Anand Chandubhai Thakkar v. Chief Commissioner of State Tax

What happened

Raffles Green Pet India Private Limited had borrowed from Bank of Baroda, and a plot of 8,977 square metres at village Pithai, Kheda district, held in a guarantor's name, was mortgaged as security. After default the bank auctioned the land under the SARFAESI Act, and the petitioners won the e-auction held on 24 February 2021, paid ₹2,04,48,000 and received a sale certificate dated 9 August 2021, registered on 22 September 2021, when the revenue records showed no encumbrance. They sold the land to Spartex Synthetics Private Limited by a registered deed of 14 February 2022. In January 2026 a title check revealed entry no. 12724, certified on 10 May 2022, recording a charge in favour of the State VAT Department, created by an order of 24 January 2022 of the State Tax Officer, Kapadwanj.

Questions before the court

• Does the secured creditor's prior charge under section 26E of the SARFAESI Act prevail over a State VAT charge recorded later, as against the auction purchasers?

Why the court ruled this way

Section 26E, notified with effect from 1 September 2016, provides that after registration of the security interest the debts due to a secured creditor are to be paid in priority over all other debts and over all revenues, taxes, cesses and other rates payable to the Central or State Government or a local authority. The petitioners relied on Punjab National Bank v. Union of India (2022) for this priority, and the High Court referred to its own decision of 6 April 2022 on the same question. Because the security was created in favour of the bank and the charge of the VAT authority was recorded after the auction, the secured creditor's charge precedes that of the VAT authority, and the auction purchasers were entitled to hold the land free of it.

Controlling point

A secured creditor's prior charge and a completed SARFAESI auction prevail over a subsequent State tax charge, which entitles the auction purchaser to a clear title in the revenue record.

Order and next steps

The petition was allowed. The mutation entry of the charge, no. 12724, made under the Gujarat Value Added Tax Act, 2003, is directed to be removed from the land within twelve weeks of receiving the order, and the rule was made absolute.

Practical implications

An auction purchaser under SARFAESI who finds a State tax charge recorded after the sale can invoke section 26E and the Supreme Court's decision on priority to have it removed. A title search of the revenue records before purchase and after the sale certificate is registered is worth repeating.

Limits of this ruling

• The ruling concerns the priority of an earlier registered security interest of a secured creditor over a later State VAT charge; it does not decide the VAT dues themselves, which remain a matter between the State and the defaulting company.