Karnataka High Court
Assets Care And Reconstruction ... vs Karnataka Real Estate Regulatory ... on 25 June, 2024
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
Reserved on : 12.06.2024
Pronounced on : 25.06.2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF JUNE, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.7844 OF 2024 (GM-RES)
BETWEEN:
ASSETS CARE AND RECONSTRUCTION
ENTERPRISE LIMITED
A COMPANY INCORPORATED UNDER
COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
UNIT NO.502, C-WING, ONE BKC
PLOT NO.C-66, G-BLOCK
BANDRA KURLA COMPLEX
MUMBAI - 400 051.
REP. BY ITS VICE PRESIDENT AND
AUTHORIZED SIGNATORY
MR. AMIT KARIWALA.
... PETITIONER
(BY SRI. C.K.NANDAKUMAR, SR. ADVOCATE A/W
SRI. ROHAN KOTHARI, ADVOCATE)
AND:
1. KARNATAKA REAL ESTATE
REGULATORY AUTHORITY
A STATUTORY BODY CONSTITUTED UNDER
2
PROVISIONS OF THE REAL ESTATE
(REGULATION AND DEVELOPMENT ACT, 2016)
THROUGH ITS SECRETARY
2ND FLOOR, SILVER JUBILEE BLOCK
UNITY BUILDING, CSI COMPOUND
3RD CROSS, MISSION ROAD
BENGALURU - 560 027.
2. THE STATE OF KARNATAKA
THROUGH ITS PRINCIPAL SECRETARY
REVENUE DEPARTMENT
5TH FLOOR, M.S.BUILDING
DR. AMBEDKAR VEEDHI
BENGALURU - 560 001.
3. THE DEPUTY COMMISSIONER
BANGALORE URBAN DISTRICT
KEMPEGOWDA ROAD
BEHIND KANDAYA BHAVAN
BENGALURU - 560 009.
4. THE REGIONAL COMMISSIONER
BANGALORE DIVISION
2ND FLOOR, BMTC BUILDING
SHANTINAGAR
BENGALURU - 560 027.
5. THE SPECIAL DEPUTY COMMISSIONER-1
BANGALORE NORTH SUB-DIVISION
BANGALORE URBAN DISTRICT
KEMPEGOWDA ROAD
BEHIND KANDAYA BHAVAN
BENGALURU - 560 009.
6. THE SPECIAL TAHSILDAR
BANGALORE NORTH TALUK
KANDAYA BHAVAN
BENGALURU - 560 009.
3
7. OZONE HOLDINGS PVT. LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
THROUGH ITS DIRECTOR
MR. VASUDEVAN SATYAMOORTHY
HAVING ITS REGISTERED OFFICE AT
NO.51/7-1, RATHNA AVENUE
OFF RICHMOND ROAD
CIVIL STATION
BENGALURU - 560 025.
8. MR. S.VASUDEVAN
S/O SATHYAMOORTHY VISHWANATHAN
AGE: MAJOR
RESIDING AT G-2, 34, SONA PALACE
NORRIS ROAD, RICHMOND TOWN
BENGALURU - 560 025.
9. OZONE URBANA INFRA
DEVELOPERS PVT. LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
THROUGH ITS DIRECTOR
MR. VASUDEVAN SATYAMOORTHY
HAVING ITS REGISTERED OFFICE AT
NO.38, ULSOOR ROAD
BENGALURU - 560 042.
10 . OZONE PROPEX PVT. LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
THROUGH ITS DIRECTOR
MR. VASUDEVAN SATYAMOORTHY
HAVING ITS REGISTERED OFFICE AT
NO.38, ULSOOR ROAD
BENGALURU - 560 042.
4
11 . MRS. PRIYA VASUDEVAN
W/O MR. S.VASUDEVAN
AGE: MAJOR
RESIDING AT G-2, 34,
SONA PALACE, NORRIS ROAD
RICHMOND TOWN
BENGALURU - 560 025.
12 . VISTRA (ITCL) PVT. LTD.,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
THROUGH ITS DIRECTORS
HAVING ITS REGISTERED ADDRESS AT
IL AND FS FINANCIAL CENTRE
PLOT NO.C22, G-BLOCK
BANDRA KURLA COMPLEX
BANDRA EAST, MUMBAI - 400 051.
... RESPONDENTS
(BY SRI. GOUTHAMDEV C. ULLAL, ADVOCATE FOR R1;
SRI. M. S. SHYAM SUNDAR, SR. ADVOCATE A/W
SMT. DR. VANDANA P. L., ADVOCATE FOR R7 TO R11;
SRI. REYNOLD D'SOUZA, ADVOCATE FOR IMPLEADING
APPLICANTS IN IA 3/2024;
SRI. AKASH R.BANTIA, ADVOCATE FOR IMPLEADING
APPLICANTS IN IA 2/2024)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE BY
WAY OF A WRIT OF CERTIORARI OR SUCH OTHER ORDER OR
DIRECTION IN THE NATURE THEREOF, THE IMPUGNED NOTICE
DATED 23RD FEBRUARY, 2024 BEARING NO.
RERA/37/REVENUE/2023/2452/2498 (ANNEXURE-A) AS ISSUED BY
THE R1, VIZ., THE KARNATAKA REAL ESTATE REGULATORY
AUTHORITY IN SO FAR AS IT PERTAINS TO THE PETITION
SCHEDULE PROPERTIES.
