State Bank Of India, vs The State Of Andhra Pradesh,
2022 Latest Caselaw 3430 AP

               THE HON'BLE SRI JUSTICE D.RAMESH


                  WRIT PETITION No.18882 OF 2022

ORDER:

1) The present Writ Petition came to be filed seeking issuance of

a writ of Mandamus to declare the inaction of the respondents 2 and

3 in not receiving and not registering the sale certificate dated

25.04.2022 produced by the petitioner-Bank in favour of the 7th

respondent under the provisions of the Securitization and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (hereinafter referred to as the „SARFAESI Act‟) in

respect of the property in dispute, as arbitrary, illegal and violative

of principles of natural justice.

2) Heard Mr.S.Satyanarayana Moorthy, learned counsel for the

petitioner and also Government Pleader for Revenue on behalf of

Respondent Nos. 1 to 3. There is no representation on behalf of the

unofficial respondents.

3) The circumstances, which lead to filing of the present writ

petition are as under:

The 6th respondent herein offered the subject property as

security to the petitioner-Bank for repayment of various loan facilities

sanctioned to him.

As the 6th respondent committed default in payment of dues,

in accordance with the agreed terms, the account of the 6th

respondent was classified as NPA and accordingly, the procedure

under SARFAESI Act was invoked for recovery of the amount. The

subject property was sold in public e-auction on 21.04.2022 in favour

of the 7th respondent, after issuing notice under Section 13(2) of the

Act and the petitioner-Bank issued a sale certificate dated 25.04.2022

to him. When the petitioner-Bank approached respondent Nos.2 and

3 on 27.04.2022 to register the sale certificate, they refused to

register the same on the ground that they received attachment orders

issued by the Deputy Registrar of Chits. The 4th respondent issued a

letter to the petitioner dated 30.04.2022, requesting the petitioner-

Bank to withhold the remaining amount after adjusting the bank

dues. The 3rd respondent also informed that the 5th respondent

obtained a registered mortgage deed for the same subject property

on 29.04.2021 before the 3rd respondent. The mortgage created in

favour of the 5th respondent is subsequent to 13(2) notice issued by

the Bank, which is impermissible under Section 13 of the Act, as such

both charges created by the respondent Nos.4 and 5 are subsequent

to mortgage created by 6th respondent in favour of the petitioner-

Bank. As per Section 26-E of the Act, the claim of the petitioner-Bank

will prevail over the claims of the respondents 4 and 5 and they are

entitled to take the balance amount left after the Bank‟s entire due

is discharged. Once the registered mortgage is subsisting in favour of

the petitioner-Bank for the same subject property, the second

mortgage obtained by the 5th respondent is null and void.

4) Challenging the inaction on the part of the respondents 2 and

3, the present writ petition came to be filed.

5) Sri S.Satyanarayana Moorthy, learned counsel for the petitioner

would submit that the issue is no more resintegra and is covered by

the orders passed by this Court. Referring Sections 26(E) and 34 of the

SARFAESI Act, he would submit that the respondent cannot refuse to

register the sale certificate. It is further stated that the respondents

4 and 5 are not the secured creditors and the orders of attachment by

the Civil Court came to be passed later while the date of

hypothecation/mortgage was much prior to that date. Having regard

to the above, he pleads that the action of the respondents 2 and 3 is

illegal and incorrect.

6) Learned Government Pleader for Revenue opposed the same,

but however, does not dispute the law laid down in catena of

judgments.

7) Before going further, it will be just and proper to refer Section

26(E) of the Act, which reads as under:

Section 26E: Priority to secured creditors-

"26E. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority."

Explanation.--For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and

Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.]

Section 31B of the Act 51 of 1993 reads as under:

31B. Priority to secured creditors-

"Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority."

Explanation- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.

Further Section 34 of the Act is as under:

Section 34: Civil court not to have jurisdiction-

"34. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)."

8) Further, the word „Secured Creditor‟ as defined in Section

2(zd) of the Act, is as under:

"Secured Creditor" means --

i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (1);

ii) debenture trustee appointed by any bank or financial institution; or

iii) an asset reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or

iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or

v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;

9) The point that arises for consideration is, whether the Writ

Petitioner who is secured creditor would have priority of charge over

the mortgaged property in question with regard to the loans due to

the Bank? Secondly, whether a direction can be issued to respondents

2 and 3 to register subject property in favour of the Petitioner Bank?

