Loan Default + Tax Dues: Who Grabs Your Property First?

If you have a secured bank loan AND pending tax dues, a Bombay High Court ruling confirms the bank gets paid first from your property — before any government tax authority can touch it.

Here's what happened: Bombay High Court ruled that a bank with a CERSAI-registered charge has absolute priority over a state tax (MVAT) attachment on the same secured asset under SARFAESI Section 26E.. The court quashed the MVAT authority's attachment order entirely, confirming it cannot override a secured creditor's prior registered interest in the property.. CERSAI registration — which banks do routinely when disbursing loans — is the legal mechanism that establishes this first-priority status over all other claimants including government bodies..

What you should do: Check your property's registered charges for free at cersai.org.in — enter your asset details to see if your lender's charge is recorded and active.. If your business has both a secured bank loan and pending tax arrears, consult a CA or lawyer immediately — a loan default triggers SARFAESI action that will sell your asset before tax dues are settled.. Avoid using the same property as collateral for multiple loans or assuming a tax payment plan protects your asset — the secured lender's SARFAESI rights override any state-level attachment..

Banks must register their security interest on CERSAI within 30 days of creating the charge — if they miss this window, their priority claim can be legally challenged. Check your loan documents for the CERSAI registration confirmation.

If you're considering settling a loan, our loan settlement guide walks through the process.