2021 (1) TMI 1118 - HC - VAT and Sales Tax

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 ... Registration of sale certificate - petitioner Bank submitted that the provisions under the SARFAESI Act will have primacy over the proceedings in an Arbitration Tribunal - HELD THAT:- Division Bench of this Court, in which Hon'ble Mr.Justice M.M.SUNDRESH is a party, in M/S. AACHI MASALA FOODS PVT. LTD. VERSUS M/S. EDELWISS ASSETS RECONSTRUCTION CO. LTD., M/S. JAI BHAVANI STEELS ENTERPRISES PVT. LTD., THE TAX RECOVERY OFFICER INCOME TAX DEPARTMENT, GOVT. OF INDIA, THE ASSISTANT COMMISSIONER COMMERCIAL TAX DEPARTMENT, THE ASSISTANT COMMISSIONER OF CUSTOMS BONDS, THE SUB-REGISTRAR [2020 (10) TMI 150 - MADRAS HIGH COURT] was pleased to hold that the proceedings under the SARFAESI Act would have primacy, especially in a case where the mortgage in favour of the Bank was earlier. In the case on hand also, the registered mortgage was admittedly prior. The 9th respondent in W.P.(MD)No.6976 of 2020 / 8th respondent in W.P.(MD)No. 1101 of 2021 sought for an attachment in an arbitration proceedings, in which, the petitioners Bank was obviously not a party, as the transaction has got nothing to do with it. The said order was also subsequent to the mortgage created in favour of the petitioner. Now, a third party right has also been created through the sale certificate issued in favour of the auction purchasers. If the 1st respondent raise a contention that in view of the recording of the attachment order by it already, the subsequent sale deed cannot be registered, then the very act of recording the said interim order of attachment passed by the Tribunal itself ought not to have been done, as there was a subsisting mortgage on that date. The petitioner Bank cannot be denied the relief as sought for - Petition allowed. 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.