The Bombay High Court recently ruled that the secured creditor has priority over the Government dues under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
It is the case of the Petitioner, Ronak Industries, that the Petitioner came to know about the said Secured Asset through the Free Press Journal newspaper wherein a Sale Notice was published for sale of the Secured Asset under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) r/w The Enforcement of Security Interest Rules, 2000 at a reserve price of Rs. 3.59 crores. The Petitioner took inspection of the Secured Asset along with the officers of the respondent and subsequently participated in the e-auction.
The counsel for the Petitioner submitted that prior to participating in the said e-auction, the Petitioner was not informed about any charges/lien/encumbrances of the Assistant Commissioners on the said Secured Asset and also submitted that the Petitioner had taken inspection of the records of the Bank of Baroda before participating in the said e-auction.
However, the Petitioner did not notice any encumbrances/lien/charges of the Assistant Commissioners. The Bank of Baroda has sold the Secured Asset under the provisions of the SARFAESI Act.
Section 26E of the SARFAESI Act which has been inserted vide Amendment in 2016, it provides that notwithstanding anything inconsistent therewith 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 revenue taxes and cesses and other rates payable to the Central government or state government or local authority.
The Bank of Baroda registered its security interest over the Secured Asset on The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) and also filed a report to the same downloaded from the website portal of CERSAI.
A Division Bench of the Bombay High Court of Justice B. P. Colabawalla and Justice M.M. Sathaye observed that “Since the Full Bench decision of the Court in the case of Jalgaon Janta Sahakari Bank Ltd. and Anr. as rested the controversy of priority of the secured creditor viz-a-viz the dues of the Central Government or State Government or local authority under Section 26-E of the SARFAESI Act, 2002, the lien/charges/encumbrance/mutation entry, if any, registered with Mamlatdar by Assistant Commissioners cannot be allowed to stand and Sub Registrar would have to be directed to record/register the Sale Certificate/Sale Deed under the provisions of the Registration Act, 1908 as free from any encumbrances of the Assistant Commissioners.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
