Proceeding under SARFAESI Act and IBC is saved from provision providing precedence to BUDS Act

HDB Financial Services Limited Vs Sub Registrar (Kerala High Court)

Kerala High Court held that action/proceeding under the the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act] and the Insolvency and Bankruptcy Code [IBC] is saved from the provision providing precedence to the Banning of Unregulated Deposit Schemes Act, 2019 [BUDS Act].

Facts- One Rajeev A.R and one Sunitha Kumari S.R (the borrowers) availed loans from the petitioner-financial institution by mortgaging all pieces and parcels of the land. The borrowers defaulted on loan repayment, prompting the petitioner to initiate proceedings under the SARFAESI Act. Physical possession of the property was taken on 05.12.2023. Thereafter, the property was put up for auction and sold to the 3^rd respondent for a sum of Rs. 56,10,443/-. However, when the 3^rd respondent attempted to register the sale certificate, it was informed that the 4^th respondent has issued a communication dated 27.02.2023 to the 1^st respondent, restraining the transfer of the property.

According to the 4^th respondent, FIRs were registered against the aforesaid Rajeev A.R by the State Crime Branch for misappropriating amounts of the BSNL Engineers Co-operative Society. During the course of the investigation, certain offences under the Banning of Unregulated Deposit Schemes Act, 2019 were also incorporated.

The petitioner, a Non-Banking Financial Company, has approached this Court seeking a writ of mandamus directing the 2^nd respondent to register sale certificate issued by it in terms of the provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and consequently for a direction to the revenue authorities to carry out the mutation of the property covered by Sale Certificate.

Conclusion- Held that it is clear that the expression ‘Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), can only mean that any action/proceeding under the SARFAESI Act and the IBC is saved from the provision providing precedence to the BUDS Act. Therefore, this Writ Petition is allowed, directing the competent among the respondents to forthwith register the sale certificate issued by the petitioner in favour of the third respondent in accordance with the law.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

The petitioner, a Non-Banking Financial Company, has approached this Court seeking a writ of mandamus directing the 2^nd respondent to register Ext.P3 sale certificate issued by it in terms of the provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act) and consequently for a direction to the revenue authorities to carry out the mutation of the property covered by Ext.P3 Sale Certificate. The brief facts:-

2. One Rajeev A.R and one Sunitha Kumari S.R (the borrowers) availed loans from the petitioner-financial institution by mortgaging all pieces and parcels of the land having an extent of 01.69 Ares in Re-Survey No. 4/149 along with a building bearing No. TC 69/123(2) of Manacaud Village in Thiruvananthapuram Taluk. The borrowers defaulted on loan repayment, prompting the petitioner to initiate proceedings under the SARFAESI Act. Physical possession of the property was taken on 05.12.2023. Thereafter, the property was put up for auction and sold to the 3^rd respondent for a sum of Rs. 56,10,443/-. However, when the 3^rd respondent attempted to register the sale certificate, it was informed that the 4^th respondent has issued a communication (viz Communication No. 253/GL/CB-EOW/TVPM Unit/2023) dated 27.02.2023 to the 1^st respondent, restraining the transfer of the property. According to the 4^th respondent, FIRs were registered against the aforesaid Rajeev A.R as FIR No. 1266/2022 of Vanchiyoor Police Station and FIR No. 81/2023 dated 31.01.2023 was registered by the State Crime Branch for misappropriating amounts of the BSNL Engineers Co-operative Society. During the course of the investigation, certain offences under the Banning of Unregulated Deposit Schemes Act, 2019 (hereinafter referred to as the ‘BUDS Act’) were also incorporated.

3. Sri. Paulochan Antony P., the learned counsel appearing for the petitioner, submits that the proceedings under the BUDS Act have no bearing on those initiated under the SARFAESI Act. He submits that Sections 12 and 13 of the BUDS Act start with the expression ‘Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016)’, and therefore, the proceedings under the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC) are saved from the operation of the provisions in the BUDS Act. Therefore, it is his submission that Ext.P4 communication of the 4^th respondent cannot interfere with the proceedings initiated under the SARFAESI Act. He also refers to the judgment of the Supreme Court in Central Bureau of Investigation v. State of Bihar and Others; 2010 (5) SCC 1 in support of his contention.

