Bombay High Court: Secured Creditor has Priority Over the Central/State Government or local authority under SARFAESI Act, 2002

Bombay High Court: Secured Creditor has Priority Over the Central/State Government or local authority under SARFAESI Act, 2002

The Bombay High Court has observed that secured creditor has priority over the dues of the Central government, state government, or local authority under Section 26-E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The bench of Justices B. P. Colabawalla and M.M. Sathaye has observed that the statute goes quite far, and it is not only revenues, taxes, cesses, and other rates payable to the State Government or any local authority but also those payable to the Central Government that would have to stand in the queue after the secured creditor for payment of its dues.

In the present it was the case of Petitioner who came to know about certain Secured Asset through the Free Press Journal newspaper wherein a Sale Notice dated 27 June 2022, was published for sale of the Secured Asset under the provisions of the SARFAESI Act read with The Enforcement of Security Interest Rules, 2002 (for short the “said Rules”) at a reserve price of Rs. 3.59 crores.

The petitioner sought a direction to remove the lien, charge, encumbrance, or mutation entry of the Assistant Commissioner in respect of the Secured Asset. The petitioner sought direction from the Sub Registrar to accept and register the document of sale or sale certificate issued by The Bank of Baroda in favour of the Petitioner.

The Bank of Baroda has sold the Secured Asset under the provisions of the SARFAESI Act. As per Section 26 E, a Secured Creditor who has registered the security interest or another creditor who has registered the attachment order in his favour with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) shall have priority over the claims of other creditors having a subsequent security interest created over the property in question.

The mortgage of the Secured Asset was created in favour of the Bank of Baroda by one Mr. Prem Prakash Sarogi on 14 December, 2007 for securing an aggregate loan limit of Rs. 809 lakhs granted to M/s Goldstar Polymers Ltd. (the borrower).

Bank of Baroda registered its security interest over the Secured Asset on CERSAI on 24 February, 2012 and had also filed a CERSAI report downloaded from the website portal of CERSAI.

The petitioner argued that as the government department has not registered their claim or attachment order with CERSAI, the government department cannot claim priority over the dues of the Bank of Baroda.

The Court relied on the decision of the division bench in Jalgaon Janta Sahakari Bank Ltd. and Anr. vs. Joint Commissioner of Sales Tax Nodal, Mumbai and Anr. (2022) which dealt with the controversy of priority of the secured creditor viz-a-viz the dues of the Central Government or State Government or local authority under Section 26-E of the SARFAESI Act, 2002.

While applying the above principles to the present case, the bench held that since government dues have not registered their claim or attachment order with CERSAI, government dues cannot claim priority over dues of the Bank of Baroda.

Accordingly, the writ petition was disposed of.