Madras High Court
Dr.M.N.Sadasivam vs The Inspector General Of ... on 8 September, 2023
2023:MHC:4069
WP No.25363 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 08-09-2023
CORAM
THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM
WP No.25363 of 2023
Dr.M.N.Sadasivam ... Petitioner
Vs.
1.The Inspector General of Registration,
100, Santhome High Road,
Mylapore,
Chennai-600 004.
2.The Sub Registrar,
Anna Nagar,
Chennai-600 040.
3.Asset Reconstruction Company (India) Limited,
The Ruby, 10th Floor,
29, Senapati Bapat Marg,
Dadar (West),
Mumbai – 400 028. ... Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India
for issuance of a Writ of Mandamus, directing the second respondent to
make Book 1 entry of the Sale Certificate as per under Section 89(4) of the
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Registration Act, without insisting on additional stamp duty.
For Petitioner : Dr.S.S.Swaminathan
For Respondents-1 and 2: Mr.E.Sundaram,
Government Advocate.
For Respondent-3 : Ms.S.Abitha Banu
ORDER
The relief sought for in the present writ petition is to direct the
second respondent to make Book 1 entry of the Sale Certificate as per under
Section 89(4) of the Registration Act, without insisting on additional stamp
duty.
2. The petitioner states that he is a Practising Doctor and
running Multi-Speciality Hospital in Erode District under the name of
'Maaruthi Medical Centre and Hospitals'. Based on the public notice of sale
issued under Rule 8(6) of the SARFAESI Security Interest (Enforcement)
Rules, 2002 in a local Daily Newspaper dated 27.12.2022, the petitioner
participated in the process of public auction.
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3. The Auction property comprises of land measuring an extent
of 5510 sq.ft., and a building thereon at Old Survey No.134/7 and 133/1,
New Survey No.134/2 and 134/3, South Chennai Registration District,
Anna Nagar Sub Registration District, Nungambakkam-Egmore Taluk,
within the limits of Chennai Corporation, Koyambedu Village, Door No.30,
Kurungaleeswarar Koil Street, Koyambedu, Chennai-600 107.
4. The subject property was a secured asset towards the
financial facilities granted by the Indian Overseas Bank, Choolaimedu
Branch, Chennai to the borrower M/s.Sri Devi Hospitals, represented by its
Proprietor Dr.K.Senthilnathan. The borrower committed default in
repayment of loans and consequently, the Bank initiated action under the
SARFAESI Act.
5. It is not in dispute that public notice was for sale was issued
on 27.12.2022 and the sale notice itself explicitly reveals that 96 unsecured
creditors have created attachments over the subject property in furtherance
of the orders made by the City Civil Court.
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6. Knowing the fact that there are other encumbrances in
respect of the subject property, the petitioner participated in the public
auction and was successful bidder and consequently Sale Certificate was
issued by the Bank in favour of the writ petitioner. The Sale Certificate was
issued by the Authorised Officer on 20.02.2023. The Sale Certificate also
reveals that there are other encumbrances and the list of encumbrances as
mentioned in the terms and conditions of sale also has been stated in the
Sale Certificate itself.
7. That being the factum, the petitioner was aware of the other
encumbrances and the attachments made by the City Civil Court.
8. Knowing the factual details regarding other encumbrances,
the petitioner purchased the property.
9. Question arises the Sale Certificate issued with other
encumbrances can be registered by the Registering Officer under the
Registration Act either under Section 17 or under Section 89(4) of the
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Registration Act.
10. The Hon'ble Supreme Court of India in the case of The
Inspector General of Registration and Another vs. G.Madhurambal
and Another [2022 LiveLaw (SC) 969], held that entry made in Book No.I
under Section 89(4) of the Registration Act, also amounts to registration and
it cannot be otherwise distinguished from the Registration made under
Section 17 of the Registration Act. The effect of registration is one and the
same.
11. Regarding the issues relating to registration of Sale
Certificate, the Court has to consider whether the procedures as
contemplated under the SARFAESI Act and the Security Interest
(Enforcement) Rules, are valid or not.
