Indian Overseas Bank Thr. Autho. Officer vs. State Of Maha. Thr. Sec. Dept. Of Industries And Ors

Facts

The Petitioner, Indian Overseas Bank, a secured creditor under the SARFAESI Act, challenged mutation entries made by Respondent Nos. 2, 3, and 4 (District Industries Centre, GST Department, and Sales Tax Department) on eight properties. These properties were mortgaged to the Petitioner by Respondent No. 7, the borrower. After Respondent No. 7 defaulted, the Petitioner initiated SARFAESI proceedings and subsequently sold the properties to Respondent Nos. 8 and 9 through an auction. The Petitioner contended that its security interest, registered under SARFAESI, had priority over the State's claims, as per Section 26-E of the SARFAESI Act, and sought deletion of the State's mutation entries and insertion of entries in favour of the purchasers. The State argued that their attachment predated the Petitioner's claim and that the Petitioner had alternative remedies.

Held

The Court held that the Petitioner's security interest had priority over the State's claims for six of the eight properties, as the Petitioner had validly registered its charge with CERSAI prior to the auction for these six properties. However, for two properties, the Petitioner's enforcement measures under SARFAESI were not permissible due to a lack of CERSAI registration. The Court found that it could not apportion the sale consideration of Rs. 13.01 crores for the eight properties among the six validly sold properties and the two invalidly sold ones. To resolve this, Respondent Nos. 8 and 9 agreed to treat the entire Rs. 13.01 crores as the sale consideration for the six validly acquired properties, waiving any refund. The sale of the two properties was set aside, and the Petitioner was granted liberty to resell them under SARFAESI, with any surplus after satisfying its dues to be paid to the State. The mutation entries made on behalf of the State were quashed and set aside, restoring the Petitioner's name as mortgagee for the six properties.

Key Issues

1. Whether the Petitioner's security interest registered under the SARFAESI Act has priority over the claims of Respondent Nos. 2 to 4, as per Section 26-E of the SARFAESI Act, despite the State's alleged prior attachment? 2. Whether the Petitioner, as a secured creditor who has sold the properties, is the appropriate party to challenge the mutation entries, or should the purchasers (Respondent Nos. 8 and 9) have filed the petition? 3. Whether the Petitioner had a valid right to enforce its security interest under the SARFAESI Act in respect of all eight properties, considering the CERSAI registration status? Petitioner's Arguments: The Petitioner argued that its security interest, registered under SARFAESI, has priority under Section 26-E. They relied on the Full Bench judgment in Jalgaon Janta Sahakari Bank Ltd. Vs. Joint Commissioner of Sales Tax, which supports their claim of priority. They sought deletion of the State's mutation entries and insertion of entries in favour of the purchasers. Revenue/State's Arguments: Respondent Nos. 3 and 4 argued that a proclamation of attachment was made on February 7, 2020, and recorded on March 7, 2020, in the 7/12 extracts, predating the Petitioner's claim. They also contended that the petition was not maintainable as the Petitioner had not first approached the State to remove the entries and that the purchasers, not the Petitioner, should be the petitioners. They further argued that there was an alternate efficacious remedy under Section 247 of the MLRC. They also raised concerns about the CERSAI registration status of some properties.