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2022 Supreme(Online)(MAD) 10519
HIGH COURT OF MADRAS
R. Mahadevan, J. Sathya Narayana Prasad, JJ
Assistant Commissioner of Customs (Bonds) – Appellant
Versus
Annam Steels Private Limited – Respondent
Writ Appeal No. 3249 of 2019
For the Appellants/Petitioners: V. Sundareswaran
For the Respondents: R.N. Amarnath, F.B. Benjamin George
A secured creditor’s right to recover debts through the sale of mortgaged assets takes priority over unsecured government dues. In the absence of a specific 'first charge' provision in fiscal statutes, legislation governing securitization overrides other laws, ensuring the secured creditor's claim prevails.
Headnote:(A) Customs Act, 1962 - Section 142(1) - SARFAESI Act, 2002 - Sections 13, 26E and 35 - Priority of crown debts - Secured creditor’s right to realize assets - Whether statutory dues of customs department prevail over interests of secured creditor - A secured creditor’s right to realize debts by sale of secured assets prevails over government dues, including taxes and revenues, in absence of a specific 'first charge' provision in the governing fiscal statute - SARFAESI Act, being a special enactment, has overriding effect on other laws - (Paras 5, 8.3, 16, 17, 18)
(B) Attachment - Communication to property registration office - Does not constitute valid charge or encumbrance - Merely requesting registration authorities to withhold transfer of property does not grant priority over existing lawful mortgages - (Paras 5, 14)
Facts of the case:
A financial institution, acting as a secured creditor, took possession of a property and conducted an auction sale due to borrower default. The mortgage in favor of the creditor was created prior to the customs department's claims. The customs authorities had sent a communication to the registration office to prevent property transfers due to pending duty arrears against other entities, which effectively blocked the registration of the sale certificate by the auction purchaser. The purchaser sought to have the attachment lifted, which was rejected by the department, leading to legal intervention.
Findings of Court:
The court observed that the mortgage in favor of the creditor was created years before the customs department initiated recovery or claimed any interest. The customs authorities failed to create a valid charge or attachment through standard legal processes, relying only on a general communication to the registration department. Following established legal principles, the claim of the secured creditor holds priority over unsecured government dues.
Issues: Whether the customs department's dues, as sovereign claims, take priority over the security interest of a financial institution, and whether the communication to the registration authority constitutes a valid attachment barring the registration of a sale certificate.
Ratio Decidendi: The court held that in the absence of a specific 'first charge' provision in the relevant customs legislation, the rights of a secured creditor under the special securitization law prevail over ordinary crown debts. The court emphasized that the creditor’s mortgage was prior in time and that the customs department’s executive communication did not supersede the statutory rights of the secured creditor.
Result: Writ appeal dismissed; authority directed to lift the attachment on the property.
| Table of Content |
|---|
| 1. factual background of the dispute regarding competing claims over auction property. (Para 1 , 2 , 3 , 4) |
| 2. arguments concerning priority of secured creditors under sarfaesi against government dues. (Para 5 , 6 , 7) |
| 3. prioritization of mortgage charge over subsequent government attachments. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16) |
| 4. supreme court precedent confirming sarfaesi act's overriding effect on crown debt. (Para 17) |
| 5. final confirmation that secured creditor interests prevail over customs attachments. (Para 18 , 19) |
JUDGMENT
R.MAHADEVAN,J.
The order of the learned Judge dated 12.02.2019 made in WP.No. 25185 of 2018 is questioned by the appellant / Revenue, in this writ appeal.
2.The first respondent herein viz., M/s.Annam Steels Pvt Limited, has preferred the aforesaid writ petition to issue a writ of certiorari to quash the proceedings issued by the appellant in F.No.S.Misc/391/2017-Bonds (Sea) dated 20.07.2018.
3.The case projected by the first respondent in the writ petition is that the property comprised in S.F.Nos.199/1 and 199/2 admeasuring 2.12 ½ acres and pathway running along with S.F. Nos. 197/2B2, 185/2, 197/2A1 and S.F.No.197/1A1B admeasuring 30 feet situated at Panchetty Village, Ponneri Taluk, Chengalpattu District, was originally in possession and enjoyment of one Pramad Kumar Saraf, who mortgaged the said property with the second respondent Bank during the year 2008 for securing loan for and on behalf of M/s. DDS Steel Rolling Mills Private Limited. Since the borrower committed default in payment of the loan amount, the second respondent bank took possession of the secured assets on 09.07.2010 in exercise of the powers conferred under Section 13 (4) of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, “the SARFAESI Act”). Thereafter, the second respondent bank conducted an auction sale, in which, the first respondent became the successful bidder and a sale certificate dated 23.01.2012 was also issued to them. Subsequently, at the request of the first respondent, a Corrigendum to the sale certificate came to be issued on 29.06.2017 by including the right over the pathway leading to the property purchased in the auction sale. After obtaining the sale certificate, the first respondent approached the office of the Sub-Registrar, Red Hills, requesting to register the same. However, it was informed that the sale certificate cannot be registered in view of the subsistence of charge over the property by the appellant herein. On enquiry, the first respondent came to know that on 14.12.2010, the Commissioner of Customs passed an order of attachment against the properties owned by M/s. Jai Bhavani Steels Enterprises Limited and M/s. SDS Steels Private Limited, having their factories in the adjoining lands purchased by the first respondent in the auction sale; and also requested the Registration Department not to entertain any instrument that may be presented for registration in respect of the lands mentioned therein. In view of the same, the first respondent submitted a representation 16.09.2017 and reminder dated 05.10.2017 to the appellant requesting them to exclude the land purchased by them in the auction sale conducted by the second respondent Bank. Consequently, the first respondent also furnished the copies of the sale certificates issued to them, through a communication dated 25.10.2017. However, the claim of the first respondent was not considered. Thereafter, pursuant to the order dated 25.04.2018, passed in WP No. 10457 of 2018, the appellant passed an order dated 20.07.2018 rejecting the claim of the first respondent to exclude the land purchased by them in the auction sale conducted by the second respondent bank. Challenging the same, the first respondent preferred WP.No.25185 of 2018.
4.It was contended by the appellant in the writ court that M/s.Jai Bhawani Steel Enterprises Limited had stored 29,668.635 MT of Steel sc