5
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 12.06.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioner, Assets Care and Reconstruction Enterprise Limited, a Company registered under the Companies Act,1956 is knocking at the doors of this Court calling in question communication/notice dated 23-02-2024 issued by the 1st respondent to the State seeking attachment of certain properties belonging to respondents 7 to 11.
2. Heard Sri C.K.Nandakumar, learned senior counsel appearing for the petitioner; Sri Gowthamdev C. Ullal, learned counsel appearing for respondent No.1; Sri Rahul Kariyappa, learned High Court Government Pleader appearing for respondents 2 to 6; Sri M.S. Shyam Sundar, learned senior counsel appearing for respondents 7 to 11; Sri Akash R. Bantia and Sri Reynold D'Souza, learned counsel appearing for the impleading applicants.
63. Sans details, necessary facts are as follows:-
The petitioner is a Company incorporated under the Companies Act, 1956 and is an Asset Reconstruction Company established under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('the SARFAESI Act' for short). Respondents 7, 9, and 10 are also Companies in the business of development of real estate projects across India. Respondent No.7 in particular is a borrower who borrows certain finances from M/s Piramal Finance Limited in furtherance of execution of an agreement on 26-06-2017 for a sum of `360/- crores. A mortgage is created on 27-06-2017 by deposit of title deeds with M/s Piramal Finance Limited in respect of the petition schedule properties. On 03-07-2020, it appears that another loan agreement is executed which is a second loan agreement between the parties for an additional sum of `60/-
lakhs. On 12-01-2023, on the score that the 7th respondent has grossly defaulted in payment, recall notice is issued by M/s Piramal Finance Limited to the 7th respondent in respect of the loans advanced by it. M/s Piramal Finance Limited assigns its right, title, 7 benefits and interests to the petitioner on 24-08-2023. On 20-02-2024, a public advertisement is issued regarding potential purchase by a third party of various lands owned by the Ozone Group, on the properties mortgaged to the petitioner, with a view to adjust the sale proceeds against the debts owed by Ozone group, the 7th respondent. About 3 days later, the 1st respondent communicates to respondents 2 to 6/the State Government to attach petition schedule properties. The petitioner being aggrieved by the said communication to respondents 2 to 6 by the 1st respondent/Karnataka Real Estate Regulatory Authority is before this Court in the subject petition.
4. The learned senior counsel representing the petitioner would vehemently contend that the petition schedule properties are all mortgaged to the petitioner and the petitioner has the first charge over the properties, as the rights of the petitioner crystallized way back in the year 2017 in favour of M/s Piramal Finance Limited and all those rights are now assigned to the petitioner. Therefore, in terms of law, the petitioner has the first charge over the properties. The impugned notice/communication is 8 attacked on the score that it runs counter to the SARFAESI Act and also Real Estate (Regulation and Development) Act, 2016 (for short 'the Act'). He would seek quashment of the communication insofar as the petition schedule properties are concerned.
5. Per-contra, the learned counsel Sri Gowthamdev C. Ullal representing 1st respondent/RERA would refute the submissions to contend that the 7th respondent has grossly defaulted in giving loans to home buyers after collecting the entire amount from it and the orders of RERA are for refund of the amount along with interest.
Since refund has not come about it has to be recovered as arrears of land revenue. He would submit that no fault can be found with the action of the 1st respondent.
6. Two applications in I.A.Nos. 2 and 3 of 2024 are preferred by home buyers contending that their rights should not be put to jeopardy, as they have orders in their favour from RERA and if any order in favour of the petitioner is passed prejudicial to their interest, their rights would be defeated. To this, the learned senior counsel for the petitioner submits that no home buyers home will 9 be taken by the petitioner. The home buyers - impleading applicants need not worry about any their homes being taken away and they would be dispossessed. It is his submission that it can be recorded by this Court as an undertaking from the hands of the petitioner. In the light of the said undertaking which is recorded, the rights and interest of home buyers is protected.
7. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record.
8. The afore-narrated facts lie in a narrow compass. The story begins when the agreement came to be executed between Ozone group - respondents 7 to 11 as they are all of the same group and M/s Piramal Finance Limited for a loan of `360/- crores. Pursuant to the agreement, mortgage is created by deposit of title deeds with M/s Piramal Finance Limited in respect of petition schedule properties. It is created through the 12th respondent. Again on 14-12-2021 a second loan agreement is executed between M/s Piramal Capital and Housing Finance Limited which was 10 previously M/s Piramal Finance Limited and respondents 7 to 11 for an additional sum of `60/- crores. Respondents 7 to 11 default in re-payment. A recall notice is issued seeking the amount that was advanced to be repaid on 12-01-2023. The recall notice reads as follows:
"To Ozone Holdings Private Limited No. 51/7-1, Rathna Avenue Off Richmond Road, Civil Station Bangalore-560025 Subject: Recall Notice under (i) loan agreement dated 26 June 2017 amended and restated by the loan agreement dated 18 December 2019 and further amended and restated by the loan agreement dated 3 July 2020 for an amount of INR 360,00,00,000 (Indian Rupees Three Hundred and Sixty Crores); and (ii) loan agreement dated 14 December 2021 for an amount of INR 65,00,00,000 (Indian Rupees Sixty Five Crores) Ref: 1) Loan agreement dated 26 June 2017 entered into between Ozone Holdings Private Limited ("Borrower"), Mr. S. Vasudevan ("Personal Guarantor"), Ozone Urbana Infra Developers Private Limited ("OUIDPL"), Ozone Propex Private Limited ("OPPL") and Piramal Capital & Housing Finance Limited for an amount of INR 360,00,00,000 (Indian Rupees Three Hundred and Sixty Crores) ("Term Loan Facility") as amended and restated by the loan agreement dated 18 December 2019 and further amended and restated by the loan agreement dated 3 July 2020 (collectively "Term Loan Agreement");
2) Loan agreement dated 14 December 2021 entered into between the Borrower, OUIDPL and the Lender for an 11 amount of INR 65,00,00,000 (Indian Rupees Sixty Five Crores) ("ECGLS Facility") ("ECLGS Loan Agreement"); and
3) Event of default notice dated 17 August 2022 addressed by Vistra ITCL (India Limited) ("Security Trustee") to the Borrower, OUIDPL, OPPL and the Personal Guarantor.
