Shri.T.K.George Kutty vs. The State Of Kerala

Facts

The petitioner, Shri. T.K. George Kutty, purchased a property through a sale certificate dated 23.09.2020 issued by the State Bank of India (SBI) under the SARFAESI Act, 2002. He approached the Sub-Registrar, Kundara, for registration of the sale deed. The Sub-Registrar refused registration, citing a prohibitory order issued on 01.02.2017 by the Tahsildar, Revenue Recovery, which prohibited any transfer of deeds concerning the property owned by the 6th respondent, M/s. Kannan Enterprises. The petitioner contended that the mortgage creating the security interest in favour of SBI was executed on 09.04.2010, predating the attachment order of 10.02.2017, which was for realizing sales tax arrears. The encumbrance certificate confirmed the attachment for Rs. 46,50,631/- plus interest.

Held

The Court held that the attachment order dated 10.02.2017 for sales tax arrears could not claim precedence over the prior mortgage created on 09.04.2010 and the subsequent sale conducted under the SARFAESI Act, 2002. The Court reasoned that Section 26E of the SARFAESI Act, 2002, grants priority to secured creditors after the registration of security interest, and debts due to them are to be paid in priority over all other debts and revenues, taxes, cesses, and other rates payable to the Central or State Government. The Court cited precedents like HDFC v. Sub Registry Officer and Madhan v. Sub Registrar, which established that rights conferred by a mortgage and the SARFAESI Act cannot be defeated by subsequent attachments. The Court further noted that a sale carried out under the SARFAESI Act takes precedence even over statutory charges due to the Government created after the amendment of the SARFAESI Act in 2016. Therefore, the Sub-Registrar had no legal justification to refuse registration. The Court directed the petitioner to present the sale sannad within ten days, and upon presentation, the Sub-Registrar was ordered to register it, disregarding the prohibitory order.

Key Issues

1. Whether the attachment order dated 01.02.2017, issued for realizing sales tax arrears, can claim precedence over the security interest created by way of equitable mortgage on 09.04.2010 and the subsequent sale under the SARFAESI Act, 2002? (Question of law turning on Section 26E of the SARFAESI Act, 2002 and principles of priority of secured creditors). Petitioner's arguments: The petitioner argued that the mortgage in favour of SBI was created much before the attachment order. Therefore, the attachment order, being subsequent, could not justify the refusal of registration. He relied on the principle that a prior secured interest should have priority over subsequent revenue recovery attachments. Revenue/State's arguments: The judgment records no specific arguments from the Revenue or State regarding the precedence of the attachment order. The refusal to register was based on the prohibitory order issued by the Tahsildar.