Madras High Court
Encore Asset Reconstruction Company ... vs The Sub Registrar on 27 January, 2025
Author: G.K.Ilanthiraiyan
Bench: G.K.Ilanthiraiyan
W.P (MD).No.28098 of 2024
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 27.01.2025
CORAM
THE HONOURABLE MR. JUSTICE G.K.ILANTHIRAIYAN
W.P (MD).No.28098 of 2024
Encore Asset Reconstruction Company Private Limited,
Registered Office,
Caddie Commercial Tower,
Regus Business Centre, 5th Floor,
Aero City (Dial),
New Delhi-110 037,
Rep. by its Authorized Officer. .... Petitioner
Vs
1.The Sub Registrar,
Peraiyur Sub Register Office,
Subramanyaswamy Kovil Street,
Peraiyur, Madurai District.
2.The Assistant Commissioner (CT)
The Commercial Tax Department,
No.15/91, Soniar Street,
Jawahar Nagar,
Thirumangalam, Madurai District.
3.Ms/.Family Impex,
Through Proprietor Mrs.D.Sangeetha
No.2, Sarawathi Nagar,
1st Main Road, Puthagaram,
Kolathur, Chennai-600 099. ...Respondents
https://www.mhc.tn.gov.in/judis
1/12
W.P (MD).No.28098 of 2024
Prayer: Petition filed under Article 226 of the Constitution of India praying to
issue a Writ of Certiorarified Mandamus, to call for the records of the first
respondent's relating to the impugned order passed in RFL/Ngiua+H/4/2024
dated 06.11.2024 and quash the same as illegal and consequentially direct the
first respondent to register the Sale Certificate dated 09.10.2024 issued by the
petitioner under SARFAESI Act within the period that may be stipulated by
this Court and direct the first respondent to remove the encumbrance entry of
second respondent.
For Petitioner : Mr.R.Senthilkumar
For R1 : Mr.Veera Kathiravan
Additional Advocate General
Asst. by Mr.D.Sadiq Raja
Additional Government Pleader
For R2 : Mr.R.Suresh Kumar
Additional Government Pleader
ORDER
This writ petition has been filed challenging the refusal check slip
issued by the first respondant, dated 06.11.2024 thereby refused to register the
sale certificate dated 09.10.2024 on the ground that there is already an order of
attachment in respect of the subject property.
2. Heard the learned counsel appearing on either side and perused the
materials placed before this Court.
3. The petitioner is an Asset Reconstruction Company coming within
definition of section 2(b) of Securitisation and Reconstruction of Financial
https://www.mhc.tn.gov.in/judis
Assets and Enforcement of Security Interest Act 2002 (SARFAESI ACT). As
per the resolution, dated 26.05.2020, made by the Board of Directors of this
Petitioner Company, the petitioner is authorized to exercise all powers and
functions contemplated under SARFAESI Act. While being so, one M/s. Sri
Appala Raman Appala Depo and M/s. Akshay Internets Services Pvt. Ltd had
availed loan facilities from the City Union Bank Ltd. In order to secure the
repayment of the loan amount with interest, M/s Appala Raman depo had
executed the Memorendum of deposit of title deeds, dated 04-03-2020 in
document No.8184/2020 in favor of the bank in respect of the property
comprised in S.No.8/24 under patta No.1635 to an extent of 86 cents situated at
Vannivelampatti village, Peraiyur Taluk, Madurai District. Thereafter,
borrowers failed to repay the loan amount and committed default, therefore,
their loan account was declared as Non-Performing Asset (NPA) as per the
guidelines issued by Reserve Bank of India and recovery proceedings were
initiated under SARFAESI Act. Thereafter, the said property was taken
physical possession on 02.09.2021 and brought the property for auction sale.
Therefore, the petitioner continuned proceedings under SARFAESI Act.
Accordingly e-auction sale was conducted on 25.09.2024 and the property was
sold out in favour of the third respondent. The third respondent issued sale
certificate and the same was presented for registration. However, the first
https://www.mhc.tn.gov.in/judis
respondent refused to register the same on the ground that subject property was
already attached by the Assistant Commissioner of Commercial Tax
Department, Thirumangalam, Madurai District.
4. The learned counsel for the petitioner would submit that Section
26E of the SARFAESI Act deals with Priority to secured creditors. Section
31B deals with Recovery of Debts and Bankruptcy Act, 1993 also provides
Priority to secured creditor. Notwithstanding anything contained in any other
law for the time being in force, the rights of secured creditors to realise secured
debts due and payable to them by sale of assets over which security interest in
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. Further 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. It is further
submitted that in the light of the Circular No.21343/C1/2021 dated 10.07.2021
which has been issued by the Inspector General of Registration, that if any sale
certificates presented for registration by the bank in the capacity of secured
https://www.mhc.tn.gov.in/judis
creditors, thereon not to give refusal check slip for the reason of attachment
order issued by the Court. The refusal of the first respondent in not register the
sale certificate is wrong. The order of attachment is after the deposit of title
deeds.
5. The learned Additional Advocate General appearing for the first
respondent would submit that when there is an order of attachment passed by
the Court, the first respondent cannot register the sale certificate issued by the
petitioner. There is a clear bar under Section 22-B of the Registration Act,
1908. Therefore, the request made by the petitioner was rightly rejected by the
first respondent and directed to raise the attachment before the Court of law to
register the sale certificate. He further submitted that the Inspector General of
Registration had issued a circular dated 10.07.2021, much prior to the insertion
of Section 22-B of the Registration Act.
