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2026 Supreme(Online)(Mad) 46262
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Krishnan Ramasamy, J
Mercedes Benz Financial Service India Private Limited – Appellant
Versus
Regional Transport Officer – Respondent
Writ Petition
For the Appellants/Petitioners: Ra.Sivadhara Adiyaman, Sihana Fathima A
For the Respondents: P.Ganesan
A prior charge created via vehicle hypothecation takes precedence over subsequent tax arrears, entitling the financier to sell the vehicle to recover outstanding dues before tax liability recovery can be satisfied from the proceeds.
Headnote:The petitioner challenged the blacklisting of a hypothecated vehicle by the transport authorities, contending that the hypothecation charge was perfected prior to the tax arrears claim. The court considered the provisions of the Motor Vehicles Act, specifically the rights of a financier under Section 51(5), and determined that the financier, as the prior charge holder, maintains a superior right to realize its dues from the sale of the vehicle before any tax recovery can be satisfied. The court addressed the issue of whether a tax authority can restrain the sale of a hypothecated vehicle due to tax arrears. It held that the charge created via a hypothecation deed precedes any subsequent tax liability, establishing that the financier is the first charge holder with the right to sell the property to satisfy the outstanding loan, with any surplus proceeds to be routed to the second charge holder (tax authority). The final result is that the court directed the removal of the vehicle from the blacklist to permit the sale, with instructions for the disbursement of proceeds toward the loan and taxes respectively.
| Table of Content |
|---|
| 1. priority of hypothecation charge over subsequent tax attachments. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7) |
| 2. court directions for removal of blacklisting and distribution of sale proceeds. (Para 9 , 10 , 11) |
ORDER
This writ petition has been filed to direct the 2nd respondent to remove the subject vehicle from blacklist.
2. The learned counsel for the petitioner would submit that in this case, on 25.02.2019, the petitioner had entered into a loan agreement with the respondents 4 & 5 for grant of financial facility for purchase of the subject vehicle bearing Registration No.TN 12 AC 4110. On the very same day, the Hypothecation deed was executed between the petitioner and the respondents 4 & 5. Accordingly, the subject vehicle was hypothecated, whereby the charge was created in favour of the petitioner. Under these circumstances, without any prior notice to the petitioner, the 2nd respondent, vide communication dated 23.03.2022, had requested the 1st respondent for blacklisting of the subject vehicle for recovery of alleged tax arrears to the tune of Rs.65,22,360/-. Subsequently, the 1st respondent had acted upon the said communication and blacklisted the subject vehicle on 04.04.2022.
3. According to the petitioner, when the loan was granted for the vehicle, a hypothecation deed was executed, whereby it was clearly stated that if there is any default on the part of the respondents 4 & 5 in repayment of said loan amount, the petitioner will have charge over the vehicle. Subsequently, there was a default in repayment of loan amount on the part of the respondents 4 & 5. Hence, the petitioner took control over the subject vehicle. However, they are not in a position to sell the said vehicle due to the blacklisting.
4. Further, he would contend that the charge, in favour of the petitioner, was created against the subject vehicle as early as on 25.02.2019 (date of hypothecation deed), which is much prior to the communication of the 2nd respondent dated 23.03.2022. Therefore, at any cost, the petitioner’s right to sell the property cannot be restrained by virtue of blacklisting at the instance of the aforesaid communication. Hence, this petition.
5. In reply, the learned counsel appearing for the 1st respondent would submit that since a communication was received on 23.03.2022 from the 2nd respondent, they had made suitable entries to blacklist the subject vehicle. He would fairly admit that if there is any prior charge in favour of the petitioner, certainly the 2nd respondent will be the 2nd charge holder of the subject vehicle.
Hence, he requests this Court to pass appropriate orders.
6. Heard the learned counsel for the petitioner and the respondents and also perused the entire materials available on record.
7. In the case on hand, initially, the petitioner had entered into a loan agreement with the respondents 4 & 5, on 25.02.2019, for grant of financial facility for purchase of the subject vehicle bearing Registration No.TN 12 AC 4110. On the very same day, the Hypothecation deed was executed between the petitioner and the respondents 4 & 5. As per the said Hypothecation Deed, if there is any default on the part of the respondents 4 & 5 in repayment of said loan amount, certainly, the petitioner will have charge over the vehicle. Subsequently, there was a default in repayment of loan amount on the part of the respondents 4 & 5. Hence, the petitioner took control over the subject vehicle.
8. In the meantime, the 2nd respondent, vide communication dated
23.03.2022, had requested the 1st respondent for blacklisting of the subject vehicle for recovery of alleged tax arrears to the tune of Rs.65,22,360/-. Subsequently, the 1st respondent had acted upon the said communication and blacklisted the subject vehicle on 04.04.2022.
9. As rightly contended by the petitioner, the charge, in favour of the petitioner, was created against the subject vehicle as early as on 25.02.2019 (date of hypothecation deed), which is much prior to the comm
