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IN THE HIGH COURT OF KERALA AT ERNAKULAM
Anil K.Narendran, P.G. Ajithkumar, JJ.
M/s Axis Bank, Retail Asset Centre, Represented By Its Legal Manager - Anoop Jose, S/o. Jose - Appellant
Vs.
Hilal Ahmed Bhat S/o. Nazeer Ahammed Bhat - Respondent
F.A.O. NO. 29 OF 2019
Decided On : 21-06-2022
Code of Civil Procedure, 1908 - Section 104(1)and 151- Order XXI and XLIII - Rule 1(j)and 58 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13, 13(8) and 26E – Loan - Attachment of property - Possession – Auction - Right of a secured creditor – Loan amount has become a non-performing asset, and therefore, appellant initiated proceedings against secured asset as per provisions of SARFAESI Act. It is contended that in that circumstance, the court should not have attached property and appellant is entitled to get attachment vacated - In event of sale by civil court before such time, auction purchaser, who steps into shoes of the mortgagor, shall have right of redemption as regulated by Section 13(8) of SARFAESI Act.(Para 20)
Finding of the court: Section 13(2) of SARFAESI Act empowers a secured creditor in a case where the secured debts is classified as a non-performing asset to demand by a notice in writing to discharge liability of debtor in full - The bar to create any lien, charge or liability on the property, after receipt of a notice under Section 13(2) of the Act, is only against the debtor, and not applicable to a civil court. Of course, despite there having an attachment by a civil court, the right of the secured creditor or his authorised representative to recourse to Section 13(4) of the SARFAESI Act, including sale of security interest, is not affected. Once sale is confirmed, effect of attachment over the same by the civil court will extinguish also. We hasten to add that equity of redemption available to the mortgagor-debtor can certainly be attached and sold by a civil court as long as his right to pay off under the provisions of Section 13(8) of SARFAESI Act subsists.
Result: Appeal dismissed.
Key Points: - The appeal is filed under Section 104(1) read with Order XLIII, Rule 1(j) of the Code of Civil Procedure, 1908 (!) . - The appellant sought to lift the attachment over a property, contending they are a secured creditor (!) . - The 2nd respondent created an equitable mortgage in favor of the appellant by depositing title deeds for a cash credit facility (!) . - The loan amount became a non-performing asset, and the appellant initiated proceedings under the SARFAESI Act (!) . - The Execution Court dismissed the application to lift the attachment, stating the mortgagor's right of redemption can be sold in execution (!) . - The court acknowledged the secured creditor's first charge over the property to realize mortgage money (!) . - The appellant argued that Section 26E of the SARFAESI Act grants them priority over all other debts, including government debts (!) . - The court affirmed that the secured creditor has priority over other debts, including government taxes (!) (!) . - The bar to create any lien, charge, or liability on property after a notice under Section 13(2) of the SARFAESI Act is only against the debtor, not applicable to a civil court (!) (!) . - Despite civil court attachment, the secured creditor's right to recourse to Section 13(4) of the SARFAESI Act is not affected (!) (!) . - Once a sale is confirmed under Section 13(8) of the SARFAESI Act, the effect of civil court attachment extinguishes (!) (!) . - The equity of redemption available to the mortgagor-debtor can be attached and sold by a civil court as long as the right to pay under Section 13(8) subsists (!) . - The court below rightly rejected the appellant's claim, and the appeal was dismissed (!) .
JUDGMENT :
Ajithkumar, J.
This is an appeal under Section 104(1) read with Order XLIII, Rule 1(j) of the Code of Civil Procedure, 1908.
2. The appellant filed E.A.No.118 of 2018 in E.P.No.30 of 2017 in O.S.No.32 of 2016 before the Sub Court, Ottapalam, seeking to lift the attachment over the petition scheduled property. The E.A. was filled invoking the provision of Order XXI, Rule 58 and Section 151 of the Code, contending that the order of attachment obtained by the 1st respondent in respect of the said property on the ground that he was entitled to realise from the said property the debt due to him from the 2nd respondent in O.S.No.32 of 2016 is not sustainable in law, since the appellant is a secured creditor. The 2nd respondent while availing a cash credit facility of Rs.45,00,000/-, he created an equitable mortgage in favour of the appellant by deposit of title deed. The said loan amount has become a non-performing asset, and therefore, the appellant initiated proceedings against the secured asset as per the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). It is contended that in that circumstance, the court should not have attached the property and the appellant is entitled to get the attachment vacated.
3. The 1st respondent resisted the application by filing an objection. It was contended that the 2nd respondent defaulted the payment of the loan due to the appellant is incorrect. O.S.No.32 of 2016 was filed by him for realisation of the amount legally due to him. It is a bona fide litigation. The attachment of the property in the suit was effected on 28.03.2016. Only on 14.07.2017, the appellant took over possession of the property. The appellant has no absolute title to the property and therefore has no right to object the attachment. Even if the appellant has a right as a secured creditor, the 1st respondent has every right to proceed against the property subject to that right. O.P.No.1034 of 2018 filed by the appellant before this Court claiming the same right was dismissed. Accordingly, the 1st respondent sought to dismiss the application. The 2nd respondent remained ex-parte.
4. On 14.02.2019, this appeal was admitted and notice to the respondents were ordered. Further proceedings in the execution petition were stayed initially for a period of one month. The order was extended from time to time and it is still in force.
5. Heard the learned Counsel appearing for the appellant. None of the respondents has turned up.
6. The Execution Court received Exts.A1 to A11 in evidence and after considering the case of either side dismissed the application recording the reasons as follows:
7. The learned Counsel appearing
The bar to create any lien, charge or liability on property, after receipt of a notice under Section 13(2) of Act, is only against debtor, and not applicable to a civil court.
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 main legal point established in the judgment is the priority of secured creditors, the overriding effect of the SARFAESI Act, and the protection of rights of auction purchasers.
Recovery of Income Tax dues of Borrower - Charge of secured creditor would have priority over Government dues under Income Tax Act - No provision in Income Tax Act which provides for any paramountcy ....
The auction purchaser's title prevails over subsequent attachments, as the attachment occurred after the auction sale, reaffirming the priority of security interests under Section 26(E) of the SARFAE....
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.
The main legal principle established in the judgment is the priority of the secured creditor over government dues as per the SARFAESI Act, particularly in relation to the registration with CERSAI and....
The confirmation of sale under SARFAESI Act extinguishes prior attachments on the property, rendering them ineffective.
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