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2022 DIGILAW 276 (AP)

City Union Bank Ltd v. State Of A. P.

2022-03-09

C.PRAVEEN KUMAR, V.SUJATHA

body2022
ORDER : C.Praveen Kumar, J. 1. The present Writ Petition came to be filed seeking issuance of a writ of Mandamus to declare the inaction on the part of the 2nd Respondent in not receiving and not registering the Sale Certificate issued by the Petitioner-Bank under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) in respect of the property in dispute, as arbitrary, illegal and violative of principles of natural justice. 2. The averments in the affidavit filed in support of the Writ Petition show that, on 06.02.2015 and 22.08.2017, M/s. Sree Sarada Traders, represented by 5th Respondent availed a loan of Rs.3,75,00,000/-. The 5th Respondent being the owner of the property in Residential Building consisting of Ground, First and Second floors bearing New Door Nos.17/180 and 174/181 (Old D. No. 17/159 and 17/160) situated in Survey No.30/2B/1A1, Ward No. 17, Mundy Bazar, Kadapa, land to an extent of 2730 square feet or 303.33 square yards building constructed thereon to an extent of ground floor 2664.28 square feet, first floor 2664.28 square feet, second floor 317.21 square feet, [‘Property’], created a registered Mortgage on 11.02.2015 in favor of the Petitioner. Thus, the Petitioner herein became a secured creditor as per the provisions of the SARFAESI Act. 3. Having regard to the default committed by the 5th Respondent in payment of loan amount, an E-auction was held on 19.10.2020 after complying with the statutory requirements. The 3rd Respondent is the highest bidder in the auction so conducted. When the Petitioner approached the 2nd Respondent for registration of the property, it was informed that 4th Respondent herein filed a Suit against 5th Respondent for recovery of the money due to him basing on a promissory note and obtained an order of attachment, over the subject property, on 09.11.2020. The 2nd Respondent is said to have shown that, a Circular Memo, dated 10.03.2010, stating that once the Civil Court passed an order of attachment, he cannot register the same. Challenging the said action of the 2nd Respondent in not registering the property, the present Writ Petition came to be filed. 4. Reiterating the averments, learned counsel for the petitioner would submit that the issue is no more resintegra and is covered by the orders passed by this Court. Challenging the said action of the 2nd Respondent in not registering the property, the present Writ Petition came to be filed. 4. Reiterating the averments, learned counsel for the petitioner would submit that the issue is no more resintegra and is covered by the orders passed by this Court. Referring Sections 26(E) and 34 of the SARFAESI Act, he would submit that the 2nd Respondent cannot refuse to register the Sale Certificate. It is further stated that the Respondent No. 4 is not secured creditors and the orders of attachment by the Civil Court came to be passed on 09.11.2020 while the date of hypothecation/mortgage was much prior i.e. on 11.02.2015. Having regard to the above, he pleads that the action of the 2nd respondent is illegal and incorrect. 5. A counter came to be filed by the 4th Respondent disputing the averments made in the affidavit filed in support of the petition, but, however, contends that there is an order of attachment pursuant to the order passed by the Civil Court and, as such, the Petitioner Bank has no right over the property. Having regard to the contents of paragraph no. 10 of the counter, it is urged that the amount due to the Petitioner Bank may be adjusted after adjusting the loan amount. The claim of the 4th Respondent may also be adjusted from the left over amount. 6. Learned Government Pleader for Revenue opposed the same, but however, does not dispute the law laid down in catena of judgments. 7. Before going further, it will be just and proper to refer Section 26(E) of the Act, which reads as under: Section 26E: Priority to secured creditors- “26E. 6. Learned Government Pleader for Revenue opposed the same, but however, does not dispute the law laid down in catena of judgments. 7. Before going further, it will be just and proper to refer Section 26(E) of the Act, which reads as under: Section 26E: Priority to secured creditors- “26E. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, 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.” Explanation.—For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.] Section 31B of the Act 51 of 1993 reads as under: 31B. Priority to secured creditors- “Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.” Explanation- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. Further Section 34 of the Act is as under: Section 34: Civil court not to have jurisdiction- “34. Further Section 34 of the Act is as under: Section 34: Civil court not to have jurisdiction- “34. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).” 