Kind Attention: Mr. S Vasudevan Dear Sir We, Piramal Capital & Housing Finance Limited ("Lender"),) address you as under:
Unless otherwise defined in this letter, capitalised terms and expressions used in this letter shall have the meanings ascribed to them in the Term Loan Agreement and ECLGS Loan Agreement. The principles of construction set out in paragraph 2 of the First Schedule of the Term Loan Agreement and ECLGS Loan Agreement (Construction) apply to this letter, insofar as they are relevant, in the same way that they apply to the Term Loan Agreement and ECLGS Loan Agreement.
1. At the request of the Borrower, we had advanced the following credit facilities:
(a) the Term Loan Facility for a principal amount of INR 360,00,00,000 (Indian Rupees Three Hundred and Sixty Crores) in terms of the Term Loan Agreement; and
(b) the ECLGS Facility for a principal amount of INR 65,00,00,000 (Indian Rupees Sixty Five Crores) in terms of the ECLGS Loan Agreement (collectively "Facilities")
2. As per the Term Loan Agreement, the Borrower was obligated to make quarterly payments of the outstanding dues under the Term Loan Facility on the first day of each quarter commencing from 5 July 2021. Further, in accordance with the terms of the ECLGS Loan Agreement, the Borrower was 12 obligated to make monthly interest payments under the ECLGS Facility on the 5th day of every month.
3. However, the Borrower defaulted and failed to honour its payment obligations under the Facilities. In view of the same, the Security Trustee issued to the Borrower with a copy to OPPL, OUIDPL and the Personal Guarantor, an event of default notice dated 17 August 2022 ("EOD Notice"), in terms of which the Borrower was put to notice that an event of default had occurred in terms of Clause 19.1 of the Term Loan Facility Agreement and Clause 17.1 of the ECLGS Loan Agreement. Vide the EOD Notice, the Borrower was called upon to pay the outstanding amount of INR 42,78,11,032 (Indian Rupees Forty Two Crores Seventy Eight Lakhs Eleven Thousand Thirty Two) as on 5 July, 2022 under the Term Loan Facility and the outstanding amount of INR 65,33,568 (Indian Rupees Sixty Five Lakhs Thirty Three Thousand Five Hundred Sixty Eight) as on 5 August, 2022 under the ECLGS Facility within 7 (seven), failing which the Borrower was put to notice that we would be constrained to recall the loans and initiate legal proceedings including proceedings under the Insolvency and Bankruptcy Code, 2016 and Securitization and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002.
4. Regrettably, in spite of the occurrence of an event of default which is continuing even as on the date of this notice and our repeated requests to regularize payments under the account, the Borrower, has failed to cure the events of default and make payment of the overdue amounts in respect of the Facilities.
5. Accordingly, in accordance with clause 20.1.2 of the Term Loan Facility Agreement and Clause 18.1.2 of the ECLGS Facility Agreement, we hereby recall and accelerate the payment obligations under the Facilities and call upon the Borrower to repay the following outstanding amounts as mentioned in the below table along with further interest, penal interest, default interest and other charges as applicable within 5 (five) days from the receipt of this notice Facility Principal Interest Penal Interest Total 13 Amount Outstanding (in Outstanding (in (in INR Crores) Outstanding INR Crores) INR Crores) amount as on 12th January 2023 (in INR Crores) Term 3,34,60,67,163 1,67,42,96,153 3,91,21,147 5,05,94,84,463 Loan Facility ECLGS 65,00,00,000 4,44,93,836 69,44,93,836 Facility Total 3,99,60,67,163 1,71,87,89,989 3,91,21,147 5,75,39,78,299 TDS 33,47,71,124 Total due 6,08,87,49,424
6. In the event that the Borrower fails make payments in accordance with this Notice, we will be entitled to exercise all remedies directly or through the Security Trustee under the terms of the Term Loan Agreement, ECLGS Loan Agreement and the Applicable law, including but not limited to initiation of proceedings for enforcement of any security interest created in our favour in respect of the Facilities, against the Borrower, OIUDPL, OPPL and Personal Guarantor without any further notice. We hereby reserve our rights, and we may enforce such rights and/or remedies to their full extent at any time.
7. All the rights and remedies available to us and/or the Security Trustee under the Term Loan Agreement, the ECLGS Loan Agreement and other Finance Documents including under each security document of any nature provided in connection with your obligations under the Finance Documents or at law generally subsisting at the date of this letter or arising hereafter in respect of any Events of Default and/or any future breaches are hereby expressly reserved.
