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IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
K. MANMADHA RAO, J.
Canara Bank, rep. by its Chief Manager Shri Surya Narayanan Mohanty, S/o. Rama Chandra Mohanty – Petitioner
Versus
The State Of Andhra Pradesh and Others - Respondents
Writ Petition No.21029 of 2017
Decided On : 18-06-2024
(A) Constitution of India - Article 226 - Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999 - Section 3 - Writ petition challenging the attachment of properties under G.O.Ms.No.13 dated 17.02.2016 - The petitioner bank claimed first charge over mortgaged properties and contended that the SARFAESI Act, 2002 has overriding effect over the State Act - The court found that the action of the Respondent No.1 in proceeding against the secured assets was without jurisdiction and quashed the attachment order. (Paras 30, 32)
(B) Legal Principles - The SARFAESI Act, 2002 provides secured creditors priority over other claims, including those under state laws, thus reinforcing the principle that state laws cannot impede the rights of secured creditors under central legislation. (Paras 30, 31)
Facts of the case:
The petitioner bank sought to recover debts from properties mortgaged by educational societies that became non-performing assets, while the government attached these properties under the Depositors Act to protect depositors' interests.
Findings of Court:
The court ruled that the attachment of properties mortgaged to the bank was invalid as the SARFAESI Act supersedes the state law, allowing the bank to proceed with recovery.
Issues: Whether the attachment of properties under the state law infringes the rights of the secured creditor under the SARFAESI Act.
Ratio Decidendi: The court held that the SARFAESI Act has an overriding effect over the Andhra Pradesh Protection of Depositors of Financial Establishments Act, ensuring that the rights of secured creditors are protected against state actions.
Result: Writ Petition allowed.
ORDER :
(K. Manmadha Rao, J.)
This writ petition is filed under Article 226 of the Constitution of India for the following relief:
2. The grievance of the petitioner is that M/s.Sarawathi Educational Society availed Term Loan-I facility of Rs.480.00 lakhs under loan account No. 0661773006588 from the Kurnool Branch of the Petitioner Bank on the security of the following properties:
EMT of Institutional Building at Sy No 729/2 (Kallur) L P No 341/80 ward No 87/140 beside Govt Degree College for Men, Sreelaxmi Nagar, Sivaji Nagar, Kurnool admeasuring 20.67 cents under sale to M/s Saraswathi Educational Society consisting of G+2 with total plinth area of 5608.50 sft valued Rs 1,83,20,000/- as per valuation report dt 14.01.2016
EMT of land and building situated at Sy No 568, 569/A, 570 & 749A, ward No 78, Kallurpanchayath bearing D No 78/128 under sale to M/s Saraswathi Educational Society admeasuring 2640 sft valued Rs 1,22,60,000/- as per valuation report dt 14.01.2016.
It is further stated that the M/s.Keshav Reddy Educational Society availed Term Loan facility of Rs. 300.00 Lakhs under loan account No. 0659773007973 from the Ananthapuram Branch of the Petitioner Bank on the security of the following properties:
EMT of Institutional Building at Sy No 729/2 (Kallur) L P No 341/80 ward No 87/140 beside Govt Degree College for Men, Sreelaxmi Nagar, Sivaji Nagar, Kurnool admeasuring 20.67 cents under sale to M/s Saraswathi Educational Society consisting of G+2 with total plinth area of 5608.50 sft valued Rs 1,83,20,000/- as per valuation report dt 14.01.2016.
EMT of land and building situated at Sy No 568, 569/A, 570 & 749A, ward No 78, Kallurpanchayath bearing D No 78/128 under sale to M/s Saraswathi Educational Society admeasuring 2640 sft valued Rs 1,22,60,000/- as per valuation report dt 14.01.2016
EMT of vacant land at Sy No 146, Keshava Reddy school behind (formarly) vavilala school, Near RaagaMayuri Green Lands, Dinnedevarapadu Village admeasuring acres 2.0 standing in the name of M/s Sri Saraswathi Educational Society valued Rs 2,97,50,000/- as per valuation report dt 14.01.2016.
EMT of land admeasuring 0.98 cents and building (G+1) with total plinth area of 21955 Sqft at Sy No 152/1 pyki behind vavilala (formarly) near Raagamayuri Green lands, Dinnedevarapadu village, Kurnool standing in the name of M/s Sri Saraswat
The SARFAESI Act, 2002 has overriding effect over state laws, ensuring secured creditors' rights are prioritized in debt recovery.
The court established that a prior judicial attachment order supersedes subsequent government actions regarding property attachment under the relevant acts.
(1) Writ petitions filed against proposed action under Section 13(4) of SARFAESI Act is not maintainable and/or entertainable at all.(2) Recovery of debt – High Court should have been extremely caref....
The bank retains the right to recover debts through mortgaged properties even if the borrower sells the property to a third party, as established under the SARFAESI Act, 2002.
Point of law: rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues i....
The court established that the right of redemption under the SARFAESI Act is extinguished upon the issuance of a sale certificate, and timely challenge to bank actions is essential.
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