2023 (8) TMI 1365 - HC - Indian Laws

Auction Purchaser Wins: Court Upholds SARFAESI Act Section 26E Priority Over CGST Attachments, Orders Deletion of Entries

The court allowed the writ petition filed by the petitioner, an auction purchaser under the SARFAESI Act, directing them to reapply for registration of ... Recovery of dues - priority of dues of secured creditors - seeking deletion of attachment orders - HELD THAT:- On perusal of the material records of the case more specifically the encumbrance certificate it is clear that there is a mortgage executed in favour of the fifth respondent bank. Therefore, the fifth respondent being the secured creditor under the SARFAESI Act and the security interest being duly registered, by virtue of Section 26E of SARFAESI Act, 2002, it is only the claim of the fifth respondent bank which has priority. On account of the amendment to the SARFAESI Act, 2002, the attachment of the commissioner of CGST and Central Excise as well as the attachment under the arbitration award will stand valid if only any money which is left over after the satisfaction of the entire loan due to the fifth respondent bank. Therefore, once the fifth respondent bank exercises its power of selling the property through the Authorized Officer, the attachments made by the other respondents were rendered otiose. Thereafter, the only right of the sixth and seventh respondents was to claim their dues if any surplus money is left with the Authorized Officer under the SARFAESI Act. This position is no longer res integra and is recently reiterated by the Hon’ble Supreme Court of India in Kotak Mahindra Bank Ltd vs. Girnar Corrugators Private Limited and Others [2023 (1) TMI 244 - SUPREME COURT] where it was held that Therefore, in absence of any specific provision for priority of the dues under the MSMED Act, if the submission on behalf of Respondent 1 for the dues under the MSMED Act would prevail over the SARFAESI Act, then in that case, not only the object and purpose of special enactment/the SARFAESI Act would be frustrated, even the later enactment by way of insertion of Section 26-E of the SARFAESI Act would be frustrated. In this case admittedly there is no money which is left over after satisfying the loan amount of the fifth respondent bank and thus the attachments made by the sixth and seventh respondents have become completely nugatory and otiose and such are liable to be deleted as otherwise the same would create unnecessary cloud over the title of the petitioner - The writ petitioner shall once again present the sale certificate dated 22.11.2022 before the first respondent for registration within a period of two weeks from the date of receipt of a copy of this order. Upon such production, the first respondent shall register the same in accordance with law more specifically without reference to any of the attachment orders or encumbrances that may reflect in the records. Petition allowed. Issues involved: Interpretation of SARFAESI Act, priority of secured creditors, validity of attachments by other parties, registration of sale certificate.Summary:The petitioner, an auction purchaser of property under SARFAESI Act, faced registration issues due to existing attachment orders by CGST Commissioner, an arbitrator, and others. The petitioner argued that as per SARFAESI Act, the claim of the secured creditor (fifth respondent bank) takes precedence. The court analyzed the records and noted the priority given to secured creditors under Section 26E of SARFAESI Act, which states that debts to secured creditors are to be paid first. The court emphasized that attachments would be valid only if money remains after satisfying the fifth respondent's loan.Referring to a recent Supreme Court case, the court reiterated the purpose of SARFAESI Act to regulate financial assets and security interest. The court emphasized that the attachments by other respondents become irrelevant once the fifth respondent exercises its power to sell the property. Since there was no surplus money after satisfying the fifth respondent's loan, the attachments by other parties were deemed unnecessary and ordered to be deleted to avoid clouding the petitioner's title.Based on the above analysis, the court allowed the writ petition, directing the petitioner to reapply for registration of the sale certificate without reference to the attachment orders. The court also ordered the deletion of attachment entries in the records. No costs were awarded, and the miscellaneous petition was closed.