Yours truly For Piramal Capital & Housing Finance Limited 14 Sd/-
Authorized Signatory CC:
1) Vistra ITCL (India) Limited
No. 101, Victorian Avenue
13th Cross, 6th D Main
II Stage, Indiranagar
Bengaluru-560 008
2) Ozone Urbana Infra Developers Private Limited
No. 38, Ulsoor Road
Bengaluru-560042
3) Ozone Propex Private Limited
No. 38, Ulsoor Road
Bengaluru-560042."
The notice goes unheeded. The assets are then assigned by M/s Piramal Finance Limited to the hands of the petitioner, an asset reconstruction company. The assignment deed is executed in favour of the petitioner by M/s Piramal Capital and Housing Finance Limited. After execution of assignment deed, a notice of such assignment is issued to the 7th respondent by M/s Piramal Finance Limited. The notice reads as follows:
"NOTICE OF ASSIGNMENT Date: August 24, 2013 To:
OZONE HOLDINGS PRIVATE LIMITED ("Borrower") 15 38, Ulsoor Rd, Yellappa Garden Sivanchetti Gardens, Bengaluru Bangalore - 560042 Attn: Mr. S.Vasudev CC:
1. OZONE URBANA INFRA DEVELOPERS PRIVATE LIMITED 38, Ulsoor Rd, Yellappa Garden Sivanchetti Gardens, Bengaluru Bangalore-560042
2. OZONE PROPEX PRIVATE LIMITED 38, Ulsoor Rd, Yellappu Garden Sivanchetti Gardens, Bengaluru Bangalore-560042
3. MR. S.VASUDEVAN G-2, 34, Sona Palace, Norris Road, Richmond Town Bengaluru-560025
4. VISTRA ITCL (INDIA) LIMITED (as the Security Trustee) No. 101, Victorian Avenue, 13th Cross, 6th D Main, II Stage, Indiranagar, Bengaluru-560008 Re: Notice of assignment of debt by Piramal Capital & Housing Finance Limited (the "PCHFL" or the "Assignor") to ACRE (acting in its capacity as trustee of ACRE 140 Trust) (the "Assignee")
1. We refer to the rupee loan agreement dated July 03, 2020 and ECLGS loan agreement dated December 14, 2021 as amended from time to time ("Finance Documents") entered into by, inter alios, PCHFL with the Borrower and the other Facility Documents (as defined in the Finance Documents), whereby the Borrower have availed the rupee facility of Rs. 360,00,00,000/- (Rupees Three Hundred Sixty Crore only) and Rs. 65,00,00,000/- (Rupees Sixty Five Crore only), respectively (collectively, the "Rupee Facility").16
2. PCHFL, in its capacity as a Rupee Lender to the Borrower has transferred by way of assignment, the Rupee Facility, including all the rights, title, benefits and interest thereto, along with the Security Interest and the Receivables in relation to the same (collectively, the "PCHFL's Financial Assets") to the Assignee.
3. Pursuant to an assignment agreement dated on or about the date hereof, the Assignee shall be considered as the Rupee Lender to the Borrower for the purposes of PCHFL's Financial Assets and the Facility Documents and the Assignee shall hereafter be deemed to be the full and absolute legal and beneficial owner, and the only person legally entitled to the Rupee Facility or any part thereof, free from any or all encumbrances, and to recover and receive all amounts due thereunder.
4. Upon the assignment of the Rupee Facility pursuant to the aforesaid assignment agreement, all payments and repayments in respect of the Rupee Facility shall be made to the Assignee and all notices, communication or information with respect to PCHFL's Financial Assets, pursuant to or in connection with the Facility Documents shall hereafter he sent or delivered to the Assignee at the address mentioned herein below.
ACRE (as the Assignee) Attention: Mr. Amit Kariwala Address: Asset Care and Reconstruction Enterprise Limited ("ACRE") Unit No. 502, C Wing, One BKC, Plot No. C-66, G-Block, Bandra Kurla Complex, Mumbai-400051 Tel No: 98339 74797 Capitalised terms used in this letter, but not defined herein, shall have the meaning ascribed to such terms under the Finance Documents.
Yours faithfully, 17 For and on behalf of PIRAMAL CAPITAL & HOUSING FINANCE LIMITED Sd/-
(Authorised Signatory)"
It is then the petitioner issues a public notice seeking to sell the petition schedule properties on 20-02-2024. Immediately thereafter, the 1st respondent issues a communication to the Deputy Commissioner to recover the amount that is to be paid to the applicants before RERA, as arrears of land revenue from the properties of the 7th respondent, which included the petition schedule properties.
9. The issue now is, who would have first charge over the properties, whether on selling them as arrears of land revenue by the State or the petitioner who is the secured creditor. Certain provisions of the SARFAESI Act are germane to be noticed for resolution of the lis. Section 26E and 35 of the SARFAESI Act would lend support for resolution of the lis. They read as follows:
"26-E. Priority to secured creditors.-- Notwithstanding anything contained in any other law for the time being in force, after the registration of security 18 interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Explanation.--For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.
... ... ...