6. The learned counsel for the petitioner has relied on the judgment of
the Full Bench of this Court in The Assistant Commissioner 9CT) v. the
Indian Overseas Bank reported in 2016(6) CTC 769. In this Case, the Full
Bench of this Court passed an order that the rights of a secured creditor to
realise secured debts due and payable by sale of assets over which security
https://www.mhc.tn.gov.in/judis
interest is created, would have priority over all debts and Government dues
including revenues, taxes, cesses and rates due to the Central Government,
State Government or Local Authority.
7. It is relevant to extract the Section 26E of the SARFEASI Act:-
"Section 26E: Priority to secured creditors:-
Notwithstanding anything contained in any other law for the time
being in force, the rights of secured creditors to realise secured
debts due and payable to them by sale of assets over which
security interest in 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."
8. Thus, it clear that the secured creditor have priority over all other
debts and Government dues including revenues, taxes, cesses and rates due to
the Central Government, State Government or local authority. The
memorandum of deposit of title deed was executed on 04.03.2020, whereas, the
order of attachment was passed by the second respondent on 08.07.2024. It is
subsequent to the registration of memorandum of deposit of title deeds. The
attachment orders were passed even without verifying the encumbrance
certificates in respect of the subject property. The second respondent ought to
https://www.mhc.tn.gov.in/judis
have verified the encumbrance certificate before attaching the subject property.
All the above said proceedings were initiated behind the knowledge of the
petitioner's Finance Company. The rights of the petitioner was also protected
as per Section 26-E of the SARFAESI Act. Hence, the subsequent charges if
any created will not bind the petitioner's finance company. Section 22-B
cannot be invoked in respect of an involuntary transfer namely the sale under
SARFAESI Act.
9. It is relevant to extract Section 31-B of the SARFAESI Act:-
"Section 31-B Priority to secured creditors:-
Notwithstanding anything contained in any other law for the time
being in force, the rights of secured creditors to realise 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."
https://www.mhc.tn.gov.in/judis
10. This issue has been dealt with by the Hon'ble Division Bench of
this Court in W.A.No. 3037 of 2023, by order dated 03.07.2024 (Indian Bank
Vs. The Sub-Registrar and another). The Hon'ble Division Bench of this Court
referred the Judgment of the Division Bench of this Court in W.P(MD)No.674
of 2023 in the case of M/s.Cholamandalam Investment and Finance
Company Limited Vs. the District Registrar and others, in which, the Hon'ble
Division Bench concluded that the refusal of registration of a sale certificate on
the ground of an attachment order is in force, is not justified. The relevant
paragraph of the Judgment is extracted hereunder:
'11. Section 64 of C.P.C. bars private transfer. The
transfer in the present case is an involuntary transfer. It is the
secured-creditor, who has exercised its right under the Special
Act viz., the Act 2002.
12. Section 26-E of the Act, 2002 starts with a non
obstante clause. Section 26-E of the Act, 2002 provides that
notwithstanding anything contained in any other law for the time
being in force, after the registration of the 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.
13. Section 26-E of the Act, 2002 expressly and
unambiguously provides for a priority right to a secured creditor
over all other claims.
https://www.mhc.tn.gov.in/judis
14. The debt of the fourth respondent was an unsecured
debt. The mortgage of the property in favour of the present
petitioner or the judgment-debtor under the award was prior to
the attachment of the property.
15. The rights of the secured-creditor have a priority
charge. The Apex Court, in the case of Kotak Mahindra Bank
Limited vs. Girnar Corrugators Private Limited and others,
reported in (2023) 3 SCC 210, has held that the legislature has
expressly and unambiguously provided for a legal framework
exclusively on the issue of 'priority' of payment of debt by
including Section 26-E in the Act, 2002. In the said case, it was
held that the recovery under the Act, 2002 with respect to the
secured asset would prevail over the recovery of the award
amount under the Micro, Small and Medium Enterprises
Development Act, 2006.
11.Thus, it is clear that Section 26-E of the SARFAESI Act, 2002
expressly and unambiguously provides for a priority right to a secured creditor
over all other claims. The mortgage of the subject property by depositing title
deeds in favour of the petitioner was prior to the attachment of the subject
property. Therefore, the first respondent ought not to have refused to register
the sale certificate issued under the SARFAESI proceedings.
12. Therefore, the second respondent without even verifying the
encumbrance of the subject property, attached the said property. Therefore, the
https://www.mhc.tn.gov.in/judis
petitioner gets priority over all other charges and any order of attachment
passed by the Civil Court, subsequently, will never bind the petitioner to which
the mortgage has already been created by the debtor. Therefore, the order of
attachment cannot be put against the petitioner and it will not bind the first
respondent for refusal of registration of sale certificate.
13. In view of the above, the impugned order passed by the first
respondent dated 06.11.2024 cannot sustained and it is liable to be quashed.
Accordingly, the order of the first respondent dated 06.11.2024 is quashed.
14. In the result, the writ petition is allowed and the petitioner is
directed to represent the sale certificate for registration before the first
respondent and on receipt of the same, the first respondent shall register the
same and release the document forthwith, if it is otherwise in order. No costs.
Internet : Yes
Index : Yes/No 27.01.2025
Speaking/Non Speaking order
am
https://www.mhc.tn.gov.in/judis
To
1.The Sub Registrar,
Peraiyur Sub Register Office,
Subramanyaswamy Kovil Street,
Peraiyur, Madurai District.
2.The Assistant Commissioner (CT)
The Commercial Tax Department,
No.15/91, Soniar Street,
Jawahar Nagar,
Thirumangalam, Madurai District.
https://www.mhc.tn.gov.in/judis
G.K.ILANTHIRAIYAN, J.
am
27.01.2025
https://www.mhc.tn.gov.in/judis
