2020 (12) TMI 1263 - HC - Indian Laws

Court affirms secured creditor rights under specific acts, clarifies 'First Charges' priority, sets aside attachment.

The Court upheld the petitioner's rights as a secured creditor under specific acts, emphasizing the priority of charges for recovery of dues held by ... Seeking to proceed against the secured property involved - recovery of dues - validity of attachment made by the respondents subsequent to creation of equitable mortgage created in favour of the petitioner - effect on marketability - whether the State has better right over the secured assets for recovery of its dues? - HELD THAT:- This question is no more res integra. The petitioner has rightly relied on the judgments of this Court in TRAVANCORE DEVASWOM BOARD VERSUS LOCAL FUND AUDIT [2020 (5) TMI 691 - KERALA HIGH COURT] and STATE BANK OF INDIA AND ORS. VERSUS STATE OF KERALA AND ORS. [2019 (7) TMI 1684 - KERALA HIGH COURT] where it was held that the sale carried out either under the SARFAESI Act or under the RDB Act takes precedence over the statutory charges due to the Government created under KVAT Act or under other State Enactments after the Amendment Act of 2016. A secured creditor in whose favour a security interest has been created thus has priority in sale and payment over all other statutory charge holders. Section 26E of the SARFAESI Act and Section 31B of the RDB Act create a 'First Charge' by way of a priority to the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any statutory 'First Charge' in favour of the Revenue. Petition allowed. Issues Involved:Petition for writ of Certiorari, Right to proceed against secured property under specific acts, Validity of attachment by respondents, Priority of charges for recovery of dues.Analysis:Issue 1: Petition for writ of CertiorariThe petitioner, a secured creditor, sought a writ of Certiorari to quash certain records as illegal and unconstitutional. The petitioner also requested the liberty to proceed against the secured property under the Recovery of Debts and Bankruptcy Act 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Issue 2: Right to proceed against secured property under specific actsThe petitioner argued that the borrower had mortgaged certain properties to secure a loan, which later became a Non Performing Asset. Due process was followed, and physical possession of the property was taken by the petitioner bank. The petitioner contended that the attachment made by the respondents over the property was illegal as the petitioner had the 'First Charge' over the property under the SARFAESI Act and RDB Act.Issue 3: Validity of attachment by respondentsThe respondents claimed a 'First Charge' over the secured assets for recovery of sales tax dues and had attached the property. The State argued that the property needed to be sold for recovery of sales tax dues. However, the petitioner asserted that the State's claim was illegal as the petitioner had priority rights over the property under the SARFAESI Act and RDB Act.Issue 4: Priority of charges for recovery of duesThe Court considered the question of whether the State had a superior right over the secured assets for recovery of its dues. Referring to previous judgments, the Court established that the Banks/Financial Institutions hold a 'First Charge' under the SARFAESI Act and RDB Act, giving them priority over statutory 'First Charges' in favor of the Revenue. Consequently, the Court allowed the petition, quashing the communications and attachment made by the respondents.In conclusion, the Court upheld the petitioner's rights as a secured creditor under the specific acts, emphasizing the priority of charges for recovery of dues held by Banks/Financial Institutions. The judgment clarified the legal position regarding 'First Charges' and set aside the attachment made by the respondents, thereby ruling in favor of the petitioner.