35. The provisions of this Act to override other laws.--The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
(Emphasis supplied) Section 26E mandates that notwithstanding anything contained in any other law for the time being in force, after registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the any other Authority. Section 35 mandates that the provisions of the SARFAESI Act will have a overriding effect notwithstanding anything inconsistent therewith contained in any other law. Therefore, the security secured under the SARFAESI Act will have priority over other charges by any other 19 Authority. The impugned communication is in furtherance of powers conferred under Section 40 of the Act. Section 40 of the Act reads as follows:
"40. Recovery of interest or penalty or compensation and enforcement of order, etc.--(1) If a promoter or an allottee or a real estate agent, as the case may be, fails to pay any interest or penalty or compensation imposed on him, by the adjudicating officer or the Regulatory Authority or the Appellate Authority, as the case may be, under this Act or the rules and regulations made thereunder, it shall be recoverable from such promoter or allottee or real estate agent, in such manner as may be prescribed as an arrears of land revenue.
(2) If any adjudicating officer or the Regulatory Authority or the Appellate Tribunal, as the case may be, issues any order or directs any person to do any act, or refrain from doing any act, which it is empowered to do under this Act or the rules or regulations made thereunder, then in case of failure by any person to comply with such order or direction, the same shall be enforced, in such manner as may be prescribed."
(Emphasis supplied) Sub-section (1) of Section 40 mandates that if a promoter or an allottee fails to pay interest or penalty or compensation imposed on him, the same shall be recoverable from such promoter or allottee in such manner as may be prescribed as arrears of land revenue.
Therefore, the manner in which the amount is to be recovered under the Land Revenue Act is a general law and the charge 20 created under the SARFAESI Act has overriding effect on such general law in terms of Sections 26E and 35 of the SARFAESI Act supra. It becomes apposite to refer to the judgment of the Division Bench of High Court of Bombay in somewhat similar circumstance in the case of IDBI TRUSTEESHIP SERVICES LIMITED v.
DISTRICT COLLECTOR1, where the property had been put to auction under the Maharashtra Land Revenue Code, pursuant to a direction by M-RERA under Section 40(1) of the Act. The Division Bench has held as follows:
"20. Respondent Nos. 10 to 15 were purchasers of flats in a real estate project of Respondent No. 4 called Padmanabh Phase - 1. It appears that since Respondent No. 4 failed to deliver flats to the Purchasers within time, Respondent Nos. 10 to 15 filed complaints before Respondent No. 9 under Section 18 of RERA, seeking to exit the project and for refund of the purchase consideration paid by them with interest. Respondent No. 9 by its Orders dated 14th and 27th February 2018 held in favour of Respondent Nos. 10 to 15 and directed Respondent No. 4 to refund the purchase consideration paid by them with interest. Respondent No. 4 did not challenge those Orders. They were therefore put to execution. Under Section 40(1) of RERA read with Rule 3 of the Maharashtra Real Estate (Regulation and Development) (Recovery of Interest, Penalty, Compensation, Fine Payable, Forms of Complaints and Appeal etc.) Rules, 2017, the compensation and interest imposed on Respondent No. 4 by Respondent No. 9 is to be recovered as arrears of land revenue in the manner 1 2021 SCC OnLine BOM 929 21 provided in the MLRC. The relevant provisions in this regard are as follows:
Section 40 (1) of RERA:
"40. Recovery of interest or penalty or compensation and enforcement of order, etc. - (1) If a promoter or an allottee or a real estate agents as the case may be, fails to pay any interest or penalty or compensation imposed on him, by the adjudicating officer or the Regulatory Authority or the Appellate Authority, as the case may be, under this Act or the rules and regulations made thereunder, it shall be recoverable from such promoter or allottee or real estate agents in such manner as may be prescribed as an arrears of land revenue."
Rule 3 of the Maharashtra Real Estate (Regulation and Development) (Recovety of Interest, Penalty, Compensation, Fine Payable, Forms of Complaints and Appeal etc.) Rules, 2017:
"3. Manner of recovery of interest, penalty and compensation. - Any interest or penalty or compensation imposed on a promoter or an allotee or a real estate agent shall be recoverable under section 40 of the Act, from such promoter or allotee or real estate agent, as the case may be, in the same manner as applicable in respect of land revenue as provided in the Maharashtra Land Revenue Code, 1966 (Mah XLI of 1966)."
21. The above provisions make it clear that the compensation and interest imposed upon a promoter under RERA is recoverable in the same manner as arrears of land revenue under the MLRC. It is in furtherance of these provisions that Respondent No. 9 issued a Recovery Warrant to Respondent No. 1 to recover the amounts awarded by it to Respondent Nos. 10 to 15 from Respondent No. 4 in the same manner as arrears of land revenue. Respondent Nos. 1 and 2 sold the said Property by public auction in furtherance of the same. Therefore, the involvement of the revenue authorities under the MLRC in execution of orders of compensation and interest passed by Respondent No. 9, finds its genesis in Section 40 of RERA.
2222. One of the central areas of controversy involved in this Petition is the priority of charges held over the said Property. Is it the Petitioner that has priority over the said Property by virtue of it being a registered Mortgagee in respect of the same, as contended by the Counsel for the Petitioner, or is it the State Government seeking to recover the compensation and interest due by Respondent No. 4 to Respondent Nos. 10 to 15 in the same manner as arrears of land revenue, that has priority, as contended by the learned Advocate on behalf of Respondent Nos. 1 and 2 and the learned Counsel on behalf of Respondent Nos. 3 and 3A. We think that the answer to this lies in Section 169 of the MLRC, which reads thus:
"169. Claims of State Government to have precedence over all others. - (1) The arrears of land revenue due on account of land shall be a paramount charge on the land and on every part thereof and shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage, judgement-decree, execution or attachment, or otherwise howsoever, against any land for the holder thereof (2) The claim of the State Government to any monies other than arrears of land revenue, but recoverable as a revenue demand under the provisions of this Chapter shall have priority over all unsecured claims against any land or holder thereof."
