Proceeding Under SARFAESI Act And IBC Saved From Provision Providing Precedence To Attachment Under BUDS Act: Kerala HC
The Kerala High Court was considering a Writ-Petition seeking directions to the Respondent to register Sale Certificate issued by it in terms of the provisions contained in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and consequently for a direction to the revenue authorities to carry out the mutation of the property covered by Sale Certificate.
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.
The Court was considering a Writ-Petition seeking directions to the Respondent to register Sale Certificate issued by it in terms of the provisions contained in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and consequently for a direction to the revenue authorities to carry out the mutation of the property covered by Sale Certificate.
The single-bench of Justice Gopinath P. observed, "....it is clear 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."
The Petitioner was represented by Advocate Paulochan Antony while the Respondent was represented by Government Pleader P.S. Appu.
Facts of the Case
Two borrowers availed loans from the Petitioner-Financial Institution by mortgaging all pieces and parcels of the land along with a building. The borrowers defaulted on loan repayment, prompting the petitioner to initiate proceedings under the SARFAESI Act. Physical possession of the property was taken and the same was put up for auction and sold to the 3rd Respondent. However, when the 3rd respondent attempted to register the sale certificate, it was informed that the 4th respondent had issued a communication to the 1st respondent, restraining the transfer of the property. According to the 4th respondent, FIRs were registered against the borrower for misappropriating amounts of the BSNL Engineers Co-operative Society. During the course of the investigation, certain offences under the Banning of Unregulated Deposit Schemes Act, 2019 were also incorporated.
Counsel for the Petitioner submitted that the proceedings under the BUDS Act have no bearing on those initiated under the SARFAESI Act. He further submitted that Sections 12 and 13 of the BUDS Act start with 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)’, and therefore, the proceedings under the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC) are saved from the operation of the provisions in the BUDS Act. Referring to the judgment of the Supreme Court in Central Bureau of Investigation v. State of Bihar and Others; 2010, he contended that communication of the 4th respondent cannot interfere with the proceedings initiated under the SARFAESI Act.
On the other hand, the Government Pleader submitted that Section 8 of the BUDS Act constitutes a Designated Court exclusively for trying the cases under the BUDS Act while Section 18(1)(c) empowers the competent authority to take possession of any asset belonging to the deposit taker and sell, transfer or release the attached asset. He further contended that any person aggrieved by an order of the Designated Court can prefer an appeal before the High Court within the stipulated time under Section 19 of the Act and therefore, considering the availability of an alternative remedy, the discretionary jurisdiction under Article 226 of the Constitution of India may not be invoked. He also referred to Sections 5, 12 and 13 of the BUDS Act to contend that depositors have a right to restitution and the order of provisional attachment shall have precedence and priority to the extent of the claims of the depositors, over any attachment by any other authority competent to attach property for payment of any debts etc.
Reasoning By Court
The Court after looking into the relevant provisions allowed the submissions of the Counsel for the Petitioner.
"The submission of the learned Government pleader that this matter is identical to the one referred to in the reference order in Writ Appeal No. 1087/2024 cannot be accepted, as that case pertains to the High Court's power under Article 226 to efface an attachment ordered by a Court without approaching the competent Court and is unrelated to the present issue," the Court further observed.
The Petition was accordingly allowed.
Cause Title:
Appearances:
Petitioner- Advocate Paulochan Antony, Advocate Sreejith K.
Respondent- Government Pleader P.S. Appu,
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