TMI Blog2023 (9) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has further stated that the Writ of Mandamus is not maintainable since the entry in the Encumbrance certificate could be quashed but by merely seeking Writ of Mandamus, the petitioner is not entitled for the relief. The Bank has not initiated any steps to resolve the issues through AMRD as per the Government of India memorandum. It is not as if the Bank's interests alone is to be protected by the Courts. The Courts are bound to consider the plight of Crown's debt equally. In the event of any procedural violations or violations of the provisions of the SARFAESI Act or Rules, then the Court may not be in a position to grant the relief in favour of the petitioner, as such sought for in the writ petition - mandatory procedures contemplated under the Rules, if violated or not complied with, then the secured creditor/ Bank is not entitled for the relief to lift the attachment without clearing the dues or to remove the attachment from the encumbrance certificate under the provisions of the Registration Act. Whether the interest of the third party purchaser can be protected in such circumstances, when the sale certificate was issued with encumbrances? - HELD THAT:- By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate, but the sale certificate was issued by the Authorised Officer with known encumbrances. Thus, the sale certificate issued cannot be construed as free from encumbrances as contemplated under Rule 9 of the Security Interest Enforcement Rules - the sale certificate issued with encumbrances is non-registrable and the Registering Authority is not empowered to remove encumbrances at the request of the Bank. This Court has to arrive at an inevitable conclusion that the writ petition filed by the petitioner Bank and the relief as such sought for are untenable - the writ petition stands dismissed . - Honourable Mr.Justice S.M.Subramaniam For the Petitioner : Mr.M.L.Ganesh For the Respondens : Mr.Umesh Rao .K, Senior Standing Counsel For the R2 : Mr.B.Dhan Raj For the R3 : Mr.D.Ravichander, Special Govt.Pleader ORDER The lis on hand has been instituted to direct the 1st respondent to remove the attachment effected on 03.12.2014, as mentioned in the Encumbrance Certificate, with the Office of the 3rd respondent, in respect of secured property belonging to the 2nd respondent, so as to enable the petitioner Bank to register the sale certificate / sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioner-Bank. The Bank continued its actions under the SARFAESI to recover the huge outstanding loan amount of Rs. 216,63,91,070.59/- as on 21.02.2014. The petitioner-Bank has so far caused more than 10 notices to auction the secured property belonging to the 2nd respondent but could not be sold for want of bidders mainly due to the attachment effected by the 1st respondent / Assistant Commissioner of Central Excise and Service Tax towards its dues. 5. The petitioner-Bank had so far sold the secured properties belonging to the guarantors and recovered only a sum of Rs. 51,79,77,500/- as against the staggering outstanding amount of Rs. 216,63,91,070.59 as on 21.02.2014. 6. The petitioner-Bank mainly contended that they are struggling to auction the secured properties beacuae of the attachment made by the 1st respondent. They are unable to register the sale deed and necessary entries are not made in the Encumbrance Certificate. Thus, the 3rd party purchasers are unable to deal with the properties, which they purchased through public auction conducted by the Bank. The respondent is not having any priority over the debts of the creditor. The petitioner-Bank admittedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the petitioner-Bank is unable to proceed further and realise the loan dues. 11. In support of the contentions, raised by the petitioner, the learned counsel for the petitioner made the following legal submissions. i) UTI bank Ltd vs. Deputy Commissioner, Central Excise, 2006 SCC online Madras 1182. The Hon'ble Full Bench of this Hon'ble High Court observed as follows: Para No.25 In the case on hand, the petitioner bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Department are to be recovered. There is no specific provision either to in the Central Excise Act or the Customs Act, claiming first charge as prescribed in other enactments, which we have pointed out in earlier paragraphs. Para No. 26 In the light of the above discussion, we conclude,(i) Generally, the dues to Government, i.e. tax, duties, etc., (Crown's debts) get priority over ordinary debts. (ii) Only when there is specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The written submissions made on behalf of the 1st respondent are as under: 1. Writ Petition is Pre-mature This Writ Petition is pre-mature, as there is nothing on record filed by the Petitioner to show that the Sale Certificate was sent to the 3rd Respondent viz., Sub- Registrar, Omalur. There is absolutely no averment in the Writ Affidavit to show that the Sale Certificate sought to be registered has been sent and refused and at the same time there is no document in typed set of documents filed by the Petitioner. Therefore, there is no cause of action for this Writ Petition and this Writ Petition is premature and abuse of process of Court. 