12. The issues are elaborately discussed by this Court in WP
No.15014 of 2022 and judgment was pronounced on 05.09.2023 and the
relevant paragraphs 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37,
38, 39 and 40 are as under:-
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“23. Let us consider the procedures as
contemplated and followed by the Bank in the
present case. Section 26 E of the SARFAESI
Act stipulates that “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.” Therefore the petitioner Bank holds
first charge and they are entitled to auction the
property of realise the loan dues by priority. The
Security Interest (Enforcement) Rules 2002,
contemplates procedures.
? Rule 9 stipulates “Time of sale, issue of sale
certificate and delivery of possession, etc.”
? Sub Rule (6) to Rule 9 states that “ On
confirmation of sale by the secured creditor and if
the terms of payment have been complied with, the
authorised officer exercising the power of sale
shall issue a certificate of sale of the immovable
property in favour of the purchaser in the Form
given in Appendix V to these rules.”
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? Sub Rule (7) to Rule 9 states that “ Where the
immovable property sold is subject to any
encumbrances, the authorised officer may, if the
thinks fit, allow the purchaser to deposit with him
the money required to discharge the
encumbrances and any interest due thereon
together with such additional amount that may be
sufficient to meet the contingencies or further
cost, expenses and interest as may be determined
by him.”
? Sub Rule (8) to Rule 9 states that “On such
deposit of money for discharge of the
encumbrances, the authorised officer may issue or
cause the purchaser to issue notices to the persons
interested in or entitled to the money deposited
with him and take steps to make the payment
accordingly.” ? Sub Rule (9) to Rule 9 denotes
that “The authorised officer shall deliver the
property to the purchaser free from encumbrances
known to the secured creditor on deposit of money
as specified in sub-rule (7) above.”
? Sub Rule (10) to Rule 9 indicates that “The
certificate of sale issued under sub-rule (6) shall
specifically mention that whether the purchaser
has purchased the immovable secured asset free
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from any encumbrances known to the secured
creditor or not.”
24. Pertinently, in the present case, the sale
certificate issued by the authorised officer
indicates that there are known encumbrances to
Commercial Taxes Department, Omalur; Central
Excise and Service Tax, Salem Division and Tamil
Nadu Electricity Board. When, there are known
encumbrances at the time of auctioning the
secured assets, the procedures as contemplated
under Rule 9 has been followed by the petitioner-
Bank or not, is to be examined.
25. The petitioner Bank is entitled to
auction the secured assets. On confirmation of
sale by the Secured creditors / petitioner Bank,
the authorized officer, exercising the power of
sale, shall issue certificate of sale of the
immovable property in favour of the auction
purchaser in the form given in Appendix-V.
Appendix-V provides sale certificate format.
There is a column to indicate list of
encumbrances. In the present case, the sale
certificate issued in favour of the second
respondent indicates known encumbrances for 3
organisations (Central Government, State
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Government and Tamil Nadu Electricity Board).
Under Sub Rule (7) to Rule 9, the authorised
officer has to examine if there is any
encumbrances. In the event of any encumbrance,
whether statutory or non-statutory, the authorised
officer may, if he thinks fit, allow the purchaser to
deposit with him the money required to discharge
the encumbrances to meet out the contingencies.
On such deposit of money, for discharge of the
encumbrances, the authorised officer shall issue
or cause the purchaser to issue and accordingly
clear the encumbrances.
26. On compliance of Sub Rule (7) and (8)
after issuing the sale certificate, the authorised
officer shall deliver the property to the purchaser,
free from encumbrances known to the secured
creditor on deposit of money as specified under
Sub Rule (7).
27. The procedures contemplated under
Rule 9 of the Security Interest (Enforcement)
Rules 2002, unambiguously stipulates that the
secured creditors / Bank has got responsibility
and accountability to consider the statutory
creditors and their dues, while dealing with the
secured assets. Unilateral actions, by neglecting
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the statutory creditors, are impermissible, since
the procedures contemplated under the rules
indicate the protections provided to unsecured
creditors, statutory creditors etc. While realising
the loan dues, the secured creditors are mandated
to protect the interest of the unsecured creditors,
statutory creditors etc. The spirit of the Rules
amplifies that the sale must be made free from all
encumbrances to the third party auction
purchaser, who is not expected to suffer
unnecessarily on account of the procedural
violations, if any committed by the secured
creditors/ Banks.
