Madras HC Directs Registration Of SARFAESI Auction Buyer’s Settlement Deed To Son Despite Later Civil Attachment, If Otherwise In Order

The fourth respondent had mortgaged the subject property to Indian Bank by deposit of title deeds on dates between 2009 and 2017.

After the loan became a non-performing asset, the Bank sold the property under the SARFAESI Act, and the petitioner purchased it at auction and received a sale certificate.

When the petitioner presented a settlement deed in favour of his son for registration, the Sub-Registrar issued a refusal check slip citing an attachment in a civil suit brought by the fifth respondent against the fourth respondent.

The fifth respondent stated that, in execution of the decree, two cents of the property had been sold to a third party.

The petitioner challenged the refusal and sought registration of the deed and deletion of the attachment entry.

Section 26E of the SARFAESI Act gives a secured creditor priority in payment over other debts and claims, subject to the provision’s terms.

Under Section 64(2) read with Order XXXVIII Rule 10 of the Code of Civil Procedure, an attachment before judgment does not affect rights in property that existed before the attachment.

The Court also referred to Division Bench decisions concerning the priority of secured creditors under Section 26E, including Cholamandalam Investment and Finance Company Limited v. District Registrar and M/s. Siva Automotive Trading Private Limited v. Sub Registrar, Othakadai.

The Court found that the Bank’s mortgage, created before the civil suit and attachment, gave it a pre-existing right in the property.

Applying Section 26E and the CPC provisions on attachment, the Court held that the attachment could not defeat that right and that reliance on it to refuse registration was erroneous.

The Court further noted that the fifth respondent’s suit was based on a 1 July 2018 promissory note and was filed 43 days later; given the fourth respondent’s ex parte conduct, it concluded that the suit and execution sale appeared collusive and could not whittle out the Bank’s prior right.

It left the third party who purchased the two cents to pursue any remedy against the fourth and fifth respondents.

It directed the petitioner to re-present the settlement deed and the Sub-Registrar to proceed with registration if the document was otherwise in order.

The order did not expressly direct deletion of the attachment entry from the encumbrance certificate.

No order as to costs was made.