Priority of secured creditors over government dues protects auction purchasers and supports registration of sale certificates

A registering authority cannot refuse registration of a sale certificate issued after auction of a secured asset merely because the property had earlier been attached for government dues. Section 31B of the SARFAESI Act accords priority to a secured creditor's right to realise secured debt over other debts and government dues, and a sale certificate issued under Rule 9(6) after full payment and public auction passes title free from encumbrances where no subsisting encumbrance was disclosed. A subsequent purchaser of the secured asset cannot be burdened with the predecessor's liability absent a statutory first charge, so the refusal to register was unsustainable.

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Issues: Whether the registering authority could refuse registration of a sale certificate issued pursuant to auction of a secured asset on the ground that the property stood previously attached for government dues, and whether the secured creditor's right to realise the secured debt had priority over such dues.

Analysis: The property was sold in e-auction by the secured creditor after public notice, the purchaser paid the full consideration, and the sale certificate stated that the sale was free from encumbrances. The refusal to register rested only on an earlier attachment for dues of the previous owner. Section 31B of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 gives priority to the rights of secured creditors to realise secured debts over all other debts and government dues. The sale certificate was issued under Rule 9(6) of the Security Interest (Enforcement) Rules, 2002 after receipt of the entire sale consideration, and there was no disclosure in the auction notice of any subsisting encumbrance. The purchaser, being a subsequent purchaser of a secured asset, could not be fastened with the predecessor's liability in the absence of a statutory first charge.

Conclusion: The refusal to register the sale certificate was unsustainable, and the direction was in favour of the petitioner.

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