23. The aforesaid Section makes a clear distinction between actual arrears of land revenue due on account of land, and amounts other than arrears of land revenue which are recoverable as arrears of land revenue under the MLRC. In the former case, the arrears of land revenue due on account of land, amount to a paramount charge on the land in question, which shall have precedence over all other debts. However, in the latter case, the claim of the State Government to monies recoverable as other than arrears of land revenue but in the same fashion, have priority only over unsecured claims and not over secured debts. Land revenue has been defined in Section 2(19) of the MLRC to mean, "all sums and payments, in money received or legally claimable by or on behalf of the State Government from any person on account of any land or 23 interest in or right exercisable over land held by or vested in him, under whatever designation such sum may be payable and any cess or rate authorised by the State Government under the provisions of any law for the time being in force; and includes premiumj rent, lease money, quitj rentj judi payable by a inamdar or any other payment provided under any Act, rule, contract or deed on account of any land;" Therefore, it is clear that land revenue means amounts payable to the State Government on account of land. In the present case, we are of the opinion that the amounts of compensation and interest which have been awarded by Respondent No. 9 against Respondent No. 4 and in favour of Respondent Nos. 10 to 15 cannot be said to be actual arrears of land revenue. They are not dues payable to the State Government which arise out of any particular land. They are not even claims of the State Government. They are dues payable by a promotor of a real estate project to the flat purchasers under orders passed under the provisions of RERA. The mode of recovery of such amounts is the same as if they were arrears of land revenue under the MLRC. Hence these amounts clearly cannot be governed by Section 169(1) of the MLRC. Therefore, the claims of Respondent Nos. 10 to 15 as awarded by Respondent No. 9 cannot have priority over the properties of Respondent No. 4 in derogation of the Petitioner's secured interest therein. Having held that the Petitioner is a secured creditor of Respondent No. 4 and a Mortgagee in respect of the said Property under the Debenture Trust Deed, we find that the Petitioner has priority in respect of the said Property over the claims of Respondent Nos. 10 to 15. In other words, the Petitioner is entitled to have its debts satisfied out of the said Property in priority over Respondent Nos. 10 to
15.
... ... ...
55. Sections 181 and 182 of the MLRC, authorize the Collector to attach a defaulter's immovable property and take it under his management. The procedure for effecting sale can be found under Sections 192 and 193 of the MLRC. It is clear from these provisions that a proclamation of sale has to be issued, specifying the time and place of the sale. The proclamation is to be made by a specific mode, i.e. customary mode by beat of drum at the place where the immovable 24 property is situated. Moreover, under Section 193 of the MLRC, a written notice of the intended sale along with the time and place is to be affixed at the Offices of the Collector and the Tehsildar of the relevant place. Every auction sale must be preceded by an order of attachment of said property. These provisions are mandatory. The Learned Counsel for Respondent Nos. 1 and 2 failed to show us that either due proclamation was issued or the said Property was attached prior to the auction sale being conducted.
56. During the course of making submissions, the revenue authorities relied upon the Proclamation dated 15th October 2018 issued in Form No. 3 in terms of Rule 9 of the MRLR Rules. This in fact, was a form for attachment of movable property. Be that as it may, it does not bear reference to the property which came to be attached. There appears to be a vague reference of land bearing 'Survey No. 94 and others' that too in the context of land in respect of which there are arrears of land revenue. There is absolutely no mention of the said Property. On 23rd July 2018, the Additional Tehsildar issued a Written Notice of Attachment in Form No. 2 as per Rule 6 of the MRLR Rules. However, the same does not bear reference to the said Property. Another Notice issued by the Additional Tehsildar in the month of September 2018 equally does not bear a specific reference to the said Property. By no stretch of imagination can the same be termed to be an attachment of the said Property.
57. As already held above, the sale was confirmed within a period of thirty days of the auction being held, contrary to the provisions of Section 208 of the MLRC. Moreover, the auction sale was held within two days of the Public Notice in respect of the same being issued on 19th February 2019. The same is contrary to the mandatory 30 day period mentioned in Section 194 of the MLRC. It is thus, evident that the mandatory provisions of the MLRC are not followed while conducting the auction sale.
58. The reliance placed by the learned Counsel for Respondent Nos. 3 and 3A on the Judgments of the Supreme Court in the cases of Gurjonginder Singh v. Jaswant Kaur (supra) and Janakraj v. Gurdial Singh (supra) are distinguishable and not applicable in the facts of our case. They were passed in the context of sales made in execution of 25 decrees passed under the Civil Procedure Code, 1908 and not in the context of sales under the provisions of the MLRC. Moreover, contrary to the submission of the learned Counsel for Respondent Nos. 3 and 3A, these Judgments cannot be cited to propagate an absolute proposition that even if there is any procedural irregularity found in the auction process, the interests of the auction purchasers are required to be protected. If such a submission is to be accepted, then no concluded auction sale could be interfered with at the pleasure of the auction purchaser, even if the same is in the teeth of mandatory legal provisions, as is the case in the present Petition.
