Prior mortgage over guarantor property prevails over later tax attachment and insolvency restrictions on non-debtor assets.

A prior mortgage over third-party guarantors' property is not displaced by a later attachment under Section 281 of the Income-tax Act, 1961. The attachment does not automatically invalidate a transaction merely because it was entered into during pending assessment proceedings, and it cannot defeat the bank's earlier security interest. The restriction under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 also does not extend to property that does not form part of the corporate debtor's estate. On that basis, the refusal to register the sale deeds was held unjustified, and the bank was entitled to proceed with the sale of the guarantors' properties.

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Issues: Whether a mortgage created before an income-tax attachment could be defeated by the attachment under Section 281 of the Income-tax Act, 1961, and whether properties belonging to third party guarantors could be sold by the bank despite liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

Analysis: The mortgage in favour of the bank was created before the Tax Recovery Officer issued the attachment orders. The attachment under Section 281 of the Income-tax Act, 1961, could not automatically invalidate a transaction merely because it was entered into during pending assessment proceedings. The properties sold by the bank were not assets of the corporate debtor but belonged to third party guarantors. Therefore, the restriction arising from liquidation proceedings under Section 33(2) of the Insolvency and Bankruptcy Code, 2016, did not apply to those properties, and the refusal to register the sale deeds was not justified.

Conclusion: The refusal to register the sale deeds was unlawful. The attachment orders passed after creation of the mortgage did not bind the third party guarantors' properties, and the bank was entitled to proceed with their sale.

Ratio Decidendi: A prior mortgage over third party guarantor property is not displaced by a later income-tax attachment, and liquidation under the Insolvency and Bankruptcy Code does not prevent sale of property that is not part of the corporate debtor's estate.

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