2. Certiorari, not Mandamus Though the Writ Petition has been filed for a Mandamus, in effect, it's also a Certiorari, for the reason that the prayer prayed for is to remove the attachment of the 1st Respondent with the office of the 3rd respondent - the attachment of with the office of the 3rd Respondent is nothing but an entry in the encumbrance and removing that entry could only be done by quashing that particular entry. Therefore, this Writ Petition is quintessentially as Certorified - Mandamus . 3. Dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Attention is invited to the E-Auction Sale Notice dated 09.03.2022. In that document, under Schedule 1, there are Two different LOTS viz., LOTI and LOT II. b) The Property ID for LOTI is IOBA15510003 and the reserve price is Rs. 92,15,08,000/-. c) The Property ID for LOT II is IOBA15510005 and the reserve price is Rs. 62,70,11,000/-. d) LOTI, there are Three items viz., Land: Building; and Plant Machinery. Equipment Electricals, more particularly mentioned in supra para 4 of this Affidavit. e) LOT II. consists of Plant Machinery, Stores. TMT Bars, scraps etc. f) The E-Auction Sale Notice further has clearly stated that under the caption known encumbrance if any that the Central Excise and Service Tax, Salem Division for Rs. 30,24,15,407/-. Further an undertaking was given in the Sale Notice itself that the dues of the Central Excise and Service Tax Division will be appropriated as per the provisions of law. This encumbrance is for both the lots. g) It is also pertinent to note that the Sale Notice itself states that State Bank of India has Pari-Pasu charges. h) According to the Sale Confirmation Advice dated 04.04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate is ex-facie illegal. r) Therefore, the Petitioner should have issued one single comprehensive Sale Certificate for all Three Items in Lot I having property ID IOBA15510003. 7. Rule 9 of the Security Interest (Enforcement) Rules against the Petitioner The procedure for selling a secured asset is enshrined in Rule 9(7) of the Security Interest (Enforcement) Rules, 2002, the authorized officer should have deemed fit and allowed the purchaser to deposit with the authorized officer, the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further costs, expenses and interest as may be determined by the authorized officer. Cases where the authorized officer directs payment to be made for the encumbrances under Rule 9(7), only in that particular situation, as per Rule 9(9), the authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor. In all other cases, the authorized officer as per Rule 9(10), must issue a Sale Certificate under Rule 9(6) and shall specifically mention that whether the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Mechanism for Resolution of Disputes (AMRD). 15. In the said Forum, the complex nature of the facts and circumstances may be adjudicated so as to resolve the disputes. In the present case, the writ petition is pre-mature and Writ of Mandamus is not maintainable and more so, the petitioner-Bank has not made any attempt to resolve the issues through Office Memorandum issued by the Ministry of Law and Justice. Thus, the writ petition is to be rejected. Reply by the 3 r d Respondent: 16. The learned Government Pleader, appearing on behalf of the 3rd respondent, mainly contended that the Registering Authority, under the Registration Act, is bound by the provisions of the Act. If any attachment is made by the Central Government, State Government or under the Central Act or State Act, then the Registering Authority is empowered to refuse the document for registration. The Attachment already entered in the Encumbrance Certificate can be removed only if it is lifted. The sale certificate can be registered under Section 89(4) of the Registration Act by communicating the copy of the sale certificate by the Authorised Officer to the Registering Authority for entering the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, being an unsecured creditor does not have precedent over the secured creditor in the light of Section 26-E of the SARFAESI Act and Section 31B of Recovery of Debts and Bankruptcy Act, 1993. 18. With reference to the above settled principles, this Court has to consider the facts and circumstances and the provisions of the Statutes and Rules and also the procedures followed by the parties to the lis on hand. 19. Admittedly, the petitioner-Bank initiated action under the SARFAESI Act to recover the loan dues to the petitioner-Bank to the tune of Rs. 714.39 Crores as on 29.03.2022. The Bank struggled to auction the property and they faced many difficulties to realise the loan dues. No doubt, the petitioner-Bank would be interested only to recover their dues since the dues are running more than the security offered by the borrower and the guarantors. However, one cannot neglect the other statutory creditors since attachments are made under the special enactments to recover the Public dues. The 1st respondent admittedly attached the property since their dues are running in Crores. Beyond that, the sale certificate indicates that the 2nd respondent has to settle the dues to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority . Therefore the petitioner Bank holds first charge and they are entitled to auction the property of realise the loan dues by priority. The Security Interest (Enforcement) Rules 2002 , contemplates procedures. ● Rule 9 stipulates T ime of sale, issue of sale certificate and delivery of possession, etc. ● Sub Rule (6) to Rule 9 states that On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. ● Sub Rule (7) to Rule 9 states that Where the immovable property sold is subject to any encumbrances, the authorised officer may, if the thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e encumbrances. 