Secured Creditors’ Dues Takes Priority Over Government Revenues U/S 26E SARFAESI Act: Punjab & Haryana High Court

The Punjab & Haryana High Court has clarified that under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, security interest due to any secured creditor takes priority over revenue payable to Central or State Government.

The Court was considering a Writ Petition filed by aggrieved State Bank Of India aggrieved by the inaction on part of the Sub-Registrar for failure to register the sale deed in favour of the auction purchaser despite him a ‘successful bidder’ in the e-auction, depositing the entire sale consideration and having sale certificate in its name.

The division bench of Chief Justice Sheel Nagu and Justice Sanjiv Berry held, "It has already been laid down by the Apex Court, time and again in its various pronouncements that the right of a secured creditor to recover its debts, will always be a prior right, even over the right of recovery of a crown debt or any other debt, as is the case herein...."

The Petitioner was represented by Senior Advocate Vikas Chatrath while the Respondent was represented by Additional Advocate General Neeraj Gupta.

Facts of the Case

The Bank had approached the Court aggrieved due of the fact that failure on the part of Sub-Registrar to register the sale deed is causing grave prejudice to it as it is unable to recover the outstanding dues standing against the borrower-M/s Mahavir Cereals, who had availed credit facility in the year 2013 and had later defaulted in repayment, leading to initiation and conclusion of proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The Sub-Registrar concerned had declined to register the sale deed on the ground of attachment order of the secured asset in question, having been passed by Deputy Commissioner in 2018 as outstanding tax dues against borrower-M/s Mahavir Cereals.

Reasoning By Court 

The Court at the outset noted that the charge in favour of District Food and Supply Department, State of Haryana was created as late as on November 28, 2018 over the secured assets, whereas the charge of the Petitioner-Bank over the secured assets was created much earlier upon deposit of original title deeds by the borrower-M/s Mahavir Cereals with the Petitioner-Bank on July 04, 2013.

It stated that it has to ascertain that as to which authority i.e. either the State of Haryana or the Petitioner-Bank, has priority over the secured assets.

The Court reflected on the objectives of Section 26E of the SARFAESI Act and mentioned that the State has not pointed out to any Statute creating a statutory first charge in its favour regarding the dues arising out of Custom Milling Agreements. Such dues, even if validly claimed, remained contractual or policy-based recoveries and do not enjoy statutory status.

"The rapat entry itself does not decide rights of parties, it is merely an administrative note and cannot defeat a prior statutory right of mortgage of petitioner Bank. Therefore, respondent No.1- Sub Registrar could not rely on this later-in-time attachment to refuse registration of SARFAESI sale deed", the Court observed.

Referring to Supreme Court's decision in Dena Bank v. Bhikhabhai Prabhudas Parekh, (2000), Union of India v. SICOM Ltd., (2009), Rana Girders Ltd. v. Union of India, (2013), National bank v. Union of India and Ors., (2022), the Court held, "...this Court has no manner of doubt that the present petition filed by the Bank, which has prior charge over the tax dues of the State of Haryana, deserves to be and is hereby allowed.."

The Petition was accordingly allowed.

Cause Title: State Bank of India v. Sub Registrar, Sub Tehsil, Nighdu Karnal And Others

Appearances:

Petitioner- Senior Advocate Vikas Chatrath, Advocate Preet Agroa

Respondents- Additional Advocate General Neeraj Gupta, Advocate Diwan Sharma

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