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IN THE HIGH COURT OF KARNATAKA
S.G. Pandit, J.
Bank Of India - Appellant
Versus
Secretary & Ors. - Respondents
Writ Petition No. 12038 of 2017 (GM-RES)
Decided On : 06-07-2022
SARFAESI Act - Priority of Secured Creditors - Punjab National Bank Vs. Union of India and others, UCO Bank and another Vs. Dipak Debbarma and others - Section 26-E of the 2002 Act - Priority over all other debts - Central Act vs. State Act conflict
Fact of the Case:
The Petitioner-Bank sought assistance in taking possession of secured assets under Section 14 of the SARFAESI Act. The application was rejected on the premise that the assets were attached under the Karnataka Protection of Interest of Deposit in Financial Establishment Act, 2004 (2004 Act). The Petitioner-Bank argued that the 2002 Act takes priority over the 2004 Act.
Finding of the Court:
The Court found that the 2002 Act gives priority to secured creditors over all other debts, and the assets were registered prior to the attachment under the 2004 Act. The Court referred to the judgments in Punjab National Bank Vs. Union of India and UCO Bank and another Vs. Dipak Debbarma to support the priority of the Bank's claim under the SARFAESI Act.
Issues: The main issue was the priority of the Petitioner-Bank's claim under the SARFAESI Act over the attachment under the 2004 Act.
Ratio Decidendi: The Court held that the 2002 Act takes priority over the 2004 Act, as it is a Central Act related to banking, and the assets were registered prior to the attachment. The judgments in Punjab National Bank Vs. Union of India and UCO Bank and another Vs. Dipak Debbarma supported the priority of the Bank's claim under the SARFAESI Act.
Final Decision: The Writ Petition was allowed, the impugned order was quashed, and the Deputy Commissioner was directed to consider the Petitioner-Bank's application under Section 14 of the SARFAESI Act without reference to the attachment under the 2004 Act.
ORDER
1. The Petitioner-Bank is before this Court under Article 226 of the Constitution of India assailing the order bearing No.MAG(2)CR436/2015-16/160651/C4 dated 26.12.2015 passed by the second respondent rejecting the application of the petitioner under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, SARFAESI Act).
2. Heard Shri M.Mohamed Ibrahim, learned counsel for the petitioner and Smt.Rashmi Patel, learned High Court Government Pleader for Respondent Nos.1 and 2.
3. Perused the writ petition papers.
4. Learned counsel for the petitioner would submit that the petitioner sanctioned loan to one M/s. V- Hypermart, a Partnership firm by sanction letter dated 27.11.2012. As the borrower defaulted in repayment, the petitioner initiated recovery action by issuing notice under Section 13(2) of the SARFAESI Act on 08.01.2015. Thereafter, it is submitted that possession notice in respect of the secured assets under Section 13(4) was issued on 18.04.2015. The petitioner filed an application under Section 14 of SARFAESI Act before the first respondent seeking assistance in taking possession of the secured assets. The said application is rejected under the impugned order dated 26.12.2015 vide Annexure-G on the premise that the secured assets are attached under the Karnataka Protection of Interest of Deposit in Financial Establishment Act, 2004 (for short, 2004 Act). Challenging the same, the Petitioner-Bank is before this Court in this Writ Petition.
5. Learned counsel for the petitioner would contend that the attachment under 2004 Act would not have any priority over the actions of the Petitioner-Bank. It is submitted that the Petitioner-Bank initiated recovery action by issuing 13(2) notice prior to the attachment under 2004 Act. It is also submitted referring to Section 26-E of the 2002 Act relates to the priority of secured creditors, and stipulates that, notwithstanding anything contained in any other law for the time being in force, after the registration of a security interest, the debts due to any secured creditor shall be paid in priority over all other debts. In that regard, learned counsel for the petitioner relies on the decision reported in 2022 SCC OnLine Sc 227 (Punjab National Bank Vs. Union of India and others).
6. The learned counsel also contends that the 2002 Act gets priority over the 2004 Act and the same is answered by the Hon'ble Apex Court in S.L.P. (Civil) appeal No.11250 of 2016 disposed of on 25.11.2016 (UCO Bank and another Vs. Dipak Debbarma and others). More particularly, the learned counsel would refer to paragraph No.18 of the said judgment. Thus, he prays for allowing the writ petition.
7. The learned HCGP would contend that the secured property is attached under 2004 Act prior to filing of the application under Section 14 of the Act. Therefore, she submits that the Petitioner-Bank would not get any priority. Thus, she prays for dismissal of the writ petition.
8. The Petitioner-Bank filed an application under Section 14 of 2002 Act seeking assistance in taking possession of the secured assets. The second respondentDeputy Commissioner is obliged to consider the said application in terms of Section 14 of the Act. The attachment of the secured property under 2004 Act would have no priority over the claim of the Petitioner-Bank. Section 26-E of the 2002 Act makes it clear that notwithstanding anything contained in any other law for the time being in force, after the registration of a security interest, the debts due to any secured creditor shall be paid in priority over all other debts. Admittedly, the secured assets were registered in the year 2012 itself prior to the attachment of the secured property under 2004 Act, i.e., on 23.06.2015. The Hon'ble Apex Court in Punjab National Bank (supra) while considering the priority of the Bank claim under SARFAESI Act vis-a-vis the Customs Act and in that circumstances at para No.48 and
AI
The main legal point established in the judgment is that the SARFAESI Act gives priority to secured creditors over all other debts, and in case of conflict between a Central Act and a State Act, the ....
The main legal point established in the judgment is that the debts due to any secured creditor shall be paid in priority over all other debts as per Section 26-E of the SARFAESI Act, and the secured ....
Point of law: It would be seen that so far as clause (1) of Article 254 is concerned it clearly lays down that where there is a direct collision between a provision of a law made by the State and tha....
The main legal point established in the judgment is that the charge created under the SARFAESI Act takes priority over the State's dues, as per Section 26E of the Act.
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 ....
The rights of secured creditors take precedence over statutory authorities in recovery proceedings, as established in the provisions of Section 26E of the SARFAESI Act.
The SARFAESI Act takes precedence over the MPID Act for properties mortgaged before MPID attachment, ensuring secured creditors' rights are upheld.
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