Section 26 of the SARFAESI Act: Meaning, Process and What It Means for You (Part 1)

Sections 26B through 26E sit within Chapter IV-A of the SARFAESI Act, added by the 2016 amendment, dealing specifically with registration of security interests through CERSAI, the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.

CERSAI itself is a registration system set up under the Act, incorporated as a company and operational since March 31, 2011. It was created specifically to prevent a genuine, real fraud pattern, a borrower pledging the same asset as security to multiple lenders without any of them knowing about the others. Before a central registry existed, this kind of double-financing fraud was genuinely difficult for any single bank to catch on its own, since no lender had visibility into what a borrower had already pledged elsewhere.

Four provisions build directly on each other across this piece. Section 26B is the registration requirement itself. Section 26C governs when registration becomes effective and how competing charges rank against each other. Section 26D is the enforcement bar for unregistered interests. Section 26E is the priority a registered interest confers over other debts, including government dues. Understanding the registration mechanics themselves is the starting point, since everything else in this piece depends on getting that step right.

Section 26B requires a secured creditor to register the security interest with the Central Registry within the prescribed period. The applicable provisions also provide for registration after the prescribed period, subject to the applicable requirements and fee. Late registration remains possible on payment of an additional fee, this isn't a permanently closed window even if the initial 30-day deadline is missed, though it does add cost and delay.

Section 26C determines when that registration actually takes effect. Section 26C sets out the effect of registration and the framework for determining priority between registered security interests. The actual priority position should be assessed against the nature of the competing interests and the applicable statutory provisions.

This sequencing rule has real, practical teeth. A lender who disbursed a loan first but registered late can genuinely lose priority to a later lender who registered promptly. This creates a real, concrete incentive for lenders to register quickly rather than treating CERSAI filing as routine back-office paperwork that can wait. For readers newer to the broader framework this sits inside, FREED's general guide to the SARFAESI Act covers the basics before diving into this level of detail. What happens if a secured creditor simply never registers at all is worth understanding next, since the consequence there is far more severe than losing priority alone.

Section 26D provides that no secured creditor shall be entitled to exercise the rights of enforcement of securities under Chapter III of the Act, the notices, possession, and sale powers, unless the security interest has actually been registered with CERSAI.

In blunt, practical terms, this means a bank holding a genuinely valid mortgage or charge, but one that was never registered with the Central Registry, simply cannot invoke Section 13(2), 13(4), or any of the enforcement machinery this Act provides. Registration isn't a formality layered on top of enforcement rights, it's a condition precedent to having those rights at all. A bank in this position isn't merely at a disadvantage, it has no SARFAESI enforcement power whatsoever until the gap is fixed.

There's a compounding consequence too. A secured creditor who fails to register also loses out on the priority benefit under Section 26E, discussed next, meaning non-registration carries a double disadvantage, no enforcement power and no priority standing either. What registered priority under Section 26E actually looks like once that condition is properly met is where the real significance of this whole framework becomes visible.

Once a security interest is registered, the debts owed to that secured creditor are paid in priority over all other debts and all revenues, taxes, cesses, and other rates payable to the Central Government, a State Government, or a local authority. This is a non-obstante clause, meaning it overrides other laws to the contrary, a deliberately strong legal instrument.

The effective date matters precisely here. This priority provision was notified and became effective January 24, 2020, and applies prospectively from that date. It does not retroactively undo a valid attachment a tax authority had already properly made before the relevant 2016 amendment came into force, the priority shift only bites going forward from the notification, not backward over settled claims.

Courts have already applied this rule. In Indian Overseas Bank v. Deputy Commissioner of State Tax (2024), the Bombay High Court dealt with property mortgaged to a group of banks led by IOB. Relying on its own earlier Full Bench ruling in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax (2022), the court held that a secured creditor with an earlier CERSAI registration gets paid ahead of government dues, including state tax claims. The Punjab & Haryana High Court took the same line in State Bank of India v. Sub Registrar, Sub Tehsil Nighdu, Karnal (2025). It said that where the charge was created after the January 24, 2020 notification, secured creditors rank above state revenue claims.

This genuinely matters beyond abstract legal theory. Before this framework existed, government tax authorities could sometimes claim a "first charge" over a borrower's assets ahead of a bank's own security interest under various state tax statutes. This provision, and the case law confirming it, meaningfully shifted that balance in the registered secured creditor's favour, a real change in how competing claims on the same asset actually get resolved.

Section 26E itself builds in an important explanation. Once insolvency or bankruptcy proceedings are pending under the Insolvency and Bankruptcy Code, 2016, in respect of a borrower's secured assets, the priority a secured creditor would otherwise enjoy under this section becomes subject to the Code's own provisions instead.

This carve-out exists for a clear structural reason. Once formal insolvency proceedings begin, the IBC's own waterfall mechanism for distributing a corporate debtor's assets among various classes of creditors takes over as the governing framework, rather than SARFAESI's registration-based priority operating independently alongside it. Two separate priority systems running in parallel would create genuine confusion over which one actually controls in a given case.

The practical takeaway: a secured creditor's CERSAI-registered priority is a strong, real advantage in the ordinary course, but it doesn't operate in a vacuum once insolvency proceedings are actually underway. At that point a different, more comprehensive priority framework takes over entirely. For a fuller look at how SARFAESI and insolvency proceedings interact more broadly, FREED's guide to IBC and SARFAESI covers that relationship in more depth.

Most of Section 26's mechanics operate between competing creditors and government authorities, not directly between a bank and an individual borrower's day-to-day obligations. It's worth being honest about that, this isn't a provision most borrowers will ever need to invoke themselves.

Where it does matter directly to a borrower is when multiple parties, a bank, another lender, a tax authority, all have claims connected to the same secured asset. CERSAI registration status is often what actually determines who gets paid first from that asset's value, which can affect how much, if anything, comes back to the borrower after a sale covers every prioritised claim ahead of them.

If you're facing a situation involving competing claims on a secured asset, ask directly which claims are actually CERSAI-registered and from what date. This single fact often resolves what might otherwise look like a confusing multi-party dispute, cutting through what can seem like an impossibly tangled set of competing claims into a fairly clear, chronological ranking.

FREED does not act on CERSAI registration, creditor priority disputes, or Section 26 matters of any kind, these require qualified legal representation.

If separate unsecured debt exists alongside a secured loan situation involving these issues, though, that's a genuinely different problem, one FREED can help with. Settlement is not something a borrower chooses out of preference, banks and financial companies only consider it when someone is in genuine financial difficulty and truly unable to repay the full amount owed. If that describes your unsecured debt situation, FREED's Debt Resolution Program is worth looking into separately from whatever multi-creditor situation is unfolding with the secured asset.

FREED does not handle secured loans, CERSAI registration, or creditor priority disputes under Section 26. These situations require qualified legal representation, not a debt consolidation or settlement program, and this article isn't a substitute for that counsel.

What FREED does help with is unsecured debt sitting alongside these situations, credit cards, personal loans, BNPL balances, and similar. For borrowers still able to repay but managing too many separate obligations, FREED's consolidation program brings that down to one loan and one EMI. For borrowers genuinely unable to repay their unsecured debt in full, FREED's settlement program works with the bank toward a resolution. Neither of these touches the secured priority dispute, they address the separate, unsecured piece of the picture, if one exists.