Transfer fees demand not allowable under 2015 Rules of SARFAESI Act: Chhattisgarh High Court

Transfer fees demand not allowable under 2015 Rules of SARFAESI Act: Chhattisgarh High Court

The bench ruled the demand for transfer fees made by the state industrial development company was not sustainable in law

The Chhattisgarh High Court has held that Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI), 2002, Act, prevails over the 2015 Rules, hence, the demand for the transfer fees is not allowable.

The petitioner company, Parth Concast Ltd is engaged in the business of producing steel and iron products.

The Chhattisgarh State Industrial Development Corporation Limited (CSIDC) allotted four parcels of land situated at the Industrial Development Center to Brahaspati Iron and Steel Company Private Limited (BISCPL), which manufactures hot and cold rolled products of steel and ancillary purposes, on 99 years lease.

BISCPL took a loan from the State Bank of India (SBI) after obtaining a No-Objection Certificate from CSIDC against the creation of security interest over its leasehold rights for the properties.

On BISCPL defaulting in repayment of its secured debt to SBI, the latter declared BISCPL as a Non-Performing Asset (NPA) as per the provisions of the SARFAESI Act. It informed CSIDC in advance about initiating a proceeding against the company for the recovery of secured debt. The bank took possession of the secured assets, including the right to transfer by way of lease, and assignment or sale for realizing the secured asset.

Under the Act, in May 2015, an e-auction sale notice was published for the sale/transfer of the leasehold rights.

The petitioner participated in the e-auction and was declared a successful auction purchaser. In June 2015, it was issued a sale certificate for properties upon payment of 25 percent of the total consideration amount to SBI.

However, an application submitted by the petitioner to the Chhattisgarh State Power Distribution Company Limited (CSPDCL) for a new HT connection was rejected in August 2015 in absence of a no-lease deed. The petitioner then paid the fees for the transfer of lease for plots of lands forming part of the April 2004 lease deed.

The bench comprising Chief Justice Arup Kumar Goswami and Justice Parth Prateem Sahu observed that the provisions in the SARFAESI Act would prevail over the Rules of 2015. Therefore, the demand for transfer fees made by CSIDC was not sustainable in law.

The court noted that the petitioner deposited a transfer fee for the lease deed without any objection. The fund made by the petitioner to CSIDC was not directed. While third-party rights were created in favor of Tirumala Balaji Smelters Private Limited and Balram Biotech Private Limited, the duo were not made party respondents to the proceedings. It stated that in their absence, adverse orders could not be passed against the two companies.

The bench directed CSIDC to execute the lease deeds in favor of the petitioner for the remaining terms of the original lease deeds based on the sale certificates. It further ordered that the amount paid by the petitioner in terms of the May 2018 interim order must be adjusted toward the registration fee payment.