SARFAESI Act | Secured Creditors To Get Priority After Enactment Of S.26E: Punjab & Haryana High Court

Observing that post-notification of Section 26E of the SARFAESI Act on 24.01.2020, debts due to secured creditors must be accorded statutory priority over all other dues, the Punjab & Haryana High Court has clarified that in all cases where the charge was created after the said date, secured creditors will rank above State revenue claims. The Court noted that numerous litigations are pending on this issue and expressly reaffirmed the legal position before parting with the judgment.Section 26E of the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) establishes priority for secured creditors, meaning debts owed to them must be paid before other debts, including government revenues, taxes, cesses, and local authority dues, after the security interest is registered. Introduced by the 2016 Amendment, the section overrides other laws, giving registered secured creditors a "first charge" on the secured assets, ensuring their recovery rights prevail over statutory dues of the governmentChief Justice Sheel Nagu and Justice Sanjiv Berry said, "we feel it apt to mention that there are lot many litigations involving the question of priority of charge pertaining to the transactions where the charge was created after the stipulated date i.e. 24.01.2020, when Section 26E of SARFAESI Act was notified." The Court made it clear that in such cases, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority in terms of the provisions contained in Section 26E of the SARFAESI Act."The observation came while allowing a writ petition filed by State Bank of India (SBI), which was aggrieved by the refusal of the Sub-Registrar, Sub-Tehsil Nigdhu, Karnal, to register a sale deed in favour of an auction purchaser, despite a concluded SARFAESI sale and issuance of a sale certificate.SBI had extended credit facilities of Rs. 8.10 crore in 2013 to the borrower, M/s Mahavir Cereals, which subsequently defaulted. As of 12.08.2018, the outstanding dues had risen to Rs. 6.38 crore, prompting the Bank to initiate proceedings under the SARFAESI Act.In the e-auction conducted on 21.09.2021, M/s Mahadev Foods emerged as the successful bidder and deposited the full sale consideration of Rs. 7.38 crore. SBI issued the sale certificate on 29.09.2021, but the Sub-Registrar declined to register the sale deed citing an attachment order dated 28.11.2018 issued by the Deputy Commissioner for recovery of tax dues from the borrower.The bank sought direction to the Sub-Registrar to register the sale deed, quashing of the revenue entry recording a charge in favour of the District Food and Supply Department, Haryana, recognition of the Bank's prior charge, created on 04.07.2013 upon deposit of original title deeds.Vikas Chatrath, Senior Advocate appearing for SBI argued that its mortgage was created much earlier and, in any event, the State's dues did not enjoy statutory first charge status. Reliance was placed on previous coordinate bench judgments including Deepak Kumar v. State of Punjab and Kamla Engg. & Steel Industries v. PNB.The Court noted that the State could not identify any statute granting a statutory first charge over dues arising out of Custom Milling Agreements. The attachment entry was merely an administrative note and could not defeat the Bank's earlier mortgage.SARFAESI overrides revenue claimsReferring to Supreme Court judgments — Dena Bank v. Bhikhabhai Prabhudas Parekh, Union of India v. SICOM, Rana Girders v. Union of India and Punjab National Bank v. Union of India — the Court reiterated that secured creditors' rights have priority even over Crown debts.Allowing the petition, the Court directed the sub-Registrar to register the sale deed presented by the auction purchaser within two months, failing which the Registry must list the matter.Liberty was granted to the State to recover its dues only after SBI satisfies its outstanding amounts, or through any other lawful means.Costs of Rs. 25,000 imposed on the State of Haryana—Rs. 10,000 payable to SBI and Rs. 15,000 to the High Court Bar Association—for unjustified delay in liquidation of the secured asset.Mr. Vikas Chatrath, Senior Advocate with Ms. Preet Agroa, Advocate, for the petitioner.Mr. Neeraj Gupta, Addl. Advocate General, Haryana.Mr. Diwan Sharma, Advocate for respondent No.2.Title: STATE BANK OF INDIA v. SUB REGISTRAR, SUB TEHSIL NIGHDU KARNAL AND OTHERSClick here to read order

SARFAESI Act | Secured Creditors To Get Priority After Enactment Of S.26E: Punjab & Haryana High Court

LIVELAW NEWS NETWORK

Tags