8. Further, the word ‘Secured Creditor’ as defined in Section 2(zd) of the Act, is as under: “Secured Creditor” means -- i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (1); ii) debenture trustee appointed by any bank or financial institution; or iii) an asset reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance; 9. The point that arises for consideration is, whether the Writ Petitioner who is secured creditor would have priority of charge over the mortgaged property in question with regard to the loans due to the Bank? Secondly, whether a direction can be issued to the 2nd Respondent to register subject property in favour of the Petitioner Bank? 10. A reading of Section 26E of the Act, makes it clear that it starts with a non-obstante clause and it provides that after the registration of security interest, the debts due to the secured creditor shall be paid first and in priority over all other debts and revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Therefore, it is clear that a person in whose favour there is a registration of security interest, he would get priority over the sale proceeds. 11. Therefore, it is clear that a person in whose favour there is a registration of security interest, he would get priority over the sale proceeds. 11. The argument advanced by the learned Government Pleader that, since, section of law is not notified, the same has no force of law and is not enforceable. This submission requires to be rejected at the outset in view of the undisputable fact that Gazette of India No. 5, Extraordinary, Part-II, Section-1, dated 16.08.2016, published by the Ministry of Law & Justice [Legislative Department], reflects that Section 26E received the assent of the President of India on 12.08.2016 and it was duly published in the Gazette for general information. Hence, this provision of law came into effect with effect from 16.08.2016 and has force of law. 12. This section of law, which came into effect on 01.09.2016 starts with a non-obstante clause. It will govern the rights of the parties in respect even a lis pending. The above provision reflects, without doubt, that the rights of a secured creditor to realize secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and government dues. Section 31B includes secured debts due and payable to them by sale of assets over which secured interest is created. 13. Issue identical to case on hand came up for consideration in State Bank of India V. The State of Andhra Pradesh, Manu/AP/0166/2020 to which one of us was a party. In the said case, the Court after referring to the provision of law and cases on the subject held as under: “11. Having regard to the above and in the absence of any right or claim by any third party other than those in the writ petition over the subject property, the present Writ Petition is disposed of directing respondent No.2 to register the subject property in favour of the auction purchaser, who is not a party herein. After adjusting the amount due to the petitioner Bank from the auction proceeds, the remaining amount, if any, shall be credited to the account of respondent No.3 and if any amount is still left over, the same may be returned to respondent No.4. There shall be no order as to costs”. 14. After adjusting the amount due to the petitioner Bank from the auction proceeds, the remaining amount, if any, shall be credited to the account of respondent No.3 and if any amount is still left over, the same may be returned to respondent No.4. There shall be no order as to costs”. 14. In City Union Bank Limited V. Sub-Registrar, Peddapalli & Ors, Manu/HY/0183/2018, decided by a Division Bench of the High Court for the State of Telangana and the State of Andhra Pradesh, held that, equitable mortgage which was duly created and registered in favour of the secured creditor being much prior to the order of attachment before judgment, the sale certificate issued under the provisions of the SARFAESI Act stands altogether on a different footing under law and the order of attachment before judgment will not have any bearing on the SARFAESI proceedings. It was further held that, Section 26E of the Act makes it clear that notwithstanding anything contained in any other law for the time being in force, after registration of the security, 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. 15. Therefore, on a conjoint reading of Section 26(E) of the SARFAESI Act and Section 31B of Act 51 of 1993, there cannot be any doubt that the rights of a secured creditor to realize the debts due and payable by sale of assets over which security interest is created, would have priority over all the debts. In the instant case, the property offered as security for the loan taken by the 5th Respondent in the month of February 2015. The Order of attachment, as stated earlier, came to be made on 09.11.2020, i.e., after long after the property was mortgaged to the secured creditor. Hence, the rights of the Writ Petitioner Bank/secured creditor to realize secured debts due and payable to it by sale of assets over which security interest is created shall have priority and, hence, the point is answered in favor of the Writ Petitioner and, accordingly, we hold that the Writ Petitioner would have priority over the mortgaged property in question with regard to the loan due to the bank. 16. 16. Accordingly, the Writ Petition is allowed, as prayed for, directing the 2nd Respondent to receive the Sale Certificate issued by the Petitioner Bank in respect of the property in dispute and proceed further in registering the document in accordance with the procedure established by law. It is needless to mention that the amount left over after adjusting the amount due to the Petitioner Bank may be given credit to the E.P. account. No order as to costs. 17. Consequently, miscellaneous petitions, if any, pending shall stand closed.