Prior SARFAESI enforcement prevails over later attachment, while the depositor protection law remains valid and surplus proceeds go to statutory remedy.

Prior SARFAESI enforcement prevailed over later attachment orders in respect of the same secured assets, so properties already sold under Section 13 measures could not remain under subsequent attachment and the sale certificate had to be registered. The Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 was upheld as a valid protective measure, but its attachment powers could not defeat earlier SARFAESI action over the same property. The borrower's claim for refund of alleged surplus sale proceeds was not decided in writ jurisdiction and was left to the statutory remedy before the appellate forum.

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Issues: (i) Whether properties already proceeded against and sold under the SARFAESI Act could be included in the attachment orders issued by the Chief Judicial Magistrate and the Government of Pondicherry; (ii) whether the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 was ultra vires and whether G.O.Ms. No.12 dated 18-02-2006 was invalid in so far as it attached the properties of the petitioners; (iii) whether the borrower mill was entitled to seek refund of the alleged surplus sale proceeds retained by the bank.

Issue (i): Whether properties already proceeded against and sold under the SARFAESI Act could be included in the attachment orders issued by the Chief Judicial Magistrate and the Government of Pondicherry.

Analysis: The secured asset had been subjected to measures under Section 13(2) and Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 long before the impugned attachment. The auction sale had been completed and the sale consideration had been paid, and the subsequent attachment orders were inconsistent with the prior enforcement action. In view of the overriding effect under Section 35 of the SARFAESI Act, the later attachment could not prevail in respect of the very same properties. The registering authority could not be compelled to refuse registration of the sale certificate merely because of the subsequent attachment orders.

Conclusion: The attachment was invalid to the extent it related to the properties already covered by the SARFAESI proceedings, and the sale certificate had to be registered.

Issue (ii): Whether the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 was ultra vires and whether G.O.Ms. No.12 dated 18-02-2006 was invalid in so far as it attached the properties of the petitioners.

Analysis: The Act was held to be a protective legislation aimed at safeguarding depositors and, in pith and substance, within the legislative competence of the Union Territory legislature under the relevant field governing unincorporated financial establishments. The mere fact that the Act incidentally affected properties of companies or persons connected with the financial establishment did not render it unconstitutional. Section 4(2) empowered attachment not only of property standing in the name of the defaulting establishment but also of property held in the names of connected persons. However, that power could not be exercised in a manner that defeated prior SARFAESI proceedings over the same asset.

Conclusion: The Act was upheld as constitutionally valid, and the impugned notification was sustained except to the limited extent of the properties already covered by SARFAESI proceedings.

Issue (iii): Whether the borrower mill was entitled to seek refund of the alleged surplus sale proceeds retained by the bank.

Analysis: The claim for refund of surplus proceeds was not adjudicated on merits in the writ jurisdiction. The proper course was to invoke the statutory remedy under Section 17 of the SARFAESI Act before the appellate forum, which could consider the grievance after hearing all parties concerned. The merits of the alleged surplus and distribution of sale proceeds were left open.

Conclusion: The borrower mill was directed to pursue the remedy under Section 17 of the SARFAESI Act.

Final Conclusion: The common order partly granted relief by excluding from attachment only those properties already subjected to SARFAESI action and by directing registration of the sale certificate, while upholding the validity of the Pondicherry enactment and leaving the surplus-proceeds dispute to the statutory appellate remedy.

Ratio Decidendi: Where a secured creditor has already enforced its security interest under the SARFAESI Act, later attachment proceedings under another law cannot override the prior SARFAESI measures in respect of the same property because of the Act's overriding effect.

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