Madras High Court emphasizes secured creditors' priority in property auctions under SARFAESI Act

The Madras High Court addressed the priority of charge in auction sales of properties, emphasizing the amendments to the SARFAESI Act and the registration process for secured creditors. The court highlighted the priority of debts due to secured creditors over other debts and government dues, subject to the provisions of the Insolvency and Bankruptcy Code, 2016. The court directed the registration of the sale of properties, with the sale considerations to be kept in a separate account until the writ petition's disposal. The matter was scheduled for further proceedings due to a pending main issue before the Supreme Court.

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Issues: Priority of charge in auction sale of properties, Amendments to SARFAESI Act, Registration by secured creditors and other creditors, Priority of debts due to secured creditors, Pending main issue before Supreme Court

In this judgment by the Madras High Court, the issue of priority of charge in the auction sale of properties was addressed. The court referred to a previous case involving the Assistant Commissioner and the Indian Overseas Bank, where the Full Bench considered the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The court highlighted the overriding effect of this Act on the recovery of all debts and government dues. Additionally, the Union Government amended the SARFAESI Act by inserting Chapter IVA, which deals with 'Registration by Secured Creditors and Other Creditors'. This amendment emphasizes the registration of security interests and the priority of debts due to secured creditors over other debts and government dues.

Furthermore, the judgment elaborated on the provisions of Chapter IVA, including the registration process for transactions of security interests by creditors. It emphasized that registration of security interests or attachment orders constitutes public notice and gives priority to the claims of secured creditors over subsequent security interests or transfers. The court clarified that after registration, debts due to secured creditors must be paid in priority over all other debts and government dues. Notably, the judgment specified that the priority of secured creditors in payment of debts is subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending.

Consequently, the court directed the registration of the sale of properties under consideration, provided the documents are in order. The petitioner bank was instructed to keep the sale considerations in a separate interest-bearing account until the disposal of the writ petition. The Sub-Registrar was also directed to take necessary actions in this regard. As the main issue was pending before the Supreme Court, the matter was scheduled for further proceedings on a specified date. This comprehensive judgment clarifies the legal principles governing the priority of charge in auction sales, the registration requirements for secured creditors, and the priority of debts due to secured creditors over other debts and government dues.

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