28. On issuance of sale certificate under
Sub Rule (6) to Rule 9, the purchaser may be
allowed to deposit the money required to
discharge the other encumbrances. On such
deposit of money, the encumbrances may be
cleared by the authorised officer. After clearing
all the encumbrances, the authorised officer shall
deliver the property to the purchaser free from
any encumbrances. Sub Rule (10) to Rule 9
denotes that “ The certificate of sale issued under
Sub-rule (6) shall specifically mention that
whether the purchaser has purchased the
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immovable secured asset free from any
encumbrances known to the secured creditor or
not.”
29. Therefore, the secured creditors are
empowered to make two kind of auction sales.
Firstly they can auction the secured assets and
issue sale certificate under the form given in
Appendix-V of the Rules by indicating the other
encumbrances. While indicating the other
encumbrances, steps have to be taken by the
secured creditors to clear the other
encumbrances. Thereafter, under Sub Rule (9) to
Rule 9, the authorised officer shall deliver the
property to the auction purchaser, free from
encumbrances. The process does not complete on
issuance of the sale certificate by the authorised
officer. Sub Rules (7) to (10), to Rule 9, indicate
the subsequent procedures to be followed by the
authorised officer to protect the other
encumbrances / non-secured statutory or other
creditors. It is not as if the secured creditors/
Banks can auction the secured assets, issue the
sale certificate and wash off their hands. They
have duty towards the other nonsecured statutory
creditors under the provisions of the Security
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Interest (Enforcement) Rules 2002. In the event of
non-compliance of the statutory rules issued
under the SARFAESI Act, the Bank is not entitled
for any relief from the hands of the Constitutional
Courts. Unilateral actions of the secured
creditors, at no circumstances be appreciated.
They, being a public sector, is duty bound to
protect the interest of the other statutory creditors
as it is Crown's debt. The power conferred under
the SARFAESI Act cannot be exercised, so as to
deprive the other statutory creditors from
realising their dues. This exactly is the reason
why the legislature thought fit and contemplated
the procedures so as to protect the interest of the
Crown's debt and the interest of the non-secured
creditors. Thus, mandatory procedures
contemplated under the Rules, if violated or not
complied with, then the secured creditor/ Bank is
not entitled for the relief to lift the attachment
without clearing the dues or to remove the
attachment from the encumbrance certificate
under the provisions of the Registration Act.
30. If the above procedures are not
complied with and the sale certificate has not
been issued stating that the purchaser has
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purchased the immovable secured asset free from
any encumbrances, then the sale certificate issued
would fall under the second category, i.e., with
encumbrance.
31. The second category of sale certificate,
in the form given in Appendix-V of the Rules,
indicates that the list of encumbrances must be
furnished in the sale certificate. In the present
case, such list of encumbrances are furnished by
the authorised officer including the attachment,
made by the first respondent in respect of the
secured assets. In the event of mentioning the list
of encumbrances in the sale certificate, then it is
to be construed that the sale certificate was not
issued free from encumbrances. When the sale
certificate was issued with encumbrances then
such sale certificate cannot be registered under
the Registration Act nor encumbrances made can
be removed without lifting the same.
32. Question arises, whether the interest of
the third party purchaser can be protected in such
circumstances, when the sale certificate was
issued with encumbrances? The simple answer is
that the third party auction purchaser, knowing
the encumbrances notified by the secured
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creditor, has purchased the property through
public auction. When the purchaser is aware of
the encumbrances, then he has to discharge the
encumbrances and convert the sale free from
encumbrances for the purpose of registering the
sale certificate or for alienating the property. By
Applying the principles of Caveat emptor, the
third party purchaser, who purchased the
property through public auction was made aware
of the encumbrances. Once the purchaser has the
knowledge about the encumbrances and
purchased the property through auction, then it is
his obligation to discharge the encumbrances and
convert the encumbered property free from
encumbrances. The Bank cannot file a writ
petition so as to protect the interest of the third
party, who has purchased the property knowing
the fact that there are other encumbrances. Once
the Bank auctioned the property and issued a sale
certificate under Sub Rule (6) to Rule 9 of Security
Enforcement Rule 2002 by mentioning the list of
other encumbrances, then such sale certificate
cannot be registered by the registering authority.
