Bombay High Court held that the lender bank's registration of Its mortgage with the CERSAI has priority over the property as compared to the DCST under the SARFAESI Act.
The Division Bench of the Bombay High Court comprising Justice B.P. Colabawalla and Justice Somasekhar Sundaresan was hearing a petition filed by an auction purchaser and observed that the Lender Bank's prior registration of its mortgage with the Central Registry of Securitisation and Security Interest of India (CERSAI) granted it a superior claim over the property compared to the sales tax authorities, who failed to register their attachment.
The High Court allowed Mr. Purushottam Prabhakar Chavan’s Writ Petition, challenging the attachment of his Mumbai apartment by the sales tax authorities. The Court concluded that Chavan, who purchased the apartment through an auction conducted by Encore Asset Reconstruction Company (ARC), held a clear and marketable title to the property, free from encumbrances claimed by the sales tax authorities.
The dispute originated from credit facilities sanctioned by Kallappanna Ichalkaranji Janta Sahakari Bank Ltd. (the Lender Bank) to various firms. These loans were secured by mortgages on properties, including the Walkeshwar Flat in Mumbai. When the loans defaulted, the Lender Bank invoked the SARFAESI Act to enforce its security interests. The Walkeshwar Flat, originally owned by Mrs. Praffulata Yeshwant Shah, was mortgaged to the Lender Bank but later became subject to sales tax attachment due to tax dues by the borrowing firms.
The Court ruled that the priority of security interests, established under Chapter IVA of the SARFAESI Act, takes precedence over other claims. Since the Lender Bank registered its mortgage with the Central Registry of Securitisation and Security Interest of India (CERSAI) before the sales tax authorities issued their attachment order, the bank’s claim had priority. The Court emphasized that the sales tax authorities failed to register their attachment with CERSAI, further diminishing their claim.
Consequently, the Court quashed the sales tax attachment on the Walkeshwar Flat, affirming that the auction sale to Chavan provided him with a clear title. The sales tax authorities were directed to pursue other assets of the defaulting firms for tax recovery, without affecting Chavan’s ownership of the apartment.
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