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2021 Supreme(Online)(KER) 33595
HIGH COURT OF KERALA
RAJA VIJAYARAGHAVAN, J
HDFC BANK LTD. – Appellant
Versus
SUB REGISTRAR – Respondent
WP(C)/23874/2020
SRI.P.BINNY JOSEPH, SHRI.BASIL MATHEW
Secured creditors hold priority over subsequent encumbrances under the SARFAESI Act, protecting their rights established by earlier mortgages.
Headnote:
Priority - Secured Creditors - SARFAESI Act - 26E, Recovery of Debts Due to Banks and Financial Institutions Act - 31B - The court affirmed the priority rights of secured creditors, ruling that prior mortgage rights cannot be undermined by subsequent encumbrances created after the mortgage.
Fact of the Case:
The petitioner, a Scheduled Bank, engaged in a mortgage transaction with a borrower, which subsequently defaulted. The property was sold following SARFAESI Act procedures, but a subsequent encumbrance was recorded, prompting the bank to seek relief from the court.
Finding of the Court:
The court found that under Section 26E of the SARFAESI Act, the secured creditor has priority over subsequent claims. The mortgage created prior to the encumbrance supersedes any later attachments imposed by revenue authorities or civil courts.
Issues: Whether the encumbrance created after the mortgage could take precedence over the secured creditor's rights established by prior mortgage and the SARFAESI Act.
Ratio Decidendi: The court concluded that the rights of the secured creditor established by the earlier mortgage cannot be defeated by subsequent encumbrances according to the provisions in the SARFAESI Act.
Final Decision: The court allowed the writ petition declaring the later encumbrance ineffective against the secured creditor's rights.
JUDGMENT
The petitioner is a Scheduled Bank. A security interest was created by M/s. Kairali Tours & Travels and two others, after availing cash credit facility to the tune of Rs. 12 lakhs. Property having an extent of 6.7 Ares falling in old Sy. No. 528/3A of Thiruvambadi village owned by the proprietor of M/s. Kairali Tours & Travels was mortgaged by deposit of title deeds on 5.9.2013 as is evident from Ext.P2 memorandum. Default was committed by the borrowers and the asset was classified as a Non-Performing. Proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act , 2002 (‘SARFAESI Act’ for short) were initiated and the property was finally brought to sale. However, it was noted from Ext.P5 encumbrance certificate that an encumbrance was created over the secured asset by the 2nd respondent on 1.10.2015. According to the petitioner, the encumbrance as noted in Ext.P5 as item No. 3 is subsequent to the priority interest created by a prior mortgage. According to the petitioner, the attachments effected subsequently cannot claim precedence over the right of the petitioner as the secured creditor. According to the petitioner, the noting of the attachment order in the encumbrance certificate will adversely affect the rights of the petitioner as the secured creditor. It is in the afore circumstances, that the petitioner has approached this Court seeking a direction to the 1st respondent to efface the attachments made subsequent to the creation of the mortgage in the property covered under Ext.P1 title deed and for a further declaration that the property is free of all encumbrances.
2. I have heard Sri. Binny Joseph, the learned counsel appearing for the petitioner, and Smt. Mable C. Kurian, the learned Government Pleader.
3. Sri. Binny Joseph, the learned counsel submitted that Section 26E of the SARFAESI Act grants priority to secured creditors and it states that the dues to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, Cesses and Rates due to the Central Government, State Government or Local Authority. Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act , 1993 also declares the position in the same lines.
4. I have considered the submissions made by the learned Government pleader as well. Though notice was served to the 2nd respondent, there is no appearance.
5. Section 26E of the SARFAESI Act grants priority to secured creditors after the registration of the security interest and 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. In the instant case, the property was mortgaged by way of equitable mortgage on 5.9.2013 whereas the attachment was effected only on 1.10.2015. The rights and liberties conferred on the creditor/bank by virtue of mortgage created in the year 2013 and the right to proceed under the relevant provisions of the SARFAESI Act cannot be defeated because of the subsequent attachments ordered by the revenue authorities or by the Civil Court (seeHDFC v. Sub Registry Officer [ 2011 KHC 851 ] and Madhan v. Sub Registrar [ 2014 (1) KLT 406 ]). In that view of the matter, the attachment so effected shall have no impact on the sale conducted under the provisions of the SARFAESI Act.
Resultantly, this writ petition will stand allowed. There shall be a declaration that the encumbrance noted as item No.3 in Ext.P5 certificate will have no effect over the rights of the petitioner as the secured creditor. There will be a further direction to the 1st respondent to efface the attachment effected over the property covered under Ext.P1 deed vide No.1581/2013 of the Koothattukulam SRO, which are subsequent to creation of the mortgage by Ext.P2 memorandum dated 5.9.2013.
Sd/-
RAJA VIJAYARAGHAVAN V JUDGE
APPENDIX PETITIONER'S EXHIBITS:
EXHIBIT