4. Sri. Appu P.S, the learned Government Pleader appearing for official respondents No. 1, 2 and 4, opposes the grant of any relief to the petitioner. He submits that Section 8 of the BUDS Act constitutes a Designated Court exclusively for trying the cases under the BUDS Act while Section 18(1)(c) empowers the competent authority to take possession of any asset belonging to the deposit taker and sell, transfer or release the attached asset. He further contends that any person aggrieved by an order of the Designated Court can prefer an appeal before the High Court within the stipulated time under Section 19 of the Act. Therefore, considering the availability of an alternative remedy, the discretionary jurisdiction under Article 226 of the Constitution of India may not be invoked. Moreover, he also refers to Sections 5, 12 and 13 of the BUDS Act to contend that depositors have a right to restitution and the order of provisional attachment shall have precedence and priority to the extent of the claims of the depositors, over any attachment by any other authority competent to attach property for payment of any debts etc. He also submits that a similar issue has been referred to the Full Bench by virtue of a reference order in Writ Appeal No. 1087/2024, and this writ petition can either be heard after Writ Appeal No. 1087/2024 is decided or it can be referred and adjourned to be heard along with Writ Appeal No. 1087/2024.

5. Having heard the learned counsel appearing for the petitioner and the learned Government Pleader appearing for respondents 1, 2 and 4, I am of the view that the petitioner is entitled to succeed. The relevant portion of Section 13 of the BUDS Act reads thus:

“Section 13. Precedence of attachment.–

(1) Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), an order of provisional attachment passed by the Competent Authority, shall have precedence and priority, to the extent of the claims of the depositors, over any other attachment by any authority competent to attach property for repayment of any debts, revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.

(2) – (5)…………”

Section 13 (1) of the BUDS Act clearly provides that the precedence under the BUDS Act will be “Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016)”. The Supreme Court, in Central Bureau of Investigation (supra) held:

“45. The main object and legislative intent by the opening words—“save as otherwise provided in sub­section (2)”— in sub-section (1) of Section 378 being clear i.e. to fetter the general power given to the State Government in filing appeal from the order of acquittal in two types of cases stated in sub-section (2), the use of word “also” in sub-section (2) does not make any sense. The word “also” in sub-section (2), if construed in the manner suggested by the State Government, may result in reducing the opening words in sub-section (1) a nullity and will deny these words their full play. Since exception (clause) in the beginning of sub-section (1) has been expressly added in Section 378 and it is not possible to harmonise the word “also” occurring in sub­section (2) with that, it appears to us that no sensible meaning can be given to the word “also” and the said word has to be treated as immaterial. We are not oblivious of the fact that to declare “also” enacted in sub-section (2) immaterial or insensible is not very satisfactory, but it is much more unsatisfactory to deprive the words—“save as otherwise provided in sub­section (2)”— of their true and plain meaning. In order that the exception (clause) expressly stated in the opening words of sub-section (1) might be preserved, it is necessary that word “also” in sub-section (2) is treated as immaterial and we hold accordingly. The phrase “in any case” in sub-section (1) of Section 378, without hesitation, means “in all cases”, but the opening words in the said section put fetters on the State Government in directing appeal to be filed in two types of cases mentioned in sub-section (2).”

Therefore, it is clear that the expression ‘Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), can only mean that any action/proceeding under the SARFAESI Act and the IBC is saved from the provision providing precedence to the BUDS Act.

6. The submission of the learned Government pleader that this matter is identical to the one referred to in the reference order in Writ Appeal No. 1087/2024 cannot be accepted, as that case pertains to the High Court’s power under Article 226 to efface an attachment ordered by a Court without approaching the competent Court and is unrelated to the present issue.

Therefore, this Writ Petition is allowed, directing the competent among the respondents to forthwith register the sale certificate issued by the petitioner in favour of the third respondent in accordance with the law. The petitioner shall deposit the excess amount received by it, after setting off the liability, before the competent authority under the BUDS Act within a period of four weeks from today.