DRAT held that the priority of the secured creditor's charge under the SARFAESI Act prevailed over the claims of a subsequent purchaser of the mortgaged property.
The Debts Recovery Appellate Tribunal (DRAT), Allahabad Bench headed by Justice R.D. Khare (Chairperson) reviewed a regular appeal and held that the bank's first charge over a mortgaged property, created prior to its subsequent sale, takes precedence under the SARFAESI Act, and a subsequent purchaser has no locus standi to challenge recovery proceedings initiated by the secured creditor.
The appellant filed an appeal under Section 18 of the SARFAESI Act, 2002, challenging the orders dated September 25, 2017, and August 6, 2018, by the DRT, which dismissed his securitization application and subsequent review petition. The appellant had purchased property No. 551Jha/19, Ram Nagar, Kanpur Road, Alambagh, Lucknow, from one of the borrowers, Shakuntala Kumari, through a sale deed executed on February 22, 2010. The property had been mortgaged by the borrowers, Sanjay Kumar Gohari and Shakuntala Kumari, to secure a loan sanctioned by the respondent bank on July 29, 2005. Due to non-repayment, the property was sold via auction under the SARFAESI Act, and a sale certificate was issued on May 9, 2013.
The appellant argued that he was neither a borrower nor a guarantor and had no obligation to the bank. He contended that the property he purchased was different from the mortgaged property. The bank, however, asserted that the property mortgaged in 2005 and later sold to the appellant in 2010 was the same and that the first charge on the property created in favour of the bank prevailed over the appellant's claims. The bank further highlighted that the appellant, as a subsequent purchaser, had no locus standi to challenge the proceedings under the SARFAESI Act.
The DRAT analyzed the evidence, including the documents related to the creation of the mortgage and the sale deed executed in favour of the appellant. It concluded that the property purchased by the appellant was indeed the mortgaged property and that the bank had the first charge, created much before the appellant’s purchase. The Tribunal dismissed the appellant’s argument of discrepancy in property identification, holding it as an inadvertent clerical error rather than an illegality. The DRAT emphasized that the principle of priority of charges applied, granting the bank superior rights over the mortgaged property.
The Tribunal found no merit in the appellant's contentions and upheld the orders of the DRT. It ruled that the respondent bank was entitled to recover its dues through the sale of the property. Consequently, the appeal was dismissed with no order as to costs, affirming the bank's right to enforce its security interest under the SARFAESI Act.
Mr. Swayambhoo Chandranshul, Advocate represented the Appellant.
Mr. Maneesh Mehrotra, Advocate appeared for Respondent No. 2/Bank.
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