High Court upholds Bank's priority in SARFAESI Act proceedings over Arbitration Tribunal orders

The High Court of Madras ruled in favor of the petitioner Bank in two writ petitions, emphasizing the priority of SARFAESI Act proceedings over an Arbitration Tribunal's orders concerning mortgage rights and sale certificates. The Court held that the mortgage deeds took precedence, upholding the petitioner's rights over the properties in question. It directed the registration of sale certificates and removal of encumbrance entries within four weeks, without awarding costs. The Court's decision affirmed the primacy of SARFAESI Act proceedings in cases where mortgages predate other claims, protecting the petitioner's existing rights against subsequent challenges.

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Issues:
Interpretation of priority between proceedings under the SARFAESI Act and an Arbitration Tribunal regarding mortgage rights and sale certificates.

Analysis:
The judgment by the High Court of Madras involved two writ petitions concerning the same issue, where the second respondent in both cases had credit facilities from the petitioner Bank, which became non-performing leading to sale notices. Successful bidders faced registration denial due to an interim order by an Arbitrator regarding attached secured assets. The petitioner argued that SARFAESI Act provisions should prevail over arbitration, emphasizing the mortgage deeds' precedence. The Court considered various legal precedents cited by the petitioner's counsel to support this argument.

The 9th respondent contended that the writ petitions were not maintainable as the petitioner sought to challenge the Arbitration Tribunal's order indirectly. The Court noted the lack of valid submissions from the borrowers responsible for the situation. Referring to a Division Bench decision, the Court upheld the primacy of SARFAESI Act proceedings when a mortgage predates other claims, citing relevant judgments and principles.

Further, the Court discussed a case where a mortgage's priority was recognized over an attachment order, emphasizing the rights created for the mortgagee. It highlighted that the mortgage in the current case was prior to the arbitration proceedings, and subsequent sale certificates had created third-party rights. The Court rejected arguments on procedural violations and maintained that the petitioner's existing rights should be upheld against subsequent claims.

Ultimately, the Court allowed both writ petitions, directing the first respondent to register the sale certificates and delete encumbrance/attachment entries within four weeks. No costs were awarded, and connected petitions were closed, affirming the petitioner Bank's rights over the properties in question.

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