2020 (3) TMI 1343 - HC - Indian Laws

Secured creditor's rights upheld in E-auction challenge, petitioner lacks standing.

The Court dismissed the writ petition challenging an E-auction notice's legality for non-disclosure of a court order encumbrance. The petitioner, not a ... Attachment of property - grievance expressed by the petitioner is that the E-auction notice does not contain the encumbrance pursuant to the order of trial Court in the suit filed by petitioner, attaching the properties before judgment - HELD THAT:- Since the Bank has given a specific reply that they have prior charge and that the petitioner's claim would be considered if there is any excess amount is realised after discharging the entire dues of bank, the petitioner has approached this court stating that the E-auction notice should contain the encumbrance and that the petitioner's right will be in jeopardy, if the encumbrance is not disclosed in the E-auction notice by the respondent bank - This court is unable to accept the contention of the petitioner that he is aggrieved by not referring to the order of attachment in the E-auction notice. First of all the petitioner is not a secured creditor and the order of attachment is much later to the proceedings initiated by the Bank under Securitization Act. Whether the Bank is required to accept the order of attachment before Judgment as an Encumbrance so as to disclose the same in the sale notice? - HELD THAT:- In this case, it is admitted that the bank has got the first charge in view of the mortgage and it is not in dispute that the proceedings for recovery of money had already been initiated by resorting to the provisions of Security Interest (Enforcement) Rules 2002. In such circumstances by virtue of Section 64 of Civil Procedure Code and Order 38 Rule 10 of C.P.C., the order of attachment is not binding on the bank to proceed against the property in the manner known to law as a secured creditor. The order of attachment before Judgment in a suit in which the Bank is not a party is not an encumbrance so as to affect the rights of Bank or the title of purchaser of property in the auction at the instance of Bank - As far as the Bank whose right as Secured Creditor is protected and the order of attachment in this case is not an encumbrance. TAs far as the Bank whose right as Secured Creditor is protected and the order of attachment in this case is not an encumbrance - the writ petition is neither maintainable nor having merits - petition dismissed. Issues:Challenge to E-auction notice legality and compliance with Security Interest (Enforcement) Rules 2002.Analysis:The petitioner sought a writ of Certiorarified Mandamus to quash an E-auction notice issued by the 1st respondent, alleging non-compliance with Rule 8 (6) of the Security Interest (Enforcement) Rules 2002. The E-auction notice pertained to the sale of secured properties due to the second respondent's default on a loan from the first respondent. The petitioner, a creditor of the second respondent, claimed a right over the attached properties through a court order in a separate suit. The petitioner contended that the E-auction notice did not mention the encumbrance created by the court order, potentially jeopardizing their rights.The Court examined Rule 8 (7)(a) of the Rules, which mandates the disclosure of encumbrances in sale notices. The petitioner argued that the bank should have recognized the court order as an encumbrance and disclosed it in the sale notice. However, the Court clarified that the petitioner, not being a secured creditor, lacked standing to challenge the sale proceedings based on the absence of the attachment order in the notice. The Court emphasized that the bank's rights as a secured creditor took precedence, unaffected by the attachment order in a suit where the bank was not a party.Referring to Section 64 of the Civil Procedure Code, the Court highlighted that the attachment before Judgment did not bind the bank's rights as a secured creditor. The Court cited Order 38 Rule 10 of the CPC to underscore the protection of prior mortgagees' rights in such scenarios. Additionally, the Court cited a Delhi High Court judgment to define encumbrance as a legal liability on property, emphasizing that the bank's status as a secured creditor shielded it from the effects of the attachment order.In light of the above analysis, the Court concluded that the petitioner lacked the standing to challenge the bank's sale proceedings based on the absence of the attachment order in the sale notice. Consequently, the Court dismissed the writ petition, finding it neither maintainable nor meritorious. The judgment emphasized the bank's rights as a secured creditor and the petitioner's inability to contest the sale based on the attachment order, ultimately closing the connected miscellaneous petitions without costs.