M/S Siva Automotive Trading Private Limited vs. The Sub-Registrar

Held

The Court held that the fifth respondent bank, as the secured creditor under the SARFAESI Act, has priority over all other debts, revenues, taxes, cesses, and rates, including those of the Commissioner of CGST and Central Excise and the attachment order from the arbitration award. This priority is established by Section 26E of the SARFAESI Act, 2002, which states that debts due to a secured creditor shall be paid in priority over all other debts, notwithstanding any other law. The Court reasoned that when the secured creditor exercises its power of sale under SARFAESI, any subsequent attachments become otiose, and the attaching parties' only recourse is to claim any surplus funds after the secured debt is satisfied. The Court cited the Supreme Court's decision in Kotak Mahindra Bank Ltd vs. Girnar Corrugators Private Limited and Others, which reiterated the object and purpose of SARFAESI Act as a special legislation for enforcing security interests. The Court found that the attachments made by the sixth and seventh respondents had become nugatory as there was no surplus money left after satisfying the loan of the fifth respondent bank. Therefore, the Court ordered the deletion of these attachment entries to remove the cloud over the petitioner's title. The petitioner was directed to re-present the sale certificate for registration, which the Sub-Registrar was ordered to register without reference to the attachment orders.

Facts

The petitioner, M/s. Siva Automotive Trading Private Limited, is an auction purchaser of property sold under the SARFAESI Act by the fifth respondent bank, Kotak Mahindra Bank Limited. The petitioner received a sale certificate on 22.02.2022. Upon presenting it for registration to the first respondent, the Sub-Registrar, Othakadai, the registration was orally refused. The refusal was based on attachment orders issued by the Commissioner of CGST and Central Excise, Madurai (sixth respondent) in 2019, and attachment orders passed by an arbitrator at the behest of M/s. Mahindra & Mahindra Financial Services Limited (seventh respondent) also in 2019. The petitioner contended that as a secured creditor, the bank's claim under SARFAESI Act has precedence, and the attachment orders should be deleted to allow registration of their sale certificate.

Key Issues

1. Whether the attachment orders issued by the Commissioner of CGST and Central Excise and by the arbitrator, registered as encumbrances, have priority over the sale certificate issued under the SARFAESI Act to the petitioner, a subsequent auction purchaser? Petitioner's arguments: The petitioner argued that the fifth respondent bank is the sole secured creditor and under the SARFAESI Act, its claim is paramount and has precedence over other claims. Therefore, the attachment orders registered by the revenue and the seventh respondent should be deleted, and the petitioner's sale certificate should be registered. They relied on Section 26E of the SARFAESI Act, 2002, which grants priority to secured creditors. Revenue/State's arguments: The judgment notes that the learned counsels appearing on behalf of the sixth and seventh respondents could not dispute the legal position regarding the priority of the secured creditor. No specific arguments were recorded for the revenue or the seventh respondent disputing the petitioner's claim of priority based on the SARFAESI Act.