59. The statutory requirements under Chapter XI of the MLRC bear a specific purpose. The mandatory 30 day period between the public announcement of the auction sale and the holding of the auction gives time to the defaulter to comply with his obligations or for anybody on his behalf to come forward to his rescue. That apart, it gives time to any other interested party to lay claim in respect of the property put up for auction, such as the Petitioner in the present case. It gives time to interested members of the public to assess their options and participate in the auction with sufficient time at their disposal. It is meant to make the process transparent and above reproach. The conclusion of the sale by Respondent Nos. 1 and 2 without any proclamation or attachment of the same, and within forty-eight hours of the public announcement, betrays the process to be murky and anything but transparent. The same is in the teeth of mandatory legal provisions of the MLRC and the same vitiates the sale.
60. In view of our findings recorded above, we find that the auction sale of the said Property, the conclusion of the same in favour of Respondent Nos. 3 and 3A and the issuance of the Sale Certificate dated 11th March 2019 in favour of Respondent Nos. 3 and 3A are void and legally unsustainable. We accordingly exercise our jurisdiction under Article 226 of the Constitution of India to quash and set aside the same. The Petition is made absolute in terms of prayer clauses A and B, which read as follows:
26"A. That this Hon'ble Court be pleased to declare that the entire exercise of conducting auction of the Subject Property is fraudulent and nan-est and quash and set aside the same; B. that this Hon'ble Court be pleased to call for the records pertaining to the Impugned Order and after considering the legality and validity thereof be pleased to issue of writ of certiorari or any other writ, order or direction in the nature thereof quashing and setting aside the sale and Impugied Order dated February 21, 2019, being Exhibit C hereto;"
61. Since we have set aside the auction sale of the said Property, we direct that the sale proceeds deposited by Respondent Nos. 3 and 3A be refunded to it. The same are lying deposited with Respondent No. 9 under Orders passed in this Petition. We direct Respondent No. 9 to refund the amount of Rs. 1,66,40,000/- with accrued interest to Respondent Nos. 3 and 3A. We sympathize with the Respondent Nos. 10 to 15 flat purchasers; however, their remedy lies elsewhere.
(Emphasis supplied) The Division Bench of the High Court of Bombay holds that the dues of the secured creditor would prevail over the property being brought to sale pursuant to direction under Section 40 r/w the provisions of the Land Revenue Code therein. The Apex Court, in a subsequent judgment, in the case of PUNJAB NATIONAL BANK v.
UNION OF INDIA2 interpreting Section 26-E and 35 of the SARFAESI Act, has held as follows:
"42. Secondly, coming to the issue of priority of secured creditor's debt over that of the Excise 2 (2022) 7 SCC 260 27 Department, the High Court in the impugned judgment has held [Punjab National Bank v. Union of India, 2008 SCC OnLine All 1576] that "In this view of the matter, the question of first charge or second charge over the properties would not arise". In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise.
43. A Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)], while dealing with a similar issue, has held that :
(SCC OnLine Mad paras 25-26) "25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs.
26. In the light of the above discussion, we conclude, '(i) Generally, the dues to Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts.
(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.
(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise 28 Department cannot have precedence over the claim of secured creditor viz. the petitioner Bank.
(iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts.' In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein."
(emphasis in original and supplied)
44. This Court, while dismissing Civil Appeal No. 3627 of 2007 filed against the judgment [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] of the Full Bench, vide order dated 12-2-2009 [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] held as under: (UTI Bank case [CCE v. UTI Bank Ltd., 2009 SCC OnLine SC 1950] , SCC OnLine SC para
1) "1. Having gone through the provisions of the Securitisation Act, 2002, in the light of the judgment of the Division Bench of this Court in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent Bank. In the circumstances, the civil appeal is dismissed with no order as to costs"
(emphasis supplied)
45. Hence the reasoning given by the High Court stands strong and has been affirmed by this Court.
46. This Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694] , wherein the question raised was 29 whether the recovery of sales tax dues (amounting to crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, observed as under : (SCC p. 703, para
10) "10. However, the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a secured creditor."
(emphasis supplied)
47. Further, in Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. [Central Bank of India v. Siriguppa Sugars & Chemicals Ltd., (2007) 8 SCC 353 : (2007) 2 SCC (L&S) 919], while adjudicating a similar matter, this Court has held as under : (SCC pp. 360-61, para 17) "17. Thus, going by the principles governing the matter propounded by this Court there cannot be any doubt that the rights of the appellant Bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant Bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant Bank. In view of the fact that the goods were validly pawned to the appellant Bank, the rights of the appellant Bank as pawnee cannot be affected by the orders of the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the 30 workmen in the absence of a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights of the pawnee of the goods."
(emphasis supplied)
48. The Bombay High Court in Krishna Lifestyle Technologies Ltd. v. Union of India [Krishna Lifestyle Technologies Ltd. v. Union of India, 2008 SCC OnLine Bom 137] , wherein the issue for consideration was "whether tax dues recoverable under the provisions of the Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" held that : (SCC OnLine Bom paras 19-20) "19. Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of the SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues.
20. Insofar as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. CCE [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared [Ed. : The reference appears to be to Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694] by the Supreme Court in the matter of priority of State debts as already discussed and the provision of Section 35of the SARFAESI Act we are in respectful agreement with the view taken by the 31 Madras High Court [UTI Bank Ltd. v. CCE, 2006 SCC OnLine Mad 1182 (FB)] ."
(emphasis supplied)
49. An SLP (No. 12462/2008) against the above judgment of the Bombay High Court stands dismissed by this Court on 17-7-2009 [Union of India v. Krishna Life Style Technologies Ltd., 2009 SCC OnLine SC 1952] by relying upon the judgment in Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , wherein the question involved was "Whether realisation of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under :
(SICOM case [Union of India v. SICOM Ltd., (2009) 2 SCC 121] , SCC p. 126, para 9) "9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject.
