Attachments effected after mortgage created in bank's favor do not impact sale under SARFAESI Act: Andhra Pradesh High Court

Attachments effected after mortgage created in bank's favor do not impact sale under SARFAESI Act: Andhra Pradesh High Court

Allows the writ petitions and grants relief to the State Bank of India

The Andhra Pradesh High Court has reiterated that attachments effected after the mortgage created in favor of the bank have no impact on the sale conducted under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002.

A single-judge bench of Justice Ninala Jayasurya allowed a petition filed by the State Bank of India (SBI) against the State for not entertaining and registering the Sale Certificate executed by the bank in the property auction.

The court observed, “The inclusion of the property 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 shall be of no legal consequence.”

The properties were mortgaged towards loan transactions. Due to the non-discharge of loan amounts, being the secured creditors, the petitioner-nationalized banks, initiated proceedings under the provisions of the SARFAESI Act. The banks issued public auction notices for the sale of the properties by e-auction mode. The unofficial respondent No.5 in the writ petitions was declared as a successful highest bidder.

On payment of the sale considerations, the petitioners issued Certificates of Sale under Rule 9(6) of the Security Interest (Enforcement) Rules, 2002, to the respective auction purchasers. In pursuance, the banks, as vendors, approached the concerned registration authorities to register the Sale Certificates.

The high court noted the observations made in an earlier judgment, wherein it was held, "The preponderance of judicial opinion leads to the irresistible conclusion that the sale of the mortgaged property in favor of the auction purchaser and the sale certificate under the SARFAESI Act is free of all encumbrances. The attachments effected after the mortgage was created in favor of the bank do not affect the rights of the secured creditor over the subject property. The same ceases to have any effect the moment it is confirmed in favor of the secured creditor bank and auction purchaser.

It added, “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."

Thereafter, the bench allowed the writ petitions and granted relief.

The petitioners were represented by advocates P. Raj Kumar and Sreedhar Valiveti.