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2020 Supreme(MP) 1221
IN THE HIGH COURT OF MADHYA PRADESH
Sanjay Yadav, Rajeev Kumar Dubey, JJ.
Bank of Baroda - Appellants
Vs.
State of Madhya Pradesh and Ors. - Respondent
Writ Petition No. 9915 of 2020
Decided On : 02-11-2020
For the Appellant : Brian D'Silva and Shreyas Dubey
For the Respondents: Swapnil Ganguly
The main legal point established in the judgment is that secured creditors have priority in payment of debt, as provided in Section 26-E of the Act of 2002 and Section 31-B of the 1993 Act, overriding any other law.
Headnote:
Bank Charge Priority - Mortgage of Leasehold Plot - Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 - Section 26-E, Section 31-B
Fact of the Case:
The case involves a dispute over the priority of charges on a leasehold plot mortgaged as security towards a loan. The petitioner-Bank sought to quash communications and obtain a direction to transfer the leasehold right of the plot to an auction purchaser, citing the priority right for recovery of its dues under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.
Finding of the Court:
The court held that the Bank has the priority right to recover its dues from the secured assets. However, it ruled that the Bank cannot compel the District Industrial Centre to execute a lease of the plot in favor of the auction purchaser without settling the dues of the Centre.
Issues: The main issue was whether the Bank's charge on the leasehold plot had priority over other charges, particularly those of the District Industrial Centre.
Ratio Decidendi: The court relied on Section 26-E of the Act of 2002 and Section 31-B of the 1993 Act, which provide priority to secured creditors in payment of debt, overriding any other law. It emphasized that the Bank has the priority right to recover its dues from the secured assets. However, it also highlighted that the Bank is bound by the express terms and conditions of the permission granted for conveyance of leasehold right in favor of the Bank.
Final Decision: The petition filed by the petitioner-Bank seeking quashment of communications and direction to transfer the leasehold right of the plot to an auction purchaser was dismissed, and the Bank was not allowed to compel the District Industrial Centre to execute a lease of the plot in favor of the auction purchaser without settling the Centre's dues.
JUDGMENT :
Sanjay Yadav, J.
1. Solitary question which arises for consideration is whether a charge of Bank oh the leasehold plot mortgaged as security towards loan will have priority over other charges of third party including the State.
2. The relevant facts briefly are that M/s. Anmol Agro Pvt. Ltd. availed the credit facilities aggregating to Rs. 6,85,00,000/-. For securing the repayment thereof, the borrower sought to create mortgage of various immovable proprieties in favour of the petitioner-Bank including lease hold rights of the property situated at Plot No. 30 (part of land admeasuring 14382 sq.ft.), Industrial Area, Bargawan, Katni. It is urged that after obtaining the 'No Objection Certificate' from the lessor, the mortgage deed was executed in favour of the Bank.
3. Later, because of default committed by the borrower, the credit facility was classified as Non-Performing Asset on 31.12.2018. Steps were taken under Sections 13 and 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short, "Act of 2002") and the Rules made thereunder, viz., the Security Interest (Enforcement Rules), 2002 on 21.02.2020.
4. In pursuant to the auction notice, auction purchaser viz., M/s. Sanjay Pulses through its proprietor being successful bidder, a sale certificate was issued on 30.03.2020, which was informed to respondent No. 2-General Manager, District Industrial Centre, Katni.
5. Responding to said information, respondent No. 2 on 29.04.2020 questioned the securitisation proceedings which as stated could have been only after 90 days of intimation. Respondent No. 2 while turning down the request made by the Bank for transferring the lease hold rights in favour of the auction purchaser, informed the petitioner-Bank vide communication dated 25.06.2020, relying on Clause 16(iii) of the Madhya Pradesh Rajya Audyogik Bhumi Evam Bhawan Prabandhan Niyam, 2015, that the borrower/lessee M/s. Anmol Agro Pvt. Ltd. has not repaid the subsidy amount received by it from the Department and has not paid lease rent of Rs. 1604/- and Rs. 3208/- from the years 2018-19 to 2020-21.
6. Aggrieved, petitioner-Bank has filed this petition seeking quashment of communications dated 29.04.2020 and 25.06.2020 and the direction to respondent No. 2 to transfer the lease-hold right of the plot in question in favour of auction purchaser on the ground that the mortgage deed was executed after obtaining NOC and that the auction proceedings were under the Act of 2002 for recovery of outstanding dues against the Bank; therefore, the Madhya Pradesh Rajya Audyogik Bhumi Evam Bhawan Prabandhan Niyam, 2015 (for brevity, 'Rules of 2015') will not defeat the purpose of Act of 2002, whereunder, the Bank has the priority right for recovery of its dues. On these contentions, the reliefs mentioned above are being sought.
7. Respondents have filed composite reply. While not disputing the lease agreement entered between respondent No. 2 and the said borrower M/s. Anmol Agro Pvt. Ltd. on 07.07.2012 in respect of the plot in question, it is urged that Clause 41 of the lease agreement covenanted that "on the request of bank/financial institution and the lessee, permission in favour of the concerned bank/financial institution, as referred to in the rules, will be granted as per prescribed format, by the lessor regarding assignment of lease hold rights. In all circumstances, the charge of the Department of Commerce, Industry and Employment on land/shed shall be over and above any subsequent charges to be created".
8. It is further urged that, as per stipulation in Clause 41, the State Government is having first charge over and above any financial institution. It is urged that even while granting NOC on 21.03.2013 for creating mortgage in favour of the petitioner-Bank, it was the condition of NOC that the Department will have priority right. And, that before initiating the proceedings for recovery of the loan amount from the prope
