Punjab & Haryana High Court Reaffirms Absolute Priority of Secured Creditors Under Section 26E SARFAESI; Quashes HAFED’s Subsequent Revenue Charge and Issues Directions in Rem

Case Name: AU Small Finance Bank Ltd. v. State of Haryana and Others
Date of Judgment: 16 December 2025
Citation: CWP-9580-2025
Bench: Hon’ble Mr. Justice Sheel Nagu, Chief Justice and Hon’ble Mr. Justice Sanjiv Berry

Held: The Punjab and Haryana High Court allowed the writ petition filed by AU Small Finance Bank and held that a prior registered security interest of a secured creditor under the SARFAESI Act enjoys absolute statutory priority over subsequent revenue charges created in favour of the State or its instrumentalities. The Court quashed the later charge and attachment created by HAFED, directed removal of restrictions on the secured assets, and issued a declaration in rem clarifying that after notification of Section 26E SARFAESI, secured creditors’ dues must be paid in priority over all State dues, revenues, and cesses.

Summary: The petitioner-Bank approached the High Court after Haryana State Cooperative Supply and Marketing Federation (HAFED) imposed restrictions on sale and purchase of properties that were already mortgaged in favour of the Bank and later proceeded to create a revenue charge and take symbolic possession to recover its alleged dues from the borrowers. The Bank contended that the mortgage had been created much earlier by way of equitable mortgage, duly registered with CERSAI, and that the subsequent revenue attachment was illegal and obstructed SARFAESI recovery proceedings.

The High Court examined the chronology of events and found it undisputed that the Bank’s security interest had been created and perfected well before the charge asserted by HAFED. The Court analysed the statutory scheme of the SARFAESI Act, particularly Chapter IV-A and Section 26E, and reiterated that after registration of a security interest, the secured creditor’s claim has overriding priority over all other debts, including State dues, unless overridden by insolvency proceedings under the IBC.

Rejecting the State’s reliance on revenue entries and attachment orders, the Court held that a rapat entry is purely administrative and does not confer substantive rights capable of defeating a prior statutory mortgage. The Court further noted the recurring nature of such disputes and clarified the legal position to avoid multiplicity of litigation, issuing directions applicable generally to all similarly situated cases.

Decision: The writ petition was allowed. The charge and restrictions created in favour of HAFED were quashed. The respondents were directed to remove the charge over the secured assets and file a compliance report within the stipulated period. The State was left at liberty to recover its dues only after satisfaction of the Bank’s claim or by any other lawful means. Costs were imposed on the State for unjustified delay in liquidation of secured assets.