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2022 DIGILAW 333 (AP)

STATE BANK OF INDIA v. State of Andhra Pradesh

2022-03-23

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 respondents 2 and 3 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 (hereinafter referred to as the SARFAESI Act') in respect of the property in dispute, as arbitrary, illegal and violative of principles of natural justice. 2. Heard Mr.S.Satyanarayana Moorthy, learned counsel for the petitioner and also Government Pleader for Revenue on behalf of Respondent Nos. 1 to 3. There is no representation on behalf of the unofficial respondents. 3. The circumstances, which lead to filing of the present writ petition are as under: (i) The 5th respondent herein offered the subject premises as security to the petitioner-Bank for repayment of Housing loan and car loan of Rs.59,27,028/- sanctioned to him. 4. As the 5th respondent committed default in payment of dues, in accordance with the agreed terms, the account of the 5th respondent was classified as NPA and accordingly, the procedure under SARFAESI Act was invoked for recovery of the amount. A demand notice dated 14.09.2016, Section 13(2) possession notice and also a sale notice fixing the date of auction on 17.11.2016 was issued and the bid was knocked down at Rs.85,96,000/- in favour of one Sri B.Rama Narayana (4th respondent). The auction purchaser is said to have deposited the entire sale proceeds. 5. Thereafter, the petitioner Bank filed Crl.MP No.382 of 2014 under Section 14 of the SARFAESI Act, for taking physical possession of the secured asset. By an order dated 05.12.2017, an advocate commissioner was appointed for taking physical possession of the property. A sale certificate was issued in favour of the successful bidder and the said successful bidder approached the 3rd respondent for ascertaining the stamp duty and the registration charges payable basing on the certificate of sale etc. It was informed to the auction purchaser that the property cannot be registered as an order came to be passed by a civil Court in I.A.No.1667 of 2017 in O.S.No.185 of 2017, attaching the properties in dispute. 6. It was informed to the auction purchaser that the property cannot be registered as an order came to be passed by a civil Court in I.A.No.1667 of 2017 in O.S.No.185 of 2017, attaching the properties in dispute. 6. The averments in the affidavit show that the petitioner herein addressed a letter to the 3rd respondent informing that the petitioner is a secured creditor under the SARFAESI Act and the property came to be sold in an auction held under the provisions of the SARFAESI Act and as such, the 3rd respondent cannot deny registration of the property. 7. Reply came to be issued by the 3rd respondent reiterating the stand taken earlier. 8. Challenging the inaction on the part of the 3 rd respondent, the present writ petition came to be filed. 9. Sri S.Satyanarayana Moorthy, 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, she would submit that the 3rd respondent cannot refuse to register the sale certificate. It is further stated that the respondents 4 to 6 are not the secured creditors and the orders of attachment by the Civil Court came to be passed later while the date of hypothecation/mortgage was much prior to that date. Having regard to the above, he pleads that the action of the 3rd respondent is illegal and incorrect. 10. Learned Government Pleader for Revenue opposed the same, but however, does not dispute the law laid down in catena of judgments. 11. 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. 10. Learned Government Pleader for Revenue opposed the same, but however, does not dispute the law laid down in catena of judgments. 11. 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).” 12. 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; 13. 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 3rd respondent to register subject property in favour of the Petitioner Bank? 14. 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. 15. 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. 15. 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. 16. 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. 17. 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”. 18. 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”. 18. 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 Andrha 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. 19. 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 was in the month of May 2016. The Order of attachment, as stated earlier, came to be made on 26.12.2017, i.e., 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. 20. 20. Accordingly, the Writ Petition is allowed, as prayed for, directing the 3rd 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. No order as to costs. 21. Consequently, miscellaneous petitions, if any, pending shall stand closed.