Claim Of Secured Creditor Under SARFAESI Act Not Affected By Attachment Under Karnataka Protection Of Deposits Act: High Court

A single judge bench of Justice S G Pandit allowed the petition filed by Bank of India challenging an order passed by the Deputy Commissioner and District Magistrate by which the application made by the bank under Section 14 of SARFAESI Act, seeking assistance in taking possession of the secured assets came to be rejected. The rejection was on the premise that the secured assets are attached under the Karnataka Protection of Interest of Deposit in Financial Establishment Act, 2004.

Advocate M Mohamed Ibrahim appearing for the bank submitted that the attachment under 2004 Act would not have any priority over the actions of the Petitioner-Bank. The Bank initiated recovery action by issuing notice under Section 13(2) SARFAESI Act, prior to the attachment under 2004 Act.

He referred to Section 26-E of the SARFAESI Act which relates to the priority of secured creditors and stipulates that notwithstanding anything contained in any other law for the time being in force, after the registration of a security interest, the debts due to any secured creditor shall be paid in priority over all other debts.

Reliance was placed on the Supreme Court's judgment in UCO Bank and another Vs. Dipak Debbarma & Ors. to contend that the 2002 Act gets priority over the 2004 Act.

On the other hand, respondents argued that the secured property is attached under 2004 Act prior to filing of the application under Section 14 of the Act. Therefore, she submitted that the Petitioner-Bank would not get any priority.

Findings:

The bench said,

"Section 26-E of the 2002 (SARFAESI) Act makes it clear that notwithstanding anything contained in any other law for the time being in force, after the registration of a security interest, the debts due to any secured creditor shall be paid in priority over all other debts."

The bench then relied on Supreme Court judgment in Punjab National Bank Vs. Union of India and others and said, "A reading of the above decision of the Hon'ble Apex Court makes it clear that the Bank would have priority over all other claims."

It added,

"2004 Act is a State Act whereas 2002 Act is a Central Act, which would make way for the Bank to realise its dues by bringing the mortgage property for sale."

Accordingly, it allowed the petition and quashed the order passed by the respondent and directed Deputy Commissioner to consider the application of the Petitioner-Bank filed under Section 14 of the SARFAESI Act without reference to the attachment under 2004 Act and pass appropriate order.

Case Title: BANK OF INDIA v THE SECRETARY TO THE GOVERNMENT

Case NO: WRIT PETITION NO.12038 OF 2017

Citation: 2022 LiveLaw (Kar) 293

Date of Order: 06TH DAY OF JULY, 2022

Appearance: Advocate M MOHAMED IBRAHIM for petitioner; HCGP RASHMI PATEL for respondent

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