Sale certificate with disclosed encumbrances cannot compel removal of attachment without following statutory discharge procedure.

A sale certificate issued under the SARFAESI enforcement process does not by itself displace existing encumbrances when the certificate expressly records them; the purchaser takes the asset subject to those encumbrances unless they are lawfully discharged through the prescribed statutory procedure. The note also states that the registering authority cannot be compelled to remove attachment entries or treat the certificate as free from encumbrances without compliance with the security interest enforcement rules and the registration framework. On that basis, the writ remedy was regarded as unavailable in the form sought because the statutory process had not been properly followed and the relief would bypass known encumbrances.

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Issues: (i) Whether the secured creditor could seek removal of the departmental attachment and registration of the sale certificate when the sale certificate disclosed known encumbrances and the encumbrances had not been discharged. (ii) Whether the writ remedy was maintainable in the absence of compliance with the procedure under the security interest enforcement rules and the registration framework.

Issue (i): Whether the secured creditor could seek removal of the departmental attachment and registration of the sale certificate when the sale certificate disclosed known encumbrances and the encumbrances had not been discharged.

Analysis: Priority of a secured creditor under the SARFAESI regime was acknowledged, but the Court held that the sale process under Rule 9 of the Security Interest (Enforcement) Rules, 2002 does not end with mere issuance of a sale certificate. Where the certificate itself records known encumbrances, the purchaser takes the asset subject to those encumbrances and the authorised officer must follow the statutory procedure contemplated by sub-rules dealing with discharge of encumbrances and delivery free from encumbrances. The Court further held that a sale certificate issued with encumbrances cannot be treated as a certificate free from encumbrances, and the registering authority cannot be compelled to remove such entries without lifting the attachment.

Conclusion: The request to remove the attachment and clear the encumbrance entry was rejected.

Issue (ii): Whether the writ remedy was maintainable in the absence of compliance with the procedure under the security interest enforcement rules and the registration framework.

Analysis: The Court noted the absence of proof that the sale certificate had been properly forwarded to the registering authority under the Registration Act. It also held that a sale certificate mentioning encumbrances is not registrable as a certificate free from encumbrances, and that a mandamus could not be issued to bypass the statutory scheme or to protect the auction purchaser against known encumbrances. The availability of the administrative mechanism for resolution of disputes was also noticed in the factual matrix.

Conclusion: The writ petition was held to be not maintainable in the form sought.

Final Conclusion: The Court declined to interfere with the attachment entry and upheld the consequence of the sale certificate being subject to existing encumbrances, leaving the petitioner without the relief sought.

Ratio Decidendi: A secured creditor seeking registration of a sale certificate must comply with the statutory procedure governing encumbrances; where the certificate records known encumbrances, the registering authority cannot be compelled to remove the attachment unless the encumbrances are lawfully discharged.

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