Crown debt means the 'debts due to the State or the King; debts which a prerogative entitles the Crown to claim priority for before all other creditors'. [See Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the Crown debt which is an unsecured one."
(emphasis supplied)
50. In view of the above, we are of the firm opinion that the arguments of the learned counsel for the appellant, on Issue 2, hold merit. Evidently, prior 32 to insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, there was no provision in the 1944 Act inter alia, providing for first charge on the property of the assessee or any person under the 1944 Act. Therefore, in the event like in the present case, where the land, building, plant, machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in Sections 2(1)(zc) to (zf) of the SARFAESI Act, 2002, read with provisions contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a first charge on the secured assets. Moreover, Section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11-E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002.
51. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India v. SICOM Ltd. [Union of India v. SICOM Ltd., (2009) 2 SCC 121] in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, will have an overriding effect on the provisions of the 1944 Act.
52. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of acceptance. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders 33 that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with.
53. Further, the contention that in the present case, the confiscation proceedings were initiated almost 8-9 years prior to the charge being created in respect of the very same properties in favour of the bank is also inconsequential. The fact that the charge has been created after some time period has lapsed post the initiation of the confiscation proceedings, will not provide legitimacy to a confiscation order that is not rooted in any valid and existing statutory provision.
54. To conclude, the Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173-Q(2) of the Central Excise Rules, 1944 on 26-3-2007 and 29-3-2007 for confiscation of land, buildings, etc. when on such date, the said Rule 173- Q(2) was not in the statute books, having been omitted by a Notification dated 12-5-2000. Secondly, the dues of the secured creditor i.e. the appellant Bank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11-E in the Central Excise Act, 1944 w.e.f. 8-4-2011, the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act, 1944."
(Emphasis supplied) The Apex Court was considering whether the dues of the State i.e., the Central Excise therein, would prevail over the rights of the secured creditor. The Apex Court holds that the rights of the secured creditor under the SARFAESI Act, would prevail over the 34 rights of the State qua its dues, interpreting the provisions of the SARFAESI Act, quoted supra.
10. Therefore, the communication seeking to sell the petition schedule property and recover the compensation or interest awarded by RERA, as arrears of land revenue, cannot take away the right of a secured creditor, presently the petitioner, who is an assignee from the hands of the original secured creditor. The assignment of rights of secured creditor to an asset reconstruction Company is also statutorily recognized under Section 5 of the SARFAESI Act. It reads as follows:
"5. Acquisition of rights or interest in financial assets.--(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any asset reconstruction company may acquire financial assets of any bank or financial institution,--
(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or
(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.35
(1-A) Any document executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of Section 8-F of the Indian Stamp Act, 1899 (2 of 1899):
Provided that the provisions of this sub-section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.
(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the asset reconstruction company, such asset reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.
(2-A) If the bank or financial institution is holding any right, title or interest upon any tangible asset or intangible asset to secure payment of any unpaid portion of the purchase price of such asset or an obligation incurred or credit otherwise provided to enable the borrower to acquire the tangible asset or assignment or licence of intangible asset, such right, title or interest shall vest in the asset reconstruction company on acquisition of such assets under sub-section (1).
(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the asset reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, asset reconstruction company, as the case may be, had been a party thereto or as if they had been 36 issued in favour of asset reconstruction company, as the case may be.
(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the asset reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the asset reconstruction company, as the case may be.
(5) On acquisition of financial assets under sub-section (1), the asset reconstruction company, may with the consent of the originator, file an application before the Debts Recovery Tribunal or the Appellate Tribunal or any court or other Authority for the purpose of substitution of its name in any pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the asset reconstruction company in such pending suit, appeal or other proceedings."
Section 5 commences with a non-obstante clause reading notwithstanding anything contained in any agreement or any law in force, any asset reconstruction company may acquire financial assets of any Bank or financial institution. Therefore, the petitioner coming into the shoes of the original secured creditor is statutorily recognized and as such, the first charge that is created is in favour of the petitioner, at a point in time when neither the home buyers 37 were present nor the applications were before the RERA. It was at the beginning. In law, the petitioner's debt has the first charge over the petition schedule properties. Therefore, it is made clear that the impugned communication insofar as it enlists the petition schedule properties is unenforceable against the petitioner, qua the assignment to it. Beyond the assignment by the original secured creditor to the petitioner, the petitioner would have no right to encroach upon the rights of others beyond the mortgage. It is further made clear that creation of charge being held as a prior charge, it would not in any way dent the rights of the applicants/home buyers who are said to be home buyers from the hands of the 7th respondent. The undertaking of the learned senior counsel that the petitioner would not proceed against any of the applicants/home buyers' properties is placed on record as an undertaking, to which the petitioner would be bound. Therefore, in the peculiar facts of this case, I deem it appropriate to obliterate the communication/notice insofar as it enlists the petition schedule properties.
3811. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed in part.
(ii) The impugned communication/notice dated 23-02-2024 issued by the 1st respondent stands quashed, only insofar as it enlists the petition schedule properties that are mortgaged to the petitioner qua the assignment.
(iii) The petitioner would be entitled to all consequential benefits that would flow from the quashment of the impugned communication/notice.
Consequently, pending applications if any, also stand disposed.
Sd/-
JUDGE bkp CT:SS