Tax Departments
Significantly, the Court also noticed that a large number of similar writ petitions were being filed despite the legal position already having been clarified by the Full Bench.
The Division Bench observed that the concerned departments should consider issuing a Standard Operating Procedure (SOP) so that demand notices are not issued where banks or other secured creditors already possess CERSAI-registered security interests created much earlier.
The Court further observed that where such demand notices have already been issued despite the existence of an earlier registered security interest, they should be withdrawn in accordance with the settled legal position.
Key Takeaway
The judgment reinforces the priority granted to secured creditors under Section 26E of the SARFAESI Act. Where a bank’s security interest is duly registered with CERSAI and predates the competing tax claim, its secured debt takes priority over Government dues. The Bombay High Court has clarified that this principle is not confined to MVAT liabilities and equally extends to claims arising under GST.
The ruling is particularly relevant for banks, financial institutions, auction purchasers, insolvency and recovery professionals, GST practitioners and tax authorities dealing with competing claims over secured assets.
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