26. On compliance of Sub Rule (7) and (8) after issuing the sale certificate, the authorised officer shall deliver the property to the purchaser, free from encumbrances known to the secured creditor on deposit of money as specified under Sub Rule (7). 27. The procedures contemplated under Rule 9 of the Security Interest (Enforcement) Rules 2002, unambiguously stipulates that the secured creditors / Bank has got responsibility and accountability to consider the statutory creditors and their dues, while dealing with the secured assets. Unilateral actions, by neglecting the statutory creditors, are impermissible, since the procedures contemplated under the rules indicate the protections provided to unsecured creditors, statutory creditors etc. While realising the loan dues, the secured creditors are mandated to protect the interest of the unsecured creditors, statutory creditors etc. The spirit of the Rules amplifies that the sale must be made free from all encumbrances to the third party auction purchaser, who is not expected to suffer unnecessarily on account of the procedural violations, if any committed by the secured creditors/ Banks. 28. On issuance of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures contemplated under the Rules, if violated or not complied with, then the secured creditor/ Bank is not entitled for the relief to lift the attachment without clearing the dues or to remove the attachment from the encumbrance certificate under the provisions of the Registration Act. 30. If the above procedures are not complied with and the sale certificate has not been issued stating that the purchaser has purchased the immovable secured asset free from any encumbrances, then the sale certificate issued would fall under the second category, i.e., with encumbrance. 31. The second category of sale certificate, in the form given in Appendix-V of the Rules, indicates that the list of encumbrances must be furnished in the sale certificate. In the present case, such list of encumbrances are furnished by the authorised officer including the attachment, made by the first respondent in respect of the secured assets. In the event of mentioning the list of encumbrances in the sale certificate, then it is to be construed that the sale certificate was not issued free from encumbrances. When the sale certificate was issued with encumbrances then such sale certificate cannot be register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasers, free from all encumbrances. Violation of procedures, if any committed by the secured creditors, if resulted in denial of the rights of other non-secured creditors and statutory dues, then the secured creditors are not entitled for a direction from the High Court to remove the encumbrances notified. While realising the loan dues by the secured creditors, they are equally bound to provide space for the non-secured creditors to realise their dues. Thus, compliance of the procedures contemplated in the rules are not only mandatory but the non-compliance would result in denial of an opportunity to the non-secured creditors to recover their dues. 35. No doubt, in the present case, the secured creditor is not in a position to recover their dues in entirety. In such circumstances, Sub Rule (10) of Rule 9 contemplates that the certificate of sale issued under Sub Rule (6) shall specifically mention whether the auction purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. If the auction sale is made with encumbrances, then the registering authority under the Registration Act cannot remove the same. 36. Registering A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to protect the interest of the non-secured statutory creditors and to protect the public interest and therefore, such actions of the Registering Authority cannot be held to be infirm or perverse. 39. In the present case, the petitioner / Indian Overseas Bank conducted public auction of the secured assets. They recovered their dues partly. The sale certificate was issued by the authorised officer notifying the known encumbrances. The petitioner Bank thereafter filed the present writ petition seeking a direction against the Sub-Registrar to register the sale certificate, but the sale certificate was issued by the Authorised Officer with known encumbrances. Thus, the sale certificate issued cannot be construed as free from encumbrances as contemplated under Rule 9 of the Security Interest Enforcement Rules. Thus, the sale certificate issued with encumbrances is non-registrable and the Registering Authority is not empowered to remove encumbrances at the request of the Bank. 40. The auction purchaser purchased the property along with the known encumbrances. After realising the dues partly by the secured creditor, the auction purchaser, along with the secured creditors/ Bank, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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