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2025 Supreme(Online)(Mad) 55386
IN THE HIGH COURT OF JUDICATURE AT MADRAS
N. Sathish Kumar, J
City Union Bank Limited – Appellant
Versus
The State of Tamil Nadu – Respondent
W.P.No.20431 of 2024
For the Appellants/Petitioners: Mr.Sharath Chandran
For the Respondents: Mr.K.M.D.Muhilan, Additional Public Prosecutor
Registered security interests under the SARFAESI Act take precedence over claims made under the BUDS Act, validating creditors' rights to enforce security upon proper registration.
Headnote:(A) SARFAESI Act, 2002 - Section 26-E - Banning of Unregulated Deposit Schemes Act, 2019 - Sections 12 and 13 - Priority of secured creditor's claim over other debts - The petitioner secured creditor established security interests registered with Central Registry, thus having priority over claims of depositors - Investigating Agency's letters directing the petitioner Bank to refrain from auctioning secured assets quashed. (Paras 4, 10, 18, 22)
Facts of the case:
The writ petition challenges letters from the Investigating Agency preventing the Bank from auctioning properties mortgaged by the 5th respondent under proceedings for recovery of debts incurred, asserting priority under SARFAESI Act.
Findings of Court:
The communications from the Investigating Agency preventing the enforcement of the bank's rights to auction the secured assets due to an ongoing investigation under BUDS Act lack legal grounding.
Issues: The main issues were whether the bank's security interest, duly registered, should prevail over the claims of the depositors under BUDS Act and the legitimacy of the Investigating Agency's communications concerning the auction of secured properties.
Ratio Decidendi: The court found that registered security interests under SARFAESI Act take precedence and enforceable rights exist unless explicitly restricted, reaffirming creditor rights and legality of prior-registered claims.
Result: Writ petition allowed; impugned communications quashed.
| Table of Content |
|---|
| 1. writ petition filed to quash letters from investigating agency. (Para 1 , 2) |
| 2. petitioner's priority claim under sarfaesi act. (Para 3 , 4) |
| 3. review of materials to assess legality of communications. (Para 5 , 6) |
| 4. legal precedence of claims under buds act subject to sarfaesi act provisions. (Para 8 , 18) |
| 5. full bench decision confirms secured creditor's priority. (Para 19 , 20) |
| 6. confirmation of security interest registration with cersai. (Para 21) |
| 7. writ petition allowed; impugned communications quashed. (Para 22 , 23) |
ORDER
This writ petition has been filed to quash the letter of the 3rd respondent dated 24.07.2023 requesting the petitioner Bank not to auction the jewels of the 5th respondent till attachment is made under TNPID Act and the consequential letter of the 3rd respondent dated 24.06.2024, calling upon the petitioner to produce the key of the immovable properties belonging to the 5th respondent for carrying out inspection by the authorities pursuant to the criminal proceedings initiated against the 5th respondent under the Banning of Unregulated Deposit Schemes Act, 2019 (“BUDS Act” for brevity).
2.The case of the petitioner is that the 5th respondent availed credit facilities to the tune of Rs.13 Crores from the petitioner Bank. As a security for the facilities extended, four immovable properties of the 5th respondent were mortgaged with the Bank and security interests have been created in respect of the immovable properties. As the 5th respondent defaulted in payment of dues, the petitioner, by following the procedure under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act” for brevity), brought the security interests for auction and physical possession of the properties was also taken by the Bank on 19.03.2024 and 17.04.2024. However, the respondents 1 to 4 are attempting to proceed against the secured assets under the provisions of the BUDS Act on the strength of an FIR registered against the 5th respondent in Crime No.3 of 2023 for the offences under Sections 406, 420, 120-B IPC, Sections 2 1(1), 21(2), 21(3), 23, 25 of BUDS Act and Section 4 of TNPID Act. In pursuance thereof, the 3rd respondent has issued a letter to the petitioner Bank, dated 24.07.2023, requesting the petitioner Bank not to proceed with the auction of the jewels of the 5th respondent, since the process of attachment of movable and immovable properties of the 5th respondent is under process by the Investigating Agency. Further, the 3rd respondent has also sent another communication to the petitioner Bank on 24.06.2024, calling upon the petitioner to hand over the keys of the four immovable properties of the 5th respondent, which are the secured assets with the petitioner Bank, for carrying out inspection by the concerned authorities as a part of investigation under BUDS Act. It is the contention of the petitioner that the petitioner has a priority to be paid over all other debts and any attachment made in respect of the secured assets will be subject to the rights already created in favour of the secured creditor under the SARFAESI Act. Hence, the petitioner seeks to quash the letters issued in this regard by the Investigating Agency.
3.Learned counsel for the petitioner would submit that, as the security interest has already been created in favour of the petitioner pursuant to the mortgage created in favour of the petitioner, as per Section 26-E of the SARFAESI Act, the petitioner Bank has priority right than Sections 12 and 13 of the BUDS Act. It is his contention that, though the amount due to the depositors from the deposit takers shall be paid in priority over all other debts and all revenues, the same is subject to the exception of the SARFAESI Act. Therefore, he would submit that, once a security interest is created and registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (“CERSAI” for brevity), th