Thus, only on lifting the attachment, necessary
entries can be made in the encumbrance
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certificate or to remove the encumbrances under
the provisions of the Registration Act.
33. The legislative intention of the
SARFAESI Act and Security Interest
(Enforcement) Rules, 2002, is not restricted by
providing priority to the secured creditors /
Banks, but extents its protection to the non-
secured and statutory creditors. Therefore, the
secured creditors / financial institutions, while
invoking the provisions of the SARFAESI Act, and
the rules framed thereunder are mandated to
follow the procedures scrupulously so as to
ensure that other non-secured creditors are not
deprived of their rights to realise their statutory
or other dues.
34. Under the provisions of the SARFAESI
Act and the Security Interest (Enforcement) Rules
2002, the Auction Sale by the secured creditors,
completes on delivery of the secured assets to the
auction purchasers, free from all encumbrances.
Violation of procedures, if any committed by the
secured creditors, if resulted in denial of the
rights of other non-secured creditors and
statutory dues, then the secured creditors are not
entitled for a direction from the High Court to
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remove the encumbrances notified. While
realising the loan dues by the secured creditors,
they are equally bound to provide space for the
non-secured creditors to realise their dues. Thus,
compliance of the procedures contemplated in the
rules are not only mandatory but the non-
compliance would result in denial of an
opportunity to the non-secured creditors to
recover their dues.
35. No doubt, in the present case, the
secured creditor is not in a position to recover
their dues in entirety. In such circumstances, Sub
Rule (10) of Rule 9 contemplates that the
certificate of sale issued under Sub Rule (6) shall
specifically mention whether the auction
purchaser has purchased the immovable secured
asset free from any encumbrances known to the
secured creditor or not. If the auction sale is made
with encumbrances, then the registering authority
under the Registration Act cannot remove the
same.
36. Registering Authority, under the
Registration Act is bound by the provisions of the
Act. When the Sale Certificate was issued with
known encumbrances and the auction purchaser
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purchased the property accepting the known
encumbrances, the Registering Authority is
empowered to refuse registration, so also he
cannot remove encumbrances.
37. The auction purchaser is made aware of
the known encumbrances by the secured creditors.
The secured creditors, to cover up their misdeeds,
cannot file a writ petition and seek a direction
against the Registering Authority to remove the
encumbrances, which would deprive the other
nonsecured creditors from realising their dues.
Importantly, such directions, if issued to remove
the encumbrances, the public in general would be
misled on account of such entries in the public
records and there is a possibility of fraud,
misrepresentation or otherwise at the time of
further alienation of properties. Further the non-
secured creditors and the statutory creditors
would loose their opportunity to recover their
dues permanently. The principle of 'Buyer
Beware' would be applicable in respect of the
auction purchase made by the persons along with
the known encumbrances. It is not in dispute that
the secured creditor notified the encumbrances
even at the initial stage of publication of auction
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notice. Thus, the purchasers are aware of the fact
regarding the other encumbrances. High Court
cannot grant waiver of other encumbrances,
thereby depriving the non-secured creditors from
realising their dues. Such waiver would result in
infringement of the statutory rights of the non-
secured creditors and therefore, the secured
creditors are duty bound to follow the procedures
as contemplated under the rules scrupulously.
