2020 (8) TMI 853 - HC - Indian Laws

Attachment of Bank Property - execution of decree by attachment and sale of the property namely land and building and premises with all fixtures and fittings, machineries, electrical installations, etc. - seeking reduction of upset price from One crore to Forty lakhs - HELD THAT - On the admitted facts, this Court is of the view that the bank's right to proceed against the property is protected against any one who has no prior right. In this case, the order of attachment was much after the mortgage and therefore, is not binding and the bank can proceed against the property as held by the Hon'ble Division Bench of this Court. Order 38 Rule 10 of C.P.C. protects the rights of the prior mortgagee and therefore, any attachment after the mortgage cannot affect the rights of the bank which existed prior to the attachment. The bank is not a party when the order of attachment was passed by the executing Court in 2008. It is true that the order of attachment will be subject to the bank's right to proceed against the property based on the mortgage. The order passed by the learned Principal Subordinate Judge in raising the attachment to enable the bank to proceed against the property is perfectly in order. However, the order of attachment will hold good as it is valid otherwise and it is enforceable subject to the mortgage rights of the bank to proceed against the property for recovery of its dues - The order of attachment cannot affect the bank or the auction purchaser to get absolute title after the sale at the instance of the bank is confirmed. Petition dismissed.

Summary

Issues Involved:
1. Execution of a money decree.
2. Attachment and sale of the judgment debtor's property.
3. Priority of secured creditor's rights over the attached property.
4. Validity and precedence of mortgage created by the bank.
5. Rights of the decree-holder vis-à-vis the secured creditor.

Detailed Analysis:

1. Execution of a Money Decree:
The revision petitioner filed a suit in O.S.No.85 of 1979 and obtained a decree for recovery of ?1,75,806/- with interest at 20% from the date of the plaint. The decree was passed on 10.01.1986. Subsequently, the petitioner filed an execution petition (E.P.No.121 of 1986) to enforce the decree by attaching and selling the property of the judgment debtor, M/s. Rukmani Mills.

2. Attachment and Sale of the Judgment Debtor's Property:
The property, including land, building, fixtures, machineries, and electrical installations, was attached, and a sale proclamation was issued with an upset price of ?1,00,00,000/-. The petitioner later sought to reduce the upset price to ?40,00,000/- and filed E.A.No.504 of 2006 and E.A.No.505 of 2006 to bid in the auction and adjust the decree amount.

3. Priority of Secured Creditor's Rights Over the Attached Property:
The first respondent, a nationalized bank, claimed that it had granted credit facilities to M/s. Rukmani Mills and created an equitable mortgage on 18.08.1980 over the property by deposit of title deeds. The bank initiated proceedings under the SARFAESI Act and took possession of the property on 15.10.2008. The bank argued that as a secured creditor, it had priority over the property, which was mortgaged before the attachment by the petitioner.

4. Validity and Precedence of Mortgage Created by the Bank:
The lower court and the High Court were convinced that an equitable mortgage was created on 18.08.1980. The bank had sold the movable properties within the mill premises based on the mortgage and hypothecation agreement. The attachment by the petitioner occurred long after the mortgage, thus the bank, as a secured creditor, had an indefeasible right to proceed against the mortgaged properties.

5. Rights of the Decree-Holder vis-à-vis the Secured Creditor:
The petitioner argued that the SARFAESI proceedings initiated by the bank were subsequent to the court's attachment and therefore should not prevail over the attachment. However, the court held that the bank's mortgage, created before the attachment, took precedence. The court cited the Division Bench judgment in W.P. (MD)No.5916 of 2020, which held that a mortgagee's right, secured prior to attachment, is protected and not affected by subsequent attachment.

Conclusion:
The High Court upheld the lower court's decision, affirming the bank's right to proceed against the property. The order of attachment was declared subject to the equitable mortgage in favor of the bank. The petitioner's right to proceed against the remaining sale proceeds after the bank's dues were clarified. The court partly allowed C.R.P.(MD)No.881 of 2015, setting aside the dismissal of E.P.No.121 of 1986 and staying the execution proceedings until the bank realized its dues. The petitioner could proceed against any remaining assets or sale proceeds thereafter.