BUDS have No Precedence over proceedings under SARFAESI Act or IBC: Kerala HC rules in case of HDB Financial Services [Read Order]

While considering a writ petition filed by the HDB Financial Services Limited, the Kerala High Court has held that attachment under the Banning of Unregulated Deposit Schemes Act does not have precedence over proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act or the Insolvency and Bankruptcy Code.

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The single-bench of Justice Gopinath P. observed that “the expression ‘Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), can only mean that any action/proceeding under the SARFAESI Act and the IBC is saved from the provision providing precedence to the BUDS Act.” 

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 Two borrowers mortgaged all of the land and a building in order to get loans from the Petitioner-Financial Institution.  The petitioner filed a claim under the SARFAESI Act after the borrowers failed to make loan payments.  The property was physically seized, put up for auction, and then sold to the third respondent.  However, it was discovered that the fourth respondent had sent a communication to the first respondent, preventing the transfer of the property, when the third respondent tried to register the sale certificate.

FIRs were filed against the borrower for embezzling funds from the BSNL Engineers Co-operative Society, according to the fourth respondent.  Some offenses under the 2019 Banning of Unregulated Deposit Schemes Act were also included over the course of the investigation.

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The petitioner's attorney argued that the SARFAESI Act proceedings are unaffected by those started under the BUDS Act.  He further argued that the proceedings under the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC) are exempt from the application of the BUDS Act's provisions because Sections 12 and 13 of the Act begin with the phrase "Save as otherwise provided in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016)."

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However, the Government Pleader argued that Section 18(1)(c) gives the appropriate authority the authority to seize any asset that belongs to the deposit taker and sell, transfer, or release the attached asset, while Section 8 of the BUDS Act establishes a Designated Court solely for the purpose of trying cases under the BUDS Act.  He further argued that since anyone who feels wronged by a Designated Court order has the right to file an appeal with the High Court within the time frame allowed by Section 19 of the Act, the discretionary jurisdiction granted by Article 226 of the Indian Constitution cannot be used in light of the availability of an alternative remedy.

Government Pleader P.S. Appu represented the Respondent, while Advocate Paulochan Antony represented the Petitioner.

The Court allowed the petition by directing the competent among the respondents to forthwith register the sale certificate issued by the petitioner in favour of the third respondent in accordance with the law.  The petitioner shall deposit the excess amount received by it, after setting off the liability, before the competent authority under the BUDS Act within a periodof four weeks from today.

To Read the full text of the Order CLICK HERE

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