10) A reading of Section 26E of the Act, makes it clear that it starts

with a non-obstante clause and it provides that after the registration

of security interest, the debts due to the secured creditor shall be

paid first and in priority over all other debts and revenues, taxes,

cesses and other rates payable to the Central Government or State

Government or local authority. Therefore, it is clear that a person in

whose favour there is a registration of security interest, he would get

priority over the sale proceeds.

11) The argument advanced by the learned Government Pleader

that, since, section of law is not notified, the same has no force of

law and is not enforceable. This submission requires to be rejected at

the outset in view of the undisputable fact that Gazette of India No.

5, Extraordinary, Part-II, Section-1, dated 16.08.2016, published by

the Ministry of Law & Justice [Legislative Department], reflects that

Section 26E received the assent of the President of India on

12.08.2016 and it was duly published in the Gazette for general

information. Hence, this provision of law came into effect with effect

from 16.08.2016 and has force of law.

12) This section of law, which came into effect on 01.09.2016

starts with a non-obstante clause. It will govern the rights of the

parties in respect even a lis pending. The above provision reflects,

without doubt, that the rights of a secured creditor to realize secured

debts due and payable by sale of assets over which security interest is

created, would have priority over all debts and government dues.

Section 31B includes secured debts due and payable to them by sale

of assets over which secured interest is created.

13) Issue identical to case on hand came up for consideration in

State Bank of India V. The State of Andhra Pradesh 1 to which one

Manu/AP/0166/2020

of us was a party. In the said case, the Court after referring to the

provision of law and cases on the subject held as under:

"11. Having regard to the above and in the absence of any right or claim by any third party other than those in the writ petition over the subject property, the present Writ Petition is disposed of directing respondent No.2 to register the subject property in favour of the auction purchaser, who is not a party herein. After adjusting the amount due to the petitioner Bank from the auction proceeds, the remaining amount, if any, shall be credited to the account of respondent No.3 and if any amount is still left over, the same may be returned to respondent No.4. There shall be no order as to costs".

14) In City Union Bank Limited V. Sub-Registrar, Peddapalli &

Ors2, decided by a Division Bench of the High Court for the State of

Telangana and the State of Andrha Pradesh, held that, equitable

mortgage which was duly created and registered in favour of the

secured creditor being much prior to the order of attachment before

judgment, the sale certificate issued under the provisions of the

SARFAESI Act stands altogether on a different footing under law and

the order of attachment before judgment will not have any bearing

on the SARFAESI proceedings. It was further held that, Section 26E of

the Act makes it clear that notwithstanding anything contained in any

other law for the time being in force, after registration of the

security, the debts due to any secured creditor shall be paid in

priority over all other debts and all revenues, taxes, cesses and other

Manu/HY/0183/2018

rates payable to the Central Government or State Government or

local authority.

15) Therefore, on a conjoint reading of Section 26(E) of the

SARFAESI Act and Section 31B of Act 51 of 1993, there cannot be any

doubt that the rights of a secured creditor to realize the debts due

and payable by sale of assets over which security interest is created,

would have priority over all the debts. In the instant case, the

property offered as security for the loan taken by the 6th respondent

was much prior to the Order of attachments. Hence, the rights of the

Writ Petitioner Bank/secured creditor to realize secured debts due

and payable to it by sale of assets over which security interest is

created shall have priority and, hence, the point is answered in favor

of the Writ Petitioner and, accordingly, we hold that the Writ

Petitioner would have priority over the mortgaged property in

question with regard to the loan due to the bank.

16) Accordingly, the Writ Petition is allowed, as prayed for,

directing the respondents 2 and 3 to receive the Sale Certificate

issued by the Petitioner Bank in favour of the 7th respondent in

respect of the property in dispute and proceed further in registering

the document in accordance with the procedure established by law. It

is needless to mention that the amount left over after adjusting the

amount due to the petitioner-Bank may be given credit to the

respondents 4 and 5. There shall be no order as to costs.

17) Consequently, miscellaneous petitions, if any, pending shall

stand closed.

__________________ JUSTICE D.RAMESH Date: 05.07.2022.

Note:

Issue C.C. in one week.

B/o.

Pab

THE HON'BLE SRI JUSTICE D.RAMESH

WRIT PETITION No.18882 OF 2022

DATE: 05.07.2022

Pab