Priority of Secured Creditors Upheld Over Government Dues

The High Court of Allahabad, in the case of Regional Stressed Asset Recovery Branch, Bank of Baroda v. State of Uttar Pradesh & Others (2025:AHC:182863-DB), dated October 14, 2025, held that the rights of a secured creditor shall prevail over those of the State or any other unsecured creditor, in accordance with Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy (RSB) Act, 1993.

In this case, the petitioner, Bank of Baroda, sanctioned a cash credit facility of ₹30,00,000 to M/s L.G. Corporation, owned by Smt. Geeta Devi, secured by a mortgage over land in Jaunpur. Upon default, the account was classified as a Non-Performing Asset (NPA) and recovery proceedings were initiated under the SARFAESI Act. During enforcement, the bank discovered that the mortgaged property had been attached earlier by the Sub-Divisional Magistrate, Jaunpur, on February 9, 2015, pursuant to recovery actions by the Department of Food and Civil Supplies and the Commercial Tax Department. The bank, asserting its priority as a secured creditor, challenged the attachment as unlawful and contrary to the SARFAESI Act and the RDB Act.

The Court held that the bank’s charge as a secured creditor had statutory priority over the State’s unsecured dues. Relying on a series of Supreme Court precedents, the Court reaffirmed that secured debts take precedence over Crown debts or government dues. The Bench observed that both Section 26E of the SARFAESI Act and Section 31B of the RDB Act contain non obstante clauses, which confer overriding priority upon secured creditors over all other debts, revenues, taxes, cesses, and rates payable to the Government. The Court further noted that even when two enactments contain competing non obstante clauses, the later enactment would prevail, thereby granting precedence to Section 26E of the SARFAESI Act introduced in 2016. It was also held that the Sub-Divisional Magistrate had no jurisdiction to attach the mortgaged property, as such action contravened the statutory framework governing the rights of secured creditors.

This judgment reaffirms that the rights of secured creditors under the SARFAESI Act and the RDB Act shall have priority over all government and unsecured dues, thereby strengthening the legislative intent to facilitate expeditious and effective recovery by financial institutions.