SARFAESI enforcement notice prevails over later income tax attachment and cannot be blocked by Section 281

A prior SARFAESI enforcement notice under Section 13(2), read with the Act's overriding clause, was treated as operating with priority over a later income tax attachment because it restrains dealings with the secured asset and supports enforcement by the secured creditor. The Income Tax Department could not rely on Section 281 of the Income-tax Act to block registration of a sale deed executed pursuant to the SARFAESI sale. The attachment was therefore ineffective to the extent it interfered with the secured creditor's enforcement and the purchaser's title documentation.

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Issues: (i) Whether a notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 operates as an attachment and has precedence over a later attachment order issued by the Income Tax Department. (ii) Whether the Income Tax Department could rely on Section 281 of the Income-tax Act, 1961 to registration of the sale deed executed pursuant to the SARFAESI sale.

Issue (i): Whether a notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 operates as an attachment and has precedence over a later attachment order issued by the Income Tax Department.

Analysis: Section 13(2), read with Section 35 of the SARFAESI Act, enabled the secured creditor to proceed against the secured asset notwithstanding anything inconsistent in other laws. The notice under Section 13(2) was issued before the income tax attachment order. The legal position accepted by the Court was that such notice is not a mere show-cause notice and, in effect, restrains disposal of the secured asset. In that framework, the secured creditor's right to enforce the security could not be subordinated to the later income tax attachment.

Conclusion: The SARFAESI notice had precedence over the later income tax attachment.

Issue (ii): Whether the Income Tax Department could rely on Section 281 of the Income-tax Act, 1961 to registration of the sale deed executed pursuant to the SARFAESI sale.

Analysis: Section 281 protects the revenue against certain transfers made during pending proceedings, but the Court held that the statutory position governing secured enforcement and the sale already undertaken under SARFAESI could not be defeated by invoking the proviso to Section 281. The income tax attachment, so far as it affected the secured creditor's sale of the ground floor, was therefore incapable of obstructing registration of the sale deed in favour of the purchaser.

Conclusion: The Income Tax Department could not prevent registration of the sale deed under Section 281.

Final Conclusion: The attachment order was set aside insofar as it related to the ground floor of the property, and the sale deed was directed to be registered in favour of the purchaser.

Ratio Decidendi: A prior SARFAESI enforcement notice, backed by the Act's overriding clause, prevails over a subsequent income tax attachment, and the revenue cannot invoke Section 281 of the Income-tax Act, 1961 to obstruct registration of a sale concluded under SARFAESI.

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