SARFAESI Newsletter - April 2024

The latest edition of our SARFAESI Newsletter explores the recent cases, highlighting the precedence of secured creditors with registered interests, unravelling the nuances of property title acquisition amidst legal injunctions and sale certificate disputes understanding the evolving landscape of mortgage redemption post-amendment shedding light on the rights of both creditors and debtors in property transaction.

1. Priority to be given to Secured Creditor over all other debts where the Secured Interest is registered with CERSAI.

Indian Overseas Bank Vs. Deputy Commissioner of State Tax and Others (2024 SCC OnLine Bom 907)

The credit facilities were availed by the Borrower from a consortium of banks led by the Petitioner. The mortgage over secured asserts was registered under section 26-B SARFAESI Act which was also evidenced by Charge Registration Certificate. The Petitioner took symbolic possession of the secured assets on 16.09.2019 and eventually filed an application under section 14 of SARFAESI Act before District Magistrate where the orders were passed directing the Tahsildar to take possession of secured assets which was eventually taken by the Petitioner on 30.08.2022. The MVAT authorities asserted that they have statutory charge over secured assets and would yield to statutory first charge and accordingly attachment orders were passed agreed by the same the Writ Petitions were filed.

The Court after analyzing various provisions of SARFAESI Act, observed that the secured creditors and officials enforcing recovery of tax may register their security interest and attachment orders with CERSAI. Such registration is a constructive public notice of the charge over the property in question. The ranking of priority of competing charges so registered would be in the sequential order of the registration. The registrant with a prior registration would have priority over subsequent registrants. Without such registration, the secured creditor shall not have the right to take enforcement action under the SARFAESI Act.

Accordingly, the Hon'ble High Court allowed the petition and declared that the MVAT authorities would not confer any priority over the registered security interest enjoyed by the Petitioner-led consortium banks over secured assets.

2. Mere registration of document does not confer any title to the property.

Mittapalli Hari Kishan Vs. State of Telangana (2024 SCC OnLine TS 301)

The Petition is filed questioning the action of Respondent to receive the sale certificate issued by Bank for registration in respect of part suit scheduled property under the guise that there was ad-interim injunction under Order 39 Rule 1 and 2 of CPC in Civil Suit instituted against the property owner for recovery of amount and delete the same from the prohibited property list.

It was contended that the Bank had granted credit facility to M/s.Radhakrishna Agro Products (the Borrower) and created security interest on the suit schedule property. As the Borrower failed to repay the loan of sanctioned amount, the loan account was declared as NPA and Bank initiated measures under SARFAESI Act by enforcing the security interest over the suit scheduled property. The Petitioner purchased the said property by way of e-auction, and Bank has issued sale certificate in favour of the Petitioner. The Respondent refused the registration under the guise that there was an ad-interim injunction order in respect of the said property.

The main grievance of the Petitioner was that as he had purchased the said property, sale certificate was issued and accordingly as challan was paid, it would become stale if the registration was not done within six months. The Court held that the Petitioner would be deprived of the challan amount for no fault of his and directed the authorities to register the property. The Court also held that the Petitioner should not claim any equities and observed that mere registration does not confer any title to the property.

3. Right of redemption of mortgage property cannot subsist after the date of sale notification.

IDBI Bank Vs. Sub Registrar and Others (2024 SCC OnLine Ker 1355)

In the given case, the Bank had initiated proceedings under Section 13(2) of SARFEASI Act and e-auction notice was issued and upon confirmation of highest bidder, sale confirmation letter was issued. The Borrower filed a suit wherein he contended that the Bank has conducted the auction in a secretive manner and accordingly obtained conditional order from the Munsif's Court. The auction purchaser sought the Bank to efface the attachment in respect of the property purchased. Accordingly, the bank has filed Writ Petition. The question that arose was whether the right of redemption of mortgage property subsists after the date of sale notification.

The Bank contended that the mortgager's right of redemption extinguishes on the date of sale notification as per amendment to Section 38 of the SARFAESI Act and therefore attachment made after the sale notification is unsustainable.

The Court after analysing the provisions of Section 13(8) of SARFAESI Act came to a conclusion that the right of redemption extinguishes on the date of issuance of sale notification and any attachment made after the sale notification is not valid and accordingly allowed the Writ Petition filed by the Bank. The Court also observed that the Respondent cannot make any objection to the sale of the property under SARFAESI Act.

Contributors to the newsletter:

• Ravi Charan Pentapati, Partner
• Venkateshwara Rao Lakkineni, Senior Associate
• Grancy Bonam, Associate

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