38. If the auction sale has been completed
in all respects in compliance with the provisions
of the SARFAESI Act and Rules, then alone the
sale certificate issued by the authorised officer
can be construed as free from all encumbrances
as stipulated under Rule 9 of the Security Interest
Enforcement Rules. In the event of notifying any
other encumbrances in the sale certificate, then it
is to be construed as sale certificate with
encumbrances. In respect of the sale certificate
issued with known encumbrances, then the
Registering Authority under the Registration Act
is not empowered to remove encumbrances. Such
refusal is made in order to protect the interest of
the non-secured statutory creditors and to protect
the public interest and therefore, such actions of
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the Registering Authority cannot be held to be
infirm or perverse.
39. In the present case, the petitioner /
Indian Overseas Bank conducted public auction of
the secured assets. They recovered their dues
partly. The sale certificate was issued by the
authorised officer notifying the known
encumbrances. The petitioner Bank thereafter
filed the present writ petition seeking a direction
against the Sub-Registrar to register the sale
certificate, but the sale certificate was issued by
the Authorised Officer with known encumbrances.
Thus, the sale certificate issued cannot be
construed as free from encumbrances as
contemplated under Rule 9 of the Security Interest
Enforcement Rules. Thus, the sale certificate
issued with encumbrances is non-registrable and
the Registering Authority is not empowered to
remove encumbrances at the request of the Bank.
40.The auction purchaser purchased the
property along with the known encumbrances.
After realising the dues partly by the secured
creditor, the auction purchaser, along with the
secured creditors/ Bank, cannot deprive the
statutory rights of the other non-secured or
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statutory creditors under various enactments to
realise their dues. The secured creditors has no
right to cause infringement of the rights of the
other nonsecured creditors and statutory
creditors. Thus, adherence of the Security Interest
Enforcement Rules scrupulously is of paramount
importance in order to protect the other
encumbrances and any violation by the secured
creditors would disentitle them from seeking the
relief of direction to remove encumbrances under
the Registration Act. Thus, the writ petition is not
only premature but also the sale certificate issued
with encumbrances cannot be registered under the
provisions of the Registration Act, nor
encumbrances can be removed, at the request of
the Bank since such removal would result in
misguidance to the public in general for further
alienation of the properties. Unless, the
encumbrances are cleared, the attachment will
continue, and it cannot be removed as such sought
for by the petitioner Bank.”
13. The Sale Certificate under Rule 9(6) of the Security Interest
(Enforcement) Rules can be issued with encumbrances or without
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encumbrances. Once such Sale Certificate has been issued free from
encumbrances under Rule 9 (10) of the Rules, then such Sale Certificates
are registrable under the provisions of the Registration Act, either under
Section 17 or under Section 89(4), as the case may be and by following the
procedures as contemplated. If the Sale Certificate has been issued with
encumbrances, then the Registering Authority is empowered to refuse
registration by invoking the powers conferred under Section 22-B of the
Registration Act.
14. In the present case, 96 attachments were in force even at the
time of issuance of the public sale notice and the petitioner had purchased
the property knowing the fact that there are other encumbrances and thus, he
is at liberty to clear the encumbrances and retain the Sale Certificate free
from all encumbrances and in the event of submitting the Sale Certificate
along with encumbrances, the Registering Authority is empowered to refuse
registration of the same.
15. This being the principles to be followed and the Rules in
this regard are elaborately considered by this Court in the judgment, cited
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supra, the petitioner is not entitled for the relief as such sought for in the
present writ petition.
16. Accordingly, the present writ petition stands dismissed.
However, there shall be no order as to costs.
08-09-2023
Index : Yes/No
Internet: Yes/No
Speaking order/Non-Speaking order
Neutral Citation : Yes/No
Svn
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WP No.25363 of 2023
To
1.The Inspector General of Registration,
100, Santhome High Road,
Mylapore,
Chennai-600 004.
2.The Sub Registrar,
Anna Nagar,
Chennai-600 040.
3.Asset Reconstruction Company (India) Limited,
The Ruby, 10th Floor,
29, Senapati Bapat Marg,
Dadar (West),
Mumbai – 400 028.
https://www.mhc.tn.gov.in/judis
WP No.25363 of 2023
S.M.SUBRAMANIAM, J.
Svn
WP 25363 of 2023
08-09-2023
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