Attachments Effected Subsequent To Mortgage Created In Bank's Favour Have No Impact On Sale Conducted Under SARFAESI Act: Andhra Pradesh HC

The Andhra Pradesh High Court reiterated that attachments effected subsequent to the mortgage created in favour of the bank have no impact on the sale conducted under SARFAESI Act.

The court allowed a petition filed by State Bank of India (SBI) against the State for not entertaining and registering the Sale Certificate executed by the bank in the auction conduced in respect of a property.

A Single Bench of Justice Ninala Jayasurya observed, “The inclusion of the property which was mortgaged by deposit of Title Deeds through registered document to the Bank in the prohibited category reflects non-application of mind, vitiates the effect of registration and as such, shall be of, no legal consequence.”

Advocates P. Raj Kumar and Sreedhar Valiveti appeared for the petitioners in this case.

The subject matter properties were mortgaged towards loan transactions and in view of non-discharge of loan amounts, the petitioner-Banks initiated proceedings under the provisions of the SARFAESI Act, being the secured creditors. The petitioners-Nationalized Banks issued public auction notices for sale of subject schedule properties by e-auction mode, un-official respondent No.5 in the respective writ petitions was declared as successful highest bidder.

On payment of the sale considerations in respect of the subject matter properties, the petitioners issued Certificates of Sale under Rule 9(6) of the Security Interest (Enforcement) Rules 2002 (for short, ‘the Rules, 2002’) to the respective auction purchasers. In pursuance of the said Sale Certificates, the petitioners-Nationalized Banks as vendors approached the concerned registration authorities to register the Sale Certificates.

The High Court after considering the submissions made by the counsel for parties noted the following observations made in an earlier judgment: "The preponderance of judicial opinion leads to the irresistible conclusion that the sale of the mortgaged property in favour of the auction purchaser and the sale certificate under the SARFAESI Act in such circumstances is free of all encumbrances. The attachments effected subsequent to the mortgage created in favour of the bank do not affect the rights of the secured creditor over the subject property. Such attachments have no impact on the sale conducted under the Act and the same ceases to have any effect or fall to the ground the moment the same is confirmed in favour of the secured creditor Bank and auction purchaser. Otherwise, those attachments would remain as a permanent taboo prejudicially affecting the marketability and title to the property even though they ceased to have any legal efficacy and thereby it becomes necessary to register the sale certificate."

Accordingly, the High Court allowed the writ petitions and granted reliefs.

Cause Title- State Bank of India v. The State of Andhra Pradesh

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