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ANDHRA PRADESH HIGH COURT AT AMARAVATI
D. Ramesh, J.
State Bank of India – Appellant
Versus
State of Andhra Pradesh & Ors. – Respondents
Writ Petition No. 19354 of 2022
Decided On : 07-07-2022
SARFAESI ACT - SECTION 26E, 31B, 34 - PRIORITY OF SECURED CREDITORS - REGISTRATION OF SALE CERTIFICATE - MANDAMUS - SUMMARY
Fact of the Case:
The petitioner-Bank sought a writ of mandamus to compel the 2nd respondent to register a sale certificate issued under the SARFAESI Act in favor of the 3rd respondent. The 2nd respondent refused to register the certificate due to attachment orders received for the property.
Finding of the Court:
The court held that the petitioner-Bank, as a secured creditor, had priority over the mortgaged property in question and that the 2nd respondent was required to register the sale certificate in favor of the 3rd respondent.
Issues: 1. Whether the petitioner-Bank, as a secured creditor, had priority over the mortgaged property in question with regard to the loan due to the bank? 2. Whether a direction could be issued to the 2nd respondent to register the subject property in favor of the petitioner-Bank?
Ratio Decidendi: 1. Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 give priority to secured creditors in the realization of secured debts over all other debts and government dues. 2. The rights of a secured creditor to realize secured debts due and payable by sale of assets over which security interest is created have priority over all debts and government dues.
Final Decision: The writ petition was allowed, and the 2nd respondent was directed to receive the sale certificate issued by the petitioner-Bank and proceed with the registration of the document.
JUDGMENT
D. Ramesh, J. - The present Writ Petition came to be filed seeking issuance of a writ of Mandamus to declare the inaction of the 2nd respondents in not receiving and not registering the sale certificate dated 3.01.2020 produced by the petitioner-Bank in favour of the 3rd respondent under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the 'SARFAESI Act') in respect of the property in dispute, as arbitrary, illegal and violative of principles of natural justice.
2. Heard Mr. S. Satyanarayana Moorthy, learned counsel for the petitioner and also Government Pleader for Revenue on behalf of Respondents. There is no representation on behalf of the unofficial respondents.
3. The circumstances, which lead to filing of the present writ petition are as under:
The 4th respondent herein offered the subject property as security to the petitioner-Bank for repayment of various loan facilities sanctioned to him.
As the 4th respondent committed default in payment of dues, in accordance with the agreed terms, the account of the 4th respondent was classified as NPA and accordingly, the procedure under SARFAESI Act was invoked for recovery of the amount. The subject property was sold in public e-auction on 20.12.2019 in favour of the 3rd respondent, after issuing notice under Section 13(2) of the Act and the petitioner-Bank issued a sale certificate dated 3.01.2020 to him. When the petitioner-Bank approached 2nd respondent to register the sale certificate, they refused to register the same on the ground that they received attachment orders to the said property.
4. Challenging the inaction on the part of the 2nd respondent, the present writ petition came to be filed.
5. Sri S. Satyanarayana Moorthy, learned counsel for the petitioner would submit that the issue is no more res integra and is covered by the orders passed by this Court. Referring Sections 26(E) and 34 of the SARFAESI Act, he would submit that the respondent cannot refuse to register the sale certificate. It is further stated that the unofficial respondents are not the secured creditors and the orders of attachment by the Civil Court came to be passed later while the date of hypothecation/mortgage was much prior to that date. Having regard to the above, he pleads that the action of the 2nd respondent is illegal and incorrect.
6. Learned Government Pleader for Revenue opposed the same, but however, does not dispute the law laid down in catena of judgments.
7. Before going further, it will be just and proper to refer Section 26(E) of the Act, which reads as under:
Section 26E: Priority to secured creditors-
'26E. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.'
Explanation.-For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.]
Section 31B of the Act 51 of 1993 reads as under:
31B. Priority to secured creditors-
'Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.'
Explanation - For the purposes of this section, it is hereby clarified that on or after
AI
There cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which security interest is created, would have priority over all the debts.
Section 26(E) of the SARFAESI Act and Section 31B of Act 51 of 1993, there cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which ....
Secured creditors have priority over debts, permitting registration of sale certificates despite existing civil court attachments, with purchasers taking the property subject to said attachments.
The SARFAESI Act affirms secured creditors' priority over state debts, overturning any conflicting tax attachments regarding sold properties.
The main legal point established in the judgment is that the claim of the secured creditor under the SARFAESI Act has priority over other debts and attachments, and attachments made by other parties ....
Section 26-E of the SARFAESI Act prioritizes secured creditors over tax dues, establishing that tax attachments are subordinate to secured interests.
Secured creditors under SARFAESI Act have priority over all other debts, including tax attachments, affirming the necessity of registering Sale Certificates in favor of auction purchasers.
Secured creditors' rights under the SARFAESI Act take precedence over subsequent attachment orders, allowing for the registration of sale certificates.
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